<PAGE>
Filed Pursuant to Rule No. 424(B)(3)
Registration No. 333-09883
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED NOVEMBER 14, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER , 1996)
$15,000,000
TREASURY SECURITY-BACKED CERTIFICATES, SERIES 1996-1
$5,000,000 % CLASS A CERTIFICATES DUE AUGUST 15, 2002
$5,000,000 % CLASS B CERTIFICATES DUE JULY 15, 2006
$5,000,000 % CLASS C CERTIFICATES DUE NOVEMBER 15, 2016
SOUTHPOINT STRUCTURED ASSETS, INC.
DEPOSITOR
The Treasury Security-Backed Certificates, Series 1996-1 offered hereby
consist of three classes of Certificates, designated as Class A Certificates,
Class B Certificates and Class C Certificates (collectively, the
"Certificates"). The Treasury Security-Backed Trust, Series 1996-1 will consist
of three separate trusts designated the Class A Trust, the Class B Trust and
the Class C Trust (collectively, the "Trust") to be formed pursuant to the
Trust Agreement, dated as of November 1, 1996, between Southpoint Structured
Assets, Inc. (the "Depositor") and Bank One, West Virginia, N.A., as trustee
(the "Trustee"), as supplemented by the Series 1996-1 Supplement, dated as of
November , 1996 (collectively, the "Trust Agreement"). The Class A
Certificates will represent a fractional undivided interest in the Class A
Trust and the principal asset of the Class A Trust will consist of a United
States Treasury Note having an aggregate principal amount of $5,000,000, a
coupon of % and a maturity of August 15, 2002 (the "Class A Treasury Note").
The Class B Certificates will represent a fractional undivided interest in the
Class B Trust and the principal asset of the Class B Trust will consist of a
United States Treasury Note having an aggregate principal amount of $5,000,000,
a coupon of % and a maturity of July 15, 2006 (the "Class B Treasury Note").
The Class C Certificates will represent a fractional undivided interest in the
Class C Trust and the principal asset of the Class C Trust will consist of a
United States Treasury Bond having an aggregate principal amount of $5,000,000,
a coupon of % and a maturity of November 15, 2016 (the "Class C Treasury
Bond"; the Class A Treasury Note, the Class B Treasury Note and the Class C
Treasury Bond are sometimes collectively referred to herein as the "Treasury
Securities" or the "Underlying Securities"). See "DESCRIPTION OF THE DEPOSITED
ASSETS" herein. The Treasury Securities will be acquired by an affiliate of the
Depositor in the secondary market before being deposited by the Depositor into
the applicable Trust for the benefit of the Certificateholders. Terms used but
not otherwise defined herein are defined in the Prospectus attached hereto (the
"Prospectus").
Distributions on the Class A Certificates will be made semi-annually on
February 15 and August 15 of each year, commencing February 15, 1997 (each, a
"Class A Distribution Date"), distributions on the Class B Certificates will be
made semi-annually on January 15 and July 15 of each year, commencing January
15, 1997 (each, a "Class B Distribution Date"), and distributions on the Class
C Certificates will be made semi-annually on May 15 and November 15 of each
year, commencing May 15, 1997 (each, a "Class C Distribution Date"). The last
day on which distributions are scheduled to be made on the Certificates, by
which date the holders of the Certificate will receive a distribution of all
amounts allocable to principal on such Certificates, is August 15, 2002 for the
Class A Certificates (the "Class A Final Distribution Date"), July 15, 2006 for
the Class B Certificates (the "Class B Final Distribution Date") and November
15, 2016 for the Class C Certificates (the "Class C Final Distribution Date";
the Class A Final Scheduled Distribution Date, the Class B Final Scheduled
Distribution Date and the Class C Final Scheduled Distribution Date are
sometimes collectively referred to herein as the "Final Distribution Date").
The Class A Certificates may be paid in full on any date on or after the May
15, 1997 (the "Early Termination Date") in an amount equal to par plus accrued
interest to the Early Termination Date (the "Early Termination Price"), upon
the purchase of the Class A Treasury Note by the holder of the Class A Call
Warrant. The Class B Certificates may be paid in full on any Early Termination
Date at the Early Termination Price, upon purchase of the Class B Treasury Note
by the holder of the Class B Call Warrant. The Class C Certificates may be paid
in full on any Early Termination Date at the Early Termination Price, upon the
purchase of the Class C Treasury Bond by the holder of the Class C Call
Warrant. See "RISK FACTORS--MATURITY AND YIELD CONSIDERATIONS" and "DESCRIPTION
OF THE CERTIFICATES--EARLY TERMINATION" herein.
The Certificates have been authorized for listing, upon official notice of
issuance, with the New York Stock Exchange ("NYSE").
SEE "RISK FACTORS" HEREIN ON PAGE S-9 AND IN THE PROSPECTUS ON PAGES 6 TO 8.
(Cover continued on next page)
----------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT AN
OBLIGATION OF OR INTEREST IN THE DEPOSITOR OR ANY OF ITS RESPECTIVE
AFFILIATES. THE CERTIFICATES DO NOT REPRESENT A DIRECT OBLIGATION OF THE
UNITED STATES OF AMERICA AND WILL NOT BE GUARANTEED OR INSURED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY, OR BY THE DEPOSITOR.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------
Morgan Keegan & Company, Inc. (the "Underwriter") has agreed to purchase from
the Depositor the Class A Certificates at % of the Certificate Principal
Balance thereof, the Class B Certificates at % of the Certificate principal
Balance thereof and the Class C Certificates at % of the Certificate
Principal Balance thereof ($ aggregate proceeds to the Depositor,
before deducting expenses), plus accrued interest from November 15, 1996 (the
"Cut-off Date"), subject to the terms and conditions set forth in the
Underwriting Agreement referred to herein under "PLAN OF DISTRIBUTION."
The Underwriter proposes to offer the Certificates from time to time for sale
in negotiated transactions, at prices determined at the time of sale. For
further information with respect to the plan of distribution and any discounts,
commissions or profits that may be deemed underwriting discounts or
commissions, see "PLAN OF DISTRIBUTION."
The Certificates are offered subject to receipt and acceptance by the
Underwriter, to prior sale 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 Certificates will be made in book-entry
form through the facilities of The Depository Trust Company on or about
November 27, 1996 (the "Closing Date").
MORGAN KEEGAN & COMPANY, INC.
November , 1996
<PAGE>
(Cover page continued.)
As and to the extent described herein, collections received by the Trustee
with respect to the Deposited Assets will be distributed to the
Certificateholders in the manner and priority described herein. No agency or
instrumentality of the United States of America is participating in or will
receive any proceeds in connection with this offering.
There is currently no secondary market for the Certificates, and there can
be no assurance that a secondary market for the Certificates will develop or, if
it does develop, that it will continue. See "Risk Factors" in the Prospectus.
If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will also be used by the Underwriter
after the completion of the offering in connection with offers and sales related
to market-making transactions in the Offered Certificates in which the
Underwriter acts as principal. The Underwriter may also act as agent in such
transactions. Sales will be made at negotiated prices determined at the time of
sale.
The Certificates initially will be represented by certificates registered
in the name of CEDE & Co., as nominee of The Depository Trust Company ("DTC").
The interests of beneficial owners of such Certificates will be represented by
book entries on the records of participating members of DTC ("Participants").
Definitive certificates will be available for such Certificates only under the
limited circumstances described herein. See "Description of the Certificates--
Definitive Certificates."
In connection with this Offering, the Underwriter may overallot or effect
transactions which stabilize or maintain the market price of the Certificates at
a level above that which might otherwise prevail in the open market. Such
stabilizing, if commenced, may be discontinued at any time.
The Certificates offered by this Prospectus Supplement will constitute a
separate series of Certificates being offered by the Depositor pursuant to its
Prospectus dated __________, 1996, of which this Prospectus Supplement is a part
and which accompanies this Prospectus Supplement. The Prospectus contains
important information regarding this Offering which is not contained herein, and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full. In particular, investors should consider carefully the
factors set forth under "Risk Factors" in the Prospectus and in this Prospectus
Supplement.
S-2
<PAGE>
SUMMARY
The following summary of principal economic terms does not purport to be
complete and is qualified in its entirety by reference to the detailed
information appearing elsewhere herein and in the Prospectus, including under
the headings "Description of the Certificates" and "Description of the Deposited
Assets." Certain capitalized terms used herein are defined elsewhere in this
Prospectus Supplement on the pages indicated in the "Index of Terms" or, to the
extent not defined herein, have the meanings assigned to such terms in the
Prospectus.
The Certificates
The Trust............................. Treasury Security-Backed Trust, Series
1996-1 consisting of the Class A Trust,
the Class B Trust and the Class C Trust.
The Trust will be formed pursuant to the
Trust Agreement dated as of November 1,
1996 (the "Base Trust Agreement"),
between the Depositor and the Trustee, as
supplemented by the Series 1996-1
Supplement dated as of the Closing Date
(the "Series Supplement" and, together
with the Base Trust Agreement, the "Trust
Agreement").
Certificates Offered................. Treasury Security-Backed Certificates,
Series 1996-1, consisting of Class A
Certificates, Class B Certificates and
the Class C Certificates (collectively,
the "Certificates").
Initial Certificate
Principal Balance.................... Class A Certificates: $5,000,000
Class B Certificates: $5,000,000
Class C Certificates: $5,000,000
Final Distribution Date.............. Class A Certificates: August 15, 2002.
Class B Certificates: July 15, 2006.
Class C Certificates: November 15, 2016.
The actual maturity of each Class may be
shorter than the Final Distribution Date.
Pass-Through Rates................... The Pass-Through Rate applicable to the
calculation of the interest distributable
on any Distribution Date is fixed at %
----
per annum for the Class A Certificates,
% per annum for the Class B
----
Certificates and % per annum for the
----
Class C Certificates.
Distribution Dates.................... Distributions on the Class A Certificates
will be made semi-annually on February 15
and August 15 of each
S-3
<PAGE>
year, commencing February 15, 1997 (each,
a "Class A Distribution Date"),
distributions on the Class B Certificates
will be made semi-annually on January 15
and July 15 of each year, commencing
January 15, 1997 (each, a "Class B
Distribution Date"), and distributions on
the Class C Certificates will be made
semi-annually on May 15 and November 15
of each year, commencing May 15, 1997
(each, a "Class C Distribution Date").
The last day on which distributions are
scheduled to be made on the Certificates,
by which date the holders of the
Certificates will receive a distribution
of all amounts allocable to principal on
such Certificates, is August 15, 2002 for
the Class A Certificates (the "Class A
Final Distribution Date"), July 15, 2006
for the Class B Certificates (the "Class
B Final Distribution Date") and November
15, 2016 for the Class C Certificates
(the "Class C Final Distribution Date";
sometimes referred to herein as the
"Final Distribution Date").
