TI, you're almost right. It's 95% of TAXABLE INCOME that must be paid out to qualify as a REIT.
The special dividend represents a fixed number (I forget exactly what, but I think it's about $265MM), which is CCA's accumulated "earnings and profits (E&P)" at the time of the merger. E&P is a tax term, but it is not the same as taxable income, nor is it the same as financial statement income.
Any distributions by PZN during 1999 in excess of PZN's 1999 E&P will be treated as coming out of the E&P inherited from CCA, and will reduce the amount of remaining special dividend to be paid in December. Again, that excess has nothing to do with FFO, taxable income or net income.
PZN has little flexibility with accounting for it's E&P. Most of the unforseen costs will be capitalized and amortized, having minimal impact on 1999 E&P (or taxable income, or FFO, or quarterly dividends). Higher interest costs, legal fees and slower growth will cut it back somewhat, but not a huge amount. Thus the special dividend won't change much...except for the impact of dilution. Since the CCA E&P is a fixed number, the more shares there are outstanding in December, the smaller will be the special dividend on a per share basis.
BTW, it seems that the last claculation I saw was for a special dividend of $1.54 or $1.53 - before reductions for dilution, etc. I doubt if it will end up as more than $1.25 per share in December, if paid in cash.