As Filed with the Securities and Exchange Commission
on February 26, 1996
Securities Act File No. 33-99752
Investment Company Act File No. 811-09138
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM N-2
Registration Statement Under
The Securities Act of 1933 ( X )
Pre-Effective Amendment No. 1 ( X )
Post-Effective Amendment No.____ ( )
Registration Statement Under
The Investment Company Act of 1940 ( X )
Amendment No. 1 ( X )
__________________________
DECS TRUST
(Exact Name of Registrant as Specified in Charter)
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
(Address of Principal Executive Offices)
Registrant's Telephone Number, including
Area Code: (212) 783-7000
Peter B. Blanton
Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
(Name and Address of Agent for Service)
With copies to:
Allan G. Sperling, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
(212) 225-2000
Approximate Date of Proposed Public Offering: As soon as
practicable after the effective date of this Registration
Statement.
If any securities being registered on this form will be
offered on a delayed or continuous basis in reliance on Rule 415
under the Securities Act of 1933, as amended, other than
securities offered in connection with a dividend reinvestment
plan, check the following box. ( )
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- -----------------------------------------------------------------
Proposed
Maximum Proposed
Offering Maximum
Amount Price Aggregate Amount of
Title of being Per Offering Registration
Securities Registered Share(1) Price(1) Fee
- ---------- ---------- --------- --------- ---------
DECS repre-
senting
shares of
beneficial 1,000,000
interest Shares $10.00 $10,000,000 $3,448.28
- -----------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the
registration fee.
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a) may determine.
<PAGE>
DECS TRUST
Cross-Reference Sheet
Parts A and B of Prospectus*
Item
No. Caption Prospectus Caption
1. Outside Front Cover Front Cover Page
2. Inside Front and Outside
Back Cover Page Front Cover Page; Inside
Front Cover Page
3. Fee Table and Synopsis Prospectus Summary; Fees and
Expenses
4. Financial Highlights Not Applicable
5. Plan of Distribution Front Cover Page; Prospectus
Summary; Underwriting
6. Selling Shareholders Not Applicable
7. Use of Proceeds Use of Proceeds; Investment
Objectives and Policies
8. General Description of the
Registrant Front Cover Page; Prospectus
Summary; The Trust;
Investment Restrictions;
Investment Objectives and
Policies; Risk Factors
Relating to DECS
9. Management Management and
Administration of the Trust
10. Capital Stock, Long-Term Debt
and Other Securities; Federal
Income Tax Considerations Description of DECS
11. Defaults and Arrears on Senior
Securities Not Applicable
12. Legal Proceedings Not Applicable
13. Table of Contents of the
Statement of Additional
Information Not Applicable
14. Cover Page Not Applicable
15. Table of Contents Not Applicable
16. General Information and
History The Trust
17. Investment Objective and
Policies Investment Objectives and
Policies; Investment
Restrictions
18. Management Management and
Administration of the Trust
19. Control Persons and Principal
Holders of Securities Management and
Administration of the Trust
20. Investment Advisory and Other
Services Management and
Administration of the Trust
21. Brokerage Allocation and Other
Practices Investment Objectives and
Policies
22. Tax Status Certain United States
Federal Income Tax
Considerations
23. Financial Statements Statement of Assets and
Liabilities
________________
* Pursuant to the General Instructions to Form N-2, all
information required to be set forth in Part B: Statement
of Additional Information has been included in Part A: The
Prospectus. Information required to be included in Part C
is set forth under the appropriate item, so numbered, in
Part C of the N-2 Registration Statement.
<PAGE>
Subject to Completion
February 26, 1996
Prospectus
1,000,000 DECS SM
DECS TRUST
(Subject to Exchange into Shares of Common Stock, Par Value
$ Per Share, of Company)
The issue price (the "Initial Price") of each of the DECS (each,
a "DECS") of the DECS Trust (the "Trust") being offered hereby
will be $ (the last sale price of the common stock, par
value $ per share (the "Common Stock"), of Company (the
"Company") on , 1996, as reported on the New York Stock
Exchange Composite Tape). Each of the DECS represents the right
to receive an annual distribution of $ , payable
quarterly on , , and , beginning
, 1996, and will be mandatorily exchanged upon the
conclusion of the term of the Trust on , 1999
(the "Exchange Date") for between 0.8333 and 1.0 shares of Common
Stock. The DECS are not subject to redemption prior to the
Exchange Date.
The Trust is a newly organized Delaware business trust
established to purchase and hold (i) a series of zero-coupon U.S.
Treasury securities with face amounts and maturities
corresponding to the distributions payable with respect to the
DECS and the payment dates thereof and (ii) one or more forward
purchase contracts (the "Contracts") with certain stockholders
(the "Sellers") of the Company relating to the Common Stock.
The investment objectives of the Trust are to provide holders of
DECS with a quarterly distribution of $ per DECS over
the term of the Trust and to provide holders of DECS, at the
Exchange Date, in exchange for each DECS, a number of shares of
Common Stock at the Exchange Rate (as defined herein). The DECS
are designed to provide investors with a higher yield than the
current dividend yield on the Common Stock. However, there is no
assurance that the yield on the DECS will be higher than the
dividend yield on the Common Stock over the term of the Trust.
The Exchange Rate is equal to, subject to certain adjustments,
(a) if the Exchange Price (as defined herein) is greater than or
equal to $ per share of Common Stock (the "Threshold
Appreciation Price"), 0.8333 shares of Common Stock per DECS, (b)
if the Exchange Price is less than the Threshold Appreciation
Price but is greater than the Initial Price, a fractional share
of Common Stock per DECS so that the value thereof at the
Exchange Price equals the Initial Price and (c) if the Exchange
Price is less than or equal to the Initial Price, one share of
Common Stock per DECS. The "Exchange Price" means the average
Closing Price (as defined herein) per share of Common Stock on
the 20 Trading Days (as defined herein) immediately prior to the
Exchange Date, except as otherwise described herein.
Accordingly, the value of the Common Stock to be received by
holders of the DECS at the Exchange Date will not necessarily
equal the Initial Price. If the Exchange Price is less than the
Initial Price, the value of the Common Stock to be received at
the Exchange Date will be less than the price paid for the DECS.
See "Investment Objectives and Policies."
See "Risk Factors Relating to DECS" beginning on page 15 for a
discussion of certain factors that should be carefully considered
by prospective purchasers.
(Cover continued on next page)
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.
- -----------------------------------------------------------------
Price to Sales Proceeds to
Public Load the Trust
Per DECS $ $ $
Total (1) $ $ $
- -----------------------------------------------------------------
(1) The Trust has granted to the Underwriter an option,
exercisable within 30 days from the date hereof, to purchase
up to an additional DECS to cover over-allotments,
if any. If the Underwriter exercises such option in full,
the total Price to Public, Sales Load and Proceeds to the
Trust will be $ , $ and $ ,
respectively. See "Underwriting."
The DECS are offered subject to receipt and acceptance by the
Underwriter, to prior sales and to the Underwriter's right to
reject any order in whole or in part and to withdraw, cancel or
modify the offer without notice. It is expected that delivery of
the DECS will be made at the office of Salomon Brothers Inc,
Seven World Trade Center, New York, New York, or through the
facilities of The Depository Trust Company, on or about
, 1996.
Salomon Brothers Inc
The date of this Prospectus is , 1996.<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-
ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE
MARKET PRICE OF THE DECS OR THE COMMON STOCK AT LEVELS ABOVE
THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
____________________________
(Continued from previous page)
The Trust has adopted a policy that the Contracts may not be
disposed of during the term of the Trust. The Trust will
continue to hold the Contracts despite any significant decline in
the market price of the Common Stock or adverse changes in the
financial condition of the Company.
DECS may be a suitable investment for those investors who are
capable of evaluating the risks involved in making an investment
in the Common Stock of the Company and the advantages and
disadvantages of doing so in a manner which will give investors
in the DECS a potentially higher yield but a lesser opportunity
for equity appreciation than would be afforded by a direct
investment in the Common Stock. See "Investment Objectives and
Policies."
Attached hereto as Appendix A is a prospectus of the Company
relating to the shares of Common Stock that may be received by
holders of DECS at the Exchange Date. The Company is not
affiliated with the Trust, will not receive any of the proceeds
from the sale of the DECS and will have no obligations with
respect to the DECS. The Common Stock is listed on the New York
Stock Exchange ("NYSE") under the symbol " ."
The Trust will be a grantor trust for U.S. federal income tax
purposes and each holder will be treated as the owner of its pro
rata portion of the U.S. Treasury securities and the Contracts.
The U.S. Treasury securities will be treated as having "original
issue discount" which holders must recognize currently as income
as it accrues. Holders will not recognize income, gain or loss
upon the Trust's entry into the Contracts nor will the delivery
of Common Stock pursuant to the Contracts be taxable to holders.
Although the matter is not free from doubt, holders should not
recognize income, gain or loss with respect to the Contracts over
their term. See "Certain United States Federal Income Tax
Considerations."
Prior to this offering, there has been no public market for the
DECS. Application has been made to list the DECS on the NYSE
under the symbol " ." Typical closed-end fund shares
frequently trade at a premium to or discount from net asset
value. Based on its assets and the market in which the DECS are
expected to trade, the Trust believes the DECS are unlikely to
trade at a premium to or discount from net asset value. The
Trust believes, however, that because of the yield on the DECS
and the formula for determining the number of DECS to be
delivered on the Exchange Date, the DECS will tend to trade at a
premium to the market value of the Common Stock to the extent the
Common Stock price falls and at a discount to the market value of
the Common Stock to the extent the Common Stock price rises.
The address of the Trust is Seven World Trade Center, New York,
New York 10048, and the Trust's telephone number is (212) 783-
7000. Investors are advised to read this Prospectus and to
retain it for future reference.
"DECS" is a service mark of Salomon Brothers Inc.
<PAGE>
PROSPECTUS SUMMARY
The following is qualified in its entirety by reference to
the more detailed information included elsewhere in this
Prospectus.
The Trust
DECS Trust (the "Trust") is a newly organized Delaware
business trust that is registered as a non-diversified closed-end
management investment company under the Investment Company Act of
1940, as amended (the "Investment Company Act"). The Trust will
have a term of three years that will expire on , 1999
(the "Exchange Date"). The Trust will be treated as a grantor
trust for U.S. federal income tax purposes.
The Offering
DECS representing shares of beneficial interest in the Trust
are being offered for sale by Salomon Brothers Inc (the
"Underwriter") to the public at a purchase price of $ per
DECS (the "Initial Price") (the last sale price of the common
stock, par value $ per share (the "Common Stock"), of
Company (the "Company") on , 1996, as reported on the New
York Stock Exchange Composite Tape). In addition, the
Underwriter has been granted an option to purchase up to an
additional DECS to cover over-allotments, if
any. See "Underwriting."
Purpose of the Trust
The DECS are designed to provide investors (the "Holders")
with a higher yield than the current dividend yield paid on the
Common Stock, while also providing the opportunity for Holders to
share in the appreciation, if any, of the Common Stock above the
Threshold Appreciation Price (as defined below). The annual
calendar year distribution on the DECS is $ per DECS.
The annual fiscal year dividend currently paid per share of
Common Stock is $ .
The yield on the DECS is higher than the current dividend
yield on the Common Stock. However, there is no assurance that
the yield on the DECS will be higher than the dividend yield on
the Common Stock over the term of the Trust. In addition, the
opportunity for equity appreciation afforded by an investment in
the DECS is less than the opportunity for equity appreciation
afforded by an investment in the Common Stock because the value
of the Common Stock to be received by Holders of the DECS upon
mandatory exchange of such DECS at the Exchange Date (the "Amount
Receivable at the Exchange Date") will only exceed the Initial
Price if the Exchange Price (as defined herein) exceeds $
per share of Common Stock (the "Threshold Appreciation Price"),
which represents an appreciation of 20% over the Initial Price.