Interest Accrual
Periods.............................. For any Class A Distribution Date, the
period from and including the preceding
Class A Distribution Date (or, in the
case of the first Interest Accrual
Period, from and including the Cut-off
Date) to but excluding the current Class
A Distribution Date. For any Class B
Distribution Date, the period from and
including the preceding Class B
Distribution Date (or, in the case of the
first Interest Accrual Period, from and
including the Cut-off Date) to but
excluding the current Class B
Distribution Date. For any Class C
Distribution Date, the period from and
including the preceding Class C
Distribution Date (or, in the case of the
first Interest Accrual Period, from and
including the Cut-off Date) to but
excluding the current Class C
Distribution Date.
Cut-off Date......................... November 15, 1996.
Record Date.......................... For each Class, the day immediately
preceding the applicable Distribution
Date.
Denominations......................... The Certificates will be available for
purchase in minimum denominations of
$1,000 and integral multiples thereof.
S-4
<PAGE>
Early Termination Dates............... The Class A Certificates may be paid in
full on any date on or after May 15, 1997
(the "Early Termination Date") in an
amount equal to par plus accrued interest
(the "Early Termination Price"), upon the
purchase of the Class A Treasury Note by
the holder of the Class A Call Warrant.
The Class B Certificates may be paid in
full on any Early Termination Date at the
Early Termination Price, upon the
purchase of the Class B Treasury Note by
the holder of the Class B Call Warrant.
The Class C Certificates may be paid in
full on any Early Termination Date at the
Early Termination Price, upon the
purchase of the Class C Treasury Bond by
the holder of the Class C Call Warrant.
Early Termination Price.............. Par plus accrued interest for each Class.
The Call Warrants.................... The Class A Call Warrant (as defined
herein) represents the right to purchase
the Class A Treasury Note at a price of
par plus accrued interest to the Early
Termination Date (the "Liquidation
Price"). The Class B Call Warrant (as
defined herein) represents the right to
purchase the Class B Treasury Note at the
Liquidation Price. The Class C Call
Warrant (as defined herein) represents
the right to purchase the Class C
Treasury Bond at the Liquidation Price.
The initial holder of the Call Warrants
will be the Depositor or an affiliate
thereof. No Call Warrants are being
offered hereby.
Early Termination
Provisions........................... The holder of a Class A Call Warrant, a
Class B Warrant or a Class C Warrant (a
"Warrantholder") may provide notice to
the Trustee (a "Purchase Request") no
less than 35 days prior to an Early
Termination Date that relates to the
applicable Class of Certificates that it
will purchase the applicable Treasury
Security. The Trustee will notify the
relevant Certificateholders of the Early
Termination Date no less than 30 days
prior to such Early Termination Date.
On, or before, the Early Termination
Date, the Warrantholder will deliver the
Liquidation Price for such Treasury
Security and the Trustee will deliver the
S-5
<PAGE>
Treasury Security relating to such Call
Warrant to the Warrantholder.
In the event that the Warrantholder fails
to deliver the Liquidation Price on the
Early Termination Date, the early
termination will be deemed not effective
with respect to such Early Termination
Date. In such case, the applicable Class
of Certificates shall continue to remain
outstanding and the Warrantholder's
rights with respect to that Call Warrant
shall be deemed surrendered to the
Depositor.
Form of Security...................... Book-entry Certificates to be deposited
with The Depository Trust Company
("DTC"), except in certain limited
circumstances. See "Description of the
Certificates--Definitive Certificates."
Distributions thereon will be settled in
immediately available (same-day) funds.
CUSIP Numbers......................... Class A Certificates:
Class B Certificates:
Class C Certificates:
Retained Interests.................... Under the Trust Agreement, the holder of
the Class A Retained Interest will retain
the right with respect to the Class A
Treasury Note to receive on each Class A
Distribution Date, from payments received
on the Class A Treasury Note, a
distribution equal to % per annum
multiplied by the principal amount of the
Class A Treasury Note (the "Class A
Interest Strip"). The rights of the
holder of the Class A Retained Interest
to the Class A Interest Strip from
payments received on the Class A Treasury
Note is of equal priority with the rights
of the Class A Certificateholders.
Under the Trust Agreement, the holder of
the Class B Retained Interest will retain
the right with respect to the Class B
Treasury Note to receive on each Class B
Distribution Date, from payments received
on the Class B Treasury Note, a
distribution equal to % per annum
multiplied by the principal amount of the
Class B Treasury Note (the "Class B
Interest Strip"). The rights of the
holder of the Class B Retained Interest
to the Class B Interest Strip from
payments received on the Class B Treasury
Note is of equal
S-6
<PAGE>
priority with the rights of the Class B
Certificateholders.
Under the Trust Agreement, the holder of
the Class C Retained Interest will retain
the right with respect to the Class C
Treasury Bond to receive on each Class C
Distribution Date, from payments received
on the Class C Treasury Bond, a
distribution equal to ____% per annum
multiplied by the principal amount of the
Class C Treasury Bond (the "Class C
Interest Strip"). The rights of the
holder of the Class C Retained Interest
to the Class C Interest Strip from
payments received on the Class C Treasury
Bond is of equal priority with the rights
of the Class C Certificateholders.
See "The Description of the Deposited
Assets." The initial holder of each
Retained Interest will be the Depositor
or an affiliate thereof. The Retained
Interests are not being offered hereby.
Trustee............................... Bank One, West Virginia, N.A., as
trustee. The Trustee's fee of $
will be paid by the Depositor on the
Closing Date.
Federal Income
Tax Consequences...................... In the opinion of tax counsel to the
Trust, each Trust will be classified for
Federal income tax purposes as a grantor
trust and not as an association taxable
as a corporation. See "Federal Income Tax
Consequences."
ERISA Considerations.................. An employee benefit plan subject to the
Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), and an
individual retirement account (each, a
"Plan") may purchase Certificates of any
class if either (i) the Depositor is able
to confirm the existence of at least 100
independent purchasers of such Class or
(ii) the Plan can represent that its
purchase of the Certificates would not be
prohibited under ERISA or the Code. See
"ERISA Considerations."
Ratings............................... It is a condition to the issuance of the
Certificates that each Class of
Certificates be rated "AAA" by Standard &
Poor's Ratings Services. A security
rating is not a
S-7
<PAGE>
recommendation to buy, sell or hold
securities and may be subject to revision
or withdrawal at any time by the
assigning rating agency. A security
rating does not address the likelihood of
the exercise of a Call Warrant, or the
corresponding effect on yield to
investors. See "Ratings."
The Underlying Securities
Underlying Securities or
Treasury Securities................... A United States Treasury Note having an
aggregate principal balance of $5,000,000
(the "Class A Treasury Note"), a United
States Treasury Note having an aggregate
principal balance of $5,000,000 (the
"Class B Treasury Note") and a United
States Treasury Bond having an aggregate
principal balance of $5,000,000 (the
"Class C Treasury Bond").
Denominations......................... The Treasury Securities are available in
minimum denominations of $1,000 and
integral multiples thereof.
Underlying Securities Original
Issue Date............................ Class A Treasury Note:
Class B Treasury Note:
Class C Treasury Bond:
Underlying Securities Maturity
Date.................................. Class A Treasury Note: August 15, 2002
Class B Treasury Note: July 15, 2006
Class C Treasury Bond: November 15, 2016
Underlying Securities
Payment Dates......................... Class A Treasury Note: February 15 and
August 15
Class B Treasury Note: January 15
and July 15
Class C Treasury Bond: May 15 and
November 15
Underlying Securities Rate............ Class A Treasury Note: %
Class B Treasury Note: %
Class C Treasury Bond: %
Form of Underlying Securities......... Book-entry, maintained in the book-entry
system operated by the Federal Reserve
Bank.
Ratings of the Underlying
Securities............................ United States Treasury securities are not
rated by S&P
S-8
<PAGE>
Risk Factors
Prospective purchasers should consider, among other things, the following
factors (as well as the factors set forth under "Risk Factors" in the
Prospectus) in connection with an investment in the Certificates.
Limited Liquidity. There is currently no secondary market for the
Certificates. The Underwriter is under no obligation to make a market in the
Certificates. It is unlikely that a secondary market will develop and, if a
secondary market does develop, it is unlikely that it will provide
Certificateholders with liquidity of investment or will continue for the life of
the Certificates.
Maturity and Yield Considerations. If a Warrantholder exercises the right
to purchase the respective Treasury Security, and thereby cause an early
termination of a Class of Certificates, such Class of Certificates will have a
shorter average maturity and may have a lower yield than if such right were not
exercised. Additionally, such right is likely to be exercised, if at all, at a
time when the interest rates on potential reinvestments are lower than the
return that would have been earned over the remaining life of such Class of
Certificates if they had not been called.
Limited Assets. The Trust has no significant assets other than the Treasury
Securities. If the Treasury Securities are insufficient to make payments or
distributions on the Certificates, no other assets will be available for payment
of the deficiency.
Formation of the Trust
Each Trust will be formed pursuant to the Trust Agreement (including the
related Series Supplement) between the Depositor and the Trustee. Concurrently
with the execution and delivery of the Series Supplement, the Depositor will
deposit the related Treasury Securities into the applicable Trust subject to the
Call Warrants and the Retained Interests. The Trustee, on behalf of the related
Trust, will accept such Treasury Securities and will deliver the Certificates to
or upon the order of the Depositor. The Trustee will hold the Treasury
Securities, when purchased, for the benefit of the applicable
Certificateholders, subject to the rights of the Warrantholders and the holders
of the Retained Interests. See "Description of the Certificates--Early
Termination" and "--Call Warrants."
The Treasury Securities will be purchased by the Depositor in the secondary
market (either directly or through an affiliate of the Depositor). The Treasury
Securities will not be acquired from the United States Treasury as part of any
distribution by or pursuant to any agreement with the United States Treasury.
The United States Treasury is not participating in this offering and will not
receive any of the proceeds of the sale of the Treasury Securities to the
Depositor or the issuance of the Certificates. Neither the Depositor nor any of
its affiliates participated in the initial sale of the Treasury Securities.
S-9
<PAGE>
Description of the Deposited Assets
General
The Deposited Assets consist of a United States Treasury Note having an
aggregate principal amount of $5,000,000, a coupon of % payable semiannually
on each February 15 and August 15 and a maturity of August 15, 2002 (the "Class
A Treasury Note"), a United States Treasury Note having an aggregate principal
amount of $5,000,000, a coupon of % payable semiannually on each January 15
and July 15 and a maturity of July 15, 2000 (the "Class B Treasury Note") and a
United States Treasury Bond having an aggregate principal amount of $5,000,000 a
coupon of % payable semiannually each May 15 and November 15 and a maturity of
November 15, 2016 (the "Class C Treasury Bond"; the Class A Treasury Note, the
Class B Treasury Note and the Class C Treasury Bond are sometimes collectively
referred to herein as the "Treasury Securities"). The Treasury Securities are
not subject to redemption by the United States of America prior to the stated
maturity thereof. The Treasury Securities will be in such amounts and will have
such maturities as will provide for payment in full on the Certificates of the
Required Interest for each Distribution Date and the Certificate Principal
Balance on or about the Final Distribution Date. This Prospectus Supplement sets
forth certain relevant terms with respect to the Treasury Securities, but does
not provide detailed information with respect thereto. This Prospectus
Supplement relates only to the Certificates offered hereby and does not relate
to the Treasury Securities. An investment in the Certificates is different from,
and should not be considered a substitute for, an investment in any Treasury
Security. United States Treasury securities, including the Treasury Securities,
are not rated by the Rating Agency.
