<PAGE>
File No. 811-8947
As filed with the Securities and Exchange Commission
on March 9, 1999
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM N-8B-2
Registration Statement of Unit Investment Trust Pursuant to
Section 8(b) of the Investment Company Act of 1940
-------------------
NASDAQ-100 TRUST, SERIES 1 (formerly
known as the Nasdaq GOLD Trust, Series 1)
(AND SUBSEQUENT AND SIMILAR SERIES
OF THE NASDAQ-100 TRUST)
----------------
{ X } Not the issuer of periodic payment plan certificates.
{ } Issuer of periodic payment plan certificates.
I. ORGANIZATION AND GENERAL INFORMATION
1. (a) Furnish name of the trust and the Internal Revenue Service Employer
Identification Number. (According to security designation or
otherwise, if the trust does not have or does not transact
business under any other designation).
NASDAQ-100 TRUST, SERIES 1 (the "Trust") I.R.S. Employer's
Identification Number-52-2144264
(b) Furnish title of each class or series of securities issued by the
trust.
CERTIFICATE OF BENEFICIAL INTEREST
--evidencing--
an undivided interest
--in--
NASDAQ-100 TRUST, SERIES 1
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2. Furnish name and principal business address and ZIP Code and the
Internal Revenue Service Employer Identification Number of each sponsor
of the trust.
NASDAQ-AMEX INVESTMENT PRODUCT SERVICES, INC.
c/o THE NASDAQ STOCK MARKET, INC.
1735 K Street, N.W.
Washington, D.C. 20006
I.R.S. Employer's Identification No. - 52-2115391
3. Furnish name and principal business address and ZIP Code and the
Internal Revenue Service Employer Identification Number of each
custodian or trustee of the trust indicating for which class or series
of securities each custodian or trustee is acting.
THE BANK OF NEW YORK
101 Barclay Street
New York, NY 10286
(For Nasdaq-100 Trust, Series 1)
I.R.S. Employer's Identification No. 135-160382
The Bank of New York is acting as the sole trustee for the
Nasdaq-100 Trust.
4. Furnish name and principal business address and ZIP Code and the
Internal Revenue Service Employer Identification Number of each
principal underwriter currently distributing securities of the trust.
ALPS Mutual Funds Services, Inc.
370 17th Street
Suite 3100
Denver, CO 80202
I.R.S. Employer's Identification No. 84-0996383
5. Furnish name of state or other sovereign power, the laws of which
govern with respect to the organization of the trust.
State of New York
6. (a) Furnish the dates of execution and termination of any
indenture or agreement currently in effect under the terms
of which the trust was organized and issued or proposes to
issue securities. (If individual indentures or agreements
are entered into with security holders, so state and furnish
the date of the first such indenture or agreement.)
Reference is made to the statements in Exhibit D
filed herewith under the captions "The Trust" and
"Termination" in the Prospectus summary and under the
captions "The Trust" and "Administration of the
Trust-- Termination."
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(b) Furnish the dates of execution and termination of any
indenture or agreement currently in effect pursuant to which
the proceeds of payments on securities issued or to be issued
by the trust are held by the custodian or trustee. (If this
indenture or agreement is the same as set forth in Item 6(a),
so state.)
Same as set forth in Item 6(a).
7. Furnish in chronological order the following information with respect
to each change of name of the trust since January 1, 1930. If the name
has never been changed, so state.
August 7, 1998 - Nasdaq GOLD(sm) Trust
January 28, 1999 - Nasdaq-100(sm) Trust
8. State the date on which the fiscal year of the trust ends.
The fiscal year of the trust is the year ending September 30.
MATERIAL LITIGATION
9. Furnish a description of any pending legal proceedings, material with
respect to the security holders of the trust by reason of the nature of
the claim or the amount thereof, to which the trust, the sponsor, or
the principal underwriter is a party or of which the assets of the
trust are the subject, including the substance of the claims involved
in such proceeding and the title of the proceeding. Furnish a similar
statement with respect to any pending administrative proceeding
commenced by a governmental authority or any such proceeding or legal
proceeding known to be contemplated by a governmental authority.
Include any proceeding which, although immaterial itself, is
representative of, or one of, a group which in the aggregate is
material.
None
II. GENERAL DESCRIPTION OF THE TRUST AND SECURITIES OF THE TRUST
GENERAL INFORMATION CONCERNING THE SECURITIES OF THE TRUST AND THE RIGHTS OF
HOLDERS
10. Furnish a brief statement with respect to the following matters for
each class or series of securities issued by the trust:
(a) Whether the securities are of the registered or bearer type.
Registered
(b) Whether the securities are of the cumulative or distributive
type.
Distributive
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(c) The rights of security holders with respect to withdrawal or
redemption.
Reference is made to the statements in Exhibit D
filed herewith under the captions "Redemption" in the
Prospectus summary, "Redemption of Nasdaq-100 Shares"
and "Administration of the Trust--Rights of
Beneficial Owners."
(d) The rights of security holders with respect to conversion,
transfer, partial redemption, and similar matters.
Reference is made to the statements in Exhibit D
filed herewith under the captions "Redemption" in the
Prospectus summary, "Administration of the
Trust--Register of Ownership and Transfer,"
"Administration of the Trust-- Rights of Beneficial
Owners" and "Redemption of Nasdaq-100 Shares."
(e) If the trust is the issuer of periodic payment plan
certificates, the substance of the provisions of any indenture
or agreement with respect to lapses or defaults by security
holders in making principal payments, and with respect to
reinstatement.
Not Applicable
(f) The substance of the provisions of any indenture or agreement
with respect to voting rights, together with the names of any
persons other than security holders given the right to
exercise voting rights pertaining to the trust's securities or
the underlying securities and the relationship of such persons
to the trust.
Reference is made to the statements in Exhibit D
filed herewith under the caption "Administration of
the Trust--Voting."
(g) Whether security holders must be given notice of any change
in:
(1) The composition of the assets of the trust.
No
(2) The terms and conditions of the securities issued by
the trust.
Yes, under certain circumstances. Reference
is made to the statements in Exhibit D filed
herewith under the caption "Administration
of the Trust--Amendment."
(3) The provisions of any indenture or agreement of the
trust.
Yes, under certain circumstances. Reference
is made to the statements in Exhibit D filed
herewith under the caption "Administration
of the Trust--Amendment."
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(4) The identity of the sponsor, trustee or custodian.
Yes
(h) Whether the consent of security holders is required in order
for action to be taken concerning any change in:
(1) The composition of the assets of the trust.
No
(2) The terms and conditions of the securities issued by
the trust.
Reference is made to the statements in
Exhibit D filed herewith under the caption
"Administration of the Trust--Amendment."
(3) The provisions of any indenture or agreement of the
trust.
Reference is made to the statements in
Exhibit D filed herewith under the caption
"Administration of the Trust--Amendment."
(4) The identity of the sponsor, trustee or custodian.
Reference is made to the statements in
Exhibit D filed herewith under the captions
"Resignation, Removal and Liability--The
Sponsor" and "Resignation, Removal and
Liability--The Trustee."
(i) Any other principal feature of the securities issued by the
trust or any other principal right, privilege or obligation
not covered by subdivisions (a) to (g) or by any other item on
this form.
The Trust consists of units of fractional undivided
interest in the Trust representing proportionate
interests in the portfolio of securities held by the
Trust, consisting of substantially all of the common
stocks, in substantially the same weighting, as the
component common stocks of the Nasdaq-100 Index
-Registered Trademark- (the "Index"), including
contracts to purchase such securities, if any
(collectively referred to herein as "Securities"),
all undistributed income or other amounts received
or accrued thereon and any undistributed cash
realized from the sale, redemption, liquidation or
other disposition of the Securities deposited in
the Trust, or from deposits of Securities. Such
units issued by the Trust ("Creation Units") will
be an aggregation of and will be denominated in
Nasdaq-100 Shares. One Creation Unit is an
aggregation of 50,000 Nasdaq-100 Shares. The Trust
intends to qualify for and elect tax treatment as a
regulated investment company under the Internal
Revenue Code of 1986, as amended. Future series of
the Trust may also elect tax treatment as regulated
investment companies.
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INFORMATION CONCERNING THE SECURITIES UNDERLYING THE TRUST'S SECURITIES
11. Describe briefly the kind or type of securities comprising the unit of
specified securities in which security holders have an interest. (If
the unit consists of a single security issued by an investment company,
name such investment company and furnish a description of the type of
securities comprising the portfolio of such investment company.)
Reference is made to answer in Item 10(i).
In addition, the composition of the Securities in the Trust
will be adjusted from time to time to conform to changes in
the composition and weighting of the securities comprising the
Index. Reference is made to the statements in Exhibit D filed
herewith under the captions "The Portfolio--Adjustments to the
Portfolio," "The Portfolio--Adjustments to the Portfolio
Deposit" and "The Portfolio--Selection and Acquisition of
Securities" in connection with the procedures for adjusting
the composition and weighting of the Securities held by the
Trust.
If the trust owns or will own any securities of its regular brokers or
dealers as defined in Rule 10b-l under the Act, or their parents,
identify those brokers or dealers and state the value of the
registrant's holdings of the securities of each subject issuer as of
the close of the registrant's most recent fiscal year.
Reference is made to the statements in Exhibit D filed
herewith under the caption "The Portfolio--Adjustments to the
Portfolio."
12. If the trust is the issuer of periodic payment plan certificates and if
any underlying securities were issued by another investment company,
furnish the following information for each such company:
(a) Name of company.
(b) Name and principal business address of sponsor.
(c) Name and principal business address of trustee or custodian.
(d) Name and principal business address of principal underwriter.
(e) The period during which the securities of such company have
been the underlying securities.
Not Applicable
INFORMATION CONCERNING LOADS, FEES, CHARGES AND EXPENSES
13. (a) Furnish the following information with respect to each
load, fee, expense or charge to which (1) principal payments,
(2) underlying securities, (3) distributions, (4) cumulated or
reinvested distributions or income, and (5) redeemed or
liquidated assets of the trust's securities are subject:
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(A) The nature of such load, fee, expense, or charge.
(B) The amount thereof.
(C) The name of the person to whom such amounts are paid
and his relationship to the trust.
(D) The nature of the services performed by such person
in consideration for such load, fee, expense or
charge.
Reference is made to the statements in Exhibit D
filed herewith under the captions "Expenses of the
Trust" and "Redemption of Nasdaq-100 Shares--
Procedure for Redemption of Nasdaq-100 Shares."
(b) For each installation payment type of periodic payment plan
certificate of the trust, furnish the following information
with respect to sales load and other deductions from principal
payments.
Not Applicable
(c) State the amount of total deductions as a percentage of the
net amount invested for each type of security issued by the
trust. State each different sales charge available as a
percentage of the public offering price and as a percentage of
the net amount invested. List any special purchase plans or
methods established by rule or exemptive order that reflect
scheduled variations in, or elimination of, the sales load and
identify each class of individuals or transactions to which
such plans apply.
Reference is made to the statements in Exhibit D
filed herewith under the captions "Expenses of the
Trust," "The Trust -- Procedures for Creation of
Creation Units," and "Redemption of Nasdaq-100
Shares--Procedure for Redemption of Nasdaq-100
Shares."
(d) Explain fully the reasons for any difference in the price at
which securities are offered generally to the public, and the
price at which securities are offered for any class of
transactions to any class or group of individuals, including
officers, directors, or employees of the sponsor, trustee,
custodian or principal underwriter.
Not Applicable
(e) Furnish a brief description of any loads, fees, expenses or
charges not covered in Item 13(a) which may be paid by
security holders in connection with the trust or its
securities. (Assignment, reinstatement, replacing lost
certificates, etc.)
A Transaction Fee or Fees will be charged to all
creators of Nasdaq-100 Shares in Creation Unit size
aggregations and to all redeemers of Nasdaq -100
Shares in Creation Unit size aggregations. Reference
is made to the statements in Exhibit D filed
herewith, under the captions "Transaction Fee" in the
Prospectus summary, "The Trust--Creation of Creation
Units"
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and "Redemption of Nasdaq-100 Shares--Procedure for
Redemption of Nasdaq-100 Shares."
(f) State whether the sponsor, principal underwriter, custodian or
trustee, or any affiliated person of the foregoing may receive
profits or other benefits not included in answer to Item 13(a)
or 13(d) through the sale or purchase of the trust's
securities or interests in such securities, or underlying
securities or interests in underlying securities, and describe
fully the nature and extent of such profits or benefits.
Reference is made to the answer set forth in Item
13(e).
Reference is also made to the statements in Exhibit D
filed herewith under the captions "The
Portfolio--Adjustments to the Portfolio" and "License
Agreement."
(g) State the percentage that the aggregate annual charges and
deductions for maintenance and other expenses of the trust
bear to the dividend and interest income from the trust
property during the period covered by the financial statements
filed herewith.
Not Applicable
INFORMATION CONCERNING THE OPERATIONS OF THE TRUST
14. Describe the procedure with respect to applications (if any) and the
issuance and authentication of the trust's securities, and state the
substance of the provisions of any indenture or agreement pertaining
thereto.
Reference is made to the statements in Exhibit D filed
herewith under the captions "The Trust -- Creation of Creation
Units" and "The Trust--Book-Entry-Only System."
15. Describe the procedure with respect to the receipt of payments from
purchasers of the trust's securities and the handling of the proceeds
thereof, and state the substance of the provisions of any indenture or
agreement pertaining thereto.
Reference is made to the statements in Exhibit D filed
herewith under the caption "The Trust" and "The
Trust--Creation of Creation Units."
16. Describe the procedure with respect to the acquisition of underlying
securities and the disposition thereof, and state the substance of the
provisions of any indenture or agreement pertaining thereof.
Reference is made to information provided in answer to Item 11
above and to the statements in Exhibit D filed herewith under
the captions "The Trust--Creation of
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Creation Units," "The Portfolio," "Administration of the
Trust--Termination," and Redemption of Nasdaq-100
Shares--Procedure for Redemption of Nasdaq-100 Shares."
17. (a.) Describe the procedure with respect to withdrawal or
redemption by security holders.
(b) Furnish the names of any persons who may redeem or repurchase,
or are required to redeem or repurchase, the trust's
securities or underlying securities from security holders, and
the substance of the provisions of any indenture or agreement
pertaining thereto.
(c) Indicate whether repurchased or redeemed securities will be
cancelled or may be resold.
Reference is made to answer to Item 10(d) above.
18. (a) Describe the procedure with respect to the receipt,
custody and disposition of the income and other distributable
funds of the trust and state the substance of the provisions
of any indenture or agreement pertaining thereto.
Reference is made to the statements in Exhibit D
filed herewith under the caption "Administration of
the Trust--Distributions to Beneficial Owners."
(b) Describe the procedure, if any, with respect to the
reinvestment of distributions to security holders and state
the substance of the provisions of any indenture or agreement
pertaining thereto.
Reference is made to the statements in Exhibit D
filed herewith under the caption "Dividend
Reinvestment Service."
(c) If any reserves or special funds are created out of income or
principal, state with respect to each such reserve or fund the
purpose and ultimate disposition thereof, and describe the
manner of handling of same.
Reference is made to the statements in Exhibit D
filed herewith under the caption "Administration of
the Trust--Distributions to Beneficial Owners."
(d) Submit a schedule showing the periodic and special
distributions which have been made to security holders during
the three years covered by the financial statements filed
herewith. State for each such distribution the aggregate
amount per share. If distributions from sources other than
current income have been made identify each such other source
and indicate whether such distribution represents the return
of principal payments to security holders. If payments other
than cash were made describe the nature thereof, the account
charged and the basis of determining the amount of such
charge.
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Not Applicable
19. Describe the procedure with respect to the keeping of records and
accounts of the Trust, the making of reports and the furnishing of
information to security holders, and the substance of the provisions of
any indenture or agreement pertaining thereto.
Reference is made to the statements in Exhibit D filed
herewith under the captions "Administration of the
Trust--Records," "Administration of the Trust-- Distributions
to Beneficial Owners," "Administration of the
Trust--Statements to Beneficial Owners" and "Administration of
the Trust--Register of Ownership and Transfer."
20. State the substance of the provisions of any indenture or agreement
concerning the trust with respect to the following:
(a) Amendments to such indenture or agreement.
Reference is made to the statements in Exhibit D
filed herewith under the caption "Administration of
the Trust--Amendment."
(b) The extension or termination of such indenture or agreement.
Reference is made to the statements in Exhibit D
filed herewith under the captions "Administration of
the Trust--Amendment" and "Administration of the
Trust --Termination."
(c) The removal or resignation of the trustee, or custodian, or
the failure of the trustee or custodian to perform its duties,
obligations and functions.
Reference is made to the statements in Exhibit D
filed herewith under the caption "Resignation,
Removal and Liability--The Trustee."
(d) The appointment of a successor trustee and the procedure if a
successor trustee is not appointed.
Reference is made to answer in Item 20(c) above.
(e) The removal or resignation of the sponsor, or the failure of
the sponsor to perform its duties, obligations and functions.
Reference is made to the statements in Exhibit D
filed herewith under the caption "Resignation,
Removal and Liability--The Sponsor."
(f) The appointment of a successor sponsor and the procedure if a
successor sponsor is not appointed.
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Reference is made to answer in Item 20(c) and Item
20(e) above.
21. (a) State the substance of the provisions of any indenture or
agreement with respect to loans to security holders.
Not Applicable
(b) Furnish a brief description of any procedure or arrangement by
which loans are made available to security holders by the
sponsor, principal underwriter, trustee or custodian, or any
affiliated person of the foregoing. The following items should
be covered:
(1) The name of each person who makes such agreement or
arrangement with security holders.
(2) The rate of interest payable on such loans.
(3) The period for which loans may be made.
(4) Costs or charges for default in repayment at
maturity.
(5) Other material provisions of the agreement or
arrangement.
Not Applicable
(c) If such loans are made, furnish the aggregate amount of loans
outstanding at the end of the last fiscal year, the amount of
interest collected during the last fiscal year allocated to
the sponsor, principal underwriter, trustee or custodian or
affiliated person of the foregoing and the aggregate amount of
loans in default at the end of the last fiscal year covered by
financial statements filed herewith.
Not Applicable
22. State the substance of the provisions of any indenture or agreement
with respect to limitations on the liabilities of the sponsor, trustee
or custodian, or any other party to such indenture or agreement.
Reference is made to the statements in Exhibit D filed
herewith under the captions "Resignation, Removal and
Liability--The Trustee," and "Resignation, Removal and
Liability--The Sponsor."
23. Describe any bonding arrangement for officers, directors, partners or
employees of the sponsor or principal underwriter of the trust,
including the amount of coverage and the type of bond.
The insurance policies carried by The Nasdaq Stock Market,
Inc. cover the officers and directors of Nasdaq-Amex
Investment Product Services, Inc., the sponsor. As of March 5,
1999, The Nasdaq Stock Market, Inc. has a directors and
officers liability policy in the amount of $50,000,000
aggregate for all coverages combined
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(including defense costs) written by America International
Specialty Lines Insurance Company.
24. State the substance of any other material provisions of any indenture
or agreement concerning the trust or its the securities and a
description of any other material functions or duties of the sponsor,
trustee or custodian not stated in Item 10 or Items 14 to 23 inclusive.
Reference is made to answers to Item 10 and Items 14 through
23, inclusive.
III. ORGANIZATION, PERSONNEL AND AFFILIATED PERSONS OF SPONSOR
ORGANIZATION AND OPERATIONS OF SPONSOR
25. State the form of organization of the sponsor of the trust, the name of
the state or other sovereign power under the laws of which the sponsor
was organized and the date of organization.
The Sponsor is a Delaware corporation which was incorporated on August
7, 1998.
26. (a) Furnish the following information with respect to all fees
received by the sponsor of the trust in connection with the
exercise of any functions or duties concerning securities of
the trust during the period covered by the financial
statements filed herewith.
Not Applicable
(b) Furnish the following information with respect to any fee or
any participation in fees received by the sponsor from any
underlying investment company or any affiliated person or
investment adviser of such company:
(1) The nature of such fee or participation.
(2) The name of the person making payment.
(3) The nature of the services rendered in consideration
for such fee or participation.
(4) The aggregate amount received during the last fiscal
year covered by the financial statements filed
herewith.
Reference is made to the statements in Exhibit D
filed herewith under the caption "License Agreement."
27. Describe the general character of the business engaged in by the
sponsor including a statement as to any business other than that of
sponsor of the trust. If the sponsor acts or has acted in any capacity
with respect to any investment company or companies other than the
trust, state the name or names of such company or companies, their
relationship, if any, to the trust, and the nature of the sponsor's
activities therewith. If the sponsor has
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ceased to act in such named capacity, state the date of and
circumstances surrounding such cessation.
The business engaged in by the Sponsor is to act as the
Sponsor of the Trust, including any subsequent and similar
series of the Nasdaq-100 Trust, and to potentially act in the
future as the sponsor or organizer of other equity derivative
products. Reference is also made to the statements in Exhibit
D filed herewith under the caption "Sponsor."
OFFICIALS AND AFFILIATED PERSONS OF SPONSOR
28. (a) Furnish as at latest practicable date the following
information with respect to the sponsor of the trust, with
respect to each officer, director, or partner of the sponsor,
and with respect to each natural person directly or indirectly
owning, controlling or holding with power to vote 5% or more
of the outstanding voting securities of the sponsor.
<TABLE>
<CAPTION>
As at March 5, 1999
Name and principal Nature of relationship or affiliation
business address with sponsor of the trust
(Directors)
<S> <C>
J. Patrick Campbell* Director
L. Brian Holland* Director
Salvatore F. Sodano* Director
John L. Jacobs* Director
Douglas A. Patterson* Director
James R. Allen* Director
</TABLE>
(Officers principally involved with the trust)
<TABLE>
<CAPTION>
<S> <C>
J. Patrick Campbell Chairman
L. Brian Holland President and Chief Executive Officer
Salvatore F. Sodano Chief Operating Officer and Chief Financial Officer
John L. Jacobs Executive Vice President
Douglas A. Patterson Senior Vice President and Secretary
James R. Allen Senior Vice President and Treasurer
</TABLE>
None of the individuals listed above either directly or indirectly owns,
controls or holds with power to vote 5% or more of the outstanding voting
securities of the Sponsor. (All of the outstanding shares of common stock are
owned by The Nasdaq Stock Market, Inc. See response to Item 29 herein.)
- --------
* c/o The Nasdaq Stock Market, Inc., 1735 K Street, N.W., Washington,
D.C. 20006-1500.
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OWNERSHIP OF ALL SECURITIES OF THE SPONSOR
<TABLE>
<CAPTION>
Title of Securities owned of Securities owned of Securities owned
Class record which are also record which are not beneficially which are not
owned beneficially owned beneficially owned of record
- ----------------- ---------------------------------- ---------------------------------- ----------------------------------
Amount % of class Amount % of class Amount % of class
<S> <C> <C> <C> <C> <C> <C>
- ----------------- ----------------- ---------------- ---------------- ---------------- ----------------- ----------------
-- -- -- -- -- -- --
- ----------------- ----------------- ---------------- ---------------- ---------------- ----------------- ----------------
</TABLE>
None
Ownership of all securities of the Trust
None
Other companies of which each of the persons named
above is presently an officer, director or partner
<TABLE>
<CAPTION>
Name and principal
business address of such Name of business of Nature of affiliation with
other company such other company such other company
- ------------- --------------------- ------------------
<S> <C> <C>
National Association of self regulatory Salvatore F. Sodano -
Securities Dealers, Inc. organization of the Deputy Chief Operating
1735 K Street, N.W. securities industry Officer and Chief
Washington, DC 20006 Financial Officer
James R. Allen - Senior
Vice President and
Treasurer
The Nasdaq Stock securities marketplace J. Patrick Campbell -
Market, Inc. Executive Vice President
1735 K Street, N.W. and Chief Operating
Washington, DC 20006 Officer
L. Brian Holland -
Executive Vice President
Douglas A. Patterson -
Senior Vice President
John L. Jacobs - Vice
President
</TABLE>
(b) Furnish a brief statement of the business experience during
the last five years of each officer, director or partner of
the sponsor.
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J. Patrick Campbell joined the NASD in January, 1997 and
currently serves as Chief Operating Officer and Executive Vice
President, Market Services of Nasdaq. Mr. Campbell is
responsible for the day-to-day operation of The Nasdaq Stock
Market and all other market services offered by Nasdaq. Prior
to joining the NASD, Mr. Campbell was Senior Executive Vice
President of The Ohio Company where he was responsible for
equity trading, research, portfolio management, and retirement
plans administration.
L. Brian Holland joined Nasdaq in 1989 and currently serves as
Executive Vice President of Nasdaq. Mr. Holland is responsible
for worldwide marketing and advertising for The Nasdaq Stock
Market. Before coming to Nasdaq, Mr. Holland was Director of
Marketing, Consumer Financial Services for The Chase Manhattan
Bank.
Salvatore F. Sodano is Deputy Chief Operating Officer and
Chief Financial Officer of the NASD. In this position, he is
responsible for all financial matters of the NASD and its
subsidiaries and helps coordinate its day-to-day operations.
Mr. Sodano joined the NASD in June 1997 as Executive Vice
President and Chief Financial Officer. Before coming to the
NASD, Mr. Sodano was Senior Vice President, Chief Manager &
Principal Operating Officer of Westpac Banking Corporation,
Americas Division in New York. There, he had responsibility
for all support functions of the company and periodically was
responsible for the entire operation. He joined Westpac in
1990.
Douglas A. Patterson is the Senior Vice President, Issuer
Services for The Nasdaq Stock Market. He leads the department
of the Nasdaq staff which develops and maintains the
relationships between The Nasdaq Stock Market and its over
5,500 issuers as well as the responsibility for all new
listings. Prior to assuming his responsibilities with Nasdaq,
he was a Vice President with Patient First, the largest
provider of primary medical care in the Commonwealth of
Virginia.
James R. Allen is Senior Vice President and Treasurer for the
NASD, including the parent and all subsidiaries. In this
position, his primary responsibility is to direct the
activities of the Finance Department. These activities include
all financial reporting and accounting operations, project
costing, Treasury management, financial planning and
budgeting, tax planning and compliance, risk management and
member benefits. From 1990-1996, he was Vice President and
Treasurer. He joined the NASD in 1983.
John L. Jacobs, Vice President of Investor Services of Nasdaq,
leads several groups at Nasdaq including Institutional
Services, Index Product Development, and Marketing Programs.
Before assuming these responsibilities, John was Group
Director of Issuer Services, where he led two teams planning
and delivering services to companies on the Nasdaq National
Market and the Nasdaq Small Cap Market. He joined Nasdaq in
1983.
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COMPANIES OWNING SECURITIES OF SPONSOR
29. Furnish as at latest practicable date the following information with
respect to each company which directly or indirectly owns, controls or
holds with power to vote 5% or more of the outstanding voting
securities of the sponsor.
As at March 5, 1999
NAME AND PRINCIPAL BUSINESS ADDRESS NATURE OF BUSINESS
The Nasdaq Stock Market, Inc. securities marketplace
1735 K Street, N.W.
Washington, D.C. 20006
OWNERSHIP OF ALL SECURITIES OF THE SPONSOR
<TABLE>
<CAPTION>
Title of Securities owned of Securities owned of Securities owned
Class record which are also record which are not beneficially which are not
owned beneficially owned beneficially owned of record
- ----------------- ---------------------------------- ---------------------------------- ----------------------------------
Amount % of class Amount % of class Amount % of class
<S> <C> <C> <C> <C> <C> <C>
- ----------------- ----------------- ---------------- ---------------- ---------------- ----------------- ----------------
Common 100 100% -- -- -- --
Shares*
- ----------------- ----------------- ---------------- ---------------- ---------------- ----------------- ----------------
</TABLE>
* The Sponsor authorized 100 shares of common stock with a par value of
$0.01 per share to be issued in the name of, and sold to, The Nasdaq
Stock Market, Inc.
CONTROLLING PERSONS
30. Furnish as at latest practicable date the following information with
respect to any person, other than those covered by Items 28, 29 and 42
who directly or indirectly controls the sponsor.
None
COMPENSATION OF OFFICERS AND DIRECTORS OF SPONSOR
COMPENSATION OF OFFICERS OF SPONSOR
31. Furnish the following information with respect to the renumeration for
services paid by the sponsor during the last fiscal year covered by
financial statements filed herewith:
(a) Directly to each of the officers or partners of the sponsor
directly receiving the three highest amounts of remuneration;
16
<PAGE>
(b) Directly to all officers or partners of the sponsor as a group
exclusive of persons whose renumeration is included under Item
31(a), stating separately the aggregate amount paid by all the
subsidiaries;
(c) Indirectly or through subsidiaries to each of the officers or
partners of the sponsor.
Not Applicable
COMPENSATION OF DIRECTORS
32. Furnish the following information with respect to the remuneration for
services, exclusive of renumeration reported under Item 31, paid by the
sponsor during the last fiscal year covered by financial statements
filed herewith:
(a) The aggregate direct remuneration to directors.
(b) Indirectly or through subsidiaries to directors.
Not Applicable
COMPENSATION TO EMPLOYEES
33. (a) Furnish the following information with respect to the
aggregate amount of remuneration for services of all employees
of the sponsor (exclusive of persons whose remuneration is
reported in Items 31 and 32) who received remuneration in
excess of $10,000 during the last fiscal year covered by
financial statements filed herewith from the sponsor and any
of its subsidiaries.
(b) Furnish the following information with respect to the
remuneration for services paid directly during the last fiscal
year covered by financial statements filed herewith to the
following classes of persons (exclusive of those persons
covered by Item 33 (a)): (1) Sales managers, branch managers,
district managers and other persons supervising the sale of
registrant's securities; (2) Salesmen, sales agents,
canvassers and other persons making solicitations but not in
supervisory capacity; (3) Administrative and clerical
employees; and (4) Others (specify). If a person is employed
in more than one capacity, classify according to predominant
type of work.
Not Applicable
COMPENSATION TO OTHER PERSONS
34. Furnish the following information with respect to the aggregate amount
of compensation for services paid any person (exclusive of persons
whose remuneration is reported in Items 31, 32 and 33), whose aggregate
compensation in connection with services rendered with
17
<PAGE>
respect to the trust in all capacities exceeded $10,000 during the last
fiscal year covered by financial statements filed herewith from the
sponsor and any of its subsidiaries.
Not Applicable
IV. DISTRIBUTION AND REDEMPTION OF SECURITIES
35. Furnish the names of the states in which sales of the trust's
securities (A) are currently being made, (B) are presently proposed to
be made, and (C) have been discontinued, indicating by appropriate
letter the status with respect to each state.
(A) No sales of the Trust's securities are currently
being made.
(B) Reference is made to the statements in Exhibit D
filed herewith under the caption "Continuous Offering
of Nasdaq-100 Shares."
(C) None.
36. If sales of the trust's securities have at any time since January 1,
1936 been suspended for more than a month, describe briefly the reasons
for such suspension.
Not Applicable
37. (a) Furnish the following information with respect to each
instance where subsequent to January 1, 1937, any federal or
state governmental officer, agency, or regulatory body denied
authority to distribute securities of the trust, excluding a
denial which was merely a procedural step prior to any
determination by such officer, etc. and which denial was
subsequently rescinded.
(1) Name of officer, agency or body.
(2) Date of denial.
(3) Brief statement of reason given for denial.
Not Applicable
(b) Furnish the following information with regard to each instance
where, subsequent to January 1, 1937, the authority to
distribute securities of the Trust has been revoked by any
federal or state governmental officer, agency or regulatory
body.
(1) Name of officer, agency or body.
(2) Date of revocation.
(3) Brief statement of reason given for revocation.
Not Applicable
38. (a) Furnish a general description of the method of distribution of
securities of the trust.
18
<PAGE>
Reference is made to the statements in Exhibit D
filed herewith under the captions "Underwriting" in
the Prospectus summary, "The Trust-- Creation of
Creation Units," "The Trust--Procedures for Creation
of Creation Units," "The Trust--Placement of Creation
Orders Using the Nasdaq-100 Clearing Process," "The
Trust-- Placement of Creation Orders Outside the
Nasdaq-100 Clearing Process," "The
Trust--Book-Entry-Only System," "Marketplace Listing"
and "Continuous Offering of Nasdaq-100 Shares."
(b) State the substance of any current selling agreement between
each principal underwriter and the trust or the sponsor,
including a statement as to the inception and termination
dates of the agreement, any renewal and termination
provisions, and any assignment provisions.
Reference is made to the statements in Exhibit D
filed herewith under the captions "Underwriting" in
the Prospectus summary and "Continuous Offering of
Nasdaq-100 Shares" and "The Trust-- Placement of
Creation Orders Using the Nasdaq-100 Clearing
Process."
(c) State the substance of any current agreements or arrangements
of each principal underwriter with dealers, agents, salesman,
etc., with respect to commissions and overriding commissions,
territories, franchises, qualifications and revocations. If
the trust is the issuer of periodic payment plan certificates,
furnish schedules of commissions and the bases thereof. In
lieu of a statement concerning schedules of commissions, such
schedules of commissions may be filed as Exhibit A (3) (c).
Reference is made to answer to Item 38(b) above.
INFORMATION CONCERNING PRINCIPAL UNDERWRITER
39. (a) State the form of organization of each principal
underwriter of securities of the trust, the name of the state
or other sovereign power under the laws of which each
underwriter was organized and the date of organization.
Reference is made to the statements in Exhibit D
filed herewith under the caption "Underwriting" in
the Prospectus summary.
(b) State whether any principal underwriter currently distributing
securities of the trust is a member of the National
Association of Securities Dealers, Inc.
Reference is made to the statements in Exhibit D
filed herewith under the caption "Underwriting" in
the Prospectus summary.
40. (a) Furnish the following information with respect to all fees
received by each principal underwriter of the trust from the
sale of securities of the trust and any other functions in
connection therewith exercised by such underwriter in such
19
<PAGE>
capacity or otherwise during the period covered by the
financial statements filed herewith.
Not applicable
(b) Furnish the following information with respect to any fee or
any participation in fees received by each principal
underwriter from any underlying investment company or any
affiliated person or investment adviser of such company:
(1) The nature of such fee or participation.
(2) The name of the person making payment.
(3) The nature of the services rendered in consideration
for such fee or participation.
(4) The aggregate amount received during the last fiscal
year covered by the financial statements filed
herewith.
Not Applicable
41. (a) Describe the general character of the business engaged in by
each principal underwriter, including a statement as to any
business other than the distribution of securities of the
trust. If a principal underwriter acts or has acted in any
capacity with respect to any investment company or companies
other than the trust, state the name or names of such company
or companies, their relationship, if any, to the trust and the
nature of such activities. If a principal underwriter has
ceased to act in such named capacity, state the date of and
the circumstances surrounding such cessation.
Reference is made to the statements in Exhibit D
filed herewith under the caption "Underwriting" in
the Prospectus summary.
(b) Furnish as at latest practicable date the address of each
branch office of each principal underwriter currently selling
securities of the trust and furnish the name and residence
address of the person in charge of such office.
Not Applicable
(c) Furnish the number of individual salesmen of each principal
underwriter through whom any of the securities of the trust
were distributed for the last fiscal year of the trust covered
by the financial statements filed herewith and furnish the
aggregate amount of compensation received by such salesman in
such year.
(Segregate full-time and part-time salesmen.)
Not Applicable
20
<PAGE>
42. Furnish as at latest practicable date the following information with
respect to each principal underwriter currently distributing securities
of the trust and with respect to each of the officers, directors or
partners of such underwriter.
Not Applicable
43. Furnish the last fiscal year covered by the financial statements filed
herewith, the amount of brokerage commissions received by any principal
underwriter who is a member of a national securities exchange and who
is currently distributing the securities of the trust or effecting
transactions for the trust in the portfolio securities of the trust.
Not Applicable
OFFERING PRICE OR ACQUISITION VALUATION OF SECURITIES OF THE TRUST
44. (a) Furnish the following information with respect to the
method of valuation used by the trust for the purpose of
determining the offering price to the public of securities
issued by the trust or the valuation of shares or interests in
the underlying securities acquired by the holder of a periodic
payment plan certificate:
(1) The source of quotations used to determine the value
of portfolio securities.
(2) Whether opening, closing, bid, asked or any other
price is used.
(3) Whether price is as of the day of sale or as of any
other time.
(4) A brief description of the methods used by registrant
for determining other assets and liabilities
including accrual for expenses and taxes (including
taxes on unrealized appreciation).
(5) Other items which registrant adds to the net asset
value in computing offering price of its securities.
(6) Whether adjustments are made for fractions:
(i) before adding distributor's compensation
(load); and
(ii) after adding distributor's compensation
(load).
Reference is made to the information stated
in answer to Items 10(i) and 11 above, as
well as to the statements in Exhibit D filed
herewith under the caption "Valuation."
(b) Furnish a specimen schedule showing the components of the
offering price of the trust's securities as at the latest
practicable date.
Not Applicable
(c) If there is any variation in the offering price of the trust's
securities to any person or classes of persons other than
underwriters, state the nature and amount of such variation
and indicate the person or classes of persons to whom such
offering is made.
21
<PAGE>
None
45. Furnish the following information with respect to any suspension of the
redemption rights of the securities issued by the trust during the
three fiscal years covered by the financial statements filed herewith:
(a) By whose action redemption rights were suspended.
(b) The number of days' notice given to security holders prior to
suspension of redemption rights.
(c) Reason for suspension.
(d) Period during which suspension was in effect.
Not Applicable
REDEMPTION VALUATION OF SECURITIES OF THE TRUST
46. (a) Furnish the following information with respect to the
method of determining the redemption or withdrawal valuation
of securities issued by the trust:
(1) The source of quotations used to determine the value
of portfolio securities.
(2) Whether opening, closing, bid, asked or any other
price is used.
(3) Whether price is as of the day of sale or as of any
other time.
(4) A brief description of methods used by registrant for
determining other assets and liabilities including
accrual for expenses and taxes (including taxes on
unrealized appreciation).
(5) Other items which registrant deducts from the net
asset value in computing redemption value of its
securities.
(6) Whether adjustment are made for fractions.
Reference is made to information provided in
Exhibit D filed herewith under the captions
"Valuation" and "Redemption of Nasdaq-100
Shares."
(b) Furnish a specimen schedule showing components of the
redemption price to the holders of the trust's securities as
at the latest practicable date.
Not Applicable
PURCHASE AND SALE OF INTERESTS IN UNDERLYING SECURITIES FROM AND TO SECURITY
HOLDERS
47. Furnish a statement as to the procedure with respect to the maintenance
of a position in the underlying securities or interests in the
underlying securities, the extent and nature thereof and the person who
maintains such a position. Include a description of the procedure with
respect to the purchase of underlying securities or interests in the
22
<PAGE>
underlying securities from security holders who exercise redemption or
withdrawal rights and the sale of such underlying securities and
interests in the underlying securities to other security holders. State
whether the method of valuation of such underlying securities or
interests in underlying securities differs from that set forth in Items
44 and 46. If any item of expenditure included in the determination of
the valuation is not or may not actually be incurred or expended,
explain the nature of such item and who may benefit from the
transaction.
Reference is made to information provided in answers to Items
44 and 46 above and to the statements in Exhibit D filed
herewith under the captions "The Trust," "The Portfolio,"
"Continuous Offering of Nasdaq-100 Shares," "Redemption of
Nasdaq-100 Shares" and "Administration of the
Trust--Distributions to Beneficial
Owners."
V. INFORMATION CONCERNING THE TRUSTEE OR CUSTODIAN
48. Furnish the following information as to each trustee or custodian of
the trust.
(a) Name and principal business address.
(b) Form of organization.
(c) State or other sovereign power under the laws of which the
trustee or custodian was organized.
(d) Name of governmental supervising or examining authority.
Reference is made to the statements in Exhibit D filed
herewith under the caption "Trustee."
49. State the basis for payment of fees or expenses of the trustee or
custodian for services rendered with respect to the trust and its
securities, and the aggregate amount thereof for the last fiscal year.
Indicate the person paying such fees or expenses. If any fees or
expenses are prepaid, state the unearned amount.
Reference is made to the statements in Exhibit D filed
herewith under the captions "Expenses of the Trust" and
"Redemption of Nasdaq-100 Shares." A Transaction Fee or Fees
will be charged to all creators of Nasdaq-100 Shares in
Creation Unit size aggregations and to all redeemers of
Nasdaq-100 Shares in Creation Unit size aggregations (see the
statements in Exhibit D filed herewith under the caption
"Transaction Fee" in the Prospectus summary).
50. State whether the trustee or custodian or any other person has or may
create a lien on the assets of the trust, and if so, give full
particulars, outlining the substance of the provisions of any indenture
or agreement with respect thereto.
Reference is made to the statements in Exhibit D filed
herewith under the captions "Expenses of the Trust" and
"Redemption of Nasdaq-100 Shares."
23
<PAGE>
VI. INFORMATION CONCERNING INSURANCE OF HOLDERS OF SECURITIES
51. Furnish the following information with respect to insurance of holders
of securities:
(a) The name and address of the insurance company.
(b) The types of policies and whether individual or group
policies.
(c) The types of risks insured and excluded.
(d) The coverage of the policies.
(e) The beneficiaries of such policies and the uses to which the
proceeds of policies must be put.
(f) The terms and manner of cancellation and of reinstatement.
(g) The method of determining the amount of premiums to be paid by
holders of securities.
(h) The amount of aggregate premiums paid to the insurance company
during the last fiscal year.
(i) Whether any person other than the insurance company receives
any part of such premiums, the name of each such person and
the amounts involved, and the nature of the services rendered
therefor.
(j) The substance of any other material provisions of any
indenture or agreement of the trust relating to insurance.
Not applicable
VII. POLICY OF REGISTRANT
52. (a) Furnish the substance of the provisions of any indenture or
agreement with respect to the conditions upon which and the
method of selection by which particular portfolio securities
must or may be eliminated from assets of the trust or must or
may be replaced by other portfolio securities. If an
investment advisor or other person is to be employed in
connection with such selection, elimination, or substitution,
state the name of such person, the nature of any affiliation
to the sponsor, trustee or custodian, and any principal
underwriter, and the amount of remuneration to be received for
such services. If any particular person is not designated in
the indenture or agreement, describe briefly the method of
selection of such person.
Reference is made to answer in Item 16 above.
(b) Furnish the following information with respect to each
transaction involving the elimination of any underlying
security during the period covered by the financial statements
filed herewith:
(1) Title of security.
(2) Date of elimination.
(3) Reasons for elimination.
(4) The use of the proceeds from the sale of the
eliminated security.
24
<PAGE>
(5) Title of security substituted, if any.
(6) Whether sponsor, principal underwriter, trustee or
custodian or any affiliated person of the foregoing
were involved in the transaction.
(7) Compensation or remuneration received by each such
person directly or indirectly as a result of a
transaction.
Not Applicable
(c) Describe the policy of the trust with respect to the
substitution and elimination of the underlying securities of
the trust with respect to:
(1) The grounds for elimination and substitution.
(2) The type of securities which may be substituted for
any underlying security.
(3) Whether the acquisition of such substituted security
or securities would constitute the concentration of
investment in a particular industry or group of
industries or would conform to a policy of
concentration of investment in a particular industry
or group of industries.
(4) Whether such substituted securities may be the
securities of another investment company.
(5) The substance of the provisions of any indenture or
agreement which authorize or restrict the policy of
the registrant in this regard.
Reference is made to answer in Item 16 above.
Reference is also made to the statements in Exhibit D
herewith under the caption "Special Considerations
and Risk Factors--Market Risks."
(d) Furnish a description of any policy (exclusive of policies
covered by paragraphs (a) and (b) herein) of the trust which
is deemed a matter of fundamental policy and which is elected
to be treated as such.
Not applicable
REGULATED INVESTMENT COMPANY
53. (a) State the taxable status of the trust.
Reference is made to the statements in Exhibit D
filed herewith under the caption "Tax Status of the
Trust."
(b) State whether the trust qualified for the last taxable year as
a regulated investment company as defined in Section 851 of
the Internal Revenue Code of 1954, and state its present
intention with respect to such qualifications during the
current taxable year.
The Trust was not in existence during the last taxable year,
but intends to qualify as a regulated investment company
during the current taxable year.
25
<PAGE>
VIII. FINANCIAL AND STATISTICAL INFORMATION
54. If the trust is not the issuer of periodic payment plan certificates
furnish the following information with respect to each class or series
of its securities (as at the end of the registrant's past 10 fiscal
years).
Not Applicable
(Items 55, 56, 57 and 58 are not applicable since they relate only to periodic
payment plan certificates.)
59. Financial Statements of the Trust
Not Applicable
Financial Statements of the Sponsor
Not Applicable
26
<PAGE>
EXHIBITS
The following Exhibits are filed herewith:
Exhibit A (l) (a) Standard Terms and Conditions of Trust
dated as of March 1, 1999 between Nasdaq-Amex
Investment Product Services, Inc., as sponsor (the
"Sponsor") and The Bank of New York, as trustee
(the "Trustee").
Exhibit A (1) (b) Trust Indenture and Agreement dated as of
March 4, 1999 between the Sponsor and the Trustee.
Exhibit A (3) Distribution Agreement dated as of March 1,
1999 among the Sponsor, the Trust, and ALPS Mutual
Funds Services, Inc. as distributor (the
"Distributor").
Exhibit A (6)(a) Certificate of Incorporation of the Sponsor,
as amended (filed as exhibit 99.A(6)(a) to
Pre-Effective Amendment No. 2 to the Trust's
Registration Statement on Form S-6, filed January 28,
1999 (File No. 333-61001) and hereby incorporated by
reference).
Exhibit A (6)(b) By-laws of the Sponsor (filed as exhibit 99.A(6) to
Pre-Effective Amendment No. 1 to the Trust's
Registration Statement on Form S-6, filed October 19,
1998 (File No. 333-61001) and hereby incorporated by
reference).
Exhibit A (9) (a) Depository Agreement among the Trustee, the
Sponsor, and The Depository Trust Company with
respect to services rendered to the Trust.
Exhibit A (9) (b) License Agreement between The Nasdaq Stock Market,
Inc. and the Sponsor.
Exhibit A (9) (c) Form of Participant Agreement to be entered
into among the Trustee on behalf of the Trust, the
Distributor and various broker-dealers, as
participants.
Exhibit D Prospectus dated March 5, 1999.
27
<PAGE>
Pursuant to the requirements of the Investment Company Act of 1940, the Sponsor
of the Registrant has caused this Registration Statement to be duly signed on
behalf of the Registrant in the District of Columbia on the 8th day of March,
1999.
Signature: NASDAQ-100 TRUST, SERIES 1
--------------------------
(Name of Registrant)
By: NASDAQ-AMEX INVESTMENT PRODUCT
SERVICES, INC.
(Name of sponsor, trustee or custodian)
By: /s/ L. BRIAN HOLLAND
-------------------------------------
L. Brian Holland
President and Chief Executive Officer
Attest: /s/ JOHN L. JACOBS
---------------------------------
John L. Jacobs
Executive Vice President
28
<PAGE>
Exhibit A(1)(a)
EXECUTION COPY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NASDAQ-100 TRUST, SERIES 1
and
ANY SUBSEQUENT AND SIMILAR
SERIES OF THE
NASDAQ-100 TRUST
STANDARD TERMS
AND
CONDITIONS OF TRUST
DATED AS OF MARCH 1, 1999
between
NASDAQ-AMEX INVESTMENT PRODUCT SERVICES, INC.
as Sponsor
and
THE BANK OF NEW YORK
as Trustee
Effective MARCH 4, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
INTRODUCTION....................................................................................2
ARTICLE I
Definitions................................................................................3
Section 1.01.......................................................................3
Section 1.02.......................................................................8
ARTICLE II
Declaration of Trust; Deposit of Securities; The Portfolio; Creation
and Issuance of Nasdaq-100 Shares in Creation Unit Size Aggregations.......................9
Section 2.01 Declaration of Trust..................................................9
Section 2.02 Deposit of Securities.................................................9
Section 2.03 Creation and Issuance of Creation Units. ............................11
Section 2.04 Portfolio and Portfolio Deposit Adjustments..........................17
Section 2.05 Bank Accounts........................................................26
ARTICLE III
Administration of Trust...................................................................27
Section 3.01 Collection of Income. ..............................................27
Section 3.02 Collection of Other Moneys...........................................27
Section 3.03 Establishment of Reserves............................................28
Section 3.04 Certain Deductions and Distributions.................................28
Section 3.05 Statements and Reports...............................................33
Section 3.06 Purchase and Sale of Securities......................................34
Section 3.07 Substitute Securities................................................36
Section 3.08 Counsel..............................................................36
Section 3.09 Dividend Reinvestment................................................37
Section 3.10 Action by Trustee Regarding Voting...................................38
Section 3.11 Book-Entry-Only System. ............................................38
ARTICLE IV
Evaluation of Securities and Trust Fund...................................................42
Section 4.01 Evaluation of Securities.............................................42
Section 4.02 Trust Fund Evaluation................................................43
Section 4.03 Responsibility of the Trustee........................................43
ARTICLE V
Redemption of Creation Units..............................................................44
Section 5.01 Redemption of Nasdaq-100 Shares in Creation Unit Size
Aggregations..............................................................44
i
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE VI
Transfer of Nasdaq-100 Shares in
Creation Unit Size Aggregations...........................................................48
Section 6.01 Transfer of Nasdaq-100 Shares in Creation Unit Size
Aggregations..............................................................48
ARTICLE VII
Sponsor...................................................................................49
Section 7.01 Responsibilities and Duties..........................................49
Section 7.02 Certain Matters Regarding Successor Sponsor..........................50
Section 7.03 Resignation, Discharge or Removal of Sponsor; Successors.............50
Section 7.04 Liability of Sponsor and Indemnification.............................52
ARTICLE VIII
Trustee...................................................................................54
Section 8.01 General Definition of Trustee's Rights, Duties and
Responsibilities..........................................................54
Section 8.02 Books, Records, and Reports..........................................58
Section 8.03 Indenture and List of Securities on File.............................59
Section 8.04 Compensation of Trustee..............................................59
Section 8.05 Indemnification of Trustee...........................................61
Section 8.06 Resignation, Discharge or Removal of Trustee; Successors.............62
Section 8.07 Qualifications of Trustee............................................64
Section 8.08 Trustee's Duties Expressly Provided for Herein.......................65
ARTICLE IX
Termination...............................................................................65
Section 9.01 Procedure Upon Termination...........................................65
Section 9.02 Moneys to Be Held Without Interest to Beneficial Owners..............69
Section 9.03 Dissolution of Sponsor Not to Terminate Trust........................69
ARTICLE X
Miscellaneous Provisions...................................................................70
Section 10.01 Amendment and Waiver.................................................70
Section 10.02 Registration (Initial and Continuing) of Nasdaq-100 Shares...........71
Section 10.03 License Agreement with Nasdaq........................................72
Section 10.04 Certain Matters Relating to Beneficial Owners........................72
Section 10.05 New York Law to Govern...............................................73
Section 10.06 Notices..............................................................73
Section 10.07 Severability.........................................................74
Section 10.08 Separate and Distinct Series.........................................74
Section 10.09 Counterparts.........................................................75
Section 10.10 Exclusive Benefit of Parties and Holders of Nasdaq-100 Shares........75
Section 10.11 Headings.............................................................75
</TABLE>
Exhibit A - Form of Nasdaq-100 Participant Agreement
ii
<PAGE>
NASDAQ-100 TRUST, SERIES 1
and
ANY SUBSEQUENT AND SIMILAR SERIES OF
THE NASDAQ-100 TRUST
STANDARD TERMS AND CONDITIONS OF TRUST
for all or similar Series formed on
or subsequent to the effective date specified below
Effective March 4, 1999
This Standard Terms and Conditions of Trust (this "Agreement")
dated as of March 1, 1999 and effective March 4, 1999 is executed between
Nasdaq-Amex Investment Product Services, Inc., a Delaware corporation, as
Sponsor, and The Bank of New York, a New York corporation with trust powers, as
Trustee.
W I T N E S S E T H :
WHEREAS, the Sponsor desires to establish one or more unit
investment trusts pursuant to the provisions of the Investment Company Act of
1940, as amended, and the laws of the State of New York and each such trust may
issue a Series (as hereinafter defined) of redeemable securities, each Series
representing undivided interests in a Trust or Trust Fund (as hereinafter
defined) that will be composed primarily of Securities (as hereinafter defined)
included from time to time in the Nasdaq-100 Index-Registered Trademark-
(the "Index");
WHEREAS, the Sponsor desires to provide for the adjustment by
the Trustee of the Securities of each Trust to reflect the composition and
weighting of securities in the Index, the collection by the Trustee of the
dividends and other income and capital gains on such Securities held in the
Trust, and the distribution by the Trustee to the Depository (as hereinafter
defined), as the record owner of the Trust, of such dividends, capital gains,
and other Trust income to the extent that dividends, capital gains, and other
Trust income exceed fees and expenses of the
<PAGE>
Trust, and to provide for other terms and conditions upon which such Trusts
shall be established and administered as hereinafter provided; and
WHEREAS, in order to facilitate the creation of various Series
of unit investment trusts as aforesaid, the terms and conditions of
establishment and administration of which will be in many respects substantially
similar, it is desirable to set forth standard terms and conditions of trust
upon which such Trusts will be established and administered, subject to the
terms and provisions of this Agreement and the terms and conditions of an
Indenture (as hereinafter defined) into which this Agreement will be, as to each
Series, incorporated;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements herein contained, the Sponsor and the Trustee hereby agree as
follows:
INTRODUCTION
This Agreement, effective as of the day and year first above
written, shall be applicable to the Nasdaq-100 Trust, Series 1 (a unit
investment trust) and to all Series of the Nasdaq-100 Trust formed on or
subsequent to the date hereof for which this Agreement's applicability and its
incorporation by reference is specified in the applicable Indenture relating to
such Series. For each Series of the Nasdaq-100 Trust to which this Agreement is
to be applicable, the Sponsor and the Trustee shall execute an Indenture (or
supplement or amendment to such Indenture) incorporating by reference this
Agreement and designating any exclusion from or exception to such incorporation
by reference for the purposes of that Series or variation of the terms hereof
for the purposes of that Series, and specifying for that Series (each of the
following terms as defined herein): (i) the Initial Portfolio Deposit to be
deposited in trust pursuant to Section 2.02 hereof and the number of Creation
Unit size aggregations of Nasdaq-100 Shares to be delivered by the
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Trustee in exchange for the Initial Portfolio Deposit, (ii) the initial
undivided interest represented by each Creation Unit size aggregation of
Nasdaq-100 Shares, (iii) the number of Nasdaq-100 Shares which, when aggregated,
constitute one Creation Unit, (iv) the Mandatory Termination Date, (v) the
Initial Date of Deposit and the Series name of the Trust, (vi) the fiscal year
of the Trust, and (vii) any other terms specific to any Series of the Nasdaq-100
Trust.
ARTICLE I
DEFINITIONS
Section 1.01 DEFINED TERMS. Whenever used in this Agreement,
the following words and phrases, unless the context otherwise requires, shall
have the following meanings:
"ACCUMULATION PERIOD" shall mean a period during which Securities held by the
Trust earn their respective dividends, such period being measured from the
most recent Ex-Dividend Date to and including the current Business Day;
provided, however, that the initial Accumulation Period shall begin on the
Business Day following the Initial Date of Deposit.
"AGREEMENT" the Standard Terms and Conditions of Trust embodied in this
instrument and all amendments and supplements hereto.
"AMEX" is the American Stock Exchange LLC
"AUTHORIZED OFFICER" shall mean the President, any Vice President, any Secretary
and any other person or category of persons named in the resolution(s)
authorizing the Sponsor to establish the Trust or authorizing the Trustee to act
as such, and in the case of the Trustee shall also include any Assistant Vice
President, Treasurer and Assistant Treasurer.
"BENEFICIAL OWNER" shall mean an owner of beneficial interests in Nasdaq-100
Shares held through the Depository.
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"BUSINESS DAY" any day that the Nasdaq Stock Market is open for business.
"CNS SYSTEM" the continuous net settlement system of NSCC.
"COMMISSION" the Securities and Exchange Commission.
"CPI-U" the National Consumer Price Index for All Urban Consumers, as published
by the United States Department for Labor, or any successor index.
"CREATION UNIT" the minimum number of Nasdaq-100 Shares that may be created at
any one time as described below in Section 2.03, which is 50,000 Nasdaq-100
Shares, unless (1) a different aggregate number of Nasdaq-100 Shares necessary
to constitute a Creation Unit is set forth in the Indenture for a particular
Series, (2) a different aggregate number for an existing Series is effectuated
by means of an amendment to the Indenture and current Prospectus for such
Series, or (3) a different aggregate number of Nasdaq-100 Shares necessary to
constitute a Creation Unit is utilized by the Trustee in connection with the
implementation of a dividend reinvestment plan or service pursuant to the
provisions of Section 3.09.
"DEPOSITOR" each person or organization that has entered into a Nasdaq-100
Participant Agreement with the Trustee and that may from time to time deposit
Portfolio Deposits with the Trustee, including, without limitation, the
Depositor making the Initial Portfolio Deposit(s) on the Initial Date of
Deposit.
"DEPOSITORY OR DTC" shall mean The Depository Trust Company, New York, New York,
or such other depository as may be selected by the Trustee as specified herein.
"DEPOSITORY AGREEMENT" the agreement or Letter of Representations among the
Trustee, the Sponsor and the Depository, dated as March 4, 1999, as the same may
be from time to time amended in accordance with its terms.
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"DISTRIBUTOR" ALPS Mutual Funds Services, Inc., any successor corporation
thereto and any other corporation appointed by the Sponsor and the Trustee to
act as the Distributor hereunder, provided that such corporation is identified
as the Distributor in the current version of the Trust Prospectus.
"EVALUATION TIME" closing time of the regular trading session on the Nasdaq
Stock Market (currently 4:00 p.m. New York time) unless another meaning is
assigned to such term in the Indenture.
"INCOME" any income or cash or other dividend distribution by an issuer of a
Security, whether or not such payment or distribution is taxable to the
recipient thereof.
"INCOME NET OF EXPENSE AMOUNT" the cash amount required to be paid by either the
Trustee on behalf of the Trust or the Depositor in connection with a deposit of
securities into the Trust as specified in Section 2.03(b).
"INDENTURE" the Indenture into which this Agreement will be, as to each Series,
incorporated and all amendments and supplemental indentures thereto.
"INDEX" the Nasdaq-100 Index-Registered Trademark-.
"INDEX SECURITIES" the securities that constitute the Index.
"INITIAL DATE OF DEPOSIT" the date so designated in the Indenture.
"INITIAL PORTFOLIO DEPOSIT" the Portfolio Deposit(s) deposited into the Trust on
the Initial Date of Deposit.
"INTERNAL REVENUE CODE" the Internal Revenue Code of 1986, as amended, or any
successor provisions.
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"LICENSE AGREEMENT" the License Agreement dated as of August 7, 1998 between
Nasdaq and the Sponsor pursuant to which the Sponsor has been granted the
license to use certain trademarks and service marks of Nasdaq.
"MANDATORY TERMINATION DATE" the date specified in the Indenture.
"NASDAQ" shall mean The Nasdaq Stock Market, Inc.
"NASDAQ-100 SHARES" shall mean a unit of fractional undivided interest in and
ownership of the Trust Fund.
"NASDAQ-100 CLEARING PROCESS" the CNS System of NSCC, as such processes have
been enhanced to effect creations and redemptions of Creation Unit size
aggregations of Nasdaq-100 Shares.
"NASDAQ-100 PARTICIPANT AGREEMENT" an agreement among the Distributor, the
Trustee and either (1) a Participating Party or (2) a DTC Participant,
substantially in the form set forth in Exhibit A hereto, as the same may be from
time to time amended in accordance with its terms.
"NSCC" the National Securities Clearing Corporation.
"NSCC BUSINESS DAY" a day NSCC is open for business.
"ORDER" the exemptive order granted by the Commission with respect to the Trust
in Release IC - 23702 dated February 22, 1999.
"PARTICIPATING PARTY" a participant in the Nasdaq-100 Clearing Process.
"PORTFOLIO" the Securities held by the Trust consisting of a portfolio of equity
securities or, in the case of securities not yet delivered on the Initial Date
of Deposit (or, subsequently, securities not yet delivered in connection with
purchases made by the Trust or subsequent Portfolio Deposits), confirmations of
contracts to purchase such securities.
"PROSPECTUS" the Prospectus relating to a particular Trust filed with the
Commission pursuant to Rule 424 of the Securities Act of 1933, as amended.
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"REGULATED INVESTMENT COMPANY" a trust which qualifies as a "regulated
investment company" under the current provisions of the Internal Revenue Code.
"SECURITIES" publicly traded common stocks and other securities convertible into
or representing equity securities of issuers, including contracts to purchase
securities, (a) that are listed or referred to as securities in Schedule A to
the Indenture, (b) that have been received by the Trust in subsequent Portfolio
Deposits pursuant to Section 2.02, (c) that have been acquired by the Trust as a
result of the reinvestment of proceeds from any sale of securities or as a
result of purchases and sales of securities to conform the Portfolio to the
composition and weighting of the securities in the Index, all pursuant to
Section 2.04, (d) that have been received by the Trust as a distribution or
dividend in respect of any of the securities held by the Trust, or (e) that have
been received by the Trust in exchange or substitution pursuant to Section 3.07,
1each as may from time to time continue to be held as part of the Trust.
"SERIES" any series of the Trust.
"SPONSOR" shall mean Nasdaq-Amex Investment Product Services, Inc., or any
corporation into which it may be merged or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which it shall be
a party, or any corporation succeeding to all or substantially all of its
business as sponsor of unit investment trusts, or any successor sponsor
designated as such by operation of law or any successor sponsor appointed as
herein provided.
"TRUST OR TRUST FUND" shall mean the individual trust fund created by a
particular Indenture which shall consist of the Portfolio and all undistributed
income or other amounts received or receivable thereon and any undistributed
cash held or realized from the sale or liquidation of the Securities, or from
the deposit of Portfolio Deposits.
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"TRUSTEE" (a) The Bank of New York or its successor or (b) any successor trustee
designated by operation of law or appointed as herein provided or (c) any other
bank, trust company, corporation or national banking association designated as
trustee in the Indenture for the applicable Trust Series, which bank, trust
company, corporation or national banking association shall be a party to such
Indenture and whose execution thereof shall subject such bank, trust company,
corporation or national banking association to all rights, duties and
liabilities hereunder and thereunder, in each case acting as trustee and not
individually, unless otherwise indicated.
Section 1.02 TERMS DEFINED ELSEWHERE. Whenever used in this
Agreement, the following words and phrases, unless the context otherwise
requires, have the meanings set forth in the section identified below:
TERM DEFINED IN SECTION
"Adjustment Day"........................................................2.04(g)
"Available Cash"...........................................................3.09
"Balancing Amount"......................................................2.04(h)
"Cash Component"........................................................2.03(c)
"Cash Redemption Amount"...................................................5.01
"Discretionary Termination Amount"......................................9.01(a)
"Dividend Payment Date".................................................3.04(g)
"Dividend Reinvestment Service"............................................3.09
"DTC Participant".......................................................3.11(c)
"Ex-Dividend Date"......................................................3.04(g)
"Indirect Participant"..................................................3.11(c)
"Misweighting"..........................................................2.04(a)
"Misweighting Amount"...................................................2.04(a)
"NAV Amount"............................................................2.04(g)
"Portfolio Deposit".....................................................2.03(c)
"Portfolio Deposit Amount"..............................................2.04(h)
"Record Date"...........................................................3.04(g)
"Reinvesting Beneficial Owners"............................................3.09
"Request Day"...........................................................2.04(g)
"Share Register"........................................................3.11(a)
"Sponsor Indemnified Party".............................................7.04(b)
"Transaction Fee".......................................................2.03(i)
"Trust Fund Evaluation"....................................................4.02
"Trustee Indemnified Party"................................................8.05
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ARTICLE II
DECLARATION OF TRUST; DEPOSIT OF SECURITIES; THE PORTFOLIO; CREATION AND
ISSUANCE OF NASDAQ-100 SHARES IN CREATION UNIT SIZE AGGREGATIONS
Section 2.01 DECLARATION OF TRUST. The Trustee declares that it
holds and will hold the Trust Fund as Trustee for the use and benefit of all
present and future Beneficial Owners and subject to the terms and conditions of
the Indenture and this Agreement. The Trustee hereby declares on behalf of the
Trust that it elects the treatment for tax purposes as a Regulated Investment
Company and covenants to comply with the provisions of Section 8.02(b) hereof to
continue the qualification of the Trust as a Regulated Investment Company. The
Trustee is hereby directed to make such elections, including any appropriate
election to be taxed as a corporation, as shall be necessary to effect such
qualification.
Section 2.02 DEPOSIT OF SECURITIES.
(a) Concurrently with the execution and delivery of the Indenture, a
Depositor will deposit the Initial Portfolio Deposit with the Trustee, and from
time to time thereafter Depositors may make, as provided below in this Section
2.02, additional deposits of Portfolio Deposits with the Trustee, and in each
case the Trustee will be granted and conveyed all right, title and interest in
and to, and there will be conveyed and deposited with the Trustee in an
irrevocable trust, all cash and securities so deposited in connection with each
such Portfolio Deposit. With respect to the Initial Portfolio Deposit made by a
Depositor concurrently with the execution and delivery of the Indenture, the
securities portion of the Initial Portfolio Deposit will be comprised of the
securities listed in Schedule A to the Indenture, and each of such securities
will be duly endorsed in blank or accompanied by all necessary instruments of
assignment and transfer in proper form or delivered through the Depository, to
be held and applied by the Trustee as herein provided. There
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also will be a Cash Component (as hereinafter defined in Section 2.03(c))
included in the Initial Portfolio Deposit which shall also be listed in Schedule
A to the Indenture. The first accrual period for dividends payable on the first
Dividend Payment Date will commence on the Business Day following the Initial
Date of Deposit. Upon the delivery of the Initial Portfolio Deposit, the
Depositor will also deliver to the Trustee one of the following: a certified
check or checks, cash or cash equivalent or an irrevocable letter or letters of
credit issued by a commercial bank or banks rated A or better (or other
equivalent rating) by a nationally recognized rating agency in an amount
necessary to satisfy applicable regulatory requirements.
(b) From time to time following the Initial Date of Deposit, the
Trustee is authorized to accept on behalf of the Trust additional deposits of
Portfolio Deposits, and all Index Securities deposited in connection therewith
shall be duly endorsed in blank or accompanied by all necessary instruments of
assignment and transfer in proper form or delivered through the Depository, to
be held and applied by the Trustee as herein provided. To permit the Trustee to
ensure that the process of settlement is working satisfactorily, there shall be
no further Portfolio Deposits accepted by the Trustee for a period of three (3)
Business Days following the Initial Date of Deposit, and the Sponsor and the
Trustee shall jointly announce the day thereafter on which further Portfolio
Deposits will be accepted. The Trustee shall ensure that the securities portion
of each Portfolio Deposit shall be comprised of such Index Securities and in
such numbers as are specified in accordance with Section 2.04. The Trustee shall
also ensure that, in the event certain Securities held by the Trust Fund are
removed from the Index or the composition or weighting of the Index Securities
changes, or certain corporate actions relating to the Index Securities occur as
specified in Section 2.04, the Trustee shall recalculate the composition of the
Portfolio Deposit
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and adjust the composition of the Portfolio, in each case as required by the
provisions of Section 2.04.