Moreover, Holders will only be entitled to receive upon exchange
at the Exchange Date 83.33% of any appreciation of the value of
the Common Stock in excess of the Threshold Appreciation Price.
If the Exchange Price is less than the Initial Price, the value
of the Common Stock to be received at the Exchange Date will be
less than the price paid for the DECS.
Distributions
The Holders are entitled to receive distributions at the
rate per DECS of $ per annum or $ per quarter,
payable quarterly on each , , and
or, if any such date is not a Business Day (as defined
herein), on the next succeeding Business Day, to Holders of
record as of each , , and ,
respectively. The first distribution will be payable on
, 1996 to Holders of record as of , 1996. See
"Investment Objectives and Policies--Trust Assets."
Mandatory Exchange
At the Exchange Date, each outstanding DECS will be
exchanged for between 0.8333 and 1.0 shares of Common Stock,
subject to adjustment in the event of certain dividends or
distributions, subdivisions, splits, combinations, issuances of
certain rights or warrants or distributions of certain assets
with respect to the Common Stock. In the event of a merger of
the Company into another entity, or the liquidation of the
Company, or in certain related events, Holders would receive
consideration in the form of cash, Marketable Common Stock (as
defined under "Investment Objectives and Policies-The
Contracts-Dilution Adjustments; Reorganization Events") or a
combination thereof, rather than shares of Common Stock.
Additionally, the occurrence of certain defaults by the Sellers
under the Contracts or the related collateral arrangements would
cause the acceleration of the Contracts and the exchange of each
DECS for the maximum amount of Common Stock, cash or a
combination thereof, subject to such Contracts. See "Investment
Objectives and Policies-The Contracts-Collateral Requirements of
the Contracts; Acceleration."
Voting Rights
The Holders have the right to vote on matters affecting the
Trust, as described under "Description of DECS," but will not
have voting rights with respect to the Common Stock prior to
receipt of the Common Stock by the Holders as a result of the
exchange of DECS for Common Stock at the Exchange Date. See
"Investment Objectives and Policies-The Company."
Assets of the Trust; Investment Objectives and Policies
The Trust will purchase and hold (i) a series of zero-coupon
U.S. Treasury securities with face amounts and maturities
corresponding to the distributions payable with respect to the
DECS and the payment dates thereof comprising approximately 17%
of the initial net assets of the Trust and (ii) one or more
forward purchase contracts (the "Contracts") with certain
existing stockholders (the "Sellers") of the Company relating to
the Common Stock comprising approximately 83% of the initial net
assets of the Trust. The Trust's investment objective is to
provide each Holder with a quarterly distribution of $
per DECS over the term of the Trust, equal to the pro rata
portion of the quarterly cash distributions from the U.S.
Treasury securities. It is also the Trust's investment objective
to provide each Holder, at the Exchange Date, in exchange for
each DECS, a number of shares of Common Stock at the Exchange
Rate. The Exchange Rate is equal to, subject to certain
adjustments, (a) if the Exchange Price (as defined herein) is
greater than or equal to the Threshold Appreciation Price, 0.8333
shares of Common Stock per DECS, (b) if the Exchange Price is
less than the Threshold Appreciation Price but is greater than
the Initial Price, a fractional share of Common Stock per DECS so
that the value thereof at the Exchange Price equals the Initial
Price and (c) if the Exchange Price is less than or equal to the
Initial Price, one share of Common Stock per DECS. Holders
otherwise entitled to receive fractional shares of Common Stock
in respect of their aggregate holdings of DECS will receive cash
in lieu thereof. See "Investment Objectives and Policies-The
Contracts" and "-Delivery of Shares of Common Stock; No
Fractional Shares of Common Stock."
The Trust will enter into Contracts with the Sellers
obligating the Sellers, severally and not jointly, at the
Exchange Date, to deliver to the Trust shares of
Common Stock in the aggregate, except that (i) if the Exchange
Price per share of Common Stock is greater than or equal to the
Threshold Appreciation Price, each Seller will be obligated to
deliver under its Contract a number of shares of Common Stock
equal to the product of 0.8333 times the initial number of shares
of Common Stock subject to such Contract, (ii) if the Exchange
Price per share of Common Stock is less than the Threshold
Appreciation Price but greater than the Initial Price, each
Seller will be obligated to deliver under its Contract a number
of shares of Common Stock with an aggregate value equal to the
product of the Initial Price times the initial number of shares
of Common Stock subject to such Contract and (iii) if the
Exchange Price per share of Common Stock is less than or equal to
the Initial Price, each Seller will be obligated to deliver under
its contract a number of shares of Common Stock equal to the
initial number of shares of Common Stock subject to such
Contract. This provides the Trust with the opportunity to share
in the appreciation, if any, of the Common Stock above the
Threshold Appreciation Price. The purchase price under the
Contracts is equal to $ per share of Common Stock
and $ in the aggregate and is payable to the
Sellers by the Trust on the closing of this offering.
The obligations of each Seller under its Contract will be
secured by a pledge of 1.0 share of Common Stock for each share
subject to the Contract or, at the election of the Sellers, by
substitute collateral consisting of U.S. Government securities.
See "Investment Objectives and Policies-The Contracts-Collateral
Requirements of the Contracts; Acceleration."
Certain United States Federal Income Tax Considerations
There are no regulations, published rulings or judicial
decisions addressing the characterization for federal income tax
purposes of securities with terms substantially the same as the
DECS. The Trust intends to treat a DECS for U.S. federal income
tax purposes as a beneficial interest in a grantor trust that
holds zero coupon U.S. Treasury securities and Contracts, and to
report Holders' income to the Internal Revenue Service in
accordance with this treatment. Under this approach, the tax
consequences of holding a DECS will be as described below and as
described in "Certain United States Federal Income Tax
Considerations." Prospective investors in the DECS should be
aware that the Internal Revenue Service might take a different
view as to the proper characterization of the DECS and of the tax
consequences to a Holder.
The U.S. Treasury securities held by the Trust will be
treated for U.S. federal income tax purposes as having "original
issue discount" that will accrue over the term of the U.S.
Treasury securities. It is currently anticipated that a
substantial portion of each quarterly cash distribution to the
Holders will be treated as a tax-free return of the Holders'
costs of the U.S. Treasury securities and therefore will not be
considered current income for U.S. federal income tax purposes.
However, a Holder (whether on the cash or accrual method of tax
accounting) must recognize currently as income original issue
discount on the U.S. Treasury securities as it accrues.
A Holder will not recognize income, gain or loss upon the
Trust's entry into the Contracts and will not recognize income,
gain or loss with respect to the Contracts over their term.
Prospective investors in the DECS should be aware that it is
possible that the Internal Revenue Service will assert that a
Holder should include in income over the term of the Contracts
additional amounts which together with the original issue
discount on such Holder's pro rata portion of the U.S. Treasury
securities should not exceed the aggregate amount of the
quarterly cash distributions to such Holder.
The delivery of Common Stock to the Trust pursuant to the
Contracts will not be taxable to the Holders. The distribution
of Common Stock upon the termination of the Trust will not be
taxable to the Holders. A Holder will have taxable gain or loss
upon receipt of cash in lieu of fractional shares of Common Stock
distributed upon termination of the Trust. Each Holder's
aggregate basis in its shares of Common Stock will be equal to
its basis in its pro rata portion of the Contracts less the
portion of such basis allocable to pay any fractional shares of
Common Stock for which cash is received.
The Company
The Company is (description).
Attached hereto as Appendix A is a prospectus of the Company
which describes the Company and the Common Stock to be delivered
to the Holders upon mandatory exchange of the DECS at the
Exchange Date. The Company is not affiliated with the Trust,
will not receive any of the proceeds from the sale of the DECS
and will have no obligations with respect to the DECS. The
prospectus of the Company is being attached hereto and delivered
to prospective purchasers of DECS together with this Prospectus
for convenience of reference only. The prospectus of the Company
does not constitute a part of this Prospectus, nor is it
incorporated by reference herein.
Management and Administration of the Trust
The Trust will be internally managed and will not have an
investment adviser. The administration of the Trust will be
overseen by three Trustees. The day-to-day administration of the
Trust will be carried out by (or its
successor) as trust administrator (the "Administrator").
(or its successor) will also act as custodian
for the Trust's assets (the "Custodian") and as paying agent,
registrar and transfer agent (the "Paying Agent") with respect to
the DECS. Except as aforesaid, and except for its role as
Collateral Agent under the Trust's Collateral Agreements (see
"Investment Objectives and Policies-The Contracts-Collateral
Requirements of the Contracts; Acceleration"),
has no other affiliation with, and is
not engaged in any other transaction with, the Trust.
Term of the Trust
The Trust will terminate automatically on or shortly after
the Exchange Date. Promptly after the Exchange Date the shares
of Common Stock to be exchanged for the DECS and other remaining
Trust assets, if any, will be distributed pro rata to Holders.
See "Investment Objectives and Policies-Trust Termination."
Risk Factors
The Trust has adopted a policy that the Contracts may not be
disposed of during the term of the Trust and that the U.S.
Treasury securities held by the Trust may not be disposed of
prior to their respective maturities. The Trust will continue to
hold the Contracts despite any significant decline in the market
price of the Common Stock or adverse changes in the financial
condition of the Company.
The yield on the DECS is higher than the current dividend
yield on the Common Stock. However, there is no assurance that
the yield on the DECS will be higher than the dividend yield on
the Common Stock over the term of the Trust.
The Amount Receivable at the Exchange Date is not fixed, but
is based on the market price of the Common Stock as specified in
the Exchange Rate. There can be no assurance that the Amount
Receivable at the Exchange Date will be equal to or greater than
the Initial Price of the DECS. For example, if the Exercise
Price is less than the Initial Price, the Amount Receivable at
the Exchange Date would be less than the amount paid for the
DECS, in which case an investment in DECS would result in a loss.
In addition, the opportunity for equity appreciation
afforded by an investment in the DECS is less than the
opportunity for equity appreciation afforded by an investment in
the Common Stock because the Amount Receivable at the Exchange
Date will only exceed the Initial Price if the Exchange Price
exceeds the Threshold Appreciation Price, which represents an
appreciation of 20% over the Initial Price. Moreover, Holders
will only be entitled to receive upon exchange at the Exchange
Date 83.33% of any appreciation of the value of the Common Stock
in excess of the Threshold Appreciation Price. Because the
market price of the Common Stock is subject to market
fluctuations, the Amount Receivable at the Exchange Date may be
more or less than the Initial Price of the DECS.
The Trust is classified as a "non-diversified" investment
company under the Investment Company Act. Consequently, the
Trust is not limited by the Investment Company Act in the
proportion of its assets that may be invested in the securities
of a single issuer. Since the only securities held by the Trust
will be the U.S. Treasury securities and the Contracts, the Trust
may be subject to greater risk than would be the case for an
investment company with more diversified investments.
The trading prices of the DECS in the secondary market will
be directly affected by the trading prices of the Common Stock in
the secondary market. Trading prices of Common Stock will be
influenced by the Company's operating results and prospects and
by economic, financial and other factors and market conditions.
Holders of the DECS will not be entitled to any rights with
respect to the Common Stock (including, without limitation,
voting rights and rights to receive any dividends or other
distributions in respect thereof) unless and until such time, if
any, as the Sellers shall have delivered shares of Common Stock
for DECS at the Exchange Date.
Listing
Application will be made to list the DECS on the New York
Stock Exchange ("NYSE") under the symbol " ."