The Class A Treasury Note will be deposited into the Class A Trust subject
to the right of the holder of the Class A Retained Interest to receive on each
Class A Distribution Date from payments received on the Class A Treasury Note, a
distribution equal to % per annum multiplied by the principal amount of the
Class A Treasury Note (the "Class A Interest Strip"). The right of the holder of
the Class A Retained Interest to receive the Class A Interest Strip is of equal
priority with the rights of the Class A Certificateholders to receive
distributions of interest on the Class A Certificates. The Class B Treasury Note
will be deposited into the Class B Trust subject to the right of the holder of
the Class B Retained Interest to receive on each Class B Distribution Date from
payments received on the Class B Treasury Note, a distribution equal to % per
annum multiplied by the principal amount of the Class B Treasury Note (the
"Class B Interest Strip"). The right of the holder of the Class B Retained
Interest to receive the Class B Interest Strip is of equal priority with the
rights of the Class B Certificateholders to receive distributions of interest on
the Class B Certificates. The Class C Treasury Bond will be deposited into the
Class C Trust subject to the right of the holder of the Class C Retained
Interest to receive on each Class C Distribution Date from payments received on
the Class C Treasury Bond, a distribution equal to % per annum multiplied by
the principal amount of the Class C Treasury Bond (the "Class C Interest
Strip"). The right of the holder of the Class C Retained Interest to receive the
Class C Interest Strip is of equal priority with the rights of the Class C
Certificateholders to receive distributions of interest on the Class C
Certificates. The
S-10
<PAGE>
Class A Retained Interest, the Class B Retained Interest and
the Class C Retained Interest are sometimes collectively referred to herein as
the "Retained Interests," and the Class A Interest Strip, the Class B Interest
Strip and the Class C Interest Strip are sometimes collectively referred to
herein as the "Interest Strips."
Events of Default and Remedies
Holders of Treasury securities generally have the right upon default to
proceed individually in whatever manner is deemed to be appropriate. In such
event, any particular holder is not required to act in concert with other
holders. These remedies are generally exercisable by the Trustee on behalf of
the Certificateholders, not by Certificateholders directly. See "Description of
the Trust Agreement--Events of Default."
The Treasury Securities deposited in a Trust represent the sole assets of
the related Trust that are available to make distributions in respect of the
Certificates. Consequently, the ability of Certificateholders to receive
distributions in respect of the Certificates will depend on the related Trust's
receipt of payments on, or in respect of, the Treasury Securities. This
Prospectus Supplement relates only to the Certificates being offered hereby and
does not relate to the Treasury Securities.
Description of the Certificates
General
The Certificates will consist of 3 classes of Certificates, designated as
Class A Certificates, Class B Certificates and Class C Certificates. The
Certificates represent in the aggregate the entire beneficial ownership interest
in the related Trust. The Class A Certificates have in the aggregate an initial
Certificate Principal Balance of $5,000,000 and a ____% Pass-Through Rate. The
Class B Certificates have in the aggregate an initial Certificate Principal
Balance of $5,000,000 and a ____% Pass-Through Rate. The Class C Certificates
have in the aggregate an initial Certificate Principal Balance of $5,000,000 and
a ____% Pass-Through Rate.
The Certificates will be issued, maintained and transferred on the book-
entry records of DTC and its Participants in minimum denominations of $1,000 and
integral multiples thereof.
The Certificates will each initially be represented by one or more global
certificates registered in the name of the nominee of DTC (together with any
successor clearing agency selected by the Depositor, the "Clearing Agency"),
except as provided below. The Depositor has been informed by DTC that DTC's
nominee will be CEDE & Co. ("CEDE"). No holder of any such Certificate will be
entitled to receive a certificate representing such person's interest, except as
set forth below under "--Definitive Certificates." Unless and until Definitive
Certificates are issued under the limited circumstances described herein, all
S-11
<PAGE>
references to actions by Certificateholders with respect to any such
Certificates shall refer to actions taken by DTC upon instructions from its
Participants. See "--Definitive Certificates" below and "Description of
Certificates--Global Securities" in the Prospectus.
Under the rules, regulations and procedures creating and effecting DTC and
its operations, DTC will take action permitted to be taken by a
Certificateholder under the Trust Agreement only at the direction of one or more
Participants to whose DTC account such Certificates are credited. Additionally,
DTC will take such actions with respect to specified Voting Rights only at the
direction and on behalf of Participants whose holdings of such Certificates
evidence such specified Voting Rights. DTC may take conflicting actions with
respect to Voting Rights, to the extent that Participants whose holdings of
Certificates evidence such Voting Rights, authorize divergent action.
Definitive Certificates
Definitive Certificates will be issued to Certificate Owners or their
nominees, respectively, rather than to DTC or its nominee, only if (i) the
Depositor advises the Trustee in writing that DTC is no longer willing or able
to discharge properly its responsibilities as Clearing Agency with respect to
each class of Certificates and the Depositor is unable to locate a qualified
successor or (ii) the Depositor, at its option, elects to terminate the book-
entry system through DTC.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee is required to notify all Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the definitive certificates representing the Certificates and receipt of
instructions for re-registration, the Trustee will reissue such Certificates as
Definitive Certificates issued in the respective principal amounts owned by the
individual owners of such Certificates, and thereafter the Trustee will
recognize the holders of such Definitive Certificates as Certificateholders
under the Trust Agreement.
Listing on the New York Stock Exchange
The Certificates have been authorized for listing, upon official notice of
issuance, with the New York Stock Exchange (the "NYSE"). There can be no
assurance that the Certificates, once listed, will continue to be eligible for
trading on the NYSE.
Distributions
Collections on the Treasury Securities that are received by the Trustee for
a given Collection Period pursuant to the collection procedures described herein
and in the Prospectus and deposited from time to time into the Certificate
Account will be applied by the Trustee on each applicable Distribution Date to
the following distributions in the following order of priority, solely to the
extent of Available Funds (as defined below) on such Distribution Date:
S-12
<PAGE>
(i) to the Certificateholders of the applicable Class of such Series,
the Required Interest, to the holders of the applicable Retained Interest,
the Interest Strip and to the Depositor, the Initial Accrued Interest; and
(ii) to the Certificateholders of the applicable Class of such Series,
the Required Principal (if any).
If the Trustee has not received payment on the Treasury Securities on or
prior to a Distribution Date, such distribution will be made upon receipt of
payment on the Treasury Securities. No additional amounts will accrue on the
Certificates or be owed to Certificateholders as a result of any such delay. In
the event of a payment default on the Treasury Securities, approved
Extraordinary Expenses (see "Description of the Trust Agreement -- The Trustee"
herein) of the Trustee may be reimbursed to the Trustee out of Available Funds
before any distributions to Certificateholders are made.
All amounts received on or with respect to the Treasury Securities,
including amounts received in connection with the purchase by a Warrantholder of
a Treasury Security, which are not distributed to Certificateholders on the date
of receipt, shall be invested by the Trustee in Eligible Investments.
There can be no assurance that collections received from the Treasury
Securities over a specified period will be sufficient to make all required
distributions to the related Certificateholders. To the extent Available Funds
are insufficient to make any such distributions due to any such Class, any
shortfall will be carried over and will be distributable on the next applicable
Distribution Date on which sufficient funds exist to pay such shortfalls.
For purposes hereof, the following terms have the following meanings:
"Available Funds" for any Class A Distribution Date means the Class A
Available Funds, for any Class B Distribution Date means the Class B Available
Funds, and for any Class C Distribution Date means the Class C Available Funds.
"Class A Available Funds" for any Class A Distribution Date means the sum of
all amounts received on or with respect to the Class A Treasury Note (including
investment income on Eligible Investments) received during the preceding
Collection Period.
"Class A Interest Strip" allocable to the Class A Retained Interest for any
Class A Distribution Date means accrued but unpaid interest on the outstanding
principal balance of the Class A Treasury Note, computed at an annual rate of
____%.
"Class B Available Funds" for any Class B Distribution Date means the sum
of all amounts received on or with respect to the Class B Treasury Note
(including investment income on Eligible Investments) received during the
preceding Collection Period.
S-13
<PAGE>
"Class B Interest Strip" allocable to the Class B Retained Interest for any
Class B Distribution Date means accrued but unpaid interest on the outstanding
principal balance of the Class B Treasury Note, computed at an annual rate of
____%.
"Class C Available Funds" for any Class C Distribution Date means the sum
of all amounts received on or with respect to the Class C Treasury Bond
(including investment income on Eligible Investments) received during the
preceding Collection Period.
"Class C Interest Strip" allocable to the Class C Retained Interest for any
Class C Distribution Date means accrued but unpaid interest on the outstanding
principal balance of the Class C Treasury Bond, computed at an annual rate of
____%.
"Eligible Investments" means, with respect to the Certificates, United
States Treasury bills, provided that any investments must be consistent with the
Trust's status as a grantor trust for federal income tax purposes and acceptable
to the Rating Agency as being consistent with the rating of such Certificates,
as specified in the Trust Agreement. Generally, Eligible Investments must be
limited to obligations or securities that mature not later than the business day
prior to the next succeeding Distribution Date.
"Interest Strip" for any Class A Distribution Date, means the Class A
Interest Strip, for any Class B Distribution Date, means the Class B Interest
Strip and for any Class C Distribution Date, means the Class C Interest Strip.
"Initial Accrued Interest" means, with respect to each Treasury Security,
the amount of interest that accrued thereon to, but excluding, the Cut-off
Date.
"Required Interest" for the Certificates of any Class thereof on any given
Distribution Date means the accrued and unpaid interest on the outstanding
Certificate Principal Balance of such Certificates, computed at the applicable
Pass-Through Rate.
"Required Principal" for the Certificates or any Class thereof for any
Distribution Date means the amount received on the Treasury Securities
attributable to principal payments thereon during the related Collection Period.
No principal payments are scheduled to be made on the Class A Treasury Note
until August 15, 2002, the Class B Treasury Note until July 15, 2026 and the
Class C Treasury Bond until November 15, 2016.
Early Termination
The Class A Certificates may be paid in full on any date on or after the
May 15, 1997 (the "Early Termination Date") upon the purchase of the Class A
Treasury Note by the holder of the Class A Warrant. The Class B Certificates may
be paid in full on any Early Termination Date upon the purchase of the Class B
Treasury Note by the holder of the Class B Warrant. The Class C Certificates may
be paid in full on any Early Termination Date upon the purchase of the Class C
Treasury Bond by the holder of the Class C Warrant. On the related Early
Termination Date, the Class A Certificates, the Class B Certificates or
S-14
<PAGE>
the Class C Certificates, as applicable, will be paid in full in the amount of
par plus accrued interest (the "Early Termination Price").
