Nasdaq 100 Trust Series 1 - Cboe

PROSPECTUS

NASDAQ-100 TRUSTSM, SERIES 1

A Unit Investment Trust

The Nasdaq-100 Index:

? measures the average performance of a broadly diversified group of stocks traded on the Nasdaq Stock Market.

? includes the stocks of 100 of the largest and most actively traded non-financial companies listed on the Nasdaq Stock Market.

? is a modified capitalization weighted index (which promotes portfolio weight diversification).

The Nasdaq-100 TrustSM, Series 1:

? is a unit investment trust designed to closely track the price and yield performance of the Nasdaq-100 Index.

? holds all of the stocks in the Nasdaq-100 Index.

? issues and redeems shares of Nasdaq-100 Index Tracking StockSM in multiples of 50,000 in exchange for the stocks in the Nasdaq-100 Index and cash.

Nasdaq-100 Index Tracking StockSM:

? represents undivided ownership interests in the Nasdaq-100 Trust, Series 1.

? trades on the American Stock Exchange under the symbol ``QQQ.''

? minimum trading unit: 1 Share of Nasdaq-100 Index Tracking Stock.

Sponsor: Nasdaq Investment Product Services, Inc. (which is owned by The Nasdaq Stock Market, Inc.)

The Securities and Exchange Commission has not approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any contrary representation is a criminal offense.

This Prospectus consists of two parts: Part A and Part B. Prospectus Part A dated January 30, 2001

COPYRIGHT 2001 by Nasdaq Investment Product Services, Inc., all rights reserved

The Nasdaq-100 TrustSM, Series 1

Nasdaq-100 Index Tracking StockSM

Table of Contents

FRONT COVER PAGE

NASDAQ-100 INDEX TRACKING STOCK PROSPECTUS PART A-- HIGHLIGHTS Nasdaq-100 Shares are Ownership Interests in the Nasdaq-100 Trust . . Nasdaq-100 Shares Trade on the American Stock Exchange . . . . . . . . The Nasdaq-100 Trust Issues and Redeems Nasdaq-100 Shares in

Multiples of 50,000 Shares called ``Creation Units'' . . . . . . . . . . . . . Nasdaq-100 Shares Should Closely Track the Value of the Underlying

Nasdaq-100 Index Stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Trustee Votes the Underlying Shares . . . . . . . . . . . . . . . . . . . . . Termination of the Nasdaq-100 Trust . . . . . . . . . . . . . . . . . . . . . . . . . Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Essential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Report of Ernst & Young LLP, Independent Auditors . . . . . . . . . . . . Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statements of Changes in Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NASDAQ-100 INDEX TRACKING STOCK PROSPECTUS PART B Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Special Considerations and Risk Factors . . . . . . . . . . . . . . . . . . . . . . The Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . License Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marketplace Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax Status of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Continuous Offering of Nasdaq-100 Shares . . . . . . . . . . . . . . . . . . . . Expenses of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Redemption of Nasdaq-100 Shares . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

A-1 A-1

A-1

A-2 A-2 A-4 A-4 A-5 A-7 A-9 A-10 A-11 A-12 A-13 A-14 A-19

B-2 B-14 B-22 B-34 B-43 B-48 B-49 B-50 B-53 B-55 B-58

Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Administration of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Resignation, Removal, and Liability . . . . . . . . . . . . . . . . . . . . . . . . . . Sponsor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depository . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Information and Comparison Relating to Trust, Secondary Market

Trading, Net Asset Size, Performance, and Tax Treatment . . . . . . . . Dividend Reinvestment Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Glossary of Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

B-65 B-66 B-74 B-77 B-77 B-77 B-77 B-77

B-78 B-86 B-87 B-88

NASDAQ-100 INDEX TRACKING STOCK PROSPECTUS PART A--HIGHLIGHTS

Nasdaq-100 Shares are Ownership Interests in the Nasdaq-100 Trust

The Nasdaq-100 Trust, Series 1 (the ``Trust'') is a unit investment trust that issues securities called Nasdaq-100 Index Tracking Stock (also referred to in this Prospectus as ``Nasdaq-100 Shares''). Nasdaq-100 Index Tracking Stock represents undivided ownership interests in the portfolio of stocks held by the Trust. The Trust holds all of the common stocks of the Nasdaq-100 Index (the ``Index'') and is intended to provide investment results that, before expenses, generally correspond to the price and yield performance of the Index.