FEES AND EXPENSES
The public offering price of the DECS includes an
underwriting discount payable by the Trust to the Underwriter of
%. Estimated organization costs of the Trust in the amount
of $ and estimated costs of the Trust in connection with
the initial registration and public offering of the DECS in the
amount of $ will be paid by Salomon Brothers Inc
("Salomon") at the closing of this offering. In addition, each
of the Administrator, the Custodian and the Paying Agent, and
each Trustee will be paid by Salomon at the closing of this
offering a one-time, up-front amount in respect of its ongoing
fees and, in the case of the Administrator, anticipated expenses
of the Trust (estimated to be $ in the aggregate) over
the term of the Trust. Salomon has also agreed to pay any on-
going expenses of the Trust in excess of these estimated amounts
and to reimburse the Trust for any amounts it may be required to
pay as indemnification to any Trustee, the Administrator, the
Custodian or the Paying Agent. Salomon will be reimbursed by the
Sellers for all fees and expenses of the Trust and all
reimbursements of indemnifications paid by it. See "Management
and Administration of the Trust-Estimated Expenses."
Regulations of the Securities and Exchange Commission (the
"Commission") applicable to closed-end investment companies
designed to assist investors in understanding the costs and
expenses that an investor will bear directly or indirectly
require the presentation of Trust expenses in the following
format. Because the Trust will not bear any ongoing fees or
expenses, investors will not bear any direct expenses and the
only expense which investors might be considered to be bearing
indirectly is the proportion of the Sales Load applicable to
their DECS which is payable by the Trust to the Underwriter from
the proceeds of the offering.
Investor transaction expenses
Sales load (as a percentage of
offering price). . . . . . . . . . . . . %
=====
Annual Expenses
Management Fees . . . . . . . . . . . . . . . 0%
Other Expenses. . . . . . . . . . . . . . . . 0%
. . . . . . . . . . . . . . . . . . . . -----
Total Annual Expenses . . . . . . . . . . . . 0%
=====
Commission regulations also require that closed-end
investment companies present an illustration of cumulative
expenses (both direct and indirect) that an investor would bear.
The example is required to factor in the applicable Sales Load
and to assume, in addition to a 5% annual return, the
reinvestment of all distributions at net asset value. Investors
should note that the assumption of a 5% annual return does not
accurately reflect the financial terms of the Trust. See
"Investment Objectives and Policies-Trust Assets." Additionally,
the Trust does not permit the reinvestment of distributions.
1 Year 3 Years
------ ------
You would pay the following expenses
(i.e., the applicable sales load)
on a $1,000 investment, assuming a
5% annual return . . . . . . . . . . . . $ $
<PAGE>
THE TRUST
DECS Trust is a newly organized Delaware business trust that
is registered as a closed-end management investment company under
the Investment Company Act. The Trust was formed on November 21,
1995 pursuant to a Declaration of Trust dated as of November 21,
1995 (the "Declaration of Trust").
USE OF PROCEEDS
The net proceeds of this offering will be used on or shortly
after the date on which this offering is completed to purchase a
fixed portfolio comprised of a series of zero-coupon U.S.
Treasury securities with face amounts and maturities
corresponding to the distributions payable with respect to the
DECS and the payment dates thereof and to pay the purchase price
under the Contracts to the Sellers.
INVESTMENT OBJECTIVES AND POLICIES
Trust Assets
The Trust's investment objectives are to provide Holders
with a quarterly distribution of $ per DECS
and to provide Holders, at the Exchange Date, in exchange for
each DECS, a number of shares of Common Stock at the Exchange
Rate (as defined below). The Exchange Rate is equal to, subject
to certain adjustments, (a) if the Exchange Price (as defined
herein) is greater than or equal to the Threshold Appreciation
Price, 0.8333 shares of Common Stock per DECS, (b) if the
Exchange Price is less than the Threshold Appreciation Price but
is greater than the Initial Price, a fractional share of Common
Stock per DECS so that the value thereof at the Exchange Price
equals the Initial Price and (c) if the Exchange Price is less
than or equal to the Initial Price, one share of Common Stock per
DECS. There can be no assurance that the Amount Receivable at
the Exchange Date will be equal to or greater than the Initial
Price of the DECS. If the Exchange Price of the Common Stock is
less than the Initial Price, the Amount Receivable at the
Exchange Date will be less than the amount paid for the DECS, in
which case an investment in DECS will result in a loss. The
numbers of shares of Common Stock per DECS specified in clauses
(a) and (c) of the Exchange Rate are hereinafter referred to as
the "Share Components." Holders otherwise entitled to receive
fractional shares in respect of their aggregate holdings of DECS
will receive cash in lieu thereof. See "-Delivery of Shares of
Common Stock; No Fractional Shares of Common Stock" below.
Notwithstanding the foregoing, (i) in the case of certain
dilution events, the Exchange Rate will be subject to adjustment
and (ii) in the case of certain reorganization events, the
consideration received by Holders at the Exchange Date will be
cash or Marketable Common Stock (as defined herein) or a
combination thereof, rather than shares of Common Stock. See "-
The Contracts-Dilution Adjustments; Reorganization Events" below.
The Trust has adopted a fundamental policy to invest at
least 65% of its portfolio in the Contracts. The Contracts will
comprise 83% of the Trust's initial assets. The Trust has also
adopted a fundamental policy that the Contracts may not be
disposed of during the term of the Trust and that the U.S.
Treasury securities held by the Trust may not be disposed of
prior to their respective maturities. The foregoing fundamental
policies of the Trust may not be changed without the vote of a
majority in interest of the Holders.
The "Exchange Price" means the average Closing Price per
share of Common Stock on the 20 Trading Days immediately prior to
(but not including) the Exchange Date; provided, however, that if
there are not 20 Trading Days for the Common Stock following the
60th calendar day immediately prior to, but not including, the
Exchange Date, the Exchange Price shall be defined as the market
value per share of the Common Stock as of the Exchange Date as
determined by a nationally recognized independent investment
banking firm retained for this purpose by the Sellers. The
"Closing Price" of any security on any date of determination
means the closing sale price (or, if no closing price is
reported, the last reported sale price) of such security on the
NYSE on such date or, if such security is not listed for trading
on the NYSE on any such date, as reported in the composite
transactions for the principal U.S. securities exchange on which
such security is so listed, or if such security is not so listed
on a U.S. national or regional securities exchange, as reported
by The NASDAQ National Market, or, if such security is not so
reported, the last quoted bid price for such security in the
over-the-counter market as reported by the National Quotation
Bureau or similar organization. A "Trading Day" is defined as a
day on which the security the Closing Price of which is being
determined (A) is not suspended from trading on any national or
regional securities exchange or association or over-the-counter
market at the close of business and (B) has traded at least once
on the national or regional securities exchange or association or
over-the-counter market that is the primary market for the
trading of such security.
For illustrative purposes only, the following chart shows
the number of shares of Common Stock that a Holder would receive
for each DECS at various Exchange Prices. The chart assumes that
there would be no adjustments to the Exchange Rate by reason of
the occurrence of any of the events described under "-The
Contracts-Dilution Adjustments; Reorganization Events" below.
There can be no assurance that the Exchange Price will be within
the range set forth below. Given the Initial Price of $
per DECS and a Threshold Appreciation Price of $ , a Holder
would receive at the Exchange Date the following number of shares
of Common Stock per DECS:
Exchange Price of Number of Shares of
Common Stock Common Stock
The following table sets forth information regarding the
distributions to be received on the U.S. Treasury securities held
by the Trust, the portion of each year's distributions that will
constitute a return of capital for U.S. federal income tax
purposes and the amount of original issue discount accruing on
the U.S. Treasury securities with respect to a Holder who
acquires its DECS at the issue price from an Underwriter pursuant
to the original offering. See "Certain United States Federal
Income Tax Considerations."
Annual
Annual Gross Inclusion of
Annual Gross Distributions Original
Distributions from U.S. Annual Issue
from Treasury Return Discount
U.S. Treasury securities of Capital in Income
securities per DECS per DECS per DECS
------------- ------------- ------------ ------------
Year
- ----
1996 $ $ $ $
1997
1998
1999
The annual distribution of $ per DECS is
payable quarterly on each , , and
, commencing , 1996. Quarterly
distributions on the DECS will consist solely of the cash
received from the U.S. Treasury securities. The Trust will not
be entitled to any dividends that may be declared on the Common
Stock.
Enhanced Yield; Less Potential for Equity Appreciation
than Common Stock
The yield on the DECS is higher than the current dividend
yield on the Common Stock. However, there is no assurance that
the yield on the DECS will be higher than the dividend yield on
the Common Stock over the term of the Trust. In addition, the
opportunity for equity appreciation afforded by an investment in
the DECS is less than the opportunity for equity appreciation
afforded by an investment in the Common Stock because the Amount
Receivable at the Exchange Date will only exceed the Initial
Price if the Exchange Price exceeds the Threshold Appreciation
Price, which represents an appreciation of 20% of the Initial
Price. Moreover, Holders will only be entitled to receive upon
exchange at the Exchange Date 83.33% (the percentage equal to the
Initial Price divided by the Threshold Appreciation Price) of any
appreciation of the value of the Common Stock in excess of the
Threshold Appreciation Price.
The Company
(description of the Company)
Holders will not be entitled to rights with respect to the
Common Stock (including, without limitation, voting rights and
rights to receive dividends or other distributions in respect
thereof) until receipt of the Common Stock by the Holders as a
result of the exchange of the DECS for Common Stock at the
Exchange Date.
Attached hereto as Appendix A is a prospectus of the Company
which describes the Company and the Common Stock to be delivered
to the Holders upon mandatory exchange of the DECS at the
Exchange Date.
The shares of Common Stock are traded on the NYSE. The
following table sets forth, for the indicated periods, the
reported high and low sales prices of the shares of Common Stock
on the NYSE Composite Tape and the cash dividends per share of
Common Stock. As of , 1996, there were
record holders of the Common Stock, including The Depository
Trust Company (the "Depositary") which holds shares of Common
Stock on behalf of an indeterminate number of beneficial owners.
High Low Dividend Per Share
1994 $ $ $
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
1995
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
The Company is subject to the information requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Accordingly, the Company files reports, proxy and
information statements and other information with the Securities
and Exchange Commission (the "Commission"). Copies of such
material can be inspected and copied at the public reference
facilities maintained by the Commission at the addresses
specified under "Available Information" in the prospectus of the
Company attached hereto. Reports, proxy and information
statements and other information concerning the Company may also
be inspected at the offices of the NYSE.
The Company is not affiliated with the Trust, will not
receive any of the proceeds from the sale of the DECS and will
have no obligations with respect to the DECS. This Prospectus
relates only to the DECS offered hereby and does not relate to
the Company or the Common Stock. The Company has filed a
registration statement on Form S-3 with the Commission with
respect to the shares of Common Stock to be received by a Holder
of DECS at the Exchange Date. The prospectus of the Company
constituting a part of such registration statement includes
information relating to the Company and Common Stock, including
certain risk factors relevant to an investment in Common Stock.
The prospectus of the Company is being attached hereto and
delivered to prospective purchasers of DECS together with this
Prospectus for convenience of reference only. The prospectus of
the Company does not constitute a part of this Prospectus, nor is
it incorporated by reference herein.