The holder of a Call Warrant (the "Warrantholder") (see below) may provide
notice to the Trustee (a "Purchase Request") no less than 35 days prior to the
applicable Early Termination Date that it will purchase the applicable Treasury
Security. The Trustee will notify Certificateholders of the applicable Class of
the Early Termination Date not less than 30 days prior to such Early Termination
Date.
On, or before, the Early Termination Date, the Warrantholder shall provide
the Trustee with the Liquidation Price for such Treasury Security. Upon
receiving such Liquidation Price, the Trustee will immediately deliver the
Treasury Security relating to such Call Warrant to the Warrantholder.
Deliveries of the Treasury Securities by the related Trust to the
Warrantholder will only be made against payment by the Warrantholder in
immediately available funds. Such payment must occur no later than 10:00 a.m.
New York City time on the Early Termination Date. In the event that the
Warrantholder fails to make payment by such time (a "Purchase Default"), the
sale of the Treasury Securities will be voided and the early termination will be
deemed to not be effective with respect to such Early Termination Date. In the
event of a Purchase Default, the Certificates shall continue to remain
outstanding and the Warrantholder's rights with respect to the Call Warrant
shall be deemed surrendered to the Depositor.
Call Warrants
The Class A Call Warrant represents the right to purchase the Class A
Treasury Note from the Trustee for the price of par plus accrued interest to the
Early Termination Date (the "Liquidation Price"). The Class B Call Warrant
represents the right to purchase the Class B Treasury Note from the Trustee for
the Liquidation Price for the Class B Treasury Note. The Class C Call Warrant
represents the right to purchase the Class C Treasury Bond from the Trustee for
the Liquidation Price for the Class C Treasury Bond.
Under the terms of the Call Warrants and the Trust Agreement,
Certificateholders will not be entitled to terminate the related Trust or cause
the sale or other disposition of the Treasury Securities without the consents of
the holders of the Call Warrant. In addition, amendment of the Trust Agreement
may require, and amendment of the Call Warrants generally will require, consent
of the affected Warrantholders. See "Description of the Trust Agreement--Voting
Rights." No Call Warrants are being offered hereby.
S-15
<PAGE>
Description of the Trust Agreement
General
The Certificates will be issued pursuant to the Trust Agreement, a form of
which is filed as an exhibit to the Registration Statement. A Current Report on
Form 8-K relating to the Certificates containing a copy of the Trust Agreement
as executed will be filed by the Depositor with the Commission following the
issuance and sale of the Certificates. The Trust created under the Trust
Agreement (including the Series Supplement) will consist of the Class A Trust,
the Class B Trust and the Class C Trust. The Class A Trust will consist of (i)
the Class A Treasury Note (upon the purchase thereof and subject to the Class A
Call Warrant and the Class A Retained Interest) and (ii) all payments on or
collections in respect of the Class A Treasury Note due after the Cut-off Date.
The Class B Trust will consist of (i) the Class B Treasury Note (upon purchase
thereof and subject to the Class B Call Warrant and the Class B Retained
Interest) and (ii) all payments on or collections in respect of the Class B
Treasury Note due after the Cut-off Date. The Class C Trust will consist of (i)
the Class C Treasury Bond (upon purchase thereof and subject to the Class C Call
Warrant and the Class C Retained Interest) and (ii) all payments on or
collections in respect of the Class C Treasury Bond due after the Cut-off Date.
Reference is made to the Prospectus for important information in addition to
that set forth herein regarding the Trust, the terms and conditions of the Trust
Agreement and the Certificates. The following summaries of certain provisions of
the Trust Agreement do not purport to be complete and are subject to the
detailed provisions contained in the form of Trust Agreement, to which reference
is hereby made for a full description of such provisions, including the
definition of certain terms used herein.
The discussions in the Prospectus under "Description of the Trust
Agreement--Advances in Respect of Delinquencies", "--Certain Matters Regarding
the Administrative Agent and the Depositor" (to the extent the discussion
relates to the Administrative Agent), "--Administrative Agent Termination
Events; Rights Upon Administrative Agent Termination Event", and "--Evidence as
to Compliance" are not applicable to the Certificates.
The Trustee
Bank One, West Virginia, N.A., a national banking association, will act as
trustee for the Certificates and the Trust pursuant to the Trust Agreement.
The Trustee's offices are located at 707 Virginia Street East, 2nd Floor,
Charleston, West Virginia 25301, Attn: Corporate Trust Department and its
telephone number is (304) 348-4416.
Pursuant to the Trust Agreement, the Depositor shall prepay the Ordinary
Expenses of the Trustee.
"Ordinary Expenses" are defined in the Trust Agreement and are generally
described as the Trustee's customary fee for its services as Trustee, including
(i) the costs and expenses
S-16
<PAGE>
of preparing, sending and receiving all reports, statements, notices, returns,
filings, solicitation of consent or instructions, or other communications
required by the Trust Agreement, (ii) the costs and expenses of holding and
making ordinary collection or payments on the assets of the Trust and of
determining and making payments of interest or principal, (iii) the costs and
expenses of the Trust's or Trustee's counsel, accountants and other experts for
ordinary or routine consultation or advice in connection with the establishment,
administration and termination of the Trust, and (iv) any other costs and
expenses that are or reasonably should have been expected to be incurred in the
ordinary course of administration of the Trust.
The Trust Agreement provides that the Trustee may not take any action
which, in the Trustee's opinion, would or might cause it to incur Extraordinary
Expenses with respect to a particular Trust, unless (i) the Trustee is satisfied
that it will have adequate security or indemnity in respect of such costs,
expenses and liabilities and (ii) the Trustee has been instructed to do so by
the related Certificateholders representing not less than 100% of the aggregate
voting rights of the related Certificates then outstanding; provided, however,
that for purposes of clause (ii) of this sentence, in the event of a payment
default on the applicable Underlying Securities, a vote of not less than 66-2/3%
of the aggregate voting rights of the related Certificates then outstanding
shall suffice to instruct the Trustee to incur such Extraordinary Expenses.
Extraordinary Expenses so incurred may be reimbursed to the Trustee out of the
related Available Funds on any Distribution Date before any distributions to the
related Certificateholders on such Distribution Date are made, unless the
Certificateholders voting to incur such Extraordinary Expenses shall have agreed
to bear the entire amount of such Extraordinary Expenses. "Extraordinary
Expenses" are defined in the Trust Agreement as any and all costs, expenses or
liabilities arising out of the establishment, existence or administration of the
Trust, other than (i) Ordinary Expenses and (ii) costs and expenses payable by a
particular Certificateholder, the Trustee or the Depositor pursuant to the Trust
Agreement.
The Trust Agreement will provide that the Trustee and any director,
officer, employee or agent of the Trustee will be indemnified by the Depositor
and will be held harmless against any loss, liability or expense incurred in
connection with any legal action relating to the Trust Agreement or the
Certificates or the performance of the Trustee's duties under the Trust
Agreement, other than any loss, liability or expense (i) that constitutes a
specific liability of the Trustee under the Trust Agreement or (ii) incurred by
reason of willful misfeasance, bad faith or negligence in the performance of the
Trustee's duties under the Trust Agreement or as a result of a breach, or by
reason of reckless disregard, of the Trustee's obligations and duties under the
Trust Agreement.
Events of Default
An event of default with respect to any Class of Certificates under the
Trust Agreement (an "Event of Default") will consist of (i) a default in the
payment of any interest on the related Treasury Security after the same becomes
due and payable (subject to any applicable grace period); (ii) a default in the
payment of the principal of or any installment of principal of the related
Treasury Security when the same becomes due and
S-17
<PAGE>
payable; and (iii) the occurrence and continuance of such other events specified
in the applicable Series supplement.
In the event of a default in the payment of any amount on any Treasury
Security the Trustee is required to proceed on behalf of the related
Certificateholders to enforce its rights under the Treasury Securities or
otherwise protect the interests of such Certificateholders. See "Description of
the Trust Agreement--Collection and Other Administrative Procedures" in the
Prospectus.
The Trust Agreement will provide that, within 30 days after the occurrence
of an Event of Default in respect of the Certificates of any Class, the Trustee
will give notice to the holders of such Certificates, the applicable
Warrantholders and the holders of the applicable Retained Interest, transmitted
by mail, of all such uncured or unwaived Events of Default known to it. However,
except in the case of an Event of Default relating to the payment of principal
of or interest on any of the Treasury Securities, the Trustee will be protected
in withholding such notice if in good faith it determines that the withholding
of such notice is in the interest of the holders of the Certificates of such
Class, the related Warrantholders and the holders of the related Retained
Interest.
No holder of any Certificate will have the right to institute any
proceeding with respect to the Trust Agreement, unless (i) such holder
previously has given to the Trustee written notice of a continuing breach, (ii)
the holders of Certificates of such Class evidencing not less than the "Required
Percentage--Remedies" specified in the applicable series supplement of the
aggregate Voting Rights of such Class have requested in writing that the Trustee
institute such proceeding in its own name as Trustee, (iii) such holder or
holders have offered the Trustee reasonable indemnity, (iv) the Trustee has for
15 days failed to institute such proceeding and (v) no direction inconsistent
with such written request has been given to the Trustee during such 15-day
period by the holders of Certificates of such Class evidencing not less than the
Required Percentage--Remedies of the aggregate Voting Rights of such Series.
Voting Rights
At all times, 100% of all Voting Rights will be allocated among all holders
of the Class A Certificates, the Class B Certificates and the Class C
Certificates in proportion to the then outstanding Certificate Principal
Balances of their respective Certificates.
The "Required Percentage--Amendment" of Voting Rights of those Certificates
that are materially adversely affected by any modification or amendment of the
Trust Agreement necessary to consent to such modification or amendment shall be
66-2/3%. In addition to the other restrictions on modification and amendment,
the Trustee will not enter into any amendment or modification of the Trust
Agreement which would adversely affect in any material respect the interests of
a Warrantholder or the holder of a Retained Interest without the consent of the
Warrantholder or the holder of a Retained Interest, respectively; provided,
however, that no such amendment or modification will be permitted which would
alter the timing or amount of any payment of the Early Termination Price or
which would
S-18
<PAGE>
alter the status of a Trust as a grantor trust for Federal income tax purposes.
See "Description of the Trust Agreement--Modification and Waiver" in the
Prospectus. Further, no amendment to a Call Warrant or a Retained Interest will
be permitted which would adversely affect in any material respect the interests
of the Certificateholders without the consent of Certificateholders representing
66-2/3% of the aggregate Voting Rights of those Certificates that are materially
adversely affected by such modification or amendment and without confirmation by
the Rating Agency that such amendment will not result in a downgrading or
withdrawal of its rating of the Certificates; provided, however, that no such
amendment or modification will be permitted which would alter the timing or
amount of any payment of the Liquidation Price for a Treasury Security, without
the consent of Certificateholders representing 100% of the aggregate Voting
Rights of the related Class of Certificates or which would alter the status of
the related Trust as a grantor trust for Federal income tax purposes. In
addition, a Call Warrant may not be amended without the consent of the related
Warrantholder and a Retained Interest may not be amended without the consent of
the holder thereof.