(c) The Trustee is hereby irrevocably authorized to effect registration
or transfer of the Securities in fully registered form to the name of the
Trustee or to the name of its nominee or the nominee of its agent or to hold the
Securities in its account at the Depository.
Section 2.03 CREATION AND ISSUANCE OF CREATION UNITS.
(a) The Trustee acknowledges that the Initial Portfolio Deposit(s)
specified in the Indenture (which include the Securities and Cash Component
listed in Schedule A to the Indenture) have been deposited with it by the
Depositor on the Initial Date of Deposit. The Trustee shall accept such Initial
Portfolio Deposit(s) and issue an appropriate corresponding number of Nasdaq-100
Shares in Creation Unit size aggregations in exchange therefor.
(b) The Portfolio Deposits accepted by the Trustee from time to time
thereafter shall include a portfolio of Securities (initially the Securities
listed in Exhibit A to the Indenture and, thereafter, such Securities as the
composition and number of shares thereof may be adjusted as required by Section
2.04) together, in certain cases to the extent applicable as specified below,
with a cash payment equal to the Income Net of Expense Amount (as defined
below), plus or minus, as the case may be, the Balancing Amount (as hereinafter
defined - see Section 2.04). The "Income Net of Expense Amount" is an amount
equal, on a per Creation Unit basis, to the dividends accrued on all the
Securities with ex-dividend dates within the applicable 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
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the Trustee and other expenses of the Trust (including legal and auditing
expenses) and other expenses not previously deducted).
(c) The Income Net of Expense Amount and the Balancing Amount are
collectively referred to herein as the "Cash Component" and the deposit of such
a portfolio of Securities and the Cash Component are collectively referred to
herein as a "Portfolio Deposit." In connection with an order to create
Nasdaq-100 Shares on any given day, the Cash Component of the Portfolio Deposit
may be payable by either 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. If the Cash Component has a positive
value (i.e., the sum of dividends on all Securities with ex-dividend dates
within the Accumulation Period, plus or minus the Balancing Amount, exceeds the
accrued expenses and liabilities of the Trust for such period), then the creator
of Nasdaq-100 Shares will be obligated to pay such amount to the Trustee on
behalf of the Trust in connection with an order to create Nasdaq-100 Shares.
Conversely, if the Cash Component has a negative value (i.e., the sum of
dividends on all Securities with ex-dividend dates within the Accumulation
Period, plus or minus the Balancing Amount, is less than the accrued expenses
and liabilities of the Trust for such period), then such Cash Component will be
paid to the entity placing an order to create Nasdaq-100 Shares by the Trustee
on behalf of the Trust.
(d) Requests to create Nasdaq-100 Shares in Creation Unit size
aggregations through the Distributor must be made by or through a Participating
Party or a DTC Participant who has executed a Nasdaq-100 Participant Agreement.
A Participating Party, pursuant to the Nasdaq- 100 Participant Agreement, agrees
to transfer the requisite Index Securities (or contracts to purchase such Index
Securities which are expected to be delivered through NSCC in a "regular
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way" manner in three (3) NSCC Business Days) and the Cash Component, if
required, to the Trustee by means of the Nasdaq-100 Clearing Process, together
with such additional information as may be required by the Trustee. The
Nasdaq-100 Participant Agreement shall set forth the procedures for requesting
the creation of Creation Units and delivering Portfolio Deposits, making payment
of the Cash Component (either by the entity placing the order to create Nasdaq-
100 Shares or by the Trustee on behalf of the Trust), confirming requests for
creations, and for delivering Nasdaq-100 Shares in Creation Unit size
aggregations. The Trustee shall maintain, and make available for inspection
during normal business hours, a list of the entities that are parties to the
Nasdaq-100 Participant Agreement at its office at 101 Barclay Street, New York,
New York 10286 or at such other address as may be specified to the Sponsor in
writing.
(e) Under certain circumstances, Nasdaq-100 Shares in Creation Unit
size aggregations may be created by or through a DTC Participant through the
Distributor outside the Nasdaq-100 Clearing Process. In such cases, the DTC
Participant, pursuant to the Nasdaq-100 Participant Agreement, shall effectuate
the transfer of the requisite Index Securities and the Cash Component, if
required, to the Trustee directly through DTC on the Business Day immediately
following the day on which the order is accepted by the Distributor, in exchange
for Nasdaq-100 Share delivery to the creating party directly through DTC not
later than on the third (3rd) Business Day following the day on which the order
is accepted by the Distributor. The Nasdaq- 100 Participant Agreement shall set
forth the procedures for requesting the creation of Creation Unit size
aggregations of Nasdaq-100 Shares outside the Nasdaq-100 Clearing Process.
(f) Upon receipt of a Portfolio Deposit or Deposits following
acceptance by the Distributor of an order to create Nasdaq-100 Shares, the
Trustee will (i) transfer Nasdaq-100 Shares thereby created in Creation Unit
size aggregations to the Depository in the name of Cede
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& Co. for the account of such Depositor, if such Depositor is a DTC Participant,
or for the account of the DTC Participant acting on behalf of such Depositor,
and (ii) when required, deliver the Cash Component to the account of such
Depositor, if such Depositor is a DTC Participant, or for the account of the DTC
Participant acting on behalf of such Depositor, in each case in accordance with
the procedures set forth in the Nasdaq-100 Participant Agreement. The Trustee
shall acknowledge the deposit of such Portfolio Deposit(s) by recording on its
books the name of the Depositor and the aggregate number of Creation Unit(s)
created in respect of the Portfolio Deposit(s) so deposited. The Trustee shall
also debit or credit to the Trust, as applicable, (a) the Income Net of Expense
Amount, if any, made in connection with such Portfolio Deposit(s) and (b) the
Balancing Amount, if any. Any such amounts received by the Trust shall be
applied or distributed as provided in this Agreement.
(g) The identity and number of shares of the Index Securities required
for a Portfolio Deposit, which will change as the composition and weighting of
the Index Securities change, shall be determined in the manner specified in
Section 2.04. The Trustee shall, as set forth in this Agreement, determine the
number of shares of each of the Index Securities and the Cash Component for each
Portfolio Deposit. Such determination by the Trustee shall be final and binding
in connection with all Portfolio Deposits.
(h) The Trustee may reject an order to create Nasdaq-100 Shares in
Creation Unit size aggregations transmitted to it if the Depositor or group of
Depositors on obtaining the Nasdaq- 100 Shares ordered would own or appear to
own eighty percent (80%) or more of the outstanding Nasdaq-100 Shares and if,
pursuant to Section 351 of the Internal Revenue Code, such circumstance would
result in the Trust having a basis in the Index Securities deposited different
from the market value of such Index Securities on the date of such deposit. The
Trustee
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shall have the right to require information regarding Nasdaq-100 Share ownership
pursuant to the Nasdaq-100 Participant Agreement and from the Depository, and to
rely thereon to the extent necessary to make the foregoing determination, as a
condition to the acceptance of an order to create Nasdaq-100 Shares. The Trustee
further reserves the absolute right to reject any Portfolio Deposit or any
component thereof (a) determined by it not to be in proper form; (b) that the
Trustee believes would have adverse tax consequences to the Trust or to
Beneficial Owners; (c) the acceptance for deposit of which would, in the opinion
of counsel, be unlawful; (d) that would otherwise, in the discretion of the
Trustee, have an adverse effect on the Trust or the rights of Beneficial Owners;
or (e) in the event of the inability of the creator to deliver or cause to be
delivered the Portfolio Deposit through the Depository or otherwise in the event
that circumstances outside the control of the Trustee make it for all practical
purposes not feasible to process creations of Nasdaq-100 Shares. The Trustee
will provide notice to the Depositor of its reasons for rejection of a creation
order in respect of a Portfolio Deposit or any component thereof. The Trustee
and the Sponsor shall not incur any liability in connection with any
notification of defects or irregularities in the delivery of Portfolio Deposits
or any component thereof or in connection with the rejection of the creation
order itself.
(i) A transaction fee will be payable to the Trustee for its own
account in connection with each creation and each redemption of Creation Unit
size aggregations of Nasdaq-100 Shares (the "Transaction Fee"). The Transaction
Fee charged in connection with the creation of Creation Units through the
Nasdaq-100 Clearing Process shall be $1,000 per Participating Party per day,
regardless of the number of Creation Units created on such day by such
Participating Party. The Transaction Fee charged in connection with redemptions
through the Nasdaq-100 Clearing
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Process shall be $1,000 per Participating Party per day, regardless of the
number of Creation Units redeemed on such day by such Participating Party.
(j) If one or more Creation Units are created or redeemed outside the
Nasdaq-100 Clearing Process by a Depositor on any one day, an additional amount
not to exceed three (3) times the Transaction Fee applicable for a Creation Unit
will be charged to the creator or redeemer, in part due to the increased expense
associated with settlement outside the Nasdaq-100 Clearing Process.
(k) The Transaction Fee may subsequently be waived, modified, reduced,
increased or otherwise changed by the Trustee, upon the consent of the Sponsor,
but will not in any event exceed 1/10th of one percent of the value of a
Creation Unit at the time of creation or redemption, as the case may be. From
time to time, and for such periods as the Sponsor and the Trustee together may
determine, the Transaction Fee (as well as any additional amounts charged in
connection with creations and/or redemptions outside the Nasdaq-100 Clearing
Process) may be increased, decreased, or otherwise modified or waived in its
entirety for certain numbers of Creation Units of Nasdaq-100 Shares created or
redeemed, or for creations and/or redemptions made under certain specified
circumstances, in each case without the consent of Beneficial Owners, but will
not in any event exceed 1/10 of one percent of the value of a Creation Unit at
the time of creation or redemption, as the case may be. The Sponsor also
reserves the right, from time to time, to vary the number of Nasdaq-100 Shares
per Creation Unit and such change may or may not be made in conjunction with a
change to the Transaction Fee. Prior to implementing such change, the Sponsor
shall cause the current Prospectus for the Trust to be amended to reflect any
such changes in the Transaction Fee. The Trustee shall make available upon
request the amount of the Transaction Fee in effect at any given time.
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(l) So long as the Depository Agreement is in effect, Nasdaq-100 Shares
will be transferable solely through the book-entry system of the Depository as
provided in Section 3.11. The Depository may determine to discontinue providing
its service with respect to Nasdaq-100 Shares by giving notice to the Trustee
and the Sponsor pursuant to and in conformity with the provisions of the
Depository Agreement and discharging its responsibilities with respect thereto
under applicable law. Under such circumstances, the Trustee and the Sponsor
shall take action either to find a replacement for the Depository to perform its
functions at a comparable cost or, if such a replacement is unavailable, to
terminate the Trust.
Section 2.04 PORTFOLIO AND PORTFOLIO DEPOSIT ADJUSTMENTS.
(a) The Trustee will adjust the composition of the Portfolio from time
to time to conform, to the extent practicable, to changes in the composition
and/or weighting of the Index Securities. The Trustee will aggregate certain of
these adjustments and make conforming changes to the Portfolio; however,
adjustments will be made more frequently in the case of changes to the Index
that are significant as described below. To further the investment objective of
the Trust, minor misweightings will generally be permitted within the guidelines
set forth below. Specifically, the Trustee will be required to adjust the
composition of the Portfolio at any time that there is a change in the identity
of any Index Security (i.e., a substitution of one security in replacement of
another), which adjustment shall be made within three (3) Business Days before
or after the date on which the change in the identity of such Index Security is
scheduled to take effect at the close of the market. In addition, the Trustee
shall adjust the composition of the Portfolio at any time that the weighting of
any Security in the Portfolio varies in excess of one hundred and fifty percent
(150%) of the Misweighting Amount (set forth in the table below) from the
weighting of such Security in the Index (a "Misweighting"):
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NET ASSET VALUE MISWEIGHTING
OF THE TRUST AMOUNT
Less than $25,000,000 0.25%
$25,000,000 - $99,999,999 0.20%
$100,000,000 - $499,999,999 0.10%
$500,000,000 - $999,999,999 0.05%
$1,000,000,000 and over 0.02%
The Trustee shall examine each Security in the Portfolio on each
Business Day, comparing the weighting of each such Security in the Portfolio to
the weighting of the corresponding Index Security in the Index, based on prices
at the close of the market on the preceding Business Day (a "Weighting
Analysis"). In the event that there is a Misweighting in any Security in excess
of one hundred and fifty percent (150%) of the applicable Misweighting Amount,
the Trustee shall calculate an adjustment to the Portfolio in order to bring the
Misweighting of such Security within the Misweighting Amount, based on prices at
the close of the market on the day on which such Misweighting occurs. Also, on a
monthly basis, the Trustee shall perform a Weighting Analysis for each Security
in the Portfolio, and in any case where 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 occurs. In addition to the foregoing adjustments, the Trustee
reserves the right to make additional adjustments
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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.
(b) From time to time Nasdaq may make adjustments to the composition of
the Index as a result of a merger or acquisition involving one or more of the
Index Securities. In such cases, the Trust, as shareholder of securities of an
issuer that is the object of such merger or acquisition activity, may receive
various offers from would-be acquirors of the issuer. The Trustee will not be
permitted to accept any such offers until such time as it has been determined
that the securities of the issuer will be removed from the 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 in subparagraph (a)
above. Any securities received as a part of the consideration that are not Index
Securities will be sold as soon as practicable and the cash proceeds of such
sale will be reinvested in Index Securities in accordance with the criteria set
forth in subparagraph (a) above.
(c) Purchases and sales of securities resulting from the adjustments
described herein will be made in the share amounts dictated by the
specifications set forth herein, whether round lot or odd lot. All Portfolio
adjustments will be made as described herein unless such adjustments would cause
the Trust to lose its status as a Regulated Investment Company.
(d) Pursuant to these guidelines the Trustee will calculate the
required adjustments and will purchase and sell the appropriate securities. As a
result of the purchase and sale of securities in accordance with these
requirements, or the creation or redemption of Creation Units, the Trust
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may hold some amount of residual cash (other than cash held temporarily due to
timing differences between the sale and purchase of securities or cash delivered
in lieu of Index Securities or undistributed income (including but not limited
to any Income Net of Expense Amount payments to the Trust) or undistributed
capital gains) as a result of such transactions, which amount shall not exceed
for more than five (5) consecutive Business Days 5/l0ths 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/l0ths of 1 percent of
the value of the Securities, the Trustee shall use such cash to purchase
additional Index Securities applying such cash first to purchase Index
Securities that are under-weighted in the Portfolio as compared to their
relative weightings in the Index, although the Misweighting of such Index
Securities may not be in excess of the applicable Misweighting Amount.
(e) All adjustments to the Portfolio held by the Trustee will be made
by the Trustee pursuant to the foregoing specifications and will be
non-discretionary. In addition, the Trustee shall have the power and shall be
required to adjust the composition of the Portfolio at any time if it determines
that such action is necessary to insure the continued qualification of the Trust
as a Regulated Investment Company, even if such adjustment will cause the
composition Portfolio to deviate from that of the Index. The adjustments
provided herein are intended to conform the composition and weighting of
securities in 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 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 Indenture and this Agreement, without the consent of
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the Depository or Beneficial Owners, to conform the adjustments provided herein
to such changes so that the objective of tracking the Index is maintained.
(f) The Trustee will direct its securities transactions only to brokers
or dealers, which may include affiliates of the Trustee, from whom it expects to
obtain the most favorable prices for execution of orders. The net proceeds of
any sales of Securities shall either be reinvested in accordance with this
Section 2.04 or distributed in accordance with Section 3.07.
(g) On each Business Day after the Initial Date of Deposit (each such
day an "Adjustment Day"), the number of shares and/or identity of each of the
Index Securities in a Portfolio Deposit will be adjusted in accordance with the
following procedure. At the Evaluation Time on each Adjustment Day, the Trustee
will calculate the net asset value of the Trust as provided in Section 4.02. The
net asset value will be divided by the number of outstanding Nasdaq-100 Shares,
then multiplied by the number of Nasdaq-100 Shares in one Creation Unit size
aggregation, resulting in a net asset value per Creation Unit (the "NAV
Amount"). The Trustee will then calculate the number of shares (without
rounding) of each of the component stocks of the Index in a Portfolio Deposit
for the following Business Day ("Request Day"), such that (1) the market value
at the Evaluation Time on an 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, will equal
the NAV Amount and (2) the identity and weighting of each of the securities in a
Portfolio Deposit will mirror proportionately, to the extent practicable, 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 will
be 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 will
constitute the securities
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portion of the Portfolio Deposit effective on Request Day and thereafter until
the next subsequent Adjustment Day, as well as the Securities to be delivered by
the Trustee in the event of request for redemption of Nasdaq-100 Shares in
Creation Unit size aggregations on Request Day and thereafter until the
following Adjustment Day pursuant to Section 5.01. In addition to the foregoing
adjustments, in the event that there shall occur a stock split, stock dividend,
or reverse stock split with respect to any Index Security, the Portfolio Deposit
shall be adjusted to take account of such stock split, stock dividend, or
reverse stock 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 such case each Index Security will be
rounded to the nearest whole share, with a fraction of 0.50 being rounded up.
(h) On Request Day and on each day that a request for the creation or
redemption of Nasdaq-100 Shares in Creation Unit size aggregations is made, the
Trustee will calculate the market value of the securities portion of the
Portfolio Deposit as in effect on Request Day as of the Evaluation Time and add
or subtract to that amount, as applicable, 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 will then calculate the NAV Amount,
based on the Evaluation Time on Request Day. The difference between the NAV
Amount so calculated and the Portfolio Deposit Amount shall be the "Balancing
Amount." The Balancing Amount serves the function of compensating for any
differences between the value of the Portfolio Deposit Amount and the NAV Amount
at the Evaluation Time on Request Day due to, for example, (1) differences in
the
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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.
(i) Notwithstanding the foregoing, on any Adjustment Day on which (a)
no change in the identity and/or share weighting of any Index Security is
scheduled to take effect that would cause the Index divisor to be adjusted after
the close of the market on such Business Day,* and (b) no stock split, stock
dividend, or reverse stock split with respect to any Index Security has been
declared to take effect on the corresponding Request Day, the Trustee reserves
the right to forego making any adjustment to the securities portion of the
Portfolio Deposit and to use the composition and weighting of the Index
Securities for the most recently effective Portfolio Deposit for the Request Day
following such Adjustment Day. In addition, the Trustee further reserves the
right to calculate the adjustment to the number of shares and/or identity of the
Index Securities in a Portfolio Deposit as described above except that such
calculation would be employed for two (2) Business Days rather than one (1)
Business Day prior to Request Day. Notwithstanding the foregoing, the amount of
the Cash Component shall at all times be determined in accordance with the
procedures set forth above.
(j) In making the adjustments described in this Section 2.04, the
Trustee shall rely on information made publicly available by Nasdaq to third
parties 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
- -----------------------------------
* Nasdaq normally publicly announces changes in identity and/or
weighting of the Index Securities in advance of the actual changes.
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Portfolio Deposit) until the earlier of (a) such time as current information
with respect to the Index Securities is available or (b) three (3) consecutive
Business Days have elapsed. If such current information is not available and
three (3) consecutive Business Days have elapsed, the composition and weightings
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.
(k) The Trustee shall make available to NSCC prior to the commencement
of trading on each Business Day a list of the names and required number of
shares of each of the Index Securities in the current Portfolio Deposit as well
as the amount of the Income Net of Expense Amount effective through and
including the previous Business Day. Under certain extraordinary circumstances
which may make it impossible for the Trustee to provide such information to NSCC
on a given Business Day, NSCC shall use the information regarding the identity
and share amounts of the Index Securities of the Portfolio Deposit on the
previous Business Day.
(l) At such time as the Trustee gives written notice of the termination
of the Trust as provided in Section 9.01, from and after the date of such notice
the Trustee shall use the composition and weightings of the Securities held in
the Trust as of such date for the purpose and determination of all redemptions
or other required uses of the securities portion of the Portfolio Deposit.
(m) If the Trustee shall determine, in its discretion, that an Index
Security is likely to be unavailable or available in insufficient quantity for
delivery upon the creation of Nasdaq-100 Shares in Creation Unit size
aggregations for the following Business Day or for any period thereafter, the
Trustee shall have the right to include the cash equivalent value of such Index
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Security (determined in accordance with the protocols listed in Section 4.01
hereof) in the Portfolio Deposit in the calculation of the Cash Component in
lieu of the inclusion of the Index Security in the securities portion of the
Portfolio Deposit. In the event that such a determination is made, the Portfolio
Deposit so constituted shall dictate the Index Securities to be delivered in
connection with the creation of 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. The amount of such
equivalent payment shall be used by the Trustee in accordance with the foregoing
guidelines regarding allowable Misweightings and permissible amounts of cash. In
such cases, the Trustee, to effectuate the policy described above, may purchase
the appropriate number of shares of the Index Security at the time such security
is available for purchase.
(n) In connection with the creation of Nasdaq-100 Shares, if an
investor states its belief that it is restricted by regulation or otherwise from
investing or engaging in a transaction in one or more Index Securities, the
Trustee, in its discretion, shall have the right to include the cash equivalent
value of such Index Security or Index Securities (determined in accordance with
the protocols listed in Section 4.01 hereof) in the Portfolio Deposit in the
calculation of the Cash Component in lieu of the inclusion of such Index
Security or Index Securities in the securities portion of the Portfolio Deposit
for the affected investor. The amount of such equivalent payment shall be used
by the Trustee in accordance with the foregoing guidelines regarding allowable
Misweightings and permissible amounts of cash. In such cases, the Trustee, to
effectuate the policy described above, may purchase the appropriate number of
shares of the Index Security that the investor was unable to purchase. In any
such case the creator shall pay the
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Trustee the standard Transaction Fee plus an additional amount not to exceed
three (3) times the standard Transaction Fee.
(o) By the fifth Business Day of each month the Trustee shall furnish
the Sponsor a report showing, as of each day of the prior calendar month on
which trading in any one or more of the Index Securities occurred on the Nasdaq
Stock Market, the investment performance of the Trust in relation to that of the
Index, measured by way of tracking error in a reasonable and meaningful manner
and with an explanation as to the source(s) of any unusually large values of
such tracking error on any day or days in the month. Among such sources, the
Trustee will identify, but not otherwise be responsible for, the portion of
tracking error, if any, attributable to differences between (i) the closing
value of the Index available to the Trustee at the time it ordinarily calculates
the Trust's net asset value following its usual daily procedures and (ii)
subsequently reported changes to such closing Index value. The Trustee shall
also be available to explain the tracking error of the Trust upon request of the
Sponsor from time to time.
Section 2.05 BANK ACCOUNTS. The Trustee shall open and maintain
a separate bank account or accounts in the banking department of the Trustee in
the name, and for the benefit of, the Trust, subject only to draft or order by
the Trustee acting pursuant to the terms of this Agreement, and shall hold in
such account or accounts uninvested all cash received by it from or for the
account of the Trust. Each Series of the Trust shall be separately identified
and shall have an account or accounts unique to it. Except as provided for in
Section 3.04(f), neither the Trust, any Series of the Trust, the Depository or
any Beneficial Owner shall derive any benefit or receive any income or interest,
directly or indirectly, from this bank account or accounts or any balance
therein from time to time. Except as provided for in Section 3.04(f), all
benefit from such
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bank account or accounts or any balance therein from time to time shall be the
property of the Trustee.
ARTICLE III
ADMINISTRATION OF TRUST
Section 3.01 COLLECTION OF INCOME.
(a) The Trustee shall collect, or claim on, any Income on the
Securities as it becomes payable (including the Income Net of Expense Amount
(when such amount is paid to the Trustee on behalf of the Trust by a creator of
Nasdaq-100 Shares) and that part of the proceeds of the sale or liquidation of
any of the Securities which represents accrued dividends or distributions and
capital gains thereon). Income so collected shall be held uninvested until
distributed pursuant to the provisions of this Agreement. The Trustee shall
accrue all Income to the Trust as of the date on which the Trust is entitled to
such Income as a holder of record of the Securities.
Section 3.02 COLLECTION OF OTHER MONEYS. All moneys other than
amounts received by the Trustee in respect of the Securities under this
Agreement as described in Section 3.01 or reinvested in the purchase of Index
Securities as provided in Section 2.04 (including, but not limited to, the
Balancing Amount, all moneys realized by the Trustee from the sale of options,
warrants or other similar rights received in respect of the Securities
representing dividends or distributions thereon and any capital gains
dividends), shall be credited to the Trust in accordance with generally accepted
accounting principles; provided, however, that moneys which are required to
cover the price of securities purchased by the Trust but not yet delivered shall
be held for such purchase. Moneys so collected shall be held uninvested. Any
moneys collected other than amounts collected pursuant to Section 3.01 in
respect of the Securities may be reinvested in
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additional Securities in lieu of distributions of dividend payments and other
income, if necessary, as provided in Section 3.04.
Section 3.03 ESTABLISHMENT OF RESERVES. From time to time the
Trustee may, as required by generally accepted accounting principles, establish
reserves for any applicable taxes or other governmental charges that may be
payable out of the Trust Fund. The Trustee shall not be required to transmit to
the Depository for distribution to Beneficial Owners as described in Section
3.11 any amounts held in such reserves; provided, however, that if the Trustee,
in its sole discretion, determines that such amounts are no longer necessary for
payment of applicable taxes or other governmental charges, then such amounts
shall no longer be considered to be held in such reserves. If the Trust Fund has
been terminated or is in the process of termination, the Trustee shall transmit
to the Depository for distribution to Beneficial Owners as described in Section
3.11 such Beneficial Owners' interest in the amounts previously reserved in
accordance with Section 9.01.
Section 3.04 CERTAIN DEDUCTIONS AND DISTRIBUTIONS.
(a) On each Business Day, to the extent applicable, the Trustee shall
deduct from moneys held as described above and pay to itself individually the
amounts that it is on such day entitled to receive pursuant to Sections 8.01 and
8.04 on account of its services performed. Expenses of the Trust will be
annualized and accrued on each Business Day.
(b) The following charges are or may be accrued and paid by the Trust:
The (1) Trustee's fees as set forth below; (2) fees payable to
transfer agents for the provision of transfer agency services, if any; (3)
fees of the Trustee for extraordinary services performed under this
Agreement; (4) various governmental charges; (5) any taxes, fees and charges
payable by the Trustee with respect to Nasdaq-100 Shares (whether in Creation
Unit size
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aggregations or otherwise); (6) expenses and costs of an action taken by a
Trustee Indemnified Party or a Sponsor Indemnified Party to protect the Trust
and the rights and interests of Beneficial Owners of Nasdaq-100 Shares (whether
in Creation Unit size aggregations or otherwise); (7) indemnification of the
Trustee or the Sponsor for any losses, liabilities or expenses incurred by them
in the administration of the Trust without gross negligence, bad faith, wilful
misconduct, wilful malfeasance on their part or reckless disregard of their
obligations and duties; (8) expenses incurred in contacting Beneficial Owners of
Nasdaq-100 Shares both during the life of the Trust and upon termination of the
Trust; (9) brokerage commissions incurred by the Trustee when acquiring or
selling Index Securities pursuant to the provisions hereof; and (10) other
out-of-pocket expenses of the Trust not otherwise stated above incurred pursuant
to actions permitted or required under this Agreement or the Indenture.
(c) In addition to those discussed above, the following expenses will
be charged to the Trust: (i) reimbursement to the Sponsor of amounts paid by it
to Nasdaq for all periods after September 30, 1999 in respect of annual
licensing fees due under the License Agreement pursuant to Section 10.03, (ii)
federal and state annual registration fees in keeping the registration of
Nasdaq-100 Shares on a current basis pursuant to Section 10.02 for the issuance
of Nasdaq-100 Shares, and (iii) 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).*
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* In accordance with the provisions of the Order, the expenses listed in
clauses (i), (ii), and (iii) above may only be charged by the Trustee
to the Trust in an amount equal to their actual costs, but in no case
may exceed 20 basis points (20/100 of 1%) of the net asset value of the
Trust per year. Further, if in any one year such costs exceed such 20
basis point limit, the Sponsor agrees to absorb such excess costs and
shall authorize the Trustee
(continued...)
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(d) The Sponsor reserves the right to charge the Trust a special
sponsor fee from time to time, pursuant to the provisions of Section 8.01(j), 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.
(e) 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 in order to assure that the Trust remains economically attractive to
current as well as prospective investors. 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.
(f) If the income received by the Trust in the form of dividends and
other distributions on the Securities is insufficient to cover these
above-mentioned expenses, the Trustee may make advances to the Trust to cover
the expenses discussed above; otherwise the Trustee may sell Securities in an
amount sufficient to pay such expenses as provided in Section 3.06. The Trustee
may also, in its discretion, make advances to the Trust out of its own funds in
such amounts as may be necessary to permit (i) distributions to Beneficial
Owners via the Depository pursuant to this Section 3.04, (ii) payment of the
Cash Component to creators of Nasdaq-100 Shares pursuant to Section 2.03 (when
such Cash Component is payable by the Trustee on behalf of the Trust), and (iii)
payments in respect of redemptions of Nasdaq-100 Shares pursuant to Section
5.01. The Trustee will reimburse itself in the amount of any such advance,
together with interest thereon at a percentage rate equal to the then current
overnight federal funds rate plus Federal Reserve Board
- --------------------------------
(...continued)
* not to carry such excess forward into the following calendar year. In
the event the Sponsor absorbs such excess costs during the year, the
Sponsor shall have the right to be repaid the amount of any expenses
absorbed to the extent that subsequently during the year such expenses
fall below the 20 basis point level per year.
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requirements, by deducting such amounts from (1) dividend payments or other
income of the Trust when such payments or other income is received, (2) the
amounts earned or benefits derived by the Trustee on cash held by the Trustee
for the benefit of the Trust, and (3) the sale of Securities. Notwithstanding
the foregoing, in the event that any advance remains outstanding for more than
forty-five (45) Business Days, the Trustee shall sell Securities to reimburse
itself for the amount of such advance and any accrued interest thereon, unless
the Trustee, in its discretion, determines not to sell Securities because future
anticipated dividend payments on the Securities and other income of the Trust
are expected to be sufficient to reimburse the Trustee for such advance and
accrued interest thereon or because the Trustee otherwise determines that a sale
of Securities to reimburse itself for such advance is not advisable at such
time. At the time the Trustee sells Securities to reimburse itself for the
amount of an advance and accrued interest thereon, the Trustee shall first sell
Securities that are overweighted in the Portfolio as compared to their relative
weighting in the Index. The Trustee shall have a lien against and a security
interest in the assets of the Trust for the payment of such advances plus
interest as provided in Section 8.04.
(g) The Trustee shall compute on a daily basis the dividends
accumulated and declared for the Securities within each Accumulation Period. The
regular quarterly ex-dividend date for Nasdaq-100 Shares will be the third
Friday in each of March, June, September and December, unless such day is not a
Business Day, in which case the ex-dividend date will be the immediately
preceding Business Day (the "Ex-Dividend Date"). Beneficial Owners as reflected
on the records of the Depository and the DTC Participants on the second (2nd)
Business Day following the Ex-Dividend Date (the "Record Date") will be entitled
to receive an amount (if any) representing dividends accumulated on the
Securities through the quarterly Accumulation Period which ends
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on the Business Day preceding such Ex-Dividend Date (including securities with
ex-dividend dates falling within such quarterly divided period) and other
income, if any, received by the Trust, net of fees and expenses of the Trust,
accrued daily for such period. In the event that Trust fees and expenses exceed
dividends accumulated on the Securities for such period, no distributions to
Beneficial Owners shall be made. In addition, no dividend distribution shall be
made for any given quarter, and such amount shall be rolled over into the next
quarterly Accumulation Period, if the aggregate dividend distribution so
determined 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 dividend
distribution is required to be made to maintain the Trust's status as a
Regulated Investment Company or to avoid the imposition of income or excise
taxes on undistributed income. For the purposes of all dividend distributions,
dividends per Nasdaq-100 Share will be calculated at least to the nearest
1/100th of $0.01. On each Record Date, the Trustee shall compute the aggregate
amount of funds (if any) to be distributed through the Depository to Beneficial
Owners as described in Section 3.11 which shall be paid on the last Business Day
in the calendar month following each Ex-Dividend Date (the "Dividend Payment
Date"). On each Dividend Payment Date, the Trustee shall distribute to the
Depository (i) the aggregate amount of funds to be distributed to each
Beneficial Owner pursuant to this Section 3.04 and (ii) the aggregate amount of
Nasdaq-100 Shares and cash, if any, to Beneficial Owners participating in a
dividend reinvestment plan or service pursuant to Section 3.09, if and when
established. All such distributions shall be made in accordance with the
provisions of Section 3.11.
(h) The Trustee shall make additional distributions to Beneficial
Owners via the Depository as described in Section 3.11 at least annually with
respect to moneys received by the
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Trust other than Income to the minimum extent necessary (i) to distribute the
entire annual investment company taxable income of the Trust, plus any net
capital gains (e.g., from sales of Securities in connection with adjustments to
the Portfolio, to generate cash for such distributions or to pay the fees and
expenses of the Trust), and (ii) to avoid imposition of the excise tax imposed
by Section 4982 of the Internal Revenue Code or any successor provision or any
similarly imposed tax on income or gains.
(i) The Trustee further reserves the right to declare special dividends
if, in its reasonable discretion, such action is necessary or advisable to
preserve the status of the Trust as a Regulated Investment Company or to avoid
imposition of income or excise taxes on undistributed income.
(j) The Trustee further reserves the right without the consent of the
Depository or the Beneficial Owners to vary the frequency with which periodic
distributions, if any, are made (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 date if it is
reasonably determined jointly by the Sponsor and the Trustee, in their
discretion, that such change would be advantageous to the Trust. Notice of any
such variance or change (which notice shall include changes to the Record Date,
the Ex-Dividend Date, the Dividend Payment Date and the Accumulation Period
resulting from such variance) shall be provided to Beneficial Owners via the
Depository and the DTC Participants.
Section 3.05 STATEMENTS AND REPORTS. After the end of each
fiscal year and within the time period required by applicable laws, rules and
regulations, the Trustee will furnish
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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
such laws, rules and regulations. With each distribution, the Trustee will
furnish to the DTC Participants for distribution to Beneficial Owners a
statement setting forth the amount being distributed expressed as a dollar
amount per Nasdaq-100 Share.
Section 3.06 PURCHASE AND SALE OF SECURITIES.
(a) The Trustee shall be required to purchase or sell Index Securities
to conform the Portfolio to changes in the Index as described in Section 2.04.
The Trustee shall calculate the adjustments to the Portfolio and place the
appropriate buy or sell orders at such times and in the manner so prescribed in
Section 2.04.
(b) The Trustee is empowered, in its discretion, to sell the requisite
amount of Securities held in the Trust Fund to permit the payment of
distributions pursuant to Section 3.04 in the event that the Trustee has
insufficient amounts available in the Trust Fund to make such distributions. The
Trustee is also empowered, in its discretion, to sell the requisite amount of
Securities held in the Trust Fund to permit (i) payments of the Cash Component
to creators of Nasdaq-100 Shares pursuant to Section 2.03 (when such Cash
Component is payable by the Trustee on behalf of the Trust to creators of
Nasdaq-100 Shares), (ii) payment of Trust fees and expenses, (iii) payments in
respect of the redemption of Nasdaq-100 Shares pursuant to Section 5.01, and
(iv) payment of advances made by the Trustee. In the case of any advance, the
Trustee will reimburse itself for such advance plus interest in accordance with
Section 3.04(f) and shall have a lien against and a security interest in the
assets of the Trust for the payment of such advance plus interest as provided in
Section 8.04.
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(c) The Trustee shall also sell Securities whenever it determines that
projected annualized fees and expenses accrued on a daily basis exceed projected
annualized dividends and other Trust income accrued on a daily basis by more
than 1/100 of one percent (0.01%) of the net asset value of the Trust. Whenever
the 0.01% threshold is exceeded, the Trustee shall 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 pursuant to Section 2.04,
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.
(d) At the time the Trustee sells Securities pursuant to this Section,
the Trustee shall first sell Securities that are overweighted in the Portfolio
as compared to their relative weighting in the Index. Notwithstanding any
provision contained in this Agreement, the Trustee shall not sell any Securities
in the Portfolio unless such sale is required as a Portfolio adjustment pursuant
to and in accordance with Section 2.04 or is otherwise permitted in accordance
with the provisions of this Section and Sections 3.04, 3.07, 5.01 or 8.04. In
the case of each and every sale required hereunder, the Trustee shall not be
responsible for (i) any depreciation or loss incurred by reason of such sale,
(ii) underperformance of the Trust in relation to that of the Index by reason of
such sale, and (iii) any out of the ordinary costs as a result of such sale.
(e) If at any time the issuer of any Security fails to pay or declare
an anticipated dividend or interest and provision for such payment has not been
duly made, or there has been a material event affecting an issuer's Security or
the price of an Index Security, the Trustee may not sell such Securities unless
and until such Securities are removed from the Index or as otherwise permitted
in accordance with this Section and Section 3.07. The Trustee shall not be
liable or
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responsible in an way for depreciation or loss incurred by reason of the failure
to make a sale when not required by the terms of this Agreement.
Section 3.07 SUBSTITUTE SECURITIES. In the event that an offer
by the issuer of any of the Securities held in the Portfolio shall be made to
issue new securities in exchange or substitution for any issue of Securities,
the Trustee shall not accept such offer or take any other action with respect
thereto until such time as it has been determined that the securities of the
issuer will be removed from the Index. In the event that a security of an issuer
is removed from the Index as a result of the consummation of merger or
acquisition activity of such issuer and the Trust receives cash in exchange for
the Security of such issuer held in the Portfolio, the Trustee shall reinvest
such cash in Index Securities as provided in Section 2.04. If the Trust receives
any securities in exchange for the Security of the issuer held in the Portfolio
and removed from the Index, and such securities received in exchange are not
included in the Index, the Trustee shall sell such securities as soon as
practicable and reinvest the proceeds of the sale in Index Securities as
provided in Section 2.04.
Section 3.08 COUNSEL. The Trustee may employ from time to time
counsel to act on behalf of the Trust and perform any legal services in
connection with the Securities and the Trust, including, among others, any legal
matters relating to (i) the possible disposition or acquisition of any
Securities pursuant to any provision hereof and (ii) the administration of the
Trust. The fees and expenses of such counsel shall be paid by the Trustee from
the assets of the Trust.
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Section 3.09 DIVIDEND REINVESTMENT.
(a) The Sponsor reserves the right to make a dividend reinvestment plan
or service available to Beneficial Owners of one or more Series of the Trust for
reinvestment of their cash proceeds, including but not limited to the Dividend
Reinvestment Service as provided for in subsection (b) below, and this Agreement
may be amended to the extent necessary to implement such plan or service without
the consent of any Beneficial Owner. The Sponsor shall cause the Prospectus for
the affected Series to be amended to include disclosure concerning such plan or
service and the Trustee, upon the direction of the Sponsor, shall give notice to
all Beneficial Owners via the Depository of such plan or service, in accordance
with the provisions of Section 3.11.
(b) The Sponsor may direct the Trustee to make the book-entry dividend
reinvestment service of the Depository available for use by Beneficial Owners
(the "Dividend Reinvestment Service"). The Trustee shall, as of each Record
Date, establish the number of Beneficial Owners currently participating in the
Dividend Reinvestment Service ("Reinvesting Beneficial Owners"). On or before
each Dividend Payment Date following each such Record Date, the Trustee shall
deduct from the available cash as of the close of business on such Dividend
Payment Date the sum of all amounts due and owing all such Reinvesting
Beneficial Owners (the "Available Cash"). The Trustee may then utilize such
Available Cash to obtain Index Securities in an amount necessary to create the
requisite number of Nasdaq-100 Shares valued at the Evaluation Time on the
Dividend Payment Date. The Trustee is authorized to (1) deposit additional
Portfolio Deposits in accordance with the provisions of Section 2.02, (2)
deposit one or more Index Securities as is necessary to adjust for a
Misweighting in accordance with the provisions of Section 2.04 or (3) utilize a
combination of deposits in accordance with clauses (1) and (2) above in
connection with
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the issuance of the appropriate amount and number of corresponding Nasdaq-100
Shares to be distributed to all Reinvesting Beneficial Owners via the
Depository. Alternatively, the Trustee, in its discretion, may utilize such
Available Cash to purchase the requisite number of Nasdaq-100 Shares on the open
market, valued at the Evaluation Time on the Dividend Payment Date, to be
distributed to all Reinvesting Beneficial Owners via the Depository. The Trustee
is authorized to create whole Nasdaq-100 Shares only in this manner; no
fractional Nasdaq-100 Shares shall be created or distributed. Cash balances, if
any, remaining after the requisite number of whole Nasdaq-100 Shares have been
created or purchased on the open market shall be distributed, on a PRO RATA
basis, to all Reinvesting Beneficial Owners in the manner provided in Section
3.04(g). The Trustee is authorized to pay all brokerage commissions, if any,
necessary to acquire Index Securities for the creation of Nasdaq-100 Shares, or
in purchasing Nasdaq-100 Shares on the open market, in connection with the
Dividend Reinvestment Service and such commissions shall be treated as an
expense of the Trust pursuant to the provisions of Section 3.04.
Section 3.10 ACTION BY TRUSTEE REGARDING VOTING. The Trustee
shall have the exclusive right to vote all of the voting Securities of the
Trust, and shall vote each of the Securities in the same proportion as all
shares of each such Security are voted by all the shareholders of each such
Security to the extent permissible, but if not permitted, shall abstain from
voting. The Trustee shall not be liable to any person for any action or failure
to take action with respect to this Section 3.10.
Section 3.11 BOOK-ENTRY-ONLY SYSTEM.
(a) The Trustee shall keep or cause to be kept a share register (the
"Share Register") in which, subject to such reasonable regulations as it may
prescribe, the Trustee shall provide for the registration of ownership of
Nasdaq-100 Shares. Nasdaq-100 Shares will be issued in book-
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entry form only, and the Trustee shall cause the Share Register to reflect such
issuance of Nasdaq-100 Shares in such amounts as have been issued, and such
Nasdaq-100 Shares shall be registered on the Share Register in the name of the
owner thereof. After the Initial Date of Deposit, Nasdaq-100 Shares shall only
be registered in the name of the Depository or its agent or nominee. Upon such
issuance and registration on the Share Register, Nasdaq-100 Shares shall be
validly issued and entitled to the benefits of this Agreement and the Indenture.
Certificates will not be issued for Nasdaq-100 Shares in Creation Unit size
aggregations or otherwise.
(b) On the Initial Date of Deposit, the Trustee shall record in the
Share Register the number of Creation Unit size aggregations of Nasdaq-100
Shares delivered in exchange for the Initial Portfolio Deposit as set forth in
the Indenture, which Nasdaq-100 Shares shall be registered in the name of the
Depositor, and such Depositor shall receive a confirmation of such registration
from the Trustee. The Depository will act as securities depository for
Nasdaq-100 Shares prior to the day that the Sponsor and the Trustee shall
jointly announce that further Portfolio Deposits will be accepted in accordance
with Section 2.02(b). On such day, the Nasdaq-100 Shares issued on the Initial
Date of Deposit shall be re-registered by the Trustee on the Share Register in
the name of Cede & Co., as nominee for the Depository, for the account of the
initial Depositor, if such Depositor is a DTC Participant, or for the account of
the DTC Participant through which the initial Depositor maintains a custodial
relationship, if the initial Depositor is not a DTC Participant. Thereafter,
Cede & Co. will be the registered owner in the Share Register of the aggregate
amount of Nasdaq-100 Shares outstanding at all times. The Trustee shall further
record on the Share Register any change in the number of Nasdaq-100 Shares
outstanding and registered in the name of Cede & Co. in order to reflect
creations or redemptions of Nasdaq-100 Shares.
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(c) Upon the settlement date of any creation or redemption of
Nasdaq-100 Shares, the Trustee will notify the Depository or NSCC, as the case
may be, of the DTC Participant the accounts of which the Depository will credit
or debit, on its book-entry registration and transfer system, the number of
Nasdaq-100 Shares so created or redeemed. Beneficial ownership of Nasdaq-100
Shares will be limited to participants of the Depository (the "DTC
Participants"), others that maintain a custodial relationship with a DTC
Participant, either directly or indirectly (the "Indirect Participant"), and
persons holding interests through DTC Participants and Indirect Participants.
Ownership of beneficial interests in Nasdaq-100 Shares (owners of such
beneficial interests are referred to herein as "Beneficial Owners") will be
shown on, and the transfer of ownership will be effected only through, records
maintained by the Depository (with respect to DTC Participants) and on the
records of DTC Participants (with respect to Indirect Participants and
Beneficial Owners that are not DTC Participants).
(d) So long as Cede & Co., as nominee of the Depository, is the
registered owner of Nasdaq-100 Shares, references herein to the registered or
record owners of Nasdaq-100 Shares shall mean Cede & Co. and shall not mean the
Beneficial Owners of Nasdaq-100 Shares. Beneficial Owners of Nasdaq-100 Shares
will not be entitled to have Nasdaq-100 Shares registered in their names, will
not receive or be entitled to receive physical delivery of certificates in
definitive form, and will not be considered the record or registered holder
thereof under this Agreement.
(e) As described above, the Trustee will recognize the Depository or
its nominee as the owner of all Nasdaq-100 Shares for all purposes except as
expressly set forth in this Agreement. Where notices, statements, and other
communications are to be conveyed to Beneficial Owners, the Trustee shall first
request from the Depository, at the expense of the Trust,
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a listing of the Nasdaq-100 Share holdings of each DTC Participant. The Trustee
shall inquire of each such DTC Participant of which it has notice from the
Depository that it is a holder of Nasdaq-100 Shares, 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
sufficient copies of such notice, statement, or other communication, in such
form, number, and at such place as such DTC Participant may reasonably request,
in order that such notice, statement, or communication may be transmitted by
such DTC Participant, directly or indirectly, to such Beneficial Owners. In
addition, the Trust shall pay to each such DTC Participant an amount as
reimbursement for the expenses attendant to such transmittal, all subject to
applicable statutory and regulatory requirements. The Trustee and the Sponsor
may rely and shall be fully protected in relying upon information furnished by
the Depository and its DTC Participants and Indirect Participants with respect
to the Beneficial Owners.
(f) Nasdaq-100 Share distributions shall be made to the Depository or
its nominee, Cede & Co., as the registered owner of all Nasdaq-100 Shares.
Neither the Trustee nor the Sponsor will have any responsibility or liability
for any aspects of the records of the Depository, DTC Participants or Indirect
Participants relating to or notices to Beneficial Owners, or payments by the
Depository, DTC Participants or Indirect Participants made on account of
beneficial ownership interests in Nasdaq-100 Shares, or for maintaining,
supervising, or reviewing any records relating to such beneficial ownership
interests or for any other aspect of the relationship between the Depository and
the DTC Participants or the relationship between such DTC Participants and the
Indirect Participants and Beneficial Owners owning through such DTC
Participants.
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(g) The Depository may determine to discontinue providing its services
with respect to Nasdaq-100 Shares at any time by giving notice to the Trustee
and the Sponsor pursuant to and in conformity with the provisions of the
Depository Agreement and discharging its responsibilities with respect thereto
under applicable law. Under such circumstances, the Trustee and the Sponsor
shall take action jointly either to find a replacement for the Depository to
perform its functions at a comparable cost or, if such a replacement is
unavailable, to terminate the Trust as provided in Article IX.
ARTICLE IV
EVALUATION OF SECURITIES AND TRUST FUND
Section 4.01 EVALUATION OF SECURITIES. The evaluation with
respect to the aggregate value of the Securities as used in calculating the net
asset value of the Trust shall be made as follows: 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 (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
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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.
Section 4.02 TRUST FUND EVALUATION. As of the Evaluation Time
(l) on each Business Day and (2) upon termination of the Trust, the Trustee
shall, in determining the net asset value of the Trust: (a) subtract all
liabilities of the Trust (including accrued expenses and dividends payable) from
the total value of the Trust's investments and other assets and (b) divide the
resulting figure by the total number of outstanding Nasdaq-100 Shares. The
resulting figure is herein called a "Trust Fund Evaluation." The amount of cash
held by the Trust (including dividends receivable on stocks trading ex-dividend)
is computed as of such Evaluation Time on each Business Day.
Section 4.03 RESPONSIBILITY OF THE TRUSTEE. The Sponsor and the
Beneficial Owners may rely on an evaluation furnished by the Trustee, and the
Sponsor shall have no responsibility for the accuracy thereof. The
determinations made by the Trustee hereunder shall be made in good faith upon
the basis of, and the Trustee shall not be liable for any errors contained in,
information reasonably available to it. The Trustee shall be under no liability
to the Sponsor, or to Beneficial Owners, for errors in judgment; provided,
however, that this provision shall not protect the Trustee against any liability
to which it would otherwise be subject by reason of wilful misfeasance, wilful
misconduct, bad faith or gross negligence in the performance of its duties or by
reason of its reckless disregard of its obligations and duties hereunder.
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ARTICLE V
REDEMPTION OF CREATION UNITS
Section 5.01 REDEMPTION OF NASDAQ-100 SHARES IN CREATION UNIT
SIZE AGGREGATIONS.
(a) Nasdaq-100 Shares in Creation Unit size aggregations will be
redeemable in kind only when Creation Unit size aggregations are owned by a
Beneficial Owner and held in the account of a single Participating Party (with
respect to redemptions through the Nasdaq-100 Clearing Process) or a single DTC
Participant (with respect to redemptions outside the Nasdaq- 100 Clearing
Process), in each case by submitting a request for redemption to the Trustee in
the manner specified below and in accordance with the Nasdaq-100 Participant
Agreement.
(b) Requests for redemptions of Creation Units may be made on any
Business Day to the Trustee through the Nasdaq-100 Clearing Process. Requests
for redemptions of Creation Units may also be made directly to the Trustee
outside the Nasdaq-100 Clearing Process on any Business Day. 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 described below. In case of redemptions
tendered directly to the Trustee outside the Nasdaq-100 Clearing Process, the
Transaction Fee plus an additional amount not to exceed three (3) times the
Transaction Fee applicable for a Creation Unit will also be deducted from the
amount delivered to the redeemer or added to the amount owed by the redeemer to
the Trustee, as described below. In all cases, both the tender of Nasdaq-100
Shares for redemption and distributions to the redeemer (or payments to the
Trustee, as applicable) in respect of Nasdaq-100 Shares redeemed will be
effected through the Depository, the relevant
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DTC Participant(s), and the Beneficial Owner thereof or the relevant DTC
Participant, as the case may be.
(c) The Trustee will transfer to the DTC Participant acting for the
redeeming Beneficial Owner via the Depository a portfolio of Securities for each
Creation Unit size aggregation of Nasdaq-100 Shares delivered, in most cases
(other than as provided in the next sentence and in subsections (f), (g) and (h)
hereof) identical in composition and weighting to the securities portion of a
Portfolio Deposit as in effect on the date a request for redemption is deemed
received by the Trustee. At and after such time as notice of the termination of
the Trust has been given, the portfolio of securities so delivered shall be
identical in composition and weighting to the Securities in the Trust on the
date of such notice. Each redemption also includes a cash amount, the "Cash
Redemption Amount," which will either be paid to the Trustee on behalf of the
Trust by or for the redeemer or paid to or for the redeemer by the Trustee on
behalf of the Trust as described below. On any given Business Day the Cash
Redemption Amount is an amount in most cases (other than as provided in
subsections (f), (g) and (h) hereof) identical to the amount of the Cash
Component and is equal to the Income Net of Expense Amount plus or minus the
Balancing Amount. To the extent the Cash Redemption Amount has a positive value,
then the Trustee on behalf of the Trust will transfer payment thereof via the
relevant DTC Participant(s) for the redeeming Beneficial Owner. Conversely, to
the extent the Cash Redemption Amount has a negative value, then such Beneficial
Owner is required to deliver payment of such amount to the Trustee on behalf of
the Trust. In the case of redemptions made through the Nasdaq-100 Clearing
Process, the Trustee on behalf of the Trust will effect a transfer of the Cash
Redemption Amount (if required) and the securities for the redeeming Beneficial
Owner by the third (3rd) NSCC Business Day following the date on which request
for redemption
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is deemed received in accordance with the procedures in the Nasdaq-100
Participant Agreement. In the case of redemptions made outside the Nasdaq-100
Clearing Process, the Trustee on behalf of the Trust will transfer the Cash
Redemption Amount (if required) and the securities for the redeeming Beneficial
Owner by the third (3rd) Business Day following the date on which the request
for redemption is deemed received in accordance with the procedures in the
Nasdaq-100 Participant Agreement. Where the Cash Redemption Amount is payable by
the redeemer to the Trustee, the redeeming Beneficial Owner (via the Depository
and the relevant DTC Participants(s)) is required to make payment of such cash
amount by the third (3rd) NSCC Business Day, for redemptions made through the
Nasdaq-100 Clearing Process, or the first (1st) Business Day, for redemptions
outside the Nasdaq-100 Clearing Process, following the date on which the request
for redemption is deemed received, in each case in accordance with the
Nasdaq-100 Participant Agreement. The Trustee will cancel all Nasdaq-100 Shares
delivered upon redemption.
(d) 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 in accordance with Section 3.06. The
Trustee will reimburse itself for such advance plus interest in accordance with
Section 3.04(f) and shall have a security interest for the payment of such
monies pursuant to Section 8.04.
(e) The Trustee may, in its discretion, and will when so directed by
the Sponsor, suspend the right of redemption, or postpone the date of payment of
the net asset value for more than five (5) Business Days following the date on
which the request for redemption is received by
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the Trustee (1) for any period during which the New York Stock Exchange is
closed or trading is suspended; (2) for any period during which an emergency
exists as a result of which disposal or evaluation of the Securities is not
reasonably practicable; or (3) for such other period as the Commission may by
order permit for the protection of Beneficial Owners. Neither the Sponsor nor
the Trustee is liable to any person or in any way for any loss or damages which
may result from any such suspension or postponement.
(f) In the event that the Trustee determines, in its discretion, that
an Index Security is likely to be unavailable or available in insufficient
quantity for delivery by the Trust upon the redemption of Nasdaq-100 Shares in
Creation Unit size aggregations, the cash equivalent value, based on the market
value of such Index Security (determined in accordance with the protocols listed
in Section 4.01 hereof ) at the close of the market on the date the redemption
request is deemed received by the Trustee, may be included as a part of the Cash
Redemption Amount, in lieu of delivering such Index Security as part of the
portfolio of securities delivered to a redeemer.
(g) Upon the specific request of a redeemer, the Trustee may, in its
discretion, redeem Nasdaq-100 Shares in Creation Unit size aggregations
delivered by such redeemer, either in whole or in part, by providing such
redeemer with a portfolio of Securities then held by the Trust which (l) differs
in exact composition and/or weighting from the Index Securities at such time (2)
but does not differ in net asset value from the then-current Portfolio Deposit.
The Trustee may agree to such redemption if the Trustee were to determine that
such differing portfolio of Securities would be appropriate such as, among
others, in order to maintain the Portfolio's correlation to the composition and
weighting of the Index, for example, in connection with a replacement of one of
the Index Securities (e.g., due to a merger, acquisition, or bankruptcy). In
determining whether
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to agree to such a redemption, the Trustee may consult with counsel as to the
tax consequences to the Trust from such a redemption or on such other matters as
it may deem appropriate.
(h) In connection with the redemption of Nasdaq-100 Shares, if an
investor states its belief that it is restricted by regulation or otherwise from
investing or engaging in a transaction in one or more Index Securities, the
Trustee, in its discretion, shall have the right to include the cash equivalent
value of such Index Security or Index Securities (determined in accordance with
the protocols listed in Section 4.01 hereof) in the calculation of the Cash
Redemption Amount, in lieu of delivering such Index Security as part of the
portfolio of securities delivered to such redeeming investor. In any such case,
the investor shall pay the Trustee the standard Transaction Fee plus an
additional amount not to exceed three (3) times the standard Transaction Fee,
regardless of whether the redemption is through the Nasdaq-100 Clearing Process
or outside of the Nasdaq- 100 Clearing Process.
ARTICLE VI
TRANSFER OF NASDAQ-100 SHARES IN
CREATION UNIT SIZE AGGREGATIONS
Section 6.01 TRANSFER OF NASDAQ-100 SHARES IN CREATION UNIT
SIZE AGGREGATIONS. Nasdaq-100 Shares in Creation Unit size aggregations may be
transferred only through the book- entry system of the Depository as provided in
Section 3.11. Beneficial Owners have the rights accorded to holders of a
securities entitlement as against their securities intermediary under applicable
law.
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ARTICLE VII
SPONSOR
Section 7.01 RESPONSIBILITIES AND DUTIES.
In addition to and notwithstanding the other duties, rights, and
responsibilities of the Sponsor as otherwise set forth in this Agreement, the
duties, rights, and responsibilities of the Sponsor are further defined as
follows:
(a) The Sponsor presently intends, but is not obligated, to cause to be
announced, or may designate other persons to announce, on each Business Day, a
list of the names and the required number of shares for each of the Index
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 as shall be provided to it by the Trustee. The Sponsor may
choose within its discretion to determine and cause to be announced, 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). If the Sponsor elects to
make such information available, it will be calculated based upon the best
information available to the Sponsor and may be calculated by other persons
designated to do so by the Sponsor.
(b) The Sponsor reserves the right to direct the Trustee to declare a
split or reverse split in the number of Nasdaq-100 Shares outstanding in the
event that the per Nasdaq-100 Share price in the secondary market changes to an
amount that the Sponsor believes falls outside a desirable retail range. The
Sponsor also reserves the right, but is not obligated, to direct the
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Trustee to make a corresponding change in the number of Nasdaq-100 Shares
constituting a Creation Unit. For example, if a 2-for-1 split were declared and
the Sponsor also determined to make a corresponding change in the number of
Nasdaq-100 Shares per Creation Unit, the number of Nasdaq-100 Shares in a
Creation Unit would double. Prior to implementing such change, the Sponsor shall
cause the current Prospectus for the Trust to be amended to reflect any such
change.
Section 7.02 CERTAIN MATTERS REGARDING SUCCESSOR SPONSOR. The
covenants, provisions, and agreements herein contained shall in every case be
binding upon any successor to the business of the Sponsor, except that no
successor Sponsor may be a partnership. In the event of an assignment by the
Sponsor to a successor corporation, limited liability company, or business trust
as permitted by the next following sentence, the Sponsor shall be relieved of
all further liability under this Agreement. The Sponsor may transfer all or
substantially all of its assets to a corporation, limited liability company, or
business trust which carries on the business of the Sponsor, if at the time of
such transfer such successor duly assumes all the obligations of the Sponsor
under this Agreement.
Section 7.03 RESIGNATION, DISCHARGE OR REMOVAL OF SPONSOR;
SUCCESSORS.
(a) If at any time the Sponsor desires to resign its position as
Sponsor hereunder, it may resign by delivering to the Trustee an instrument of
resignation executed by the Sponsor. Such resignation shall not become effective
until the earlier of (i) the appointment by the Trustee of a successor Sponsor
to assume, with such compensation from the Trust Fund as the Trustee may deem
reasonable under the circumstances but not exceeding the amounts prescribed by
the Commission in accordance with Section 26(a)(2)(C) of the Investment Company
Act of 1940, or any successor provision, the duties and obligations of the
resigning Sponsor hereunder by an
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instrument of appointment and assumption executed by the Trustee and the
successor Sponsor; or (ii) the Trustee shall have agreed to act as Sponsor
hereunder succeeding to all the rights and duties of the resigning Sponsor
without appointing a successor Sponsor and without terminating this Agreement or
the Indenture. The Trustee shall terminate this Agreement and the Indenture and
liquidate the Trust pursuant to Section 9.01 if, within sixty (60) days
following the date on which a notice of resignation shall have been delivered by
the Sponsor, a successor Sponsor has not been appointed or the Trustee has not
agreed to act as Sponsor hereunder.
(b) If the Sponsor shall fail to undertake or perform or shall become
incapable of undertaking or performing any of the duties which by the terms of
this Agreement and the Indenture are required to be undertaken or performed by
it, and such failure shall not be cured within fifteen (15) Business Days
following receipt of notice from the Trustee of such failure, or if the Sponsor
shall be adjudged a bankrupt or insolvent, or a receiver of the Sponsor or of
its property shall be appointed, or a trustee or liquidator or any public
officer shall take charge or control of the Sponsor or of its property or
affairs for the purpose of rehabilitation, conservation, or liquidation, then in
any such case, the Trustee may do any one or more of the following: (i) appoint
a successor Sponsor to assume, with such compensation from the Trust Fund as the
Trustee may deem reasonable under the circumstances, but not exceeding the
reasonable amounts prescribed by the Commission in accordance with Section
26(a)(2)(C) of the Investment Company Act of 1940, or any successor provision,
the duties and obligations of the resigning Sponsor hereunder by an instrument
of appointment and assumption executed by the Trustee and the successor Sponsor;
or (ii) agree to act as Sponsor hereunder without appointing a successor Sponsor
and without terminating this Agreement or the Indenture; or (iii) terminate this
Agreement and the Indenture and liquidate the Trust pursuant to Section 9.01.
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(c) Any resignation or removal of the Sponsor and appointment of a
successor Sponsor shall become effective upon such acceptance of appointment by
the successor Sponsor, and thereupon the resigning or removed Sponsor shall be
discharged and shall no longer be liable in any manner hereunder except as to
acts or omissions occurring prior to such resignation or removal, and the new
Sponsor shall thereupon undertake and perform all duties and be entitled to all
rights and compensation as Sponsor under this Agreement. The successor Sponsor
shall not be under any liability hereunder for occurrences or omissions
occurring prior to the execution of such instrument. The indemnification of the
resigning or removed Sponsor and any other Sponsor Indemnified Party provided
for in Section 7.04 shall survive any resignation, discharge, or removal of the
Sponsor hereunder.
Section 7.04 LIABILITY OF SPONSOR AND INDEMNIFICATION.
(a) The Sponsor shall not be under any liability to the Trust, the
Trustee, or any Beneficial Owner for any action taken or for refraining from the
taking of any action in good faith and believed by it to be authorized or within
its discretion, rights, or powers conferred upon it by this Agreement, or for
errors in judgment or for depreciation or loss incurred by reason of the
purchase or sale of any Securities; provided, however, that this provision shall
not protect the Sponsor against any liability to which it would otherwise be
subject by reason of its own gross negligence, bad faith, wilful misconduct, or
wilful malfeasance in the performance of its duties hereunder or the reckless
disregard of its obligations and duties hereunder. The Sponsor may rely in good
faith on any paper, order, notice, list, affidavit, receipt, evaluation,
opinion, endorsement, assignment, draft, or any other document of any kind prima
facie properly executed and submitted to it by the Trustee, the Trustee's
counsel, or by any other person for any matters arising hereunder. The Sponsor
shall in no event be deemed to have assumed or incurred any liability,
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duty, or obligation, to any Beneficial Owner or to the Trustee other than as
expressly provided for herein.
(b) The Sponsor and its directors, subsidiaries, shareholders,
officers, employees, and affiliates (as such term is defined in the Commission's
Regulation S-X) (each a "Sponsor Indemnified Party") shall be indemnified from
the Trust Fund and held harmless against any loss, liability, or expense
incurred without (l) gross negligence, bad faith, wilful misconduct, or wilful
malfeasance on the part of such Sponsor Indemnified Party arising out of or in
connection with the performance of its obligations hereunder or any actions
taken in accordance with the provisions of this Agreement or the Indenture or
(2) reckless disregard on the part of such Sponsor Indemnified Party of its
obligations and duties under this Agreement or the Indenture. Such indemnity
shall include payment from the Trust Fund of the costs and expenses (including
counsel fees) incurred by such Sponsor Indemnified Party in defending itself
against any claim or liability in its capacity as Sponsor hereunder. Any amounts
payable to a Sponsor Indemnified Party under this Section 7.04 may be payable in
advance or shall be secured by a lien against and a security interest in the
Trust Fund. The Sponsor shall not be under any obligation to appear in,
prosecute, or defend any legal action which in its opinion may involve it in any
expense or liability; provided, however, that if in the Sponsor's opinion action
is required with respect to an event or condition which would have a material
adverse effect on the Trust, the Sponsor shall notify the Trustee of such event
or condition. If the Trustee does not act within ten days after receipt of such
notice, the Sponsor may undertake any such action it may deem necessary or
desirable in respect of this Agreement and the rights and duties of the parties
hereto and in the interests of the Beneficial Owners and, in such event, the
legal expenses and costs of any such
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action shall be expenses and costs of the Trust Fund and the Sponsor shall be
entitled to be reimbursed therefor by the Trust.
ARTICLE VIII
TRUSTEE
Section 8.01 GENERAL DEFINITION OF TRUSTEE'S RIGHTS, DUTIES AND
RESPONSIBILITIES. In addition to and notwithstanding the other duties, rights,
privileges, and liabilities of the Trustee as otherwise set forth in this
Agreement, the duties, rights, privileges, and liabilities of the Trustee are
further defined as follows:
(a) All monies deposited with or received by the Trustee hereunder
shall be held by it, without interest other than as provided in Section 3.04, as
a deposit for the account of the Trust in accordance with the provisions of
Section 2.05, until required to be disbursed in accordance with the provisions
of this Agreement. Such monies shall be deemed segregated by maintaining such
monies in an account for the exclusive benefit of the Trust in accordance with
the provisions of Section 2.05.
(b) The Trustee shall not be under any liability for any action taken
in good faith reliance on any appraisal, paper, certification, order, list,
demand, request, consent, affidavit, notice, opinion, direction, valuation,
endorsement, assignment, resolution, draft, or other documents prima facie in
proper form and properly executed; provided, however that where a list of
authorized officials and their signatures are on file with the Trustee, the
Trustee shall be required to compare such manual signatures to the signature on
any such documents. (Such requirement shall not apply to "personal
identification numbers" or "PINS" or other forms of electronic security devices
which function as a proxy for a manual signature.)
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(c) The Trustee shall not be under any liability for the disposition of
monies, or of any of the Securities, or in respect of any evaluation which it is
required to make under this Agreement or otherwise, except by reason of its own
gross negligence, bad faith, wilful misconduct or wilful malfeasance, or
reckless disregard of its duties and obligations hereunder, and the Trustee may
construe any of the provisions of this Agreement, insofar as the same may be
ambiguous or inconsistent with any other provisions hereof, and any reasonable
construction of any such provision hereof by the Trustee in good faith shall be
binding upon the parties hereto and all Beneficial Owners.
(d) The Trustee shall not be responsible for the due execution hereof
by the Sponsor or for the form, character, genuineness, sufficiency, value or
validity of any of the Securities, or for the due execution thereof by any
Depositor, and the Trustee shall in no event assume or incur any liability, duty
or obligation to any Beneficial Owner or the Sponsor, other than as expressly
provided for herein.