The Contracts
General. The Trust will enter into one or more Contracts
with the Sellers obligating each Seller, severally and not
jointly, at the Exchange Date to deliver to the Trust a number of
shares of Common Stock equal to the initial number of shares of
Common Stock subject to such Seller's Contract, except that (i)
if the Exchange Price per share of Common Stock is greater than
or equal to the Threshold Appreciation Price, each such Seller
will be obligated to deliver under its Contract a number of
shares of Common Stock equal to the product of 0.8333 times the
initial number of shares of Common Stock subject to such
Contract, (ii) if the Exchange Price per share of Common Stock is
less than the Threshold Appreciation Price but greater than the
Initial Price, each such Seller will be obligated to deliver
under its Contract a number of shares of Common Stock with an
aggregate value equal to the product of the Initial Price times
the initial number of shares of Common Stock subject to such
Contract and (iii) if the Exchange Price per share of Common
Stock is less than or equal to the Initial Price, each such
Seller will be obligated to deliver under its Contract a number
of shares of Common Stock equal to the initial number of shares
of Common Stock subject to such Contract. The purchase price
under the Contracts is equal to $ per share of Common Stock
and $ in the aggregate and is payable to the Sellers by the
Trust on the closing of this offering. The purchase price of the
Contracts was arrived at by arms' length negotiations between the
Trust and the Sellers taking into consideration factors including
the price, expected dividend level and volatility of the Common
Stock, current interest rates, the term of the Contracts, current
market volatility generally, the collateral security pledged by
the Sellers, the value of other similar instruments and the costs
and anticipated proceeds of the offering of the DECS. All
matters relating to the administration of the Contracts will be
the responsibility of either the Trust's Administrator or
Custodian.
Dilution Adjustments; Reorganization Events. The Exchange
Rate is subject to adjustment if the Company shall (i) pay a
stock dividend or make a distribution with respect to Common
Stock in shares of such stock, (ii) subdivide or split the
outstanding shares of Common Stock into a greater number of
shares, (iii) combine the outstanding shares of Common Stock into
a smaller number of shares, (iv) issue by reclassification (other
than a reclassification upon a Reorganization Event, described in
the following paragraph) of shares of Common Stock any shares of
common stock of the Company, (v) issue rights or warrants to all
holders of Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than
the then current market price of the Common Stock (other than
rights to purchase Common Stock pursuant to a plan for the
reinvestment of dividends or interest), or (vi) pay a dividend or
make a distribution to all holders of Common Stock of evidences
of its indebtedness or other assets (excluding any stock
dividends or distributions referred to in clause (i) above, any
shares of common stock issued pursuant to a reclassification
referred to in clause (iv) above or any cash dividends other than
any Extraordinary Cash Dividends (as defined below)) or issue to
all holders of Common Stock rights or warrants to subscribe for
or purchase any of its securities (other than those referred to
in clause (v) above (any such event described in clause (i),
(ii), (iii), (iv), (v) or (vi), a "Dilution Event").
In the case of the events referred to in clauses (i), (ii),
(iii) and (iv) above, the Exchange Rate shall be adjusted by
adjusting each of the Share Components of the Exchange Rate in
effect immediately prior to such event so that a Holder of any
DECS shall be entitled to receive, upon exchange of such DECS at
the Exchange Date pursuant to either Share Component of the
Exchange Rate, the number of shares of Common Stock (or in the
case of a reclassification referred to in clause (iv) above, the
number of shares of other common stock of the Company issued
pursuant thereto) which such Holder would have owned or been
entitled to receive immediately following such event had such
DECS been Exchanged pursuant to either Share Component of the
Exchange Rate immediately prior to such event or any record date
with respect thereto. In the case of the event referred to in
clause (v) above, the Exchange Rate shall be adjusted by
multiplying each of the Share Components in the Exchange Rate in
effect immediately prior to the date of issuance of the rights or
warrants referred to in clause (v) above, by a fraction, of which
the numerator shall be the number of shares of Common Stock
outstanding on the date of issuance of such rights or warrants,
immediately prior to such issuance, plus the number of additional
shares of Common Stock offered for subscription or purchase
pursuant to such rights or warrants, and of which the denominator
shall be the number of shares of Common Stock outstanding on the
date of issuance of such rights or warrants, immediately prior to
such issuance, plus the number of additional shares of Common
Stock which the aggregate offering price of the total number of
shares of Common Stock so offered for subscription or purchase
pursuant to such rights or warrants would purchase at the market
price (determined as the average Closing Price per share of
Common Stock on the 20 Trading Days immediately prior to the date
such rights or warrants are issued; provided, however, that if
there are not 20 Trading Days for such Common Stock following the
60th calendar day immediately prior to such date, such market
price shall be determined as the market value per share of such
Common Stock as of such date as determined by a nationally
recognized independent investment banking firm retained for this
purpose by the Sellers), which shall be determined by multiplying
such total number of shares by the exercise price of such rights
or warrants and dividing the product so obtained by such market
price. To the extent that shares of Common Stock are not
delivered after the expiration of such rights or warrants, the
Exchange Rate shall be readjusted to the Exchange Rate which
would then be in effect had such adjustments for the issuance of
such rights or warrants been made upon the basis of delivery of
only the number of shares of Common Stock actually delivered. In
the case of the event referred to in clause (vi) above, the
Exchange Rate shall be adjusted by multiplying each of the Share
Components in the Exchange Rate in effect on the record date, by
a fraction of which the numerator shall be determined as the
market price per share of Common Stock on the record date for the
determination of stockholders entitled to receive the dividend or
distribution referred to in clause (vi) above (such market price
being determined as the average Closing Price per share of Common
Stock on the 20 Trading Days immediately prior to such record
date; provided, however, that if there are not 20 Trading Days
for such Common Stock following the 60th calendar day immediately
prior to such record date, such market price shall be determined
as the market value per share of such Common Stock as of such
record date as determined by a nationally recognized independent
investment banking firm retained for this purpose by the
Sellers), and of which the denominator shall be such market price
per share of Common Stock less the fair market value (as
determined by the Board of Directors of the Company, whose
determination shall be conclusive, and described in a resolution
adopted with respect thereto) as of such record date of the
portion of the assets or evidences of indebtedness to be
distributed or of such subscription rights or warrants applicable
to one share of Common Stock. An "Extraordinary Cash Dividend"
means, with respect to any consecutive 12-month period, all cash
dividends on the Common Stock during such period to the extent
such dividends exceed on a per share basis 10% of the average
Closing Price of the Common Stock over such period (less any such
dividends for which a prior adjustment to the Exchange Rate was
previously made). All adjustments to the Exchange Rate will be
calculated to the nearest 1/10,000th of a share of Common Stock
(or if there is not a nearest 1/10,000th of a share to the next
lower 1/10,000th of a share). No adjustment in the Exchange Rate
shall be required unless such adjustment would require an
increase or decrease of at least one percent therein; provided,
however, that any adjustments which by reason of the foregoing
are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. If an adjustment is
made to the Exchange Rate pursuant to clauses (i), (ii), (iii),
(iv), (v), (vi) above, an adjustment will also be made to the
Exchange Price solely to determine which of clauses (a), (b) or
(c) of the Exchange Rate will apply at the Exchange Date. The
required adjustment to the Exchange Price will be made by
multiplying the Exchange Price by the number or fraction
determined pursuant to the Exchange Rate adjustment procedure
described above. In the case of the reclassification of any
shares of Common Stock into any shares of common stock of the
Company other than the Common Stock, such shares of common stock
shall be deemed shares of Common Stock solely to determine the
Exchange Price and to apply the Exchange Rate at the Exchange
Date. Each such adjustment to the Exchange Rate shall be made
successively.
In the event of (A) any consolidation or merger of the
Company, or any surviving entity or subsequent surviving entity
of the Company (a "Company Successor"), with or into another
entity (other than a merger or consolidation in which the Company
is the continuing corporation and in which the Common Stock
outstanding immediately prior to the merger or consolidation is
not exchanged for cash, securities or other property of the
Company or another corporation), (B) any sale, transfer, lease or
conveyance to another corporation of the property of the Company
or any Company Successor as an entirety or substantially as an
entirety, (C) any statutory exchange of securities of the Company
or any Company Successor with another corporation (other than in
connection with a merger or acquisition) or (D) any liquidation,
dissolution or winding up of the Company or any Company Successor
(any such event described in clause (A), (B), (C) or (D), a
"Reorganization Event"), Holders will receive for each DECS at
the Exchange Date, in lieu of shares of Common Stock, as
described above, cash in an amount equal to (a) if the
Transaction Value (as defined below) is less than the Threshold
Appreciation Price but equal to or greater than the Initial
Price, the Initial Price, (b) if the Transaction Value is greater
than or equal to the Threshold Appreciation Price, 0.8333
multiplied by the Transaction Value and (c) if the Transaction
Value is less than or equal to the Initial Price, the Transaction
Value.
Notwithstanding the foregoing, to the extent that any
Marketable Common Stock (as defined below) is received in such
Reorganization Event, then in lieu of delivering cash as provided
above, the Sellers may at their option deliver a proportional
amount of such Marketable Common Stock. If a Seller elects to
deliver Marketable Common Stock, Holders will be responsible for
the payment of any and all brokerage and other transaction costs
upon the sale of such Marketable Common Stock.
"Transaction Value" means (i) for any cash received in any
such Reorganization Event, the amount of cash received per share
of Common Stock, (ii) for any property other than cash or
Marketable Common Stock received in any such Reorganization
Event, an amount equal to the market value on the date the
Reorganization Event is consummated of such property received per
share of Common Stock as determined by a nationally recognized
independent investment banking firm retained for this purpose by
the Sellers and (iii) for any Marketable Common Stock received in
any such Reorganization Event, an amount equal to the average
Closing Price per share of such securities on the 20 Trading Days
immediately prior to the Exchange Date multiplied by the number
of shares of such Marketable Common Stock received for each share
of Common Stock; provided, however, that in the case of clause
(iii), if there are not 20 Trading Days for such Marketable
Common Stock following the 60th calendar day immediately prior to
the Exchange Date, Transaction Value means the market value per
share of such Marketable Common Stock as at the Exchange Date as
determined by a nationally recognized independent investment
banking firm retained for this purpose by the Sellers multiplied
by the number of shares of such Marketable Common Stock received
for each share of Common Stock.
No adjustments will be made for certain other events, such
as offerings of Common Stock by the Company for cash or in
connection with acquisitions. Likewise, no adjustments will be
made for any sales of Common Stock by the Sellers.
The Trust is required, within ten Business Days following
the occurrence of a Dilution Event or a Reorganization Event (or
if the Trust is not aware of such occurrence, as soon as
practicable after becoming so aware), to provide written notice
to the Holders of the occurrence of such event and a statement in
reasonable detail setting forth, in the case of a Reorganization
Event, the change in consideration to be received by Holders at
the Exchange Date, and, in the case of a Dilution Event, the
adjusted Exchange Rate and the method by which the adjustment to
the Exchange Rate was determined; provided, however, that, in
respect of any adjustment to the Exchange Price, such notice will
only disclose the factor by which the Exchange Price is to be
multiplied in order to determine which clause of the Exchange
Rate definition will apply at the Exchange Date. "Business Day"
means any day that is not a Saturday, a Sunday or a day on which
the NYSE or banking institutions or trust companies in The City
of New York are authorized or obligated by law or executive order
to close.
Collateral Requirements of the Contracts; Acceleration.
Each Seller's obligations under its Contract will be secured by a
security interest in 1.0 share of Common Stock for each share of
Common Stock subject to such Contract (subject to adjustment in
accordance with the dilution provisions of such Contract),
pursuant to a Collateral Agreement among such Seller, the Trust
and , as collateral agent (the "Collateral
Agent"). Unless a Seller is in default in its obligations under
the Collateral Agreement, the Seller will be permitted to
substitute for the pledged shares of Common Stock collateral
consisting of short-term, direct obligations of the U.S.
Government. Any U.S. Government obligations pledged as
substitute collateral for shares of Common Stock will be required
to have an aggregate market value at the time of substitution and
at daily mark-to-market valuations thereafter of not less than
150% of the product of the market price of the Common Stock at
the time of each valuation times the number of shares of Common
Stock for which such obligations are being substituted. Each
Collateral Agreement will provide that, in the event of a
Reorganization Event, the relevant Seller will pledge as
alternative collateral any Marketable Common Stock, plus cash in
an amount at least equal to the Transaction Value of any
consideration other than Marketable Common Stock, received by it
in respect of the maximum number of shares of Common Stock
subject to such Seller's Contract at the time of the
Reorganization Event. The number of shares of Marketable Common
Stock required to be pledged shall be subject to adjustment if
any event requiring a dilution adjustment under the Contracts
shall occur. Each Seller will be permitted to substitute U.S.