Voting of Underlying Securities, Modification Trust Agreement
The Trustee, as holder of the Treasury Securities, has the right to vote
and give consents and waivers in respect of such Underlying Securities as
permitted by the Federal Reserve Bank and except as otherwise limited by the
Trust Agreement. In the event that the Trustee receives a request from Federal
Reserve Bank for its consent to any amendment, modification or waiver of the
Treasury Securities or any other document thereunder or relating thereto, or
receives any other solicitation for any action with respect to the Treasury
Securities, the Trustee shall mail a notice of such proposed amendment,
modification, waiver or solicitation to each applicable Certificateholder of
record as of such date. The Trustee shall request instructions from the
applicable Certificateholders as to whether or not to consent to or vote to
accept such amendment, modification, waiver or solicitation. The Trustee shall
consent or vote, or refrain from consenting or voting, in the same proportion
(based on the relative Certificate Principal Balances of the Certificates) as
the applicable Certificates of the related Trust were actually voted or not
voted by the Certificateholders thereof as of a date determined by the Trustee
prior to the date on which such consent or vote is required; provided, however,
that, notwithstanding anything to the contrary, the Trustee shall at no time
vote or consent to any matter (i) unless such vote or consent would not (based
on an opinion of counsel) alter the status of the Trust as a grantor trust for
Federal income tax purposes, (ii) which would alter the timing or amount of any
payment on the Treasury Securities, including, without limitation, any demand to
accelerate the Treasury Securities, except in the event of an event of default
with respect to the Treasury Securities or an event which with the passage of
time would become an event of default and with the unanimous consent of all
applicable Certificateholders or (iii) which would result in the exchange or
substitution of any of the outstanding Treasury Securities pursuant to a plan
for the refunding or refinancing of such Treasury Securities except in the event
of a default under the Treasury Securities and only with the unanimous consent
of the related Certificateholders. The Trustee shall have no liability for any
failure to act resulting from Certificateholders' late return of, or failure to
return, directions requested by the Trustee from the Certificateholders.
S-19
<PAGE>
In the event that an offer is made by the United States to issue new
obligations in exchange and substitution for any of the Treasury Securities,
pursuant to a plan for the refunding or refinancing of the Treasury Securities
or any other offer is made for the Treasury Securities, the Trustee shall notify
the applicable Certificateholders of such offer as promptly as practicable. The
Trustee must reject any such offer unless an event of default under the Treasury
Securities has occurred, the Trustee is directed by the affirmative vote of all
of the applicable Certificateholders to accept such offer and the Trustee has
received the tax opinion described above.
If an event of default under the Treasury Securities occurs and is
continuing and if directed by all the holders of outstanding Class A
Certificates, Class B Certificates or Class C Certificates, as applicable, the
Trustee shall vote the Treasury Securities in favor of directing, or take such
other action as may be appropriate to declare the unpaid principal amount of the
Treasury Securities and any accrued and unpaid interest thereon to be due and
payable. In connection with a vote concerning whether to declare the
acceleration of the Treasury Securities, the Certificateholders, the related
Warrantholder and the holder of the related Retained Interest may differ from
each other and from holders of other securities of the United States Treasury.
Termination of a Trust
A Trust shall terminate upon the earliest to occur of the payment in full
at maturity or sale by the Trust in accordance with the Call Warrants of all of
the related Treasury Securities and the distribution in full of all amounts due
to the related Certificateholders, the related Warrantholders and the holder of
the related Retained Interest. See "Description of the Trust Agreement--
Termination" in the Prospectus. Under the terms of the Trust Agreement, the
related Certificateholders will not be entitled to terminate the Trust or cause
the sale or other disposition of the related Treasury Securities, if and for so
long as any related Call Warrant remains outstanding, without the consent of the
related Warrantholder.
Federal Income Tax Consequences
This summary is based upon laws, regulations, rulings and decisions
currently in effect, all of which are subject to change, possibly on a
retroactive basis. The discussion does not deal with all Federal tax
consequences applicable to all categories of investors, some of which may be
subject to special rules. In addition, this summary is generally limited to
investors who will hold the Certificates as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended (the "Code"), and who do not hold their
Certificates as part of a "straddle," a "hedge" or a "conversion transaction."
Investors should consult their own tax advisors to determine the Federal, state,
local and other tax consequences of the purchase, ownership and disposition of
the Certificates.
S-20
<PAGE>
The Trust will be provided with an opinion of Chapman and Cutler, Chicago,
Illinois, special Federal tax counsel to the Depositor ("Federal Tax Counsel")
regarding certain Federal income tax matters discussed below. An opinion of
Federal Tax Counsel, however, is not binding on the Internal Revenue Service
(the "Service") or the courts. Prospective investors should note that no rulings
have been or will be sought from the Service with respect to any of the Federal
income tax consequences discussed below, and no assurance can be given that the
Service will not take contrary positions.
Grantor Trust Certificates
In the opinion of Federal Tax Counsel, each Trust will be classified as a
grantor trust and not as an association taxable as a corporation for Federal
income tax purposes. Accordingly, each owner of a Certificate (a "Certificate
Owner") will be subject to Federal income taxation as if it owned directly the
portion of the Deposited Assets allocable to such Certificates, as if it issued
directly the portion of the related Call Warrant allocable to such Certificates
and as if it paid directly its share of reasonable expenses paid by the related
Trust. The following discussion assumes that the Underlying Securities were not
issued with original issue discount ("OID") and, accordingly, the Certificate
owners will not realize OID except with respect to a "stripped interest" (as
defined below).
Income of Certificate Owners
In General. A Certificate Owner will allocate the amount it pays for its
Certificate among each Underlying Security and each of the Deposited Assets in
the related Trust in proportion to their relative fair market values on the date
of purchase of the Certificate in order to determine its initial tax basis for
the pro rata portion of each Underlying Security and Deposited Asset held by the
related Trust. A Certificate Owner would calculate separately its income, gain,
loss or deduction realized with respect to each such asset.
The Federal income tax treatment of a holder of Certificates will depend
upon whether the interest in the Underlying Securities represented by a
Certificate will be considered to be a "stripped bond" or "stripped coupon"
(together a "stripped interest") within the meaning of Section 1286 of the Code.
A Certificate will not be considered to represent a stripped interest in the
Underlying Securities to the extent the Certificate is entitled to receive a
proportionate amount of all principal of a particular maturity represented by
the Underlying Securities and all interest relating thereto. A Certificate will
be considered to represent a stripped interest in the Underlying Securities if
the Certificate is entitled to receive less than all of the interest on a
particular maturity represented by the Underlying Securities or if the
Certificate is entitled to receive all or part of the interest on a particular
maturity represented by the Underlying Securities but no principal on the
Underlying Securities. In addition, if a Certificate is entitled to receive
interest and principal on a particular maturity represented by the Underlying
Securities, but the interest it is entitled to receive on a particular maturity
represented by the Underlying Securities is disproportionately more than the
principal it is entitled to receive on a particular maturity represented by the
Underlying Securities, it could be argued (based on the preamble to
S-21
<PAGE>
Treas. Reg. Section 1.1286-1 discussed below under "Tax Treatment of
Certificates to the Extent They Are Stripped Interests") that the Certificates
represents (a) an interest in a particular maturity represented by the
Underlying Securities that is not a stripped interest to the extent it
represents a proportional amount of all the principal and interest on a
particular maturity represented by the Underlying Securities and (b) a stripped
interest in a particular maturity represented by the Underlying Securities to
the extent of any additional interest to which it is entitled on a particular
maturity represented by the Underlying Securities. If a Certificate represents
in part a stripped interest and in part not a stripped interest, such interests
will be treated as two separate items for tax purposes and a purchaser of
Certificates will be required to allocate its purchase price among the two items
(as well as any other Deposited Assets) in proportion to their relative fair
market values on the date of purchase.
Tax Treatment of Certificates to the Extent They Are Not Stripped
Interests. To the extent a Certificate does not represent a stripped interest in
a particular maturity represented by the Underlying Securities, each Certificate
Owner will be required to report on its Federal income tax return, in a manner
consistent with its method of accounting, its proportional share of the gross
income of the related Trust, including interest on and other amounts with
respect to the corresponding Underlying Security, income derived from the other
Deposited Assets held by the Trust, any gain or loss upon collection or
disposition of the corresponding Underlying Security, other Deposited Assets, or
as further described below under "Purchase and Sale of a Certificate" the sale
or other disposition of a Certificate. In addition, gross income of a Trust may
include any expenses of a Trust paid by the Depositor or other party. The
portion of each monthly payment to a Certificate Owner that is allocable to
principal on the corresponding Underlying Security (other than amounts
representing market discount, as described below) will represent a recovery of
capital, which will reduce the tax basis of such Certificate Owner's undivided
interest in the Underlying Securities.
To the extent that the portion of the purchase price of a Certificate
allocated to a Certificate Owner's undivided interest in an Underlying Security,
based on the relative fair market value of a Treasury Security in which an
interest is acquired as well as other Deposited Assets in which an interest is
acquired, is greater than or less than the portion of the principal balance of
the Underlying Security allocable to the Certificate, such interest in the
Underlying Security will have been acquired at a premium or discount, as the
case may be (the "Allocated Purchase Price"). This allocation is required to be
calculated separately for each Underlying Security represented by a Certificate.
To the extent that the allocated Purchase Price is less than the principal
balance of an Underlying Security, the Certificate Owner's interest in such
Underlying Security will be treated as purchased at a "market discount." The
market discount on a Underlying Security will, however, be considered to be zero
if it is less than a statutorily defined de minimis amount. Conversely, to the
extent that the allocated Purchase Price exceeds the principal balance of an
Underlying Security, the Certificate Owner's interest therein will be treated as
purchased with "bond premium." See the discussion below under "Bond Premium."
S-22
<PAGE>
For example, if the allocated Purchase Price paid by a Certificate Owner
with respect to an Underlying Security is equal or almost equal to the portion
of the principal balance of the Underlying Security that is allocable to the
Certificate, there would be no significant amount of discount or premium with
respect to its interest in such Underlying Security. Moreover, if the total
purchase price of a Certificate is equal to the principal amount of the
Underlying Securities allocable to the Certificate, one or more Underlying
Securities will have been purchased at a discount because a portion of such
purchase price will be allocated to the other Deposited Assets of the related
Trust.