(e) The Trustee shall not be under any obligation to appear in,
prosecute, or defend any action which in its opinion may involve it in expense
or liability, unless it shall be furnished with reasonable security and
indemnity against such expense or liability. Any pecuniary cost of the Trustee
resulting from the Trustee's appearance in, prosecution of, or defense of any
such actions shall be deductible from and constitute a lien against and a
security interest in the assets of the Trust. Subject to the foregoing, the
Trustee shall, in its discretion, undertake such action as it may deem necessary
at any and all times to protect the Trust Fund and the rights and interest of
all Beneficial Owners pursuant to the terms of this Agreement; provided,
however, that the expenses and costs of such actions, undertakings, or
proceedings shall be deductible from the
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assets of the Trust or otherwise reimbursable to the Trustee from, and shall
constitute a lien against and a security interest in, the assets of the Trust.
(f) The Trustee may employ agents, attorneys, accountants, auditors,
and other professionals and shall not be answerable for the default or
misconduct of any such agents, attorneys, accountants, auditors, and other
professionals if such agents, attorneys, accountants, auditors, or other
professionals shall have been selected by it in good faith. The Trustee shall
not be liable in respect of any action taken under this Agreement or the
Indenture, or suffered, in good faith by the Trustee, in accordance with the
opinion of its counsel. The accounts of the Trust Fund shall be audited, as
required by law, by independent certified public accountants designated from
time to time by the Trustee, and the report of such accountants shall be
furnished by the Trustee to Beneficial Owners via the Depository as described in
Section 3.11 in accordance with Section 3.05 and upon request. The fees and
expenses charged by such agents, attorneys, accountants, auditors, or other
professionals shall constitute an expense of the Trust.
(g) If the evaluation of the Trust Fund as shown by any Trust Fund
Evaluation shall be less than the Discretionary Termination Amount, the Trustee
shall give notice thereof to the Sponsor, and the Trustee shall, only when so
directed in writing by the Sponsor, terminate this Agreement and the applicable
Indenture and the Trust Fund created hereby and thereby and liquidate such Trust
Fund, all in the manner provided in Section 9.01.
(h) In no event shall the Trustee be personally liable for any taxes or
other governmental charges imposed upon or in respect of the Securities or upon
the Income thereon or upon it as Trustee hereunder (other than taxes based upon
the income of the Trustee) or upon or in respect of the Trust Fund which it may
be required to pay under any present or future law of the United States of
America or of any taxing authority having jurisdiction in the premises. For all
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taxes and charges and for any expenses, including counsel's fees, which the
Trustee may sustain or incur with respect to such taxes or charges, the Trustee
shall be reimbursed and indemnified out of the assets of the Trust Fund and the
payment of such amounts shall be secured by a lien against and a security
interest in the Trust Fund.
(i) The Trustee shall not be liable except by reason of (i) its own
gross negligence, bad faith, wilful misconduct, or wilful malfeasance for any
action taken or suffered to be taken by it in good faith and believed by it to
be authorized or within the discretion, rights or powers conferred upon it by
this Agreement or (ii) reckless disregard of its obligations and duties
hereunder or under or under the Indenture.
(j) So long as required by Section 26(a)(2)(C) of the Investment
Company Act of 1940, or any successor provision, and the rules promulgated
thereunder, no payment to the Sponsor or to any affiliated person (as so
defined) or agent of the Sponsor shall be allowed as an expense of the Trust
except for payment not in excess of such reasonable amounts as the Commission
may prescribe as compensation for performing bookkeeping and other
administrative services of a character normally performed by the Trustee itself
and except as the Commission may permit by the Order, including the fees payable
under the License Agreement as provided in Section 10.03.
(k) The Trustee in its individual or any other capacity may become an
owner or pledgee of, or be an underwriter or dealer in respect of, bonds or
other obligations issued by the same issuer (or an affiliate of such issuer) of
any Securities at any time held as part of the Trust Fund or of Nasdaq-100
Shares and may deal in any manner with the same or with the issuer (or an
affiliate of the issuer) with the same rights and powers as if it were not the
Trustee hereunder,
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including, but not limited to making loans or maintaining other banking
relationships with any such issuer.
(l) The Trustee is hereby authorized to acknowledge its acceptance of
Nasdaq-100 Participant Agreements entered into by the Distributor and Depositors
from time to time by executing such Nasdaq-100 Participant Agreements,
substantially in the form of Exhibit A hereto. The Trustee shall discharge all
of its obligations and perform all of its duties under the Nasdaq- 100
Participant Agreement.
Section 8.02 BOOKS, RECORDS, AND REPORTS.
(a) The Trustee shall keep proper books of record and account of all
the transactions under this Agreement at its office located at 101 Barclay
Street, New York, New York 10286 or such office as it may subsequently designate
upon notice to the Sponsor. The books and records of the Trust Fund shall be
open to inspection by any Beneficial Owner, the Sponsor or the agents of the
Sponsor at all reasonable times during the usual business hours of the Trustee.
The Trustee shall keep proper record of the creation and redemption of Creation
Units at such office. Such records of the creation and redemption of Creation
Units shall be open to inspection at all reasonable times during the usual
business hours of the Trustee.
(b) The Trustee shall perform such reviews, file such reports or take
any and all such action as it is advised by counsel or accountants employed by
the Trustee as required in order to continue the qualification of the Trust as a
Regulated Investment Company. The Trustee shall also make, or cause to be made,
such annual or other reports and file such documents as it is advised by counsel
or accountants employed by it as are required of the Trust by the Securities Act
of 1933, the Securities Exchange Act of 1934 and the Investment Company Act of
1940, each as amended, and including, but not limited to, Form N-SAR and filings
pursuant to Rule 24f-
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2 under the Investment Company Act of 1940, and shall make, or cause to be made,
such elections and file such tax returns as it is advised by counsel or
accountants employed by it as are from time to time required under any
applicable state or federal statute or rule or regulation thereunder. The
Trust's fiscal year shall be set forth in the Indenture and may be changed from
time to time by the Trustee and the Sponsor without consent of the Beneficial
Owners.
Section 8.03 INDENTURE AND LIST OF SECURITIES ON FILE. The
Trustee shall keep a certified copy or duplicate original of this Agreement on
file in its office and available for inspection at all reasonable times during
its usual business hours by any Beneficial Owner, together with the Indenture
for each Series then in effect, and the Trustee shall keep and so make available
for inspection a current list of the Securities in the Portfolio, including the
identity and number of shares of each of the Securities.
Section 8.04 COMPENSATION OF TRUSTEE.
(a) For services performed under this Agreement, the Trustee will be
paid by the Trust a fee at an annual rate of 6/100 of 1% to 10/100 of 1% of the
net asset value of the Trust, as shown below, such percentage amount to vary
depending on the net asset value of the Trust. Such compensation will be
computed on each Business Day on the basis of the net asset value of the Trust
on such day, and the amount thereof shall be accrued daily and paid in arrears
on the first Business Day of each month.
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
- --------
* The fee indicated applies to that portion of the net asset value of the
Trust which falls in the size category indicated.
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$500,000,000 - $2,499,999,999 8/100 of 1% per annum
$2,500,000,000 and above 6/100 of 1% per annum
(b) Notwithstanding the fee schedule set forth in the table above, the
Trustee's minimum fee shall be $180,000 per annum. To the extent that the
Trustee's annual fee as determined pursuant to the fee scale above is less than
$180,000, the Sponsor hereby agrees to pay to the Trustee the amount of the
shortfall.
(c) The Trustee shall also charge the Trust for those expenses and
disbursements incurred hereunder as contemplated by this Agreement, including,
but not limited to, legal, brokerage, and auditing expenses; provided, however,
that the amount of any such charge which has not been finally determined as of
any Dividend Payment Date may be estimated and any necessary adjustments shall
be made in the succeeding month. The Trustee may direct that all such expenses
and disbursements shall be paid directly from the assets of the Trust. If the
cash balances of the Trust shall be insufficient to provide for amounts payable
pursuant to this Section 8.04, the Trustee may, in its discretion, sell the
requisite amount of securities necessary to make payment of such amounts in
accordance with Section 3.06 or may advance out of its own funds such amounts as
are payable and reimburse itself for such advances as funds become available or
from the proceeds of Securities sold to reimburse such advances in accordance
with Section 3.04(f). The Trustee will reimburse itself in the amount of any
such advance in accordance with Section 3.04(f).
(d) During the term of the Trust, the Trustee and the Sponsor shall
undertake to ensure that the Trustee is adequately and reasonably compensated
for its services hereunder. In the event that the Trustee and the Sponsor
jointly agree that additional compensation to the Trustee is warranted and
appropriate, subject to the agreement of the Sponsor, the Trustee may
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be paid additional compensation over and above the fees described above either
(i) directly from the Sponsor or (ii) from the Trust subject to approval by the
Beneficial Owners of 51% or more of the then outstanding Nasdaq-100 Shares.
(e) The Trustee shall have a lien upon and a security interest in all
assets of the Trust superior in right to any interest or claims of the
Depository and any and all Beneficial Owners, but equal in right to any claim,
lien upon or security interest in the assets of the Trust in right of the
Sponsor provided for in this Agreement, to secure payment of all monies,
compensation, reimbursement of expenses, repayment of advances, payment of
indemnification and all other debts made to or claims of the Trustee against the
Trust.
Section 8.05 INDEMNIFICATION OF TRUSTEE. The Trustee and its
directors, subsidiaries, shareholders, officers, employees, and affiliates (as
such term is defined in the Commission's Regulation S-X) (each a "Trustee
Indemnified Party") shall be indemnified from the Trust Fund and held harmless
against any loss, liability, or expense incurred without (l) gross negligence,
bad faith, wilful misconduct, or wilful malfeasance on the part of such Trustee
Indemnified Party arising out of or in connection with the acceptance or
administration of this Trust and any actions taken in accordance with the
provisions of this Agreement or the Indenture or arising out of the
administration of this Agreement or the Indenture or (2) reckless disregard on
the part of such Trustee Indemnified Party of its obligations and duties under
this Agreement, the Indenture or under applicable law. Such indemnity shall
include payment from the Trust Fund of the costs and expenses (including counsel
fees) incurred by such Trustee Indemnified Party in defending itself against any
claim or liability relating to this Agreement, the Indenture or the Trust Fund,
including any loss, liability or expense incurred in acting pursuant to written
directions or instructions to the Trustee given by the Sponsor or counsel to the
Trust from time to time in
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accordance with the provisions of this Agreement, or in undertaking actions from
time to time which the Trustee deems necessary in its discretion to protect the
Trust Fund and the rights and interest of all Beneficial Owners pursuant to the
terms of this Agreement. Any amounts payable to a Trustee Indemnified Party
under this Section 8.05 may be payable in advance or shall be secured by a lien
against and a security interest in the Trust Fund.
Section 8.06 RESIGNATION, DISCHARGE OR REMOVAL OF TRUSTEE;
SUCCESSORS.
(a) The Trustee may resign and be discharged of the Trust
created by this Agreement and the Indenture by executing an instrument in
writing resigning as such Trustee, filing the same with the Sponsor, and mailing
a copy of a notice of resignation to all DTC Participants for distribution to
Beneficial Owners as provided in Section 3.11 not less than sixty (60) days
before the date specified in such instrument when, subject to Section 8.06(c),
such resignation is scheduled to take effect. In case at any time the Trustee
shall not meet the requirements set forth in Section 8.07 hereof, shall fail to
undertake or perform or shall become incapable of undertaking or performing any
of the duties which by the terms of this Agreement and the Indenture are
required to be undertaken or performed by it, and such failure shall not be
cured within fifteen (15) Business Days following receipt of notice of such
failure, or the Trustee shall be adjudged a bankrupt or insolvent, or a receiver
of the Trustee or of its property shall be appointed, or a trustee or liquidator
or any public officer shall take charge or control of such Trustee or of its
property or affairs for the purposes of rehabilitation, conservation or
liquidation, then in any such case, the Sponsor may, subject to the requirements
of Section 8.06 (b) and (c), remove such Trustee and appoint a successor Trustee
by written instrument or instruments delivered to the Trustee so removed and to
the successor Trustee. Upon receiving notice of resignation or removal of the
Trustee, the Sponsor shall use its best efforts promptly to appoint a successor
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Trustee in the manner and meeting the qualifications hereinafter provided, by
written instrument or instruments delivered to such resigning Trustee and the
successor Trustee. Notice of such appointment of a successor Trustee shall be
mailed promptly after acceptance of such appointment by the successor Trustee to
all DTC Participants for distribution to Beneficial Owners as provided in
Section 3.11. Beneficial Owners of 51% of the Nasdaq-100 Shares then outstanding
may at any time also remove the Trustee by written instrument or instruments
delivered to the Trustee and Sponsor. The Sponsor shall thereupon use its best
efforts to appoint a successor Trustee in the manner provided herein. Upon
effective resignation hereunder, the resigning Trustee shall be discharged and
shall no longer be liable in any manner hereunder except as to acts or omissions
occurring prior to such resignation, and the new Trustee shall thereupon
undertake and perform all duties and be entitled to all rights and compensation
as Trustee under this Agreement. The successor Trustee shall not be under any
liability hereunder for occurrences or omissions occurring prior to the
execution of such instrument.
(b) In case at any time the Trustee shall be removed or shall resign
and no successor Trustee shall have been appointed within sixty (60) days after
the date notice of removal has been received by the Trustee or the Trustee has
issued its notice of resignation, the Trustee shall terminate this Agreement and
the Indenture and liquidate the Trust pursuant to Section 9.01.
(c) Any successor Trustee appointed hereunder shall execute and
acknowledge to the Sponsor and to the retiring Trustee an instrument accepting
such appointment hereunder, and such successor Trustee without any further act,
deed, or conveyance shall become vested with all the rights, powers, duties, and
obligations of its predecessor hereunder with like effect as if originally named
a Trustee herein and shall be bound by all the terms and conditions of this
Agreement and the Indenture. Upon the request of such successor Trustee, the
retiring Trustee
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and the Sponsor shall, upon payment of all amounts due the retiring Trustee,
execute and deliver an instrument transferring to such successor Trustee all the
rights and powers of the retiring Trustee, and the retiring Trustee shall
transfer, deliver, and pay over to the successor Trustee all Securities and
monies at the time held by it hereunder, if any, together with all necessary
instruments of transfer and assignment or other documents properly executed
which are necessary to effect such transfer and such of the records or copies
thereof maintained by the retiring Trustee in the administration hereof as may
be requested by the successor Trustee, and the retiring Trustee shall thereupon
be discharged from all duties and responsibilities under this Agreement. Any
resignation or removal of a Trustee and appointment of a successor Trustee
pursuant to this Section 8.06 shall become effective only upon such acceptance
of appointment by the successor Trustee. The indemnification of such Trustee and
any other Trustee Indemnified Party provided for under Section 8.05 hereof shall
survive any resignation, discharge, or removal of the Trustee hereunder.
(d) Any bank, trust company, corporation or national banking
association into which a Trustee hereunder may be merged or with which it may be
consolidated, or any bank, trust company, corporation or national banking
association resulting from any merger or consolidation to which such Trustee
hereunder shall be a party, or any bank, trust company, corporation or national
banking association succeeding to all or substantially all of the business of
the Trustee, shall be the successor Trustee under this Agreement without the
execution or filing of any paper, instrument or further act to be done on the
part of the parties hereto.
Section 8.07 QUALIFICATIONS OF TRUSTEE. The Trustee or
successor Trustee shall be a bank, trust company, corporation or national
banking association organized and doing business under the laws of the United
States or any state thereof, and shall be authorized under
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such laws to exercise corporate trust powers. The Trustee and any successor
Trustee shall have at all times an aggregate capital, surplus, and undivided
profits of not less than $50,000,000.
Section 8.08 TRUSTEE'S DUTIES EXPRESSLY PROVIDED FOR HEREIN.
Except as otherwise expressly provided for in this Agreement and the Indenture,
the Trustee shall have no duties or obligations hereunder.
ARTICLE IX
TERMINATION
Section 9.01 PROCEDURE UPON TERMINATION.
(a) If within 90 days from the Initial Date of Deposit, the net worth
of the Trust shall have fallen to less than $100,000, the Trustee shall, upon
the direction of the Sponsor, terminate the Trust and distribute to each
Beneficial Owner such Beneficial Owner's pro rata share of the assets of the
Trust. The Sponsor will also have the discretionary right to direct the Trustee
to terminate the Trust if at any time after six months following and prior to
three years following the Initial Date of Deposit the net asset value of the
Trust falls below $150,000,000 or if at any time on or after three years
following the Initial Date of Deposit such value is less than $350,000,000, as
such dollar amount shall be adjusted for inflation in accordance with the CPI-U,
such adjustment to take effect at the end of the fourth year following the
Initial Date of Deposit and at the end of each year thereafter and to be made so
as to reflect the percentage increase in consumer prices as set forth in the
CPI-U for the twelve month period ending in the last month of the preceding
fiscal year (the "Discretionary Termination Amount"). In such case, the Trustee
shall, upon receipt of instruction from the Sponsor, terminate this Agreement,
the Indenture and the Trust created hereby and thereby. Any termination pursuant
to the preceding sentences shall
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be at the complete discretion of the Sponsor subject to the terms hereof, and
the Sponsor and the Trustee shall not be liable in any way for depreciation or
loss occurring as a result of any such termination. The Trustee shall have no
power to terminate this Agreement, the Indenture or the Trust because the value
of the Trust Fund is below the Discretionary Termination Amount. The Trustee
shall terminate this Agreement, the Indenture and the Trust Fund 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. This Agreement, the Indenture and the Trust
Fund may also be terminated upon receipt by the Trustee of written notice of the
occurrence of any one or more of the following events: (a) by the agreement of
the Beneficial Owners of 66-2/3% of outstanding Nasdaq-100 Shares; (b) if the
Depository is unable or unwilling to continue to perform its functions as set
forth herein 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; or (e) if the License Agreement is terminated. 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 this Agreement
are required to be undertaken or performed, or if the Sponsor resigns pursuant
to Section 7.03, the Trustee may, in its discretion, in lieu of appointing a
successor Sponsor pursuant to Section 8.01, terminate this Agreement, the
Indenture and the Trust and liquidate the Trust pursuant to the provisions
hereof. The Trustee shall also terminate this Agreement, the Indenture and the
Trust in the event that the Trustee shall be removed or shall resign and no
successor Trustee shall have been appointed pursuant to Section 8.06 within
sixty (60) days after the date notice of removal has been received by the
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Trustee or the Trustee has issued its notice of resignation. Notwithstanding the
foregoing, this Agreement, the Indenture and the Trust Fund in any event shall
terminate by their terms on the Mandatory Termination Date. As soon as
practicable after notice of termination of the Trust, the Trustee will
distribute to redeemers tendering Nasdaq-100 Shares in Creation Unit size
aggregations prior to the termination date the Securities and cash, if any, as
provided in Section 5.01 and upon termination of the Trust, the Trustee will
sell the Securities held in the Trust as provided below.
(b) If any of the events specified in Section 9.01 hereof shall occur
which give the Sponsor the right to terminate this Agreement and the Indenture,
the Sponsor shall exercise such right by giving written notice to the Trustee of
the event giving rise to the right and the Sponsor's exercise of the right to
terminate this Agreement and the Indenture. If (i) any of the events specified
in Section 9.01 shall occur which give the Trustee the right to terminate this
Agreement and the Indenture, (ii) the Trustee shall receive notice of the
occurrence of any of the events specified in Section 9.01 receipt of which gives
the Trustee the right to terminate this Agreement and the Indenture, or (iii)
any of the events specified in Section 9.01 requiring the Trustee to terminate
this Agreement and the Indenture shall occur and the Trust shall be given
written notice of such occurrence, then the Trustee shall exercise such right or
perform such required act by giving written notice to the Sponsor of the event
giving rise to the right or requirement to terminate this Agreement and the
Indenture and the Trustee's termination of this Agreement and the Indenture.
Promptly after giving or receipt of such notice, the Trustee shall give written
notice of termination, specifying (i) the date of termination, (ii) the period
during which the assets of the Trust will be liquidated and 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
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of the Nasdaq-100 Shares they hold, and (iii) the date determined by the Trustee
upon which the books of the Trustee, maintained pursuant to Section 6.01, shall
be closed, shall be given by the Trustee to each Beneficial Owner via the
Depository at least twenty (20) days prior to termination of the Trust. Such
notice shall further state that, as of the date thereof and thereafter, neither
requests to create additional Creation Units nor additional Portfolio Deposits
will be accepted, and that, as of the date thereof, the portfolio of Securities
delivered upon redemption shall be identical in composition and weighting to the
Securities held in the Trust as of such date (rather than the securities portion
of the Portfolio Deposit determined in accordance with Section 2.04). Within a
reasonable period of time after such termination the Trustee shall, subject to
any applicable provisions of law, sell all of the Securities not already
distributed to redeemers of Nasdaq-100 Shares in Creation Unit size
aggregations, as provided in Section 5.01, if any, in such a manner so as to
effectuate orderly sales and a minimal market impact. The Trustee shall not be
liable for or responsible in any way for depreciation or loss incurred by reason
of any sale or sales made in accordance with the provisions of this Section
9.01. The Trustee may suspend its sales of the Securities upon the occurrence of
unusual or unforeseen circumstances, including, but not limited to, a suspension
in trading of a Security, the closing or restriction of trading, the outbreak of
hostilities, or the collapse of the economy. Upon receipt of proceeds from the
sale of the last Security, the Trustee shall:
(i) pay to itself individually from the Trust Fund an amount
equal to the sum of (1) its accrued compensation for its ordinary
services, (2) any reimbursement due to it for its extraordinary
services, (3) any advances made but not yet repaid and (4) any other
services and disbursements as provided herein;
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(ii) deduct any and all fees and expenses from the Trust Fund
in accordance with the provisions of Section 3.04 hereof; provided,
however, that no portion of such amount shall be deducted or paid
unless the payment thereof from the Trust is at that time lawful;
(iii) deduct from the Trust Fund any amounts which it, in its
sole discretion, shall deem requisite to be set aside as reserves for
any applicable taxes or other governmental charges that may be payable
out of the Trust Fund;
(iv) transmit to the Depository for distribution each
Beneficial Owner's interest in the remaining assets of the Trust; and
(v) disseminate to each Beneficial Owner via the Depository as
provided in Section 3.11 a final statement as of the date of the
computation of the gross amount distributable to the Beneficial Owners,
in substantially the form and manner provided for in Section 3.05
hereof.
(c) Dividends to be received by the Trust on Securities sold in
liquidation pursuant to this Section 9.01 shall be aggregated and distributed
ratably when all such dividends have been received.
Section 9.02 MONEYS TO BE HELD WITHOUT INTEREST TO BENEFICIAL
OWNERS. The Trustee shall be under no liability with respect to moneys held upon
termination, except to hold the same as a deposit without interest for the
benefit of the Beneficial Owners.
Section 9.03 DISSOLUTION OF SPONSOR NOT TO TERMINATE TRUST. The
dissolution of the Sponsor, or its ceasing to exist as a legal entity for any
cause, shall not operate to terminate this Agreement and the Indenture insofar
as the duties and obligations of the Trustee are concerned unless the Trustee
terminates the Trust pursuant to Section 9.01.
69
<PAGE>
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.01 AMENDMENT AND WAIVER.
(a) This Agreement and the Indenture may be amended from time to time
by the Trustee and the Sponsor without the consent of any Beneficial Owners (1)
to cure any ambiguity or to correct or supplement any provision thereof which
may be defective or inconsistent, or to make such other provisions in regard to
matters or questions arising thereunder as will not adversely affect the
interests of Beneficial Owners; (2) to change any provision thereof as may be
required by the Commission; (3) to add or change any provision as may be
necessary or advisable for the continuing qualification of the Trust as a
Regulated Investment Company under the Internal Revenue Code; (4) to add or
change any provision thereof as may be necessary or advisable in the event that
either NSCC or the Depository is unable or unwilling to continue to perform its
functions; (5) to add or change any provision thereof to conform the adjustments
to the Portfolio and the Portfolio Deposit to changes made by Nasdaq in its
method of determining the Index; (6) to add or change any provision thereof as
may be necessary to implement a dividend reinvestment plan; (7) to make changes
to the Transaction Fee and to other amounts charged in connection with creations
and redemptions of Nasdaq-100 Shares within the parameters set forth herein; (8)
to change the number of Nasdaq-100 Shares constituting a Creation Unit; and (9)
to make changes to the level of net dividends specified in Section 3.04(g) below
which dividends will not be paid in a given quarter but will instead be rolled
into the next Accumulation Period. This Agreement and the Indenture 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
70
<PAGE>
of this Agreement and the Indenture or to modify the rights of Beneficial
Owners; provided, however, that this Agreement and the Indenture may not be
amended without the consent of the Beneficial Owners of all outstanding
Nasdaq-100 Shares if such amendment would (x) permit, except in accordance with
the terms and conditions of this Agreement, the acquisition of any securities
other than those acquired in accordance with the terms and conditions of this
Agreement; (y) reduce the interest of any Beneficial Owner in the Trust; or (z)
reduce the percentage of Beneficial Owners required to consent to any such
amendment.
(b) Promptly after the execution of any such amendment, the Trustee
shall receive from the Depository, pursuant to the terms of the Depository
Agreement, a list of all DTC Participants holding 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 Participation to such Beneficial
Owners.
(c) It shall not be necessary for the consent of Beneficial Owners
under this Section 10.01 or under Section 9.01 to approve the particular form of
any proposed amendment, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by Beneficial Owners shall be subject
to such reasonable regulations as the Trustee may prescribe.
Section 10.02 REGISTRATION (INITIAL AND CONTINUING) OF
NASDAQ-100 SHARES. The Sponsor agrees and undertakes on its own part to register
or appoint an agent, which may include the Trustee, to register Nasdaq-100
Shares with the Commission and under the blue sky laws of such states as the
Sponsor may select and as may be required. If, and to the extent permitted by
the Order, the registration of Nasdaq-100 Shares with the Commission and under
the applicable
71
<PAGE>
securities laws of such states shall be payable out of the Trust. Registration
charges, blue sky fees, printing costs, mailing costs, attorney's fees, and
other miscellaneous out-of-pocket expenses incurred pursuant to this Section and
related to all Nasdaq-100 Shares shall be borne by the Trust only to the extent
and in the manner provided for by Section 3.04 and pursuant to the Order.
Section 10.03 LICENSE AGREEMENT WITH NASDAQ. The Sponsor has
obtained a License Agreement with Nasdaq under which it may use the trademarks
and service marks "Nasdaq-Registered Trademark-", "The Nasdaq Stock
Market-Registered Trademark-", "Nasdaq-100 Index-Registered Trademark-
", "Nasdaq-100-Registered Trademark- ", "Nasdaq- 100 Trust-SM-" and "Nasdaq-100
Shares-SM-" to the extent deemed necessary by the Sponsor under federal and
state securities laws and to indicate the source of the Index as a basis for
determining the composition of the Trust. The Trust shall pay to Nasdaq or shall
reimburse the Sponsor for its payment to Nasdaq in accordance with Section 3.04,
a licensing fee as set forth in an exhibit to the License Agreement; provided,
however, that the Sponsor hereby commits not to seek reimbursement from the
Trust, nor shall the Trust pay to Nasdaq, licensing fees to Nasdaq pursuant to
the License Agreement for the period through September 30, 1999.
Section 10.04 CERTAIN MATTERS RELATING TO BENEFICIAL OWNERS.
(a) By the purchase and acceptance or other lawful delivery and
acceptance of Nasdaq-100 Shares (whether in Creation Unit size aggregations or
otherwise), each Beneficial Owner thereof shall be deemed to be a beneficiary of
the Trust created by this Agreement and the Indenture and to be bound by all of
the terms and conditions of this Agreement and the Indenture.
(b) The death or incapacity of any Beneficial Owner shall not operate
to terminate this Agreement and the Indenture, or the Trust Fund, nor entitle
such Beneficial Owner's legal representatives or heirs to claim an accounting or
to take any action or proceeding in any court for a partition or winding up of
the Trust Fund, nor otherwise affect the rights, obligations and
72
<PAGE>
liabilities of the parties hereto or any of them. Each Beneficial Owner
expressly waives any right such Beneficial Owner may have under any rule of law,
or the provisions of any statute, or otherwise, to require the Trustee at any
time to account, in any manner other than as expressly provided in this
Agreement and the Indenture, for the Securities or moneys from time to time
received, held and applied by the Trustee hereunder.
(c) No Beneficial Owner shall have any right to vote except as provided
in Sections 9.01 and 10.01 or in any manner otherwise to control the operation
and management of the Trust Fund, or the obligations of the parties hereto.
Nothing set forth in this Agreement and the Indenture shall be construed so as
to constitute the Beneficial Owners from time to time as partners or members of
an association, nor shall any Beneficial Owner ever be liable to any third
person by reason of any action taken by the parties to this Agreement and the
Indenture, or for any other cause whatsoever.
Section 10.05 NEW YORK LAW TO GOVERN. This Agreement and the
Indenture shall be governed by and construed in accordance with the laws of the
State of New York, without regard to the conflicts of laws thereof, and all laws
or rules of construction of such State shall govern the rights of the parties
hereto and the Beneficial Owners and the interpretation of the provisions
hereof. This Agreement and the Indenture shall be deemed effective when executed
by the Sponsor and the Trustee.
Section 10.06 NOTICES. Any notice, demand, direction, or
instruction to be given to the Sponsor hereunder shall be in writing and shall
be duly given if mailed, by certified or registered mail, return receipt
requested, delivered to or sent by facsimile transmission (with confirmation of
receipt) to the Sponsor at the following address: Nasdaq-Amex Investment Product
Services, Inc., c/o The Nasdaq Stock Market, Inc., 1735 K Street, N.W.,
Washington,
73
<PAGE>
D.C. 20006, Attention: John L. Jacobs, facsimile number (202) 496-2696, or at
such other address as shall be specified by the Sponsor to the Trustee in
writing. Any notice, demand, direction, or instruction to be given to the
Trustee shall be in writing and shall be duly given if mailed, by certified or
registered mail, return receipt requested, delivered to or sent by facsimile
transmission (with confirmation of receipt) to the Trustee at the following
address: The Bank of New York, 101 Barclay Street, New York, New York 10286,
Attention: Thomas Centrone, facsimile number 212-815-2948, or such other address
as shall be specified to the Sponsor by the Trustee in writing. Any notice to be
given to Beneficial Owners shall be duly given if mailed or delivered to DTC
Participants for delivery to Beneficial Owners in accordance with Section
3.11(f).
Section 10.07 SEVERABILITY. If any one or more of the
covenants, agreements, provisions or terms of this Agreement and the Indenture
shall be for any reason whatsoever held invalid, then such covenants,
agreements, provisions, or terms shall be deemed severable from the remaining
covenants, agreements, provisions or terms of this Agreement and the Indenture
and shall in no way affect the validity or enforceability of the other
provisions of this Agreement and the Indenture or the rights of the Beneficial
Owners.
Section 10.08 SEPARATE AND DISTINCT SERIES. Each Series of the
Nasdaq-100 Trust to which this Agreement shall be applicable shall, for all
financial and administrative purposes, be considered separate and distinct from
every other Series, and the assets of one Series shall not be commingled with
the assets of another Series nor shall the expenses of any one Series be charged
against any other Series.
74
<PAGE>
Section 10.09 COUNTERPARTS. This Agreement may be
simultaneously executed in several counterparts, each of which shall be an
original and all of which shall constitute but one and the same instrument.
Section 10.10 EXCLUSIVE BENEFIT OF PARTIES AND HOLDERS OF
NASDAQ-100 SHARES. This Agreement and the Indenture is for the exclusive benefit
of the parties hereto, their respective successors hereunder, and the holders of
Nasdaq-100 Shares, and shall not be deemed to give any legal or equitable right,
remedy, or claim to any other person whatsoever.
Section 10.11 HEADINGS. The headings of Articles and Sections
in this Agreement and the Indenture have been inserted for convenience only and
are not to be regarded as part of this Agreement or the Indenture or to have any
bearing upon the meaning or interpretation of any provision contained herein or
therein.
75
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused these Standard Terms
and Conditions of Trust dated as of March 1, 1999 to be duly executed and
attested.
NASDAQ-AMEX INVESTMENT PRODUCT
SERVICES, INC.
as Sponsor
By /s/ L. BRIAN HOLLAND
-----------------------------
Name: L. Brian Holland
Title:President and Chief Executive Officer
ATTEST:
/s/ JOHN L. JACOBS
- -------------------------
Name: John L. Jacobs
Title:Executive Vice President
THE BANK OF NEW YORK
as Trustee
By /s/ THOMAS J. CENTRONE
-----------------------------
Name: Thomas J. Centrone
Title:Vice President
ATTEST:
/s/ STEVEN FARLESE
- -------------------------
Name: Steven Farlese
Title: Vice President
Effective Date: March 4, 1999
76
<PAGE>
EXHIBIT A
FORM OF NASDAQ-100 PARTICIPANT AGREEMENT
Included as Exhibit (A)(9)(c) to this Registration Statement
A-1
<PAGE>
Exhibit A(1)(b)
EXECUTION COPY
- --------------------------------------------------------------------------------
NASDAQ-100 TRUST, SERIES 1
TRUST INDENTURE AND AGREEMENT
Dated March 4, 1999
Incorporating
Standard Terms and Conditions of Trust
for NASDAQ-100 TRUST, SERIES 1
and subsequent and similar
series of the NASDAQ-100 TRUST
Dated as of March 1, 1999,
Effective Date
March 4, 1999
Between
NASDAQ-AMEX INVESTMENT PRODUCT SERVICES, INC.,
As Sponsor
and
THE BANK OF NEW YORK
As Trustee
- --------------------------------------------------------------------------------
<PAGE>
This TRUST INDENTURE AND AGREEMENT dated March 4, 1999 (the
"Indenture"), is between Nasdaq-Amex Investment Product Services, Inc., a
Delaware corporation, as Sponsor, and The Bank of New York, a New York
corporation with trust powers, as Trustee, and sets forth certain of its
provisions in full and incorporates other of its provisions by reference to a
document entitled "Standard Terms and Conditions of Trust" dated as of March 1,
1999, between the parties hereto (hereinafter called the "Agreement;" and
together with the Indenture, the "Indenture and Agreement"), such provisions as
are set forth in full and such provisions as are incorporated by reference
constituting a single instrument.
W I T N E S S E T H:
WHEREAS, the parties hereto have entered into the Agreement in order to
facilitate the creation of series of securities issued under a unit investment
trust in accordance with the provisions of the Investment Company Act of 1940,
as amended, and the laws of the State of New York, such series representing
undivided interests in a trust fund composed primarily of Securities (as defined
in the Agreement) included from time to time in the Nasdaq-100 Index (R) (the
"Index");
WHEREAS, the parties now desire to create the first of the aforesaid
series; and
WHEREAS, this first series of the Trust shall be designated and known
as the "Nasdaq-100 Trust, Series 1" and shall be subject to the terms and
provisions of this Indenture and of the Agreement incorporated herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the Sponsor and the Trustee agree as follows:
Section 1. INCORPORATION OF AGREEMENT. Subject to the provisions of
Section 2 hereof, all of the provisions of the Agreement are incorporated herein
by reference in their entirety and shall be deemed to be a part of this
instrument as though such provisions had been set forth in full in this
instrument.
Section 2. SPECIFIC TERMS OF THIS SERIES. The parties hereby agree to
the following terms for the Nasdaq-100 Trust, Series 1:
A. The securities portion of the Initial Portfolio Deposit deposited on
the date hereof pursuant to Section 2.02 of the Agreement is comprised of the
securities set forth in Schedule A hereto. The Cash Component of the Initial
Portfolio Deposit deposited on the date hereof is also set forth on Schedule A
hereto.
B. (1) The number of Creation Unit size aggregations of Nasdaq-100
Shares to be delivered on the Initial Date of Deposit in exchange for the
Initial Portfolio Deposit for this Series is three (3).
-1-
<PAGE>
(2) The initial fractional undivided interest represented by
each Creation Unit size aggregation of Nasdaq-100 Shares shall be one-third
(1/3).
(3) The number of Nasdaq-100 Shares which, when aggregated,
constitute one Creation Unit is 50,000.
C. The Initial Date of Deposit of this Series of the Trust is the date
hereof.
D. The Mandatory Termination Date for the Trust shall be (1) one
hundred-twenty- five years from the Initial Date of Deposit, which is March 4,
2124 or (2) the date twenty (20) years after the death of the last survivor of
the fifteen (15) persons named below under the List of Measuring Lives,
whichever occurs first:
LIST OF MEASURING LIVES
<TABLE>
<CAPTION>
NAME AND ADDRESS DATE OF BIRTH
<S> <C>
1. Thomas Busher Jacobs 12/25/90
6433 Fairest Dream Lane
Columbia, MD 21044-6023
2. Elian Busher Jacobs 09/20/93
6433 Fairest Dream Lane
Columbia, MD 21044-6023
3. Jack Busher Jacobs 10/25/95
6433 Fairest Dream Lane
Columbia, MD 21044-6023
4. Colleen Elizabeth Mitchel 03/12/93
10702 St. Margarets Way
Silver Spring, MD 20902
5. James Hemingway Mitchel 07/06/96
10702 St. Margarets Way
Silver Spring, MD 20902
6. Thomas Pearce Bloom 03/14/95
915 Leighmill Road
Great Falls, VA 22066
7. Talia Libby Wolfson 08/17/95
8034 Ellingson Drive
Chevy Chase, MD 20815
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C>
8. Gabriel Henry Wolfson 05/09/90
8034 Ellingson Drive
Chevy Chase, MD 20815
9. Noah Ariel Wolfson 01/31/86
8034 Ellingson Drive
Chevy Chase, MD 20815
10. Kaitlyn Marie Ryan 01/10/95
12306 Woodlawn Court
Lake Ridge, VA 22192
11. Austin William Downing 09/24/96
4152 Zinnia Lane
Fairfax, VA 22030
12. Samuel Faulkner Graves 12/12/91
4218 Sleaford Road
Bethesda, MD 20814
13. Luke Kenefick Graves 07/12/94
4218 Sleaford Road
Bethesda, MD 20814
14. Catherine Ann Sodano 08/29/88
11 Oldwood Road
St. James, NY 11780
15. Elizabeth Rose Sodano 04/03/91
11 Oldwood Road
St. James, NY 11780
</TABLE>
E. The Trust's taxable year shall be the year ending each September 30.
F. This Indenture may be simultaneously executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
G. The Sponsor hereby undertakes, at its sole discretion and until
further notice, that on each day during each fiscal year of the Trust up to and
including the fiscal year ending September 30, 2000, the ordinary operating
expenses of the Trust as calculated by the Trustee will not be permitted to
exceed an amount which is 18/100 of one percent (0.18%) per annum of the daily
net asset value of the Trust. To the extent during such period the ordinary
operating expenses of the Trust do exceed such 0.18% level, the Sponsor will
reimburse the Trust or assume invoices on behalf of the Trust for such excess
ordinary operating expenses. The
-3-
<PAGE>
Sponsor retains the ability to be repaid by the Trust for expenses so reimbursed
or assumed to the extent that subsequently during the fiscal year expenses fall
below the 0.18% per annum level on any given day. For purposes of this
undertaking by the Sponsor, ordinary operating expenses of the Trust shall not
include taxes, brokerage commissions, and such extraordinary non-recurring
expenses as may arise, including without limitation the cost of any litigation
to which the Trust or Trustee may be a party. After September 30, 2000, the
Sponsor may discontinue its undertaking to limit ordinary operating expenses of
the Trust or renew this undertaking for an additional period of time, or may
choose to reimburse or assume certain Trust expenses in later periods in order
to keep Trust expenses at a level lower than what would reflect ordinary
operating expenses of the Trust, but is not obligated to do so.
-4-
<PAGE>
IN WITNESS WHEREOF, Nasdaq-Amex Investment Product Services, Inc. and
The Bank of New York have caused this Indenture to be executed and attested as
of the date first above written.
NASDAQ-AMEX INVESTMENT PRODUCT
SERVICES, INC., as Sponsor
By: /s/ L. BRIAN HOLLAND
---------------------------
Name: L. Brian Holland
Title: President and Chief
Executive Officer
Attest:
/s/ JOHN L. JACOBS
- ------------------------------
Name: John L. Jacobs
Title: Executive Vice President
THE BANK OF NEW YORK,
as Trustee
By: /s/ THOMAS J. CENTRONE
---------------------------
Name: Thomas J. Centrone
Title: Vice President
Attest:
/s/ STEVEN FARLESE
- ------------------------------
Name: Steven Farlese
Title: Vice President
-5-
<PAGE>
SCHEDULE A
NASDAQ-100 TRUST, SERIES 1
SECURITIES DEPOSITED WITH THE TRUST
ON THE INITIAL DATE OF DEPOSIT
<TABLE>
<CAPTION>
NAME OF ISSUER SHARES VALUE
- -------------- ------- --------------
<S> <C> <C>
Microsoft Corporation 14,427 $2,196,510.75
Intel Corporation 9,825 1,113,909.38
Cisco Systems, Inc. 9,483 931,704.75
MCI WordCom, Inc. 11,088 907,830.00
Dell Computer Corporation 7,887 645,748.13
Oracle Corporation 10,218 371,679.75
Sun Microsystems, Inc. 2,784 282,228.00
Amgen Inc. 3,990 258,103.13
Yahoo! Inc. 1,596 241,794.00
Tele-Communications, Inc. 3,630 235,950.00
Amazon.com, Inc. 1,767 212,260.88
Level 3 Communications, Inc. 3,585 207,705.94
Comcast Corporation 2,715 194,801.25
Applied Materials, Inc. 3,210 184,775.63
Qwest Communications International Inc. 2,955 176,561.25
Nextel Communications, Inc. 5,838 170,761.50
Costco Companies, Inc. 1,929 167,340.75
Netscape Communications Corporation 2,094 159,929.25
Biogen, Inc. 1,521 159,705.00
Ascend Communications, Inc. 2,043 157,055.63
Nordstrom Inc. 3,666 153,972.00
Cintas Corporation 2,118 153,422.63
Linear Technology Corporation 3,378 150,321.00
Tellabs, Inc. 1,860 148,916.25
Staples, Inc. 5,205 148,342.50
Novell, Inc. 7,098 142,403.63
Chancellor Media Corporation 2,928 141,825.00
Maxim Integrated Products, Inc. 3,081 140,185.50
Immunex Corporation 924 137,964.75
LM Ericsson Telephone Company 5,202 131,350.50
Altera Corporation 2,301 124,110.19
Xilinx, Inc. 1,722 119,033.25
Starbucks Corporation 2,082 117,763.13
PanAmSat Corporation 3,381 115,376.63
Intuit Inc. 1,263 115,090.88
ADC Telecommunications, Inc. 2,829 112,099.13
</TABLE>
A-1
<PAGE>
SECURITIES DEPOSITED WITH THE TRUST
ON THE INITIAL DATE OF DEPOSIT (CONT'D)
<TABLE>
<CAPTION>
NAME OF ISSUER SHARES VALUE
- -------------- ------- -------------
<S> <C> <C>
Paychex, Inc. 2,607 111,775.13
Network Associates, Inc. 2,358 107,289.00
QUALCOMM Incorporated 1,434 106,743.38
BMC Software, Inc. 2,760 106,432.50
Apple Computer, Inc. 3,156 105,528.75
PeopleSoft, Inc. 5,535 102,051.56
Bed Bath & Beyond Inc. 3,138 99,435.38
Compuware Corporation 3,810 96,916.88
Biomet, Inc. 2,541 96,716.81
KLA-Tencor Corporation 1,782 94,000.50
Parametric Technology Corporation 6,216 91,297.50
USA Networks, Inc. 2,382 91,111.50
Chiron Corporation 4,200 90,825.00
Fiserv, Inc. 1,725 85,818.75
NTL Incorporated 1,050 83,868.75
Genzyme General 1,701 81,966.94
Quintiles Transnational Corp. 1,836 81,013.50
3Com Corporation 3,060 76,500.00
American Power Conversion Corporation 2,115 70,059.38
Citrix Systems, Inc. 852 68,213.25
Quantum Corporation 3,423 67,176.38
Synopsys, Inc. 1,368 63,355.50
Smurfit-Stone Container Corporation 3,543 63,109.69
Vitesse Semiconductor Corporation 1,335 62,745.00
Jacor Communications, Inc. 897 62,677.88
PACCAR Inc. 1,473 62,142.19
VERITAS Software Corporation 816 61,404.00
Concord EFS, Inc. 1,854 60,486.75
Comverse Technology, Inc. 780 56,452.50
Sanmina Corporation 996 53,784.00
Centocor, Inc. 1,155 47,932.50
Sigma-Aldrich Corporation 1,779 47,588.25
Adobe Systems Incorporated 996 45,442.50
Electronic Arts Inc. 1,032 42,828.00
Reuters Group PLC 483 41,296.50
Apollo Group, Inc. 1,215 36,981.56
Dollar Tree Stores, Inc. 906 36,636.38
PacifiCare Health Systems, Inc. 471 35,737.13
Molex Incorporated 1,260 35,673.75
Comair Holdings, Inc. 903 35,668.50
McLeodUSA Incorporated 861 35,301.00
</TABLE>
A-2
<PAGE>
SECURITIES DEPOSITED WITH THE TRUST
ON THE INITIAL DATE OF DEPOSIT (CONT'D)
<TABLE>
<CAPTION>
NAME OF ISSUER SHARES VALUE
- -------------- ------- ------------
<S> <C> <C>
Food Lion, Inc. 3,468 33,813.00
Adaptec, Inc. 1,497 31,437.00
Ross Stores, Inc. 600 28,687.50
Northwest Airlines Corporation 1,128 28,341.00
Lincare Holdings Inc. 819 28,050.75
Autodesk, Inc. 654 26,405.25
McCormick & Company, Incorporated 894 25,032.00
Electronics for Imaging, Inc. 702 24,657.75
Stewart Enterprises, Inc. 1,563 22,858.88
FORE Systems, Inc. 1,545 21,726.56
Atmel Corporation 1,254 21,082.88
Microchip Technology Incorporated 717 20,389.69
Herman Miller, Inc. 1,140 18,667.50
Cambridge Technology Partners, Inc. 714 17,939.25
Fastenal Company 474 17,775.00
Andrew Corporation 1,098 16,058.25
Micron Electronics, Inc. 1,320 15,840.00
Worthington Industries, Inc. 1,074 14,096.25
CBRL Group, Inc. 753 13,601.06
Tech Data Corporation 741 12,735.94
Rexall Sundown, Inc. 759 11,385.00
First Health Group Corp. 681 11,023.69
Corporate Express, Inc. 1,089 5,649.19
Total Investments- (Cost $14,497,769.75) $14,497,769.75
---------------
---------------
AMOUNT OF CASH COMPONENT DEPOSITED
WITH THE TRUST ON THE INITIAL DATE OF DEPOSIT $ 0
- --------------------------------------------- --------------------
--------------------
</TABLE>
A-3
<PAGE>
Exhibit A(3)
EXECUTION COPY
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT (the "Agreement") made as of March 1, 1999,
effective March 4, 1999, by and among NASDAQ-AMEX INVESTMENT PRODUCT SERVICES,
INC., a Delaware corporation (the "Sponsor"); NASDAQ-100 TRUST-sm-, SERIES 1, a
unit investment trust (the "Trust") to be organized under the laws of the State
of New York by The Bank of New York, as Trustee of such Trust; and ALPS MUTUAL
FUNDS SERVICES, INC., a Colorado corporation (the "Distributor").
WITNESSETH
WHEREAS, the Trust is to be governed by a Trust Indenture and Agreement
(the "Trust Agreement") between the Sponsor and The Bank of New York, as trustee
(the "Trustee") pursuant to which there will be created units of fractional
undivided interest in the Trust referred to as Nasdaq-100 Shares and
representing proportionate interests in the portfolio of securities and assets
held by the Trust;
WHEREAS, the Sponsor and the Trust have filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-6
(Registration No. 333-61001), including as part thereof a prospectus, under the
Securities Act of 1933, as amended (the "1933 Act"), and a registration
statement on Form N-8B-2 (Registration No. 811-08947) under the Investment
Company Act of 1940, as amended (the "1940 Act"), the forms of which have
heretofore been delivered to the Distributor; and
WHEREAS, the Trust will create and redeem Nasdaq-100 Shares only in
aggregations constituting a Creation Unit, as such term is used in the
Registration Statement (as defined herein), in accordance with the terms and
conditions set forth therein; and
<PAGE>
WHEREAS, the Distributor is a registered broker-dealer under the
Securities Exchange Act of 1934, as amended (the "1934 Act"); and
WHEREAS, the Trust and the Sponsor desire to retain the Distributor to
act as distributor with respect to the creation and distribution of Nasdaq-100
Shares in Creation Unit size aggregations as set forth in the Trust's
Registration Statement, to hold itself available to receive and process orders
for Nasdaq-100 Shares in the manner set forth in the Trust's then-current
prospectus and to enter into arrangements with dealers; and
WHEREAS, the Distributor desires to render these services to the Trust;
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement, the Sponsor, the Trust and the Distributor hereby agree as
follows:
SECTION 1
DISTRIBUTION AND BENEFICIAL OWNERS
1.1 APPOINTMENT. The Trust and the Sponsor hereby appoint the
Distributor as the exclusive distributor for Nasdaq-100 Shares in Creation Unit
size aggregations on the terms and for the periods set forth in this Agreement,
and the Distributor hereby accepts such appointment and agrees to act in such
capacity hereunder.
1.2 DEFINITIONS.
(a) The term "Registration Statement" shall mean the
registration statement most recently filed from time to time by the Trust with
the Commission and effective under the 1933 Act and the 1940 Act, as such
registration statement is amended by any amendments thereto at the time in
effect.
2
<PAGE>
(b) The term "Prospectus" shall mean the prospectus included
as part of the Trust's Registration Statement, as such prospectus may be amended
or supplemented from time to time.
(c) The term "Depository" shall mean The Depository Trust
Company, New York, New York.
(d) All capitalized terms used but not defined in this
Agreement shall have the meanings ascribed to such terms in the Registration
Statement.
1.3 DISTRIBUTOR'S DUTIES. The Distributor shall have the following
duties:
(a) The Distributor agrees, as agent for the Trust, that all
orders to create Nasdaq-100 Shares in Creation Unit size aggregations must be
placed with the Distributor, and it is the responsibility of the Distributor to
transmit such orders to the Trustee, as described in the Registration Statement
and in accordance with the provisions thereof.
(b) The right granted to the Distributor to receive all orders
to create Nasdaq-100 Shares in Creation Unit size aggregations and to transmit
such orders to the Trustee shall be exclusive, and no other principal
underwriter or distributor shall be granted such right; provided, however, that
nothing herein shall affect or limit the right and ability of the Trustee to
accept Portfolio Deposits and related Cash Components (each as defined in the
Prospectus) through or outside of the Nasdaq-100 Clearing Process, and as
provided in and in accordance with the then-current Prospectus. The exclusive
right to place creation orders for Nasdaq-100 Shares granted to the Distributor
may be waived by the Distributor by notice to the Trust and the Sponsor in
writing, either unconditionally or subject to such conditions and limitations as
may be set forth in such notice to the Trust and the Sponsor. The Trust and the
Sponsor hereby acknowledge that the
3
<PAGE>
Distributor may render principal underwriting, distribution and other services
to other parties, including other unit investment trusts.
(c) At the request of the Trust and the Sponsor, the
Distributor shall enter into Nasdaq-100 Participant Agreements between and among
Participating Parties, the Distributor and the Trustee, in accordance with the
provisions of the Registration Statement and current Prospectus and in the form
attached hereto as Exhibit A. The Distributor shall make available for
inspection during normal business hours at its offices at 370 17th Street, Suite
3100, Denver, Colorado, a list of the Participating Parties who have entered
into Nasdaq-100 Participant Agreements with the Distributor and the Trustee.
(d) Except as otherwise noted in the Registration Statement
and current Prospectus, the offering price for all Creation Units sold to
investors by the Distributor will be the net asset value per Creation Unit
calculated in the manner described in the Registration Statement and current
Prospectus.
(e) In performing its duties hereunder, the Distributor shall
act in conformity with the Trust Agreement, Registration Statement and the
then-current Prospectus relating to Nasdaq-100 Shares and the Trust, and in
conformity with the instructions and directions of the Sponsor and the Trustee
of the Trust, and will comply with and conform in all material respects to the
requirements of the 1933 Act, the 1934 Act and the 1940 Act and all other
applicable federal and state laws, regulations and rulings, and the rules and
regulations of the National Association of Securities Dealers, Inc. ("NASD").
(f) The Distributor shall not be obligated to accept any
certain number of orders for Creation Unit size aggregations of Nasdaq-100
Shares; provided, however, that the Distributor shall accept all orders
submitted to it in proper form. Nothing herein contained shall
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<PAGE>
prevent the Distributor from entering into like distribution arrangements with
other investment companies.
(g) The Distributor shall review, clear and file all
advertising, sales, marketing and promotional materials of the Trust provided to
the Distributor, or in the preparation of which it has participated, with the
NASD as required by the 1933 Act and the 1940 Act, and the rules promulgated
thereunder, and by the rules of the NASD. The Distributor is not authorized to
give any information or to make any representations other than those contained
in the Registration Statement or current Prospectus, as amended from time to
time, or contained in reports to Beneficial Owners or other materials that may
be prepared by the Trustee or Sponsor on behalf of the Trust for the
Distributor.
(h) The Distributor shall consult with the Sponsor and the
Trust with respect to the production and printing of Prospectuses to be used in
connection with creations by creators of Creation Unit size aggregations of
Nasdaq-100 Shares.
(i) In performing its duties hereunder the Distributor shall
be entitled to rely on and shall not be responsible in any way for information
provided to it by the Trustee, the Sponsor or the Trust and their respective
service providers and shall not be liable or responsible for the errors and
omissions of such service providers, provided that the foregoing shall not be
construed to protect the Distributor against any liability to the Trustee, the
Sponsor, the Trust or the Trust's Beneficial Owners to which the Distributor
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement.
(j) The Distributor has as of the date hereof, and shall at
all times have and maintain, net capital of not less than that required by Rule
15c3-1 of the 1934 Act, or any successor provision thereto. In the event that
the net capital of the Distributor shall fall below that required by Rule
15c3-1,
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or any successor provision thereto, the Distributor shall promptly provide
notice to the Trustee and the Sponsor of such event.
1.4 THE TRUST'S AND SPONSOR'S DUTIES. The Trust and Sponsor shall have
the following duties:
(a) The Trust agrees to issue Creation Unit size aggregations
of Nasdaq-100 Shares, subject to paragraph (e) of this Section 1.4, and to
request the Depository to record on its books the ownership of such Nasdaq-100
Shares in accordance with the book-entry system procedures described in the
Prospectus in such amounts as the Distributor has requested in writing or other
means of data transmission, as promptly as practicable after receipt by the
Trustee on behalf of the Trust of the requisite Portfolio Deposit and Cash
Component, if any, (together with any fees) for such creations and acceptance by
the Trustee or by the Distributor on behalf of the Trust of a creation order for
such Nasdaq-100 Shares, upon the terms described in the Registration Statement.
(b) The Trust and Sponsor shall furnish to the Distributor
copies of all information, financial statements and other papers which the
Distributor may reasonably request for use in connection with the distribution
of Creation Units. The Trust and the Sponsor shall make available to the
Distributor such number of copies of the current Prospectus as the Distributor
may reasonably request. The Trust and the Sponsor authorize the Distributor to
use the Prospectus, but the Trust and the Sponsor shall not be responsible in
any way for any information, statements or representations given or made by the
Distributor or its representatives or agents other than such information,
statements or representations as are contained in the Prospectus or financial
reports filed on behalf of the Trust or in any sales literature or
advertisements specifically approved by the Trust and the Sponsor in writing.
(c) The Sponsor agrees that it will take all necessary action
to register an indefinite number of Nasdaq-100 Shares under the 1933 Act. The
Sponsor shall take, from time to time, such
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steps, including payment of the related filing fees, as may necessary to
register Nasdaq-100 Shares under the 1933 Act and the Trust under the 1940 Act
to the end that all Creation Unit size aggregations of Nasdaq-100 Shares will be
properly registered under the 1933 Act and the 1940 Act. The Sponsor agrees to
file from time to time such amendments, reports and other documents as may be
necessary in order that there may be in a Registration Statement or Prospectus
no (i) untrue statement of a material fact or (ii) omission to state a material
fact necessary in order to make the statements therein, in the case of the
Prospectus, in light of the circumstances in which made, not misleading. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Trust and the Sponsor for
inclusion in the Registration Statement or Prospectus.
(d) The Trust and the Sponsor shall keep the Distributor
informed of the states and other foreign and domestic jurisdictions in which the
Trust has effected notice filings of Nasdaq-100 Shares for sale under the
securities laws thereof. The Distributor shall furnish such information and
other material relating to its affairs and activities as may be required by the
Trust and the Sponsor in connection with such filings.
(e) In accordance with the provisions of the then-current
Prospectus, the Trust may reject any creation order for Creation Unit size
aggregations of Nasdaq-100 Shares or stop all receipts of creation orders for
Nasdaq-100 Shares at any time or from time to time upon reasonable notice to the
Distributor.
(f) The Trust and the Sponsor shall notify the Distributor
promptly of:
1. any amendments to the Trust's Registration Statement
or Prospectus;
2. any inquiries by the Commission regarding additional
information or of any stop order suspending the
effectiveness of the Trust's Registration Statement
or the initiation of any proceeding for that purpose;
and
3. all significant actions of the Commission having a
material impact with respect to any amendment to the
Trust's Registration Statement or Prospectus.
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1.5 REPRESENTATIONS.
(a) The Distributor represents and warrants to the Trust and
the Sponsor that (i) it is duly organized as a Colorado corporation and is and
at all times will remain duly authorized and licensed to carry out its services
as contemplated herein; (ii) the execution, delivery and performance of this
Agreement are within its power and have been duly authorized by all necessary
action; and (iii) its entering into this Agreement or providing the services
contemplated hereby does not conflict with or constitute a default or require a
consent under or breach of any provision of any agreement or document to which
the Distributor is a party or by which it is bound, including, but not limited
to, any Members Agreement with the National Association of Securities Dealers,
Inc. (except for any consent in writing which shall have been obtained by the
date hereof).
(b) The Sponsor represents and warrants to the Distributor
that (i) the Registration Statement and the Prospectus have been prepared in
conformity in all material respects with the 1933 Act, the 1940 Act and the
rules and regulations of the Commission (the "Rules and Regulations"); (ii) the
Registration Statement and Prospectus contain all statements required to be
stated therein in accordance with the 1933 Act, the 1940 Act and the Rules and
Regulations; and (iii) all statements of fact contained therein are true and
correct in all material respects at the time indicated or the effective date, as
the case may be, and neither the Registration Statement nor the Prospectus shall
include any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the case of the Prospectus in light of the circumstances in which made, not
misleading. The Trust and the Sponsor shall from time to time file such
amendment or amendments to the Registration Statement and the Prospectus as, in
the light of future developments, shall, in the opinion of the Trust's counsel,
be necessary in order to have the Registration Statement and the Prospectus at
all times contain all material facts required to be stated therein or necessary
to make
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<PAGE>
the statements therein, in the case of the Prospectus in light of the
circumstances in which made, not misleading to a purchaser of Nasdaq-100 Shares.
The Trust shall not file any amendment to the Registration Statement or the
Prospectus without giving the Distributor reasonable notice thereof in advance,
provided that nothing in this Agreement shall in any way limit the Trust's right
to file at any time such amendments to the Registration Statement or the
Prospectus as the Trust may deem advisable. Notwithstanding the foregoing, the
Trust and the Sponsor shall not be deemed to make any representation or warranty
as to any information or statement provided by the Distributor for inclusion in
the Registration Statement or the Prospectus.
SECTION 2
FEES AND EXPENSES
2.1 COMPENSATION OF THE DISTRIBUTOR. The Sponsor shall pay to the
Distributor, for its services described in this Agreement, an annual
distribution fee of $35,000; 1/12 of such fee shall be paid monthly in advance
on the first day of each calendar month with the first payment to be delivered
upon the effectiveness of this Agreement in a prorated amount.
2.2 EXPENSES.
(a) Each party hereto will bear its own expenses in connection
with this Agreement unless otherwise agreed by the parties hereto in writing. In
addition, the expenses of the Trust shall be borne by the Trust as described
under the caption "Expenses of the Trust" in the Prospectus.
(b) The Distributor shall bear the following costs and
expenses relating to the distribution of Nasdaq-100 Shares: (i) the costs (other
than those payable pursuant to the Trust's agreement with the Depository) of
processing and maintaining records of creations of Creation Units; (ii) all
costs of maintaining the records required of a broker/dealer registered under
the 1934 Act; (iii) the expenses of maintaining its registration or
qualification as a dealer or broker under federal or state
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laws; (iv) the expenses incurred by the Distributor in connection with normal
NASD filing fees (expedited NASD filing fees will be billed to the Sponsor); and
(v) all other expenses incurred in connection with the distribution services as
contemplated herein, except as otherwise specifically provided in this
Agreement.
SECTION 3
INDEMNIFICATION
3.1 INDEMNIFICATION OF DISTRIBUTOR. The Sponsor agrees to indemnify,
defend and hold the Distributor, any person who controls the Distributor within
the meaning of Section 15 of the 1933 Act, and their respective officers and
directors (any of the Distributor, such control persons, and their respective
officers and directors, for purposes of this Section 3.1, an "Indemnitee"), free
and harmless from and against any and all claims, demands, liabilities, and
expenses (including costs reasonably incurred in connection with investigating
or defending such claims, demands or liabilities and any counsel fees reasonably
incurred in connection therewith) which the Indemnitee may incur, under the 1933
Act or under common law or otherwise, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Trust's Registration Statement, or the omission or alleged omission to state in
such document a material fact required to be stated thereon or necessary to make
the statements therein not misleading or, with respect to the Prospectus or any
amendment or supplement thereto, any untrue statement or alleged untrue
statement of a material fact or omission or alleged omission to state in such
document a material fact required to be stated therein or necessary to make the
statements therein in the light of the circumstances under which they were made,
not misleading; provided, however, that nothing in this Section 3.1 shall
protect the Indemnitee against any liability to the Trust or its Beneficial
Owners that the Indemnitee would otherwise be subject to (i) by reason of
willful malfeasance, bad faith, or gross negligence in the performance of its
duties, (ii) by
10
<PAGE>
reason of the Indemnitee's reckless disregard of its obligations and duties
under this Agreement, or (iii) where such liability arises out of or is based
upon an untrue statement or omission or alleged untrue statement or omission in
the Trust's Registration Statement or Prospectus that was made in reliance upon
and in conformity with written information furnished by the Distributor to the
Trust and the Sponsor; and provided, further, that the Trust will not be liable
in any such case to the Indemnitee with respect to any untrue statement or
omission or alleged untrue statement or omission made in the Registration
Statement or the Prospectus that is subsequently corrected in such document (or
an amendment thereof or supplement thereto), if a copy of the Prospectus (or
such amendment thereof or supplement thereto) was not sent or given to the
person asserting any such claim, demand, liability or expense at or before the
written confirmation of the sale to such person in any case where such delivery
is required by the 1933 Act, and the Trust had notified the Distributor of the
amendment or supplement prior to the sending of the written confirmation of
sale.
The Sponsor's obligation to indemnify the Indemnitee is expressly
conditioned upon the Indemnitee's notification of the Sponsor of the
commencement of any action against the Indemnitee, which notification shall be
given by letter or by facsimile transmission addressed to the Sponsor at its
principal offices in Washington, DC, and sent to the Sponsor by the person
against whom such action is brought within 10 days after the summons or other
first legal process shall have been served. The Indemnitee's failure to so
notify the Sponsor shall not relieve the Sponsor of any liability which it may
have to the Indemnitee by reason of any such untrue statement or omission or
alleged untrue statement or omission independent of this indemnification. The
Sponsor will be entitled to assume the defense of any suit brought to enforce
any such claim, demand or liability and to retain legal counsel of good standing
chosen by the Sponsor and approved by the Indemnitee (such approval not to be
unreasonably withheld). If the Sponsor elects to assume the defense of any such
suit and retain counsel approved by
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the Indemnitee, the defendant or defendants in such suit shall bear the fees and
expenses of any additional counsel retained by any of them. In the event the
Sponsor does not elect to assume the defense of any such suit and retain counsel
of good standing approved by the Indemnitee, or the Indemnitee does not approve
of the counsel chosen by the Sponsor (such approval not to be unreasonably
withheld), the Sponsor shall bear the fees and expenses of any counsel retained
by the Indemnitee. The indemnification agreement contained in this Section 3.1
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Indemnitee and shall survive the sale
of any Creation Units made pursuant to purchase orders obtained by the
Indemnitee or the termination of this Agreement. This indemnification will inure
exclusively to the benefit of the Indemnitee and its successors, assigns and
estate. The Trust and the Sponsor shall promptly notify the Distributor of the
commencement of any litigation or proceeding against the Trust or the Sponsor in
connection with the issue and sale of any Creation Units.
3.2 INDEMNIFICATION OF THE SPONSOR. The Distributor agrees to
indemnify, defend, and hold the Sponsor, any person who controls the Sponsor
within the meaning of Section 15 of the 1933 Act, and their respective officers
and directors (for purposes of this Section 3.2, the Sponsor, its controlling
persons, and their respective officers and directors are collectively referred
to as the "Sponsor Affiliates"), free and harmless from and against any and all
claims, demands, liabilities, and expenses (including costs reasonably incurred
in investigating or defending such claims, demands or liabilities and any
counsel fees reasonably incurred in connection therewith) which the Sponsor
Affiliates may incur, under the 1933 Act or under common law or otherwise,
arising out of or based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in information furnished by the
Distributor to the Sponsor for use in the Registration Statement or Prospectus
in effect from time to time, or (ii) any omission or alleged omission, on the
part of the Distributor, to state a material fact in
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<PAGE>
connection with such information required to be stated in the Registration
Statement or Prospectus or necessary to make such information not misleading, it
being understood that the Sponsor will rely upon the information provided by the
Distributor for use in the preparation of the Registration Statement and the
Prospectus, or (iii) any alleged act or omission on the Distributor's part as
the Trust's agent that has not been expressly authorized by the Sponsor in
writing.
The Distributor's obligation to indemnify the Sponsor Affiliates is
expressly conditioned upon the Distributor being notified of the commencement of
any action brought against the Sponsor Affiliates, which notification shall be
given by letter or facsimile transmission addressed to the Distributor at its
principal offices in Denver, Colorado and sent to the Distributor by the person
against whom such action is brought within 10 days after the summons or other
first legal process shall have been served. The Sponsor Affiliates' failure to
notify the Distributor of the commencement of any such action shall not relieve
the Distributor from any liability which it may have to the Sponsor Affiliates
by reason of any such untrue statement or omission, alleged untrue statement or
omission, or alleged act or omission on the part of the Distributor independent
of this indemnification. The Distributor will be entitled to assume the defense
of any suit brought to enforce any such claim, demand or liability and to retain
legal counsel of good standing chosen by the Distributor and approved by the
Sponsor Affiliate (such approval not to be unreasonably withheld). If the
Distributor elects to assume the defense of any such suit and retain counsel
approved by the Sponsor Affiliate, the defendant or defendants in such suit
shall bear the fees and expenses of any additional counsel retained by any of
them. In the event the Distributor does not elect to assume the defense of any
such suit and retain counsel of good standing approved by the Sponsor Affiliate,
or the Sponsor Affiliate does not approve of the counsel chosen by the
Distributor (such approval not to be unreasonably withheld), the Distributor
shall bear the fees and expenses of any counsel retained by the Sponsor
Affiliate. The indemnification agreement contained in
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this Section 3.2 shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of the Sponsor Affiliate and shall
survive the sale of any Creation Units made pursuant to purchase orders obtained
by the Distributor or the termination of this Agreement. This indemnification
will inure exclusively to the benefit of the Sponsor Affiliate and its
successors, assigns and estate. The Distributor shall promptly notify the Trust
and the Sponsor of the commencement of any litigation or proceeding against the
Distributor in connection with the issue and sale of any Creation Units.