Government obligations for Marketable Common Stock or cash
pledged after any Reorganization Event. Any U.S. Government
obligations so substituted will be required to have an aggregate
market value at the time of substitution and at daily mark-to-
market valuations thereafter of: (A) in the case of obligations
substituted for pledged shares of Marketable Common Stock, not
less than 150% of the product of the market price per share of
Marketable Common Stock at the time of each valuation times the
number of shares of Marketable Common Stock for which such
obligations are being substituted; and (B) in the case of
obligations substituted for pledged cash, not less than 105% of
the amount of cash for which such obligations are being
substituted. The Collateral Agent will promptly pay over to each
Seller any dividends, interest, principal or other payments
received by the Collateral Agent in respect of any collateral,
including any substitute collateral, unless the relevant Seller
is in default of its obligations under its Collateral Agreement,
or unless the payment of such amount to the relevant Seller would
cause the collateral to become insufficient under the Collateral
Agreement.
The occurrence of a Collateral Event of Default (as defined
below) under any Collateral Agreement, or the bankruptcy or
insolvency of any Seller, will cause an automatic acceleration of
each Seller's obligations under each Contract. In any such
event, each Seller will become obligated to deliver the maximum
number of shares of Common Stock (or, after a Reorganization
Event, Marketable Common Stock or cash or a combination thereof)
subject to such Contract. A "Collateral Event of Default" under
any Collateral Agreement shall mean, at any time, (A) if no U.S.
Government obligations shall be pledged as substitute collateral
at such time, failure of the collateral to consist of at least
the maximum number of shares of Common Stock subject to the
relevant Seller's Contract at such time (or, if a Reorganization
Event shall have occurred at or prior to such time, failure of
the collateral to include the amount of cash and the maximum
number of shares of any Marketable Common Stock required to be
pledged as described above); (B) if any U.S. Government
obligations shall be pledged as substitute collateral for shares
of Common Stock (or shares of Marketable Common Stock) at such
time, failure of such U.S. Government obligations to have a
market value at such time of at least 150% of the market price of
the Common Stock (or the then-current market price per share of
Marketable Common Stock, as the case may be) times the difference
between (x) the maximum number of shares of Common Stock (or
shares of Marketable Common Stock) subject to the relevant
Seller's Contract at such time and (y) the number of shares of
Common Stock (or shares of Marketable Common Stock) pledged as
collateral at such time; and (C) if any U.S. Government
obligations shall be pledged as substitute collateral for any
cash at such time, failure of such U.S. Government obligations to
have a market value at such time of at least 105% of such cash,
if such failure shall not be cured within one Business Day after
notice thereof is delivered to the relevant Seller.
Upon any acceleration, the Collateral Agent will distribute
to the Trust for distribution pro rata to the Holders, with
respect to each Seller's Contract the maximum number of shares of
Common Stock subject to such Contract, in the form of the shares
of Common Stock then pledged by that Seller, or cash generated
from the liquidation of U.S. Government obligations then pledged
by that Seller, or a combination thereof (or, after a
Reorganization Event, in the form of Marketable Common Stock then
pledged, cash then pledged, cash generated from the liquidation
of U.S. Government obligations then pledged, or a combination
thereof). In addition, in the event that by the Exchange Date
any substitute collateral has not been replaced by shares of
Common Stock (or, after a Reorganization Event, cash or
Marketable Common Stock) sufficient to meet the obligations under
any Contract, the Collateral Agent will distribute to the Trust
for distribution pro rata to the Holders, with respect to such
Contract, the market value of the shares of Common Stock required
to be delivered thereunder, in the form of any shares of Common
Stock then pledged by the relevant Seller plus cash generated
from the liquidation of U.S. Government obligations then pledged
by such Seller (or, after a Reorganization Event, the market
value of the alternative consideration required to be delivered
thereunder, in the form of any Marketable Common Stock then
pledged, plus any cash then pledged, plus cash generated from the
liquidation of U.S. Government obligations then pledged).
Description of Sellers. The Sellers may be institutional
investors or individuals or trusts, foundations or other entities
through which such individuals hold their shares of Common Stock.
A brief description of the Sellers will be added by amendment.
Specific information on the holdings of the Sellers, as required
by the Securities Act of 1933, as amended (the "Securities Act"),
will be included in the prospectus of the Company attached
hereto.
Temporary Investments
For cash management purposes, the Trust may invest the
proceeds of the U.S. Treasury securities held by the Trust and
any other cash held by the Trust in short-term obligations of the
U.S. Government maturing no later than the Business Day preceding
the next following distribution date.
Trust Termination
The Trust will terminate on or shortly after the Exchange
Date.
In the event that the Contracts are accelerated, then any
U.S. Treasury securities held by the Trust will be liquidated by
the Administrator and the proceeds thereof distributed pro rata
to the Holders, together with the maximum number of shares of
Common Stock subject to each Seller's Contract in the form of the
shares of Common Stock then pledged by that Seller, or cash
generated from the liquidation of U.S. Government obligations
then pledged by that Seller, or a combination thereof (or, after
a Reorganization Event, in the form of Marketable Common Stock
then pledged, cash then pledged, cash generated from the
liquidation of U.S. Government obligations then pledged, or a
combination thereof ), and the term of the Trust will expire.
See "-The Contracts-Collateral Requirements of the Contracts;
Acceleration" above.
Delivery of Shares of Common Stock; No Fractional Shares of
Common Stock
Shares of Common Stock for which the DECS will be exchanged
at the Exchange Date are expected to be delivered shortly after
the Exchange Date. Each Holder will receive the greatest number
of whole shares of Common Stock allocable to its DECS, plus the
cash value, based on the Exchange Price, of any fractional shares
of Common Stock.
INVESTMENT RESTRICTIONS
The Trust has adopted a fundamental policy that the Trust
may not purchase any securities or instruments other than the
U.S. Treasury securities, the Contracts and the Common Stock or
other assets received pursuant to the Contracts and, for cash
management purposes, short-term obligations of the U.S.
Government; issue any securities or instruments except for the
DECS; make short sales or purchase securities on margin; write
put or call options; borrow money; underwrite securities;
purchase or sell real estate, commodities or commodities
contracts; or make loans. The Trust has also adopted a
fundamental policy that the Contracts may not be disposed of
during the term of the Trust and that the U.S. Treasury
securities may not be disposed of prior to their respective
maturities.
RISK FACTORS RELATING TO DECS
Internal Management; No Portfolio Management
The Trust will be internally managed by its Trustees and
will not have any separate investment adviser. It is a
fundamental policy of the Trust that the Contracts may not be
disposed of during the term of the Trust and that the U.S.
Treasury securities held by the Trust may not be disposed of
prior to their respective maturities. As a result, the Trust
will continue to hold the Contracts despite any significant
decline in the market price of the Common Stock or adverse
changes in the financial condition of the Company. The Trust
will not be managed like a typical closed-end investment company.
Relationship to Common Stock; Limitations on
Opportunity for Equity Appreciation; Potential Losses
The yield on the DECS is higher than the current dividend
yield on the Common Stock. However, there is no assurance that
the yield on the DECS will be higher than the dividend yield on
the Common Stock over the term of the Trust.
The Amount Receivable at the Exchange Date is not fixed, but
is based on the market price of the Common Stock as specified in
the Exchange Rate. There can be no assurance that the Amount
Receivable at the Exchange Date will be equal to or greater than
the Initial Price of the DECS. For example, if the Exercise
Price is less than the Initial Price, the Amount Receivable at
the Exchange Date would be less than the amount paid for the
DECS, in which case an investment in DECS would result in a loss.
In addition, the opportunity for equity appreciation
afforded by an investment in the DECS is less than the
opportunity for equity appreciation afforded by an investment in
the Common Stock because the Amount Receivable at the Exchange
Date will only exceed the Initial Price if the Exchange Price
exceeds the Threshold Appreciation Price, which represents an
appreciation of 20% over the Initial Price. Moreover, Holders
will only be entitled to receive upon exchange at the Exchange
Date 83.33% of any appreciation of the value of the Common Stock
in excess of the Threshold Appreciation Price.
It is impossible to predict whether the price of the Common
Stock will rise or fall. Trading prices of Common Stock will be
influenced by the Company's operational results and by complex
and interrelated political, economic, financial and other factors
that can affect the capital markets generally, the stock exchange
on which Common Stock is traded and the market segment of which
the Company is a part. See the prospectus relating to the
Company and to the Common Stock attached hereto as Appendix A.
Trading prices of the Common Stock also may be influenced if any
of the Sellers or another principal shareholder of the Company
hereafter issues securities with terms similar to those of the
DECS or otherwise transfers shares of the Common Stock. As of
the date hereof, the Sellers held an aggregate of shares
of Common Stock, shares of which ( shares if
the Underwriter's over allotment option is exercised in full) the
Sellers may deliver to holders of the DECS at the Exchange Date.
Dilution Adjustments; Stockholder Rights
The number of shares of Common Stock that Holders are
entitled to receive at the termination of the Trust is subject to
adjustment for certain events arising from stock splits and
combinations, stock dividends and certain other actions of the
Company that modify its capital structure. See "Investment
Objectives and Policies--The Contracts--Dilution Adjustments;
Reorganization Events." Such number of shares to be received by
Holders may not be adjusted for other events, such as offerings
of Common Stock for cash or in connection with acquisitions, that
may adversely affect the price of the Common Stock and, because
of the relationship of the number of shares of Common Stock to be
received pursuant to the Contracts to the price of the Common
Stock, such other events may adversely affect the trading price
of the DECS. There can be no assurance that the Company will not
take any of the foregoing actions, or that it will not make
offerings of, or that major shareholders will not sell any,
Common Stock in the future, or as to the amount of any such
offerings or sales. In addition, until the receipt of the Common
Stock by Holders as a result of the exchange of the DECS for the
Common Stock, Holders will not be entitled to any rights with
respect to the Common Stock (including without limitation voting
rights and the rights to receive any dividends or other
distributions in respect thereof).
Trading Value; Listing
The DECS have no trading history, and it is not possible to
predict how they will trade in the secondary market. The trading
price of the DECS may vary considerably prior to the Exchange
Date due to, among other things, fluctuations in the price of the
Common Stock (which may occur due to changes in the Company's
financial condition, results of operations or prospects, or
because of complex and interrelated political, economic,
financial and other factors that can affect the capital markets
generally, the stock exchanges or quotation systems on which the
Common Stock is traded and the market segment of which the
Company is a part) and fluctuations in interest rates and other
factors that are difficult to predict and beyond the Trust's
control.
The Underwriter currently intends, but is not obligated, to
make a market in the DECS. There can be no assurance that a
secondary market will develop or, if a secondary market does
develop, that it will provide the Holders of the DECS with
liquidity of investment or that it will continue for the life of
the DECS.
Application will be made to list the DECS on the NYSE.
Assuming the acceptance of such application, there can be no
assurance that the DECS will not later be delisted or that
trading in the DECS on the NYSE will not be suspended. In the
event of a delisting or suspension of trading on such exchange,
the Trust will apply for listing of the DECS on another national
securities exchange or for quotation on another trading market.
If the DECS are not listed or traded on any securities exchange
or trading market, or if trading of the DECS is suspended,
pricing information for the DECS may be more difficult to obtain,
and the price and liquidity of the DECS may be adversely
affected.