In general, under the market discount provisions of the Code, all or a
portion of the principal payments received by the related Trust and the gain
recognized upon a sale, maturity or disposition of an Underlying Security or
upon the sale or other disposition of a Certificate (as further described below
under "Purchase and Sale of a Certificate") will be taxable as ordinary income
to the extent of accrued market discount. In general, the accrued market
discount on each Underlying Security will equal an amount that bears the same
ratio to the market discount on the Underlying Security as the number of days
that the Trust held the Underlying Security (or a Certificate Owner held a
Certificate related thereto), bears to the number of days after the related
Trust acquired the Underlying Security (or a Certificate Owner acquired a
Certificate related thereto) and up and to the date of the maturity of the
Underlying Security. At the election of a Certificate Owner, market discount can
be accrued under a constant yield method as further described on the Code. The
ordinary income treatment on dispositions described above will not apply if a
Certificate Owner elects (or has previously elected) to include market discount
in income currently as it accrues for each taxable year during which it holds
the Certificate. Such election, if made, will also apply to all debt instruments
acquired directly or indirectly, by the Certificate Owner during the year in
which the election is made and all debt instruments acquired thereafter and is
irrevocable without the consent of the Service. If a Certificate Owner does not
elect to annually include accrued market discount in taxable income as it
accrues, deductions for any interest expense incurred by a Certificate Owner
that is incurred to purchase or carry a Certificate will be reduced by such
accrued market discount. In general, the portion of any interest expense that
was not currently deductible would ultimately be deductible when the accrued
market discount is included in income. Certificate Owners should consult their
tax advisors regarding whether an election should be made to include market
discount in income as it accrues and the method of accrual and as to the amount
of interest expense that may not be currently deductible.
Tax Treatment of Certificates to the Extent They Are Stripped Interests. To
the extent a Certificate represents a stripped interest in a particular maturity
represented by the Underlying Securities, each such Certificate will be subject
to the OID rules. The amount of OID on a stripped interest is equal to the
excess of the stated redemption price at maturity (or the amount payable on the
coupon) over the portion of the purchase price for the Certificate allocable to
the stripped interest, based on the relative fair market value of all assets
acquired.
The tax treatment of a Certificate Owner will depend upon whether the
amount of OID on the stripped interest represented by the Certificate is less
than a statutorily defined
S-23
<PAGE>
de minimis amount. In general, under Treas. Reg. Section 1.1286-1 (the "De
Minimis Regulation"), the amount of OID with respect to the stripped interest
will be de minimis if it is less than 1/4 of one percent multiplied by the
product of the "stated redemption price at maturity" (or in the case of a
stripped coupon, the amount payable on the due date of such coupon) and the
number of full years remaining after the purchase date of either the Underlying
Security by the related Trust or a Certificate by a Certificate Owner, as
appropriate until the maturity of such stripped interest. However, if the
stripped interest provides for amortization of principal, the amount of OID will
be de minimis if it is less than 1/4 of one percent multiplied by the product of
the stated redemption price at maturity (or in the case of a stripped coupon,
the amount payable on the due date of such coupon) and the weighted average
maturity. This calculation of de minimis OID is to be performed separately for
each new purchaser of a Certificate of the stripped interest from the date of
purchase of the Underlying Security by the related Trust or a Certificate by a
Certificate Owner, as appropriate.
In the preamble to the De Minimis Regulation, the Service stated that the
final regulations are premised on the assumption that stripped coupons may be
treated as qualified stated interest with respect to the bonds from which they
are stripped and, therefore, may be excluded from stated redemption price at
maturity in appropriate circumstances. According to the Service, without these
assumptions, each stripped bond and stripped coupon would be treated as a
separate (zero coupon) bond, and the OID with respect to each such separate bond
or coupon virtually never would be de minimis. Finally, the Service indicated
that future regulations under section 1286 will provide specific guidance
relating to these assumptions. Certificate Owners are advised to consult their
tax advisers with respect to the use of this assumption in determining the
federal income tax consequences associated with the acquisition, ownership and
disposition of a Certificate, including the determination of whether (i) OID is
de minimis, (ii) a Certificate is subject to the market discount rules discussed
above under "Tax Treatment of Certificates to the Extent They Are Not Stripped
Interests," and (iii) whether a Certificate represents an interest in an
Underlying Security purchased at a premium and is subject to the discussion
below under "Bond Premium."
To the extent the amount of OID on the stripped interest represented by the
Certificate is de minimis under the rules discussed above, such OID will be
treated as zero. As a result, as described above under "Tax Treatment of
Certificates to the Extent They Are Not Stripped Interests," a Certificate Owner
would report its share of the income of the related Trust under its usual method
of accounting.
If the OID with respect to the stripped interest in a particular maturity
represented by the Underlying Securities represented by a Certificate is not
treated as being de minimis, a Certificate Owner will be required to include in
income any OID on the stripped interest. Whether the Certificate Owner uses the
cash or the accrual method of tax accounting, OID must be included in income as
it accrues on a daily basis, regardless of when cash payments are received,
using a method reflecting a constant yield as described below. Such treatment
could result in the accrual of income by such Certificate Owner prior to the
receipt of cash by such Certificate Owner. The accrual of OID depends upon
whether the Underlying Security with respect to which OID exists matures within
one year of the date purchased. In
S-24
<PAGE>
the case of a Certificate that matures within one year, OID accrues daily on a
ratable basis unless the holder elects to accrue such discount under a constant
yield method, compounded daily. In the case of a Certificate that does not
mature within one year of the date purchased, OID generally accrues daily,
computed under a constant yield method, compounded at least annually (with
straight line interpolation between compounding dates). Prospective purchasers
should consult their tax advisors as to the computation of the accrual of OID,
including the impact of the discussion set forth above in the preamble to the De
Minimis Regulation.
Bond Premium
In the event that a Certificate represents an interest in an Underlying
Security purchased (either initially upon the formation of the related Trust or
upon the purchase of a Certificate) at a premium, such premium will be
amortizable by the Certificate Owner as an offset to interest income (with a
corresponding reduction in the Certificate Owner's basis) under a constant yield
method over the term of the Underlying Security if an election under Section 171
of the Code is made or was previously in effect. Any such election will also
apply to all debt instruments held by the Certificate Owner during the year in
which the election is made and all debt instruments acquired thereafter and the
election is irrevocable without the consent of the Service.
Election to Treat All Interest as Original Issue Discount
Under Treas. Reg. Section 1.1272-3 and with the limits set forth therein,
any Certificate Owner may elect to include in gross income all interest
(including stated interest, OID, de minimis OID, market discount and de minimis
market discount, as adjusted by any bond premium or acquisition premium) that
accrues on an unstripped or stripped interest using the constant yield method
described above. Such an election with respect to an unstripped or stripped
interest having amortizable bond premium or market discount, to the extent
permitted, would constitute, respectively, an election to apply the market
discount rules or bond premium rules with respect to all other debt instruments
with market discount or amortizable bond premium, as the case may be, of such
Certificate Owner. A Certificate Owner should consult its tax adviser as to
whether to make such an election.
Modification or Exchange of Underlying Securities
Depending upon the circumstances, it is possible that a modification of the
terms of one or more of the Underlying Securities, or a substitution of other
assets for the Underlying Securities, would be a taxable event to Certificate
Owners on which they would recognize gain or loss.
Deductibility of Trust's Fees and Expenses
In computing its Federal income tax liability, a Certificate Owner will be
entitled to deduct, consistent with its method of accounting, its share of
reasonable administrative fees,
S-25
<PAGE>
trustee fees and other fees paid or incurred by the related Trust and any
allowable amortization deductions with respect to certain other assets of the
related Trust, but not amortizable bond premium. If a Certificate Owner is an
individual, estate or trust, the deduction for his share of fees will be a
miscellaneous itemized deduction and will only be allowable to the extent that
they exceed 2% of the Certificate Owner's adjusted gross income.
Purchase and Sale of a Certificate
A Certificate Owner's tax basis in a Certificate generally will equal the
cost of such Certificate (A) increased by the sum of (i) the fair market value
of the related Call Warrant allocable to such Certificate and (ii) any amounts
of undistributed taxable income (e.g., OID or market discount) and (B) reduced
by any (i) amortized premium (each as described above) and (ii) payments other
than payments of qualified stated interest, if any (subject to the application
of the discussion set forth above in the preamble to the De Minimis Regulation),
on an Underlying Security represented by the Certificate. In addition a
Certificate Owner's tax basis in a Certificate may be reduced by expenses of the
related Trust paid by the Depositor or other party.
If a Certificate Owner sells its Certificate, gain, if any, will constitute
ordinary income to the extent of the aggregate of the accrued market discount
(which has not previously been included in such Certificate Owner's taxable
income) with respect to the Certificate Owner's pro rata portion of each
Underlying Security held by the related Trust. Any other gains (or losses) will
be capital gains (or losses) except in the case of a dealer or a financial
institution, and will be long-term if the Certificate Owner has held its
Certificates for more than one year. A Certificate Owner will recognize taxable
gains (or losses) (a) upon redemption or sale of its Certificate, (b) if the
Trustee disposes of an asset of the related Trust or (c) upon receipt by the
Trustee of payments of principal on the related Underlying Securities. The
amount of any such gain (or loss) is measured by comparing the Certificate
Owner's pro rata share of the total proceeds from the transaction with its
adjusted tax basis in its certificate or its pro rata interest in the asset as
the case may be, and then reducing such gain, if any, to the extent
characterized as ordinary income resulting from accrued market discount as
discussed above. A Certificate Owner's tax basis in its Certificate and its pro
rata portion of each of the Underlying Securities of the related Trust may be
adjusted to reflect the accrual of market discount (if the Certificate Owner has
elected to include such discount in income as it accrues), original issue
discount and amortized bond premium, if any. The tax cost reduction requirements
of the Code relating to amortization of bond premium may, under some
circumstances, result in the Certificate Owner realizing a taxable gain when its
Certificates are sold or redeemed for an amount equal to its original cost. In
addition, Certificate Owners must reduce the tax basis of its Certificates and
their pro rata portion of the Underlying Securities of the related Trust for
their share of accrued interest received by the Trust, if any, on Underlying
Securities delivered after the Certificate Owner pays for its certificates to
the extent that such interest accrued on such Underlying Securities during the
period from the Certificate Owner's settlement date to the date such Underlying
Securities are delivered to the related Trust and, consequently, such
Certificate Owner may have an increase in taxable gain or reduction in capital
loss upon the disposition of its Certificates or such Underlying Securities.
S-26
<PAGE>
For taxable years beginning after December 31, 1986 and before January 1,
1996, certain corporations may be subject to the environmental tax (the
"Superfund Tax") imposed by Section 59A of the Code. Interest received from, and
gains recognized from the disposition of, an Underlying Security by the related
Trust or the sale of Certificates by a Certificate Owner will be included by
such corporations in the computation of the Superfund Tax. Under current Code
provisions, the Superfund Tax does not apply to tax years beginning on or after
January 1, 1996. However, the Superfund Tax could be extended retroactively.
The Revenue Reconciliation Act of 1993 (the "Act") raised tax rates on
ordinary income while capital gains remain subject to a 28% maximum stated rate
for taxpayers other than corporations. Because some or all capital gains are
taxed at a comparatively lower rate under the Act, the Act includes a provision
that recharacterizes capital gains as ordinary income in the case of certain
financial transactions that are "conversion transactions" effective for
transactions entered into after April 30, 1993. Certificate Owners and
prospective investors should consult with their tax advisors regarding the
potential effect of this provision on their investment in the Certificates.