3.3 SETTLEMENT OF CLAIMS. No Indemnitee or indemnified Sponsor
Affiliate shall settle any claim against it for which it intends to seek
indemnification from the indemnifying party, under the terms of Section 3.1 or
3.2 above, without the prior written notice to and consent from the indemnifying
party, which consent shall not be unreasonably withheld. No indemnified or
indemnifying party shall settle any claim unless the settlement contains a full
release of liability with respect to the other party in respect of such action.
This section shall survive the termination of this Agreement.
SECTION 4
DURATION, TERMINATION, AND AMENDMENT
4.1 DURATION. This Agreement shall become effective on March 4, 1999,
and continue, unless terminated as provided in Section 4.2 or until the
termination of the Trust.
4.2 TERMINATION. Subject to Section 4.3, this Agreement may be
terminated at any time, without penalty, upon 60 days' prior written notice to
the other party by the Trust and the Sponsor, or by the Distributor.
4.3 ASSIGNMENT. This Agreement shall automatically terminate in the
event of its "assignment." As used in this Agreement, the term "assignment"
shall have the meaning such term has in the 1940 Act.
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4.4 AMENDMENT. This Agreement may be amended by mutual consent,
provided that no provision of this Agreement may be changed, waived, discharged
or terminated except by an instrument in writing signed by the party against
which enforcement of the change, waiver, discharge or termination is sought.
SECTION 5
NOTICE
5.1 NOTIFICATION OF PARTIES. Any notice or other communication required
or permitted to be given pursuant to this Agreement shall be deemed duly given
if addressed and delivered, mailed by registered mail, postage prepaid, or sent
by facsimile transmission (with confirmation of receipt) to (l) ALPS Mutual
Funds Services, Inc., at 370 17th Street, Suite 3100, Denver, CO 80202,
Attention: Thomas Carter, Chief Financial Officer, facsimile # (303) 623-7850,
(2) Nasdaq-Amex Investment Product Services, Inc., c/o The Nasdaq Stock Market,
Inc., 1735 K Street, NW, Washington, DC 20006-1500, Attention: John L. Jacobs,
Executive Vice President, facsimile # (202) 496-2696, and (3) the Nasdaq-100
Trust, Series 1, c/o The Bank of New York, 101 Barclay Street, New York, NY
10286, Attention: Thomas J. Centrone, facsimile # (212) 815-2948.
SECTION 6
MISCELLANEOUS
6.1 CHOICE OF LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
6.2 CAPTIONS. The captions in this Agreement are included for
convenience only and in no way define or limit any of the provisions hereof or
otherwise affect their construction.
6.3 SEVERABILITY. If any provisions of this Agreement shall be held or
made invalid, in whole or in part, then the other provisions of this Agreement
shall remain in force. Invalid provisions shall, in
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accordance with this Agreement's intent and purpose, be amended, to the extent
legally possible, by valid provisions in order to effectuate the intended
results of the invalid provisions.
6.4 INSURANCE. The Distributor will maintain at its expense an errors
and omissions insurance policy which covers services by the Distributor
hereunder.
6.5 FORCE MAJEURE. In the event a party hereto is unable to perform its
obligations under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its control, or
other causes reasonably beyond its control, such party shall not be liable to
any other party for any damages resulting from such failure to perform or
otherwise from such causes.
6.6 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be an original and all of which shall constitute but one and the
same instrument.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first written above.
NASDAQ-100 TRUST-sm-, SERIES 1
By: The Bank of New York, on behalf of the
Trust to be created, as Trustee of such Trust
By: /s/ THOMAS J. CENTRONE
----------------------------------
Name: Thomas J. Centrone
Title: Vice President
NASDAQ-AMEX INVESTMENT PRODUCT
SERVICES, INC.
By: /s/ JOHN L. JACOBS
----------------------------------
Name: John L. Jacobs
Title: Executive Vice President
ALPS MUTUAL FUNDS SERVICES, INC.
By: /s/ EDMUND BURKE
----------------------------------
Name: Edmund Burke
Title: Executive Vice President
17
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BOOK-ENTRY-ONLY UNIT INVESTMENT TRUST ISSUES
Letter of Representations
[To be Completed by Sponsor and Trustee]
Nasdaq-Amex Investment Product Services, Inc.
------------------------------------------------------
[Name of Sponsor]
The Bank of New York
------------------------------------------------------
[Name of Trustee]
March 4, 1999
-------------------
[Date]
Attention: General Counsel's Office
The Depository Trust Company
55 Water Street 49th Floor
New York, NY 10041-0099
Re: Units of beneficial interest in the Nasdaq-100 Trust, Series 1
-----------------------------------------------------------------
(referred to as Nasdaq-100 Shares)
-----------------------------------------------------------------
CUSIP # 631097 10 2
-----------------------------------------------------------------
[Issue Description, including CUSIP number]
Ladies and Gentlemen:
This letter sets forth our understanding with respect to certain matters
relating to the above-referenced units (the "Securities"), CUSIP number
631097 10 2. The Securities of a unit investment trust ("UIT") were created
by a trust indenture or other such document authorizing the issuance of the
Securities dated as of March 4, 1999, between The Bank of New York, as
trustee (the "Trustee") and * , as sponsor (the "Sponsor").
Sponsor is distributing the Securities through The Depository Trust Company
("DTC").
*Nasdaq-Amex Investment Product Services, Inc.
To induce DTC to accept the Securities as eligible for deposit at DTC,
and to act in accordance with its Rules with respect to the Securities,
Trustee makes the following representations to DTC:
1. Following the closing on the Securities on March 9, 1999, Trustee
<PAGE>
shall utilize DTC's Fast Reject and Confirmation ("FRAC") function available
on the Participant Terminal System to confirm shipment control list ("SCL"),
or some other statement, such as an initial transaction statement, evidencing
the issuance of Securities recorded on the Trustee's books and records in the
name of Cede & Co. Trustee shall also confirm to DTC the amount of the
Security recorded in the name of Cede & Co. on a daily or other periodic
basis in accordance with the provisions of the Balance Certificate Agreement
currently in effect between Trustee and DTC. Trustee agrees that such
confirmation by Trustee shall be deemed to be a statement that there are no
liens, restrictions, or adverse claims arising through the company or issuer
to which the Security is or may be subject.
2. In the event of any solicitation of consents from or voting by
holders of the Securities, Trustee shall establish a record date for such
purposes (with no provision for revocation of consents or votes by subsequent
holders) and shall send notice of such record date to DTC not less than 15
calendar days in advance of such record date. Notices to DTC pursuant to this
Paragraph by telecopy shall be sent to DTC's Reorganization Department at
(212) 855-5181 or (212) 855-5182, and receipt of such notices shall be
confirmed by telephoning (212) 855-5202. Notices to DTC pursuant to this
Paragraph by mail or by any other means shall be sent to DTC's Reorganization
Department as indicated in Paragraph 6.
3. On each day on which Trustee is open for business and on which it
receives an instruction originated by a DTC Participant through DTC's
Deposit/Withdrawal at Custodian ("DWAC") system to increase the Participant's
account by a specified number of units of interest (a "Deposit Instruction"),
Trustee shall, before 6:30 p.m. (Eastern Time) that day, either approve or
cancel the Deposit Instruction through the DWAC system.
On each day on which Trustee is open for business and on which it receives an
instruction originated by a Participant through DTC's Deposit/Withdrawal at
Custodian ("DWAC") system to decrease the Participant's account by a
specified number of units of interest (a "Withdrawal Instruction"), Trustee
shall, before 6:30 p.m. (Eastern Time) that day, either approve or cancel the
Withdrawal Instruction through the DWAC system.
Trustee agrees that its approval of a Deposit or Withdrawal Instruction
shall be deemed to be the receipt by DTC of a new reregistered certificated
security or registration of transfer to the name of Cede & Co. for the
quantity of Securities evidenced by the Balance Certificate after the Deposit
or Withdrawal Instruction is effected.
4. Trustee shall confirm in writing the number of units of interest
represented by the Balance Certificate as often as DTC may reasonably
request.
5. In the event of an offering or issuance of rights with respect to the
Securities outstanding, Trustee shall send DTC's Dividend and Reorganization
Departments a notice specifying: (a) the amount of and conditions, if any,
applicable to such rights offering or issuance; (b) any applicable expiration
or deadline date, or any date by which any action on the part of holders of
such Securities is required; and (c) the date such notice shall be
distributed (the "Publication Date") of such notice.
-2-
<PAGE>
The Publication Date will be as soon as practicable after the
announcement by the Company of any such offering or issuance of rights with
respect to the Securities represented thereby. DTC requires that the
Publication Date be but not less than 30 days nor more than 60 days prior to
the related offering or issuance date, respectively.
Notices to DTC pursuant to this Paragraph by telecopy shall be sent to
DTC's Dividend Department at (212) 855-4555 and receipt of such notice shall
be confirmed by telephoning (212) 855-4550. Notices to DTC pursuant to the
above by mail or by any other means shall be sent to:
Supervisor, Stock Dividends
Dividend Department
The Depository Trust Company
55 Water Street 25th Floor
New York, NY 10041-0099
Additionally, notices to DTC pursuant to this Paragraph by telecopy shall
be sent to DTC's Reorganization Department at (212) 855-5259 and receipt of
such notice shall be confirmed by telephoning (212) 855-5260. Notices to DTC
pursuant to the above by mail or by any other means shall be sent to:
Supervisor, Rights Offerings
Reorganization Department
The Depository Trust Company
55 Water Street 50th Floor
New York, NY 10041-0099
6. Except for termination of the UIT, the Securities will not be callable
or otherwise redeemable except at the option of the holders. In the event of
termination, except by vote of the holders, and to the extent possible in the
event of termination by vote of the holders, Trustee shall give DTC notice of
such event not less than 30 days nor more than 60 days prior to the
termination date.
Such notice, if by telecopy, shall be sent to DTC's Reorganization
Department at (212) 855-5488 and receipt of such notice shall be confirmed by
telephoning (212) 855-5290. Notices to DTC pursuant to the above by mail or
by any other means shall be sent to:
Manager, Reorganization Department
Reorganization Window
The Depository Trust Company
55 Water Street 50th Floor
New York, NY 10041-0099
7. General notices, other than notices of distributions, to DTC shall
be forwarded by telecopy to DTC's Reorganization Department at (212)
855-5488, and receipt of such notices shall be confirmed by telephoning (212)
855-5135. Such notices sent by mail or by any other means shall be sent to
the address set forth in paragraph 6.
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<PAGE>
8. DTC shall provide to Sponsor or Trustee, at either's request and
expense, listings of the positions of Participants ("Security Position
Listings") with respect to the Securities. Sponsor or Trustee shall provide
DTC's Proxy Unit with a written request indicating: (a) the CUSIP number;
(b) the purpose of the request; and (c) the request dates of such listing(s).
Sponsor or Trustee will also provide DTC with such exemplars of signatures
and authorizations to act as may reasonably be deemed necessary by DTC to
permit DTC to discharge its obligations to its Participants and regulatory
authorities upon DTC's request.
Requests for Security Position Listings shall be sent to DTC's
Reorganization Department by telecopy at (212) 855-5183 and receipt of such
requests shall be confirmed by telephoning (212) 855-5200. Requests by mail
or any other means shall be addressed to:
Supervisor, Proxy Unit
Reorganization Department
The Depository Trust Company
55 Water Street 50th Floor
New York, NY 10041-0099
9. All notices and payment advices sent to DTC shall contain the CUSIP
number of the Securities and the accompanying description of such Securities
as indicated on Schedule A hereto.
10. In the event of a distribution or payment with respect to the
Securities, Trustee shall establish a record date for such purposes and shall
send notice to DTC not less than 15 calendar days in advance of such record
date. Trustee shall also notify DTC of the distribution date for any
distribution of income with respect to the Securities. On the record date,
Trustee shall notify DTC of the amount per unit of any such distribution.
This notice shall be marked "TIME CRITICAL" and forwarded by telecopy to
DTC's Dividend Department at (212) 855-4555 or by hand delivery (with
receipt) to:
Manager, Announcements
Dividend Department
The Depository Trust Company
55 Water Street 25th Floor
New York, NY 10041-0099
11. After establishing the dividend or distribution payment to be made
on the Securities in question, Trustee will notify DTC's Dividend Department
of the payment and payment date not less than five business days prior to the
effective date for such transaction.
12. Trustee shall provide a written notice of dividend payment
information to a standard dividend announcement service subscribed to by DTC
as soon as the information is available. Trustee shall also provide such
notice directly to DTC electronically, as previously arranged by Trustee and
DTC, as soon as the payment information is available. If electronic
transmission has not been arranged, such notice shall be sent by telecopy to
DTC's Dividend Department at (212) 855-4555 OR (212) 855-
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<PAGE>
4556, and receipt of such notice shall be confirmed by telephoning (212)
855-4550. Notice to DTC pursuant to the above by mail or by any other means
shall be sent to:
Manager, Announcements
Dividend Department
The Depository Trust Company
55 Water Street 25th Floor
New York, NY 10041-0099
13. Trustee shall provide DTC, no later than 12:00 noon (Eastern Time) on
each payment date, automated notification of CUSIP-level detail. If the
circumstances prevent the funds paid to DTC from equaling the dollar amount
associated with the detail payments by 12:00 noon (Eastern Time), Trustee
must provide CUSIP-level reconciliation to DTC no later than 2:30 p.m.
(Eastern Time). Reconciliation can be provided by automated means or written
format.
14. Dividend payments and distributions shall be received by Cede & Co.
as nominee of DTC, or its registered assigns, in same-day funds no later than
2:30 p.m. (Eastern Time) on each payment date. Absent any other arrangements
between Trustee and DTC, such funds shall be wired as follows:
The Chase Manhattan Bank
ABA # 021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Dividend Deposit Account # 066-026776
15. DTC may direct Trustee to use any other number or address as the
number or address to which notices or payments of dividends or distributions
may be sent.
16. In the event that Sponsor determines that beneficial owners of
Securities shall be able to obtain credit for Securities, Sponsor shall cause
Trustee to notify DTC of a withdrawal of securities through DWAC and Trustee
shall credit Participants holding Securities in their accounts. Subsequently,
Participants shall credit any beneficial owners of Securities.
17. DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to
Trustee (at which time DTC will confirm with Trustee the aggregate principal
amount of Securities outstanding). Under such circumstances, at DTC's
request, Sponsor and Trustee shall cooperate fully with DTC by taking
appropriate action to confirm position and credit any DTC Participant having
Securities credited to its DTC accounts.
18. Nothing herein shall be deemed to require Trustee to advance funds
on behalf of Sponsor.
19. This LETTER OF REPRESENTATIONS may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an
original, but all such counterparts together shall
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<PAGE>
constitute but one and the same instrument.
20. This LETTER OF REPRESENTATIONS is governed by, and shall be
constructed in accordance with, the laws of the State of New York without
giving effect to principles of conflicts of law.
21. The following rider(s), attached hereto, are hereby incorporated into
this LETTER OF REPRESENTATIONS:
None
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES:
A. IF THERE IS AN SPONSOR (AS DEFINED IN THIS LETTER OF
REPRESENTATIONS), SPONSOR, AS WELL AS TRUSTEE, MUST SIGN
THIS LETTER. IF THERE IS NO SPONSOR, IN SIGNING THIS LETTER
TRUSTEE ITSELF UNDERTAKES TO PERFORM ALL OF THE
OBLIGATIONS SET FORTH HEREIN.
B. SCHEDULE B CONTAINS STATEMENTS THAT DTC BELIEVES
ACCURATELY DESCRIBE DTC, THE METHOD OF EFFECTING BOOK-
ENTRY TRANSFERS OF SECURITIES DISTRIBUTED THROUGH DTC,
AND CERTAIN RELATED MATTERS.
Very truly yours,
Nasdaq-Amex Investment Product Services, Inc.
---------------------------------------------
(Sponsor)
/s/ JOHN L. JACOBS
By: ---------------------------------------------
(Authorized Officer's Signature)
The Bank of New York
---------------------------------------------
(Trustee)
/s/ THOMAS J. CENTRONE
By: ---------------------------------------------
(Authorized Officer's Signature)
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
By: ------------------------------------
cc: Underwriter
Underwriter's Counsel
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<PAGE>
SCHEDULE A
Units of beneficial interest in the Nasdaq-100 Trust, Series I
- -------------------------------------------------------------------------------
(referred to as Nasdaq-100 Shares): CUSIP # 631097 10 2
- -------------------------------------------------------------------------------
(Describe Issue)
CUSIP Number Share Total Offering ($) Value
- ------------ ----------- ------------------
631097 10 2 150,000 $14,497,769.75
<PAGE>
SAMPLE OFFERING DOCUMENT LANGUAGE
DESCRIBING BOOK-ENTRY-ONLY ISSUANCE
-----------------------------------
(Prepared by DTC--bracketed material may be applicable only to certain issues)
1. The Depository Trust Company ("DTC"), New York, NY, will act as
securities depository for the securities (the "Securities"). The Securities
will be issued as fully-registered securities registered in the name of Cede
& Co. (DTC's partnership nominee) or such other name as may be requested by
an authorized representative of DTC. One fully-registered Security
certificate will be issued for [each issue of] the Securities, [each] in the
aggregate principal amount of such issue, and will be deposited with DTC.
[If, however, the aggregate principal amount of [any] issue exceeds $200
million, one certificate will be issued with respect to each $200 million of
principal amount and an additional certificate will be issued with respect to
any remaining principal amount of such issue.]
2. DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations, and certain other
organizations. DTC is owned by a number of its Direct Participants and by the
New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks, and
trust companies that clear through or maintain a custodial relationship with
a Direct Participant, either directly or indirectly ("Indirect Participants").
The Rules applicable to DTC and its Participants are on file with the
Securities and Exchange Commission.
3. Purchases of Securities under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Securities
on DTC's record. The ownership interest of each actual purchaser of each
Security ("Beneficial Owner") is in turn to be recorded on the Direct and
Indirect Participants' records. Beneficial Owners will not receive written
confirmation from DTC of their purchase, but Beneficial Owners are expected
to receive written confirmations providing details of the transaction, as
well as periodic statements of their holdings, from the Direct or Indirect
Participant through which the Beneficial Owner entered into the transaction.
Transfers of ownership interests in the Securities are to be accomplished by
entries made on the books of Participants acting on behalf of Beneficial
Owners. Beneficial Owners will not receive certificates representing their
ownership interests in Securities, except in the event that use of the
book-entry system for the Securities is discontinued.
4. To facilitate subsequent transfers, all Securities deposited by
Participants with DTC are registered in the name of DTC's partnership
nominee, Cede & Co. or such other name as may be requested by an authorized
representative of DTC. The deposit of Securities with DTC and their
registration in the name of Cede & Co. or such other nominee do not effect
any change in beneficial ownership. DTC has no knowledge of the actual
Beneficial Owners of the Securities; DTC's records reflect only the identity
of the Direct Participants to whose accounts such Securities are credited,
which may or may not be the Beneficial Owners. The Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
5. Conveyance of notices and other communications by DTC to Direct
Participants, by Direct
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<PAGE>
Participants to Indirect Participants, and by Direct Participants and
Indirect Participants to Beneficial Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time. [Beneficial Owners of Securities may wish to take
certain steps to augment the transmission to them of notices of significant
events with respect to the Securities, such as redemptions, tenders, defaults,
and proposed amendments to the Security documents. Beneficial Owners of
Securities may wish to ascertain that the nominee holding the Securities for
their benefit has agreed to obtain and transmit notices to Beneficial Owners,
or in the alternative, Beneficial Owners may wish to provide their names and
addresses to the registrar and request that copies of notices be provided
directly to them.]
[6. Redemption notices shall be sent to DTC. If less than all of the
Securities within an issue are being redeemed, DTC's practice is to determine
by lot the amount of the interest of each Direct Participant in such issue
to be redeemed.]
7. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent
or vote with respect to Securities. Under its usual procedures, DTC mails an
Omnibus Proxy to Sponsor as soon as possible after the record date. The
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those
Direct Participants to whose accounts the Securities are credited on the
record date (identified in a listing attached to the Omnibus Proxy).
8. Redemption proceeds, distributions, and dividend payments on the
Securities will be made to Cede & Co., or such other nominee as may be
requested by an authorized representative of DTC. DTC's practice is to credit
Direct Participants' accounts, upon DTC's receipt of funds and corresponding
detail information from Sponsor or Trustee, on payable date in accordance
with their respective holdings shown on DTC's records. Payments by
Participants to Beneficial Owners will be governed by standing instructions
and customary practices, as is the case with securities held for the accounts
of customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, Trustee, or Sponsor,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of redemption proceeds, distributions, and dividends to
Cede & Co. is the responsibility of Sponsor or Trustee, disbursement of such
payments to Direct Participants shall be the responsibility of DTC, and
disbursement of such payments to the Beneficial Owners shall be the
responsibility of Direct and Indirect Participants.
[9. A Beneficial Owner shall give notice to elect to have its Securities
purchased or tendered, through its Participant, to [Tender/Remarketing Agent
or] Trustee, and shall effect delivery of such Securities by causing the
Direct Participant to transfer the Participant's interest in the Securities,
on DTC's records, to [Tender/Remarketing Agent or] Trustee. The requirement
for physical delivery of Securities in connection with an optional tender or a
mandatory purchase will be deemed satisfied when the ownership rights in the
Securities are transferred by Direct Participants on DTC's records and
followed by a book-entry credit of tendered securities to
[Tender/Remarketing Agent's or] Trustee's DTC account.]
10. DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to
Sponsor or Trustee. Under such circumstances, in the event that a successor
securities depository is not obtained, Security certificates are required to
be printed and delivered.
11. Sponsor may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Security certificates will be printed and delivered.
12. The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that Sponsor believes to be reliable,
but Sponsor takes no responsibility for the accuracy thereof.
-ii-
<PAGE>
AGREEMENT FOR THE NASDAQ-100 INDEX -Registered Trademark-
THIS AGREEMENT, dated as of August 7, 1998, is made by and between The
Nasdaq Stock Market, Inc. (NASDAQ), a Delaware Corporation which is a
wholly-owned subsidiary of the National Association of Securities Dealers, Inc.
(NASD) (NASD with its affiliates (other than the Licensee) are collectively
referred to as the CORPORATIONS), whose principal offices are located at 1735 K
Street, N.W., Washington, D.C. 20006, and Investment Product Services, Inc.,
subsequently renamed Nasdaq-Amex Investment Product Services, Inc. (LICENSEE), a
Delaware corporation which is a wholly-owned subsidiary of Nasdaq.
WHEREAS, Nasdaq possesses certain rights in the Nasdaq-100
Index -Registered Trademark- (INDEX); and
WHEREAS, Nasdaq possesses certain rights to Nasdaq -Registered
Trademark-, Nasdaq-100 -Registered Trademark-, the Nasdaq-100 Index
- -Registered Trademark-, The Nasdaq Stock Market -Registered Trademark-,
Nasdaq GOLD -SM-, Nasdaq-100 Shares -SM-, and Nasdaq-100 Trust -SM- as trade
names, trademarks or service marks (MARKS); and
WHEREAS, Nasdaq determines the components of the Index, calculates,
maintains, and disseminates the Index; and
WHEREAS, Licensee desires to use and Nasdaq desires to license the
right to use the Index as the basis of the product designated as Nasdaq-100
Shares -SM- and described in Attachment II(a) (the DERIVATIVE PRODUCT); and
WHEREAS, Licensee is legally authorized to issue, enter into, write, sell,
purchase and/or renew (ISSUE, ISSUING, OR ISSUANCE) the Derivative Product, and
the Derivative Product will be Issued as legally required under applicable law;
and Licensee desires to use and Nasdaq desires to license the Marks in
connection with the Issuance, exchange or market trading, redemption,
1
<PAGE>
marketing and promotion of the Derivative Product and in connection with making
disclosure about the Derivative Product under applicable laws, rules, and
regulations in order to describe the Derivative Product and indicate that Nasdaq
is the source of the Index;
NOW THEREFORE, in consideration of the premises and the mutual covenants
and conditions herein contained, Licensee and Nasdaq, intending to be legally
bound, agree as follows:
Section 1. TERM AND LIFE OF AGREEMENT.
1.1 The initial term of this Agreement is from the date of this Agreement
to the date which is five years from the date on which trading of the Derivative
Product commences (such date hereinafter referred to as the EFFECTIVE DATE);
provided, that Licensee may extend the initial term for an additional five-year
period by giving Nasdaq Notice (as defined in Section 24) of its decision to do
so at least 90 days prior to the date that is five years after the Effective
Date; and provided further, that neither party has terminated this Agreement
earlier in accordance with the terms of this Agreement. Licensee shall give
Notice to Nasdaq of the date on which trading of the Derivative Product
commences. The period of time commencing on the date of this Agreement and
ending on the date of termination of this Agreement is referred to in this
Agreement as the TERM of this Agreement. Each anniversary of the Effective Date
during the Term of this Agreement is referred to in this Agreement as an
ANNIVERSARY. Each period between the Effective Date or an Anniversary and the
next succeeding Anniversary or the date of termination of the Term of this
Agreement is referred to in this Agreement as a CONTRACT YEAR.
1.2 The LIFE for the Derivative Product is until one year after the date
of the redemption or cancellation of the last of the Derivative Product Issued
under this Agreement.
2
<PAGE>
Section 2. SCOPE OF LICENSE. Nasdaq hereby grants Licensee a
non-exclusive, non-transferable and non-sub-licensable (except as provided
herein) license (i) to use the Index as the basis of the Derivative Product (as
defined in Attachment II(a)) Issued by Licensee during the Term of this
Agreement and (ii) to use and refer to the Marks in materials referring or
relating to the Derivative Product during the Life of this Agreement in
connection with the exchange or market trading, marketing, and promotion of the
Derivative Product and in connection with making such disclosure about the
Derivative Product as Licensee deems necessary or desirable under any applicable
laws, rules, or regulations. No license is granted to use the Index or Marks for
any other use, including as part of a news service or for collateral products,
without Consent of Nasdaq. During the Life of this Agreement, no further Consent
of Nasdaq need be obtained for use of the Index or Marks by any syndicator or
underwriter of an offering of the Derivative Product, or for any secondary or
other resale of the Derivative Product, provided such secondary or other resale,
syndication, or underwriting is legal under applicable law.
Section 3. FEES. Licensee shall pay Nasdaq the fees specified in
Attachment II(b) (FEES), in immediately available United States funds. Where
there are Annual Fees, such are due as of the Effective Date of this Agreement,
or on each Anniversary thereof. Fees established as due by a particular date,
are due by that date. All other Fees are due within 30 days of the date
established for the production of the report or invoice upon which the Fee is
based. Any amount not paid within 30 days after its due date is subject to
interest at the rate of 12% per month (or the highest rate permitted by law)
until paid, plus costs of collection, including reasonable in-house and outside
attorneys' fees. Licensee shall also assume full and complete responsibility for
the payment of any taxes, charges or assessments imposed on Licensee, any
sub-licensee, or the Corporations by any foreign or domestic national, state,
provincial, local or other government
3
<PAGE>
bodies, or subdivisions thereof, and any penalties or interest (other than
personal property or income taxes imposed on Nasdaq) relating to this Agreement.
In addition, if Licensee is required by applicable law to deduct or withhold any
such tax, charge or assessment from the amounts due Nasdaq, then such amounts
due shall be increased so that the net amount actually received by Nasdaq after
the deduction or withholding of any such tax, charge, or assessment will equal
one hundred percent (100%) of the charges specified.
Section 4. AUDIT RIGHTS. During the Life of this Agreement, Nasdaq shall
have the right, with reasonable Notice to Licensee, during normal business
hours, to audit on a Confidential basis, any relevant books and records of
Licensee or its sub-licensees to ensure that the type and amount of Fees
calculated or stated to be payable to Nasdaq are complete and accurate. Licensee
shall bear the costs of such audit (including reasonable in-house and outside
accountant and attorneys' fees, if incurred) if Nasdaq determines that Licensee
(together with its sub-licensees) has not paid, calculated, and/or reported Fees
of more than five percent of that due Nasdaq under this Agreement.
Section 5. REVIEW OF MATERIALS.
5.1. Licensee shall submit to Nasdaq for review a copy of any material
submitted to any regulatory body or governmental agency, which is required in
order to obtain approval for the Issuance, exchange or market trading, or resale
of the Derivative Product. To the extent practicable, such materials or a copy
of the then best draft shall be given to Nasdaq at least 3 business days before
their submittal to the body or agency (but in any event, a copy of the final
document shall be sent by Notice to Nasdaq no later than 3 business days after
submittal to the agency or body).
4
<PAGE>
5.2. Licensee shall give Nasdaq a copy within 3 business days of receipt,
of any notice, correspondence, process, or other material received from any
regulatory body, governmental agency, or any court, during or after the approval
process which indicates that the Derivative Product is or might be in violation
of, or is otherwise not subject to approval because of, any law, or any rule,
regulation, or order of any applicable body or agency.
5.3. Licensee shall provide Nasdaq with a copy of any informational or
promotional materials referring or relating to the offering of the Derivative
Product, including any prospectus, offering memorandum, registration statement,
circular, advertisement, or brochure at least 3 business days prior to its
initial dissemination to third parties. Licensee need not resupply a copy of any
material which is substantially like material previously submitted to Nasdaq and
is identical as it describes the Corporations or their operations, the markets
operated by the Corporations, the Index or the Marks, or the authorization,
review, or endorsement by the Corporations of the Derivative Product.
5.4. If Nasdaq reasonably objects by Notice or fax transmission to
Licensee to any material as it describes the Corporations or their operations,
the markets operated by the Corporations, the Index or the Marks, or the
authorization, review, or endorsement of the Corporations of the Derivative
Product, Licensee shall alter or withdraw such material to Nasdaq's satisfaction
within 30 days of receipt of Nasdaq=s objection. If Licensee refuses to so alter
or withdraw, Nasdaq may terminate the Term of this License upon 30 days Notice
to Licensee, unless cure is made within that period.
Section 6. PROTECTION OF MARKS. Nasdaq will use reasonable efforts to
maintain and protect the value of its Index and Marks. Except as provided in
Section 11, nothing shall obligate Nasdaq to undertake an action or settlement,
or refrain from an action or settlement with respect
5
<PAGE>
to any particular potential, threatened, or actual infringement of its Index or
Marks. Licensee shall cooperate with Nasdaq in maintenance, registrations, and
policing of Nasdaq's rights in the Index and the Marks. Such cooperation is not
a waiver of, nor shall it require either party to violate its attorney/client,
work product, or other privilege.
Section 7. CALCULATION OF INDEX.
7.1. Licensee agrees that the Index is a product of the selection,
coordination, arrangement, and editing of Nasdaq and that such efforts involve
the considerable expenditure by Nasdaq of time, effort, and judgment. As between
the parties, Licensee recognizes that Nasdaq is the rightful licensor of the
Index and the Marks. No license is granted to Licensee to calculate the Index.
While Nasdaq will use reasonable efforts based on sources deemed reliable in
calculating the Index, NASDAQ DOES 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 DOES NOT GUARANTEE THE UNINTERRUPTED OR UN-DELAYED
CALCULATION OR DISSEMINATION OF THE INDEX. NASDAQ DOES NOT GUARANTEE THAT THE
INDEX ACCURATELY REFLECTS PAST, PRESENT, OR FUTURE MARKET PERFORMANCE. Nasdaq is
free to pick and alter the components and method of calculation of the Index
without Consent of Licensee, the Nasdaq-100 Trust, or the beneficial owners of
units of beneficial interest in the Nasdaq-100 Trust.
7.2. Nasdaq shall give Licensee 90 days Notice of the cessation of public
calculation or dissemination of the Index. However, Nasdaq, in its sole
discretion, shall either continue to provide Licensee with a calculation of the
Index for the Life of this Agreement, or, on a Confidential basis, provide
Licensee with the then applicable method of calculation of the Index.
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<PAGE>
Licensee may terminate the Term of this Agreement on the date Noticed by Nasdaq
for the cessation or dissemination of the Index.
Section 8. MARKING OF LICENSEE'S USE.
8.1. In any prospectus, offering memorandum, contract, or in some other
conspicuous written manner, for the Derivative Product to each third party
involved in such Issuance, Licensee shall insure that substantially the
following language appears (in conspicuous type, such as at least 11 point type)
so as to be enforceable under applicable local law(s):
The Nasdaq-100 -Registered Trademark-, Nasdaq-100 Index -Registered
Trademark-, Nasdaq -Registered Trademark-, The Nasdaq Stock
Market -Registered Trademark-, Nasdaq-100 Shares -SM-, and
Nasdaq-100 Trust -SM- are trademarks and service marks of The Nasdaq Stock
Market, Inc. (NASDAQ) and have been licensed for use for certain purposes
by [LICENSEE] (LICENSEE) pursuant to a License Agreement with Nasdaq. The
Nasdaq-100 Index -Registered Trademark- (the INDEX) is determined,
composed, and calculated by Nasdaq without regard to the Licensee, the
Nasdaq-100 Trust, or the beneficial owners of Nasdaq-100 Shares. Nasdaq
has complete control and sole discretion in determining, comprising, or
calculating the Index or in modifying in any way its method for
determining, comprising, or calculating the Index in the future.
NASDAQ AND ITS AFFILIATES DO NOT GUARANTEE THE ACCURACY AND/OR THE
COMPLETENESS OF THE INDEX OR ANY DATA USED TO CALCULATE THE INDEX OR
DETERMINE THE INDEX COMPONENTS. NASDAQ AND ITS AFFILIATES DO NOT
GUARANTEE THE UNINTERRUPTED OR UN-DELAYED CALCULATION OR DISSEMINATION
OF THE INDEX. NASDAQ AND ITS AFFILIATES SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. NASDAQ AND ITS AFFILIATES
DO NOT GUARANTEE THAT
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<PAGE>
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 LICENSEE, THE NASDAQ-100
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
DISCLAIMS 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.
8.2. In the product description for the Derivative Product made available
by the American Stock Exchange to members and member organizations for
distribution by them to customers purchasing the Derivative Product pursuant to
American Stock Exchange Rule 1000, Licensee shall insure that substantially the
following language be included:
The Nasdaq-100 -Registered Trademark-, Nasdaq-100 Index -Registered
Trademark-, Nasdaq -Registered Trademark-, The Nasdaq Stock
Market -Registered Trademark-, Nasdaq-100 Shares -SM-, and
Nasdaq-100 Trust -SM- are trademarks and service marks of The Nasdaq
Stock Market, Inc. (NASDAQ) and have been licensed for use for certain
purposes by [LICENSEE] (LICENSEE) pursuant to a License Agreement with
Nasdaq. The Nasdaq-100 Index -Registered Trademark- (the INDEX) is
determined, composed, and calculated by Nasdaq without regard to the
Licensee, the Nasdaq-100 Trust, or the beneficial owners of
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Nasdaq-100 Shares. Nasdaq does not guarantee the accuracy and/or
completeness of the Nasdaq-100 Index or any data included therein. Nasdaq
and the American Stock Exchange (the EXCHANGE) make no express or implied
warranties, and disclaim all warranties of merchantability or fitness for
a particular purpose with respect to the Nasdaq-100 Index, its use, the
results to be obtained from its use, or any data included therein. Nasdaq
and the Exchange shall have no liability for any lost profits or special,
punitive, incidental, indirect, or consequential damages, even if notified
of the possibility of such damages. Nasdaq and the Exchange shall have no
liability for any damages, claims, losses or expenses caused by any errors
or delays in calculating or disseminating the Nasdaq-100 Index.
In addition, Licensee shall cause the American Stock Exchange to file
a rule, whose text is acceptable to Nasdaq, providing for disclaimers
of liability by the Corporations with respect to the Derivative Product
and the use of the Index.
8.3. In all other materials relating or referring to the Derivative
Product, Licensee shall include at least this much of the above language, or
similar formulation:
"Nasdaq" and related marks are trademarks or service marks of The Nasdaq
Stock Market, Inc. (NASDAQ, and collectively with its affiliates except
Licensee, the CORPORATIONS) and have been licensed for certain purposes by
Licensee. The Nasdaq-100 Index is composed and calculated by Nasdaq
without regard to Nasdaq-100 Shares -SM-. The Corporations make no
warranty, express or implied, and bear no liability with respect to
Nasdaq-100 Shares. The Corporations make no warranty, express or implied,
and bear no liability with respect to the Nasdaq-100 Index, its use, or
any data included therein.
Section 9. SUB-LICENSEES. Licensee agrees that, prior to the Issuance
of the Derivative Product, it will obtain an agreement with any person that
Issues the Derivative Product (other than Licensee) which is enforceable under
applicable local law and contains the provisions set forth in Attachment I,
modified solely to make them enforceable under applicable local law(s).
9
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Licensee may not waive any provision of the sub-license or of this Agreement
without Consent of Nasdaq. Licensee shall assume all responsibility for and will
hold harmless and indemnify the Corporations against any action or inaction by a
sub-licensee as if such action or inaction were that of the Licensee.
Section 10. LIMITED WARRANTY.
10.1. Nasdaq warrants that it will calculate the Index in accordance
with its then applicable method for calculation of the Index. LICENSEE'S SOLE
REMEDY IN EVENT OF A FAILURE OF THIS WARRANTY IS TO HAVE NASDAQ RECALCULATE
THE INDEX FOR THE AFFECTED TIMES ACCORDING TO NASDAQ'S APPLICABLE METHOD FOR
CALCULATION OF THE INDEX AT THE AFFECTED TIME(S). IN THE EVENT THAT NASDAQ IS
UNABLE OR UNWILLING TO RECALCULATE THE INDEX FOR AN AFFECTED PERIOD OF OVER
SEVEN CONSECUTIVE BUSINESS DAYS, NASDAQ WILL CREDIT TO THE LICENSEE THE
PORTION OF FEES CALCULATED IN SECTION 3. THE CORPORATIONS DO NOT REPRESENT OR
WARRANT THAT THE INDEX OR THE MEANS BY WHICH NASDAQ CALCULATES THE INDEX IS
FREE OF DEFECTS. THE CORPORATIONS DO NOT REPRESENT OR WARRANT THE TIMELINESS,
SEQUENCE, ACCURACY OR COMPLETENESS OF THE CALCULATION OF THE INDEX, OR THAT
THE INDEX WILL MEET LICENSEE'S REQUIREMENTS. THE FOREGOING WARRANTIES ARE IN
LIEU OF ALL CONDITIONS OR WARRANTIES, EXPRESS, IMPLIED OR STATUTORY,
INCLUDING BUT NOT LIMITED TO, ANY IMPLIED CONDITIONS OR WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE, ANY IMPLIED
WARRANTY ARISING FROM TRADE USAGE,
10
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COURSE OF DEALING, OR COURSE OF PERFORMANCE, AND OF ANY OTHER WARRANTY OR
OBLIGATION ON THE PART OF THE CORPORATIONS.
Section 11. INDEMNIFICATION.
11.1. Nasdaq warrants and represents that it has the right to grant the
rights to use the Index and Marks specified in this Agreement and that, to the
best of its knowledge, the license shall not infringe the title or any patent,
copyright, trade secret, trademark, service mark, or other proprietary
(INTELLECTUAL PROPERTY) right of any third party. Nasdaq will as its sole and
entire liability and obligation to Licensee (and any third party or
sub-licensee): defend, indemnify, and hold harmless (INDEMNIFY) Licensee
(including its and its sub-licensee's officers, directors, employees, and
agents) against any and all claims, demands, actions, suits, or proceedings
(DISPUTES) asserting that the Index or any Mark infringes any Intellectual
Property right of any third party and Nasdaq will pay the third party the total
amount of any award, judgment, or settlement (including all damages however
designated) awarded to such third party resulting from the Dispute to the extent
caused by failure of Nasdaq's warranty.
11.2. Licensee agrees to Indemnify Corporations (including its and their
officers, directors, employees, and agents) from any and all Disputes as the
result of Licensee=s (including any sub-licensee) failure to fulfill its
obligations under this Agreement, any Licensee (including any sub-licensee) use
of the Index or any Mark that is not expressly permitted by this Agreement,
claims relating to or arising from the Derivative Product, or any other matter
relating or arising out of this Agreement, except to the extent directly caused
by actions of the Corporations, and will pay the third party the total amount of
any award, judgment, or settlement (including all damages however designated)
awarded such third party resulting from such Dispute except to the extent
directly caused by actions of the Corporations.
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11.3. The right to be Indemnified shall apply to a dispute only if:
(a) the party seeking indemnification promptly, and within no more than 5
calendar days of its receipt of notice of such Dispute, gives Notice to
the other party of the Dispute;
(b) the party seeking to be Indemnified cooperates fully with the other in
the defense thereof (such cooperation does not require and is without
waiver by either party of attorney/client, work product, or other
privilege);
(c) the Indemnifying party has sole control of the defense and all related
settlement negotiations.
11.4. In the event of a Dispute involving infringement or if in Nasdaq's
opinion such a Dispute is likely to occur, or if the use of the Index or Mark is
enjoined, Nasdaq may, at its sole option and expense, procure for Licensee the
right to continue using the Index or Mark, replace or modify the Index or Mark
to become non-infringing, or terminate the Term of the Agreement.
Section 12. LIMITATION OF LIABILITY. EXCEPT FOR LIABILITY RESULTING FROM
THE WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF THE CORPORATIONS AND EXCEPT TO THE
EXTENT STATED IN SECTIONS 11, OR 15, THE TOTAL AMOUNT OF THE CORPORATIONS'
LIABILITY FOR CLAIMS OR LOSSES BASED UPON, ARISING OUT OF, RESULTING FROM OR IN
ANY WAY CONNECTED WITH THE PERFORMANCE OR BREACH OF THIS AGREEMENT, WHETHER
BASED UPON CONTRACT, TORT, WARRANTY, OR OTHERWISE, SHALL IN NO CASE EXCEED THE
GREATER OF ONE YEAR'S FEES UNDER THIS AGREEMENT OR $20,000. THE ESSENTIAL
PURPOSE OF THIS PROVISION IS TO LIMIT THE CORPORATIONS' LIABILITY UNDER THIS
AGREEMENT. BOTH PARTIES UNDERSTAND AND AGREE THAT THE TERMS OF THIS AGREEMENT
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REFLECT A NEGOTIATED AND REASONABLE ALLOCATION OF RISK AND LIMITATIONS GIVEN
COMMERCIAL REALITIES OF THE TRANSACTION.
Section 13. CONSEQUENTIAL DAMAGES. EXCEPT AS NOTED IN SECTION 11 AND
EXCEPT FOR A BREACH OF SECTION 15, THE CORPORATIONS SHALL NOT BE LIABLE TO
THE LICENSEE, ANY SUB-LICENSEE, OR ANY OTHER PERSON FOR ANY LOST PROFITS,
ANTICIPATED PROFITS, LOSS BY REASON OF SHUTDOWN IN OPERATION OR INCREASED
EXPENSES OF OPERATION, LOSS OF GOODWILL, FOR LOSS CAUSED IN SALE OF, OR
PURCHASE OF, THE DERIVATIVE PRODUCT, CONSEQUENTIAL, INCIDENTAL, INDIRECT,
PUNITIVE, OR SPECIAL DAMAGES, EVEN IF THE CORPORATIONS HAVE BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES.
Section 14. FORCE MAJEURE. Notwithstanding any other term or condition of
this Agreement, neither Nasdaq nor Licensee shall be obligated to perform or
observe its obligations undertaken in this Agreement (except for obligations to
make payments hereunder) if prevented or hindered from doing so by any
circumstances beyond its control, including, without limitation, acts of God,
perils of the sea and air, fire, flood, drought, war, explosion, sabotage,
terrorism, embargo, civil commotion, acts of any governmental body, supplier
delays, communications, or power failure, equipment or software malfunction, and
labor disputes.
Section 15. CONFIDENTIALITY. Each party shall protect information declared
by the other to be CONFIDENTIAL or PROPRIETARY. In fulfilling its
confidentiality obligations, each party shall use a reasonable standard of care,
at least the same standard of care which it uses to protect its own similar
confidential or proprietary information. All confidential or proprietary
information must be conspicuously marked PROPRIETARY or CONFIDENTIAL.
Information revealed
13
<PAGE>
orally becomes subject to protection when related to marked written materials or
when designated as PROPRIETARY or CONFIDENTIAL as long as the designation is
confirmed in writing within 10 calendar days of the designation. Either party
(including the Corporations) may disclose information to the extent demanded by
a court, revealed to a government agency with regulatory jurisdiction over the
party (including the Corporations), or in the party's regulatory
responsibilities over its members, associated persons, issuers, or others under
the Exchange Act of 1934, or similar applicable law. The obligation of
non-disclosure shall not extend to: (1) information which is then already in the
possession of the party (including the Corporations) while not under a duty of
non-disclosure; (2) information which is generally known or revealed to the
public or within the applicable industry; (3) information which is revealed to
the party (including the Corporations) by a third party unless the party
(including the Corporations) knows that such third party is under a duty of
non-disclosure; or (4) information which that party (including the Corporations)
develops independently of the disclosure. Each copy, including its storage
media, shall be marked with all notices which appear on the original.
The obligation of non-disclosure shall survive for a period of three years
from the date of disclosure.
Section 16. NON-USE OF NASD NAME AND MARKS. Except as provided hereunder,
Licensee shall not use the names National Association of Securities Dealers,
Inc. or "NASD", in any advertising or promotional media without the prior
written consent of Nasdaq. Except as provided hereunder, Licensee shall not use
any trademark, service mark, copyright, or patent of the Corporations,
registered or unregistered, without written consent of Nasdaq.
Section 17. SURVIVAL OF PROVISIONS. The terms of this Agreement shall
apply to any rights that survive through the Life of this Agreement, or the
cancellation, termination, or rescission of
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<PAGE>
this Agreement, namely--Confidentiality, Non-Use of NASD Name and Marks,
Indemnification, and any warranties.
Section 18. CANCELLATION.
18.1. Either party may elect, without prejudice to any other rights or
remedies, to terminate the Term this Agreement, upon 30 days notice with an
opportunity to cure within the stated period, if the other party has failed to
perform any material obligation under this Agreement.
18.2. Either party may elect, without prejudice to any other rights or
remedies, to terminate the Term of this Agreement without notice, if a petition
in bankruptcy has been filed by or against the other party or the other party
has made an assignment for the benefit of creditors, or a receiver has been
appointed for the other party or any substantial portion of other party's
property, or the other party's or its officers or directors takes action
approving or makes an application for any of the above.
18.3 Licensee represents and warrants that at each time there is any
Issuance of the Derivative Product, that it and each of its sub-licensees and
involved entities shall have all applicable authority to Issue such Derivative
Product and that the Derivative Product is Issued strictly in accordance with
all applicable legal requirements. Nasdaq may elect, without prejudice to any
other rights or remedies, to terminate the Term of this Agreement with
reasonable notice with an opportunity to cure within such period, if Nasdaq
reasonably believes that any Derivative Product is illegal or has been illegally
Issued, or if the Licensee or any sub-licensee or any involved entity does not
have the power to Issue any of the Derivative Product which it has or is
attempting to Issue.
15
<PAGE>
18.4. Either party may elect, without prejudice to any other rights or
remedies, to terminate the Term of this Agreement with 30 days Notice (or in the
event of an emergency, with such Notice as is practicable), if either party's
ability to perform its obligations under this Agreement is substantially
impaired by any new statute, or new rule, regulation, order, opinion, judgment,
or injunction of the Securities and Exchange Commission (SEC), a court, an
arbitration panel, or governmental body or self-regulatory organization with
jurisdiction over the party.
18.5. Licensee acknowledges that NASD is registered with the SEC as a
registered national securities association pursuant to Section 15A of the United
States Securities and Exchange Act (ACT) and that as such NASD has a statutory
obligation to protect investors and the public interest, that Section 19(g)(1)
of the Act mandates that NASD, as a self-regulatory organization, comply with
the provisions of the Act, the rules and regulations thereunder, and its own
rules. Accordingly, Licensee agrees that Nasdaq, as a subsidiary of NASD, when
required to do so by NASD, may by written Notice to Licensee unilaterally limit
or terminate the Term of this Agreement or Licensee's right to Issue the
Derivative Product. Licensee shall have available to it those procedural
protections provided by the Act and applicable rules thereunder.
Section 19. SUBSEQUENT PARTIES; LIMITED RELATIONSHIP. The Agreement shall
inure to the benefit of and shall be binding upon the parties hereto and their
respective permitted successors or assigns. Licensee shall not assign this
Agreement (including by operation of law) without the written consent of Nasdaq.
Nothing in the Agreement, express or implied, is intended to or shall (a) confer
on any person other than the parties hereto (and any of the Corporations), or
their respective permitted successors or assigns, any rights to remedies under
or by reason of this Agreement; (b) constitute the parties hereto partners or
participants in a joint venture; or (c) appoint one party the agent of the
other.
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Section 20. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof, and
supersedes all prior negotiations, communications, writings, and understandings.
Section 21. GOVERNING LAW. This Agreement shall be deemed to have been
made in the United States, District of Columbia and shall be construed and
enforced in accordance with, and the validity and performance hereof shall be
governed by, the laws of the District of Columbia, without reference to
principles of conflicts of laws thereof.
Licensee and Nasdaq each hereby consent to submit to the jurisdiction
of the courts for or in the District of Columbia in connection with any
action or proceeding instituted relating to this Agreement.
Section 22. AUTHORIZATION. This Agreement shall not be binding upon a
party unless executed by an authorized officer of that party. Licensee, Nasdaq,
and the persons executing this Agreement represent that such persons are duly
authorized by all necessary and appropriate corporate or other action to execute
this Agreement on behalf of Nasdaq or Licensee.
Section 23. HEADINGS. Section headings are included for convenience only
and are not to be used to construe or interpret this Agreement.
Section 24. NOTICES. All notices, invoices, and other communications
required to be given in writing under this Agreement shall be directed to the
persons identified in subsections (a) and (b) below and shall be deemed to have
been duly given upon actual receipt by the parties, or upon constructive receipt
if sent by certified mail, return receipt requested (as of the date of signature
or of first refusal of the return receipt), or by any other delivery method
which obtains a signed delivery receipt, addressed to the person named below to
the following addresses or to such other
17
<PAGE>
address as any party hereto shall hereafter specify by written notice to the
other party or parties hereto (NOTICE):
(a) if to Licensee:
Name: John L. Jacobs
Title: Executive Vice President
Address: Nasdaq-Amex Investment Product Services, Inc.
c/o The Nasdaq Stock Market, Inc.
1735 K Street, N.W.
Washington, D.C. 20006
Telephone #: (202) 496-2552
(b) if to Nasdaq:
Name: J. Patrick Campbell
Title: Executive Vice President and
Chief Operating Officer
Address: The Nasdaq Stock Market, Inc.
11th Floor
1735 K Street, N.W.
Washington, D.C. 20006
Telephone #: (202) 728-8200
With, in the event of notices of Dispute or default, a required copy to:
The Nasdaq Stock Market, Inc.
1735 K Street, N.W.
Washington, D.C. 20006
Attn: Office of General Counsel - Nasdaq Contracts Group
Section 25. AMENDMENT, WAIVER, AND SEVERABILITY. Except as otherwise
provided herein, no provision of this Agreement may be amended, modified, or
waived, unless by an instrument in writing executed by a duly authorized officer
of the party against whom enforcement of such amendment, modification, or waiver
is sought (CONSENT).
25.1. No failure on the part of Nasdaq or Licensee to exercise, no delay
in exercising, and no course of dealing with respect to any right, power, or
privilege under this Agreement shall
18
<PAGE>
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power, or privilege preclude any other or further exercise thereof
or the exercise of any other right, power, or privilege under this Agreement.
25.2. If any of the provisions of this Agreement, or application thereof
to any person or circumstance, shall to any extent be held invalid or
unenforceable, the remainder of this Agreement, or the application of such terms
or provisions to persons or circumstances other than those as to which they are
held invalid or unenforceable, shall not be affected thereby and each such term
and provision of this Agreement shall be valid and enforceable to the fullest
extent permitted by law.
Section 26. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and such counterparts
together shall constitute but one and the same instrument.
Section 27. SCHEDULE OF ATTACHMENTS. The following Attachments are
referred to in this Agreement and are incorporated as if set forth in full
herein. In the event of a conflict between the Attachments and this Agreement,
the Attachments shall govern:
Attachment I. -- Nasdaq-100 Index -Registered Trademark-
Sub-license Agreement
Attachment II(a). -- Product Description
II(b). -- Fee Schedule
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers.
INVESTMENT PRODUCT SERVICES, INC.
(Subsequently re-named Nasdaq-Amex Investment Product Services, Inc.)
(LICENSEE)
By: /s/ JOHN L. JACOBS
-----------------------------
Name: JOHN L. JACOBS
--------------------------
Title: EXECUTIVE VICE PRESIDENT
--------------------------
AUTHORIZED OFFICER
THE NASDAQ STOCK MARKET, INC.
(NASDAQ)
By: /s/ L. BRIAN HOLLAND
-----------------------------
Name: L. BRIAN HOLLAND
--------------------------
Title: EXECUTIVE VICE PRESIDENT
--------------------------
AUTHORIZED OFFICER
20
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ATTACHMENT I
NASDAQ-100 INDEX -Registered Trademark- SUB-LICENSE AGREEMENT
THIS AGREEMENT, dated as of ___________, is made by and among Investment
Product Services, Inc., subsequently renamed Nasdaq-Amex Investment Product
Services, Inc. (LICENSEE), a Delaware corporation, The Nasdaq Stock Market, Inc.
(NASDAQ), a Delaware Corporation which is a wholly-owned subsidiary of the
National Association of Securities Dealers, Inc. (NASD) (NASD with its
affiliates (other than the Licensee) are collectively referred to as the
CORPORATIONS), whose principal offices are located at 1735 K Street, N.W.,
Washington, D.C. 20006 and ______________________________ (SUB-LICENSEE), whose
principal offices are located at _____________________________________________.
WHEREAS, Nasdaq possesses certain rights in the Nasdaq-100
Index -Registered Trademark- (INDEX); and
WHEREAS, Nasdaq possesses certain rights to Nasdaq -Registered
Trademark-, Nasdaq-100 -Registered Trademark-, the Nasdaq-100 Index -Registered
Trademark-, The Nasdaq Stock Market -Registered Trademark-, Nasdaq GOLD -SM-,
Nasdaq-100 Shares -SM-, and Nasdaq-100 Trust -SM- as trade names, trademarks or
service marks (MARKS); and
WHEREAS, Nasdaq determines the components of the Index, calculates,
maintains, and disseminates the Index; and
WHEREAS, Nasdaq and Licensee have previously entered into a separate
agreement concerning use of the Index and Marks relating to a certain Derivative
Product (LICENSE AGREEMENT); and
I-1
<PAGE>
WHEREAS, Sublicensee wishes to Issue the Derivative Product and in
connection therewith to use and refer to the Index and Marks in connection with
the exchange or market trading, marketing and promotion of the Derivative
Product; and
WHEREAS, Licensee is legally authorized to issue, enter into, write, sell,
purchase and/or renew (ISSUE, ISSUING, OR ISSUANCE) the Derivative Product, and
the Derivative Product will be Issued as legally required under applicable law;
NOW THEREFORE, in consideration of the premises and the mutual covenants
and conditions herein contained, Licensee, Sub-Licensee, and Nasdaq, intending
to be legally bound, agree as follows:
Section 1. SCOPE OF SUB-LICENSE. Sub-Licensee hereby acknowledges that
it has received, reviewed, and understands the License Agreement entered into
between Licensee and Nasdaq relating to use of the Index and Marks. Except as
noted herein, Sub-Licensee hereby agrees to obligate itself to all the terms,
conditions, and obligations of that License Agreement as if Sub-Licensee were
the Licensee, other than the obligation to pay the license fees imposed by
Section 3 of the License Agreement. Sub-Licensee agrees that Nasdaq may
exercise any rights against Sub-Licensee (including, for example, limitation
of liability, indemnification, or audit rights) Nasdaq has against the
Licensee to the same extent as if Sub-Licensee were directly contracting with
Nasdaq. Sub-Licensee agrees it will not assert against Nasdaq any defense,
claim, or right Sub-Licensee may have against Licensee, including those of
set-off, abatement, counter-claim, contribution, or indemnification.
Section 2. NO FURTHER SUB-LICENSE. All references in the License Agreement
to sub-licenses and sub-licensees, including any right of sub-licensee to grant
further sub-licenses or to
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<PAGE>
permit further sub-licensees are not applicable to this Sub-Licensee Agreement
and are as if deleted from the License Agreement.
Section 3. TERM. The Term of this Sub-License Agreement automatically
terminates, without Notice, if the Term of the License Agreement terminates for
any reason. Section
Section 4. GENERAL PROVISIONS. Sections from 20, through and including,
Section 26 of the License Agreement govern this Sub-License Agreement. All
terms and definitions used in this Sub-License Agreement, unless otherwise
indicated, have the same meanings and definitions as in the License
Agreement. LICENSEE HAS NO AUTHORITY TO WAIVE, RENEGOTIATE, OR FORGIVE ANY
PROVISION OF THE LICENSE AGREEMENT AS IT APPLIES TO SUB-LICENSEE.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Sub-License
Agreement to be executed by their duly authorized officers.
INVESTMENT PRODUCT SERVICES, INC.
(subsequently re-named Nasdaq-Amex Investment Product Services, Inc.)
(LICENSEE)
By:
-------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
AUTHORIZED OFFICER
- ----------------------------------------------------
(SUB-LICENSEE)
By:
-------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
AUTHORIZED OFFICER
THE NASDAQ STOCK MARKET, INC.
(NASDAQ)
By:
-------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
AUTHORIZED OFFICER
I-4
<PAGE>
ATTACHMENT II(A)
PRODUCT DESCRIPTION
Nasdaq-100(R) Trust
PRODUCT DESCRIPTION
Nasdaq-100 Shares(SM) ARE INTERESTS
IN A UNIT INVESTMENT TRUST
Nasdaq-100 Shares are securities that represent an interest in the
portfolio of equity securities held by a unit investment trust ("Trust"), but
that trade like a share of common stock. The Trust underlying Nasdaq-100
Shares is formed by Nasdaq-Amex Investment Product Services, Inc., as
Sponsor, a wholly-owned subsidiary of The Nasdaq Stock Market, Inc.
("Nasdaq"), and is intended to provide investment results that generally
correspond to the price and yield performance of the Nasdaq-100 Index(R)
("Index") The trustee of the Trust is The Bank of New York ("Trustee"). The
distributor for the Trust is ALPS Mutual Funds Services, Inc.
("Distributor"), a registered broker-dealer.
NASDAQ-100 SHARES ARE BASED ON A BROAD MARKET INDEX
The Trust Sponsor selected the Nasdaq-100 Index as the basis for
Trust shares because it constitutes a broadly diversified segment of the
largest and most actively traded securities listed on the Nasdaq. The Index
was first published in January 1985, and includes companies across a variety
of major industry groups, including computer and office equipment, computer
and software services, telecommunications, retail/wholesale trade, and
biotechnology. The Nasdaq-100 Index is calculated under a "modified
capitalization weighted" methodology, which is a hybrid between equal
weighting and conventional capitalization weighting. 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 Sponsor, the Trust or the
beneficial owners of Nasdaq-100 Shares.
The current value of the Index will ordinarily continue to be
reported even when trading is interrupted in some or all of its component
securities. 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 non-current price information
with respect to some or even all of the stocks in the Index.
TRUST SHARES ARE CREATED AND REDEEMED WITH AN ACTUAL PORTFOLIO OF SECURITIES
AND IN "CREATION UNITS" COMPRISING 50,000 TRUST SHARES
Most holders of Nasdaq-100 Shares purchase and sell them in the
secondary trading market. However, Trust shares are initially created when
they are issued by the Trust to a person or entity who, after placing a
creation order with the Distributor, deposits with the Trustee a specified
portfolio of Index securities, as well as in some cases a cash payment
generally equal to accumulated dividends, if any, of the securities net of
II(a)-1
<PAGE>
accrued expenses and liabilities up to the time of deposit. Conversely, the
Trust will deliver an Index portfolio (based on net asset value of the
Trust), together, in some cases, with a cash payment (generally equal to
accumulated dividends, if any, net of accrued expenses and liabilities as of
the date of redemption) to a holder upon tender of an established minimum
number of Trust shares to the Trust. While Trust shares can be traded in lots
of any size like ordinary shares of stock, Trust shares are issued by the
Trust only in specified large-sized minimum numbers, for example, 50,000
Trust shares (or multiples thereof), which are referred to as "creation
units". Similarly, Trust shares can be redeemed only by tendering to the
Trust 50,000 Trust shares (or multiples thereof) -- the same Creation
Unit-sized minimum number. Procedures to be followed when engaging in these
creation and redemption transactions are set forth in the Nasdaq-100 Trust,
Series 1 prospectus.
To maintain the correlation between the composition of securities
held by the Trust and that of the Index securities, the Trust securities will
be adjusted by the Trustee from time to time to conform to periodic changes
in the identity and/or capitalization weights of Index securities.
NASDAQ-100 SHARES TRADE ON THE AMERICAN STOCK EXCHANGE
Once issued to a depositor of securities, Trust shares may be bought
and sold in the secondary market like other equity securities at any time
during the trading day. The Nasdaq-100 Trust is listed for trading on the
American Stock Exchange and Trust shares are cleared through facilities of
the National Securities Clearing Corporation ("NSCC"). Certificates will not
be issued for Trust shares, which will be held by the Depository Trust
Company ("DTC") in book entry form only. Trust shares are traded on the
Exchange in 100 share round lots, and can be traded in odd lots as well. Note
that trading of Trust shares on the Exchange will be halted whenever exchange
trading in equity securities generally is halted as a result of activation of
market-wide "circuit breakers" which are tied to large decreases in the Dow
Jones Industrial Average(SM). Trading in Trust shares on the Exchange may also
be halted if Exchange officials determine that such action is appropriate in
the interest of a fair and orderly market or to protect investors.
NASDAQ-100 TRUST DIVIDEND PAYMENTS
Trust share holders as of the record dates may be paid a quarterly
Income Net of Expenses Amount corresponding to the amount of any cash
dividends or other income that accrue to the portfolio of securities in the
Trust during the applicable period, net of fees and expenses of the Trust (as
discussed below). If the fees and expenses of the Trust exceed the dividend
and other income received by the Trust, the Trust may be required to pay any
such excess expenses with the proceeds realized from the sale of Index
securities. BASED ON HISTORICAL DIVIDEND PAYMENT RATES OF SECURITIES IN THE
INDEX AND ESTIMATED ORDINARY OPERATING EXPENSES OF THE TRUST, LITTLE OR NO
SUCH NET DIVIDEND DISTRIBUTIONS ARE CURRENTLY ANTICIPATED. The regular
quarterly ex-dividend date for the Trust will be the third Friday in each of
March, June, September, and December, unless such date is not a Business Day,
in which case the ex-dividend date will be the immediately preceding Business
Day. There shall be no net dividend distribution in any given quarter, and
any net dividend amounts will be rolled into the next quarterly accumulation
period, if the aggregate net 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
II(a)-2
<PAGE>
the ex-dividend date, unless the Trustee determines that a distribution is
required for reasons set forth in the Trust prospectus. The Trust share
holder should be aware of the tax consequences associated with Trust
dividends, as well as those associated with Trust share sales or redemptions.
Investors may wish to consult their tax advisors in this regard.
The Sponsor reserves the right to make the DTC Dividend Reinvestment
Service ("Service") available in the future for use by Trust share holders
through DTC Participants for reinvestment of their periodic cash
distributions, if any. In the event the Service is made available, not all
DTC Participants may choose to utilize this Service, and an interested
investor should consult his or her broker to ascertain the availability of
dividend reinvestment through such broker as well as the specific procedures
that apply.
EXPENSES OF THE TRUST
Fees and expenses to be charged to the Trust are described in the
Nasdaq-100 Trust prospectus. Such fees and expenses include the Trustee's
fees; licensing fees; federal and state annual registration fees; expenses of
the Sponsor relating to the printing and distribution of marketing materials;
and certain other expenses and fees of the Trust, as described in the Trust
prospectus. The expenses of the Trust will be accrued daily and reflected in
the net asset value of the Trust.
Please note that secondary market purchases and sales of Trust
shares are subject to ordinary brokerage commissions.
THE TRUSTEE VOTES THE UNDERLYING SHARES
The Trustee will have the right to vote any voting securities held
by the Trust, and will vote the voting securities of each issuer in the same
proportion as all other voting shares of that issuer are voted. Consequently,
holders of Trust shares will not be able to vote the shares of the securities
of the issuers of the underlying Nasdaq-100 Trust.
THE NASDAQ-100 TRUST HAS A SPECIFIED LIFETIME TERM
The mandatory termination date of the Trust will be the first to
occur of (i) a specified date in 2124 or (ii) the date 20 years after the
death of the last survivor of fifteen (15) persons named in the Trust
Agreement. However, the Trust may terminate at an earlier time under certain
circumstances, such as delisting of the Nasdaq-100 Trust from the American
Stock Exchange and no subsequent relisting on a national securities exchange
or a quotation medium operated by a national securities association; if the
license from Nasdaq is terminated; or if the Trustee, Sponsor, DTC, or NSCC
are unable to perform their respective functions or duties with respect to
operation of the Trust and a suitable successor entity is not available. In
addition, the Sponsor may terminate the Trust if the Trust net asset value,
after six months from inception, is below $150,000,000, or, after three years
from inception, Trust net asset value is below $350,000,000, as such dollar
amount shall be adjusted annually for inflation. Trading of Trust shares
cannot occur after termination of the underlying Trust. However, on
termination the Trust will be liquidated, and Trust share holders at that
time will receive a distribution of their pro-rata share of the assets of the
Trust, net of certain fees and expenses.
NASDAQ-100 SHARES SHOULD TRACK THE VALUE OF THE UNDERLYING STOCKS
The value of Trust shares will fluctuate in relation to changes in
the value of the portfolio of securities held by the Trust, and a significant
decline in the value of the Trust portfolio can be expected to result in a
similar decline in value of the corresponding Trust
II(a)-3
<PAGE>
shares. However, the market price of Trust shares may not be equivalent to
the pro-rata value of the Index securities. The portfolio of Index securities
held by the Trust will be adjusted as necessary to track changes made to the
Index from time to time by Nasdaq. The Trust Agreement contains directions to
the Trustee specifying how those changes to the Index are to be replicated by
the Trust.