Nasdaq-100 Shares Trade on the American Stock Exchange

Nasdaq-100 Shares are listed for trading on the American Stock Exchange (the ``Amex''). Nasdaq-100 Shares are bought and sold in the secondary market like ordinary shares of stock at any time during the trading day. Nasdaq-100 Shares generally trade in round lots of 100 shares, but can be traded in odd lots of as little as one share. Trading of Nasdaq-100 Shares on the Amex may be halted under the circumstances described in the paragraphs below relating to the risks of investing in Nasdaq-100 Shares.

The Nasdaq-100 Trust Issues and Redeems Nasdaq-100 Shares in Multiples of 50,000 Shares Called ``Creation Units''

The Trust issues Nasdaq-100 Shares only in blocks of 50,000 or multiples of 50,000, which are referred to as ``Creation Units.'' Most investors, however, purchase and sell Nasdaq-100 Shares in the secondary trading market on the Amex, in lots of any size.

Creation Units are issued by the Trust to anyone who, after placing a creation order with the Distributor, deposits with The Bank of New York, the ``Trustee'' of the Trust, a specified portfolio of Nasdaq-100 Index securities, as well as a cash payment, if any, generally equal to accumulated dividends of the securities (net of expenses) up to the time of deposit.

Nasdaq-100 Shares are not individually redeemable, except upon termination of the Trust. Nasdaq-100 Shares can be redeemed only by tendering to the Trust 50,000 Nasdaq-100 Shares or multiples thereof. Upon redemption, the redeeming holder will receive a portfolio of Nasdaq-100 Index securities based on the net asset value of the Trust plus, in some cases, a cash payment. The cash payment amount is generally equal to the cash amount determined for creations of Nasdaq-100 Shares and, likewise, may be paid by either the redeeming holder or the Trust, depending on the values of the dividends received, Trust expenses and the adjustment amount.

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Procedures to be followed when engaging in creation and redemption transactions are set forth in Part B of this Prospectus.

A person placing a creation order or requesting a redemption must pay a $1,000 to $4,000 order fee to the Trustee, depending on the method chosen. No fee is payable for secondary market purchases or sales of Nasdaq-100 Shares, but secondary market transactions are subject to ordinary brokerage commissions.

Nasdaq-100 Shares Should Closely Track the Value of the Underlying Nasdaq-100 Index Stocks

To maintain the correspondence between the composition and weights of securities held by the Trust (the ``Securities'') and the stocks in the Nasdaq-100 Index, the Securities will be adjusted by the Trustee from time to time to conform to periodic changes in the identity and/or relative weights of Nasdaq-100 Index stocks. The agreement governing the Trust contains directions to the Trustee as to how changes to the Nasdaq-100 Index are to be replicated by the Trust.

The value of the Nasdaq-100 Shares will fluctuate in relation to changes in the value of the Trust's portfolio of securities. However, at any point in time, the market price of each individual Nasdaq-100 Share may not be identical to the net asset value of such share. Historically, these two valuations have been very close. See Part B of this Prospectus for comparisons of market price and net asset value. Of course, these comparisons only reflect past performance and no guarantee can be made of future performance.

The current value of the Nasdaq-100 Index will ordinarily continue to be reported even when trading is interrupted in its component stocks. In that event, the reported Index level will be based on the current market price of those stocks still being traded (if any) and the last reported prices for those stocks that are not currently trading. As a result, reported Index levels may at times be based on non-current price information with respect to some or even all of the stocks in the Nasdaq-100 Index.

Expenses of the Trust

Fees and expenses to be charged to the Trust are described in Part B of this Prospectus and include, among other costs, the Trustee's fees, Nasdaq licensing fees, federal registration fees and expenses of the Sponsor relating to the printing and distribution of marketing materials. The expenses of the Trust will be accrued daily and reflected in the net asset value of the Trust. The Sponsor has undertaken that, through September 30, 2001, the ordinary operating expenses of the Trust will not exceed 0.18% per annum of the daily net asset value of the Trust, and the Sponsor will reimburse the Trust for

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