Call Premium; Exercise of Call Warrant
As described above, each Certificateholder should be deemed to have
received at the time of its purchase of its Certificate a call premium in an
amount equal to the fair market value of the portion of the related Call Warrant
allocable to its Certificate. The receipt of such call premium should not be a
taxable event to the Certificateholder until such time as the related Call
Warrant so allocable to its Certificate is exercised or lapses. If the related
Call Warrant lapses unexercised, the Certificateholder will be required to
include the call premium in income for the taxable year the related Call Warrant
terminated as short-term capital gain. If the related Call Warrant is exercised,
the proceeds of sale of the Certificate will be increased by the amount of the
call premium. The gain from such sale will be long-term or short-term capital
gain, depending upon whether the Certificate was then held for the requisite
holding period.
Backup Withholding
Payments made on the Certificates and proceeds from the sale of the
Certificates will not be subject to a "backup" withholding tax of 31% unless, in
general, the Certificate Owner fails to comply with certain reporting procedures
and is not an exempt recipient under applicable provisions of the Code.
Foreign Certificate Owners
To the extent that amounts paid to Certificate Owners that are not United
States persons ("Foreign Certificate Owners") are treated as interest with
respect to Underlying Securities issued after July 18, 1984, such amounts
generally will not be subject to the annual 30% withholding tax, provided that
such Foreign Certificate Owner fulfills certain
S-27
<PAGE>
certification requirements. Under such requirements, the holder must certify,
under penalties of perjury, that it is not a "United States person" and provide
its name and address.
A "United States person" means a citizen or resident of the U.S., a
corporation, partnership or other entity created or organized in or under the
laws of the U.S. or any political subdivision thereof, or an estate or trust the
income of which is includible in gross income for U.S. Federal income tax
purposes, regardless of its source.
State and Other Tax Consequences
Under Federal legislation, interest on Treasury obligations is generally
exempt from state and local income taxes on individual investors. This exemption
should apply to an individual Certificate Owner's share of interest on the
related Treasury Securities. The exemption does not extend to gain on sale or
other disposition of a Certificate or on exercise or expiration of a related
Call Warrant (including any such gain arising under an alternate tax position
described above). Prospective purchasers should consult their tax advisors
concerning state, local, foreign and other tax consequences of the acquisition
and holding of Certificates.
ERISA Considerations
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain requirements on (a) an employee benefit plan (as
defined in Section 3(3) of ERISA), (b) a plan described in Section 4975(e)(I) of
the Code or (c) any entity whose underlying assets include plan assets by reason
of a plan's investment in the entity (each, a "Plan").
In accordance with ERISA's general fiduciary standards, before investing in
a Certificate, a Plan fiduciary should determine whether such an investment is
permitted under the governing Plan instruments and is appropriate for the Plan
in view of its overall investment policy and the composition and diversification
of its portfolio. Other provisions of ERISA and the Code prohibit certain
transactions involving the assets of a Plan and persons who have certain
specified relationships to the Plan ("parties in interest" within the meaning of
ERISA or "disqualified persons" within the meaning of the Code). Thus, a Plan
fiduciary considering an investment in Certificates should also consider whether
such an investment might constitute or give rise to a prohibited transaction
under ERISA or the Code.
An investment in Certificates by a Plan might result in the assets of the
related Trust being deemed to constitute Plan assets, which in turn might mean
that certain aspects of such investment, including the operation of the related
Trust, might be prohibited transactions under ERISA and the Code. Neither ERISA
nor the Code defines the term "plan assets." Under Section 2510.3-101 of the
United States Department of Labor ("DOL") regulations (the "Regulation"), a
Plan's assets may include an interest in the underlying assets of an entity
(such as a trust) for certain purposes, including the prohibited transaction
provisions
S-28
<PAGE>
of ERISA and the Code, if the Plan acquires an "equity interest" in such entity.
Thus, if a Plan acquired a Certificate of a particular class, for certain
purposes (including the prohibited transaction provisions) the Plan would be
considered to own its share of the underlying assets of the related Trust unless
(1) such Certificate is a "publicly-offered security" or (2) equity
participation in such class by benefit plan investors is not "significant."
A publicly-offered security is a security that is (1) freely transferable,
(2) part of a class of securities that is owned by 100 or more investors
independent of the issuer and of one another at the conclusion of the initial
offering and (3) either is (A) part of a class of securities registered under
Section 12(b) or 12(g) of the Exchange Act, or (B) sold to the Plan as a part of
an offering of securities to the public pursuant to an effective registration
statement under the Securities Act and the class of securities of which such
security is a part is registered under the Exchange Act within 120 days (or such
later time as may be allowed by the Commission) after the end of the fiscal year
of the issuer during which the offering of such securities to the public
occurred. The Depositor makes no representation as to whether the Certificates
of any class will be considered publicly-offered securities within the meaning
of the Regulation.
Participation by benefit plan investors in any class of Certificates would
not be significant if immediately after the most recent acquisition of
Certificates of such class, whether or not from the Depositor or an Agent or
Underwriter, less than 25 percent of the value of such class were held by
benefit plan investors, which are defined as Plans and employee benefit plans
not subject to ERISA (for example, governmental plans). There can be no
assurance that less than 25 percent of the value of any given class of
Certificates will be held by benefit plan investors.
If assets of a Trust were deemed to be Plan assets, certain transactions
involving such Trust, including the acquisition of the Certificates themselves
by a Plan, could be prohibited transactions. If, for example, any holder of a
Call Warrant were a party in interest or disqualified person with respect to a
Plan investor, the exercise of the Call Warrant could be construed as a
prohibited indirect sale from the Plan to the holder of the Call Warrant. Any
such prohibited transaction could be treated as exempt under ERISA and the Code
if the Certificates were acquired pursuant to and in accordance with one or more
"class exemptions" issued by the DOL, such as Prohibited Transaction Class
Exemption ("PTCE") 84-14 (an exemption for certain transactions determined by an
independent qualified professional asset manager), PTCE 91-38 (an exemption for
certain transactions involving bank collective investment funds), PTCE 90-1 (an
exemption for certain transactions involving insurance company pooled separate
accounts) or PTCE 95-60 (an exemption for certain transactions involving
insurance company general accounts).
Certificates will not be sold to any Plan unless such Plan represents that
the acquisition of a Certificate would not be prohibited under ERISA and the
Code because an exemption is applicable to the acquisition and holding of the
Certificates and the activities of the related Trust. Alternatively, if the
Depositor is able to confirm the existence of at least 100
S-29
<PAGE>
independent purchasers of a class, the foregoing representation will not be a
condition to acquisition of Certificates of such class.
Any Plan proposing to acquire Certificates should consult with its counsel.
Plan of Distribution
Subject to the terms and conditions set forth in the Underwriting
Agreement, dated as of November __, 1996 (the "Underwriting Agreement"), the
Depositor has agreed to sell and Morgan Keegan & Company, Inc. (an affiliate of
the Depositor) (the "Underwriter") has agreed to purchase, all of the Class A
Certificates at a price of ____%, all of the Class B Certificates at a price of
____% and all of the Class C Certificates at a price of ____% plus accrued
interest from the Cut-off Date.
The Depositor has been advised by the Underwriter that it proposes to offer
the Certificates from time to time in negotiated transactions at varying prices
to be determined at the time of sale. The Underwriter may effect such
transactions by selling Certificates to or through dealers and such dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriter and any purchasers of Certificates for whom
they may act as agents. Concession to dealers may vary but will not exceed ____%
for the Class A Certificates, ____% for the Class B Certificates and ____% for
the Class C Certificates. The Underwriter and any dealers that participate with
the Underwriter in the distribution of Certificates may be deemed to be
underwriters, and any profit on the resale of Certificates by them may be deemed
to be underwriting discounts or commissions under the Securities Act. The
acquisition by the Depositor of the Call Warrants and the Retained Interests at
a discount to their value may be deemed to represent underwriting compensation.
If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will also be used by the Underwriter
after the completion of the offering in connection with offers and sales related
to market-making transactions in the Offered Certificates in which the
Underwriter acts as principal. The Underwriter may also act as agent in such
transactions. Sales will be made at negotiated prices determined at the time of
sale.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Securities Act, or will contribute to payments the Underwriter may be required
to make in respect thereof.
Morgan Keegan & Company, Inc. is an affiliate of the Depositor, and the
participation by Morgan Keegan & Company, Inc. in the offering of the
Certificates complies with Schedule E of the By-Laws of the National Association
of Securities Dealers, Inc. regarding underwriting securities of an affiliate.
S-30
<PAGE>
Ratings
It is a condition to the issuance of the Certificates that the Certificates
be rated not lower than "AAA" by Standard & Poor's Ratings Services ("Standard &
Poor's" or the "Rating Agency"). The ratings address the likelihood of the
receipt by the Certificateholders of payments required under the Trust
Agreement, and are based primarily on the credit quality of the Treasury
Securities. The rating on the Certificates does not, however, constitute a
statement regarding the occurrence or frequency of redemptions or prepayments
on, or extensions of the maturity of, the Certificates, the corresponding effect
on yield to investors.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning Rating
Agency. Each security rating should be evaluated independently of similar
ratings on different securities. A security rating does not address the
likelihood of the exercise of a Call Warrant, or the corresponding effect on
yield to investors.
The Depositor has not requested a rating on the Certificates by any rating
agency other than the Standard & Poor's. However, there can be no assurance as
to whether any other rating agency will rate the Certificates, or, if it does,
what rating would be assigned by any such other rating agency. A rating on the
Certificates by another rating agency, if assigned at all, may be lower than the
ratings assigned to the Certificates by the Standard & Poor's.
Legal Opinions
Certain legal matters relating to the Certificates will be passed upon for
the Depositor and the Underwriter by Chapman and Cutler, Chicago, Illinois.