Net Asset Value
The Trust is a newly organized closed-end investment company
with no previous operating history. Shares of closed-end
investment companies frequently trade at a discount from their
net asset value, which is a risk separate and distinct from the
risk that the Trust's net asset value will decrease. The Trust
cannot predict whether the DECS will trade at, below or above
their net asset value. The risk of purchasing investments that
might trade at a discount is more pronounced for investors who
wish to sell their investments in a relatively short period of
time after completion of the Trust's initial public offering
because for those investors realization of a gain or loss on
their investments is likely to be more dependent upon the
existence of a premium or discount than upon portfolio
performance. The DECS are not subject to redemption.
Non-Diversified Status
The Trust is considered non-diversified under the Investment
Company Act, which means that the Trust is not limited in the
proportion of its assets that may be invested in the obligations
of a single issuer. Because the only securities held or received
by the Trust will be U.S. Treasury securities and the Contracts
or other assets consistent with the terms of the Contracts, the
Trust may be subject to greater risk than would be the case for
an investment company with more diversified investments.
NET ASSET VALUE
The net asset value of the portfolio will be calculated by
the Administrator no less frequently than quarterly by dividing
the value of the net assets of the Trust (the value of its assets
less its liabilities) by the total number of DECS outstanding.
The Trust's net asset value will be published semi-annually as
part of the Trust's semi-annual report to Holders and at such
other times as the Trustees may determine. The U.S. Treasury
securities held by the Trust will be valued at the mean between
the last current bid and asked prices or, if quotations are not
available, as determined in good faith by the Trustees. Short-
term investments having a maturity of 60 days or less are valued
at cost with accrued interest or discount earned included in
interest to be received. The Contracts will be valued at the
mean of the bid prices received by the Trust from at least three
independent broker-dealer firms unaffiliated with the Trust who
are in the business of making bids on financial instruments
similar to the Contracts and with terms comparable thereto.
DESCRIPTION OF THE DECS
Each DECS represents an equal proportional interest in the
Trust. Upon liquidation of the Trust, Holders are entitled to
share pro rata in the net assets of the Trust available for
distribution. DECS have no preemptive, redemption or conversion
rights. The DECS, when issued and outstanding, will be fully
paid and nonassessable.
Holders are entitled to one vote for each DECS held on all
matters to be voted on by Holders and are not able to cumulate
their votes in the election of Trustees. The Trustees of the
Trust have been selected initially by Salomon Brothers Inc as the
initial Holder of the Trust. The Trust intends to hold annual
meetings as required by the rules of the NYSE. The Holders have
the right, upon the declaration in writing or vote of more than
two-thirds of the outstanding DECS, to remove a Trustee. The
Trustees will call a meeting of Holders to vote on the removal of
a Trustee upon the written request of the record Holders of 10%
of the DECS or to vote on other matters upon the written request
of the record Holders of 51% of the DECS (unless substantially
the same matter was voted on during the preceding 12 months).
Book-Entry System
The DECS will be issued in the form of one or more global
securities (the "Global Securities") deposited with The
Depository Trust Company (the "Depositary") and registered in the
name of a nominee of the Depositary.
The Depositary has advised the Trust and the Underwriter as
follows: The Depositary 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 Section 17A of the Exchange Act.
The Depositary was created to hold securities of persons who have
accounts with the Depositary ("participants") and to facilitate
the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry
changes in accounts of the participants, thereby eliminating the
need for physical movement of certificates. Such participants
include securities brokers and dealers, banks, trust companies
and clearing corporations. Indirect access to the Depositary's
book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either
directly or indirectly.
Upon the issuance of a Global Security, the Depositary or
its nominee will credit the respective DECS represented by such
Global Security to the accounts of participants. The accounts to
be credited shall be designated by the Underwriter. Ownership of
beneficial interests in such Global Securities will be limited to
participants or persons that may hold interests through
participants. Ownership of beneficial interests by participants
in such Global Securities will be shown on, and the transfer of
those ownership interests will be effected only through, records
maintained by the Depositary or its nominee for such Global
Securities. Ownership of beneficial interests in such Global
Securities by persons that hold through participants will be
shown on, and the transfer of that ownership interest within such
participant will be effected only through, records maintained by
such participant. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global
Security.
So long as the Depositary for a Global Security, or its
nominee, is the registered owner of such Global Security, such
Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the DECS. Except as set
forth below, owners of beneficial interests in such Global
Securities will not be entitled to have the DECS registered in
their names and will not receive or be entitled to receive
physical delivery of the DECS in definitive form and will not be
considered the owners or holders thereof.
Shares of Common Stock or other consideration deliverable on
exchange of, and any quarterly distributions on, DECS registered
in the name of or held by the Depositary or its nominee will be
made to the Depositary or its nominee, as the case may be, as the
registered owner or the holder of the Global Security. None of
the Trust, any Trustee, the Paying Agent, the Administrator or
the Custodian for the DECS will have any responsibility or
liability for any aspect of the records relating to, or payments
made on account of, beneficial ownership interests in a Global
Security or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
The Trust expects that the Depositary, upon receipt of any
payment in respect of a permanent Global Security, will credit
immediately participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the
principal amount of such Global Security as shown on the records
of the Depositary. The Trust also expects that payments by
participants to owners of beneficial interests in such Global
Security held through such 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 "street name," and will be the responsibility of
such participants.
A Global Security may not be transferred except as a whole
by the Depositary to a nominee or a successor of the Depositary.
If the Depositary is at any time unwilling or unable to continue
as depositary and a successor depositary is not appointed by the
Trust within ninety days, the Trust will issue DECS in definitive
registered form in exchange for the Global Security representing
such DECS. In addition, the Trust may at any time and in its
sole discretion determine not to have any DECS represented by one
or more Global Securities and, in such extent, will issue DECS in
definitive form in exchange for all of the Global Securities
representing the DECS. Further, if the Trust so specifies with
respect to the DECS, an owner of a beneficial interest in a
Global Security representing DECS may, on terms acceptable to the
Trust and the Depositary for such Global Security, receive DECS
in definitive form. In any such instance, an owner of a
beneficial interest in a Global Security will be entitled to
physical delivery in definitive form of DECS represented by such
Global Security equal in number to that represented by such
beneficial interest and to have such DECS registered in its name.
MANAGEMENT AND ADMINISTRATION OF THE TRUST
Trustees
The Trust will be internally managed by three Trustees and
will not have an investment adviser. Under the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"),
applicable to grantor trusts, the Trustees will not have the
power to vary the investments held by the Trust. It is a
fundamental policy of the Trust that the Contracts may not be
disposed of during the term of the Trust and that the U.S.
Treasury securities held by the Trust may not be disposed of
prior to their respective maturities.
The names of the persons who have been elected by Salomon
Brothers Inc, the initial Holder of the Trust, and who will serve
as the Trustees are set forth below. The positions and the
principal occupations of the individual Trustees during the past
five years are also set forth below.
Principal
Name, Age and Occupation During
Address Title Past Five Years
Each Trustee who is not a director, officer or employee of
any Underwriter or the Administrator, or of any affiliate
thereof, will be paid by Salomon, on behalf of the Trust, in
respect of its annual fee and anticipated out-of-pocket expenses,
a one-time, up-front fee of $ . The Trust's Managing
Trustee will also receive an additional up-front fee of
$ for serving in that capacity. The Trustees will not
receive, either directly or indirectly, any compensation,
including any pension or retirement benefits, from the Trust.
None of the Trustees receives any compensation for serving as a
trustee or director of any other affiliated investment company.
Administrator
The day-to-day affairs of the Trust will be managed by
, as Trust Administrator pursuant to an
Administration Agreement. Under the Administration Agreement,
the Trustees have delegated most of their operational duties to
the Administrator, including without limitation, the duties to:
(i) receive invoices for and pay, or cause to be paid, all
expenses incurred by the Trust; (ii) with the approval of the
Trustees, engage legal and other professional advisors (other
than the independent public accountants for the Trust); (iii)
instruct the Paying Agent to pay distributions on DECS as
described herein; (iv) prepare and mail, file or publish all
notices, proxies, reports, tax returns and other communications
and documents, and keep all books and records, for the Trust; (v)
at the direction of the Trustees, institute and prosecute legal
and other appropriate proceedings to enforce the rights and
remedies of the Trust; and (vi) make all necessary arrangements
with respect to meetings of Trustees and any meetings of holders
of DECS. The Administrator will not, however, select the
independent public accountants for the Trust or sell or otherwise
dispose of the Trust assets (except in connection with an
acceleration of the Contracts, or the settlement of the Contracts
at the Exchange Date, and upon termination of the Trust).
The Administration Agreement may be terminated by either the
Trust or the Administrator upon 60 days' prior written notice,
except that no termination shall become effective until a
successor Administrator has been chosen and has accepted the
duties of the Administrator.
Except for its roles as Administrator, custodian, paying
agent, registrar and transfer agent of the Trust, and except for
its role as Collateral Agent under the Collateral Agreements,
has no other affiliation with, and is not
engaged in any other transactions with, the Trust.
The address of the Administrator is
.
Custodian
The Trust's custodian (the "Custodian") is
pursuant to a custodian agreement (the "Custodian Agreement").
In the event of any termination of the Custodian Agreement by the
Trust or the resignation of the Custodian, the Trust must engage
a new Custodian to carry out the duties of the Custodian as set
forth in the Custodian Agreement. Pursuant to the Custodian
Agreement, all net cash received by the Trust will be invested by
the Custodian in short-term U.S. Government securities maturing
on or shortly before the next quarterly distribution date. The
Custodian will also act as Collateral Agent under the Collateral
Agreement and will hold a perfected security interest in the
Common Stock and U.S. Government obligations or other assets
consistent with the terms of the Contracts.
Paying Agent
The transfer agent, registrar and paying agent (the "Paying
Agent") for the DECS is pursuant to a paying
agent agreement (the "Paying Agent Agreement"). In the event of
any termination of the Paying Agent Agreement by the Trust or the
resignation of the Paying Agent, the Trust will use its best
efforts to engage a new Paying Agent to carry out the duties of
the Paying Agent.
Indemnification
The Trust will indemnify each Trustee, the Administrator,
the Custodian and the Paying Agent with respect to any claim,
liability, loss or expense (including the costs and expenses of
the defense against any claim or liability) which it may incur in
acting as Trustee, Administrator, Custodian or Paying Agent, as
the case may be, except in the case of willful misfeasance, bad
faith, gross negligence or reckless disregard of their respective
duties or where applicable law prohibits such indemnification.
Salomon has agreed to reimburse the Trust for any amounts it may
be required to pay as indemnification to any Trustee, the
Administrator, the Custodian or the Paying Agent. Salomon will
in turn be reimbursed by the Sellers for all such reimbursements
paid by it.
Distributions
The Trust intends to distribute to Holders on a quarterly
basis the proceeds of the U.S. Treasury securities held by the
Trust. The first distribution, reflecting the Trust's operations
from the date of the offering, will be made on , 1996
to Holders of record as of , 1996. Thereafter,
distributions will be made on , , and
or, if any such date is not a Business Day, on the next
succeeding Business Day, of each year to Holders of record as of
each , , and , respectively.
Upon termination of the Trust as described in "Investment
Objectives and Policies-Trust Termination," each Holder will
receive any remaining net assets of the Trust.
Estimated Expenses
Salomon will pay at the Trust's inception to each of the
Administrator, the Custodian and the Paying Agent, and to each
Trustee, a one-time, up-front amount in respect of its fee and,
in the case of the Administrator, anticipated expenses of the
Trust over the term of the Trust. The anticipated Trust expenses
to be borne by the Administrator include, among other things,
expenses for legal and independent accountants' services, costs
of printing proxies, DECS certificates and Holder reports,
expenses of the Trustees, fidelity bond coverage, stock exchange
listing fees and expenses of qualifying the DECS for sale in the
various states. The aggregate of the one-time, up-front payments
described above will be in the amount of $ . Salomon will
also pay estimated organization costs of the Trust in the amount
of $ and estimated costs of the Trust in connection with
the initial registration and public offering of the DECS in the
amount of $ at the closing of the offering.