SPECIAL CONSIDERATIONS AND RISK FACTORS
Trust shares are subject to the risks of an investment in a broadly
based portfolio of equity securities, including the risk that the general
level of stock prices may decline, thereby adversely affecting the value of
such investment. Therefore, the value received upon sale of a Trust share may
be less than the purchase price. Moreover, an investment in Nasdaq-100 Shares
should be made with an understanding that the Trust may not be able to
replicate exactly the performance of the Index because of transaction costs
incurred by the Trust or because of the temporary unavailability of certain
Index securities. Trust shares are also subject to the risks of an investment
in a portfolio of equity securities in which the Index may be highly
concentrated (e.g., technology) and, due to concentration in sectors
characterized by relatively higher volatility in price performance, may be
more volatile when compared to other broad-based stock index products. Trust
shares are also subject to the risks specific to the performance of a few
individual component securities which currently represent a highly
concentrated weighting in the Nasdaq-100 Index, as described in the Trust's
prospectus.
The identity of securities held by the Trust will change from time
to time, based on changes in the Index. There can be no assurance that the
issuers of securities held by the Trust will pay dividends, and distributions
on such securities will generally depend upon the declaration of dividends by
the issuers of those securities.
Nasdaq does not guarantee the accuracy and/or completeness of the
Nasdaq-100 Index or any data included therein. Nasdaq and the Exchange make
no express or implied warranties, and disclaim all warranties of
merchantability or fitness for a particular purpose with respect to the
Nasdaq-100 Index, its use, the results to be obtained from its use, or any
data included therein. Nasdaq and the Exchange shall have no liability for
any lost profits or special, punitive, incidental, indirect, or consequential
damages, even if notified of the possibility of such damages. Nasdaq and the
Exchange shall have no liability for any damages, claims, losses or expenses
caused by any errors or delays in calculating or disseminating the Nasdaq-100
Index.
This product description is required to be provided to Trust share
purchasers by American Stock Exchange members and member organizations
pursuant to Exchange rules. It is not to be construed as investment advice or
as a recommendation to buy or sell Trust shares. Upon request, your broker
will furnish you with a copy of the Nasdaq-100 Trust prospectus, which
provides more specific information with respect to these securities. The
Nasdaq-100 Trust prospectus may also be obtained by writing to Nasdaq-Amex
Investment Product Services, Inc., c/o the American Stock Exchange, 86
Trinity Place, New York, NY 10006, or by calling 1-800-843-2639. If you have
any questions about the Nasdaq-100 Trust, they should be addressed to your
broker.
II(a)-4
<PAGE>
ATTACHMENT II(b)
FEE SCHEDULE
Licensee shall pay license fees in accordance with the following:
1. Licensee shall pay to Nasdaq a license fee at a rate of 4/100 of one
percent (0.04%) per annum, times the average daily net asset value of the
Nasdaq-100 Trust (the ANNUAL FEE).
2. The Annual Fee shall be computed and paid as follows:
a) At the end of each quarter during a Contract Year (ending on the
three month anniversary of the Effective Date or the prior quarter),
Licensee shall calculate the average daily net asset value of the
Nasdaq-100 Trust during the quarter by (i) adding together the daily net
asset values of the Nasdaq-100 Trust, as determined by the trustee of the
Nasdaq-100 Trust on each business day during the quarter, and then (ii)
dividing such sum by the number of daily net asset value amounts
determined in (i) above. The resulting average daily net asset value shall
then be multiplied by (0.0004) and divided by four, resulting in the
quarterly payment to be paid to Nasdaq by Licensee.
b) Each quarterly payment shall be accompanied by a statement
setting forth the calculations on which the payment is based and shall be
paid within 15 days after the close of the quarter.
II(b)-1
<PAGE>
Exhibit A(9)(c)
FORM OF
NASDAQ-100 PARTICIPANT AGREEMENT
This Nasdaq-100 Participant Agreement (this "Agreement") is
entered into between ALPS Mutual Funds Services, Inc. (the "Distributor") and
_ _ _ _ _ _ _ _ _ _ _ (the "Participant") and is subject to acceptance by
The Bank of New York (the "Trustee"). The Trustee serves as the trustee of
the Nasdaq-100 Trust, Series 1 (the "Trust") pursuant to certain Standard
Terms and Conditions of Trust dated as of March 1, 1999 and the Trust
Indenture and Agreement dated March 4, 1999 (collectively, the "Trust
Agreement") and is an Index Receipt Agent as that term is defined in the
rules of the National Securities Clearing Corporation ("NSCC"). The
Distributor has been retained to provide certain services with respect to
acting as principal underwriter of the Trust in connection with the creation
and distribution of Nasdaq-100 Shares. As specified in the Nasdaq-100 Shares
prospectus and the Trust Agreement, Nasdaq-100 Shares may be created or
redeemed only in aggregations of 50,000 Nasdaq-100 Shares, referred to
therein and herein as a "Creation Unit". The Trust Agreement provides that
Creation Units be issued in exchange for a Portfolio Deposit delivered by the
Participant to the Trustee. Capitalized terms not otherwise defined herein
are used herein as defined in the Nasdaq-100 Shares prospectus or the Trust
Agreement.
This Agreement is intended to set forth certain premises and
the procedures by which the Participant may create and/or redeem Creation Units
(i) through the Continuous Net Settlement ("CNS") clearing processes of NSCC as
such processes have been enhanced to effect creations and redemptions of
Creation Units, such processes being referred to herein as the "Nasdaq-100
Clearing Process", or (ii) outside the Nasdaq-100 Clearing Process (i.e.,
through the facilities of the Depository Trust Company ("DTC" )). The parties
hereto in consideration of the premises and of the agreements contained herein
agree as follows:
<PAGE>
1. STATUS OF PARTICIPANT. The Participant hereby represents, covenants and
warrants that (i) with respect to orders for the creation or redemption
of Creation Units by means of the Nasdaq-100 Clearing Process, it is a
member of NSCC and a participant in the CNS System of NSCC (as defined
in the Nasdaq-100 Shares prospectus, a "Participating Party"); and (ii)
with respect to orders for the creation or redemption of Creation Units
outside the Nasdaq-100 Clearing Process, it is a DTC Participant (as
defined in the Nasdaq-100 Shares prospectus, a "DTC Participant"). The
Participant may place orders for the creation or redemption of Creation
Units either through the Nasdaq-100 Clearing Process or outside the
Nasdaq-100 Clearing Process, subject to the procedures for creation and
redemption referred to in paragraph 2 of this Agreement ("Execution of
Orders") and the procedures described in Attachment A hereto. Any
change in the foregoing status of the Participant shall terminate this
Agreement, and the Participant shall give immediate notice to the
Distributor and the Trustee of such change.
The Participant further represents that it is a broker-dealer
registered with the Securities and Exchange Commission and a member of
the National Association of Securities Dealers, Inc. (the "NASD") or is
exempt from or otherwise not required to be licensed as a broker-dealer
or a member of the NASD. The Participant is qualified as a broker or
dealer, or otherwise, under all applicable state laws where it is
required to do so in order that Nasdaq-100 Shares may be sold in such
states where the Participant intends to sell Nasdaq-100 Shares. The
Participant agrees to conform to the rules of the NASD (if it is a
member of NASD) and the securities laws of any jurisdiction in which it
sells, directly or indirectly, Nasdaq-100 Shares.
2
<PAGE>
2. EXECUTION OF ORDERS. All orders for the creation or redemption of
Creation Units shall be handled in accordance with the terms of the
Nasdaq-100 Shares prospectus, the Trust Agreement and the procedures
described in Attachment A to this Agreement. Each party hereto agrees
to comply with the provisions of such documents to the extent
applicable to it. In the event the procedures include the use of
recorded telephone lines, the Participant hereby consents to such use.
The Trustee reserves the right to issue additional or other procedures
relating to the manner of creating or redeeming Creation Units, and the
Participant and the Distributor agree to comply with such procedures as
may be issued from time to time.
3. NSCC. Solely with respect to orders for the creation or redemption of
Creation Units through the Nasdaq-100 Clearing Process, the Participant
as a Participating Party hereby authorizes the Trustee to transmit to
NSCC on behalf of the Participant such instructions, including share
and cash amounts as are necessary with respect to the creation and
redemption of Creation Units consistent with the instructions issued by
the Participant to the Nasdaq-100 telephone representative identified
in Attachment A hereto (the "Nasdaq- 100 Telephone Representative").
The Participant agrees to be bound by the terms of such instructions
issued by the Trustee and reported to NSCC as though such instructions
were issued by the Participant directly to NSCC.
4. ROLE OF PARTICIPANT. The Participant shall have no authority in any
transaction to act as agent of the Distributor, the Trustee or the
Trust. 5. FEES. In connection with the creation or redemption of
Creation Units, the Trustee shall charge, and the Participant agrees to
pay to the Trustee, the Transaction Fee prescribed in the Nasdaq-100
Shares prospectus applicable to creations or redemptions through the
3
<PAGE>
Nasdaq-100 Clearing Process, or the Transaction Fee and such additional
amounts as may be prescribed pursuant to the Nasdaq-100 Shares
prospectus applicable to (i) creations or redemptions outside the
Nasdaq-100 Clearing Process and (ii) creations within the Nasdaq-100
Clearing Process where the cash equivalent value of one or more Index
Securities is being deposited in lieu of the inclusion of such Index
Security in the securities portion of the Portfolio Deposit because the
Participant is restricted by regulation or otherwise from investing or
engaging in a transaction in such security. The Transaction Fee may be
waived or otherwise adjusted from time to time subject to the
provisions relating thereto and any limitations as prescribed in the
Nasdaq-100 Shares prospectus and the Trust Agreement.
6. AUTHORIZED PERSONS. Concurrently with the execution of this Agreement
and from time to time thereafter, the Participant shall deliver to the
Distributor and the Trustee, duly certified as appropriate by its
secretary or other duly authorized official, a certificate setting
forth the names and signatures of all persons authorized to give
instructions relating to activity contemplated hereby or any other
notice, request or instruction on behalf of the Participant (each, an
"Authorized Person"). Such certificate may be accepted and relied upon
by the Distributor and the Trustee as conclusive evidence of the facts
set forth therein and shall be considered to be in full force and
effect until delivery to the Distributor and the Trustee of a
superseding certificate bearing a subsequent date. The Trustee shall
issue to each Authorized Person a unique personal identification number
("PIN Number") by which such Authorized Person and the Participant
shall be identified and instructions issued by the Participant
hereunder shall be authenticated. Upon the termination or revocation of
authority of such Authorized Person by the Participant, the
4
<PAGE>
Participant shall give immediate written notice of such fact to the
Distributor and the Trustee and such notice shall be effective upon
receipt by both the Distributor and the Trustee.
7. REDEMPTION. The Participant represents and warrants that it will not
obtain a Submission Number (as defined in Attachment A) from the
Trustee for the purpose of redeeming a Creation Unit unless it first
ascertains that (a) it or its customer, as the case may be, owns
outright the requisite number of Nasdaq-100 Shares to be redeemed and
(b) such Nasdaq-100 Shares have not been loaned or pledged to another
party nor are the subject of a repurchase agreement, securities lending
agreement or such other arrangement which would preclude the delivery
of such shares to the Trustee on a "regular way" basis.
8. BENEFICIAL OWNERSHIP. The Participant represents and warrants to the
Distributor and the Trustee that either (i) it does not hold for the
account of any single Beneficial Owner of Nasdaq-100 Shares, 80 percent
(80%) or more of outstanding Nasdaq-100 Shares or (ii) if it does hold
for the account of any single Beneficial Owner of Nasdaq-100 Shares, 80
percent (80%) or more of outstanding Nasdaq-100 Shares, that such a
circumstance would not cause the Trust to have a basis in the Index
Securities deposited with the Trust different from the market value of
such Index Securities on the date of such deposit, pursuant to Section
351 of the Internal Revenue Code of 1986, as amended. The Trustee shall
have the right to require information from the Participant regarding
Nasdaq- 100 Share ownership and to rely thereon to the extent necessary
to make a determination regarding ownership of 80 percent (80%) or more
of outstanding Nasdaq-100 Shares by a Beneficial Owner as a condition
to the acceptance of a Portfolio Deposit.
5
<PAGE>
9. INDEMNIFICATION. The Participant hereby agrees to indemnify and hold
harmless the Distributor, the Trustee, Nasdaq-Amex Investment Product
Services, Inc. (the Trust sponsor and a wholly-owned subsidiary of The
Nasdaq Stock Market, Inc., the "Sponsor"), their respective
subsidiaries, affiliates, directors, officers, employees and agents
(each, an "Indemnified Party") from and against any loss, liability,
cost and expense incurred by such Indemnified Party as a result of (i)
any breach by the Participant of its representations and warranties
contained herein or of any provision of this Agreement; or (ii) any
actions of such Indemnified Party in reliance upon any instructions
issued in accordance with Attachment A (as may be amended from time to
time) believed by the Distributor and/or the Trustee to be genuine and
to have been given by the Participant. This paragraph shall survive the
termination of this Agreement.
10. TRUSTEE CAPACITY. The parties acknowledge that the Trustee is acting in
its capacity hereunder as trustee in accordance with and pursuant to
the Trust Agreement and not in its general corporate capacity.
11. ACKNOWLEDGMENT. The Participant acknowledges receipt of the Nasdaq-100
Shares prospectus and represents it has reviewed such document and
understands the terms thereof.
12. NOTICES. Except as otherwise specifically provided in this Agreement,
all notices required or permitted to be given pursuant to this
Agreement shall be given in writing and delivered by personal delivery
or by postage prepaid registered or certified United States first class
mail, return receipt requested, or by telex, telegram or facsimile or
similar means of same day delivery (with a confirming copy by mail as
provided herein). Unless otherwise notified in writing, all notices to
the Trustee shall be given or sent as follows:
6
<PAGE>
The Bank of New York, 101 Barclay Street, New York, New York 10286,
Attn: Nasdaq-100. All notices to the Participant and the Distributor
shall be directed to the address or telephone, facsimile or telex
numbers indicated below the signature line of such party.
13. TERMINATION AND AMENDMENT. This Agreement shall become effective in
this form as of the date accepted by the Trustee and may be terminated
at any time by any party upon thirty (30) day prior notice to the other
parties (i) unless earlier terminated by the Trustee in the event of a
breach of this Agreement or the procedures described herein by the
Participant or (ii) in the event that the Trust is terminated pursuant
to the Trust Agreement. This Agreement supersedes any prior agreement
between the parties. This Agreement may be amended by the Trustee
without consent of any Beneficial Owner from time to time by the
following procedure. The Trustee will mail a copy of the amendment to
the Distributor and the Participant. For the purposes of this
Agreement, mail will be deemed received by the recipient thereof on the
third (3rd) day following the deposit of such mail into the U.S. postal
system. If neither the Distributor nor the Participant objects in
writing to the amendment within ten (10) days after its receipt, the
amendment will become part of this Agreement in accordance with its
terms.
14. REPRESENTATIONS REGARDING NASDAQ-100 SHARES. The Participant shall not
make, or permit any representative to make, in connection with any sale
or solicitation of a sale of Nasdaq-100 Shares, any representations
concerning Nasdaq-100 Shares except those contained in the then current
prospectus and in printed information approved by the Distributor and
the Trust as information supplemental to such prospectus. Copies of the
7
<PAGE>
then current prospectus and any such printed supplemental information
will be supplied by the Distributor to the Participant in reasonable
quantities upon request.
15. COUNTERPARTS. This Agreement may be simultaneously executed in several
counterparts, each of which shall be an original and all shall
constitute but one and the same instrument.
16. SPONSOR AS THIRD PARTY BENEFICIARY. The Sponsor shall be a third-party
beneficiary of this Agreement and is entitled to enforce directly
against the Participant the obligations owed to the Sponsor by the
Participant (including, without limitation, bringing proceedings
against the Participant in the Sponsor's name).
8
<PAGE>
17. GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York without regard to the
conflicts of laws thereof.
ALPS MUTUAL FUNDS SERVICES, INC.
BY:
-----------------------------------
NAME: Edmund Burke
TITLE: Executive Vice President
ADDRESS: 370 17th Street, Suite 3100
Denver CO 80202-5631
TELEPHONE: (303) 623-2577
FACSIMILE: (303) 623-7850
{NAME OF PARTICIPANT}
BY:
-----------------------------------
NAME:
-----------------------------------
TITLE:
-----------------------------------
ADDRESS:
-----------------------------------
-----------------------------------
TELEPHONE:
-----------------------------------
FACSIMILE:
-----------------------------------
ACCEPTED BY:
THE BANK OF NEW YORK,
AS TRUSTEE
BY:
--------------------------------
NAME: Thomas J. Centrone
TITLE: Vice President
ADDRESS: 101 Barclay Street
New York, NY 10286
TELEPHONE: (212) 815-2533
FACSIMILE: (212) 815-2948
DATED:
--------------------------------
9
<PAGE>
ATTACHMENT A
This document supplements the Nasdaq-100 Shares prospectus and
the Trust Agreement, and is an attachment to the Nasdaq-100 Participant
Agreement with respect to the procedures to be used by (i) the Distributor and
the Trustee in processing an order for the creation of Nasdaq-100 Shares and
(ii) the Trustee in processing a request for the redemption of Nasdaq-100
Shares, and (iii) the Participants and the Trustee in delivering or arranging
for the delivery of requisite cash payments, Portfolio Deposits or Nasdaq-100
Shares, as the case may be, in connection with the submission of orders for
creation or requests for redemption.
A Participant is first required to have signed the Nasdaq-100
Participant Agreement. Upon acceptance of the Nasdaq-100 Participant Agreement
by the Trustee, the Trustee will assign a personal identification number to each
Authorized Person authorized to act for the Participant. This will allow a
Participant through its Authorized Person(s) to place an order with respect to
Nasdaq-100 Shares.
I. TO PLACE AN ORDER FOR CREATION OR REDEMPTION OF NASDAQ-100 SHARES
1. CALL TO RECEIVE A SUBMISSION NUMBER. An Authorized Person for the Participant
will call the Nasdaq-100 Telephone Representative at (212) 815-4520 not later
than the closing time of the regular trading session on The Nasdaq Stock Market
(the "Nasdaq Closing Time") (ordinarily 4:00 p.m. New York time) to receive a
Submission Number. Upon verifying the authenticity of the caller (as determined
by the use of the appropriate PIN Number) and the terms of the order for
creation or request for redemption, the Nasdaq-100 Telephone Representative will
issue a unique Submission Number. All orders with respect to the creation or
redemption of Nasdaq-100 Shares are required to be in writing and accompanied by
the designated Submission Number.
A-1
<PAGE>
Incoming telephone calls are queued and will be handled in the sequence
received. Calls placed before the Nasdaq Closing Time will be processed even if
the call is taken after this cut-off time.
ACCORDINGLY, DO NOT HANG UP AND REDIAL. INCOMING CALLS THAT ARE
ATTEMPTED LATER THAN THE NASDAQ CLOSING TIME WILL NOT BE ACCEPTED.
2. ASSEMBLE THE SUBMISSION. The Authorized Person submitting an order to create
or a request to redeem shall assemble (a) written instructions regarding such
creation order or redemption request, (b) the designated Submission Number and
(c) the PIN Number in one document and transmit such document by facsimile or
telex to the Nasdaq-100 Telephone Representative and the Distributor, as
applicable, according to the procedures set forth below in subsection 3. The
document so transmitted is hereinafter referred to as the "Submission", and the
Business Day on which a Submission is made is hereinafter referred to as the
"Transmittal Date".
NOTE THAT THE TELEPHONE CALL IN WHICH THE SUBMISSION NUMBER IS
ISSUED INITIATES THE ORDER PROCESS BUT DOES NOT ALONE CONSTITUTE THE
ORDER. AN ORDER OR REQUEST IS ONLY COMPLETED AND PROCESSED UPON
RECEIPT OF THE SUBMISSION.
3. TRANSMIT THE SUBMISSION. A Submission Number is only valid for a limited
time. The Submission for either creations or redemptions of Nasdaq-100 Shares
must be sent by facsimile or telex to the Nasdaq-100 Telephone Representative
and the Distributor, as applicable, within 15 minutes of the issuance of the
Submission Number. In the event that the Submission is not received within such
time period, the Nasdaq-100 Telephone Representative will attempt to contact the
Participant to request immediate transmission of the Submission.
(a) In the case of a Submission for creation, unless the Submission is
received by the Nasdaq-100 Telephone Representative with a copy to the
Distributor upon the earlier of within (i)
A-2
<PAGE>
15 minutes of contact with the Participant or (ii) 45 minutes after the Nasdaq
Closing Time, the Submission will be deemed invalid.
(b) In the case of a Submission for redemption, unless such Submission
is received by the Nasdaq-100 Telephone Representative within (i) 15 minutes of
contact with the Participant or (ii) 45 minutes after the Nasdaq Closing Time,
whichever is earlier, such order for redemption contained therein shall be
Deemed Received (as hereinafter defined in Section IV) by the Trustee on the
Business Day following such Transmittal Date in accordance with the procedures
set forth in Section IV(2) and (4) hereof.
4. AWAIT RECEIPT OF CONFIRMATION.
(a) NASDAQ-100 CLEARING PROCESS-CREATION ORDERS. The Distributor shall
issue to both the Participating Party and the Trustee a confirmation of
acceptance of an order to create Nasdaq- 100 Shares in Creation Unit size
aggregations through the Nasdaq-100 Clearing Process within 15 minutes of its
receipt of a Submission received in good form. In the event the Participating
Party does not receive a timely confirmation from the Distributor, it should
contact the Distributor and the Nasdaq-100 Telephone Representative at the
business numbers indicated.
(b) NASDAQ-100 CLEARING PROCESS-REQUESTS FOR REDEMPTIONS. The Trustee
shall issue to the Participating Party a confirmation of acceptance of a request
to redeem Nasdaq-100 Shares in Creation Unit size aggregations through the
Nasdaq-100 Clearing Process within 15 minutes of its receipt of a Submission
received in good form. In the event the Participating Party does not receive a
timely confirmation from the Trustee, it should contact the Trustee directly at
the business number indicated.
(c) OUTSIDE THE NASDAQ-100 CLEARING PROCESS-CREATION ORDERS. The
Distributor shall issue to both the DTC Participant and the Trustee an
acknowledgment of receipt of an order to
A-3
<PAGE>
create Nasdaq-100 Shares in Creation Unit size aggregations outside the
Nasdaq-100 Clearing Process within 15 minutes of its receipt of a Submission
received in good form. In the event the DTC Participant does not receive a
timely acknowledgment from the Distributor, it should contact the Distributor
and the Nasdaq-100 Telephone Representative at the business numbers indicated.
(d) OUTSIDE THE NASDAQ-100 CLEARING PROCESS-REQUESTS FOR REDEMPTION.
The Trustee shall issue to the DTC Participant an acknowledgment of receipt of
an order to redeem Nasdaq- 100 Shares in Creation Unit size aggregations outside
the Nasdaq-100 Clearing Process within 15 minutes of its receipt of a Submission
received in good form. In the event the DTC Participant does not receive a
timely acknowledgment from the Trustee, it should contact the Trustee directly
at the business number indicated.
II. PARTICIPANTS' RESPONSIBILITY FOR DELIVERING OR EFFECTING THE DELIVERY
OF REQUISITE PORTFOLIO DEPOSITS OR NASDAQ-100 SHARES AND CASH PAYMENTS
IN CONNECTION WITH ORDERS FOR CREATION OR REQUESTS FOR REDEMPTION
1. NASDAQ-100 CLEARING PROCESS-CREATION ORDERS. The Participating Party notified
of confirmation of an order to create Nasdaq-100 Shares through the Nasdaq-100
Clearing Process shall be required to transfer or arrange for the transfer of
(a) the requisite Index Securities (or contracts to purchase such Index
Securities expected to be delivered through NSCC by the "regular way" settlement
date) and (b) the Cash Component, if any, to the Trustee by means of the
Nasdaq-100 Clearing Process so as to be received no later than on the "regular
way" settlement date following the Business Day on which such order is Deemed
Received by the Distributor as set forth below in Section IV.
A-4
<PAGE>
2. NASDAQ-100 CLEARING PROCESS - REDEMPTION REQUESTS. The Participating Party
notified of confirmation of a request to redeem Nasdaq-100 Shares through the
Nasdaq-100 Clearing Process shall be required to transfer or arrange for the
transfer of the requisite Nasdaq-100 Shares and the Cash Redemption Amount, if
any, to the Trustee by means of the Nasdaq-100 Clearing Process so as to be
received no later than on the "regular way" settlement date following the
Business Day on which such order is Deemed Received by the Trustee as set forth
below in Section IV.
3. OUTSIDE THE NASDAQ-100 CLEARING PROCESS - CREATION ORDERS. The DTC
Participant notified of acknowledgment of an order to create Nasdaq-100 Shares
outside the Nasdaq-100 Clearing Process shall be required to effect a transfer
to the Trustee of (a) the requisite Index Securities through DTC so as to be
received by the Trustee no later than 11:00 a.m. on the next Business Day
immediately following the Business Day on which such order is Deemed Received by
the Distributor as set forth below in Section IV, in such a way as to replicate
the Portfolio Deposit established on the Transmittal Date by the Trustee and (b)
the Cash Component, if any, through the Federal Reserve Bank wire system so as
to be received by the Trustee by 1:00 p.m. on the next Business Day immediately
following the day such order is Deemed Received. If the Trustee does not receive
the Index Securities by 11:00 a.m. and the Cash Component, if any, by 1:00 p.m.
on the Business Day immediately following the day such order is Deemed Received,
the creation order contained in such Submission shall be canceled. Upon written
notice to the Distributor and the Nasdaq-100 Telephone Representative, the DTC
Participant may resubmit such canceled order on the following Business Day using
a Portfolio Deposit as newly constituted.
A-5
<PAGE>
4. OUTSIDE THE NASDAQ-100 CLEARING PROCESS - REDEMPTION REQUESTS. The DTC
Participant notified of acknowledgment of a request to redeem Nasdaq-100 Shares
outside the Nasdaq-100 Clearing Process shall be required to effect a transfer
to the Trustee of (a) the requisite number of Nasdaq-100 Shares through DTC no
later than the Nasdaq Closing Time on the Business Day on which such order is
Deemed Received by the Trustee and (b) the Cash Redemption Amount, if any,
through the Federal Reserve Bank wire system by no later than 1:00 p.m. on the
next Business Day immediately following the Business Day on which such order is
Deemed Received by the Trustee.
5. TRANSACTION FEE. In connection with the creation or redemption of Creation
Units, the Trustee shall charge, and the Participant agrees to pay to the
Trustee, the Transaction Fee prescribed in the Nasdaq-100 Shares prospectus
applicable to (i) creations or redemptions through the Nasdaq-100 Clearing
Process, or the Transaction Fee and such additional amounts as may be prescribed
pursuant to the Nasdaq-100 Shares prospectus applicable to creations or
redemptions outside the Nasdaq-100 Clearing Process and (ii) creations within
the Nasdaq-100 Clearing Process where the cash equivalent value of one or more
Index Securities is being deposited in lieu of the inclusion of such Index
Security in the securities portion of the Portfolio Deposit because the
Participant is restricted by regulation or otherwise from investing or engaging
in a transaction in such security. Such Transaction Fee and additional amounts,
if any, shall be included in the calculation of the Cash Component or Cash
Redemption Amount payable or to be received, as the case may be, by the
Participant in connection with the creation or redemption order.
III. TRUSTEE'S RESPONSIBILITY FOR EFFECTING DELIVERY OF REQUISITE NASDAQ-100
SHARES OR SECURITIES AND CASH PAYMENTS IN
A-6
<PAGE>
CONNECTION WITH ORDERS FOR CREATION OR REQUESTS FOR
REDEMPTION.
1. NASDAQ-100 CLEARING PROCESS - CREATION ORDER. After the Trustee has received
notification of a Submission from the Distributor for a creation order for
Nasdaq-100 Shares through the Nasdaq-100 Clearing Process which has been Deemed
Received by the Distributor as set forth below in Section IV, the Trustee shall
initiate procedures to transfer the requisite Nasdaq-100 Shares and the Cash
Component, if any, through the Nasdaq-100 Clearing Process so as to be received
by the creator no later than on the "regular way" settlement date following the
Business Day on which the Submission is Deemed Received by the Distributor.
2. NASDAQ-100 CLEARING PROCESS - REDEMPTION REQUESTS. After the Trustee has
received a Submission for a redemption request for Nasdaq-100 Shares through the
Nasdaq-100 Clearing Process and Deemed Received such submission as set forth
below in Section IV, the Trustee shall initiate procedures to transfer the
requisite securities (or contracts to purchase such securities expected to be
delivered through NSCC by the "regular way" settlement date) and the Cash
Redemption Amount, if any, through the Nasdaq-100 Clearing Process so as to be
received by the Beneficial Owner no later than on the "regular way" settlement
date following the Business Day on which the Submission is Deemed Received by
the Trustee.
3. OUTSIDE THE NASDAQ-100 CLEARING PROCESS-CREATION ORDERS. After the Trustee
has received notification of a Submission from the Distributor for a creation
order for Nasdaq-100 Shares outside the Nasdaq-100 Clearing Process which has
been Deemed Received by the Distributor as set forth below in Section IV, the
Trustee shall initiate procedures to transfer the requisite Nasdaq-100 Shares
through DTC and the DTC Participants and the Cash Component, if any, through the
Federal Reserve Bank wire system so as to be received by the creator no later
A-7
<PAGE>
than on the third (3rd) Business Day following the Business Day on which the
Submission is Deemed Received by the Distributor.
4. OUTSIDE THE NASDAQ-100 CLEARING PROCESS-REDEMPTION REQUESTS. After the
Trustee has received a Submission for a redemption request for Nasdaq-100 Shares
outside the Nasdaq-100 Clearing Process and Deemed Received such submission as
set forth below in Section IV, the Trustee shall initiate procedures to transfer
the requisite securities (or contracts to purchase such securities expected to
be delivered within three Business Days) through DTC and the DTC Participants
and the Cash Redemption Amount, if any, through the Federal Reserve Bank wire
system so as to be received by the Beneficial Owner no later than on the third
(3rd) Business Day following the Business Day on which the Submission is Deemed
Received by the Trustee.
IV. PROCEDURES BY WHICH AN ORDER TO CREATE OR A REQUEST TO REDEEM SHALL BE
"DEEMED RECEIVED."
1. NASDAQ-100 CLEARING PROCESS-CREATION ORDERS. An order to create Nasdaq-100
Shares through the Nasdaq-100 Clearing Process shall be "Deemed Received" by the
Distributor on the Transmittal Date only if (a) the Submission containing such
order is in proper form and (b) such Submission is received by the Distributor
no later than the time on such Transmittal Date as set forth in Section I(3)(a)
hereof. Orders to create Nasdaq-100 Shares contained in Submissions transmitted
after such time on a Transmittal Date shall be deemed invalid.
2. NASDAQ-100 CLEARING PROCESS-REDEMPTION REQUESTS. A request to redeem
Nasdaq-100 Shares through the Nasdaq-100 Clearing Process shall be Deemed
Received by the Trustee on the Transmittal Date only if (a) the Submission
containing such request is in proper order and (b) such Submission is received
by the Trustee no later than the time on such Transmittal Date as set forth in
Section I(3)(b) hereof. Requests to redeem Nasdaq-100 Shares contained in
Submissions
A-8
<PAGE>
transmitted after such time on a Transmittal Date shall be "Deemed Received" by
the Trustee on the next Business Day immediately following such Transmittal
Date.
3. OUTSIDE THE NASDAQ-100 CLEARING PROCESS-CREATION ORDERS. An order to create
Nasdaq- 100 Shares outside the Nasdaq-100 Clearing Process shall be Deemed
Received by the Distributor on the Transmittal Date only if: (a) the Submission
containing such order is in proper form, (b) such Submission is received by the
Distributor no later than the time on such Transmittal Date as set forth in
Section I(3)(a) hereof, (c) the requisite number of Index Securities is
transferred through DTC to the account of the Trustee by no later than 11:00
a.m. on the Business Day next following the Transmittal Date and (d) the cash
equal to the Cash Component, if any, is transferred via the Federal Reserve Bank
wire system to the account of the Trustee by no later than 1:00 p.m. on the
Business Day next following the Transmittal Date. If either the Submission, the
requisite Index Securities or the cash equal to the Cash Component is not
received by the Trustee within the time periods set forth above, such order
shall be deemed invalid.
4. OUTSIDE THE NASDAQ-100 CLEARING PROCESS - REDEMPTION REQUESTS. A request to
redeem Nasdaq-100 Shares outside the Nasdaq-100 Clearing Process shall be Deemed
Received by the Trustee on the Transmittal Date only if (a) the Submission
containing such request is in proper form, (b) such Submission is received by
the Trustee no later than the time as set forth in Section I(3)(b) hereof, (c)
the requisite number of Nasdaq-100 Shares is transferred via DTC to the account
of the Trustee by the Nasdaq Closing Time on such Transmittal Date and (d) the
Cash Redemption Amount owed to the Trustee, if any, is received by the Trustee
no later than 1:00 p.m. of the Business Day next following such Transmittal
Date. If either the Submission, the Nasdaq-100 Shares or cash equal to the Cash
Redemption Amount, if any, is not received by the Trustee within the time
periods set forth above, such redemption request shall be Deemed
A-9
<PAGE>
Received by the Trustee on the Business Day on which both the Submission and the
requisite number of Nasdaq-100 Shares are delivered to the Trustee within the
proper time periods as set forth above; provided that the Cash Redemption
Amount, if any, is then paid on the next Business Day within the time period set
forth above.
5. AMBIGUOUS INSTRUCTIONS. In the event that a Submission contains terms that
differ from the information provided in the telephone call at the time of
issuance of the Submission Number, the Nasdaq-100 Telephone Representative will
attempt to contact the Participant to request confirmation of the terms of the
order. If an Authorized Person confirms the terms as they appear in the
Submission then the Submission will be accepted and processed. If an Authorized
Person contradicts its terms, the Submission will be deemed invalid, and a
corrected Submission must be received by the Nasdaq-100 Telephone Representative
and the Distributor, as applicable, not later than the earlier of (i) within 15
minutes of such contact with the Participant or (ii) 45 minutes after the Nasdaq
Closing Time. If the Nasdaq-100 Telephone Representative is not able to contact
an Authorized Person, then the Submission shall be accepted and processed in
accordance with its terms notwithstanding any inconsistency from the terms of
the telephone information. In the event that a Submission contains terms that
are illegible, the Submission will be deemed invalid and the Nasdaq-100
Telephone Representative will attempt to contact the Participant to request
retransmission of the Submission. A corrected Submission must be received by the
Nasdaq-100 Telephone Representative, and the Distributor, as applicable, not
later than the earlier of (i) within 15 minutes of such contact with the
Participant or (ii) 45 minutes after the Nasdaq Closing Time.
6. SUSPENSION OR REJECTION OF AN ORDER. The Distributor or Trustee reserves the
right to suspend a Submission in the event that its acceptance would appear to
result in the Participant or
A-10
<PAGE>
a Beneficial Owner owning 80 percent (80%) or more of all outstanding Nasdaq-100
Shares and if pursuant to Section 351 of the Internal Revenue Code of 1986, as
amended, 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. In such event, the Distributor or the Nasdaq-100 Telephone
Representative will attempt to contact an Authorized Person for purposes of
confirmation of the fact that with respect to such Participant no Beneficial
Owner would own 80 percent (80%) or more of all outstanding Nasdaq-100 Shares
upon execution of the Submission or that such a circumstance would not result in
the Trust having a basis in the securities deposited different from the market
value of such securities on the date of deposit. In the event that (i) the
Distributor or the Nasdaq-100 Telephone Representative is unable to contact an
Authorized Person or (ii) the Participant fails to transmit an identical
Submission containing a representation and warranty as to such fact, then the
Submission shall be deemed invalid.
The Trustee further 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 Portfolio Deposit is not in proper form; (b)
acceptance of the Portfolio Deposit would have certain adverse tax consequences;
(c) the acceptance of the Portfolio Deposit would, in the opinion of counsel, be
unlawful; (d) the acceptance of the Portfolio Deposit would otherwise, in the
discretion of the Trustee, have an adverse affect on the Trust or the rights of
Beneficial Owners; or (e) in the event that circumstances outside the control of
the Trustee make it for all practical purposes impossible to process creations
of Nasdaq-100 Shares. The Trustee will provide notice of its reasons for
rejection of a creation order in respect of a Portfolio Deposit or any component
thereof. The Trustee, the Distributor and the Sponsor shall not incur any
liability in connection with any
A-11
<PAGE>
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.
V. TELEPHONE, FACSIMILE, AND TELEX NUMBERS
ALPS MUTUAL FUNDS SERVICES, INC.: TELEPHONE: (303) 623-2577
FACSIMILE: (303) 623-0472
NASDAQ-100 TELEPHONE REPRESENTATIVE: TELEPHONE: (212) 815-4520
FACSIMILE: (212) 815-5447
TRUSTEE: TELEPHONE: (212) 815-2828
FACSIMILE: (212) 815-5447
PARTICIPANT: TELEPHONE:
----------------
FACSIMILE:
----------------
A-12
<PAGE>
ATTACHMENT B
(OPTIONAL)
This document supplements the Nasdaq-100 Shares prospectus and
the Trust Agreement, and is an attachment to the Nasdaq-100 Participant
Agreement concerning procedures by which Creation Units may be created in
advance of the receipt by the Trustee of all or a portion of the Portfolio
Deposit relating to such Creation Units through the use of a cash deposit (the
"Cash Collateralization Procedures"). A Participant is first required to have
signed the Nasdaq-100 Participant Agreement, and the provisions and procedures
of the Participant Agreement (including Attachment A thereto) shall apply
equally to creations making use of these Cash Collateralization Procedures,
except to the extent modified or supplemented by the procedures set forth below.
I. PLACING AN ORDER AND THE POSTING OF CASH COLLATERAL
1. PLACING THE ORDER. A Participating Party intending to utilize these
procedures is required to place an order to create Nasdaq 100 Shares in
accordance with Section 1 of Attachment A to the Participant Agreement. Such
orders may be placed only through NSCC using the Nasdaq-100 Clearing Process.
The following additional procedures shall also apply: at the time an Authorized
Person for the Participant calls the Nasdaq-100 Telephone Representative to
place the order, the caller is required to state that the Participant intends to
utilize these Cash Collateralization Procedures. The Submission submitted in
writing by the Participant thereafter shall further state that the Participant
intends to utilize these Cash Collateralization Procedures.
2. CASH COLLATERAL.
(a) POSTING OF CASH COLLATERAL. The Participant shall be required to
post collateral with the Trustee outside of NSCC consisting of cash at least
equal to 115% of the closing value
B-1
<PAGE>
(determined by the Trustee in accordance with section I(2)(c) below), on the day
the order to purchase Creation Units 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. For the purposes of determining the
securities for which a cash collateral deposit will be required, the Participant
must submit documentation by no later than 4:30 p.m. on the day the order to
purchase Creation Units is Deemed Received, in a form satisfactory to the
Trustee in its sole discretion, as to securities comprising the Portfolio
Deposit which are currently owned by the Participant and reserved for delivery
to the Trust and/or orders in good form for the purchase of securities
comprising the Portfolio Deposit which are expected to be available for delivery
to the Trust through the Nasdaq- 100 Clearing Process on the third NSCC Business
Day following placement of such order. All securities comprising the Portfolio
Deposit for which such documentation has not been provided in a timely manner
and in a form satisfactory to the Trustee will be presumed not to be available
in the account of the Participating Party for delivery to the Trust on the third
NSCC Business Day and will require a cash collateral deposit. The Participant
must arrange for the transfer of the cash collateral amount so determined
through the Federal Reserve Bank wire system so as to be received by the Trustee
by 11:00 a.m. on the morning of the NSCC Business Day following the day such
order is Deemed Received by the Distributor. If the Trustee does not receive the
required cash amount by the time indicated above, the Trustee shall cancel the
creation order. All moneys received from the Participant shall be held by the
Trustee without interest and without benefit to the Participant in a custodial
account separate and apart from the assets of the Trust until required to be
disbursed in accordance with Section II.(3) and (4) below, and such moneys shall
be segregated by separate recordation on the books and records of the Trustee.
B-2
<PAGE>
(b) MARKING-TO-MARKET OF THE CASH COLLATERAL. The cash collateral
amount shall be marked-to-the-market daily by the Trustee only for increases in
value in accordance with the following procedures. On each NSCC Business Day
beginning on the second NSCC Business Day following the day such order is Deemed
Received by the Distributor, the Trustee shall determine the closing value of
each security which is not expected to be delivered by the regular way
settlement date, or has not already been delivered to the Trust on such date, as
the case may be. The Trustee shall aggregate upward movements in the value for
all such securities and notify the Participant by 6:00 p.m. that day of the
aggregate increase in value. The Participant must arrange for the transfer of
such amount through the Federal Reserve Bank wire system so as to be received by
the Trustee by 1:00 p.m. on the following NSCC Business Day. Upward movements in
value for purposes hereof shall be measured solely against the value of each
security established on the day the order to purchase Creation Units is Deemed
Received. In other words, a decrease in the value of a security followed by an
increase in value will not necessarily trigger a mark-to-market obligation
unless the value increases above the value of the security established on the
day the order to purchase Creation Units is Deemed Received. The obligation to
mark-to market described in this Section shall cease upon the delivery or buy-in
of the last of the securities comprising the Portfolio Deposit.
(c) DETERMINATION OF VALUE. For the purposes of this section, the
closing value of a given security shall be determined by the Trustee in
accordance with the Trust Agreement valuation procedures.
B-3
<PAGE>
II. TRUSTEE'S RESPONSIBILITIES FOR EFFECTING DELIVERY OF THE
REQUISITE NASDAQ-100 SHARES, BUYING IN THE MISSING SECURITIES,
AND RETURNING THE CASH COLLATERAL
Under customary NSCC practices, by midnight of the day following the
receipt by NSCC of such order to create Creation Units, NSCC is required to
determine either (1) to guarantee the Participating Party's obligations for
delivery and receipt of securities and cash in connection with the order to
create Creation Units, or (2) in certain circumstances to cease to act on behalf
of the Participating Party with respect to such obligations.
1. NSCC GUARANTEE ESTABLISHED. Provided that the NSCC guarantee is established
in accordance with (1) above, the Trustee will issue the Creation Units ordered
no later than the time required in accordance with the procedures set forth in
Attachment A to the Participant Agreement. If the Trustee does not receive the
requisite securities in the Portfolio Deposit by the end of business on the
third NSCC Business Day following receipt of such order (or such other date as
determined under Rule 15c6-1 of the Securities Exchange Act of 1934, or a
successor provision thereto), the Trustee is required to submit promptly (i.e.,
on the same day if practicable) a notice of intention to buy-in to NSCC with
respect to the missing portion of Portfolio Deposit in conformance with NSCC's
buy-in rules. Two NSCC Business Days following the day on which such notice of
buy-in has been submitted, if all requisite securities in the Portfolio Deposit
have still not been received by the Trustee, the Trustee shall effect a buy-in
of the undelivered Portfolio Deposit in accordance with NSCC's buy-in
procedures.
2. NSCC GUARANTEE NOT ESTABLISHED OR ESTABLISHED IN PART. Alternatively, in
accordance with (2) above, if NSCC, by midnight on the day following receipt by
NSCC of an order by a Participating Party for the purchase of Creation Units,
determines to cease to act on behalf of the
B-4
<PAGE>
Participating Party with respect to its delivery and/or receipt obligations of
securities and cash in connection with such order, the Trustee shall act in one
of three ways as described below:
(i) in the case in which NSCC elects not to guarantee the delivery
of the Portfolio Deposit by the Participating Party to the
Trustee and the receipt of Creation Units by the Participating
Party from the Trustee, the Trustee shall deem the order to
purchase Creation Units canceled altogether outside the NSCC
system;
(ii) in the case in which NSCC elects only to guarantee the
delivery of the Portfolio Deposit by the Participating Party
to the Trustee, the Trustee shall deem the order to purchase
Creation Units canceled and return as promptly as practicable
through DTC, against payment through the Federal Reserve Bank
wire system, any securities delivered to the Trustee; or
(iii) in the case where NSCC elects only to guarantee the receipt of
Creation Units by the Participating Party from the Trustee,
the Trustee shall issue the Creation Units ordered no later
than the time required in accordance with the procedures set
forth in Attachment A to the Participant Agreement. The
Trustee shall further be required to buy promptly (i.e., on
the same day, if practicable) the requisite securities in the
Portfolio Deposit utilizing cash received by the Trustee
pursuant to NSCC's rules in connection with its delivery of
Creation Units, together with the 115% cash collateral held
separately by the Trustee, to cover all buy-in costs and
expenses.
3. USE OF CASH COLLATERAL. The Trustee shall utilize the cash collateral
deposited with the Trustee and the cash received by the Trustee pursuant to
NSCC's rules, to cover the costs and expenses (including brokerage commissions)
for buying-in the securities comprising the Portfolio
B-5
<PAGE>
Deposit. The Participant shall remain liable for any shortfall between the cost
(including commissions and any other buy-in expenses) of purchasing the
securities comprising the Portfolio Deposit and the collective amounts of cash
collateral deposited with the Trustee and amounts received by the Trustee from
NSCC, in the event that such cash amounts are insufficient to cover such costs
and expenses for whatever reason.
4. RETURN OF CASH COLLATERAL. The Trustee shall return the cash collateral
deposited with the Trustee to the Participant net of commissions and other
buy-in expenses incurred by the Trustee, if any, promptly upon settlement of
delivery of all of the securities in the Portfolio Deposit, or buy-in of all
missing securities in the Portfolio Deposit, or cancellation of the order to
create Creation Units.
III. MISCELLANEOUS
1. INDEMNIFICATION. The Participant hereby agrees to indemnify and hold harmless
each Indemnified Party (as defined in the Participant Agreement) from and
against any loss, liability, cost, and expense incurred by such Indemnified
Party as a result of any actions of such Indemnified Party in reliance upon any
instructions issued in accordance with this Attachment and believed by the
Distributor and/or the Trustee to be genuine and to have been given by the
Participant. This paragraph shall survive the termination of the Participant
Agreement.
B-6
<PAGE>
2. REJECTION OF AN ORDER. The Trustee reserves the absolute right to reject
either a creation order transmitted to it, the use of the Cash Collateralization
Procedures, or both, for the reasons set forth in Attachment A to the
Participant Agreement.
ALPS MUTUAL FUNDS SERVICES, INC.
BY:
-----------------------------
TITLE:
-----------------------------
{NAME OF PARTICIPANT}
BY:
-----------------------------
TITLE:
-----------------------------
ACCEPTED BY:
THE BANK OF NEW YORK,
AS TRUSTEE
BY:
------------------------------
TITLE:
------------------------------
DATED:
--------------
B-7
<PAGE>
PROSPECTUS
NASDAQ-100 TRUST(SM), SERIES 1
A UNIT INVESTMENT TRUST
------------------
The Nasdaq-100 Trust, Series 1 (the "Trust") was formed by Nasdaq-Amex
Investment Product Services, Inc., a Delaware corporation (the "Sponsor") and a
wholly-owned subsidiary of The Nasdaq Stock Market, Inc. ("Nasdaq"), to provide
investors with the opportunity to purchase units of beneficial interest in the
Trust representing proportionate undivided interests in the portfolio of
securities held by the Trust (the "Securities") consisting of substantially all
of the securities, in substantially the same weighting, as the component
securities of the Nasdaq-100 Index-Registered Trademark- (the "Index").* While
the investment objective of the Trust is to provide investment results that
generally correspond to the price and yield performance of the Index, there is
no assurance that this investment objective can be fully achieved. Each unit of
fractional undivided interest in the Trust is referred to as a "Nasdaq-100
Share(SM)".* The value of the Securities and, consequently, the value of
Nasdaq-100 Shares, will fluctuate. The minimum number of Nasdaq-100 Shares that
may be created or redeemed at any one time as described below is 50,000, which
aggregation is referred to herein as a "Creation Unit."
Nasdaq-100 Shares have been approved for listing on the American Stock
Exchange (the "Amex"), subject to official notice of issuance. The market symbol
for Nasdaq-100 Shares is "QQQ". Once created, Nasdaq-100 Shares may be traded in
the secondary market on a per Nasdaq-100 Share basis, and need not be traded in
Creation Unit size aggregations. Prior to the date of this Prospectus, there has
been no market for Nasdaq-100 Shares trading individually or in Creation Unit
size aggregations and, consequently, there can be no assurance that active
trading markets will develop, nor is there a certain basis for predicting the
actual price levels at which Nasdaq-100 Shares may trade.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------
Prospectus dated March 5, 1999
--------------------------
NASDAQ-100 SHARES-SM-
---------------
Investors are advised to read and retain this Prospectus for future
reference.
--------------------------
* The "Nasdaq-100 Index-Registered Trademark-",
"Nasdaq-100-Registered Trademark-", "Nasdaq-Registered Trademark-", "The
Nasdaq Stock Market-Registered Trademark-", "Nasdaq-100 Shares(SM)", and
"Nasdaq-100 Trust(SM)" are trademarks and service marks of Nasdaq and have
been licensed for use for certain purposes by Nasdaq-Amex Investment Product
Services, Inc. pursuant to a License Agreement with Nasdaq.
COPYRIGHT -C- 1999 by Nasdaq-Amex Investment Product Services, Inc., all rights
reserved
<PAGE>
ESSENTIAL INFORMATION AS OF MARCH 5, 1999+
<TABLE>
<S> <C> <C> <C>
Number of Nasdaq-100 Shares: 150,000
Fractional Undivided Interest in the Trust
Represented by each Nasdaq-100 Share:
1/150,000th
Net Asset Value per Nasdaq-100 Share (based on the
value of the Securities, other net assets of the Trust,
and the number of Nasdaq-100 Shares outstanding):
$96.65
<CAPTION>
Annual Trust Ordinary AMOUNT
Operating Expenses AS A % OF PER
(as a percentage of average AVERAGE NET NASDAQ-100
net assets)* ASSETS SHARE**
------------- --------
<S> <C> <C> <C>
Trustee's Fee............ 0.10%*** $0.09
Licensee Fee............. 0.00%**** $0.00
Estimated Other Operating
Expenses............... 0.08% $0.08
------ --------
Total Expenses........... 0.18%***** $0.17
------ --------
------ --------
</TABLE>
- ------------------------
* The expenses listed do not include expenses incident to the organization
of the Trust, as Nasdaq has agreed to assume these expenses. For a more
complete description of the various costs and expenses of the Trust, see
"Expenses of the Trust."
** Assumes the per Nasdaq-100 Share net asset value is $94.
*** The Trustee's annual fee will range from 0.06% to 0.10%, based on the
net asset value of the Trust. See "Expenses of the Trust."
**** The Sponsor has committed not to seek reimbursement from the Trust for
licensing fees paid to Nasdaq for the period through the Trust's fiscal
year ending September 30, 1999. Thereafter, the Sponsor intends to
charge the Trust for the annual licensing fee it pays for use of the
Index as the basis for the Trust. The annual license fee, without regard
to this commitment, is 0.04% per annum of the net asset value of the
Trust.
***** Until further notice, the Sponsor has undertaken that for the period
through the Trust's fiscal year ending September 30, 2000, the ordinary
operating expenses of the Trust as calculated by the Trustee will not be
permitted to exceed an amount which, on a per-annum basis, is 0.18% of
the net asset value of the Trust. Gross expenses of the Trust, without
regard to this undertaking, are estimated to be 0.22% of the net asset
value of the Trust. After September 30, 2000, the Sponsor may, in its
sole discretion, discontinue its undertaking to limit ordinary operating
expenses of the Trust or renew this undertaking for an additional period
of time and, if renewed, such 0.18% level may be changed and may exceed
0.18%. See "Expenses of the Trust."
2
<PAGE>
<TABLE>
<S> <C>
Example of Expenses: An investor would pay the following expenses on
a $1,000 investment, assuming the estimated
operating expense ratio of 0.18% set forth above
and a 5% annual return on investment throughout
the periods:
Cumulative Expenses Paid for Period of:
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
--------- -----------
<S> <C> <C>
$ 1.84 $ 5.80
</TABLE>
<TABLE>
<S> <C>
The above example assumes the reinvestment of
all dividends and distributions and utilizes a
5% annual rate of return as mandated by
Securities and Exchange Commission regulations
applicable to mutual funds. Although the Trust
is a unit investment trust rather than a mutual
fund, this information is presented to permit a
comparison of fees. The example should not be
considered a representation of past or future
expenses or annual rate of return; the actual
expenses and annual rate of return may be more
or less than those assumed for purposes of this
example. Investors should also note that the
presentation of a $1,000 investment is for
illustration purposes only.
Dividend Payment
Dates: Quarterly, on the last Business Day of April,
July, October, and January. Distributions (if
any) will be of the dividends accumulated in
respect of the Securities held by the Trust net
of Trust fees and expenses. Based on historical
rates of dividend payments of the portfolio of
securities comprising the Index and estimated
ordinary operating expenses of the Trust, little
or no net dividend distributions to Beneficial
Owners of Nasdaq-100 Shares are expected to be
made.++
Record Dates: Quarterly, on the second Business Day following
the third Friday in each of March, June,
September, and December.++
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Evaluation Time: Closing time of the regular trading session on
the Nasdaq Stock Market (ordinarily 4:00 p.m.
New York time).
Licensor: The Nasdaq Stock Market, Inc.
Mandatory
Termination Date: The first to occur of (i) March 4, 2124 or (ii)
the date 20 years after the death of the last
survivor of fifteen persons named in the Trust
Agreement, the oldest of whom was born in 1986
and the youngest of whom was born in 1996.
Discretionary
Termination: The Trust may be terminated if at any time after
six months following and prior to three years
following the Initial Date of Deposit the value
of the Securities held by the Trust is less than
$150,000,000 or if at any time on or after three
years following the Initial Date of Deposit the
value of the Securities held by the Trust is
less than $350,000,000, as such amount shall be
adjusted for inflation.+++
Minimum and
Maximum
Transaction Fee: A transaction fee is payable to the Trustee in
connection with each creation and each
redemption of Nasdaq-100 Shares. The minimum
transaction fee payable for the creation or
redemption of Creation Unit size aggregations of
Nasdaq-100 Shares is $1,000, and the maximum
transaction fee payable for the creation or
redemption of Creation Unit size aggregations of
Nasdaq-100 Shares is $4,000.++++
</TABLE>
- ------------------------------
+ The Trust Agreement became effective and the initial deposit was made on
March 4, 1999 (the "Initial Date of Deposit").
++ See "Administration of the Trust--Distributions to Beneficial Owners"
and "Special Considerations and Risk Factors--Little or No Expected Net
Dividend Distributions to Beneficial Owners."
+++ The Trust may also be terminated under other circumstances. See
"Administration of the Trust--Termination."
++++ See "Prospectus Summary--Transaction Fee."
4
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS.
OBJECTIVES
The Sponsor formed the Trust to provide investors with the opportunity to
purchase units of beneficial interest in the Trust representing proportionate
undivided interests in the Securities, which consist of substantially all of the
securities, in substantially the same weighting, as the component securities of
the Nasdaq-100 Index-Registered Trademark- (the "Index") in the form of a
security that closely tracks the Index and that may be traded as a share of
common stock. The investment objective of the Trust is to provide investment
results that generally correspond to the price and yield performance of the
component securities of the Index (the component securities of the Index are
sometimes referred to herein as "Index Securities"). There can be no assurance
that this investment objective will be met fully. For example, it may not be
possible for the Trust to replicate and maintain exactly the composition of the
Index Securities. It is also possible that, from time to time, the Trust will be
unable to purchase all of the Index Securities. In certain circumstances, the
Trust may also be required to make distributions in excess of the yield
performance of the Index Securities (see "Tax Status of the Trust"). The value
of the Securities and, consequently, the value of Nasdaq-100 Shares, are subject
to changes in the value of common stocks generally and to other factors.
Further, the payment, if any, of dividends (net of Trust fees and expenses) and
the maintenance of capital are subject to a number of conditions, including the
financial condition of the issuers of the Securities (see "Special
Considerations and Risk Factors").
THE TRUST
The Trust is a unit investment trust organized under the laws of the State
of New York. The Trust is governed by a trust agreement (the "Trust Agreement")
between The Bank of New York, a corporation organized under the laws of the
State of New York with trust powers (the "Trustee"), and the Sponsor dated and
executed as of March 4, 1999.
DISTRIBUTOR
The Distributor for Nasdaq-100 Shares is ALPS Mutual Funds Services, Inc., a
registered broker-dealer and a member of the National Association of Securities
Dealers, Inc. (see "Underwriting").
5
<PAGE>
PORTFOLIO DEPOSITS
All orders to create Nasdaq-100 Shares in Creation Unit size aggregations
must be placed with the Distributor (see "Underwriting" and "The Trust--
Procedures for Creation of Creation Units"). To be eligible to place orders with
the Distributor to create Creation Unit size aggregations of Nasdaq-100 Shares,
an entity or person either must be (1) a "Participating Party", as hereinafter
defined or (2) a Depository Trust Company Participant (see "Book Entry Ownership
of Nasdaq-100 Shares"), and in each case must have executed a Nasdaq-100
Participant Agreement, as hereinafter defined (see "The Trust--Procedures for
Creation of Creation Units" and "The Trust--Placement of Creation Orders Using
the Nasdaq-100 Clearing Process"). As used herein, the term "Participating
Party" means a broker-dealer or other participant in the Nasdaq-100 Clearing
Process, as hereinafter defined, through the Continuous Net Settlement ("CNS")
System of the National Securities Clearing Corporation ("NSCC"), a clearing
agency that is registered with the Securities and Exchange Commission (the
"Commission").(*) Upon acceptance of an order to create Nasdaq-100 Shares, the
Distributor will transmit such order to the Trustee and instruct the Trustee to
initiate the book entry movement of the appropriate number of Nasdaq-100 Shares
to the account of the entity placing the order. Payment for orders to create
Nasdaq-100 Shares will be made by deposits with the Trustee of a portfolio of
securities that is substantially similar in composition and weighting to the
Index Securities (see "The Trust--Creation of Nasdaq-100 Shares"), together, in
certain cases, with a cash payment in an amount which shall be equal to the
Income Net of Expense Amount (as hereinafter defined), plus or minus, as the
case may be, the Balancing Amount (as hereinafter defined). The "Income Net of
Expense Amount" is an amount equal, on a per Creation Unit basis, to the
dividends on all the Securities with ex-dividend dates within the period
beginning on the most recent ex-dividend date for Nasdaq-100 Shares (generally,
the third Friday in each of March, June, September, and December, see
"Distributions") through and including the current Business Day (the
"Accumulation Period") as if all of the Securities had been held for such
period, net of accrued expenses and liabilities for such period not previously
deducted (including, without limitation, (x) taxes or other governmental charges
against the Trust not previously deducted, if any, and (y) accrued fees of the
Trustee and other expenses of the Trust (including legal and auditing expenses)
and other expenses not previously deducted (see "Expenses of the Trust")). The
"Balancing Amount" serves the function of
- ------------------------
* As of December 31, 1998, the National Association of Securities Dealers,
Inc. owned indirectly 66 2/3% of the issued and outstanding shares of common
stock of NSCC. The National Association of Securities Dealers, Inc. is also
the parent company of Nasdaq.
6
<PAGE>
compensating for any differences between (1) the value of the portfolio of
securities deposited with the Trustee in connection with a creation of
Nasdaq-100 Shares, together with the Income Net of Expense Amount, and (2) the
net asset value of the Trust on a per Creation Unit basis (see "The
Portfolio--Adjustments to the Portfolio Deposit" for a further description
thereof).
The Income Net of Expense Amount and the Balancing Amount are collectively
referred to herein as the "Cash Component" and the deposit of such a portfolio
of securities and the Cash Component are collectively referred to herein as a
"Portfolio Deposit." In connection with an order to create Nasdaq-100 Shares on
any given day, the Cash Component of the Portfolio Deposit may be payable either
by the Trustee on behalf of the Trust to the creator of Nasdaq-100 Shares or by
the creator of Nasdaq-100 Shares to the Trustee on behalf of the Trust,
depending upon the respective amounts of the Income Net of Expense Amount and
the Balancing Amount. For example, if the sum of dividends on all Securities
with ex-dividend dates within the Accumulation Period, plus or minus the
Balancing Amount, exceeds the accrued expenses and liabilities of the Trust for
such period (I.E., the Cash Component has a positive value), then the creator of
Nasdaq-100 Shares will be obligated to pay such amount to the Trustee on behalf
of the Trust in connection with an order to create Nasdaq-100 Shares.
Conversely, if the sum of dividends on all Securities with ex-dividend dates
within the Accumulation Period, plus or minus the Balancing Amount, is less than
the accrued expenses and liabilities of the Trust for such period (I.E., the
Cash Component has a negative value), then the Trustee on behalf of the Trust
will pay such Cash Component to the entity placing an order to create Nasdaq-100
Shares.
All matters as to the number of shares of each of the Index Securities and
the amount of the Cash Component comprising the Portfolio Deposit shall be
determined by the Trustee in its discretion, whose determination shall be final
and binding. In certain instances, the securities portion of the Portfolio
Deposit may differ in composition and weighting relative to the composition and
weighting of the securities in the Index. For example, in connection with the
creation of Nasdaq-100 Shares, in the event that the Trustee determines, in its
discretion, that one or more Index Securities are likely to be unavailable for
delivery or available in insufficient quantity for delivery to the Trust upon
the creation of Nasdaq-100 Shares in Creation Unit size aggregations, then the
Trustee shall have the right in its discretion to permit the cash equivalent
value of such Index Security or Index Securities to be included in the Portfolio
Deposit in the calculation of the Cash Component in lieu of the inclusion of
such Index Security or Index Securities in the securities portion of the
Portfolio Deposit (see "The Portfolio--Adjustments to the Portfolio Deposit").
7
<PAGE>
Similarly, in connection with the creation of Nasdaq-100 Shares, if a
creator is restricted by regulation or otherwise from investing or engaging in a
transaction in one or more Index Securities, the Trustee shall have the right,
in its discretion, to permit the cash equivalent value of such Index Security or
Index Securities to be included in the Portfolio Deposit, based on the market
value of such Index Security or Index Securities as of the Evaluation Time on
the date such creation order is deemed received by the Distributor, in the
calculation of the Cash Component in lieu of the inclusion of such Index
Security or Index Securities in the securities portion of the Portfolio Deposit.
In such case the creator will pay the Trustee the standard Transaction Fee
described below, plus an additional amount not to exceed three (3) times the
Transaction Fee applicable for one Creation Unit.
An entity or person placing creation orders with the Distributor must either
(i) initiate instructions pertaining to Portfolio Deposits through the CNS
clearing processes of NSCC, as such processes have been enhanced to effect
creations and redemptions of Creation Unit size aggregations of Nasdaq-100
Shares, such processes being referred to herein as the "Nasdaq-100 Clearing
Process", or (ii) deposit Portfolio Deposits with the Trustee outside the
Nasdaq-100 Clearing Process (I.E., through the facilities of The Depository
Trust Company).
TRANSACTION FEE
A transaction fee is payable to the Trustee in connection with each creation
and each redemption made through the Nasdaq-100 Clearing Process of Creation
Unit size aggregations of Nasdaq-100 Shares (the "Transaction Fee"), subject to
the changes, modifications or waivers, if any, described below. Such Transaction
Fee is non-refundable, regardless of the net asset value of the Trust.
Until further notice is given as described below, the Transaction Fee
charged in connection with each creation of Creation Units through the
Nasdaq-100 Clearing Process (see "The Trust--Procedures for Creation of Creation
Units") is $1,000 per Participating Party per day, regardless of the number of
Creation Units created on such day by such Participating Party. Likewise, until
further notice is given as described below, the Transaction Fee charged in
connection with the redemption of Creation Units through the Nasdaq-100 Clearing
Process is $1,000 per Participating Party per day, regardless of the number of
Creation Units redeemed on such day by such Participating Party. This
Transaction Fee may subsequently be changed by the Trustee, upon the consent of
the Sponsor, but will not in any event exceed 10/100 of one percent (10 basis
points) of the value of a Creation Unit at the time of
8
<PAGE>
creation or redemption as the case may be (the "10 Basis Point Limit"). No
modifications to, or reductions, discounts or waivers of, the Transaction Fee
charged in connection with the creation of Creation Units are scheduled or
currently contemplated by the Sponsor or the Trustee.
If Creation Units are created or redeemed outside the Nasdaq-100 Clearing
Process, an additional amount not to exceed three (3) times the applicable
Transaction Fee will be charged to the creator or redeemer. Under the current
schedule, therefore, the total fee charged in connection with the creation or
redemption of Creation Units outside the Nasdaq-100 Clearing Process would be
$1,000 (the Transaction Fee for the creation or redemption of a Creation Unit)
plus an additional amount not to exceed $3,000 (3 times $1,000) for a total of
$4,000.
From time to time, and for such periods as the Sponsor and the Trustee
together may determine, the Transaction Fee (as well as any additional amounts
charged in connection with creations and/or redemptions outside the Nasdaq-100
Clearing Process) may be increased, decreased, or otherwise modified or waived
in its entirety for certain numbers of Creation Units of Nasdaq-100 Shares
created or redeemed, or for creations and/or redemptions made under certain
specified circumstances, in each case without the consent of Beneficial Owners,
subject to certain conditions (see "The Trust--Creation of Creation Units" and
"The Trust--Procedures for Redemption of Nasdaq-100 Shares"). The Sponsor also
reserves the right, from time to time, to vary the number of Nasdaq-100 Shares
per Creation Unit (currently 50,000 shares) and such change may or may not be
made in conjunction with a change to the Transaction Fee. Any change to the
Transaction Fee so made will not cause the amount of the Transaction Fee to
exceed the 10 Basis Point Limit at the time of a creation or redemption, as the
case may be. Such changes or variations will be effected by an amendment to the
current Trust prospectus. The amount of the Transaction Fee in effect at any
given time will be available from the Trustee.
SIZE OF CREATION UNIT AGGREGATIONS OF NASDAQ-100 SHARES
Nasdaq-100 Shares may be created or redeemed only in Creation Unit size
aggregations of 50,000 shares, or in multiples thereof (E.G., 100,000, 150,000
Nasdaq-100 Shares), and in no event will fractional Creation Units be created or
redeemed. The Sponsor reserves the right to direct the Trustee to declare a
split or reverse split in the number of Nasdaq-100 Shares outstanding in the
event that the per Nasdaq-100 Share price in the secondary market changes to an
amount that the Sponsor believes falls outside a desirable retail range. The
Sponsor also reserves the right to make a corresponding change in
9
<PAGE>
the number of Nasdaq-100 Shares constituting a Creation Unit. For example, if a
2-for-1 split were declared and the Sponsor also determined to make a
corresponding change in the number of Nasdaq-100 Shares per Creation Unit, the
number of Nasdaq-100 Shares in a Creation Unit size aggregation of Nasdaq-100
Shares would double (E.G., from 50,000 to 100,000 Nasdaq-100 Shares).
PORTFOLIO ADJUSTMENTS
To maintain the correspondence between the composition and weighting of
Securities held in the Trust and that of the Index Securities, the composition
and weighting of the Securities are adjusted from time to time to conform to
periodic changes in the composition and weighting of the Index Securities made
by Nasdaq. The Trustee aggregates certain of these adjustments and makes
conforming changes to the Trust's portfolio at least monthly; adjustments are
made more frequently, however, in the case of changes to the Index that are
significant (see "The Portfolio--Adjustments to the Portfolio"). The composition
and weighting of the securities portion of a Portfolio Deposit are also adjusted
to conform to changes in the Index. Any change in the identity or weighting of
an Index Security will result in a corresponding adjustment to the prescribed
Portfolio Deposit effective on the Business Day (a "Business Day" being any day
that the Nasdaq Stock Market is open for business) on which the change to the
Index takes effect. Changes to the Index are made after the close of the market
(see "The Portfolio--Adjustments to the Portfolio Deposit").