The amount payable to the Administrator in respect of
ongoing expenses of the Trust was determined based on estimates
made in good faith on the basis of information currently
available to the Trust, including estimates furnished by the
Trust's agents. There cannot, however, be any assurance that
actual operating expenses of the Trust will not be substantially
more than this amount. Any excess expenses will be paid by
Salomon or, in the event of its failure to pay such amounts, the
Sellers, or, in the event of the failure of either Salomon or the
Sellers to pay such amounts, the Trust. Salomon will be
reimbursed by the Sellers for all fees and expenses of the Trust
paid by it.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the principal U.S. federal
income tax consequences that may be relevant to a holder of a
DECS that is a citizen or resident of the United States, a
corporation, partnership or other entity created or organized
under the laws of the United States, an estate or trust the
income of which is subject to U.S. federal income taxation
regardless of its source (a "U.S. person") or a holder that is
otherwise subject to U.S. federal income taxation on a net income
basis in respect of a DECS (such a holder and any U.S. person, a
"U.S. Holder"). The discussion below is based on the advise of
Cleary, Gottlieb, Steen & Hamilton.
This summary is based on the U.S. federal income tax laws,
regulations, rulings and decisions now in effect, all of which
are subject to change. Except to the extent discussed below
under "Non-United States Persons," this summary deals only with
U.S. Holders will hold DECS as capital assets. This summary
deals only with initial Holders and does not address tax
considerations applicable to investors that may be subject to
special tax rules, such as banks, insurance companies, dealers in
securities, persons that will hold DECS as a position in a
"straddle" for tax purposes or as a part of a "synthetic
security" or a "conversion transaction" or other integrated
investment comprised of a DECS and one or more other investments,
or persons that have a functional currency other than the U.S.
dollar. It does not include any description of the tax laws of
any state or local governments or of any foreign government that
may be applicable to the DECS or to the Holders thereof. It also
does not discuss the tax consequences of the ownership of the
Common Stock or Marketable Common Stock. Prospective purchasers
of DECS are urged to review the discussion under "Taxation in the
accompanying prospectus of the Company concerning the federal
income tax consequences of an investment in the Common Stock,
which is based upon the opinion of .
INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS IN DETERMINING
THE TAX CONSEQUENCES TO THEM OF HOLDING DECS, INCLUDING THE
APPLICATION TO THEIR PARTICULAR SITUATION OF THE U.S. FEDERAL
INCOME TAX CONSIDERATIONS DISCUSSED BELOW, AS WELL AS THE
APPLICATION OF STATE, LOCAL OR OTHER TAX LAWS.
There are no regulations, published rulings or judicial
decisions addressing the characterization for federal income tax
purposes of securities with terms substantially the same as the
DECS. The Trust intends to treat a DECS for U.S. federal income
tax purposes as a beneficial interest in a trust that holds zero-
coupon U.S. Treasury securities and Contracts, and to report
Holders' income to the Internal Revenue Service in accordance
with this treatment. Under this approach, the tax consequences
of holding a DECS will be as described below. However,
prospective investors in the DECS should be aware that the
Internal Revenue Service might take a different view as to the
proper characterization of the DECS and of the tax consequences
to a Holder.
Tax Status of the Trust
The Trust will be taxable as a grantor trust for federal
income tax purposes, and income received by the Trust will be
treated as income of the Holders in the manner set forth below.
Tax Consequences to United States Holders
Tax Basis of the U.S. Treasury Securities and the Contracts.
Each Holder will be considered the owner of its pro rata portion
of the zero-coupon U.S. Treasury securities and the Contracts in
the Trust. The cost to the Holder of its DECS will be allocated
among the Holder's pro rata portion of the U.S. Treasury
securities and the Contracts (in proportion to the fair market
values thereof on the date on which the Holder acquires its DECS)
in order to determine the Holder's tax bases. It is currently
anticipated that % and % of the net proceeds of the offering
will be used by the Trust to purchase the U.S. Treasury
securities and as payments under the Contracts, respectively.
Recognition of Original Issue Discount on the U.S. Treasury
Securities. The U.S. Treasury securities in the Trust will
consist of zero-coupon U.S. Treasury securities. A Holder will
be required to treat its pro rata portion of each U.S. Treasury
security in the Trust as a bond that was originally issued on the
date the Holder purchased its DECS and at an original issue
discount equal to the excess of the Holder's pro rata portion of
the amounts payable on such U.S. Treasury security over the
Holder's tax basis therefor as discussed above. The Holder
(whether on the cash or accrual method of tax accounting) is
required to include original issue discount (other than original
issue discount on short-term U.S. Treasury securities as defined
below) in income for federal income tax purposes as it accrues,
in accordance with a constant yield method, prior to the receipt
of cash attributable to such income. Because it is expected that
more than 20% of the Holders will be accrual basis taxpayers,
original issue discount on any short-term U.S. Treasury security
(i.e., any U.S. Treasury security with a maturity of one year or
less from the date it is purchased) held by the Trust will also
be required to be included in income by the Holders as it is
accrued. Unless a Holder elects to accrue the original issue
discount on a short-term U.S. Treasury security according to a
constant yield method based on daily compounding, such original
issue discount will be accrued on a straight-line basis. The
Holder's tax basis in a U.S. Treasury security will be increased
by the amount of any original issue discount included in income
by the Holder with respect to such U.S. Treasury security.
Treatment of the Contracts. Each Holder will be treated as
having entered into a pro rata portion of the Contracts and, at
the Exchange Date, as having received a pro rata portion of the
Common Stock (or cash, Marketable Common Stock or a combination
thereof) delivered to the Trust. Under existing law, a Holder
will not recognize income, gain or loss upon entry into the
Contracts. A Holder will not be required under existing law to
include in income additional amounts over the term of the
Contracts.
The Internal Revenue Service may contend that a DECS should
be characterized for federal income tax purposes in a manner
different from the approach described above. For example, the
Internal Revenue Service might assert that a Holder should
include in income over the term of the Contracts additional
amounts which together with the original issue discount on such
Holder's pro rata portion of the U.S. Treasury securities should
not exceed the aggregate amount of the quarterly cash
distributions to such Holder.
Sale of the DECS. Upon a sale of all or some of a Holder's
DECS, a Holder will be treated as having sold its pro rata
portion of the U.S. Treasury securities and the Contracts
underlying the DECS. The selling Holder will recognize gain or
loss equal to the difference between the amount realized and the
Holder's aggregate tax bases in its pro rata portion of the U.S.
Treasury securities and the Contracts. Any gain or loss will be
long-term capital gain or loss if the Holder has held the DECS
for more than one year. The distinction between capital gain or
loss and ordinary income or loss is important for purposes of the
limitations on a Holder's ability to offset capital losses
against ordinary income. In addition, certain individuals are
subject to taxation at a reduced rate on long-term capital gains.
Distribution of the Common Stock. The delivery of Common
Stock to the Trust pursuant to the Contracts will not be taxable
to the Holders. The distribution of Common Stock upon the
termination of the Trust will not be taxable to the Holders. A
Holder will have taxable gain or loss upon receipt of cash in
lieu of fractional shares of Common Stock distributed upon
termination of the Trust. Each Holder's aggregate basis in its
shares of Common Stock will be equal to its basis in its pro rata
portion of the Contracts less the portion of such basis allocable
to any fractional shares of Common Stock for which cash is
received.
Distribution of Cash or Marketable Common Stock. If as a
result of a Reorganization Event, cash, Marketable Common Stock,
or a combination of cash and Marketable Common Stock is delivered
pursuant to the Contracts, a Holder will have taxable gain or
loss upon receipt equal to the difference between the amount of
cash received, including cash received in lieu of fractional
shares of Marketable Common Stock, and its basis in its pro rata
portion of the Contracts allocable to any shares of Common Stock
for which such cash or fractional shares of Marketable Common
Stock were received. Any gain or loss will be capital gain or
loss, and if the Holder has held the DECS for more than one year,
such gain or loss will be long-term capital gain or loss. A
Holder's basis in any Marketable Common Stock received will be
equal to its basis in its pro rata portion of the Contracts less
the portion of such basis allocable to any shares of Common Stock
for which cash or fractional shares of Marketable Common Stock
were received. See "Investment Objectives and Policies - The
Contracts."
Fees and Expenses of the Trust. A Holder's pro rata portion
of the expenses in connection with the organization of the Trust,
underwriting discounts and commissions and other offering
expenses should be includable in the cost to the Holder of the
DECS. However, there can be no assurance that the Internal
Revenue Service will not take a contrary view. If the Internal
Revenue Service were to prevail in treating such expenses as
excludable from the Holder's cost of the DECS, such expenses
would not be includable in the basis of the assets of the Trust
and should instead be amortizable and deductible over the term of
the Trust. If such expenses were treated as amortizable and
deductible, an individual Holder who itemizes deductions would be
entitled to amortize and deduct (subject to any other applicable
limitations on itemized deductions) such expenses over the term
of the Trust only to the extent that such amortized annual
expenses together with such Holder's other miscellaneous
deductions exceeds 2% of such Holder's adjusted gross income.
Non-United States Persons
In the case of a Holder of the DECS that is not a U.S.
person, payments made with respect to the DECS will not be
subject to U.S. withholding tax, provided that such Holder
complies with applicable certification requirements (including in
general the furnishing of an Internal Revenue Service Form W-8 or
a substitute form). Any capital gain realized upon the sale or
other disposition of the DECS by a Holder that is not a U.S.
person will generally not be subject to U.S. federal income tax
if (i) such gain is not effectively connected with a U.S. trade
or business of such Holder and (ii) in the case of an individual,
such individual is not present in the United States for 183 days
or more in the taxable year of the sale or other disposition or
the gain is not attributable to a fixed place of business
maintained by such individual in the United States.
Backup Withholding and Information Reporting
A Holder of a DECS may be subject to information reporting
and to backup withholding at a rate of 31 percent of certain
amounts paid to the Holder unless such Holder (a) is a
corporation or comes within certain other exempt categories and,
when required, provides proof of such exemption or (b) provides a
correct taxpayer identification number, certifies as to no loss
of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules.
Information reporting and backup withholding do not apply to
payments made to a Holder of a DECS that is not a U.S. person if
the beneficial owner of the DECS certifies as to its non-U.S.
status or otherwise establishes an exemption, provided that the
Trust or its agent does not have actual knowledge that the Holder
is a U.S. person.
Payment of the proceeds from the sale of a DECS to or
through a foreign office of a broker will not be subject to
information reporting or backup withholding, except that if the
broker is a U.S. person, a controlled foreign corporation for
U.S. tax purposes or a foreign person 50 percent or more of whose
gross income from all sources for the three-year period ending
with the close of its taxable year preceding the payment was
effectively connected with a U.S. trade or business, information
reporting may apply to such payments. Payment of the proceeds
from a sale of a DECS to or through the U.S. office of a broker
is subject to information reporting and backup withholding unless
the Holder or beneficial owner certifies as to its non-U.S.
status or otherwise establishes an exemption from information
reporting and backup withholding.
Any amounts withheld under the backup withholding rules are
not an additional tax and may be credited against the U.S.
Holder's U.S. federal income tax liability, provided that the
required information is furnished to the Internal Revenue
Service.