BOOK-ENTRY OWNERSHIP OF NASDAQ-100 SHARES
The Depository Trust Company, New York, New York, a limited purpose trust
company organized under the laws of the State of New York (referred to herein as
"DTC" or the "Depository") or its nominee will be the record or registered owner
of all outstanding Nasdaq-100 Shares. Beneficial ownership of Nasdaq-100 Shares
will be shown on the records of the Depository or its participants. Certificates
will not be issued for Nasdaq-100 Shares, whether in Creation Unit size
aggregations or otherwise (see "The Trust-- Book-Entry-Only System").
EXPENSES
The Trustee's fees are set forth generally in the "Summary of Essential
Information" and more specifically in "Expenses of the Trust" below. Other
expenses of the Trust are also described more fully in "Expenses of the Trust."
10
<PAGE>
If the income received by the Trust in the form of dividends and other
distributions on the Securities is insufficient to cover Trust fees and expenses
(which would currently be the case if the Trust were in existence and its
ordinary operating expenses were 0.18% per annum of the net asset value of the
Trust consistent with the Sponsor's undertaking to limit the Trust's ordinary
operating expenses to such 0.18% per annum level, see "Expenses of the Trust"),
then the Trustee will be required to sell Securities in an amount sufficient to
pay the shortfall. Such a sale of Securities will ordinarily be required to
occur whenever the Trustee determines that projected annualized fees and
expenses accrued on a daily basis exceed projected annualized dividends and
other Trust income accrued on a daily basis by more than 1/100 of one percent
(0.01%) of the net asset value of the Trust and will ordinarily be made no later
than the next occurring adjustment to the Securities held in the Trust to
conform to changes in the composition and weighting of the Index Securities (see
"Expenses of the Trust" and "The Portfolio--Adjustments to the Portfolio").
FEDERAL INCOME TAX CONSIDERATIONS
The Trust intends to adopt a fiscal year ending on September 30 of each
year. The Trust intends to qualify for and elect tax treatment as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code") and to distribute annually its entire investment company
taxable income and net capital gain. Distributions that are taxable as ordinary
income to Beneficial Owners generally are expected to constitute dividend income
for federal income tax purposes and to be eligible for the dividends-received
deduction available to many corporations to the extent of qualifying dividend
income received by the Trust (see "Tax Status of the Trust"). The quarterly
distributions, if any, made by the Trust will be based on the dividend
performance of the Securities held during such quarterly distribution period,
net of Trust fees and expenses, rather than the actual taxable income of the
Trust. (See "Administration of the Trust--Distributions to Beneficial Owners.")
As a result, a portion of any such distributions of the Trust may be treated as
a return of capital or a capital gain dividend for federal income tax purposes
or the Trust may be required to make additional distributions to maintain its
status as a regulated investment company or to avoid imposition of income or
excise taxes on undistributed income (see "Tax Status of the Trust" and
"Administration of the Trust--Distributions to Beneficial Owners").
ERISA CONSIDERATIONS
In considering the advisability of an investment in Nasdaq-100 Shares,
fiduciaries of pension, profit sharing, or other tax-qualified retirement plans
(including Keogh Plans) and welfare plans (collectively, "Plans") subject to the
11
<PAGE>
fiduciary responsibility requirements of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), should consider whether an investment in
Nasdaq-100 Shares is permitted by the documents and instruments governing the
Plan and whether the investment satisfies the exclusive benefit, prudence, and
diversification requirements of ERISA. Individual retirement account ("IRA")
investors should consider that an IRA may make only such investments as are
authorized by its governing instruments.
The fiduciary standards and prohibited transactions rules of ERISA and
Section 4975 of the Code will not apply to transactions involving the Trust's
assets while Nasdaq-100 Shares are held by a Plan or IRA. Unlike many other
investment vehicles offered to Plans and IRAs, the Trust's assets will not be
treated as "plan assets" of the Plans or IRAs which acquire or purchase
Nasdaq-100 Shares. Although ERISA imposes certain duties on Plan fiduciaries and
ERISA and/or Section 4975 of the Code prohibit certain transactions involving
"plan assets" between Plans or IRAs and their fiduciaries or certain related
persons, those rules will not apply to transactions involving the Trust's assets
because Nasdaq-100 Shares represent an interest in the Trust, and the Trust is
registered as an investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"). ERISA, the Code, and U.S. Department of Labor
regulations contain unconditional language exempting the assets of registered
investment companies from treatment as "plan assets" in applying the fiduciary
and prohibited transaction provisions of ERISA and the Code.
RESTRICTIONS ON PURCHASES BY INVESTMENT COMPANIES
The acquisition of Nasdaq-100 Shares by registered investment companies is
subject to the restrictions set forth in section 12(d)(l) of the 1940 Act.
INVESTMENT MANAGEMENT
The Trust will hold the Securities and cash and will not be actively
"managed" by traditional methods, which typically involve effecting changes in
the Securities on the basis of judgments made relating to economic, financial,
and market considerations. The composition of the Securities will be adjusted,
however, to conform to changes in the composition of the Index Securities in the
manner set forth in the Trust Agreement as described herein (see "The
Portfolio--Adjustments to the Portfolio").
DISTRIBUTIONS
Distributions by the Trust will be made quarterly to the extent that
dividends accumulated in respect of the Securities and other income, if any,
12
<PAGE>
received by the Trust exceed Trust fees and expenses accrued during the
quarterly Accumulation Period which ends on the Business Day preceding each
ex-dividend date for Nasdaq-100 Shares. The regular quarterly ex-dividend date
with respect to net dividends, if any, for Nasdaq-100 Shares will be the third
Friday in each of March, June, September, and December, unless such day is not a
Business Day, in which case the ex-dividend date will be the immediately
preceding Business Day (the "Ex-Dividend Date"). However, no net dividend
distribution will be made in any given quarter, and any net dividend amounts
will be rolled into the next Accumulation Period, if the aggregate net dividend
distribution would be in an amount less than 5/100 of one percent (0.05%) of the
net asset value of the Trust, unless the Trustee determines that such
distribution is required to be made in order to maintain the Trust's status as a
regulated investment company or to avoid the imposition of income or excise
taxes on undistributed income. (See "Administration of the Trust--Distributions
to Beneficial Owners.")
At present, and possibly for extended periods of time during the life of the
Trust, the expenses of the Trust may be as great as or in excess of the dividend
and other income to be received by the Trust during any quarter and, under such
circumstances, no quarterly net dividend distributions would be made (see
"Special Consideration and Risk Factors--Little or No Expected Net Dividend
Distributions to Beneficial Owners"). Distributions (if any) will be made on
Dividend Payment Dates to Beneficial Owners via the Depository and its
participants (see "The Trust--Book-Entry-Only System"). For federal income tax
purposes, a portion of any net dividend distributions may result in a return of
capital to Beneficial Owners of Nasdaq-100 Shares (see "Tax Status of the
Trust").
Any net capital gains recognized by the Trust in any taxable year will be
distributed at least annually. The Trust may make additional distributions after
the end of the year in order to satisfy certain distribution requirements
imposed by the Code (see "Tax Status of the Trust" and "Administration of the
Trust--Distributions to Beneficial Owners"). Although income distributions, if
any, are currently planned to be made on a quarterly basis, the Trustee reserves
the right to vary the frequency of distributions (see "Administration of the
Trust--Distributions to Beneficial Owners").
REDEMPTION
Nasdaq-100 Shares in Creation Unit size aggregations are ordinarily
redeemable in kind only and are not redeemable for cash except under certain
circumstances (see "Redemption of Nasdaq-100 Shares"). Nasdaq-100 Shares
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<PAGE>
can be redeemed only in Creation Unit size aggregations effected by a
Participating Party (with respect to redemptions through the Nasdaq-100 Clearing
Process) or a DTC Participant (with respect to redemptions outside the
Nasdaq-100 Clearing Process), in either case which has executed a Nasdaq-100
Participant Agreement (see "Redemption of Nasdaq-100 Shares--Procedure for
Redemption of Nasdaq-100 Shares"). Individual Nasdaq-100 Shares are not
redeemable, but entitle the owners thereof to certain payments upon termination
of the Trust (see "Administration of the Trust--Termination"). Prior to
termination, Nasdaq-100 Share owners may aggregate individual Nasdaq-100 Shares
to Creation Unit size or multiples thereof (E.G., 50,000, 100,000 shares, etc.)
and request that the Trustee redeem the Nasdaq-100 Shares so aggregated. There
can be no assurance, however, that there will always be sufficient depth and
liquidity in the public trading market to complete all such transactions (see
"Special Considerations and Risk Factors"). Owners of Nasdaq-100 Shares in less
than Creation Unit size aggregations may have to pay brokerage fees and
commissions to acquire sufficient Nasdaq-100 Shares (I.E., 50,000 shares) to
constitute a Creation Unit. Persons redeeming Nasdaq-100 Shares in Creation Unit
size aggregations may also be entitled to receive, or be required to pay, a Cash
Redemption Amount (as hereinafter defined, see "Redemption of Nasdaq-100
Shares--Procedure for Redemption of Nasdaq-100 Shares"). On any given Business
Day, the Cash Redemption Amount will be an amount typically identical to the
Cash Component of a Portfolio Deposit.
In the event that the Trustee determines in its discretion that an Index
Security is likely to be unavailable for delivery or available in insufficient
quantity for delivery by the Trust upon the redemption of Nasdaq-100 Shares in
Creation Unit size aggregations, then the Trustee shall have the right in its
discretion to include the cash equivalent value of such Index Security or Index
Securities, based on the market value of such Index Security or Index Securities
as of the Evaluation Time on the date such redemption order is deemed received
by the Trustee (see "Redemption of Nasdaq-100 Shares"), in the calculation of
the Cash Redemption Amount in lieu of delivering the Index Security or Index
Securities to the redeeming investor.
Similarly, in connection with the redemption of Nasdaq-100 Shares, if a
redeeming investor requests redemption in cash, rather than in kind, with
respect to one or more Index Securities (for example, because a redeeming
investor is restricted by regulation or otherwise from investing or engaging in
a transaction in one or more Index Securities), the Trustee shall have the right
in its discretion to include the cash equivalent value of such Index Security or
Index Securities, based on the market value of such Index Security or Index
Securities as of the Evaluation Time on the date such redemption order is deemed
received by the Trustee, in the calculation of the Cash Redemption
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<PAGE>
Amount in lieu of delivering such Index Security or Index Securities to the
redeeming investor. In all such cases, such investor will pay the Trustee the
standard Transaction Fee, plus an additional amount not to exceed three (3)
times the Transaction Fee applicable for a Creation Unit.
Furthermore, the Trustee, in its discretion, upon the request of a redeeming
investor, may redeem Creation Units in whole or in part by providing such
redeeming investor with a Portfolio Deposit differing in composition, but not
differing in net asset value, from the then-current Portfolio Deposit. Such a
redemption is likely to be made only if it were determined to be appropriate in
order to maintain the Trust portfolio's correspondence to the composition and
weighting of the Index when a change to the composition and/or weighting of the
Index Securities occurs (see "The Portfolio", "The Index", and "The
Index--Rebalancing of the Index").
The Transaction Fee will be charged in connection with the redemption of
Creation Unit size aggregations of Nasdaq-100 Shares. If a request for
redemption is made directly to the Trustee outside the Nasdaq-100 Clearing
Process, an additional amount not to exceed three (3) times the Transaction Fee
applicable for a Creation Unit will be charged to the redeemer due to the
increased expense associated with delivery outside the Nasdaq-100 Clearing
Process (see "Transaction Fee").
TERMINATION
The Trust will terminate by its terms on the first to occur of: (i) the date
one hundred twenty-five (125) years from the Initial Date of Deposit (I.E.,
March 4, 2124) or (ii) the date twenty (20) years after the death of the last
survivor of fifteen persons named in the Trust Agreement, the oldest of whom was
born in 1986 and the youngest of whom was born in 1996 (the "Mandatory
Termination Date"). The Trust may also be terminated earlier upon the agreement
of the Beneficial Owners of 66 2/3% of the then outstanding Nasdaq-100 Shares.
The Sponsor will also have the discretionary right to direct the Trustee to
terminate the Trust if at anytime after six months following and prior to three
years following the Initial Date of Deposit the net asset value of the Trust
falls below $150,000,000 or if on or after three years following the Initial
Date of Deposit the net asset value of the Trust is less than $350,000,000, as
such dollar amount shall be adjusted for inflation in accordance with the
National Consumer Price Index for All Urban Consumers (the "CPI-U")(*) as
published by the United States Department of Labor, such adjustment to take
effect at the end of the fourth year following the Initial
- ------------------------
* The CPI-U measures the inflation rate of specified commodities deemed
representative of the purchases of all urban consumers.
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Date of Deposit and at the end of each year thereafter and to be made so as to
reflect the percentage increase in consumer prices as set forth in the CPI-U for
the twelve month period ending in the month preceding the month in which such
adjustment is made. The Trustee shall have the right to terminate the Trust in
the event that (a) the Sponsor resigns or becomes incapable of discharging its
duties and a successor is not appointed; (b) the Depository is unable or
unwilling to continue to perform its functions as set forth under the Trust
Agreement and a suitable replacement is unavailable; (c) NSCC no longer provides
clearance services with respect to Nasdaq-100 Shares and a suitable replacement
is unavailable, or if the Trustee is no longer a member of NSCC or any successor
to NSCC providing clearance services; (d) Nasdaq ceases publishing the Index;
(e) Nasdaq-100 Shares are delisted from the Amex and are not subsequently
relisted on a national securities exchange or a quotation medium operated by a
national securities association (see "Marketplace Listing"); or (f) the License
Agreement (as hereinafter defined) is terminated. The License Agreement
currently is scheduled to terminate five years from the commencement date of
trading of Nasdaq-100 Shares, subject to a five-year renewal period following
such date (see "License Agreement"). The Trust shall also terminate if the
Trustee resigns or becomes incapable of discharging its duties and a successor
is not appointed (see "Administration of the Trust--Termination").
UNDERWRITING
ALPS Mutual Funds Services, Inc. (the "Distributor") acts as underwriter of
Nasdaq-100 Shares on an agency basis. All orders to create Nasdaq-100 Shares in
Creation Unit size aggregations must be placed with the Distributor, and it is
the responsibility of the Distributor to transmit such orders to the Trustee.
The Distributor will furnish to those placing such orders confirmation that the
orders have been accepted, but the Distributor will reject any order which is
not submitted in proper form. Upon acceptance of an order to create Nasdaq-100
Shares, the Distributor will instruct the Trustee to initiate the book-entry
movement of the appropriate number of Nasdaq-100 Shares to the account of the
entity placing the order. The Distributor is also responsible for delivering a
prospectus to those persons creating Nasdaq-100 Shares. The Distributor also
maintains records of both the orders placed with it for the creation of
Nasdaq-100 Shares and the confirmations of acceptance issued by it. In addition,
the Distributor maintains a record of the instructions given to implement
delivery of Nasdaq-100 Shares in response to orders placed with it. The
Distributor may also provide certain other administrative services, such as
those related to state securities law compliance. The Distributor is a
corporation organized under the laws of the State of Colorado and is located at
370
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17th Street, Suite 3100, Denver, CO 80202. The Distributor is a registered
broker-dealer and a member of the National Association of Securities Dealers,
Inc. The Sponsor pays the Distributor for its services a flat annual fee. The
Sponsor will not seek reimbursement for such payment from the Trust without
obtaining prior exemptive relief from the Commission.
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SPECIAL CONSIDERATIONS AND RISK FACTORS
GENERAL
Investment in the Trust should be made with an understanding that the value
of the Securities may fluctuate in accordance with changes in the financial
condition of the issuers of the Securities, the value of common stocks
generally, and other factors. The composition and weighting of the Index
Securities and hence the composition and weighting of the Securities held in the
Trust also change from time to time (see "The Portfolio--Adjustments to the
Portfolio", "The Portfolio--Selection and Acquisition of Securities", and "The
Index--Rebalancing of the Index"). There can be no assurance that the issuers of
the Securities will pay dividends on outstanding shares of common stock.
Distributions on the Securities will generally depend upon the declaration of
dividends by the issuers of the Securities; the declaration of such dividends
generally depends upon various factors, including the financial condition of the
issuers and general economic conditions. As discussed above, the Trust, unlike a
managed investment company, will not be actively "managed" by traditional
methods, and therefore the adverse financial condition of an issuer will not
result in the elimination of its securities from the Securities held by the
Trust unless the Securities of such issuer are removed from the Index (see "The
Portfolio--Adjustments to the Portfolio").
An investment in the Trust should also be made with an understanding of the
risks inherent in an investment in equity securities, including the risk that
the financial condition of the issuers of the Securities may become impaired or
that the general condition of the stock market may deteriorate (either of which
may cause a decrease in the value of the Securities and thus in the value of
Nasdaq-100 Shares). Common stocks are susceptible to general stock market
fluctuations and to volatile increases and decreases in value as market
confidence in and perceptions of their issuers change. These investor
perceptions are based on various and unpredictable factors including
expectations regarding government, economic, monetary and fiscal policies,
inflation and interest rates, economic expansion or contraction, and global or
regional political, economic, and banking crises. As discussed above, the Trust
will not be actively "managed" and therefore securities held by the Trust will
not be disposed of as a result of or in anticipation of normal fluctuations in
the market.
Holders of common stocks of any given issuer incur more risk than holders of
preferred stocks and debt obligations of such issuer because common
stockholders, as owners of such issuer, have generally inferior rights to
receive payments from such issuer in comparison with the rights of creditors of,
or holders of debt obligations or preferred stocks issued by, such issuer.
Further, unlike debt securities which typically have a stated principal amount
payable at
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maturity (whose value, however, will be subject to market fluctuations prior
thereto), or preferred stocks which typically have a liquidation preference and
which may have stated optional or mandatory redemption provisions, common stocks
have neither a fixed principal amount nor a maturity. Common stock values are
subject to market fluctuations as long as the common stock remains outstanding.
The value of the Securities may therefore be expected to fluctuate over the
entire life of the Trust to values higher or lower than those prevailing on the
Initial Date of Deposit (see "Market Risks").
All of the Securities are currently listed on the Nasdaq Stock Market. The
existence of a liquid trading market for certain Securities may depend on
whether dealers will make a market in such Securities. There can be no assurance
that a market will be made for any of the Securities, that any market for the
Securities will be maintained, or that any such market will be or remain liquid.
The price at which the Securities may be sold and the value of the Trust will be
adversely affected if trading markets for the Securities are limited or absent.
An investment in the Trust should also be made with an understanding that
the Trust will not be able to replicate exactly the performance of the Index
because the total return generated by the Securities will be reduced by
transaction costs incurred in adjusting the actual balance of the Securities and
other Trust expenses, whereas such transaction costs and expenses are not
included in the calculation of the Index. It is also possible that for short
periods of time, the Trust may not fully replicate the performance of the Index
due to the temporary unavailability of certain Index Securities in the secondary
market or due to other extraordinary circumstances. Such events are unlikely to
continue for an extended period of time because the Trustee is required to
correct such imbalances by means of adjusting the composition of the Securities
(see "The Portfolio--Adjustments to the Portfolio"). It is also possible that
the composition of the Trust may not exactly replicate the composition of the
Index if the Trust has to adjust its portfolio holdings in order to continue to
qualify as a "regulated investment company" under the Code (see "Tax Status of
the Trust").
Neither the Depository nor Beneficial Owners of Nasdaq-100 Shares are
entitled either to dispose of any of the Securities in the Trust, as such, or to
vote the Securities. As the beneficial owner of the Securities, the Trustee has
the right to vote all of the voting Securities (see "Administration of the
Trust-- Voting").
Except as otherwise specifically noted, the time frames for delivery of
Securities, cash, or Nasdaq-100 Shares in connection with creation and
redemption activity within the Nasdaq-100 Clearing Process as set forth herein
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are based on NSCC's current "regular way" settlement period of three (3) days
during which NSCC is open for business (each such day an "NSCC Business Day").
NSCC may, in the future, reduce or increase such "regular way" settlement
period, in which case it is anticipated that there would be a corresponding
reduction or increase in settlement periods applicable to Nasdaq-100 Share
creations and redemptions. Investors should note that NSCC Business Days do not
always coincide with the days during which the Trustee is open for business.
LITTLE OR NO EXPECTED NET DIVIDEND DISTRIBUTIONS TO BENEFICIAL OWNERS
The Trust Agreement provides for quarterly distributions to Beneficial
Owners via the Depository and its participants (see "The Trust-- Book-Entry-Only
System") on Dividend Payment Dates in the event that dividends accumulated in
respect of the Securities and other income, if any, received by the Trust exceed
Trust fees and expenses accrued during the quarterly Accumulation Period which
ends on the Business Day preceding each Ex-Dividend Date; subject, however, to
such amount falling below a floor for de-minimus distributions, in which event a
net dividend distribution may not be paid and such amount will be rolled into
the next Accumulation Period (see "Administration of the Trust--Distributions to
Beneficial Owners"). Historically, the portfolio of securities comprising the
Index has paid relatively low dividends when compared to the securities
comprising other broad-based stock indices. For example, for the 1996, 1997, and
1998 calendar years, the ratio of the aggregate dividends paid to total
capitalization for the securities comprising the Index in those periods was
0.11%, 0.13%, and 0.07%, respectively. In comparison, the comparable dividend
ratio for the securities comprising the Standard & Poor's 500
Index-Registered Trademark- in those periods was 2.01%, 1.60%, and 1.68%,
respectively. (See "The Index" for the historical aggregate dividend yields of
the securities comprising the Index.)
The Sponsor has undertaken that on each day during each fiscal year up to
and including the fiscal year ending September 30, 2000, the ordinary operating
expenses of the Trust will not be permitted to exceed an amount which is 18/100
of one percent (0.18%) per annum of the daily net asset value of the Trust (see
"Expenses of the Trust"). Notwithstanding such limitation on Trust expenses, the
fees and expenses of the Trust may exceed the dividend and other income on the
Securities received by the Trust during each quarter. In such event, no net
dividend distributions would be made by the Trust. Based on the 1998 dividend
yield noted above of the securities comprising the Index in that year, no net
dividend distributions would have been made by the Trust if it were in existence
during the 1998 calendar year and if ordinary operating
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expenses were 0.18% per annum of the net asset value of the Trust consistent
with the Sponsor's undertaking to limit the Trust's ordinary operating expenses.
Moreover, after September 30, 2000, the Sponsor may, in its sole discretion,
discontinue its undertaking to limit ordinary operating expenses of the Trust,
or may renew this undertaking for an additional period of time but at a
different level which may be higher than 0.18%. In such event, the likelihood
may increase that expenses of the Trust would exceed the dividend and other
income received by the Trust during each quarter. The Trust will pay any such
excess expenses with the proceeds realized from the sale of Securities effected
ordinarily whenever the Trustee determines that projected annualized fees and
expenses accrued on a daily basis exceed projected annualized dividends and
other Trust income accrued on a daily basis by more than 1/100 of one percent
(0.01%) of the net asset value of the Trust (see "Expenses of the Trust"). Such
a sale of Securities will ordinarily be required to occur no later than the next
occurring adjustment to the Securities held in the Trust to conform to changes
in the composition and weighting of the Index Securities (see "The Portfolio--
Adjustments to the Portfolio").
Dividend payment rates of the securities comprising the Index may change
based on numerous factors, including the financial condition of the issuers and
general economic conditions, as well as from changes to the price level of Index
Securities, and from changes to the composition of Index Securities (I.E., the
substitution of one security in the Index with another paying higher or lower
dividends than the security being replaced). (See "The Index" for a discussion
of the selection criteria for determining the Index Securities.) In addition,
the Trust has no operating history by which to measure Trust expenses and
although the amounts of certain ordinary Trust expenses can be estimated, the
growth rate of the Trust, which cannot be anticipated, will directly affect the
level of Trust expenses as a percentage of the Trust's net asset value (I.E., as
the Trust grows in net asset value, certain relatively fixed Trust expenses will
be borne by a greater number of holders of Nasdaq-100 Shares). Accordingly, no
assurances can be given as to the actual level of dividends payable by the
issuers of the Securities or the actual level of Trust expenses, and no
representations are being made as to the level of net dividend distributions, if
any, that may be payable by the Trust.
NET ASSET VALUE AND MARKET PRICES
The Trust's assets consist primarily of the Securities. Therefore, the net
asset value of Nasdaq-100 Shares in Creation Unit size aggregations and,
proportionately, the net asset value per Nasdaq-100 Share changes as
fluctuations occur in the market value of the Securities. Investors should also
be aware that
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the aggregate public trading market price of 50,000 Nasdaq-100 Shares may be
different from the net asset value of a Creation Unit size aggregation of
Nasdaq-100 Shares (I.E., 50,000 Nasdaq-100 Shares may trade at a premium over or
at a discount to the net asset value of a Creation Unit) and similarly the
public trading market price per Nasdaq-100 Share may be different from the net
asset value of a Creation Unit on a per Nasdaq-100 Share basis (see "--Market
Risks"). This price difference may be due, in large part, to the fact that
supply and demand forces at work in the secondary trading market for Nasdaq-100
Shares will be closely related to, but not identical to, the same forces
influencing the prices of the Index component securities trading individually or
in the aggregate at any point in time. The expenses of the Trust are reflected
in the net asset value of Nasdaq-100 Shares in Creation Unit size aggregations
and the expenses of the Trust are accrued daily (see "Expenses of the Trust").
TRADING CONSIDERATIONS
Prior to the date of this Prospectus, there has been no market for
Nasdaq-100 Shares trading individually or in Creation Unit size aggregations
and, consequently, there can be no assurance that active trading markets will
develop, nor is there a certain basis for predicting the actual price levels at
which Nasdaq-100 Shares may trade.
Further, there can be no assurance that Nasdaq-100 Shares will experience
trading or pricing patterns similar to those of market-traded securities which
are issued by investment companies based upon indexes other than the Index
(E.G., SPDRs-Registered Trademark-, MidCap SPDRs-TM-, DIAMONDS(SM), and
WEBS(SM)).*
The Sponsor's aim in designing Nasdaq-100 Shares was to provide investors
with a security whose initial market value would approximate one-twentieth
(1/20th) the value of the Index. Thus, for example, if the Index were at 1600,
investors might expect a Nasdaq-100 Share to trade initially at approximately
$80. Investors should be aware, however, that the market price of a Nasdaq-100
Share may be affected by supply and demand, market volatility, sentiment, and
other factors. In addition, due to these factors as well as other factors
including required distributions for tax purposes (see "Tax Status of the
Trust") or the sale of Securities to meet Trust expenses in excess of the
dividends received on the Securities (see "Expenses of the Trust"), the
- ------------------------
* SPDRs-Registered Trademark- and MidCap SPDRs-TM- are trademarks of The
McGraw-Hill Companies, Inc., DIAMONDS-SM- is a service mark of Dow Jones &
Company, Inc., and WEBS-SM- is a service mark of Morgan Stanley, Dean
Witter, Discover & Co.
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one-twentieth (1/20th) relationship between the initial value of a Nasdaq-100
Share and the value of the Index is not expected to persist indefinitely.
The Sponsor does not maintain a secondary market in Nasdaq-100 Shares.
Nasdaq-100 Shares have been approved for listing on the Amex, subject to
official notice of issuance. The market symbol for Nasdaq-100 Shares is "QQQ".
Trading in Nasdaq-100 Shares on the Amex may be halted due to market conditions
or, in light of Amex rules and procedures, for reasons that, in the view of the
Amex, make trading in Nasdaq-100 Shares inadvisable. In addition, trading in
Nasdaq-100 Shares on the Amex is subject to trading halts caused by
extraordinary market volatility pursuant to Amex "circuit breaker" rules that
require trading in securities on the Amex to be halted for a specified time
period based on a specified market decline. There can be no assurance that the
requirements of the Amex necessary to maintain the listing of Nasdaq-100 Shares
will continue to be met or will remain unchanged. The Trust will be terminated
in the event Nasdaq-100 Shares are delisted from the Amex and are not
subsequently relisted on a national securities exchange or a quotation medium
operated by a national securities association. (For a description of the
conditions for the listing of Nasdaq-100 Shares and the circumstances under
which the Amex would consider the suspension of trading in or the delisting of
Nasdaq-100 Shares, see "Marketplace Listing.") Further, the Trust may be
terminated, among other reasons, in the event that the net asset value of the
Trust falls below a specified level (see "Administration of the
Trust--Termination").
MARKET RISKS
Nasdaq-100 Shares are subject to the risk of an investment in a broad market
portfolio of equity securities, including the risk that the general level of
stock prices may decline, thereby adversely affecting the value of such
investment. Nasdaq-100 Shares are also subject to the risk of an investment in a
portfolio of equity securities in economic sectors in which the Index may be
highly concentrated (E.G., technology, see "The Index") as well as to the risks
specific to the performance of a few individual component securities which
currently represent a highly concentrated weighting in the Index (E.G.,
Microsoft Corporation and Intel Corporation, see "The Index"). These include the
risks that the level of stock prices in these sectors or the stock prices of
these specific companies may decline, thereby adversely affecting the value of
Nasdaq-100 Shares. In addition, because it is the policy of the Trust to invest
in the securities that comprise the Index, if the Index is concentrated in an
industry or group of industries, the portfolio of Securities also will be
concentrated in that industry or group of industries. Furthermore, investors
should be aware that in the event that one or more stocks which currently have a
highly
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concentrated weighting in the Index were to leave the Nasdaq Stock Market, if a
company with a large market capitalization were to list its shares on the Nasdaq
Stock Market, or if there were a significant rebalancing of the Index (see "The
Index--Rebalancing of the Index"), then the composition and weighting of the
Index, and hence the composition and weighting of the Securities in the Trust,
would change significantly and the performance of Nasdaq-100 Shares would
reflect the performance of the new Index as reconfigured (see "The
Portfolio--Adjustments to the Portfolio").
Furthermore, due to the concentration of the Index in sectors characterized
by relatively higher volatility in price performance when compared to other
economic sectors, the performance of the Index may be more volatile when
compared to other broad based stock indices. For example, the annual volatility
of the Index for the 1998 calendar year was 32.2%, while the annual volatility
of the Standard & Poor's 100 Index-Registered Trademark- and the Standard &
Poor's 500 Index-Registered Trademark- for the same period was 20.9% and 20.3%,
respectively. For this reason, it is anticipated that the price volatility of
Nasdaq-100 Shares may be greater than the price volatility of other
market-traded securities which are issued by investment companies based upon
indices other than the Index.
Nasdaq-100 Shares are also subject to risks other than those associated with
an investment in a broad market portfolio of equity securities in that the
selection of the securities included in the Trust's portfolio, the expenses
associated with the Trust, or other factors distinguishing an ownership interest
in a trust from the direct ownership of a portfolio of securities may affect
trading in Nasdaq-100 Shares as compared with trading in a broad market
portfolio of equity securities. Nasdaq-100 Shares are further subject to the
risk that extraordinary events may cause any of the parties providing services
to the Trust, such as the Trustee, the Sponsor, the Distributor, the Depository,
NSCC, or Nasdaq (as the licensor of the Index and the Index calculator) to be
closed or otherwise unable to perform such party's obligations as set forth
herein and in the agreements between and among such parties. According to the
terms of the Trust Agreement, if any of the above named entities fails or is
otherwise unable to perform adequately its duties, a successor entity may be
named or appointed to assume all duties and obligations of its predecessor. If,
however, no suitable successor is available or willing to undertake all such
duties and obligations, under the Trust Agreement the Trust will then be
terminated (see "Administration of the Trust--Termination").
The Trustee will ordinarily deliver a portfolio of Securities for each
Creation Unit size aggregation of Nasdaq-100 Shares delivered for redemption,
identical in composition to the Securities portion of a Portfolio Deposit as in
effect on the date a request for redemption is deemed received by the Trustee
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(see "Redemption of Nasdaq-100 Shares"). If a redemption is processed through
the Nasdaq-100 Clearing Process, to the extent that the Securities to be
delivered on settlement date are not delivered, they will be covered by NSCC's
guarantee of the completion of such delivery. Any Securities not received on
settlement date will be marked to the market on a daily basis until delivery is
completed. The Trust, to the extent it has not already done so, remains
obligated to deliver such Securities to NSCC, and the market risk of any
increase in the value of such Securities until delivery is made by the Trust to
NSCC could adversely affect the net asset value of the Trust. Investors should
note that the Securities to be delivered to a redeemer submitting a redemption
request outside of the Nasdaq-100 Clearing Process that are not delivered to
such redeemer are not covered by NSCC's guarantee of completion of such
delivery.
Investors should also note that the size of the Trust in terms of total
assets held may change substantially over time and from time to time as
Nasdaq-100 Shares in Creation Unit size aggregations are created and redeemed.
Such fluctuations in Trust size should not adversely impact the net asset value
per Nasdaq-100 Share at any time because the amount of the Cash Component or the
Cash Redemption Amount upon creations or redemptions, respectively, of
Nasdaq-100 Shares in Creation Unit size aggregations is determined each day to
equate the value of the Portfolio Deposit to the net asset value of the Trust,
on a per Creation Unit basis, at the close of business on the day such request
is deemed received by the Trustee (see "The Portfolio-- Adjustments to the
Portfolio Deposit").
Investors in the Trust should also be aware that there are tax consequences
associated with the ownership of Nasdaq-100 Shares resulting from the
distribution, if any, of Trust net dividends and sales of Nasdaq-100 Shares, as
well as the sale of underlying Securities held by the Trust in connection with
redemptions or changes in the Index under certain circumstances (see "Tax Status
of the Trust--Tax Consequences to Beneficial Owners").
RECENT REVISIONS TO THE INDEX
Effective after the close of trading on December 18, 1998, the method for
calculating the Index was revised to a "modified capitalization weighted"
methodology which resulted in changes to the weighting of the component
securities in the Index after such date. This methodology is expected to promote
portfolio weight diversification (thereby limiting domination of the Index by a
few large common stocks) while retaining in general the economic attributes of
capitalization weighting. Under this methodology, the Index share weights of the
component securities of the Index are subject to quarterly rebalancing, if
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necessary, to ensure that the relative weighting of the Index Securities
continues to meet minimum pre-established requirements for a diversified
portfolio (see "The Index--Rebalancing of the Index"). Accordingly, the
composition and weighting of the Securities in the Trust will be based upon the
Index as calculated in accordance with this new methodology.
IMPACT OF THE YEAR 2000 PROBLEM
Like other investment funds and financial and business organizations around
the world, the Trust relies significantly upon the smooth functioning of
computer systems. The Trust could be adversely affected if computer systems,
including those used by the Trustee in the administration of the Trust or those
used by Nasdaq in the calculation of the Index, do not properly process and
calculate date-related information concerning dates after January 1, 2000. Many
computer systems in use today were originally written using two digits rather
than four to define a particular year. As a result, these computer programs have
time-sensitive software that may recognize a date using "00" as the year 1900
rather than the year 2000. That failure could have a negative impact on the
handling of securities trades, pricing, and trust services, among other things.
This is commonly known as the "Year 2000 Problem." As discussed below, both
Nasdaq and the Trustee have taken steps in their view reasonably necessary to
address the Year 2000 Problem with respect to the computer systems they use and
to monitor Year 2000 compliance by vendors and external service providers.
THE TRUSTEE
The Bank of New York Company, Inc. ("BNY"), of which the Trustee is a wholly
owned subsidiary, has established a Year 2000 compliance program consisting of
updating major BNY-owned application systems, business-areas supported systems,
and BNY's proprietary customer software and evaluating the Year 2000 compliance
efforts of vendors of major vendor-supplied systems.
BNY divided major proprietary applications systems designated by BNY as
"mission critical" into three business-line groups. The applications in each
group were subjected to a four-phase process of assessment, renovation,
certification testing, and implementation. These systems have completed all four
phases and are currently in use in production environments. BNY has also
identified its critical vendor-supplied systems. All but one of these systems
have been certified as Year 2000 compliant in accordance with certification
procedures established by BNY. BNY expects to receive a Year 2000 compliant
version of the remaining system in May 1999.
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One-third of BNY's business-area supported systems has been designated as
exempt from the Year 2000 compliance effort as those systems are scheduled to be
retired or replaced. An additional third has been successfully tested or is
undergoing certification testing. The remaining third is scheduled to complete
testing by March 31, 1999. Lastly, BNY has developed an inventory of its
business partners, including other financial service providers, correspondents,
counterparties, sub-custodians, vendors, and settlement agencies, for the
purpose of assessing their Year 2000 compliance. BNY is conducting a review of
the Year 2000 readiness of each significant third party.
BNY's Year 2000 compliance program is currently on schedule to meet the
needs of its customers and compliance deadlines defined by its regulators.
NASDAQ
In 1996, Nasdaq's parent, the National Association of Securities Dealers,
Inc., established the NASD Year 2000 Program Office responsible for coordinating
all Year 2000 compliance activities for the NASD and its operating subsidiaries,
including Nasdaq. All Nasdaq systems have been analyzed and a determination has
been made about whether to retire, replace, or repair systems. As of December
1998, Nasdaq had completed modifications and upgrades for Year 2000 compliance
for mission critical, mission essential, and other applications (including the
programs responsible for calculating the Index). Nasdaq has also established a
test center which has begun testing external systems that interact with Nasdaq;
ongoing testing is expected to continue through 1999. Nasdaq is also in the
process of providing for independent back-up calculations of the Index to be
performed on an intra-day basis beginning well in advance of the Year 2000.
POSSIBLE IMPACT ON THE TRUST
Due to the general uncertainty inherent in the Year 2000 Problem, at this
time there can be no assurance that the steps taken by BNY and Nasdaq will be
sufficient to avoid any adverse impact to the Trust, and interaction with other
non-complying computer systems of other service providers, including the
Distributor, DTC, and NSCC, may have an adverse effect on the Trust.
In addition, the Year 2000 Problem is expected to affect business entities,
including issuers whose securities are included in the Index, to varying extents
based upon a number of factors, including, but not limited to, industry sector
and level of technological sophistication. The Sponsor is unable to predict what
impact, if any, the Year 2000 Problem will have on issuers of securities
included in the Index and hence included in the Trust.
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AFFILIATED RELATIONSHIPS AND TRANSACTIONS
Investors in the Trust should be aware that the Sponsor of the Trust is a
wholly-owned subsidiary of Nasdaq. Nasdaq is the proprietor of the Index as well
as the operator of the Nasdaq Stock Market, the marketplace where the Index
Securities trade. Effective as of November 2, 1998, Nasdaq and the Amex, the
exchange on which Nasdaq-100 Shares will be listed, operate as separate
subsidiaries of The Nasdaq-Amex Market Group, a newly created subsidiary of The
National Association of Securities Dealers, Inc.
Under the terms of a license agreement with Nasdaq, the Sponsor has been
granted a license to use the Index as a basis for determining the composition of
the Trust and to use certain service marks and trademarks of Nasdaq in
connection with the Trust (see "License Agreement"). Under the terms of the
license agreement, the Sponsor pays to Nasdaq an annual licensing fee for use of
the Index. The Sponsor ordinarily will seek reimbursement from the Trust for the
amount of licensing fees (see "Expenses of the Trust"). However, the Sponsor has
committed not to seek reimbursement from the Trust for licensing fees to Nasdaq
for the period through the Trust's fiscal year ending September 30, 1999.
Thereafter, the Sponsor intends to charge the Trust for the annual licensing
fee. The Trust is not required to pay a listing fee to the Amex in connection
with the listing of Nasdaq-100 Shares on the Amex.
The Index is determined, composed, and calculated by Nasdaq without regard
to the Sponsor, the Trust, or the Beneficial Owners of Nasdaq-100 Shares. Nasdaq
has complete control and sole discretion in determining, composing, or
calculating the Index or in modifying in any way its method for determining,
composing, or calculating the Index in the future.
28
<PAGE>
NASDAQ-100 TRUST, SERIES 1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- ---------------------------------------------------------------------
TO THE SPONSOR, TRUSTEE AND THE UNITHOLDERS OF THE NASDAQ-100 TRUST, SERIES 1:
We have audited the accompanying statement of financial condition, including
the schedule of investments, of the Nasdaq-100 Trust, Series 1 as of the opening
of business on March 5, 1999. The statement of financial condition is the
responsibility of the Trust's Sponsor, Nasdaq-Amex Investment Product Services,
Inc. Our responsibility is to express an opinion on this statement of financial
condition based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of financial condition is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of financial condition.
Our procedures included confirmation of the irrevocable letter of credit held by
the Trustee and deposited in the Trust on March 4, 1999. An audit also includes
assessing the accounting principles used and significant estimates made by the
Sponsor, as well as evaluating the overall presentation of the statement of
financial condition. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the statement of financial condition, including the schedule
of investments, referred to above presents fairly, in all material respects, the
financial position of the Nasdaq-100 Trust, Series 1 at the opening of business
on March 5, 1999, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Washington, D.C.
March 5, 1999
29
<PAGE>
NASDAQ-100 TRUST, SERIES 1
STATEMENT OF FINANCIAL CONDITION
OPENING OF BUSINESS, MARCH 5, 1999
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investment in Securities, at market value (cost
$14,497,770) (Note 1)............................ $ 14,497,770
TOTAL ASSETS................................... 14,497,770
-------------
LIABILITIES AND INTEREST OF NASDAQ-100 SHARE HOLDERS
TOTAL LIABILITIES.............................. 0
-------------
TOTAL NET ASSETS....................................... $ 14,497,770
-------------
-------------
NET ASSET VALUE PER NASDAQ-100 SHARE................... $96.65
-------------
-------------
(comprised of $14,497,770/150,000 Nasdaq-100 Shares
outstanding)
</TABLE>
NOTES TO STATEMENT OF FINANCIAL CONDITION:
1. Nasdaq-100 Trust, Series 1 (the "Trust") is a unit investment trust
created under the laws of the State of New York and registered under the
Investment Company Act of 1940. The Trust was created to provide investors with
the opportunity to purchase units of beneficial interest in the Trust
representing proportionate undivided interests in the portfolio of securities
held by the Trust consisting of substantially all of the securities, in
substantially the same weighting, as the component securities of the Nasdaq-100
Index-Registered Trademark-. On the Initial Date of Deposit, Portfolio Deposits
were received by The Bank of New York, the Trust's Trustee, in the form of
executed securities transactions which will settle within three business days of
the Initial Date of Deposit, in exchange for three (3) Creation Units of the
Trust equivalent to 150,000 Nasdaq-100 Shares. An irrevocable letter of credit
issued by The Chase Manhattan Bank, in the amount of $20,000,000 has been
delivered to the Trustee, to be drawn on if necessary, for the benefit of the
Trust to collateralize the settlement of the executed securities transactions.
The value of the Securities is based on the March 4, 1999 closing sale prices
therefor on The Nasdaq Stock Market.
30
<PAGE>
2. It is anticipated that the Trust will pay the expenses of its operation,
including the fees of its Trustee and payments to The Nasdaq Stock Market, Inc.
("Nasdaq") for a license to use the Nasdaq-100 Index-Registered Trademark- as a
basis for determining the composition and weighting of Securities held by the
Trust, as described under "Expenses of the Trust" and "License Agreement" in
this Prospectus. Nasdaq has agreed to pay fees and expenses incurred in
connection with the organization of the Trust and its registration as an
investment company, and such expenses will not be borne by the Trust.
Nasdaq-Amex Investment Product Services, Inc., the Sponsor of the Trust, has
undertaken that on each day during each fiscal year up to and including the
fiscal year ending September 30, 2000, the ordinary operating expenses of the
Trust as calculated by the Trustee will not be permitted to exceed an amount
which is 18/100 of one percent (0.18%) per annum of the daily net asset value of
the Trust. To the extent during such period the ordinary operating expenses of
the Trust do exceed such 0.18% amount, the Sponsor will reimburse the Trust or
assume invoices on behalf of the Trust for such excess ordinary operating
expenses. The Sponsor retains the ability to be repaid by the Trust for expenses
so reimbursed or assumed to the extent that subsequently during the fiscal year
expenses fall below the 0.18% per annum level on any given day (see "Expenses of
the Trust" in this Prospectus). The Sponsor has also undertaken for the fiscal
year ending September 30, 1999, not to seek reimbursement from the Trust for
licensing fees paid to Nasdaq for use of the Index during such period (see
"License Agreement" in this Prospectus).
3. Nasdaq-100 Shares are created and redeemed by the Trust only in Creation
Unit size aggregations of 50,000 Nasdaq-100 Shares. Transaction fees of varying
amounts are charged to those persons creating or redeeming Creation Units. See
"Prospectus Summary--Portfolio Deposits" and "The Trust-- Creation of Creation
Units" in this Prospectus for further description.
31
<PAGE>
Nasdaq-100 Trust, Series 1
Schedule of Investments and
Securities Required for a Portfolio Deposit
On the Opening of Business, March 5, 1999
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE
- ----------------------------------------------- --------- -------------
Microsoft Corporation.......................... 14,427 $ 2,196,511
Intel Corporation.............................. 9,825 1,113,909
Cisco Systems, Inc............................. 9,483 931,705
MCI WordCom, Inc............................... 11,088 907,830
Dell Computer Corporation...................... 7,887 645,748
Oracle Corporation............................. 10,218 371,680
Sun Microsystems, Inc.......................... 2,784 282,228
Amgen Inc...................................... 3,990 258,103
Yahoo! Inc..................................... 1,596 241,794
Tele-Communications, Inc....................... 3,630 235,950
Amazon.com, Inc................................ 1,767 212,261
Level 3 Communications, Inc.................... 3,585 207,706
Comcast Corporation............................ 2,715 194,801
Applied Materials, Inc......................... 3,210 184,776
Qwest Communications International Inc......... 2,955 176,561
Nextel Communications, Inc..................... 5,838 170,762
Costco Companies, Inc.......................... 1,929 167,341
Netscape Communications Corporation............ 2,094 159,929
Biogen, Inc.................................... 1,521 159,705
Ascend Communications, Inc..................... 2,043 157,056
Nordstrom Inc.................................. 3,666 153,972
Cintas Corporation............................. 2,118 153,423
Linear Technology Corporation.................. 3,378 150,321
Tellabs, Inc................................... 1,860 148,916
Staples, Inc................................... 5,205 148,343
Novell, Inc.................................... 7,098 142,404
Chancellor Media Corporation................... 2,928 141,825
Maxim Integrated Products, Inc................. 3,081 140,186
Immunex Corporation............................ 924 137,965
LM Ericsson Telephone Company.................. 5,202 131,351
Altera Corporation............................. 2,301 124,110
Xilinx, Inc.................................... 1,722 119,033
Starbucks Corporation.......................... 2,082 117,763
PanAmSat Corporation........................... 3,381 115,377
Intuit Inc..................................... 1,263 115,091
</TABLE>
See accompanying notes to Statement of Financial Condition.
32
<PAGE>
NASDAQ-100 TRUST, SERIES 1
SCHEDULE OF INVESTMENTS AND
SECURITIES REQUIRED FOR A PORTFOLIO DEPOSIT
ON THE OPENING OF BUSINESS, MARCH 5, 1999 (CONTINUED)
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE
- ----------------------------------------------- --------- -------------
<S> <C> <C>
ADC Telecommunications, Inc.................... 2,829 $ 112,099
Paychex, Inc................................... 2,607 111,775
Network Associates, Inc........................ 2,358 107,289
QUALCOMM Incorporated.......................... 1,434 106,743
BMC Software, Inc.............................. 2,760 106,432
Apple Computer, Inc............................ 3,156 105,529
PeopleSoft, Inc................................ 5,535 102,052
Bed Bath & Beyond Inc.......................... 3,138 99,435
Compuware Corporation.......................... 3,810 96,917
Biomet, Inc.................................... 2,541 96,717
KLA-Tencor Corporation......................... 1,782 94,000
Parametric Technology Corporation.............. 6,216 91,297
USA Networks, Inc.............................. 2,382 91,111
Chiron Corporation............................. 4,200 90,825
Fiserv, Inc.................................... 1,725 85,819
NTL Incorporated............................... 1,050 83,869
Genzyme General................................ 1,701 81,967
Quintiles Transnational Corp................... 1,836 81,013
3Com Corporation............................... 3,060 76,500
American Power Conversion Corporation.......... 2,115 70,059
Citrix Systems, Inc............................ 852 68,213
Quantum Corporation............................ 3,423 67,176
Synopsys, Inc.................................. 1,368 63,355
Smurfit-Stone Container Corporation............ 3,543 63,110
Vitesse Semiconductor Corporation.............. 1,335 62,745
Jacor Communications, Inc...................... 897 62,678
PACCAR Inc..................................... 1,473 62,142
VERITAS Software Corporation................... 816 61,404
Concord EFS, Inc............................... 1,854 60,487
Comverse Technology, Inc....................... 780 56,452
Sanmina Corporation............................ 996 53,784
Centocor, Inc.................................. 1,155 47,932
Sigma-Aldrich Corporation...................... 1,779 47,588
Adobe Systems Incorporated..................... 996 45,442
Electronic Arts Inc............................ 1,032 42,828
</TABLE>
See accompanying notes to Statement of Financial Condition.
33
<PAGE>
NASDAQ-100 TRUST, SERIES 1
SCHEDULE OF INVESTMENTS AND
SECURITIES REQUIRED FOR A PORTFOLIO DEPOSIT
ON THE OPENING OF BUSINESS, MARCH 5, 1999 (CONTINUED)
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE
- ----------------------------------------------- --------- -------------
<S> <C> <C>
Reuters Group PLC.............................. 483 $ 41,296
Apollo Group, Inc.............................. 1,215 36,982
Dollar Tree Stores, Inc........................ 906 36,636
PacifiCare Health Systems, Inc................. 471 35,737
Molex Incorporated............................. 1,260 35,674
Comair Holdings, Inc........................... 903 35,669
McLeodUSA Incorporated......................... 861 35,301
Food Lion, Inc................................. 3,468 33,813
Adaptec, Inc................................... 1,497 31,437
Ross Stores, Inc............................... 600 28,688
Northwest Airlines Corporation................. 1,128 28,341
Lincare Holdings Inc........................... 819 28,051
Autodesk, Inc.................................. 654 26,405
McCormick & Company, Incorporated.............. 894 25,032
Electronics for Imaging, Inc................... 702 24,658
Stewart Enterprises, Inc....................... 1,563 22,859
FORE Systems, Inc.............................. 1,545 21,727
Atmel Corporation.............................. 1,254 21,083
Microchip Technology Incorporated.............. 717 20,390
Herman Miller, Inc............................. 1,140 18,668
Cambridge Technology Partners, Inc............. 714 17,939
Fastenal Company............................... 474 17,775
Andrew Corporation............................. 1,098 16,058
Micron Electronics, Inc........................ 1,320 15,840
Worthington Industries, Inc.................... 1,074 14,096
CBRL Group, Inc................................ 753 13,601
Tech Data Corporation.......................... 741 12,736
Rexall Sundown, Inc............................ 759 11,385
First Health Group Corp........................ 681 11,024
Corporate Express, Inc......................... 1,089 5,649
Total Investments--(Cost $14,497,770).......... $ 14,497,770
-------------
-------------
</TABLE>
See accompanying notes to Statement of Financial Condition.
34
<PAGE>
THE TRUST
The Trust is a unit investment trust created under the laws of the State of
New York pursuant to the Trust Agreement.* The Securities held by the Trust
consist of a portfolio of equity securities or, in the case of securities not
yet delivered in connection with purchases made by the Trust or Portfolio
Deposits, confirmations of contracts to purchase such securities (collectively,
the "Portfolio").
CREATION OF CREATION UNITS
On the Initial Date of Deposit, Portfolio Deposits were deposited with the
Trustee via instructions submitted through the clearing processes of NSCC,
following placement with the Distributor of orders to create Nasdaq-100 Shares.
The Distributor shall reject any order that is not submitted in proper form. To
permit the Trustee to ensure that the process of settlement is working
satisfactorily, there shall be no further Portfolio Deposits accepted by the
Trustee for a period of three (3) Business Days following the Initial Date of
Deposit, and the Sponsor and the Trustee shall jointly announce the day
thereafter on which further Portfolio Deposits will be accepted, and trading of
Nasdaq-100 Shares on the Amex shall not commence until such date. On or after
such date, Portfolio Deposits may be deposited with the Trustee via instructions
submitted through the clearing processes of NSCC, following placement with the
Distributor of orders to create Nasdaq-100 Shares. Investors may deposit
Portfolio Deposits through the Nasdaq-100 Clearing Process or directly with the
Trustee outside the Nasdaq-100 Clearing Process. The Transaction Fee will be
charged at the time of creation of a Creation Unit size aggregation of
Nasdaq-100 Shares. An additional amount not to exceed three (3) times the
Transaction Fee applicable for a Creation Unit will be charged to a creator
creating outside the Nasdaq-100 Clearing Process (I.E., depositing Portfolio
Deposits directly with the Trustee through DTC), in part due to the increased
expense associated with settlement outside the Nasdaq-100 Clearing Process. See
"Prospectus Summary--Transaction Fee" for a detailed description of the amount
of the Transaction Fee and the additional amounts and reductions, limitations,
and waivers applicable thereto, if any. The shares of the Index Securities in a
Portfolio Deposit on the Initial Date of Deposit had an aggregate market value
of $14,497,770 (see "Schedule of Investments").
- ------------------------
* Reference is hereby made to the Trust Agreement (a copy of which is
available to prospective purchasers of Nasdaq-100 Shares at the corporate
trust office of the Trustee at 101 Barclay Street, New York, New York 10286
during normal business hours), and any statements contained herein are
qualified in their entirety by the provisions of the Trust Agreement.
35
<PAGE>
Nasdaq-100 Shares will be initially priced to approximate 1/20th of the value of
the Index (see "Marketplace Listing").
The Trustee and the Sponsor, from time to time and for such periods as they
may determine, together may increase* or reduce the amount and/or waive the
imposition altogether of the Transaction Fee (and/or the additional amounts
charged in connection with creations and/or redemptions outside the Nasdaq-100
Clearing Process) for certain numbers of Creation Units of Nasdaq-100 Shares
created or redeemed, whether applied solely to creations and/or redemptions made
through the Nasdaq-100 Clearing Process (see "Procedures for Creation of
Creation Units"), solely to creations and/or redemptions made outside the
Nasdaq-100 Clearing Process, or to both methods of creation and/or redemption.
The Sponsor also reserves the right, from time to time, to vary the number of
Nasdaq-100 Shares per Creation Unit (currently 50,000 shares) and such change
may or may not be made in conjunction with a change to the Transaction Fee. The
occurrence of any increase, reduction, or waiver of the Transaction Fee (as well
as any additional amounts, if applicable) and the number of Creation Units
created or redeemed to which such increase, reduction, or waiver applies shall
be disclosed in the current Nasdaq-100 Share Prospectus (see "Prospectus
Summary--Transaction Fee"). As of the date hereof, the Sponsor and the Trustee
do not contemplate the increase, reduction, variation by lot-size, or waiver of
Transaction Fees in connection with the creation or redemption of Nasdaq-100
Shares or of the additional amounts charged in connection with the creation or
redemption of Nasdaq-100 Shares outside the Nasdaq-100 Clearing Process beyond
that which is discussed herein under the caption "Prospectus
Summary--Transaction Fee."
The shares of equity securities comprising the securities portion of a
Portfolio Deposit on any date of deposit will reflect the composition and
weighting of the component securities of the Index on such day. The portfolio of
Index Securities that is the basis for a Portfolio Deposit varies as changes are
made in the composition and weighting of the Index Securities (see "The
Portfolio-- Adjustments to the Portfolio Deposit"). The Trustee will make
available to NSCC prior to the commencement of trading on each Business Day a
list of the names and required number of shares of each of the Index Securities
in the current Portfolio Deposit as well as the amount of the Income Net of
Expense Amount for the previous Business Day. Under certain extraordinary
circumstances which may make it impossible for the Trustee to provide such
information to NSCC on a given Business Day, NSCC shall use the information
regarding the identity and share amounts of the Index Securities of the
- ------------------------
* Such increase is subject to the 10 Basis Point Limit discussed above under
"Prospectus Summary--Transaction Fee."
36
<PAGE>
Portfolio Deposit on the previous Business Day. The identity and share amounts
of each of the Index Securities required for a Portfolio Deposit, as in effect
on the Initial Date of Deposit, is set forth in the above Schedule of
Investments.
The Sponsor intends to make available, or may designate other persons to
make available, on each Business Day, a list of the names and the required
number of shares for each of the securities in the current Portfolio Deposit as
well as the Income Net of Expense Amount effective through and including the
previous Business Day per outstanding Nasdaq-100 Share. The Sponsor may choose
within its discretion to make available, frequently throughout each Business
Day, a number representing, on a per Nasdaq-100 Share basis, the sum of the
Income Net of Expense Amount effective through and including the previous
Business Day plus the current value of the securities portion of a Portfolio
Deposit as in effect on such day (which value will occasionally include a
cash-in-lieu amount to compensate for the omission of a particular Index
Security from such Portfolio Deposit, see "The Portfolio--Adjustments to the
Portfolio Deposit"). If the Sponsor elects to make such information available,
it would be calculated based upon the best information available to the Sponsor
and may be calculated by other persons designated to do so by the Sponsor. If
the Sponsor elects to make such information available, the inability of the
Sponsor or its designee to provide such information for any period of time will
not in itself result in a halt in the trading of Nasdaq-100 Shares on the Amex.
If such information is made available, investors interested in creating
Nasdaq-100 Shares or purchasing Nasdaq-100 Shares in the secondary market should
not rely solely on such information in making investment decisions but should
also consider other market information and relevant economic and other factors
(including, without limitation, information regarding the Index, the Index
Securities, and financial instruments based on the Index).
Upon receipt of a Portfolio Deposit or Deposits following placement with the
Distributor of an order to create Nasdaq-100 Shares, the Trustee will register
the ownership of the Nasdaq-100 Shares in Creation Unit size aggregations in the
name of the Depository or its nominee. In turn, the Nasdaq-100 Share position
will be removed from the Trustee's account at the Depository and will be
allocated to the account of the DTC Participant acting on behalf of the
depositor creating Creation Unit(s) (see "Procedures for Creation of Creation
Units" and "Book-Entry-Only System"). Each Nasdaq-100 Share will represent a
fractional undivided interest in the Trust in an amount equal to one (1) divided
by the total number of Nasdaq-100 Shares outstanding. The Trustee may reject a
request to create Creation Units made by any depositor or group of depositors if
such depositor(s), upon the acceptance by the Trustee of such request and the
issuance to such depositor(s) of Nasdaq-100 Shares, would
37
<PAGE>
own eighty percent (80%) or more of the outstanding Nasdaq-100 Shares (see "Tax
Status of the Trust"). The Trustee also may reject any Portfolio Deposit or any
component thereof under certain other circumstances (see "Procedures for
Creation of Creation Units").
Additional Nasdaq-100 Shares in Creation Unit size aggregations will be
created upon receipt of the appropriate Portfolio Deposits from creators. As
additional Nasdaq-100 Shares in Creation Unit size aggregations are created, the
aggregate value of the Portfolio will be increased and the fractional undivided
interest in the Trust represented by each Nasdaq-100 Share will be decreased. As
discussed above, under certain circumstances (1) a portion of the securities
portion of a Portfolio Deposit may consist of contracts to purchase certain
Index Securities that are expected to be delivered in a "regular way" manner
through NSCC or (2) a portion of the Cash Component may consist of cash in an
amount sufficient to enable the Trustee to purchase such Index Securities (E.G.,
in the event that the Trustee determines that one or more Index Securities are
likely to be unavailable or available in insufficient quantity, or if an entity
placing an order to create Nasdaq-100 Shares is restricted by regulation or
otherwise from engaging in a transaction in an Index Security, see "The
Portfolio--Adjustments to the Portfolio Deposit"). In the event there is a
failure to deliver the Index Securities which are the subject of such contracts
to purchase or the Cash Component includes cash in lieu of the delivery of one
or more Index Securities, the Trustee will be instructed pursuant to the Trust
Agreement to acquire such Index Securities in an expeditious manner. To the
extent the price of any such Index Security increases or decreases between the
time of creation and the time any such Index Security is purchased and
delivered, Nasdaq-100 Shares will represent fewer or more shares of such Index
Security and more or fewer of the other Index Securities in the Trust. Hence,
price fluctuations during the period from the time the cash is received by the
Trustee to the time the requisite Index Securities are purchased and delivered
will affect the value of all Nasdaq-100 Shares.
The identity and appropriate number of shares of the Index Securities
required for a Portfolio Deposit are determined in the manner described herein.
Due to changes in the composition and weighting of the Index Securities, the
composition and weighting of the Securities and the prescribed Portfolio Deposit
will also change from time to time (see "The Portfolio--Adjustments to the
Portfolio" and "The Portfolio--Adjustments to the Portfolio Deposit"). The
composition and weighting of the Index Securities to be delivered as part of a
Portfolio Deposit are determined daily and reflect the composition of the Index
and, together with the Cash Component, have a value equal to the net asset value
of the Trust on a per Creation Unit basis at the close of business on the day of
request for creation. The composition of the
38
<PAGE>
Portfolio is also adjusted from time to time to conform to changes to the Index
as described herein and as set forth in the Trust Agreement. As the composition
and weighting of the Index Securities change, substantially identical changes to
the composition and weighting of the securities portion of the required
Portfolio Deposit are made contemporaneously. Corresponding adjustments to the
composition and weighting of the Portfolio, however, are not necessarily made
contemporaneously with adjustments to the required Portfolio Deposit, but in all
cases will be made in accordance with the specifications set forth in the Trust
Agreement and described herein (see "The Portfolio--Adjustments to the
Portfolio"). Although the composition and weighting of the securities portion of
a Portfolio Deposit change from time to time, the interests of Beneficial Owners
will not be adversely affected because the composition of such securities and
the aggregate value thereof together with the Cash Component (which may itself
have a positive or negative value, as the case may be), will be calculated based
upon the proportionate net asset value of the Trust (see "The
Portfolio--Adjustments to the Portfolio").
PROCEDURES FOR CREATION OF CREATION UNITS
To be eligible to place orders with the Distributor to create Nasdaq-100
Shares in Creation Unit size aggregations, an entity or person must be (1) a
Participating Party, with respect to creations through the Nasdaq-100 Clearing
Process or (2) a DTC Participant with respect to creations/redemptions outside
the Nasdaq-100 Clearing Process, and in either case must have executed a
Nasdaq-100 Participant Agreement with the Distributor and the Trustee. All
Nasdaq-100 Shares, however created, will be entered on the records of the
Depository in the name of Cede & Co. for the account of a DTC Participant (see
"The Trust--Book-Entry-Only System").
All orders to create Nasdaq-100 Shares must be placed in multiples of 50,000
Nasdaq-100 Shares (Creation Unit size). All orders to create Nasdaq-100 Shares,
whether through the Nasdaq-100 Clearing Process or outside the Nasdaq-100
Clearing Process, must be received by the Distributor by no later than the
closing time of the regular trading session on the Nasdaq Stock Market ("Closing
Time") (ordinarily 4:00 p.m. New York time) in each case on the date such order
is placed in order for creation of Nasdaq-100 Shares to be effected based on the
net asset value of the Trust as determined on such date. The date on which a
creation order (or order to redeem as discussed below) is placed is herein
referred to as the "Transmittal Date." Orders must be transmitted by telephone
or other transmission method acceptable to the Distributor and Trustee, pursuant
to procedures set forth in the Nasdaq-100 Participant Agreement, as described
below (see "Placement of Creation Orders Using the Nasdaq-100 Clearing Process"
and "Placement of
39
<PAGE>
Creation Orders Outside the Nasdaq-100 Clearing Process"). Severe economic or
market changes or disruptions, or telephone or other communication failure, may
impede the ability to reach the Trustee, the Distributor, a Participating Party,
or a DTC Participant.
Orders to create Creation Unit size aggregations of Nasdaq-100 Shares shall
be placed with a Participating Party or DTC Participant, as applicable, in the
form required by such Participating Party or DTC Participant. Investors should
be aware that their particular broker may not have executed a Nasdaq-100
Participant Agreement, and that, therefore, orders to create Creation Unit size
aggregations of Nasdaq-100 Shares may have to be placed by the investor's broker
through a Participating Party or a DTC Participant who has executed a Nasdaq-100
Participant Agreement. At any given time there may be only a limited number of
broker-dealers that have executed a Nasdaq-100 Participant Agreement. Those
placing orders to create Nasdaq-100 Shares through the Nasdaq-100 Clearing
Process should afford sufficient time to permit proper submission of the order
to the Distributor prior to the Closing Time on the Transmittal Date.
Orders for creation that are effected outside the Nasdaq-100 Clearing
Process are likely to require transmittal by the DTC Participant earlier on the
Transmittal Date than orders effected using the Nasdaq-100 Clearing Process.
Those persons placing orders outside the Nasdaq-100 Clearing Process should
ascertain the deadlines applicable to DTC and the Federal Reserve Bank wire
system by contacting the operations department of the broker or depository
institution effectuating such transfer of securities and the Cash Component (if
required). The DTC Participant notified of an order to create Nasdaq-100 Shares
outside the Nasdaq-100 Clearing Process shall be required to effect a transfer
of (1) the requisite Index Securities through DTC by 11:00 a.m. on the next
Business Day immediately following the Transmittal Date in such a way as to
replicate the Portfolio Deposit established on the Transmittal Date by the
Trustee in calculating the net asset value of the Trust and (2) the Cash
Component (if required) through the Federal Reserve Bank wire system so as to be
received by the Trustee by 1:00 p.m. on the next Business Day immediately
following the Transmittal Date. If the Trustee does not receive both the Index
Securities by 11:00 a.m. and the Cash Component (if required) by 1:00 p.m. on
the Business Day immediately following the Transmittal Date, such order shall be
canceled. Upon written notice to the Distributor, such canceled order may be
resubmitted the following Business Day using a Portfolio Deposit as newly
constituted to reflect the current net asset value of the Trust. If the Cash
Component has a negative value, requiring payment of such amount by the Trustee
on behalf of the Trust to the creator of Nasdaq-100 Shares outside the
Nasdaq-100 Clearing Process (I.E., if the sum of dividends on all Securities
with
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<PAGE>
ex-dividend dates within the Accumulation Period, plus or minus the Balancing
Amount, is less than the accrued expenses and liabilities of the Trust for such
period) then payment of such amount by the Trustee to the creator of Nasdaq-100
Shares via the Depository and the DTC Participants is required to be made no
later than 1:00 p.m. on the third (3rd) Business Day immediately following the
Transmittal Date.
All questions as to the number of shares of each of the Index Securities,
the amount and identity of the payor of the Cash Component (I.E., the Trustee on
behalf of the Trust or the Nasdaq-100 Share creator), and the validity, form,
eligibility (including time of receipt), and acceptance for deposit of any Index
Securities to be delivered shall be determined by the Trustee, whose
determination shall be final and binding. The Trustee reserves the absolute
right to reject a creation order transmitted to it by the Distributor in respect
of any Portfolio Deposit or any component thereof if (a) the depositor or group
of depositors, upon obtaining the Nasdaq-100 Shares ordered, would own 80% or
more of the current outstanding Nasdaq-100 Shares (see "Tax Status of the
Trust"); (b) the Portfolio Deposit is not in proper form; (c) acceptance of the
Portfolio Deposit would have certain adverse tax consequences (see "Tax Status
of the Trust"); (d) the acceptance of the Portfolio Deposit would, in the
opinion of counsel, be unlawful; (e) the acceptance of the Portfolio Deposit
would otherwise, in the discretion of the Trustee, have an adverse effect on the
Trust or the rights of Beneficial Owners; or (f) in the event that circumstances
outside the control of the Trustee make it for all practical purposes impossible
to process creations of Nasdaq-100 Shares. The Trustee will provide notice of
its reasons for rejection of a creation order in respect of a Portfolio Deposit
or any component thereof. The Trustee and the Sponsor shall not incur any
liability in connection with any notification of defects or irregularities in
the delivery of Portfolio Deposits or any component thereof or in connection
with the rejection of a creation order.
A list of the Participating Parties or DTC Participants that have executed a
Nasdaq-100 Participant Agreement (as hereinafter defined) is available at the
office of the Trustee at 101 Barclay Street, New York, New York 10286 and the
office of the Distributor at 370 17th Street, Suite 3100, Denver, CO 80202
during normal business hours.
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PLACEMENT OF CREATION ORDERS USING THE NASDAQ-100 CLEARING PROCESS
Portfolio Deposits created through the Nasdaq-100 Clearing Process must be
delivered through a Participating Party (see "Prospectus Summary--Portfolio
Deposits") that has executed a participant agreement with the Distributor and
with the Trustee (as the same may be from time to time amended in accordance
with its terms, the "Nasdaq-100 Participant Agreement"). The Nasdaq-100
Participant Agreement authorizes the Trustee to transmit to NSCC on behalf of
the Participating Party such trade instructions as are necessary to effect the
Participating Party's creation order. Pursuant to such trade instructions from
the Trustee to NSCC, the Participating Party agrees to transfer the requisite
Index Securities (or contracts to purchase such Index Securities that are
expected to be delivered in a "regular way" manner through NSCC by the third
(3rd) NSCC Business Day) and the Cash Component (if required) to the Trustee,
together with such additional information as may be required by the Trustee. An
order to create Nasdaq-100 Shares through the Nasdaq-100 Clearing Process is
deemed received by the Distributor on the Transmittal Date if (i) such order is
received by the Distributor not later than the Closing Time on such Transmittal
Date and (ii) all other procedures set forth in the Nasdaq-100 Participant
Agreement are properly followed.
Nasdaq-100 Shares may also be created in advance of the receipt by the
Trustee of all or a portion of the securities portion of the Portfolio Deposit
relating to such Nasdaq-100 Shares, but only through the Nasdaq-100 Clearing
Process. In such cases, the Participating Party intending to utilize this
procedure will be required to post collateral with the Trustee outside of NSCC
consisting of cash at least equal to 115% of the closing value, on the day the
order is deemed received, of the portion of the Portfolio Deposit not expected
to be available in the account of the Participating Party for delivery to the
Trust on the third NSCC Business Day following placement of such order, as such
amount is marked-to-the market daily by the Trustee only for increases in such
value. This cash collateral will be required to be posted with the Trustee by
11:00 a.m. on the morning of the NSCC Business Day following the day such order
is deemed received by the Distributor, or else the order to create Nasdaq-100
Shares will be canceled. The Trustee will hold such collateral in an account
separate and apart from the Trust. Under customary NSCC practices, by midnight
of the day following the receipt by NSCC of such order, NSCC will guarantee to
the Trustee the delivery of the Portfolio Deposit on the third NSCC Business Day
following receipt of such order or on a later date. Provided that the NSCC
guarantee is established, the Trustee will issue the Nasdaq-100 Shares (in
Creation Unit size aggregations) so ordered on such third NSCC Business Day,
relying on the NSCC guarantee to make good on the delivery of the Portfolio
Deposit. In the event that the required securities
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are not delivered on such third NSCC Business Day, the Trustee will take steps
to "buy-in" the missing portion of the Portfolio Deposit in accordance with NSCC
rules. The 115% cash collateral received from the creator will be returned net
of commissions and other buy-in expenses incurred by the Trustee, if any,
promptly upon settlement of delivery of all of the securities portion of the
Portfolio Deposit, or buy-in of all missing securities, or cancellation of the
order to create Nasdaq-100 Shares. Information concerning the procedures for
such cash collateralization is available from the Distributor.
The requirement to post collateral will not apply in instances where the
Trustee, in its discretion, has included in the Cash Component of a Portfolio
Deposit the cash equivalent value of one or more Index Securities either because
the Trustee determines that one or more Index Securities are likely to be
unavailable or available in insufficient quantity, or if the entity placing an
order to create Nasdaq-100 Shares is restricted by regulation or otherwise from
engaging in a transaction in an Index Security (see "The Portfolio--Adjustments
to the Portfolio Deposit").
PLACEMENT OF CREATION ORDERS OUTSIDE THE NASDAQ-100 CLEARING PROCESS
Portfolio Deposits created outside the Nasdaq-100 Clearing Process must be
delivered through a DTC Participant that has executed a Nasdaq-100 Participant
Agreement with the Distributor and with the Trustee. A DTC Participant who
wishes to place an order creating Nasdaq-100 Shares to be effected outside the
Nasdaq-100 Clearing Process need not be a Participating Party, but such orders
must state that the DTC Participant is not using the Nasdaq-100 Clearing Process
and that the creation of Nasdaq-100 Shares will instead be effected through a
transfer of securities and cash. The Portfolio Deposit transfer must be ordered
by the DTC Participant in a timely fashion so as to ensure the delivery of the
requisite number of Index Securities through DTC to the account of the Trustee
by no later than 11:00 a.m. on the next Business Day immediately following the
Transmittal Date. All questions as to the number of Index Securities to be
delivered, and the validity, form, and eligibility (including time of receipt)
for the deposit of any tendered securities will be determined by the Trustee,
whose determination shall be final and binding. On days when the Cash Component
is an amount payable to the Trustee (I.E., when the Cash Component has a
positive value), the cash equal to the Cash Component must be transferred
directly to the Trustee through the Federal Reserve Bank wire system in a timely
manner so as to be received by the Trustee no later than 1:00 p.m. on the next
Business Day immediately following the Transmittal Date. An order to create
Nasdaq-100 Shares outside the Nasdaq-100 Clearing Process is deemed received by
the Distributor on the Transmittal Date if (i) such order is received by the
Distributor not later than the Closing Time on such Transmittal Date and (ii)
all other procedures set forth in the Nasdaq-100
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Participant Agreement are properly followed. However, if the Trustee does not
receive both the requisite Index Securities and the Cash Component (if required)
in a timely fashion on the next Business Day immediately following the
Transmittal Date, such order will be canceled. Upon written notice to the
Distributor, such canceled order may be resubmitted the following Business Day
using a Portfolio Deposit as newly constituted to reflect the current net asset
value of the Trust. The delivery of Nasdaq-100 Shares so created will occur no
later than the third (3rd) Business Day following the day on which the creation
order is deemed received by the Distributor. The payment of the Cash Component
(at times when such amount is to be paid to the creator of Nasdaq-100 Shares
from the Trustee) is required to be made through the Federal Reserve Bank wire
system no later than the third (3rd) Business Day immediately following the
Transmittal Date. Under the current schedule, the total fee charged in
connection with the creation of one Creation Unit outside the Nasdaq-100
Clearing Process would be an amount not to exceed $4,000 (see "Prospectus
Summary--Transaction Fee").
BOOK-ENTRY-ONLY SYSTEM
The Depository acts as securities depository for Nasdaq-100 Shares. Cede &
Co., as nominee for the Depository, is registered as the record owner of all
Nasdaq-100 Shares on the books of the Trustee. Certificates will not be issued
for Nasdaq-100 Shares.
The Depository has advised the Sponsor and the Trustee as follows: The
Depository is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. The Depository was created to hold
securities of its participants (the "DTC Participants") and to facilitate the
clearance and settlement of securities transactions among the DTC Participants
in such securities through electronic book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of securities
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies, clearing corporations, and certain other organizations, some of
whom (and/or their representatives) own the Depository.* Access to the
Depository system is also available to others such as
- ------------------------
* As of December 31, 1998, the National Association of Securities Dealers,
Inc. and the Amex combined owned 9.30610% of the issued and outstanding
shares of common stock of the Depository. Also as of such date, the Trustee
owned 4.19892% of the issued and outstanding shares of the common stock of
the Depository.
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banks, brokers, dealers, and trust companies that maintain a custodial
relationship with a DTC Participant, either directly or indirectly (the
"Indirect Participants"). The Depository agrees with and represents to its
participants that it will administer its book-entry system in accordance with
its rules and by-laws and requirements of law.
Upon the settlement date of any creation, transfer, or redemption of
Nasdaq-100 Shares, the Depository will credit or debit, on its book-entry
registration and transfer system, the number of Nasdaq-100 Shares so created,
transferred, or redeemed to the accounts of the appropriate DTC Participants.
The accounts to be credited and charged shall be designated by the Trustee to
NSCC, in the case of a creation or redemption through the Nasdaq-100 Clearing
Process, or by the Trustee and the DTC Participant, in the case of a creation or
redemption transacted outside of the Nasdaq-100 Clearing Process (see "The
Trust--Procedures for Creation of Creation Units" and "Redemption of Nasdaq-100
Shares"). Beneficial ownership of Nasdaq-100 Shares is limited to DTC
Participants, Indirect Participants, and persons holding interests through DTC
Participants and Indirect Participants. Ownership of beneficial interests in
Nasdaq-100 Shares (owners of such beneficial interests are referred to herein as
"Beneficial Owners") will be shown on, and the transfer of ownership will be
effected only through, records maintained by the Depository (with respect to DTC
Participants) and on the records of DTC Participants (with respect to Indirect
Participants and Beneficial Owners that are not DTC Participants). Beneficial
Owners are expected to receive from or through the DTC Participant a written
confirmation relating to their purchase of Nasdaq-100 Shares. The laws of some
jurisdictions may require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such laws may impair the ability
of certain investors to acquire beneficial interests in Nasdaq-100 Shares.
So long as Cede & Co., as nominee of the Depository, is the registered owner
of Nasdaq-100 Shares, references herein to the registered or record owners of
Nasdaq-100 Shares shall mean Cede & Co. and shall not mean the Beneficial Owners
of Nasdaq-100 Shares. Beneficial Owners of Nasdaq-100 Shares will not be
entitled to have Nasdaq-100 Shares registered in their names, will not receive
or be entitled to receive physical delivery of certificates in definitive form,
and will not be considered the record or registered holder thereof under the
Trust Agreement. Accordingly, each Beneficial Owner must rely on the procedures
of the Depository, the DTC Participant, and any Indirect Participant through
which such Beneficial Owner holds its interests, to exercise any rights of a
holder of Nasdaq-100 Shares under the Trust Agreement. The Trustee and the
Sponsor understand that under existing industry practice, in the event the
Trustee requests any action of Nasdaq-100 Share
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<PAGE>
holders, or a Beneficial Owner desires to take any action that the Depository,
as the record owner of all outstanding Nasdaq-100 Shares, is entitled to take,
the Depository would authorize the DTC Participants to take such action and that
the DTC Participants would authorize the Indirect Participants and Beneficial
Owners acting through such DTC Participants to take such action or would
otherwise act upon the instructions of Beneficial Owners owning through them.
As described above, the Trustee recognizes the Depository or its nominee as
the owner of all Nasdaq-100 Shares for all purposes except as expressly set
forth in the Trust Agreement. Conveyance of all notices, statements, and other
communications to Beneficial Owners is effected as follows. Pursuant to the
agreement between the Trustee and the Depository (as the same may be from time
to time amended in accordance with its terms, the "Depository Agreement"), the
Depository is required to make available to the Trustee upon request and for a
fee to be charged to the Trust a listing of the Nasdaq-100 Share holdings of
each DTC Participant. The Trustee shall inquire of each such DTC Participant as
to the number of Beneficial Owners holding Nasdaq-100 Shares, directly or
indirectly, through such DTC Participant. The Trustee shall provide each such
DTC Participant with copies of such notice, statement, or other communication,
in such form, number, and at such place as such DTC Participant may reasonably
request, in order that such notice, statement, or communication may be
transmitted by such DTC Participant, directly or indirectly, to such Beneficial
Owners. In addition, the Trustee on behalf of the Trust shall pay to each such
DTC Participant a fair and reasonable amount as reimbursement for the expenses
attendant to such transmittal, all subject to applicable statutory and
regulatory requirements.
Nasdaq-100 Share distributions shall be made to the Depository or its
nominee, Cede & Co., as the registered owner of all Nasdaq-100 Shares. The
Trustee and the Sponsor expect that the Depository or its nominee, upon receipt
of any payment of distributions in respect of Nasdaq-100 Shares, shall credit
immediately DTC Participants' accounts with payments in amounts proportionate to
their respective beneficial interests in Nasdaq-100 Shares as shown on the
records of the Depository or its nominee. The Trustee and the Sponsor also
expect that payments by DTC Participants to Indirect Participants and Beneficial
Owners of Nasdaq-100 Shares held through such DTC Participants will be governed
by standing instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in a
"street name," and will be the responsibility of such DTC Participants. Neither
the Trustee nor the Sponsor has or will have any responsibility or liability for
any aspect of the records relating to or notices to Beneficial Owners, or
payments made on account of beneficial ownership interests in
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Nasdaq-100 Shares, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests or for any other aspect of the
relationship between the Depository and the DTC Participants or the relationship
between such DTC Participants and the Indirect Participants and Beneficial
Owners owning through such DTC Participants.
The Depository may determine to discontinue providing its service with
respect to Nasdaq-100 Shares at any time by giving notice to the Trustee and the
Sponsor and discharging its responsibilities with respect thereto under
applicable law. Under such circumstances, the Trustee and the Sponsor shall take
action either to find a replacement for the Depository to perform its functions
at a comparable cost or, if such a replacement is unavailable, to terminate the
Trust (see "Administration of the Trust--Termination").
THE PORTFOLIO
Because the objective of the Trust is to provide investment results that
correspond substantially to the price and yield performance of the Index, the
Portfolio will at any time consist of as many of the Index Securities as is
practicable and under most circumstances, all of the Index Securities. It is
anticipated that cash or cash items normally would not be a substantial part of
the Trust's net assets. Although the Trust may at any time fail to own certain
of the Index Securities, the Trust will be substantially invested in Index
Securities and the Sponsor believes that such investment should result in a
close correspondence between the investment performance of the Index and that
derived from ownership of Nasdaq-100 Shares.
ADJUSTMENTS TO THE PORTFOLIO
The Index is a modified capitalization-weighted index of 100 of the largest
non-financial companies listed on the Nasdaq National Market tier of the Nasdaq
Stock Market (see "The Index"). At any moment in time, the value of the Index
equals the aggregate value of the then-current Index share weights of each of
the component 100 Index Securities multiplied by each such security's respective
last sale price on the Nasdaq Stock Market, and divided by a scaling factor (the
"divisor") which becomes the basis for the reported Index value. The divisor
serves the purpose of scaling such aggregate value (otherwise in the trillions)
to a lower order of magnitude which is more desirable for Index reporting
purposes.*
- ------------------------
* For example, on December 31, 1998 the aggregate value of the then- current
Index share weights of each of the Index Securities multiplied by their
respective last sale price on the Nasdaq Stock Market was
$1,545,528,762,347, the divisor was 841,786,680, and the reported Index
value was 1,836.01.
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<PAGE>
Periodically (typically, several times per quarter), Nasdaq may determine
that total shares outstanding have changed in one or more Index Securities due
to secondary offerings, repurchases, conversions, or other corporate actions.
Under such circumstances, in accordance with Nasdaq policies and procedures for
making adjustments to the Index, the Index share weights would be adjusted by
the same percentage amounts by which the total shares outstanding have changed
in such Index Securities. Additionally, Nasdaq may periodically (ordinarily,
several times per quarter) replace one or more component securities in the Index
due to mergers, acquisitions, bankruptcies, or other market conditions, or due
to delistings if an issuer chooses to list its securities on another
marketplace, or if the issuers of such component securities fail to meet the
criteria for continued inclusion in the Index (see "The Index"). For example,
for the 1997 and 1998 calendar years, there were 8 and 5 company changes,
respectively, made during those years due to corporate actions (E.G., mergers,
acquisitions, bankruptcies) and 11 and 9 other company changes, respectively,
made at year-end in connection with Nasdaq's annual evaluation process for
determining the securities comprising the Index for the upcoming year (see "The
Index--Index Security Eligibility Criteria and Annual Ranking Review"). The
ratio of the market capitalization of the securities replaced in the Index in
1997 and 1998 to the total market capitalization of the securities comprising
the Index at year-end was 5.7% and 3.1%, respectively.
The Index share weights, which are based upon the total shares outstanding
in each of the 100 Index Securities, are additionally subject, in certain cases,
to a rebalancing in order to ensure that the relative weightings of the Index
Securities continue to meet minimum pre-established requirements for a
diversified portfolio (see "The Index--Rebalancing of the Index"). Ordinarily,
whenever there is a change in Index share weights or a change in a component
security included in the Index, Nasdaq adjusts the divisor to assure that there
is no discontinuity in the value of the Index which might otherwise be caused by
any such change.
Because the investment objective of the Trust is to provide investment
results that generally correspond to the price and yield performance of the
Index, composition and weighting changes, and associated divisor changes to the
Index, create the need for the Trustee to make corresponding adjustments to the
Securities held in the Trust as described below.
The Trustee adjusts the composition of the Portfolio from time to time to
conform to changes in the composition and/or weighting of the Index Securities.
The Trustee aggregates certain of these adjustments and makes conforming changes
to the Trust's Portfolio at least monthly; however, adjustments
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<PAGE>
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:
<TABLE>
<CAPTION>
NET ASSET VALUE MISWEIGHTING
OF THE TRUST AMOUNT
- ----------------------------------------------------- ---------------
<S> <C>
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%
</TABLE>
The Trustee shall examine each Security in the Portfolio on each Business
Day, comparing the weighting of each such Security in the Portfolio to the
weighting of the corresponding Index Security in the Index, based on prices at
the close of the market on the preceding Business Day (a "Weighting Analysis").
In the event that there is a Misweighting in any Security in excess of one
hundred and fifty percent (150%) of the applicable Misweighting Amount, the
Trustee shall calculate an adjustment to the Portfolio in order to bring the
Misweighting of such Security within the Misweighting Amount, based on prices at
the close of the market on the day on which such Misweighting occurs. Also, on a
monthly basis, the Trustee shall perform a Weighting Analysis for each Security
in the Portfolio, and in any case in which there exists a Misweighting exceeding
one hundred percent (100%) of the applicable Misweighting Amount, the Trustee
shall calculate an adjustment to the Portfolio in
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<PAGE>
order to bring the Misweighting of such Security within the applicable
Misweighting Amount, based on prices at the close of the market on the day on
which such Misweighting occurs. In the case of any adjustment to the Portfolio
due to a Misweighting as described herein, the purchase or sale of securities
necessitated by such adjustment shall be made within three (3) Business Days of
the day on which such Misweighting is determined. In addition to the foregoing
adjustments, the Trustee reserves the right to make additional adjustments
periodically to Securities that may be misweighted by an amount within the
applicable Misweighting Amount in order to reduce the overall Misweighting of
the Portfolio.
The foregoing guidelines with respect to Misweightings shall also apply to
any Index Security that (1) is likely to be unavailable for delivery or
available in insufficient quantity for delivery or (2) cannot be delivered to
the Trustee due to restrictions prohibiting a creator from engaging in a
transaction involving such Index Security. Upon receipt of an order for a
Creation Unit that will involve such an Index Security, the Trustee shall
determine whether the substitution of cash for such Index Security will cause a
Misweighting in the Trust's Portfolio with respect to such Index Security. If a
Misweighting results, the Trustee shall purchase the required number of shares
of such Index Security on the opening of the market on the following Business
Day. If a Misweighting does not result and the Trustee would not hold cash in
excess of the permitted amounts described below, the Trustee may hold such cash
or, if such an excess would result, make the required adjustments to the
Portfolio in accordance with the procedures described herein.
Pursuant to these guidelines the Trustee shall calculate the required
adjustments and shall purchase and sell the appropriate securities. As a result
of the purchase and sale of securities in accordance with these requirements, or
the creation of Creation Units, the Trust may hold some amount of residual cash
(other than cash held temporarily due to timing differences between the sale and
purchase of securities or cash delivered in lieu of Index Securities or
undistributed income or undistributed capital gains) as a result of such
transactions, which amount shall not exceed for more than five (5) consecutive
Business Days 5/10th of 1 percent of the aggregate value of the Securities. In
the event that the Trustee has made all required adjustments and is left with
cash in excess of 5/10th of 1 percent of the aggregate value of the Securities,
the Trustee shall use such cash to purchase additional Index Securities that are
under-weighted in the Portfolio as compared to their relative weighting in the
Index, although the Misweighting of such Index Securities may not be in excess
of the applicable Misweighting Amount.
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In addition to adjustments to the Portfolio from time to time to conform to
changes in the composition or weighting of the Index Securities, the Trustee is
also ordinarily required to sell Securities to obtain sufficient cash proceeds
for the payment of Trust fees and expenses at any time that projected annualized
fees and expenses accrued on a daily basis exceed projected annualized dividends
and other Trust income accrued on a daily basis by more than 1/100 of one
percent (0.01%) of the net asset value of the Trust (see "Expenses of the
Trust"). Whenever the 0.01% threshold is exceeded, the Trustee will sell
sufficient Securities to cover such excess no later than the next occasion it is
required to make adjustments to the Portfolio due to a Misweighting, unless the
Trustee determines, in its discretion, that such a sale is unnecessary because
the cash to be generated is not needed by the Trust at that time for the payment
of expenses then due or because the Trustee otherwise determines that such a
sale is not warranted or advisable. At the time of the sale, the Trustee shall
first sell Securities that are over-weighted in the Portfolio as compared to
their relative weighting in the Index.
All adjustments to the Portfolio held by the Trustee shall be made by the
Trustee pursuant to the foregoing specifications and as set forth in the Trust
Agreement and shall be non-discretionary. All portfolio adjustments will be made
as described herein unless such adjustments would cause the Trust to lose its
status as a "regulated investment company" under Subchapter M of the Internal
Revenue Code. Additionally, the Trustee is required to adjust the composition of
the Portfolio at any time if it is necessary to ensure the continued
qualification of the Trust as a regulated investment company (see "Tax Status of
the Trust"). The adjustments provided herein are intended to conform the
composition and weighting of the Portfolio, to the extent practicable, to the
composition and weighting of the Index Securities. Such adjustments are based
upon the Index as it is currently determined by Nasdaq. To the extent that the
method of determining the Index is changed by Nasdaq in a manner that would
affect the adjustments provided for herein, the Trustee and the Sponsor shall
have the right to amend the Trust Agreement, without the consent of the
Depository or Beneficial Owners, to conform the adjustments provided herein and
in the Trust Agreement to such changes so that the objective of tracking the
Index is maintained.
In making the adjustments described herein, the Trustee shall rely on
information made publicly available by Nasdaq as to the composition and
weighting of the Index Securities. If the Trustee becomes incapable of obtaining
or processing such information or NSCC is unable to receive such information
from the Trustee on any Business Day, then the Trustee shall use the composition
and weighting of the Index Securities for the most recently
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effective Portfolio Deposit for the purposes of all adjustments and
determinations described herein (including, without limitation, determination of
the securities portion of the Portfolio Deposit) until the earlier of (a) such
time as current information with respect to the Index Securities is available or
(b) three (3) consecutive Business Days have elapsed. If such current
information is not available and three (3) consecutive Business Days have
elapsed, the composition and weighting of the Securities (as opposed to the
Index Securities) shall be used for the purposes of all adjustments and
determinations herein (including, without limitation, determination of the
securities portion of the Portfolio Deposit) until current information with
respect to the Index Securities is available.
At such time as the Trustee gives written notice of the termination of the
Trust (see "Administration of the Trust--Termination"), from and after the date
of such notice the Trustee shall use the composition and weighting of the
Securities held in the Trust as of such notice date (as opposed to the
composition and weighting of the Index Securities) for the purpose and
determination of all redemptions or other required uses of the securities
portion of the Portfolio Deposit.
From time to time Nasdaq may make adjustments to the composition of the
Index as a result of a merger or acquisition involving one or more of the Index
Securities. In such cases, the Trust, as shareholder of securities of an issuer
that is the object of such merger or acquisition activity, may receive various
offers from would-be acquirors of the issuer. The Trustee is not permitted to
accept any such offers until such time as it has been determined that the
securities of the issuer will be removed from the Index. In selling the
securities of such issuer after it has been determined that the security will be
removed from the Index, the Trust may receive, to the extent that market prices
do not provide a more attractive alternative, whatever consideration is being
offered to the shareholders of such issuer that have not tendered their shares
prior to such time. Any cash received in such transactions will be reinvested in
Index Securities in accordance with the criteria set forth above. Any securities
received as a part of the consideration that are not Index Securities will be
sold as soon as practicable and the cash proceeds of such sale will be
reinvested in accordance with the criteria set forth above.
Purchases and sales of Securities resulting from the adjustments described
above will be made in the share amounts dictated by the foregoing
specifications, whether round lot or odd lot. Certain Index Securities, however,
may at times not be available in the quantities that the foregoing calculations
require. For this and other reasons, precise duplication of the proportionate
relationship between the Portfolio and the Index Securities may not ever be
attained
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but nevertheless will continue to be the objective of the Trust in connection
with all acquisitions and dispositions of Securities.
The Trust is a unit investment trust registered under the 1940 Act and is
not a managed fund. Traditional methods of investment management for a managed
fund typically involve frequent changes to a portfolio of securities on the
basis of economic, financial, and market analyses. The Portfolio held by the
Trust, however, is not managed. Instead, the only purchases and sales that are
made with respect to the Portfolio will be those necessary to create, to the
extent feasible, a portfolio that is designed to replicate the Index to the
extent practicable, taking into consideration the adjustments referred to above.
Since no attempt is made to "manage" the Trust in the traditional sense, the
adverse financial condition of an issuer will not be the basis for the sale of
its securities from the Portfolio unless the issuer is removed from the Index.
The Trust will be liquidated on the fixed Mandatory Termination Date unless
terminated earlier under certain circumstances (see "Administration of the
Trust--Termination"). In addition, Beneficial Owners of Nasdaq-100 Shares in
Creation Unit size aggregations have the right to redeem in kind (see
"Redemption of Nasdaq-100 Shares").
ADJUSTMENTS TO THE PORTFOLIO DEPOSIT
On each Business Day following the Initial Date of Deposit (each such day an
"Adjustment Day"), the number of shares and/or identity of each of the Index
Securities in a Portfolio Deposit is adjusted in accordance with the following
procedure. At the close of the market on each Adjustment Day, the Trustee
calculates the net asset value of the Trust (see "Valuation"). The net asset
value is divided by the number of all outstanding Nasdaq-100 Shares multiplied
by 50,000 shares in one Creation Unit aggregation resulting in a net asset value
per Creation Unit (the "NAV Amount"). The Trustee then calculates the number of
shares (without rounding) of each of the component securities of the Index in a
Portfolio Deposit for the following Business Day ("Request Day"), such that (1)
the market value at the close of the market on Adjustment Day of the securities
to be included in the Portfolio Deposit on Request Day, together with the Income
Net of Expense Amount effective for requests to create or redeem on Adjustment
Day, equals the NAV Amount and (2) the identity and weighting of each of the
securities in a Portfolio Deposit mirrors proportionately the identity and
weighting of the securities in the Index, each as in effect on Request Day. For
each security, the number resulting from such calculation is rounded to the
nearest whole share, with a fraction of 0.50 being rounded up. The identities
and number of shares of the securities so calculated constitute the securities
portion of the Portfolio Deposit effective on Request Day and thereafter until
the next subsequent
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Adjustment Day, as well as the Securities ordinarily to be delivered by the
Trustee in the event of a request for redemption of Nasdaq-100 Shares in
Creation Unit size aggregations on Request Day and thereafter until the
following Adjustment Day (see "Redemption of Nasdaq-100 Shares"). In addition to
the foregoing adjustments, in the event that there shall occur a stock split,
stock dividend, or reverse split with respect to any Index Security, the
Portfolio Deposit shall be adjusted to take account of such stock split, stock
dividend, or reverse split by applying the stock split, stock dividend, or
reverse stock split multiple (E.G., in the event of a two-for-one stock split of
an Index Security, by doubling the number of shares of such Index Security in
the prescribed Portfolio Deposit), in each case rounded to the nearest whole
share, with a fraction of 0.50 being rounded up.
On Request Day and on each day that a request for the creation or redemption
of Nasdaq-100 Shares in Creation Unit size aggregations is deemed received, the
Trustee calculates the market value of the securities portion of the Portfolio
Deposit as in effect on Request Day as of the close of the market and adds to
that amount the Income Net of Expense Amount effective for requests to create or
redeem on Request Day (such market value and Income Net of Expense Amount are
collectively referred to herein as the "Portfolio Deposit Amount"). The Trustee
then calculates the NAV Amount, based on the close of the market on Request Day.
The difference between the NAV Amount so calculated and the Portfolio Deposit
Amount is the "Balancing Amount." The Balancing Amount serves the function of
compensating for any differences between the value of the Portfolio Deposit
Amount and the NAV Amount at the close of trading on Request Day due to, for
example, (1) differences in the market value of the securities in the Portfolio
Deposit and the market value of the Securities on Request Day and (2) any
variances from the proper composition of the Portfolio Deposit.
Notwithstanding the foregoing, on any Adjustment Day on which (a) no change
in the identity and/or share weighting of any Index Security is scheduled to
take effect that would cause the Index divisor to be adjusted after the close of
the market on such Business Day,* and (b) no stock split, stock dividend, or
reverse stock split with respect to any Index Security has been declared to take
effect on the corresponding Request Day, the Trustee reserves the right to
forego making any adjustment to the securities portion of the Portfolio Deposit
and to use the composition and weighting of the Index Securities for the most
recently effective Portfolio Deposit for the Request Day following such
Adjustment Day. In addition, the Trustee further reserves the
- ------------------------
* Nasdaq normally publicly announces changes in the identity and/or weighting
of the Index Securities in advance of the actual changes.
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<PAGE>
right to calculate the adjustment to the number of shares and/or identity of the
Index Securities in a Portfolio Deposit as described above except that such
calculation would be employed two (2) Business Days rather than one (1) Business
Day prior to Request Day.
As previously discussed, the sum of the Income Net of Expense Amount and the
Balancing Amount in effect at the close of business on Request Day are
collectively referred to as the Cash Component (with respect to creations of
Nasdaq-100 Shares) or the Cash Redemption Amount (with respect to redemptions of
Nasdaq-100 Shares) (see "Prospectus Summary--Portfolio Deposits" and "Prospectus
Summary--Redemption"). If the resulting Cash Component has a positive value,
then the creator of Nasdaq-100 Shares will be obligated to pay such cash to the
Trustee in connection with orders to create Nasdaq-100 Shares; if the resulting
Cash Component has a negative value, then such cash shall be paid by the Trustee
on behalf of the Trust to the creator of Nasdaq-100 Shares. Similarly, if the
resulting Cash Redemption Amount has a positive value, then such cash shall be
transferred to a redeemer by the Trustee on behalf of the Trust in connection
with orders to redeem Nasdaq-100 Shares; if the resulting Cash Redemption Amount
has a negative value, then such cash shall be paid by the redeemer of Nasdaq-100
Shares to the Trustee on behalf of the Trust.
In the event that the Trustee has included the cash equivalent value of one
or more Index Securities in the Portfolio Deposit because the Trustee has
determined that such Index Securities are likely to be unavailable or available
in insufficient quantity for delivery, the Portfolio Deposit so constituted
shall dictate the Index Securities to be delivered in connection with the
creation of Nasdaq-100 Shares in Creation Unit size aggregations and upon the
redemption of Nasdaq-100 Shares in Creation Unit size aggregations for all
purposes hereunder until such time as the securities portion of the Portfolio
Deposit is subsequently adjusted. Brokerage commissions incurred by the Trustee
in connection with the acquisition of any such Index Securities will be at the
expense of the Trust and will affect the value of all Nasdaq-100 Shares.
In connection with the creation or redemption of Nasdaq-100 Shares, if an
investor is restricted by regulation or otherwise from investing or engaging in
a transaction in one or more Index Securities, the Trustee, in its discretion,
shall have the right to include the cash equivalent value of such Index
Securities in the Portfolio Deposit in the calculation of the Cash Component (or
the Cash Redemption Amount as the case may be) in lieu of the inclusion of such
Index Securities in the securities portion of the Portfolio Deposit for the
particular affected investor. The amount of such cash equivalent payment shall
be used by the Trustee in accordance with the guidelines regarding allowable
Misweightings and permitted amounts of cash (see "Adjustments to the Portfolio")
55
<PAGE>
which may require the Trustee to purchase the appropriate number of shares of
the Index Security that such investor was unable to purchase. In any such case,
such investor shall pay the Trustee the standard Transaction Fee, plus an
additional amount not to exceed (3) times the Transaction Fee applicable for a
Creation Unit.
The Trustee, in its discretion, upon the request of the redeeming investor,
may redeem Creation Units in whole or in part by providing such redeemer with a
portfolio of Securities differing in exact composition from the Index Securities
but not differing in net asset value from the then-current Portfolio Deposit.
Such a redemption is likely to be made only if it were to be determined that
this composition would be appropriate in order to maintain the Portfolio of the
Trust in correlation to the modified capitalization-weighted composition of the
Index, for instance, in connection with a replacement of one of the Index
Securities (E.G., due to a merger, acquisition, or bankruptcy).
SELECTION AND ACQUISITION OF SECURITIES
In prescribing the method described above for selecting the Index Securities
that constitute the prescribed Portfolio Deposit from time to time, the Sponsor
intends to replicate, to the extent practicable, the composition and weighting
of the Index Securities as of the relevant date.
Because certain of the Securities from time to time may be sold or their
relative percentages changed under certain circumstances as described herein, no
assurance can be given that the Trust will retain for any length of time its
size and composition (see "Adjustments to the Portfolio"). Also, the deposit of
additional Portfolio Deposits and the redemption of Nasdaq-100 Shares in
Creation Unit size aggregations will affect the size and composition of the
Trust. Neither the Sponsor nor the Trustee shall be liable in any way for any
default, failure, or defect in any of the Securities.
THE INDEX
The Sponsor selected the Nasdaq-100 Index(-Registered Trademark-) as the
basis for the selection of the Securities to be held by the Trust because, in
the opinion of the Sponsor, the Index constitutes a broadly diversified segment
of the largest and most actively traded securities listed on the Nasdaq Stock
Market. Additionally, the Index has achieved wide acceptance by both investors
and market professionals. Specifically, the Index is composed of 100 of the
largest and most actively traded non-financial companies listed on the Nasdaq
National Market tier of the Nasdaq Stock Market.
The Index was first published in January 1985, and includes companies across
a variety of major industry groups. As of December 31, 1998, the major
56
<PAGE>
industry groups covered in the Index (listed according to their respective
capitalization in the Index) were as follows: computer and office equipment
(32.6%), computer software/services (30.2%), telecommunications (17.8%),
retail/wholesale trade (8.0%), biotechnology (5.0%), services (2.4%), health
care (2.1%), manufacturing (1.5%) and transportation (0.4%). The identity and
capitalization weightings of the five largest companies represented in the Index
as of December 31, 1998 were as follows: Microsoft Corporation (14.5%), Intel
Corporation (8.4%), Cisco Systems, Inc. (6.4%), MCI WORLDCOM, Inc. (5.8%), and
Dell Computer Corporation (4.2%). Current information regarding the market value
of the Index is available from Nasdaq as well as numerous market information
services. The Index is determined, comprised, and calculated by Nasdaq without
regard to the Trust.
The Sponsor, which is wholly-owned by Nasdaq, has been granted a license to
use the Index as a basis for determining the composition of the Trust and to use
certain service marks and trademarks of Nasdaq in connection with the Trust (see
"License Agreement"). Nasdaq is not responsible for and shall not participate in
the creation or sale of Nasdaq-100 Shares or in the determination of the timing
of, prices at, or quantities and proportions in which purchases or sales of
Index Securities or Securities shall be made.
The Index share weights of the component securities of the Index at any time
are based upon the total shares outstanding in each of the 100 Index Securities
and are additionally subject, in certain cases, to rebalancing to ensure that
the relative weighting of the Index Securities continues to meet minimum
pre-established requirements for a diversified portfolio (see "Rebalancing of
the Index"). Accordingly, each Index Security's influence on the value of the
Index is directly proportional to the value of its Index share weight. The
percentage of the Trust's assets invested in each of the Index Securities is
intended to approximate the percentage each Index Security represents in the
Index.
The following table shows the actual performance of the Index for the years
1985 through 1998. Stock prices fluctuated widely during this period and were
higher at the end than at the beginning. The results shown should not be
considered as a representation of the income yield or capital gain or loss that
may be generated by the Index in the future, nor should the results be
considered as a representation of the performance of the Trust. In addition,
after the close of trading on December 18, 1998 the Index share weights of the
component securities in the Index were rebalanced in accordance with the
"modified capitalization weighted" methodology implemented on such date (see
"Rebalancing of the Index"). Hence, the performance of the Index after December
18, 1998 will reflect the performance of the securities in the Index as
calculated in accordance with the revised Index methodology.
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<TABLE>
<CAPTION>
CALENDAR YEAR-
END INDEX
VALUE* POINT CHANGE IN CALENDAR YEAR- END
(JANUARY 31, INDEX FOR YEAR % CHANGE DIVIDEND
YEAR 1985 = 125.00) CALENDAR YEAR* IN INDEX* YIELD**
- ------------ -------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C>
1985***..... 132.29 7.29 5.83% N/A
1986........ 141.41 9.12 6.89% 0.33%
1987........ 156.25 14.84 10.49% 0.41%
1988........ 177.41 21.16 13.54% 0.47%
1989........ 223.84 46.43 26.17% 0.91%
1990........ 200.53 -23.31 -10.41% 1.07%
1991........ 330.86 130.33 64.99% 0.53%
1992........ 360.19 29.33 8.86% 0.55%
1993........ 398.28 38.09 10.57% 0.52%
1994........ 404.27 5.99 1.50% 0.46%
1995 ....... 576.23 171.96 42.54% 0.26%
1996........ 821.36 245.13 42.54% 0.11%
1997........ 990.80 169.44 20.63% 0.13%
1998........ 1836.01 845.21 85.31% 0.07%
</TABLE>
- --------------------------
* Source: Nasdaq. Year-end index values shown do not reflect reinvestment of
dividends or costs, such as brokerage charges and transaction costs.
** Source: Nasdaq. Dividend yields are obtained by dividing the aggregate cash
dividends for the year by the aggregate market value of the component
securities in the Index at year-end.
*** 1985 data is for the eleven month period from January 31, 1985 through
December 31, 1985.
The Index value as of March 2, 1999 was 1888.66.
INDEX SECURITY ELIGIBILITY CRITERIA AND ANNUAL RANKING REVIEW
To be eligible for inclusion in the Index, a security must be traded on the
Nasdaq National Market tier of the Nasdaq Stock Market and meet the following
criteria:
- the security must be of a non-financial company;
- only one class of security per issuer is allowed;
- the security may not be issued by an issuer currently in bankruptcy
proceedings;
- the security must have average daily trading volume of at least 100,000
shares per day;
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- the security must have "seasoned" on the Nasdaq Stock Market or another
recognized market (generally, a company is considered to be seasoned by
Nasdaq if it has been listed on a market for at least two years; in the
case of spin-offs, the operating history of the spin-off will be
considered);
- if a security would otherwise qualify to be in the top 25% of the issuers
included in the Index by market capitalization, then a one year
"seasoning" criteria would apply;
- if the security is of a foreign issuer, the company must have a worldwide
market value of at least $10 billion, a U.S. market value of at least $4
billion, and average trading volume on the Nasdaq Stock Market of at least
200,000 shares per day; in addition, foreign securities must be eligible
for listed options trading; and
- the issuer of the security may not have entered into a definitive
agreement or other arrangement which would result in the security no
longer being listed on the Nasdaq Stock Market within the next six months.
These Index eligibility criteria may be revised from time to time by the
National Association of Securities Dealers, Inc. without regard to the Trust.
The Index Securities are evaluated annually as follows (such evaluation is
referred to herein as the "Annual Ranking Review"). Securities listed on the
Nasdaq Stock Market which meet the above eligibility criteria are ranked by
market value. Index-eligible securities which are already in the Index and which
are in the top 150 eligible securities (based on market value) are retained in
the Index provided that such security was ranked in the top 100 eligible
securities as of the previous year's annual review. Securities not meeting such
criteria are replaced. The replacement securities chosen are those
Index-eligible securities not currently in the Index which have the largest
market capitalization. The list of annual additions and deletions is publicly
announced via a press release in the early part of December. Replacements are
made effective after the close of trading on the third Friday in December.
Moreover, if at any time during the year an Index Security is no longer traded
on the Nasdaq Stock Market, or is otherwise determined by Nasdaq to become
ineligible for continued inclusion in the Index, the security will be replaced
with the largest market capitalization security not currently in the Index and
meeting the Index eligibility criteria listed above.
In addition to the Annual Ranking Review, the securities in the Index are
monitored every day by Nasdaq with respect to changes in total shares
outstanding arising from secondary offerings, stock repurchases, conversions, or
other corporate actions. Nasdaq has adopted the following quarterly scheduled
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weight adjustment procedures with respect to such changes. If the change in
total shares outstanding arising from such corporate action is greater than or
equal to 5.0%, such change is ordinarily made to the Index on the evening prior
to the effective date of such corporate action. Otherwise, if the change in
total shares outstanding is less than 5%, then all such changes are accumulated
and made effective at one time on a quarterly basis after the close of trading
on the third Friday in each of March, June, September, and December. In either
case, the Index share weights for such Index Securities are adjusted by the same
percentage amount by which the total shares outstanding have changed in such
Index Securities. Ordinarily, whenever there is a change in Index share weights
or a change in a component security included in the Index, Nasdaq adjusts the
divisor to assure that there is no discontinuity in the value of the Index which
might otherwise be caused by any such change.
REBALANCING OF THE INDEX
Effective after the close of trading on December 18, 1998, the Index has
been calculated under a "modified capitalization-weighted" methodology, which is
a hybrid between equal weighting and conventional capitalization weighting. This
methodology is expected to: (1) retain in general the economic attributes of
capitalization weighting; (2) promote portfolio weight diversification (thereby
limiting domination of the Index by a few large stocks); (3) reduce Index
performance distortion by preserving the capitalization ranking of companies;
and (4) reduce market impact on the smallest Index Securities from necessary
weight rebalancings.
Under the methodology employed, on a quarterly basis coinciding with
Nasdaq's quarterly scheduled weight adjustment procedures, the Index Securities
are categorized as either "Large Stocks" or "Small Stocks" depending on whether
their current percentage weights (after taking into account such scheduled
weight adjustments due to stock repurchases, secondary offerings, or other
corporate actions) are greater than, or less than or equal to, the average
percentage weight in the Index (i.e., as a 100-stock index, the average
percentage weight in the Index is 1.0%).
Such quarterly examination will result in an Index rebalancing if either one
or both of the following two weight distribution requirements are not met: (1)
the current weight of the single largest market capitalization Index Security
must be less than or equal to 24.0% and (2) the "collective weight" of those
Index Securities whose individual current weights are in excess of 4.5%, when
added together, must be less than or equal to 48.0%.
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If either one or both of these weight distribution requirements are not met
upon quarterly review, a weight rebalancing will be performed in accordance with
the following plan. First, relating to weight distribution requirement (1)
above, if the current weight of the single largest Index Security exceeds 24.0%,
then the weights of all Large Stocks will be scaled down proportionately towards
1.0% by enough for the adjusted weight of the single largest Index Security to
be set to 20.0%. Second, relating to weight distribution requirement (2) above,
for those Index Securities whose individual current weights or adjusted weights
in accordance with the preceding step are in excess of 4.5%, if their
"collective weight" exceeds 48.0%, then the weights of all Large Stocks will be
scaled down proportionately towards 1.0% by just enough for the "collective
weight," so adjusted, to be set to 40.0%.
The aggregate weight reduction among the Large Stocks resulting from either
or both of the above rescalings will then be redistributed to the Small Stocks
in the following iterative manner. In the first iteration, the weight of the
largest Small Stock will be scaled upwards by a factor which sets it equal to
the average Index weight of 1.0%. The weights of each of the smaller remaining
Small Stocks will be scaled up by the same factor reduced in relation to each
stock's relative ranking among the Small Stocks such that the smaller the Index
Security in the ranking, the less the scale-up of its weight. This is intended
to reduce the market impact of the weight rebalancing on the smallest component
securities in the Index.
In the second iteration, the weight of the second largest Small Stock,
already adjusted in the first iteration, will be scaled upwards by a factor
which sets it equal to the average index weight of 1.0%. The weights of each of
the smaller remaining Small Stocks will be scaled up by this same factor reduced
in relation to each stock's relative ranking among the Small Stocks such that,
once again, the smaller the stock in the ranking, the less the scale-up of its
weight.
Additional iterations will be performed until the accumulated increase in
weight among the Small Stocks exactly equals the aggregate weight reduction
among the Large Stocks from rebalancing in accordance with weight distribution
requirement (1) and/or weight distribution requirement (2).
Then, to complete the rebalancing procedure, once the final percent weights
of each Index Security are set, the Index share weights will be determined anew
based upon the last sale prices and aggregate capitalization of the Index at the
close of trading on the Thursday in the week immediately preceding the week of
the third Friday in March, June, September, and December. Changes to the Index
share weights will be made effective after the close of
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trading on the third Friday in March, June, September, and December and an
adjustment to the Index divisor will be made to ensure continuity of the Index.
Effective after the close of trading on December 18, 1998, the Index was
rebalanced in accordance with the above methodology. As a result of the
rebalancing, the Index share weights of the five (5) stocks whose unadjusted
weights were in excess of 4.5% were adjusted downwards on such date. As of the
close of trading on December 31, 1998, the weights of these five stocks in the
Index as rebalanced, in relation to what they would have been if the Index were
not rebalanced, were as follows: Microsoft Corporation (14.5% vs. 22.5%), Intel
Corporation (8.4% vs. 12.8%), Cisco Systems, Inc. (6.4% vs. 9.5%), MCI WORLDCOM,
Inc. (5.8% vs. 8.5%), and Dell Computer Corporation (4.2% vs. 6.1%).
LICENSE AGREEMENT
Under the terms of a license agreement with Nasdaq (the "License
Agreement"), the Sponsor has been granted a license to use the Index as a basis
for determining the composition of the Trust and to use certain trade names,
trademarks, and service marks of Nasdaq in connection with the Trust. The
License Agreement may be amended by the parties thereto without the consent of
any of the Beneficial Owners of Nasdaq-100 Shares. Currently, the License
Agreement is scheduled to expire five years from the commencement date of
trading of Nasdaq-100 Shares, in accordance with its terms and is subject to a
five year renewal period following such date. The parties thereto may extend the
term of the License Agreement beyond such date without the consent of any of the
Beneficial Owners of Nasdaq-100 Shares.
Under the terms of the License Agreement, the Sponsor pays to Nasdaq an
annual licensing fee for use of the Index. The Sponsor ordinarily will seek
reimbursement from the Trust for the amount of licensing fees (see "Expenses of
the Trust"). However, the Sponsor has committed not to seek reimbursement from
the Trust for licensing fees to Nasdaq for the period through the Trust's fiscal
year ending September 30, 1999. Thereafter, the Sponsor intends to charge the
Trust for the annual licensing fee.
None of the Trust, the Trustee, the Distributor, the Depository, or any
Beneficial Owner of Nasdaq-100 Shares is entitled to any rights whatsoever under
the foregoing licensing arrangements or to use the trademarks and service marks
"Nasdaq-100 Index(-Registered Trademark-)",
"Nasdaq-100(-Registered Trademark-)", "Nasdaq(-Registered Trademark-)", "The
Nasdaq Stock Market(-Registered Trademark-)", "Nasdaq-100 Shares(SM)", or
"Nasdaq-100 Trust(SM)" or to use the Index except as specifically described
herein or as may be specified in the Trust Agreement.
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The Index is determined, composed, and calculated by Nasdaq without regard
to the Sponsor, the Trust, or the Beneficial Owners of Nasdaq-100 Shares. Nasdaq
has complete control and sole discretion in determining, comprising, or
calculating the Index or in modifying in any way its method for determining,
comprising, or calculating the Index in the future.
NASDAQ AND ITS AFFILIATES DO NOT GUARANTEE THE ACCURACY AND/OR THE
COMPLETENESS OF THE INDEX OR ANY DATA USED TO CALCULATE THE INDEX OR DETERMINE
THE INDEX COMPONENTS. NASDAQ AND ITS AFFILIATES DO NOT GUARANTEE THE
UNINTERRUPTED OR UN-DELAYED CALCULATION OR DISSEMINATION OF THE INDEX. NASDAQ
AND ITS AFFILIATES SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR
INTERRUPTIONS THEREIN. NASDAQ AND ITS AFFILIATES DO NOT GUARANTEE THAT THE INDEX
ACCURATELY REFLECTS PAST, PRESENT, OR FUTURE MARKET PERFORMANCE. NASDAQ AND ITS
AFFILIATES MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY
THE SPONSOR, THE TRUST, BENEFICIAL OWNERS OF NASDAQ-100 SHARES, OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE INDEX OR ANY DATA INCLUDED THEREIN. NASDAQ
AND ITS AFFILIATES MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM
ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE,
WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN. NASDAQ AND ITS
AFFILIATES, OTHER THAN THE SPONSOR, MAKE NO REPRESENTATION OR WARRANTY, EXPRESS
OR IMPLIED, AND BEAR NO LIABILITY WITH RESPECT TO NASDAQ-100 SHARES. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL NASDAQ OR ITS AFFILIATES HAVE
ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
MARKETPLACE LISTING
Nasdaq-100 Shares have been approved for listing on the Amex, subject to
official notice of issuance. Transactions involving Nasdaq-100 Shares in the
public trading market are subject to customary brokerage charges and
commissions.
The Sponsor's aim in designing Nasdaq-100 Shares was to provide investors
with a security whose initial market value would approximate one-twentieth
(1/20th) the value of the Index. Thus, for example, if the Index were at 1600,
investors might expect a Nasdaq-100 Share to trade initially at approximately
$80. Note, however, that the market price of a Nasdaq-100 Share may be affected
by supply and demand, market volatility, sentiment, and other factors (see
"Special Considerations and Risk Factors"). Note also, that due to these factors
as well as other factors including required distributions for tax purposes (see
"Tax Status of the Trust") or the sale of Securities to meet Trust expenses in
excess of the dividends received on the Securities (see
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"Expenses of the Trust"), the one-twentieth (1/20th) relationship between the
initial value of a Nasdaq-100 Share and the value of the Index is not expected
to persist indefinitely.
There can be no assurance that Nasdaq-100 Shares will always be listed on
the Amex. The Amex will consider the suspension of trading in or removal from
listing of Nasdaq-100 Shares:
(a) if the Trust has more than 60 days remaining until termination and there
are fewer than 50 record and/or beneficial holders of Nasdaq-100 Shares
for 30 or more consecutive trading days;
(b) if the Index is no longer calculated or available; or
(c) if such other event shall occur or condition exists which, in the
opinion of the Amex, makes further dealings on the Amex inadvisable.
The Trust is not required to pay a listing fee to the Amex.
The Trust will be terminated in the event that Nasdaq-100 Shares are
delisted from the Amex and are not subsequently relisted on a national
securities exchange or a quotation medium operated by a national securities
association (see "Administration of the Trust--Termination").
TAX STATUS OF THE TRUST
The Trust intends to qualify for and elect tax treatment as a "regulated
investment company" under Subchapter M of the Code. The Trust intends to adopt a
fiscal year ending on September 30 of each year. To qualify as a regulated
investment company, the Trust must, among other things, (a) derive in each
taxable year at least 90% of its gross income from dividends, interest, gains
from the sale or other disposition of stock, securities or foreign currencies,
or certain other sources, (b) meet certain diversification tests, and (c)
distribute in each year at least 90% of its investment company taxable income.
If the Trust qualifies as a regulated investment company, subject to certain
conditions and requirements, the Trust will not be subject to federal income tax
to the extent its income is distributed in a timely manner. Any undistributed
income may be subject to tax, including a four percent (4%) excise tax imposed
by section 4982 of the Code on certain undistributed income of a regulated
investment company that does not distribute to shareholders in a timely manner
at least ninety-eight percent (98%) of its taxable income (including capital
gains).
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TAX CONSEQUENCES TO BENEFICIAL OWNERS
Any net dividends paid by the Trust from its investment company taxable
income (which includes dividends, interest, and the excess of net short-term
capital gains over net long-term capital losses) will be taxable to Beneficial
Owners as ordinary income. A net dividend, if any, paid in January will be
considered for federal income tax purposes to have been paid by the Trust and
received by Beneficial Owners on the preceding December 31 if the net dividend
was declared in the preceding October, November, or December to Beneficial
Owners of record shown on the records of the Depository and the DTC Participants
(see "The Trust--Book-Entry-Only System") on a date in one of those months.
Distributions paid by the Trust from the excess of net long-term capital
gains over net short-term capital losses ("net capital gain") are taxable as
long-term capital gain, regardless of the length of time an investor has owned
Nasdaq-100 Shares. Any loss on the sale or exchange of a Nasdaq-100 Share held
for six months or less may be treated as a long-term capital loss to the extent
of any capital gain dividends received by the Beneficial Owner. For corporate
investors, net dividends from net investment income (but not return of capital
distributions or capital gain dividends) generally will qualify for the
corporate dividends-received deduction to the extent of qualifying dividend
income received by the Trust, subject to the limitations contained in the Code.
Investors should note that the quarterly net dividends paid by the Trust, if
any, will not be based on the Trust's investment company taxable income and net
capital gain, but rather will be based on the dividends paid with respect to the
Securities net of accrued expenses and liabilities of the Trust. As a result, a
portion of the distributions of the Trust may be treated as a return of capital
or a capital gain dividend for federal income tax purposes or the Trust may make
additional distributions in excess of the yield performance of the Securities in
order to distribute all of its investment company taxable income and net capital
gain.
Distributions in excess of the Trust's current or accumulated earnings and
profits (as specially computed) generally will be treated as a return of capital
for federal income tax purposes and will reduce a Beneficial Owner's tax basis
in Nasdaq-100 Shares. Return of capital distributions may result, for example,
if a portion of the net dividends, if any, declared represents cash amounts
deposited in connection with Portfolio Deposits rather than dividends actually
received by the Trust. Under certain circumstances, a significant portion of any
quarterly net dividends of the Trust could be treated as return of capital
distributions. Such circumstances may be more likely to occur in periods during
which the number of outstanding Nasdaq-100 Shares fluctuates significantly, as
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may occur during the initial years of the Trust. Beneficial Owners will receive
annually notification from the Trustee through the DTC Participants as to the
tax status of the Trust's distributions (see "The Trust--Book-Entry-Only
System"). A distribution, if any, paid shortly after a purchase or creation of
Nasdaq-100 Shares may be taxable even though in effect it may represent a return
of capital.
The sale of Nasdaq-100 Shares by a Beneficial Owner is a taxable event, and
may result in a gain or loss, which generally should be a capital gain or loss
for Beneficial Owners that are not dealers in securities.
Under the Code, an in-kind redemption of Nasdaq-100 Shares will not result
in the recognition of taxable gain or loss by the Trust but generally will
constitute a taxable event for the redeeming shareholder. Upon redemption, a
Beneficial Owner generally will recognize gain or loss measured by the
difference on the date of redemption between the aggregate value of the cash and
securities received and its tax basis in the Nasdaq-100 Shares redeemed.
Securities received upon redemption (which will be comprised of the securities
portion of the Portfolio Deposit in effect on the date of redemption) generally
will have an initial tax basis equal to their respective market values on the
date of redemption. The U.S. Internal Revenue Service ("IRS") may assert that
any resulting loss may not be deducted by a Beneficial Owner on the basis that
there has been no material change in such Beneficial Owner's economic position
or that the transaction has no significant economic or business utility apart
from the anticipated tax consequences. Beneficial Owners of Nasdaq-100 Shares in
Creation Unit size aggregations should consult their own tax advisors as to the
consequences to them of the redemption of Nasdaq-100 Shares.
Net dividend distributions, capital gains distributions, and capital gains
from sales or redemptions may also be subject to state, local and foreign taxes.
Deposit of a Portfolio Deposit with the Trustee in exchange for Nasdaq-100
Shares in Creation Unit size aggregations will not result in the recognition of
taxable gain or loss by the Trust but generally will constitute a taxable event
to the depositor under the Code, and a depositor generally will recognize gain
or loss with respect to each security deposited equal to the difference between
the amount realized in respect of the security and the depositor's tax basis
therein. The amount realized with respect to a security deposited should be
determined by allocating the value on the date of deposit of the Nasdaq-100
Shares received (less any cash paid to the Trust, or plus any cash received from
the Trust, in connection with the deposit) among the securities deposited on the
basis of their respective fair market values at that time. The IRS may assert
that any resulting losses may not be deducted by a depositor on the basis that
there has been no material change in the depositor's
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economic position or that the transaction has no significant economic or
business utility or purpose apart from the anticipated tax consequences.
Depositors should consult their own tax advisors as to the tax consequences to
them of a deposit to the Trust.
After the initial deposit of Portfolio Deposits with the Trustee, the
Trustee has the right to reject the order to create Creation Units transmitted
to it by the Distributor if the depositor or group of depositors, upon obtaining
the Nasdaq-100 Shares ordered, would own eighty percent (80%) or more of the
outstanding Nasdaq-100 Shares, and if pursuant to section 351 of the Code such a
circumstance would result in the Trust having a basis in the securities
deposited different from the market value of such securities on the date of
deposit. The Trustee has the right to require information regarding Nasdaq-100
Share ownership pursuant to the Nasdaq-100 Participant Agreement and from the
Depository and to rely thereon to the extent necessary to make the foregoing
determination as a condition to the acceptance of a Portfolio Deposit.
Ordinary income dividends received via the Depository by Beneficial Owners
who are non-resident aliens will be subject to a thirty percent (30%) United
States withholding tax unless a reduced rate of withholding or a withholding
exemption is provided under applicable tax treaties. Non-resident shareholders
are urged to consult their own tax advisors concerning the applicability of
United States withholding tax.
Backup withholding at a rate of 31% will apply to dividends, capital gain
distributions, redemptions and sales of Nasdaq-100 Shares unless (a) the
Beneficial Owner is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or (b) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. The amount of any backup withholding from a payment to a
Beneficial Owner will be allowed as a credit against the holder's U.S. federal
income tax liability and may entitle such holder to a refund from the IRS,
provided that the required information is furnished to the IRS.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE
FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN
THE TRUST, INCLUDING THE EFFECT OF POSSIBLE LEGISLATIVE CHANGES.
CONTINUOUS OFFERING OF NASDAQ-100 SHARES
Nasdaq-100 Shares in Creation Unit size aggregations will be offered
continuously to the public by the Trust through the Distributor and will be
delivered upon the deposit of a Portfolio Deposit (see "The Trust--Procedures
for
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Creation of Creation Units"). A list of the identity and number of shares of
each of the Index Securities in the current Portfolio Deposit and the amount of
the Income Net of Expense Amount effective through and including the previous
Business Day is made available by the Trustee to NSCC on each Business Day.
Under certain extraordinary circumstances which may make it impossible for the
Trustee to provide such information to NSCC on a given Business Day, NSCC shall
use the composition and weighting of the Index Securities of the Portfolio
Deposit on the previous Business Day. The minimum number of Nasdaq-100 Shares
that may be created as described herein is 50,000 or one Creation Unit. Persons
making Portfolio Deposits and creating Creation Unit size aggregations of
Nasdaq-100 Shares will receive no fees, commissions, or other form of
compensation or inducement of any kind from the Sponsor or the Distributor, nor
will any such person have any obligation or responsibility to the Sponsor or
Distributor to effect any sale or resale of Nasdaq-100 Shares. Notwithstanding
the above, the Sponsor reserves the right, in its sole discretion, to
periodically reimburse in whole or in part the Transaction Fees paid by eligible
entities in connection with the creation or redemption of certain lot-sizes of
Nasdaq-100 Shares.
Because new Nasdaq-100 Shares can be created and issued on an ongoing basis,
at any point during the life of the Trust a "distribution", as such term is used
in the Securities Act of 1933, as amended (the "Securities Act"), may be
occurring. Broker-dealers and other persons are cautioned that some activities
on their part may, depending on the circumstances, result in their being deemed
participants in a distribution in a manner which could render them statutory
underwriters and subject them to the prospectus-delivery and liability
provisions of the Securities Act. For example, a broker-dealer firm or its
client may be deemed a statutory underwriter if it takes Creation Units after
placing a creation order with the Distributor, breaks them down into the
constituent Nasdaq-100 Shares, and sells the Nasdaq-100 Shares directly to its
customers, or if it chooses to couple the creation of a supply of new Nasdaq-100
Shares with an active selling effort involving solicitation of secondary market
demand for Nasdaq-100 Shares. A determination of whether one is an underwriter
must take into account all the facts and circumstances pertaining to the
activities of the broker-dealer or its client in the particular case, and the
examples mentioned above should not be considered a complete description of all
the activities that could lead to categorization as an underwriter.
Dealers who are not "underwriters" but are participating in a distribution
(as contrasted to ordinary secondary trading transactions), and thus dealing
with Nasdaq-100 Shares that are part of an "unsold allotment" within the meaning
of Section 4(3)(C) of the Securities Act, would be unable to take advantage of
the prospectus-delivery exemption provided by Section 4(3) of the
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Securities Act. Firms that do incur a prospectus delivery obligation with
respect to Nasdaq-100 Shares are reminded that under Securities Act Rule 153, a
prospectus-delivery obligation under Section 5(b)(2) of the Securities Act owed
to an Amex member in connection with a sale on the Amex is satisfied by the fact
that Nasdaq-100 Share prospectuses will be available at the Amex upon request.
Of course, the prospectus-delivery mechanism provided in Rule 153 is only
available with respect to transactions on an exchange.
The Sponsor intends to market Nasdaq-100 Shares through broker-dealers who
are members of the National Association of Securities Dealers, Inc. Investors
intending to create or redeem Creation Unit size aggregations of Nasdaq-100
Shares in transactions not involving a broker-dealer registered in such
investor's state of domicile or residence should consult counsel regarding
applicable broker-dealer or securities regulatory requirements under such state
securities laws prior to such creation or redemption.
EXPENSES OF THE TRUST
Until further notice, the Sponsor has undertaken that on each day during
each fiscal year up to and including the fiscal year ending September 30, 2000,
the ordinary operating expenses of the Trust as calculated by the Trustee will
not be permitted to exceed an amount which is 18/100 of one percent (0.18%) per
annum of the daily net asset value of the Trust. To the extent during such
period the ordinary operating expenses of the Trust do exceed such 0.18% level,
the Sponsor will reimburse the Trust or assume invoices on behalf of the Trust
for such excess ordinary operating expenses. The Sponsor retains the ability to
be repaid by the Trust for expenses so reimbursed or assumed to the extent that
subsequently during the fiscal year expenses fall below the 0.18% per annum
level on any given day. For purposes of this undertaking by the Sponsor,
ordinary operating expenses of the Trust shall not include taxes, brokerage
commissions, and such extraordinary non-recurring expenses as may arise,
including without limitation the cost of any litigation to which the Trust or
Trustee may be a party. After September 30, 2000, the Sponsor may discontinue
its undertaking to limit ordinary operating expenses of the Trust or renew this
undertaking for an additional period of time, or may choose to reimburse or
assume certain Trust expenses in later periods in order to keep Trust expenses
at a level lower than what would reflect ordinary operating expenses of the
Trust, but is not obligated to do so. In any event, it is possible that, on any
day and during any period over the life of the Trust, total fees and expenses of
the Trust may exceed 0.18% per annum.
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Subject to any applicable cap, the Sponsor reserves the right to charge the
Trust a special sponsor fee from time to time in reimbursement for certain
services it may provide to the Trust which would otherwise be provided by the
Trustee in an amount not to exceed the actual cost of providing such services.
The Sponsor or the Trustee from time to time may voluntarily assume some
expenses or reimburse the Trust so that total expenses of the Trust are reduced,
although neither the Sponsor nor the Trustee is obligated to do so and either
one or both parties may discontinue such voluntary assumption of expenses or
reimbursement at any time without notice. In connection therewith, Nasdaq, on
behalf of the Sponsor, has agreed to assume the expenses incident to the
organization of the Trust and its registration as an investment company, and
such expenses will not be borne by the Trust.
The following charges are or may be accrued and paid by the Trust: (a) the
Trustee's fee as discussed more fully below; (b) fees payable to transfer agents
for the provision of transfer agency services; (c) fees of the Trustee for
extraordinary services performed under the Trust Agreement; (d) various
governmental charges; (e) any taxes, fees, and charges payable by the Trustee
with respect to Nasdaq-100 Shares (whether in Creation Unit size aggregations or
otherwise); (f) expenses and costs of any action taken by the Trustee or the
Sponsor to protect the Trust and the rights and interests of Beneficial Owners
of Nasdaq-100 Shares (whether in Creation Unit size aggregations or otherwise);
(g) indemnification of the Trustee or the Sponsor for any losses, liabilities or
expenses incurred by them in the administration of the Trust without gross
negligence, bad faith, wilful misconduct, or wilful malfeasance on their part or
reckless disregard of their obligations and duties; (h) expenses incurred in
contacting Beneficial Owners of Nasdaq-100 Shares during the life of the Trust
and upon termination of the Trust; (i) brokerage commissions incurred by the
Trustee when acquiring or selling Index Securities pursuant to the provisions of
the Trust Agreement; and (j) other out-of-pocket expenses of the Trust incurred
pursuant to actions permitted or required under the Trust Agreement.
In addition to the specific expenses discussed in the previous paragraph,
the following expenses are or may be charged to the Trust: (a) reimbursement to
the Sponsor of amounts paid by it to Nasdaq in respect of annual licensing fees
pursuant to the License Agreement (the Sponsor has, however, committed not to
seek reimbursement from the Trust for licensing fees paid for the period through
the Trust's fiscal year ending September 30, 1999, see "License Agreement"), (b)
federal and state annual registration fees for the issuance of Nasdaq-100
Shares, and (c) expenses of the Sponsor relating to the printing and
distribution of marketing materials describing Nasdaq-100 Shares and the Trust
(including, but not limited to, associated legal, consulting, advertising,
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and marketing costs and other out-of-pocket expenses such as printing). Pursuant
to the provisions of an exemptive order, the expenses set forth in this
paragraph may be charged to the Trust by the Trustee in an amount equal to the
actual costs incurred, but in no case shall such charges exceed 20/100 of 1%
(0.20%) per annum of the daily net asset value of the Trust.