UNDERWRITING
Subject to the terms and conditions set forth in the
Underwriting Agreement (the "Underwriting Agreement") among the
Trust, the Company, each of the Sellers and Salomon Brothers Inc,
the Trust has agreed to sell to the Underwriter, and the
Underwriter has agreed to purchase the number of DECS set forth
below:
Underwriter Number of DECS
Salomon Brothers Inc
In the Underwriting Agreement, the Underwriter has agreed,
subject to the terms and conditions set forth therein, that the
obligations of the Underwriter are subject to certain conditions
precedent and that the Underwriter will be obligated to purchase
all the DECS offered hereby if any of the DECS are purchased.
The Underwriter proposes to offer the DECS directly to the
public initially at the public offering price set forth on the
cover of this Prospectus, and to certain dealers at such price
less a concession not in excess of $ per DECS. The
Underwriter may allow, and such dealers may reallow, a concession
not in excess of $ per DECS to other dealers. After the
initial public offering, such public offering price and such
concession and reallowance may be changed.
The Company, its directors and executive officers, and the
Principal and Selling Shareholders listed under the caption
"Principal and Selling Shareholders" in the prospectus of the
Company attached hereto, including the Sellers, have agreed not
to offer for sale, sell or contract to sell, or otherwise dispose
of, or announce the offering of, without the prior written
consent of the Underwriter, any shares of Common Stock or any
securities convertible into or exchangeable for, or warrants to
acquire, Common Stock for a period of days after the date
of this Prospectus; provided, however, that such restriction
shall not effect the ability of (i) the Company or the Sellers to
take any such actions in connection with the offering of the DECS
made hereby or any exchange at the Exchange Date pursuant to the
terms of the DECS or (ii) the Company to take any such actions in
connection with any employee stock option plan, stock ownership
plan or dividend reinvestment plan of the Company in effect at
the date of this Prospectus.
The Trust has granted to the Underwriter an option,
exercisable for a 30-day period after the date of this
Prospectus, to purchase up to an additional DECS
at the same price per DECS as the initial DECS to be purchased by
the Underwriter. The Underwriter may exercise such option only
for the purpose of covering over-allotments, if any, incurred in
connection with the sale of the DECS offered hereby.
The DECS will be a new issue of securities with no
established trading market. The Underwriter intends to make a
market in the DECS, subject to applicable laws and regulations.
However, the Underwriter is not obligated to do so and any such
market-making may be discontinued at any time at the sole
discretion of the Underwriter without notice. Accordingly, no
assurances can be given as to the liquidity of such market.
The Underwriting Agreement provides that the Company and the
Sellers have agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of
1933, as amended, or contribute to payments the Underwriter may
be required to make in respect thereof.
The Underwriter has from time to time performed various
investment banking and financial advisory services for the
Company and its affiliates, for which customary compensation has
been received.
LEGAL MATTERS
Certain legal matters will be passed upon for the Trust and
the Underwriter by Cleary, Gottlieb, Steen & Hamilton, New York,
New York. Certain legal matters will be passed upon for the
Company and the Sellers by . Certain legal
matters with respect to the Contracts will be passed upon for the
Sellers by . Certain U.S. federal income tax
matters will be passed upon for the Company by .
EXPERTS
The statement of assets, liabilities and capital included in
this Prospectus has been audited by , independent
auditors, as stated in their report appearing herein, and is
included in reliance upon the report of such firm given upon
their authority as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Trust has filed with the Securities and Exchange
Commission, Washington, D.C. 20549, a Registration Statement
under the Securities Act of 1933, as amended, with respect to the
DECS offered hereby. Further information concerning the DECS and
the Trust may be found in the Registration Statement, of which
this Prospectus constitutes a part. The Registration Statement
may be inspected without charge at the Commission's office in
Washington, D.C., and copies of all or any part thereof may be
obtained from such office after payment of the fees prescribed by
the Commission.<PAGE>
REPORT of independent accountants
To the Shareholder and Board of Trustees of
DECS Trust
In our opinion, the accompanying statement of assets and
liabilities presents fairly, in all material respects, the
financial position of DECS Trust (the "Trust") as of ,
1995 in conformity with generally accepted accounting principles.
This financial statement is the responsibility of the Trust's
management; our responsibility is to express an opinion on this
financial statement based on our audit. We conducted our audit
of this financial statement in accordance with generally accepted
auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the
opinion expressed above.
New York, New York
, 1996
<PAGE>
DECS TRUST
STATEMENT OF ASSETS AND LIABILITIES
, 1996
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . $
Deferred organization expenses (Note 1). . . . . . $
Total Assets . . . . . . . . . . . . . . . . . . . $
. . . . . . . . . . . . . . . . . . . LIABILITIES
Organization expenses payable (Note 1) . . . . . . $
SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . .
DECS representing shares of beneficial
interest, $ par value, share
authorized, shares issued
and outstanding. . . . . . . . . . . . . . . . . . $
Total liabilities and shareholders' equity . . . . $
NET ASSETS . . . . . . . . . . . . . . . . . . . . $
Net asset value per share. . . . . . . . . . . . . $
Note 1. Organization
DEC Trust (the "Trust") was established as a Delaware
business trust on November 21, 1995, and has had no operations to
date other than matters relating to its organization and
registration as a non-diversified, closed-end management
investment company under the Investment Company Act of 1940, as
amended, and the sale and issuance of DECS for $ to
Salomon Brothers Inc ("Salomon"). The costs incurred in
connection with the organization of the Trust and this offering
will be paid by Salomon.
<PAGE>
APPENDIX A
(Company Prospectus)
No dealer, salesperson or any other person has been authorized to
give any information or to make any representation not contained
in this Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized
by the Trust or the Underwriter. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no
change in the affairs of the Trust since the date hereof or that
the information herein is correct as of any time subsequent to
its date. However, if any material change occurs while this
Prospectus is required by law to be delivered, this Prospectus
will be amended or supplemented accordingly. This Prospectus
does not constitute an offer or solicitation by anyone in any
jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or
solicitation is not qualified to do so or to any person to whom
it is unlawful to make such an offer or solicitation.
-------------------
1,000,000 DECS SM
DECS TRUST
Table of Contents
Page
----
Prospectus Summary 3
Fees and Expenses 7
The Trust 8
Use of Proceeds 8
Investment Objectives and Policies 8
Investment Restrictions 15
Risk Factors Relating to DECS 15
Net Asset Value 17
Description of the DECS 17
Management and Administration
of the Trust 19
Certain United States Federal
Income Tax Considerations 21
Underwriting 24
Legal Matters 24
Experts 25
Additional Information 25
Report of Independent Accountants 26
Statement of Assets and Liabilities 27 Prospectus
Appendix A A-1
Dated ,
_____________
Until , 1996, all dealers effecting transactions in the
DECS, whether or not participating in this distribution, may be
required to deliver a Prospectus. This is in addition to the
obligation of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
Salomon Brothers Inc
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
1. Financial Statements
Part A -- (i) Report of Independent Accountants
(ii) Statement of Assets and Liabilities as
of , 1995
Part B -- none
2. Exhibits
(a)(1) -- Declaration of Trust dated as of
November 21, 1995/**/
(a)(2) -- Certificate of Trust/**/
(b) -- Not applicable
(c) -- Not applicable
(d)(1) -- Form of specimen certificate of DECS/*/
(d)(2) -- Portions of the Declaration of Trust defining
the rights of Holders of DECS/*/
(e) -- Not applicable
(f) -- Not applicable
(g) -- Not applicable
(h) -- Form of Underwriting Agreement/*/
(i) -- Not applicable
(j) -- Form of Custodian Agreement/*/
(k)(1) -- Form of Administration Agreement/*/
(k)(2) -- Form of Paying Agent Agreement/*/
(k)(3) -- Form of Purchase Contract/*/
(l) -- Opinion and Consent of Counsel to the Trust/*/
(m) -- Not applicable
(n)(1) -- Tax Opinion of Counsel to the Trust (Consent
contained in Exhibit 2.1)/*/
(n)(2) -- Consent of Independent Public Accountants/*/
(o) -- Not applicable
(p) -- Form of Subscription Agreement/*/
(q) -- Not applicable
(r) -- Not applicable
/*/ To be filed by amendment.
/**/ Previously filed.
Item 25. Marketing Arrangements
See Exhibit (h) to this Registration Statement.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be
incurred in connection with the offering described in this
Registration Statement:
Registration fees $ 4,448.28
New York Stock Exchange listing fee *
Printing (other than certificates) *
Engraving and printing certificates *
Fees and expenses of qualification under state
securities laws (including fees of counsel) *
Accounting fees and expenses *
Legal fees and expenses *
NASD fees *
Miscellaneous *
Total $ *
/*/ To be furnished by amendment.
Item 27. Person Controlled by or under Common Control with
Registrant
The Trust will be internally managed and will not have an
investment adviser. The information in the Prospectus under the
caption "Management and Administration of the Trust" is
incorporated herein by reference.
Item 28. Number of Holders of Securities
As of the effective date of this Registration
Statement:
Title of Class Number of Record Holders
Shares of
beneficial
interest 0
Item 29. Indemnification
The Underwriting Agreement (Exhibit (h) to this Registration
Statement) provides for indemnification.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be
permitted to directors, officers and controlling persons of the
Registrant, pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
Item 30. Business and other Connections of Investment Adviser
Not applicable.
Item 31. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940
and the Rules thereunder are maintained as follows: journals,
ledgers, securities records and other original records are
maintained principally at the offices of the Registrant, c/o
Salomon Brothers Inc, Seven World Trade Center, New York, New
York 10048 and at the offices of , the
Registrant's Administrator, Custodian, paying agent, transfer
agent and registrar. All other records so required to be
maintained are maintained at the offices of the Registrant, c/o
Salomon Brothers Inc, Seven World Trade Center, New York, New
York 10048.
Item 32. Management Services
Not applicable.
Item 33. Undertakings
(a) The Registrant hereby undertakes to suspend the
offering of the shares covered hereby until it amends its
prospectus contained herein if (1) subsequent to the effective
date of this Registration Statement, its net asset value per
share declines more than 10 percent from its net asset value per
share as of the effective date of this Registration Statement or
(2) the net asset value per share increases to an amount greater
than its net proceeds as stated in the prospectus contained
herein.
(b) The Registrant hereby undertakes that (i) for the
purpose of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant under
Rule 497(h) under the Securities Act shall be deemed to be part
of this Registration Statement as of the time it was declared
effective; (ii) for the purpose of determining any liability
under the Securities Act, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant has duly
caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 26th day of February, 1996.
DECS TRUST
By: /s/ Peter B. Blanton
---------------------
Peter B. Blanton,
Trustee
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the
following person, in the capacities and on the date indicated.
Name Title Date
/s/ Peter B. Blanton Principal Executive
- --------------------- Officer, Principal
Peter B. Blanton Principal Accounting
Officer and Trustee February 26, 1996
<PAGE>
Exhibit Index
Exhibit Name of Exhibit
(a)(1)Declaration of Trust dated as of November 21, 1995/**/
(a)(2)Certificate of Trust/**/
(b)Not applicable
(c)Not applicable
(d)(1)Form of specimen certificate of DECS/*/
(d)(2) Portions of the Declaration of Trust defining the
rights of Holders of DECS/*/
(e) Not applicable
(f) Not applicable
(g) Not applicable
(h) Form of Underwriting Agreement/*/
(i) Not applicable
(j) Form of Custodian Agreement/*/
(k)(1) Form of Administration Agreement/*/
(k)(2) Form of Paying Agent Agreement/*/
(k)(3) Form of Purchase Contract/*/
(l) Opinion and Consent of Counsel to the Trust/*/
(m) Not applicable
(n)(1) Tax Opinion of Counsel to the Trust (Consent
contained in Exhibit 2.1)/*/
(n)(2) Consent of Independent Public Accountants/*/
(o) Not applicable
(p) Form of Subscription Agreement/*/
(q) Not applicable
(r) Not applicable
- ------------------
/*/ To be filed by amendment.
/**/ Previously filed.