Trust fees and expenses will first be paid out of income received by the
Trust in the form of dividends and other distributions on the Securities. It is
currently expected that Trust income may be insufficient to cover Trust fees and
expenses (see "Special Considerations and Risk Factors--Little or No Expected
Net Dividend Distributions to Beneficial Owners"). In such circumstances, the
Trustee will sell Securities in an amount sufficient to pay the excess of
accrued fees and expenses over the dividends and other Trust accrued income.
Specifically, the Trustee will ordinarily be required to sell Securities
whenever the Trustee determines that projected annualized fees and expenses
accrued on a daily basis exceed projected annualized dividends and other Trust
income accrued on a daily basis by more than 1/100 of one percent (0.01%) of the
net asset value of the Trust. Whenever the 0.01% threshold is exceeded, the
Trustee will sell sufficient Securities to cover such excess no later than the
next occasion it is required to make adjustments to the Portfolio due to a
Misweighting (see "The Portfolio--Adjustments to the Portfolio"), unless the
Trustee determines, in its discretion, that such a sale is unnecessary because
the cash to be generated is not needed by the Trust at that time for the payment
of expenses then due or because the Trustee otherwise determines that such sale
is not warranted or advisable. At the time of the sale, the Trustee shall first
sell Securities that are over-weighted in the Portfolio as compared to their
relative weighting in the Index.
The Trustee may also make advances to the Trust to cover expenses. The
Trustee may reimburse itself in the amount of any such advance, plus any amounts
required by the Federal Reserve Board which are related to such advances,
together with interest thereon at a percentage rate equal to the then-current
overnight federal funds rate, by deducting such amounts from (1) dividend
payments or other income of the Trust when such payments or other income is
received, (2) the amounts earned or benefits derived by the Trustee on cash held
by the Trustee for the benefit of the Trust, and (3) the sale of Securities.
Notwithstanding the foregoing, in the event that any advance remains outstanding
for more than forty-five (45) Business Days, the Trustee shall ordinarily sell
Securities to reimburse itself for the amount of such advance and any accrued
interest thereon. Such advances, as well as rights of the Trustee to the payment
of its fee, reimbursement of expenses and other claims, will be secured by a
lien upon and a security interest in the assets of
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the Trust in favor of the Trustee. The expenses of the Trust are reflected in
the net asset value of the Trust (see "Valuation").
For services performed under the Trust Agreement, the Trustee is paid by the
Trust a fee at an annual rate of 6/100 of 1% to 10/100 of 1% of the net asset
value of the Trust, as shown below, such percentage amount to vary depending on
the net asset value of the Trust. Such compensation is computed on each Business
Day on the basis of the net asset value of the Trust on such day, and the amount
thereof is accrued daily and paid monthly. The Trustee, in its discretion, may
waive all or a portion of such fee. Notwithstanding the fee schedule set forth
in the table below, the Trustee shall be paid a minimum annual fee of $180,000
per annum. To the extent that the amount of the Trustee's compensation is less
than such minimum annual fee, the Sponsor has agreed to pay the amount of any
such shortfall.
TRUSTEE FEE SCALE
<TABLE>
<CAPTION>
NET ASSET VALUE FEE AS A PERCENTAGE OF NET
OF THE TRUST ASSET VALUE OF THE TRUST
- -------------------------------------------------------- -----------------------------
<S> <C>
$0-$499,999,999......................................... 10/100 of 1% per annum*
$500,000,000-$2,499,999,999............................. 8/100 of 1% per annum*
$2,500,000,000 and above................................ 6/100 of 1% per annum*
</TABLE>
- ------------------------
* The fee indicated applies to that portion of the net asset value of the
Trust which falls in the size category indicated.
REDEMPTION OF NASDAQ-100 SHARES
Nasdaq-100 Shares in Creation Unit size aggregations are ordinarily
redeemable in kind only and are not redeemable for cash except under certain
circumstances. Nasdaq-100 Shares in Creation Unit size aggregations may be
redeemed by submitting a request for redemption, the requisite number of
Nasdaq-100 Shares, and the Cash Redemption Amount (as defined below), if
applicable, to the Trustee in the manner specified below. Beneficial Owners of
Nasdaq-100 Shares may sell Nasdaq-100 Shares in the secondary market, but must
accumulate enough Nasdaq-100 Shares to constitute a Creation Unit (I.E., 50,000
shares) in order to redeem through the Trust. Nasdaq-100 Shares can be redeemed
only when Creation Unit size aggregations are owned by a Beneficial Owner and
held in the account of a single Participating Party (with respect to redemptions
through the Nasdaq-100 Clearing Process) or a single DTC Participant (with
respect to redemptions outside the Nasdaq-100 Clearing Process). Nasdaq-100
Shares will remain outstanding until redeemed or until the termination of the
Trust.
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PROCEDURE FOR REDEMPTION OF NASDAQ-100 SHARES
Requests for redemptions of Creation Units may be made on any Business Day
through the Nasdaq-100 Clearing Process to the Trustee at its trust office at
101 Barclay Street, New York, New York 10286, or at such other office as may be
designated by the Trustee. Requests for redemptions of Creation Units may also
be made directly to the Trustee outside the Nasdaq-100 Clearing Process.
Requests for redemptions shall not be made to the Distributor. In the case of
redemptions made through the Nasdaq-100 Clearing Process, the Transaction Fee
will be deducted from the amount delivered to the redeemer or added to the
amount owed by the redeemer to the Trustee, as applicable. In case of
redemptions tendered directly to the Trustee outside the Nasdaq-100 Clearing
Process, a total fee will be charged equal to the Transaction Fee plus an
additional amount not to exceed three (3) times the Transaction Fee applicable
for a Creation Unit (due in part to the increased expense associated with
delivery outside the Nasdaq-100 Clearing Process), and such amount will be
deducted from the amount delivered to the redeemer or added to the amount owed
by the redeemer to the Trustee on behalf of the Trust, as applicable (see
"Prospectus Summary--Transaction Fee"). In all cases, the tender of Nasdaq-100
Shares for redemption and distributions to the redeemer (or payments to the
Trustee, as applicable) in respect of Nasdaq-100 Shares redeemed will be
effected through the Depository and the relevant DTC Participant(s) to the
Beneficial Owner thereof as recorded on the book entry system of the Depository
or the relevant DTC Participant, as the case may be (see "The
Trust--Book-Entry-Only System").
The Trustee will transfer to the redeeming Beneficial Owner via the
Depository and the relevant DTC Participant(s) a portfolio of Securities for
each Creation Unit size aggregation of Nasdaq-100 Shares delivered, typically
identical in composition and weighting to the securities portion of a Portfolio
Deposit as in effect (1) on the date a request for redemption is deemed received
by the Trustee as described below, in the case of redemptions made either
through the Nasdaq-100 Clearing Process or outside the Nasdaq-100 Clearing
Process or (2) on the date that notice of the termination of the Trust is given,
in the case of the termination of the Trust (see "Administration of the
Trust--Termination" and "The Portfolio--Adjustments to the Portfolio"). Each
redemption also includes a cash amount, the "Cash Redemption Amount," which will
either be paid to the Trustee on behalf of the Trust by the redeemer or paid to
the redeemer by the Trustee on behalf of the Trust as described below. On any
given Business Day, the Cash Redemption Amount is typically an amount identical
to the amount of the Cash Component and is equal to a proportional amount of the
following: dividends on all the Securities for the period through the date of
redemption, net of accrued expenses and liabilities
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for such period not previously deducted (including, without limitation, (x)
taxes or other governmental charges against the Trust not previously deducted,
if any, and (y) accrued fees of the Trustee and other expenses of the Trust
(including legal and auditing expenses) and other expenses not previously
deducted (see "Expenses of the Trust")), plus or minus the Balancing Amount. To
the extent the sum of dividends on all Securities with ex-dividend dates within
the Accumulation Period, plus or minus the Balancing Amount, exceeds the accrued
expenses and liabilities of the Trust for such period (I.E., the Cash Redemption
Amount has a positive value), then the Trustee on behalf of the Trust will
transfer payment thereof via the relevant DTC Participant(s) to the redeeming
Beneficial Owner. Conversely, to the extent the sum of dividends on all
Securities with ex-dividend dates within the Accumulation Period, plus or minus
the Balancing Amount, is less than the accrued expenses and liabilities of the
Trust for such period (I.E., the Cash Redemption Amount has a negative value),
then such Beneficial Owner shall be required to deliver payment thereof via the
relevant DTC Participant(s) to the Trustee on behalf of the Trust. In the case
of redemptions made through the Nasdaq-100 Clearing Process, the Trustee on
behalf of the Trust will effect a transfer of the Cash Redemption Amount (if
required) and the securities to the redeeming Beneficial Owner by the third
(3rd) NSCC Business Day following the date on which request for redemption is
deemed received. In the case of redemptions made outside the Nasdaq-100 Clearing
Process, the Trustee on behalf of the Trust will transfer the Cash Redemption
Amount (if required) and the securities to the redeeming Beneficial Owner by the
third (3rd) Business Day following the date on which the request for redemption
is deemed received. In cases in which the Cash Redemption Amount is payable by
the redeemer to the Trustee, the redeeming Beneficial Owner (via the Depository
and the relevant DTC Participants(s)) is required to make payment of such cash
amount by the third (3rd) NSCC Business Day, for redemptions made through the
Nasdaq-100 Clearing Process, or the first (1st) Business Day, for redemptions
outside the Nasdaq-100 Clearing Process, following the date on which the request
for redemption is deemed received. The Trustee will cancel all Nasdaq-100 Shares
delivered upon redemption.
In the event that the Trustee determines in its discretion that an Index
Security is likely to be unavailable or available in insufficient quantity for
delivery by the Trust upon the redemption of Nasdaq-100 Shares in Creation Unit
size aggregations, the Trustee shall have the right in its discretion to include
the cash equivalent value of such Index Security or Index Securities, based on
the market value of such Index Security or Index Securities as of the
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Evaluation Time on the date such redemption is deemed received by the Trustee,
in the calculation of the Cash Redemption Amount in lieu of delivering such
Index Security or Index Securities to the redeemer.
In connection with the redemption of Nasdaq-100 Shares, if a redeeming
investor requests redemption in cash, rather than in kind, with respect to one
or more Securities (for example, because such a redeemer is restricted by
regulation or otherwise from investing or engaging in a transaction in one or
more Index Securities), the Trustee shall have the right in its discretion to
include the cash equivalent value of such Index Security or Index Securities,
based on the market value of such Index Security or Index Securities as of the
Evaluation Time on the date such redemption order is deemed received by the
Trustee, in the calculation of the Cash Redemption Amount in lieu of delivering
such Index Security or Index Securities to the redeemer. In such case, such
investor will pay the Trustee the standard Transaction Fee, plus an additional
amount not to exceed three (3) times the Transaction Fee applicable for a
Creation Unit (see "Prospectus Summary--Transaction Fee").
The Trustee, in its discretion, upon the request of a redeeming investor,
may redeem Creation Units in whole or in part by providing such redeemer with a
portfolio of Securities differing in exact composition from the Index Securities
but not differing in net asset value from the then-current Portfolio Deposit.
Such a redemption is likely to be made only if it were to be determined that
this composition would be appropriate in order to maintain the Portfolio's
correlation to the composition and weighting of the Index, for instance, in
connection with a replacement of one of the Index Securities (E.G., due to a
merger, acquisition or bankruptcy). (See "The Portfolio" and "The Index".)
The Trustee may sell Securities to obtain sufficient cash proceeds to
deliver to the redeeming Beneficial Owner. To the extent cash proceeds are
received by the Trustee in excess of the amount required to be provided to the
redeeming Beneficial Owner, such cash amounts shall be held by the Trustee and
shall be applied in accordance with the guidelines applicable to Misweightings
(see "The Portfolio--Adjustments to the Portfolio").
If the income received by the Trust in the form of dividends and other
distributions on the Securities is insufficient to allow distribution of the
Cash Redemption Amount to a redeemer of Nasdaq-100 Shares, the Trustee may
advance out of its own funds any amounts necessary in respect of redemptions of
Nasdaq-100 Shares; otherwise, the Trustee may sell Securities in an amount
sufficient to effect such redemptions. The Trustee may reimburse itself in the
amount of such advance, plus any amounts required by the Federal Reserve Board
which are related to such advance, together with interest thereon at a
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percentage rate equal to the then current overnight federal funds rate, by
deducting such amounts from (1) dividend payments or other income of the Trust
when such payments or other income is received, (2) the amounts earned or
benefits derived by the Trustee on cash held by the Trustee for the benefit of
the Trust, and (3) the sale of Securities. Notwithstanding the foregoing, in the
event that any advance remains outstanding for more than forty-five (45)
Business Days, the Trustee shall ordinarily sell Securities to reimburse itself
for such advance and any accrued interest thereon. Such advances will be secured
by a lien upon and a security interest in the assets of the Trust in favor of
the Trustee.
The Trustee may, in its discretion, and will when so directed by the
Sponsor, suspend the right of redemption, or postpone the date of payment of the
net asset value for more than five (5) Business Days following the date on which
the request for redemption is deemed received by the Trustee (1) for any period
during which the New York Stock Exchange is closed; (2) for any period during
which an emergency exists as a result of which disposal or evaluation of the
Securities is not reasonably practicable; or (3) for such other period as the
Commission may by order permit for the protection of Beneficial Owners. Neither
the Sponsor nor the Trustee is liable to any person or in any way for any loss
or damages which may result from any such suspension or postponement.
To be eligible to place orders with the Trustee to redeem Nasdaq-100 Shares
in Creation Unit size aggregations, an entity or person must be (1) a
Participating Party, with respect to redemptions through the Nasdaq-100 Clearing
Process, or (2) a DTC Participant, with respect to redemptions outside the
Nasdaq-100 Clearing Process, and in either case must have executed a Nasdaq-100
Participant Agreement with the Distributor and the Trustee.
All orders to redeem Nasdaq-100 Shares must be placed in multiples of 50,000
shares (Creation Unit size). Orders must be transmitted to the Trustee by
telephone or other transmission method acceptable to the Trustee so as to be
received by the Trustee not later than the Closing Time on the Transmittal Date,
pursuant to procedures set forth in the Nasdaq-100 Participant Agreement. Severe
economic or market changes or disruptions, or telephone or other communication
failure, may impede the ability to reach the Trustee, a Participating Party, or
a DTC Participant.
Orders to redeem Creation Unit size aggregations of Nasdaq-100 Shares shall
be placed with a Participating Party or DTC Participant, as applicable, in the
form required by such Participating Party or DTC Participant. Investors should
be aware that their particular broker may not have executed a
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Nasdaq-100 Participant Agreement, and that, therefore, orders to redeem Creation
Unit size aggregations of Nasdaq-100 Shares may have to be placed by the
investor's broker through a Participating Party or a DTC Participant who has
executed a Nasdaq-100 Participant Agreement. At any given time there may be only
a limited number of broker-dealers that have executed a Nasdaq-100 Participant
Agreement. Those placing orders to redeem Nasdaq-100 Shares should afford
sufficient time to permit (1) proper submission of the order by a Participating
Party or DTC Participant to the Trustee and (2) the receipt of the Nasdaq-100
Shares to be redeemed and the Cash Redemption Amount, if any, by the Trustee in
a timely manner, as described below. Orders for redemption that are effected
outside the Nasdaq-100 Clearing Process are likely to require transmittal by the
DTC Participant earlier on the Transmittal Date than orders effected using the
Nasdaq-100 Clearing Process. Those persons placing orders outside the Nasdaq-100
Clearing Process should ascertain the deadlines applicable to DTC and the
Federal Reserve Bank wire system by contacting the operations department of the
broker or depository institution effectuating such transfer of Nasdaq-100 Shares
and Cash Redemption Amount. These deadlines will vary by institution. The
Participant notified of an order to redeem outside the Nasdaq-100 Clearing
Process will be required to transfer Nasdaq-100 Shares through DTC and the Cash
Redemption Amount, if any, through the Federal Reserve Bank wire system in a
timely manner (see "Placement of Redemption Orders Outside the Nasdaq-100
Clearing Process"). Information regarding the Cash Redemption Amount, number of
outstanding Nasdaq-100 Shares, and Transaction Fees may be obtained from the
Trustee at the toll-free number: (800) 545-5256.
PLACEMENT OF REDEMPTION ORDERS USING THE NASDAQ-100 CLEARING PROCESS
Orders to redeem Nasdaq-100 Shares in Creation Unit size aggregations
through the Nasdaq-100 Clearing Process must be delivered through a
Participating Party (see "Prospectus Summary--Portfolio Deposit") that has
executed the Nasdaq-100 Participant Agreement with the Distributor and with the
Trustee (as the same may be from time to time amended in accordance with its
terms). An order to redeem Nasdaq-100 Shares using the Nasdaq-100 Clearing
Process is deemed received by the Trustee on the Transmittal Date if (i) such
order is received by the Trustee not later than the Closing Time on such
Transmittal Date and (ii) all other procedures set forth in the Nasdaq-100
Participant Agreement are properly followed; such order will be effected based
on the net asset value of the Trust as determined as of the Evaluation Time on
the Transmittal Date. An order to redeem Nasdaq-100 Shares using the Nasdaq-100
Clearing Process made in proper form but received by the Trustee after the
Closing Time will be deemed received on the next Business Day
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immediately following the Transmittal Date. The Nasdaq-100 Participant Agreement
authorizes the Trustee to transmit to NSCC on behalf of the Participating Party
such trade instructions as are necessary to effect the Participating Party's
redemption order. Pursuant to such trade instructions from the Trustee to NSCC,
the Trustee will transfer the requisite Securities (or contracts to purchase
such Securities which are expected to be delivered in a "regular way" manner
through NSCC) by the third (3rd) NSCC Business Day following the date on which
such request for redemption is deemed received, and the Cash Redemption Amount,
if any. If the Cash Redemption Amount is owed by the Beneficial Owner to the
Trustee, such amount must be delivered by the third (3rd) NSCC Business Day
following the date on which the redemption request is deemed received. The
calculation of the value of the Securities and the Cash Redemption Amount will
be made according to the procedures set forth under "Valuation," computed as of
the Evaluation Time on the Business Day on which a redemption order is deemed
received by the Trustee.
PLACEMENT OF REDEMPTION ORDERS OUTSIDE THE NASDAQ-100 CLEARING PROCESS
Orders to redeem Nasdaq-100 Shares outside the Nasdaq-100 Clearing Process
must be delivered through a DTC Participant that has executed the Nasdaq-100
Participant Agreement with the Distributor and with the Trustee. A DTC
Participant who wishes to place an order for redemption of Nasdaq-100 Shares to
be effected outside the Nasdaq-100 Clearing Process need not be a Participating
Party, but such orders must state that the DTC Participant is not using the
Nasdaq-100 Clearing Process and that redemption of Nasdaq-100 Shares will
instead be effected through transfer of Nasdaq-100 Shares directly through DTC.
An order to redeem Nasdaq-100 Shares outside the Nasdaq-100 Clearing Process is
deemed received by the Trustee on the Transmittal Date if (i) such order is
received by the Trustee not later than the Closing Time on such Transmittal
Date, (ii) such order is preceded or accompanied by the requisite number of
Nasdaq-100 Shares specified in such order, which delivery must be made through
DTC to the Trustee no later than the Closing Time of the regular trading session
on the Nasdaq Stock Market on such Transmittal Date and (iii) all other
procedures set forth in the Nasdaq-100 Participant Agreement are properly
followed. The Cash Redemption Amount owed by the Beneficial Owner, if any, must
be delivered no later than 1:00 p.m. on the Business Day immediately following
the Transmittal Date.
After the Trustee has deemed an order for redemption outside the Nasdaq-100
Clearing Process received, the Trustee will initiate procedures to transfer the
requisite Securities (or contracts to purchase such Securities which are
expected to be delivered within three Business Days) and the Cash
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Redemption Amount to the redeeming Beneficial Owner (where such amount is
payable from the Trustee to the Beneficial Owner) by the third (3rd) Business
Day following the Transmittal Date on which such redemption order is deemed
received by the Trustee.
The calculation of the value of the Securities and the Cash Redemption
Amount will be made by the Trustee according to the procedures set forth under
"Valuation," computed as of the Evaluation Time on the Business Day on which a
redemption order is deemed received by the Trustee. Therefore, if a redemption
order in proper form is submitted to the Trustee by a DTC Participant not later
than the Closing Time on the Transmittal Date, and the requisite Nasdaq-100
Shares are also delivered to the Trustee prior to the Closing Time on such
Transmittal Date, then the value of the Securities and the Cash Redemption
Amount will be determined by the Trustee as of the Evaluation Time on such
Transmittal Date. If, however, a redemption order is submitted to the Trustee by
a DTC Participant not later than the Closing Time on a Transmittal Date but
either (1) the requisite Nasdaq-100 Shares are NOT delivered by the Closing Time
on such Transmittal Date or (2) the redemption order is not submitted in proper
form, then the redemption order will NOT be deemed received as of such
Transmittal Date. In such case, the value of the Securities and the Cash
Redemption Amount will be computed as of the Evaluation Time on the Business Day
that such order is deemed received by the Trustee, I.E., the Business Day on
which the Nasdaq-100 Shares are delivered through DTC to the Trustee by the
Closing Time on such Business Day pursuant to a properly submitted redemption
order.
VALUATION
The net asset value of the Trust is computed as of the Evaluation Time shown
under "Essential Information" on each Business Day. The net asset value of the
Trust on a per Nasdaq-100 Share basis is determined by subtracting all
liabilities (including accrued expenses and dividends payable) from the total
value of the Trust's investments and other assets and dividing the result by the
total number of outstanding Nasdaq-100 Shares.
The aggregate value of the Securities shall be determined by the Trustee in
good faith in the following manner. The value of a Security shall generally be
based on the closing sale price for the Security on that day (unless the Trustee
deems such price inappropriate as a basis for evaluation) on the Nasdaq Stock
Market or, if there is no such appropriate closing sale price on the Nasdaq
Stock Market, at the closing bid price (unless the Trustee deems such price
inappropriate as a basis for evaluation). If a Security is not so quoted on the
Nasdaq Stock Market or, if so quoted and the principal market therefor is other
than on the Nasdaq Stock Market or there is no such closing
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bid price available, such evaluation shall generally be made by the Trustee in
good faith based (a) on the closing price for the Security on another market on
which the Security is traded (unless the Trustee deems such price inappropriate
as a basis for evaluation) or if there is no such appropriate closing price, at
the closing bid price on such other market, (b) on current bid prices on the
Nasdaq Stock Market or such other markets, (c) if bid prices are not available,
on the basis of current bid prices for comparable securities, (d) by the
Trustee's appraising the value of the Securities in good faith on the bid side
of the market, or (e) by any combination thereof.
ADMINISTRATION OF THE TRUST
RECORDS
The Trustee maintains records of the transactions of the Trust, including a
current list of the identity and number of shares of each of the Securities in
the Portfolio. Records of the creation of Nasdaq-100 Shares in Creation Unit
size aggregations are also maintained by the Distributor. Record of ownership of
Nasdaq-100 Shares is maintained by the Depository and by DTC Participants as
described above (see "The Trust--Book-Entry-Only System").
A complete copy of the Trust Agreement is maintained by the Trustee. A copy
of the Trust Agreement is available to Beneficial Owners at the corporate trust
office of the Trustee at 101 Barclay Street, New York, New York 10286 during
normal business hours.
VOTING
The Trustee has the right to vote all of the voting securities in the Trust.
The Trustee votes the voting securities of each issuer in the same proportionate
relationship as all other shares of each such issuer are voted to the extent
permissible and, if not permitted, abstains from voting.
DISTRIBUTIONS TO BENEFICIAL OWNERS
Distributions by the Trust will be made quarterly in the event that
dividends accumulated in respect of the Securities and other income, if any,
received by the Trust, exceed Trust fees and expenses accrued during the
quarterly Accumulation Period which ends on the Business Day preceding each
Ex-Dividend Date. Based on historical dividend payment rates of the portfolio of
securities comprising the Index and estimated ordinary operating expenses of the
Trust, little or no such distributions are currently anticipated (see "Special
Considerations and Risk Factors--Little or No Expected Net Dividend
Distributions to Beneficial Owners").
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The regular quarterly Ex-Dividend Date with respect to net dividends, if
any, for Nasdaq-100 Shares will be the third Friday in each of March, June,
September, and December, unless such day is not a Business Day, in which case
the Ex-Dividend Date will be the immediately preceding Business Day. Beneficial
Owners as reflected on the records of the Depository and the DTC Participants on
the second Business Day following the Ex-Dividend Date (the "Record Date") are
entitled to receive an amount, if any, representing dividends accumulated on the
Securities through the quarterly Accumulation Period which ends on the Business
Day preceding such Ex-Dividend Date (including Securities with ex-dividend dates
falling within such quarterly dividend period) and other income, if any,
received by the Trust, net of the fees and expenses of the Trust, accrued daily
for such period. For the purposes of such distributions, dividends per
Nasdaq-100 Share are calculated at least to the nearest 1/100th of $0.01.
However, there shall be no net dividend distribution in any given quarter, and
any net dividend amounts will be rolled into the next Accumulation Period, if
the aggregate net dividend distribution would be in an amount less than 5/100 of
one percent (0.05%) of the net asset value of the Trust as of the Friday in the
week immediately preceding the Ex-Dividend Date, unless the Trustee determines
that such net dividend distribution is required to be made in order to maintain
the Trust's status as a regulated investment company or to avoid the imposition
of income or excise taxes on undistributed income (see "Tax Status of the
Trust"). When net dividend payments are to be made by the Trust, payment will be
made on the last Business Day in the calendar month following each Ex-Dividend
Date (the "Dividend Payment Date"). Dividend payments will be made through the
Depository and the DTC Participants to Beneficial Owners then of record with
funds received from the Trustee. Nasdaq-100 Shares are registered in book-entry
only, which records are kept by the Depository (see "The Trust--Book-Entry-Only
System").
Dividends payable to the Trust in respect of the Securities are credited by
the Trustee to a non-interest bearing account as of the date on which the Trust
receives such dividends. Other moneys received by the Trustee in respect of the
Securities, including but not limited to the Cash Component, the Cash Redemption
Amount, all moneys realized by the Trustee from the sale of options, warrants,
or other similar rights received or distributed in respect of the Securities as
dividends or distributions and capital gains resulting from the sale of
Securities are also credited by the Trustee to a non-interest bearing account.
All funds collected or received are held by the Trustee without interest until
distributed or otherwise utilized in accordance with the provisions of the Trust
Agreement. To the extent the amounts credited to such accounts generate interest
income or an equivalent benefit to the Trustee, such interest income or benefit
is used to reduce any charges made in connection with
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advances made by the Trustee on behalf of the Trust to cover Trust expenses in
those cases when the Trust income is insufficient to pay such expenses when due
(see "Expenses of the Trust").
The Trust intends to qualify as a regulated investment company for federal
income tax purposes. A regulated investment company is not subject to federal
income tax on its net investment income and capital gains that it distributes to
shareholders, so long as it meets certain overall distribution and
diversification requirements and other conditions under Subchapter M of the
Code. The Trust intends to satisfy these overall distribution and
diversification requirements and to otherwise satisfy any required conditions.
The Trustee intends to make additional distributions to the minimum extent
necessary (i) to distribute the entire annual investment company taxable income
of the Trust, plus any net capital gains (from sales of securities in connection
with adjustments to the Portfolio, payment of the expenses of the Trust, or to
generate cash for such distributions), and (ii) to avoid imposition of the
excise tax imposed by section 4982 of the Code (see "Tax Status of the Trust").
The additional distributions, if needed, would consist of (a) any amount by
which estimated Trust investment company taxable income and net capital gains
for a fiscal year exceeds the amount of Trust taxable income previously
distributed with respect to such year or, if greater, the minimum amount
required to avoid imposition of such excise tax, and (b) a distribution soon
after the actual annual investment company taxable income and net capital gains
of the Trust have been computed of the amount, if any, by which such actual
income exceeds the distributions already made. The net asset value of the Trust
will be reduced by the amount of such additional distributions. The magnitude of
the additional distributions, if any, will depend upon a number of factors,
including the level of redemption activity experienced by the Trust. Because
substantially all proceeds from the sale of Securities in connection with
adjustments to the Portfolio will have been used to purchase shares of Index
Securities, the Trust may have no cash or insufficient cash with which to pay
any such additional distributions. In that case, the Trustee typically will have
to sell shares of the Securities sufficient to produce the cash required to make
such additional distributions. In selecting the Securities to be sold to produce
cash for such distributions, the Trustee will choose among the Securities that
are over-weighted in the Portfolio relative to their weighting in the Index
first and then from among all other Securities in a manner so as to maintain the
weighting of each of the Securities within the applicable Misweighting Amount
(see "The Portfolio--Adjustments to the Portfolio").
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The Trustee further reserves the right to declare special dividends if, in
its reasonable discretion, such action is necessary or advisable to preserve the
status of the Trust as a regulated investment company or to avoid imposition of
income or excise taxes on undistributed income.
The Trustee further reserves the right to vary the frequency with which
periodic distributions, if any, are to be made from the Trust (E.G., from
quarterly to semi-annually) if it is determined by the Sponsor and the Trustee,
in their discretion, that such a variance would be advisable to facilitate
compliance with the rules and regulations applicable to regulated investment
companies or would otherwise be advantageous to the Trust. In addition, the
Trustee reserves the right to change the regular Ex-Dividend Date for Nasdaq-100
Shares to another regular date if it is determined by the Sponsor and the
Trustee, in their discretion, that such a change would be advantageous to the
Trust. Notice of any such variance or change (which notice shall include changes
to the Record Date, the Ex-Dividend Date, the Dividend Payment Date, and the
Accumulation Period resulting from such variance) shall be provided to
Beneficial Owners via the Depository and the DTC Participants (see "The
Trust--Book-Entry-Only System").
The Trustee may, in its discretion, advance out of its own funds any amounts
necessary to permit distributions via the Depository to Beneficial Owners. The
Trustee may reimburse itself in the amount of such advance, together with
interest thereon at a percentage rate equal to then current overnight federal
funds rate, plus Federal Reserve Bank requirements, by deducting such amounts
from (1) dividend payments or other income of the Trust when such payments or
other income is received, (2) the amounts earned or benefits derived by the
Trustee on cash held by the Trustee for the benefit of the Trust, and (3) the
sale of Securities. Notwithstanding the foregoing, in the event that any advance
remains outstanding for more than forty-five (45) Business Days, the Trustee
shall ordinarily sell Securities to reimburse itself for such advance and any
accrued interest thereon. Such advances will be secured by a lien upon and a
security interest in the assets of the Trust in favor of the Trustee.
In addition, as soon as practicable after notice of termination of the
Trust, the Trustee will distribute via the Depository and the DTC Participants
to each Beneficial Owner redeeming Nasdaq-100 Shares in Creation Unit size
aggregations prior to the termination date specified in such notice, a portion
of the Securities and cash as described above (see "Redemption of Nasdaq-100
Shares" and "Administration of the Trust--Termination"). Otherwise, the Trustee
will distribute to each Beneficial Owner (whether in Creation Unit size
aggregations or otherwise), as soon as practical after termination of the Trust,
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such Beneficial Owner's pro rata share in cash of the net asset value of the
Trust (see "Administration of the Trust--Termination").
All distributions are made by the Trustee through the Depository and the DTC
Participants to Beneficial Owners as recorded on the book entry system of the
Depository and the DTC Participants (see "The Trust-- Book-Entry-Only System").
The settlement date for the creation of Nasdaq-100 Shares in Creation Unit
size aggregations or the purchase of Nasdaq-100 Shares in the secondary market
must occur on or prior to the Record Date in order for such creator or purchaser
to receive any distributions made by the Trust on the next Dividend Payment
Date. If the settlement date for such creation or a secondary market purchase
occurs after the Record Date, the distribution will be made to the prior
security holder or Beneficial Owner as of such Record Date.
TRUST SUPERVISION
The Trust's Portfolio is not managed and therefore the adverse financial
condition of an issuer of securities in the Trust does not, in itself, require
the sale of Securities from the Portfolio. The Trustee shall, on a
non-discretionary basis, make changes to the Portfolio as described above (see
"The Portfolio-- Adjustments to the Portfolio").
The Trustee will direct its securities transactions only to brokers or
dealers, which may include affiliates of the Trustee, from whom it expects to
obtain the most favorable prices for execution of orders.
STATEMENTS TO BENEFICIAL OWNERS
With each distribution, the Trustee will furnish for distribution to
Beneficial Owners (see "The Trust--Book-Entry-Only System") a statement setting
forth the amount being distributed expressed as a dollar amount per Nasdaq-100
Share.
Promptly after the end of each fiscal year, the Trustee will furnish to the
DTC Participants, for distribution to each person who was a Beneficial Owner of
Nasdaq-100 Shares at the end of such fiscal year, an annual report of the Trust
containing financial statements audited by independent accountants of nationally
recognized standing and such other information as may be required by applicable
laws, rules, and regulations.
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REGISTER OF OWNERSHIP AND TRANSFER
The Trustee maintains a record of the creation and redemption of Nasdaq-100
Shares in Creation Unit size aggregations. The Depository maintains a record on
its book-entry system of the DTC Participant ownership of Nasdaq-100 Shares and
the number of Nasdaq-100 Shares owned (see "The Trust--Book-Entry-Only System").
Certificates are not issued for Nasdaq-100 Shares, whether in Creation Unit size
denominations or otherwise. Beneficial Owners have the rights accorded to
holders of "book-entry" securities under applicable law. Beneficial Owners may
transfer Nasdaq-100 Shares through the Depository by instructing the DTC
Participant(s) holding the Nasdaq-100 Shares for such Beneficial Owner in
accordance with standard securities industry procedures.
RIGHTS OF BENEFICIAL OWNERS
Nasdaq-100 Shares in Creation Unit size aggregations (I.E., 50,000
Nasdaq-100 Shares) may be tendered to the Trustee for redemption (see
"Redemption of Nasdaq-100 Shares"). Beneficial Owners may sell Nasdaq-100 Shares
in the secondary market, but must accumulate enough Nasdaq-100 Shares (I.E.,
50,000 shares) to constitute a full Creation Unit in order to redeem through the
Trust. The death or incapacity of any Beneficial Owner will not operate to
terminate the Trust nor entitle such Beneficial Owner's legal representatives or
heirs to claim an accounting or to take any action or proceeding in any court
for a partition or winding up of the Trust. By its purchase of a Nasdaq-100
Share, each Beneficial Owner expressly waives any right he or she may have under
law to require the Trustee at any time to account, in any manner other than as
expressly provided in the Trust Agreement, for the Securities or moneys from
time to time received, held, and applied by the Trustee under the Trust.
Beneficial Owners shall not have the right to vote concerning the Trust,
except as described below with respect to termination and as otherwise expressly
set forth in the Trust Agreement or in any manner control the operation and
management of the Trust, nor shall any Beneficial Owner be liable to any other
person by reason of any action taken by the Sponsor or the Trustee.
AMENDMENT
The Trust Agreement may be amended from time to time by the Trustee and the
Sponsor without the consent of any Beneficial Owners (a) to cure any ambiguity
or to correct or supplement any provision thereof which may be defective or
inconsistent or to make such other provisions in regard to matters or questions
arising thereunder as will not adversely affect the interests of
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Beneficial Owners; (b) to change any provision thereof as may be required by the
Commission; (c) to add or change any provision as may be necessary or advisable
for the continuing qualification of the Trust as a "regulated investment
company" under the Code; (d) to add or change any provision thereof as may be
necessary or advisable in the event that NSCC or the Depository is unable or
unwilling to continue to perform its functions as set forth therein; (e) to add
or change any provision thereof to conform the adjustments to the Portfolio and
the Portfolio Deposit to changes, if any, made by Nasdaq in its method of
determining the Index; (f) to add or change any provision thereof as may be
necessary to implement a dividend reinvestment plan or service; (g) to make
changes to the Transaction Fee and to other amounts charged in connection with
creations and redemptions of Nasdaq-100 Shares within the original parameters
set forth in the Trust Agreement; and (h) to make changes to the level of net
dividends below which a dividend distribution will not be paid in a given
quarter and will instead be rolled into the next Accumulation Period.
The Trust Agreement may also be amended from time to time by the Sponsor and
the Trustee with the consent of the Beneficial Owners of 51% of the outstanding
Nasdaq-100 Shares to add provisions to or change or eliminate any of the
provisions of the Trust Agreement or to modify the rights of Beneficial Owners;
provided, however, that the Trust Agreement may not be amended without the
consent of the Beneficial Owners of all outstanding Nasdaq-100 Shares if such
amendment would (1) permit, except in accordance with the terms and conditions
of the Trust Agreement, the acquisition of any securities other than those
acquired in accordance with the terms and conditions of the Trust Agreement; (2)
reduce the interest of any Beneficial Owner in the Trust; or (3) reduce the
percentage of Beneficial Owners required to consent to any such amendment.
Promptly after the execution of any such amendment, the Trustee shall
receive from the Depository, pursuant to the terms of the Depository Agreement,
a list of all DTC Participants holding Nasdaq-100 Shares. The Trustee shall
inquire of each such DTC Participant as to the number of Beneficial Owners for
whom such DTC Participant holds Nasdaq-100 Shares, and provide each such DTC
Participant with sufficient copies of a written notice of the substance of such
amendment for transmittal by each such DTC Participant to such Beneficial Owners
(see "The Trust--Book-Entry-Only System").
TERMINATION
The Trust Agreement provides that the Sponsor has the discretionary right to
direct the Trustee to terminate the Trust if at any time after six months
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following and prior to three years following the Initial Date of Deposit the net
asset value of the Trust falls below $150,000,000 or if at any time on or after
three years following the Initial Date of Deposit the net asset value of the
Trust is less than $350,000,000, as such dollar amount shall be adjusted for
inflation in accordance with the CPI-U, such adjustment to take effect at the
end of the fourth year following the Initial Date of Deposit and at the end of
each year thereafter and to be made so as to reflect the percentage increase in
consumer prices as set forth in the CPI-U for the twelve month period ending in
the last month of the preceding fiscal year.
The Trust Agreement also provides that the Trustee shall, at the direction
of the Sponsor, terminate the Trust if within 90 days from the Initial Date of
Deposit the net asset value is less than $100,000. The Trust will also terminate
in the event that Nasdaq-100 Shares are delisted from the Amex and are not
subsequently relisted on a national securities exchange or a quotation medium
operated by a national securities association. The Amex will consider the
suspension of trading in or the delisting of Nasdaq-100 Shares as discussed
above (see "Marketplace Listing").
The Trust may also be terminated (a) by the agreement of the Beneficial
Owners of 66 2/3% of outstanding Nasdaq-100 Shares; (b) if the Depository is
unable or unwilling to continue to perform its functions as set forth under the
Trust Agreement and a suitable replacement is unavailable; (c) if NSCC no longer
provides clearance services with respect to Nasdaq-100 Shares and a suitable
replacement is unavailable, or if the Trustee is no longer a participant in NSCC
or any successor to NSCC providing clearance services; (d) if Nasdaq ceases
publishing the Index; and (e) if the License Agreement is terminated. Currently,
the License Agreement is scheduled to expire five years from the commencement
date of trading of Nasdaq-100 Shares in accordance with its terms and is subject
to a five year renewal period following such date. The Trust will also terminate
by its terms on the Mandatory Termination Date.
If either the Sponsor or the Trustee shall resign or be removed and a
successor is not appointed, the Trust will terminate (see "Resignation, Removal
and Liability--The Trustee" and "Resignation, Removal and Liability--The
Sponsor"). The dissolution of the Sponsor or its ceasing to exist as a legal
entity for any cause whatsoever, however, will not cause the termination of the
Trust Agreement or the Trust unless the Trustee deems termination to be in the
best interests of Beneficial Owners.
Prior written notice of the termination of the Trust will be given at least
twenty (20) days prior to termination of the Trust to all Beneficial Owners in
the manner described above (see "The Trust--Book-Entry-Only System"). The
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notice will set forth the date on which the Trust will be terminated (the
"Termination Date"), the period during which the assets of the Trust will be
liquidated, the date on which Beneficial Owners of Nasdaq-100 Shares (whether in
Creation Unit size aggregations or otherwise) will receive in cash the net asset
value of the Nasdaq-100 Shares held, and the date determined by the Trustee upon
which the books of the Trust shall be closed. Such notice shall further state
that, as of the date thereof and thereafter, neither requests to create
additional Creation Units nor Portfolio Deposits will be accepted, and that, as
of the date thereof and thereafter, the portfolio of Securities delivered upon
redemption shall be essentially identical in composition and weighting to the
Securities held in the Trust as of such date rather than the securities portion
of the Portfolio Deposit as in effect on the date the request for redemption is
deemed received. Beneficial Owners of Nasdaq-100 Shares in Creation Unit size
aggregations may, in advance of the Termination Date, redeem in kind directly
from the Trust (see "Redemption of Nasdaq-100 Shares").
Within a reasonable period of time after the Termination Date the Trustee
shall, subject to any applicable provisions of law, use its best efforts to sell
all of the Securities not already distributed to redeeming Beneficial Owners of
Creation Units. The Trustee shall not be liable for or responsible in any way
for depreciation or loss incurred by reason of any such sale or sales. The
Trustee may suspend such sales upon the occurrence of unusual or unforeseen
circumstances, including but not limited to a suspension in trading of a
Security, the closing or restriction of trading, the outbreak of hostilities, or
the collapse of the economy. Upon receipt of proceeds from the sale of the last
Security, the Trustee shall deduct therefrom its fees and all other expenses
(see "Expenses of the Trust"). The remaining amount shall be transmitted to the
Depository for distribution via the DTC Participants, together with a final
statement setting forth the computation of the gross amount distributed.
Nasdaq-100 Shares not redeemed prior to termination of the Trust will be
redeemed in cash at net asset value based on the proceeds of the sale of the
Securities. Such redemptions in cash at net asset value shall be available to
all Beneficial Owners, with no minimum aggregation of Nasdaq-100 Shares
required.
RESIGNATION, REMOVAL, AND LIABILITY
THE TRUSTEE
Under the Trust Agreement, the Trustee may resign and be discharged of the
Trust created by the Trust Agreement by executing a notice of resignation in
writing and filing such notice with the Sponsor and mailing a copy of the notice
of resignation to all DTC Participants that are reflected on the records
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of the Depository as owning Nasdaq-100 Shares, for distribution to Beneficial
Owners as provided above (see "The Trust--Book-Entry-Only System") not less than
sixty (60) days before the date such resignation is to take effect. Such
resignation will become effective upon the appointment of and the acceptance of
the Trust by a successor Trustee or, if no successor is appointed within sixty
(60) days after the date such notice of resignation is given, the Trust shall
terminate (see "Administration of the Trust--Termination"). The Sponsor, upon
receiving notice of such resignation, is obligated to use its best efforts to
appoint a successor Trustee promptly.
In case the Trustee becomes incapable of acting as such or is adjudged a
bankrupt or is taken over by any public authority, the Sponsor may discharge the
Trustee and appoint a successor Trustee as provided in the Trust Agreement.
Notice of such discharge and appointment shall be mailed by the Sponsor to the
Depository and the DTC Participants for distribution to Beneficial Owners.
Upon a successor Trustee's execution of a written acceptance of an
appointment as Trustee for the Trust, such successor Trustee will become vested
with all the rights, powers, duties, and obligations of the original Trustee.
A successor Trustee is required to be a bank, trust company, corporation, or
national banking association organized and doing business under the laws of the
United States or any state thereof, to be authorized under such laws to exercise
corporate trust powers, and to have at all times an aggregate capital, surplus,
and undivided profit of not less than $50,000,000.
Beneficial Owners of 51% of the then outstanding Nasdaq-100 Shares may at
any time remove the Trustee by written instrument(s) delivered to the Trustee
and the Sponsor. The Sponsor shall thereupon use its best efforts to appoint a
successor Trustee in the manner specified above and in the Trust Agreement.
The Trust Agreement provides that the Trustee is not liable for any action
taken in reasonable reliance on properly executed documents or for the
disposition of moneys or Securities or for the evaluations required to be made
thereunder, except by reason of its own gross negligence, bad faith, wilful
malfeasance, wilful misconduct, or reckless disregard of its duties and
obligations, nor is the Trustee liable or responsible in any way for
depreciation or loss incurred by reason of the sale by the Trustee of any
Securities in the Trust. In the event of the failure of the Sponsor to act, the
Trustee may act and is not liable for any such action taken by it in good faith.
The Trustee is not personally liable for any taxes or other governmental charges
imposed upon or
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in respect of the Securities or upon the interest thereon or upon it as Trustee
or upon or in respect of the Trust which the Trustee may be required to pay
under any present or future law of the United States of America or of any other
taxing authority having jurisdiction. In addition, the Trust Agreement contains
other customary provisions limiting the liability of the Trustee. The Trustee
and its directors, subsidiaries, shareholders, officers, employees, and
affiliates under common control with the Trustee (each a "Trustee Indemnified
Party") will be indemnified from the assets of the Trust and held harmless
against any loss, liability, or expense incurred without gross negligence, bad
faith, wilful misconduct, wilful malfeasance on the part of such Trustee
Indemnified Party, or reckless disregard of its duties and obligations, arising
out of, or in connection with its acceptance or administration of the Trust,
including the costs and expenses (including counsel fees) of defending against
any claim or liability.
THE SPONSOR
If at any time the Sponsor shall fail to undertake or perform or become
incapable of undertaking or performing any of the duties which by the terms of
the Trust Agreement are required of it to be undertaken or performed, or shall
resign, or shall become bankrupt or its affairs shall be taken over by public
authorities, the Trustee may appoint a successor Sponsor as shall be
satisfactory to the Trustee, agree to act as Sponsor itself, or may terminate
the Trust Agreement and liquidate the Trust (see "Administration of the Trust--
Termination"). Notice of the resignation or removal of the Sponsor and the
appointment of a successor shall be mailed by the Trustee to the Depository and
the DTC Participants for distribution to Beneficial Owners (see "The
Trust--Book-Entry-Only System"). Upon a successor Sponsor's execution of a
written acceptance of such appointment as Sponsor of the Trust, such successor
Sponsor shall become vested with all of the rights, powers, duties, and
obligations of the original Sponsor. Any successor Sponsor may be compensated at
rates deemed by the Trustee to be reasonable.
The Sponsor may resign by executing and delivering to the Trustee an
instrument of resignation. Such resignation shall become effective upon the
appointment of a successor Sponsor and the acceptance of such appointment by the
successor Sponsor, unless the Trustee either agrees to act as Sponsor or
terminates the Trust Agreement and liquidates the Trust, which the Trustee shall
do if no successor Sponsor is appointed (see "Administration of the
Trust--Termination").
The dissolution of the Sponsor or its ceasing to exist as a legal entity for
any reason whatsoever will not cause the termination of the Trust Agreement or
the Trust unless the Trustee deems termination to be in the best interests of
the Beneficial Owners of Nasdaq-100 Shares.
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The Trust Agreement provides that the Sponsor is not liable to the Trustee,
the Trust, or to the Beneficial Owners of Nasdaq-100 Shares for taking any
action or for refraining from taking any action made in good faith or for errors
in judgment, but is liable only for its own gross negligence, bad faith, wilful
misconduct, or wilful malfeasance in the performance of its duties or its
reckless disregard of its obligations and duties under the Trust Agreement. The
Sponsor is not liable or responsible in any way for depreciation or loss
incurred by the Trust by reason of the sale of any Securities of the Trust. The
Trust Agreement further provides that the Sponsor and its directors,
subsidiaries, shareholders, officers, employees, and affiliates under common
control with the Sponsor (each a "Sponsor Indemnified Party") shall be
indemnified from the assets of the Trust and held harmless against any loss,
liability, or expense incurred without gross negligence, bad faith, wilful
misconduct, or wilful malfeasance on the part of any Sponsor Indemnified Party
in the performance of its duties or reckless disregard of its obligations and
duties under the Trust Agreement, including the payment of the costs and
expenses (including counsel fees) of defending against any claim or liability.
SPONSOR
The Sponsor of the Trust is Nasdaq-Amex Investment Product Services, Inc., a
Delaware corporation incorporated on August 7, 1998 with offices c/o The Nasdaq
Stock Market, Inc., 1735 K Street NW, Washington, DC 20006-1500. The Sponsor's
Internal Revenue Service Employer Identification Number is 52-2115391. Nasdaq
owns all of the Sponsor's outstanding shares of common stock. Nasdaq is a
"control person" of the Sponsor as such term is defined in the Securities Act.
The Sponsor, at its own expense, may from time to time provide additional
promotional incentives to brokers who sell Nasdaq-100 Shares to the public. In
certain instances, these incentives may be provided only to those brokers who
meet certain threshold requirements for participation in a given incentive
program, such as selling a significant number of Nasdaq-100 Shares within a
specified time period.
TRUSTEE
The Trustee is The Bank of New York, a corporation organized under the laws
of the State of New York with trust powers. The Trustee has a trust office at
101 Barclay Street, New York, New York 10286 and its Internal Revenue Service
Employer Identification Number is 135-160382. The Trustee is subject to
supervision and examination by the Federal Reserve Bank of New York, the
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Federal Deposit Insurance Corporation and the New York State Banking Department.
DEPOSITORY
The Depository Trust Company, New York, New York, a limited purpose trust
company and member of the Federal Reserve System, acts as Depository for
Nasdaq-100 Shares. The Depository receives customary fees for its services.
LEGAL OPINION
The legality of the Nasdaq-100 Shares offered hereby has been passed upon by
Jones, Day, Reavis & Pogue, New York, New York, as counsel for the Sponsor.
Winston & Strawn, New York, New York, has acted as counsel for the Trustee.
INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
The statement of financial condition, including the schedule of investments,
as of March 5, 1999 appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
INFORMATION AND COMPARISON RELATING TO TRUST,
SECONDARY MARKET TRADING, NET ASSET SIZE,
PERFORMANCE, AND TAX TREATMENT
Information regarding various aspects of the Trust, including the net asset
size thereof, as well as the secondary market trading, the performance, and the
tax treatment of Nasdaq-100 Shares, may be included from time to time in
advertisements, sales literature, and other communications as well as in reports
to current or prospective Beneficial Owners.
Information may be provided to prospective investors to help such investors
assess their specific investment goals and to aid in their understanding of
various financial strategies. Such information may present current economic and
political trends and conditions and may describe general principles of investing
such as asset allocation, diversification, and risk tolerance, as well as
specific investment techniques such as indexing and hedging. In addition,
information may be presented to prospective or current Beneficial Owners
regarding the purchase of Nasdaq-100 Shares in the secondary market, such as
margin requirements, types of orders that may be entered, and information
concerning short sales. Similarly, market data symbols, trading fractions, other
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trading information, and the CUSIP number relating to Nasdaq-100 Shares may be
included in such information. Comparisons with other investment vehicles, such
as mutual funds, may be made with respect to the application of such
requirements, costs of fund management and administration, costs and advantages
of intraday trading, and rules applicable to short sales.
Information regarding the Trust's net asset size may be stated in
communications to prospective or current Beneficial Owners for one or more time
periods, including annual, year-to-date, or daily periods. Such information may
also be expressed in terms of the total number of Nasdaq-100 Shares outstanding
as of one or more time periods. Factors integral to the size of the Trust's net
assets, such as creation volume and activity, may also be discussed and may be
specified from time to time or with respect to various periods of time.
Comparisons of such information during various periods may also be made and may
be expressed by means of percentages.
Information may be provided to investors regarding the ability to engage in
short sales of Nasdaq-100 Shares, including reference to any applicable
exemption from the "tick test" provision of the Commission's "short sale rule"
(Rule 10a-1 under the Securities Exchange Act of 1934), to permit short sales on
"minus" or "zero-minus" ticks. Selling short refers to the sale of securities
which the seller does not own, but which the seller arranges to borrow prior to
effecting the sale. Institutional investors may be advised that lending their
Nasdaq-100 Shares to short sellers may generate stock loan credits which may
supplement the return they can earn from an investment in Nasdaq-100 Shares.
These stock loan credits may provide a useful source of additional income for
certain institutional investors who can arrange to lend Nasdaq-100 Shares.
Potential short sellers may be advised that a short rebate (functionally
equivalent to partial use of proceeds of the short sale) may reduce their cost
of selling short.
Information may be provided to investors regarding capital gains
distributions by the Trust, including historical information relating to such
distributions. Comparisons between the Trust and other investment vehicles such
as mutual funds may be made regarding such capital gains distributions, as well
as relative tax efficiencies between the Trust and such other investment
vehicles (E.G., realization of capital gains or losses to the Trust and to such
other investment vehicles in connection with redemption of their respective
securities). (See "Tax Status of the Trust" for discussion of tax consequences
to Beneficial Owners of Nasdaq-100 Shares in connection with the sale or
redemption of Nasdaq-100 Shares.) Based on projected differences between
Nasdaq-100 Shares and conventional mutual funds with regard to capital gains
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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
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changes in such fund's portfolio. In contrast, the "in-kind" redemption
mechanism of Nasdaq-100 Shares may make them more tax efficient investments
under most circumstances than comparable conventional mutual fund shares. As
discussed above, the "in-kind" redemption feature of the Trust tends to lower
the amount of annual net capital gains distributions to Nasdaq-100 Share holders
as compared to their conventional mutual fund counterparts. Since shareholders
are generally required to pay income tax on capital gains distributions, the
smaller the amount of such distributions, the less taxes that are payable
currently. To the extent that the Trust is not required to recognize capital
gains, the Nasdaq-100 Share holder is able, in effect, to defer tax on such
gains until he sells or otherwise disposes of his shares, or the Trust
terminates. If such holder retains his shares until his death, under current law
the tax basis of such shares would be adjusted to their then fair market value.
Information regarding the secondary market trading activity of Nasdaq-100
Shares also may be presented over one or more stated time periods, such as for
daily, monthly, quarterly, or annual periods. Nasdaq-100 Share secondary market
trading volume information may be compared with similar information relating to
other issues trading on the Amex during the same reporting period. Average daily
secondary market trading volume of Nasdaq-100 Shares may also be reported from
time to time. Comparisons of such information during various periods may also be
made, and may be expressed by means of percentages.
Information may also be provided in communications to prospective investors
or current Beneficial Owners comparing and contrasting the relative advantages
of investing in Nasdaq-100 Shares as compared to other investment vehicles, such
as mutual funds, both on an individual and a group basis (E.G., stock index
mutual funds). Such information may include comparisons of costs and expense
ratios, expressed either in dollars or basis points, stock lending activities,
permitted investments and hedging activities (E.G., engaging in options or
futures transactions), and portfolio turnover data and analyses. In addition,
such information may quote, reprint, or include portions of financial,
scholarly, or business publications or periodicals, including model allocation
schedules or portfolios, as the foregoing relate to the comparison of Nasdaq-100
Shares to other investment vehicles, current economic, financial and political
conditions, investment philosophy or techniques, or the desirability of owning
Nasdaq-100 Shares.
In addition, information on the performance of Nasdaq-100 Shares on the
basis of changes in price per Nasdaq-100 Share with or without reinvesting all
dividends, if any, and/or any distributions of capital in additional Nasdaq-100
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Shares may be included from time to time in such information. Average annualized
performance may be stated for various periods. Total return figures may also be
stated for a period from the Initial Date of Deposit, a date at least twelve
months prior to the end of the reporting period or for annual periods for the
life of the Trust. Total return measures the percentage growth in the total
dollar value of an investment in Nasdaq-100 Shares (reflecting dividends, if
any, and capital appreciation but without provision for any income taxes
payable).
Information on the Index contained in this Prospectus, as updated from time
to time, may also be included from time to time in such material. The
performance of the Trust, of the Index (provided information is also given
reflecting the performance of the Trust in comparison to the Index) or both may
also be compared to the performance of money managers as reported in market
surveys such as SEI Fund Evaluation Survey (a leading database of tax-exempt
funds) or mutual funds such as those reported by Lipper Analytical Services
Inc., Money Magazine Fund Watch, Wiesenberger Investment Companies Service,
Morningstar Incorporated, and Value Line Investment Survey, each of which
measures performance following their own specific and well-defined calculation
measures, or of the New York Stock Exchange Composite Index, the American Stock
Exchange Composite Index, the Nasdaq Composite Index (indices of stocks traded
on the New York and American Stock Exchanges and the Nasdaq Stock Market,
respectively), the S&P 500 Index-Registered Trademark- (a broad-based index of
500 publicly traded companies), the S&P MidCap 400 Index-TM- (a broad-based
index of 400 publicly traded middle capitalization companies), the Dow Jones
Industrial Average(SM) (an index currently comprising 30 publicly traded large
capitalization companies), or similar domestic or foreign measurement standards
during the same period of time. In addition to all other sources of comparative
information, comparative performance figures published by other funds or money
managers may be included from time to time. Information may also be included
regarding the aggregate amount of assets committed to index investing generally
by various types of investors, such as pension funds and other institutional
investors, which currently exceeds $300 billion.
Information on the relative price performance of Nasdaq-100 Shares in
relation to other securities and/or indices may be represented in the form of
"correlation." Correlation is a standard measure of the degree of linear
association between two price series, and ranges from minus one hundred percent
(-100%) (I.E., perfect negative linear association) to positive one hundred
percent (100%) (I.E., perfect positive linear association).
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One important difference between Nasdaq-100 Shares and conventional mutual
fund shares is that Nasdaq-100 Shares are available for purchase or sale on an
intraday basis on the Amex. An investor who buys shares in a conventional mutual
fund will usually buy or sell shares at a price at or related to the closing net
asset value per share, as determined by the fund. In contrast, Nasdaq-100 Shares
are not offered for purchase or redeemed for cash at a fixed relationship to
closing NAV. Information may be presented to help investors evaluate potential
advantages and disadvantages of Nasdaq-100 Shares relative to funds sold and
redeemed at prices related to closing NAV.
Information relating to the relative price performance of Nasdaq-100 Shares
may be compared against a wide variety of investment categories and asset
classes, including common stocks, small capitalization stocks, long and
intermediate term corporate and government bonds, Treasury bills, the rate of
inflation in the United States (based on the Consumer Price Index ("CPI")) and
combinations of various capital markets. Historical returns of these and other
capital markets in the United States may be provided by independent statistical
studies and sources, such as those provided by Ibbotson Associates of Chicago,
Illinois. The performance of these capital markets is based on the returns of
different indices. Information may be presented using the performance of these
and other capital markets to demonstrate general investment strategies. For
example, the performance of Nasdaq-100 Shares may be compared to the performance
of selected asset classes such as short-term U.S. Treasury bills, long-term U.S.
Treasury bonds, long-term corporate bonds, mid-capitalization stocks, foreign
stocks, and small capitalization stocks and may also be measured against the
rate of inflation as set forth in well-known indices (such as the CPI).
Performance comparisons may also include the value of a hypothetical investment
in any of these capital markets. Performance of Nasdaq-100 Shares may also be
compared to that of other indices or compilations that may be developed and made
available to the investing public in the future. Of course, such comparisons
will only reflect past performance of Nasdaq-100 Shares and the investment
categories, indices, or compilations chosen, and no guarantees can be made of
future results regarding the performance of either Nasdaq-100 Shares or the
asset classes chosen for such comparisons.
DIVIDEND REINVESTMENT SERVICE
The Sponsor reserves the right in the future to make the DTC book-entry
Dividend Reinvestment Service (the "Service") available for use by Beneficial
Owners through DTC Participants for reinvestment of their cash proceeds, if
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any. The Sponsor may choose to make the Service available within its discretion
and without the consent of Beneficial Owners. Some or all DTC Participants may
not elect to utilize the Service; therefore, if the Service is made available
for Nasdaq-100 Shares, an interested Nasdaq-100 Share investor may wish to
contact his or her broker to ascertain the availability of the Service through
such broker at such time. Interested Beneficial Owners should also note that
each broker may require investors to adhere to specific procedures and
timetables in order to participate in the Service and investors should ascertain
from their broker such necessary details at the time when the Service is made
available for Nasdaq-100 Shares.
If and when the Service is utilized, the Trustee may use the cash proceeds
of dividends received from all Beneficial Owners participating in reinvestment
through the Service to obtain Index Securities necessary to create the requisite
number of Nasdaq-100 Shares at the close of business on each Nasdaq-100 Share
distribution date. Alternatively, the Trustee may choose to implement the
reinvestment of dividends through other means (E.G., through trade executions
for Nasdaq-100 Shares on the open market). Any cash balance remaining after the
requisite number of Nasdaq-100 Shares have been created or otherwise acquired
will be distributed, on a pro rata basis, to all Beneficial Owners who
participated in the Service. Brokerage commissions, if any, incurred in
obtaining the Index Securities necessary to create additional Nasdaq-100 Shares
with the cash from the distributions, or in purchasing Nasdaq-100 Shares on the
open market, will be an expense of the Trust.
Nasdaq-100 Shares acquired pursuant to the Service will be held by the
Beneficial Owners in the same manner, and subject to the same terms and
conditions, as original ownership of Nasdaq-100 Shares. Distributions reinvested
in additional Nasdaq-100 Shares through the Service will nevertheless be taxable
dividends to Beneficial Owners to the same extent as if received in cash.
ADDITIONAL INFORMATION
A Registration Statement on Form S-6, including amendments thereto, relating
to the Trust, of which this Prospectus forms a part, has been filed with the
Commission. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits thereto. Statements contained in
this Prospectus as to the contents of any contract or other document referred to
are not necessarily complete and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. For further information with respect to the Trust, reference is
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made to such Registration Statement and the exhibits thereto. A copy of the
Registration Statement may be inspected by anyone without charge at the
Commission's principal office located at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, the Northeast Regional Office located at 7 World
Trade Center, 13th Floor, New York, New York 10048, and the Midwest Regional
Office located at Citicorp Center, 500 West Madison Street, 14th Floor, Chicago,
Illinois 60661-2511, and copies of all or any part thereof may be obtained from
the Public Reference Branch of the Commission upon the payment of certain fees
prescribed by the Commission. In addition, the Registration Statement may be
accessed electronically at the Commission's site on the World Wide Web located
at http://www.sec.gov. Such information is also available from Nasdaq-Amex by
calling: 1-800-843-2639.
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GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
"10 Basis Point Limit".......................................................... 9
"1940 Act"...................................................................... 12
"Accumulation Period"........................................................... 6
"Adjustment Day"................................................................ 53
"Amex".......................................................................... 1
"Annual Ranking Review"......................................................... 59
"Balancing Amount".............................................................. 54
"BNY"........................................................................... 26
"Beneficial Owners"............................................................. 45
"Business Day".................................................................. 10
"Cash Component"................................................................ 7
"Cash Redemption Amount"........................................................ 73
"Closing Time".................................................................. 39
"CNS"........................................................................... 6
"Code".......................................................................... 11
"Commission".................................................................... 6
"CPI"........................................................................... 97
"CPI-U"......................................................................... 15
"Creation Unit"................................................................. 1
"Depository Agreement".......................................................... 46
"Depository".................................................................... 10
"Distributor"................................................................... 16
"Dividend Payment Date"......................................................... 81
"DTC"........................................................................... 10
"DTC Participants".............................................................. 44
"ERISA"......................................................................... 12
"Evaluation Time"............................................................... 4
"Ex-Dividend Date".............................................................. 13
"Income Net of Expense Amount".................................................. 6
"Index Securities".............................................................. 5
"Index"......................................................................... 1
"Indirect Participants"......................................................... 45
"Initial Date of Deposit"....................................................... 4
"IRA"........................................................................... 12
"Large Stocks".................................................................. 60
"License Agreement"............................................................. 62
"Mandatory Termination Date".................................................... 15
"Nasdaq"........................................................................ 1
"Nasdaq-100 Shares"............................................................. 1
"Nasdaq-100 Clearing Process"................................................... 8
</TABLE>
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GLOSSARY OF DEFINED TERMS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
"Nasdaq-100 Participant Agreement".............................................. 42
"NAV Amount".................................................................... 53
"NSCC Business Day"............................................................. 20
"NSCC".......................................................................... 6
"Participating Party"........................................................... 6
"Plans"......................................................................... 11
"Portfolio Deposit Amount"...................................................... 54
"Portfolio Deposit"............................................................. 7
"Portfolio"..................................................................... 35
"Record Date"................................................................... 81
"Request Day"................................................................... 53
"Securities Act"................................................................ 68
"Securities".................................................................... 1
"Service"....................................................................... 97
"Small Stocks".................................................................. 60
"Sponsor"....................................................................... 1
"Sponsor Indemnified Party"..................................................... 91
"Termination Date".............................................................. 88
"Transaction Fee"............................................................... 8
"Transmittal Date".............................................................. 39
"Trust Agreement"............................................................... 5
"Trust"......................................................................... 1
"Trustee"....................................................................... 5
"Trustee Indemnified Party"..................................................... 90
</TABLE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND ANY
INFORMATION OR REPRESENTATIONS NOT STATED IN IT, OR IN THE REGISTRATION
STATEMENT AND EXHIBITS OF WHICH IT IS A PART, MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE TRUST, THE SPONSOR, OR THE TRUSTEE. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, ANY
SECURITY OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER
TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, SECURITIES IN ANY JURISDICTION
WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION IN IT IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE. HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE
THIS PROSPECTUS IS REQUIRED TO BE DELIVERED, THIS PROSPECTUS WILL BE AMENDED OR
SUPPLEMENTED ACCORDINGLY.
THE TRUST IS REGISTERED AS A UNIT INVESTMENT TRUST UNDER THE INVESTMENT
COMPANY ACT OF 1940. REGISTRATION DOES NOT IMPLY THAT THE TRUST OR NASDAQ-100
SHARES HAVE BEEN GUARANTEED, SPONSORED, RECOMMENDED, OR APPROVED BY THE UNITED
STATES OR ANY STATE OR ANY AGENCY OR OFFICER THEREOF.
--------------------------
Until April 5, 1999, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus.
NASDAQ-100 TRUST(SM)
SERIES 1
------------------------
NASDAQ-100 SHARES(SM)
---------------------
PROSPECTUS
---------------------
SPONSOR:
NASDAQ-AMEX
INVESTMENT PRODUCT
SERVICES, INC.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Essential Information.............. 2
Prospectus Summary................. 5
Special Considerations and Risk
Factors.......................... 18
Report of Ernst & Young LLP,
Independent Auditors............. 29
Statement of Financial Condition... 30
Schedule of Investments............ 32
The Trust.......................... 35
The Portfolio...................... 47
The Index.......................... 56
License Agreement.................. 62
Marketplace Listing................ 63
Tax Status of the Trust............ 64
Continuous Offering of Nasdaq-100
Shares........................... 67
Expenses of the Trust.............. 69
Redemption of Nasdaq-100 Shares.... 72
Valuation.......................... 79
Administration of the Trust........ 80
Resignation, Removal, and
Liability........................ 88
Sponsor............................ 91
Trustee............................ 91
Depository......................... 92
Legal Opinion...................... 92
Independent Auditors and Financial
Statements....................... 92
Information and Comparison Relating
to Trust, Secondary Market
Trading,
Net Asset Size, Performance, and
Tax Treatment.................... 92
Dividend Reinvestment Service...... 97
Additional Information............. 98
Glossary of Defined Terms.......... 100
</TABLE>
March 5, 1999
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