S-31
<PAGE>
<TABLE>
<CAPTION>
Index of Terms
<S> <C>
Term Page
Act.........................................................................S-27
Allocated Purchase Price....................................................S-22
Available Funds.............................................................S-13
Base Trust Agreement.........................................................S-3
CEDE........................................................................S-11
Certificate Owner...........................................................S-21
Certificates............................................................S-1, S-3
Class A Available Funds.....................................................S-13
Class A Distribution Date...............................................S-1, S-4
Class A Final Distribution Date.........................................S-1, S-4
Class A Interest Strip...........................................S-6, S-10, S-13
Class A Treasury Note.............................................S-1, S-8, S-10
Class B Available Funds.....................................................S-13
Class B Distribution Date...............................................S-1, S-4
Class B Final Distribution Date.........................................S-1, S-4
Class B Interest Strip...........................................S-6, S-10, S-14
Class B Treasury Note.............................................S-1, S-8, S-10
Class C Available Funds.....................................................S-14
Class C Distribution Date...............................................S-1, S-4
Class C Final Distribution Date.........................................S-1, S-4
Class C Interest Strip...........................................S-7, S-10, S-14
Class C Treasury Bond.............................................S-1, S-8, S-10
Clearing Agency.............................................................S-11
Closing Date.................................................................S-1
Code........................................................................S-20
Cut-off Date.................................................................S-1
De Minimis Regulation.......................................................S-24
Depositor....................................................................S-1
DOL.........................................................................S-28
DTC.....................................................................S-2, S-6
Early Termination Date............................................S-1, S-5, S-14
Early Termination Price...........................................S-1, S-5, S-15
Eligible Investments........................................................S-14
ERISA..................................................................S-7, S-28
Event of Default............................................................S-17
Extraordinary Expenses......................................................S-17
Federal Tax Counsel.........................................................S-21
Final Distribution Date.................................................S-1, S-4
Foreign Certificate Owners..................................................S-27
Initial Accrued Interest....................................................S-14
Interest Strip..............................................................S-14
Interest Strips.............................................................S-11
Liquidation Price............................................................S-5
</TABLE>
S-32
<PAGE>
<TABLE>
<S> <C>
NYSE..................................................................S-1, S-12
OID........................................................................S-21
Ordinary Expenses..........................................................S-16
Participants................................................................S-2
Plan..................................................................S-7, S-28
Prospectus..................................................................S-1
PTCE.......................................................................S-29
Purchase Default...........................................................S-15
Purchase Request......................................................S-5, S-15
Rating Agency..............................................................S-31
Regulation.................................................................S-28
Required Interest..........................................................S-14
Required Principal.........................................................S-14
Retained Interests.........................................................S-11
Series Supplement...........................................................S-3
Service....................................................................S-21
Standard & Poor's..........................................................S-31
stripped interest..........................................................S-21
Superfund Tax..............................................................S-27
Treasury Securities...................................................S-1, S-10
Trust.......................................................................S-1
Trust Agreement........................................................S-1, S-3
Trustee.....................................................................S-1
Underlying Securities.......................................................S-1
Underwriter...........................................................S-1, S-30
Underwriting Agreement.....................................................S-30
United States person.......................................................S-28
Warrantholder.........................................................S-5, S-15
</TABLE>
S-33
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ Information contained herein is subject to completion or amendment. A +
+ registration statement relating to these securities has been filed with the +
+ Securities and Exchange Commission. These securities may not be sold nor may +
+ offers to buy be accepted prior to the time the registration statement +
+ becomes effective. This prospectus shall not constitute an offer to sell or +
+ the solicitation of an offer to buy nor shall there by any sale of these +
+ securities on any State in which such offer, solicitation or sale would be +
+ unlawful prior to registration or qualification under the securities laws +
+ of any such State. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion Dated November 14, 1996
PROSPECTUS
TRUST CERTIFICATES
(ISSUABLE IN SERIES)
SOUTHPOINT STRUCTURED ASSETS, INC.
DEPOSITOR
The Trust Certificates (the "Certificates") offered hereby and by supplements
(each a "Prospectus Supplement") to this Prospectus will be offered from time
to time in one or more series (each a "Series") and in one or more classes
within each such Series (each a "Class"). Certificates of each respective Series
and Class will be offered on terms to be determined at the time of sale as
described in the related Prospectus Supplement accompanying the delivery of this
Prospectus. Each Series and Class of Certificates will be issuable as individual
securities in registered form without coupons ("Registered Certificates") or as
one or more global securities in registered form (each a "Global Security").
Each Series of Certificates will represent in the aggregate the entire
beneficial ownership interest in a trust (the "Trust"), the assets of which
will consist primarily of a publicly issued, fixed income debt security or a
pool of such debt securities (the "Underlying Securities"), together with
certain other assets described herein and in the related Prospectus Supplement
(such assets, together with the Underlying Securities, the "Deposited Assets"),
to be deposited in trust for the benefit of holders of Certificates of such
Series ("Certificateholders") by Southpoint Structured Assets, Inc. (the
"Depositor") pursuant to a Trust Agreement and a series supplement thereto with
respect to any given Series (collectively, the "Trust Agreement") among the
Depositor, the administrative agent, if any (the "Administrative Agent") and the
trustee (the "Trustee") named in the related Prospectus Supplement. The
Underlying Securities will be purchased by the Depositor in the secondary market
(either directly or through an affiliate of the Depositor), and will not be
acquired from the obligor with respect thereto or pursuant to any distribution
by or agreement with any such obligor. The Underlying Securities discussed
herein and in the related Prospectus Supplement represent (i) an obligation
issued or guaranteed by the United States of America or any agency thereof for
the payment of which the full faith and credit of the United States of America
is pledged, (ii) an obligation of one or more U.S. government sponsored
entities, (iii) Government Trust Certificates ("GTCs") (provided that such GTCs,
together with any AID-Guaranteed Underlying Securities (as defined below), shall
not account for 10% or more of the aggregate cash flows on the Underlying
Securities securing any Series of Certificates), or (iv) obligations guaranteed
by the United States Agency for International Development pursuant to the AID
Housing Guaranty Program ("AID-Guaranteed Underlying Securities")(provided that
such AID-Guaranteed Underlying Securities, together with any GTCs, shall not
account for 10% or more of the aggregate cash flows on the Underlying Securities
securing any Series of Certificates). If so specified in the related Prospectus
Supplement, the Trust for a Series of Certificates may also include, or the
Certificateholders of such Certificates may have the benefit of, any combination
of insurance policies, letter of credit, reserve accounts and other types of
rights or assets designed to support or ensure the servicing and distribution of
amounts due in respect of the Deposited Assets (collectively, "Credit Support").
See "DESCRIPTION OF CERTIFICATES" and "DESCRIPTION OF DEPOSITED ASSETS AND
CREDIT SUPPORT."
Each Class of Certificates of any Series will represent the right, which may
be senior to those of one or more of the other Classes of such Series, to
receive specified portions of payments of principal, interest and certain other
amounts on the Deposited Assets in the manner described herein and in the
related Prospectus Supplement. A Series may include two or more Classes
differing as to the timing, sequential order or amount of distributions of
principal, interest or premium and one or more Classes within such Series may be
subordinated in certain respects to other Classes of such Series.
Except as otherwise provided herein and in the applicable Prospectus
Supplement, the Depositor's only obligations with respect to each Series of
Certificates will be, pursuant to certain representations and warranties
concerning the Deposited Assets, to assign and deliver the Deposited Assets and
certain related documents to the applicable Trustee and, in certain cases, to
provide for the Credit Support, if any. The principal obligations of an
Administrative Agent, if any, is named in the applicable Prospectus Supplement,
with respect to a Series of Certificates will be pursuant to its contractual
administrative obligations and, only as and to the extent provided in the
related Prospectus Supplement, its obligations to make certain cash advances in
the event of payment delinquencies on the Deposited Assets. See "DESCRIPTION OF
THE CERTIFICATES--ADVANCES IN RESPECT OF DELINQUENCIES."
The Certificates of each Series will not represent an obligation of or
interest in the Depositor, any Administrative Agent or any of their respective
affiliates, except to the limited extent described herein and in the related
Prospectus Supplement. Neither the Certificates nor the Deposited Assets
(unless, and only as and to the extent otherwise specified in such Prospectus
Supplement) will be guaranteed or insured by any governmental agency or
instrumentality, or by the Depositor, any Administrative Agent or their
respective affiliates.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH HEREIN UNDER
"RISK FACTORS," BEGINNING ON PAGE 1.
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
____________________
The Certificates may be offered and sold to or through underwriters, through
dealers or agents or directly to purchasers, as more fully described under "Plan
of Distribution" and in the related Prospectus Supplement. This Prospectus may
not be used to consummate sales of Certificates offered hereby unless
accompanied by a Prospectus Supplement.
The date of this Prospectus is __________, 1996
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Certificates to be
offered thereby and hereby will set forth, among other things, the following
with respect to such Series: (a) the specific designation and aggregate
principal amount, (b) the number of Classes of such Series and, with respect to
each Class of such Series, its designation, aggregate principal amount or, if
applicable, notional amount and authorized denominations, (c) certain
information concerning the type, characteristics and specifications of the
Deposited Assets and any Credit Support for such Series or Class, (d) the
relative rights and priorities of each such Class (including the method for
allocating collections from the Deposited Assets to the Certificateholders of
each Class and the relative ranking of the claims of the Certificateholders of
each Class to such Deposited Assets), (e) the name of the Trustee and the
Administrative Agent, if any, for such Series, (f) the Pass Through Rate (as
defined below) or the terms relating to the applicable method of calculation
thereof, (g) the time and place of distribution (each such date, a "Distribution
Date") of any interest, premium (if any) and/or principal, (h) the date of
issue, (i) the scheduled final Distribution Date, if applicable, (j) the
offering price, (k) any mandatory or optional redemption terms and any other
specific terms of Certificates of each such Series or Class. See "DESCRIPTION
OF CERTIFICATES--GENERAL" for a listing of other items that may be specified in
the applicable Prospectus Supplement.
AVAILABLE INFORMATION
The Depositor is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports and other information
concerning the Depositor can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the Commission:
New York Regional Office, Seven World Trade Center, New York, New York 10048,
and Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained upon written request
addressed to the Commission, Public Reference Section, 450 Fifth Street, N.W.,
Washington D.C. 20549, at prescribed rates. Such material can also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov. The Depositor does not intend to send any financial reports
to Certificateholders.
The Depositor has filed with the Commission a registration statement on
Form S-3 (together with all amendments and exhibits, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
relating to the Certificates. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the Registration Statement.
-2-
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
All documents filed by the Depositor pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Certificates shall be deemed to be
incorporated by reference in this Prospectus. Any statement contained herein or
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Depositor will provide without charge to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of any such person,
a copy of any or all of the documents incorporated herein by reference, except
the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to the President of Southpoint Structured Assets, Inc., at
its principal executive office located at 50 North Front Street, Memphis,
Tennessee 38103. Telephone requests for such copies should be directed to the
President of Southpoint Structured Assets, Inc. at (901) 524-4100.
REPORTS TO CERTIFICATEHOLDERS
Except as otherwise specified in the applicable Prospectus Supplement,
unless and until Definitive Certificates are issued, on each Distribution Date
unaudited reports containing information concerning the related Trust will be
prepared by the related Trustee and sent on behalf of each Trust only to Cede &
Co. ("Cede"), as nominee of DTC and registered holder of the Certificates. See
"DESCRIPTION OF CERTIFICATES--GLOBAL SECURITIES" and "DESCRIPTION OF THE TRUST
AGREEMENT--REPORTS TO CERTIFICATEHOLDERS; NOTICES." Such reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles. The Depositor, on behalf of each Trust, will cause to be
filed with the Commission such periodic reports as are required under the
Exchange Act. The obligation to file such reports may be suspended under the
Exchange Act in as little time as the year after the first fiscal year of the
Trust and, consequently, the Depositor will stop filing such reports.
-3-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
HEADING PAGE
<S> <C>
PROSPECTUS SUPPLEMENT...................................................... 2
AVAILABLE INFORMATION...................................................... 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.......................... 3
REPORTS TO CERTIFICATEHOLDERS.............................................. 3
RISK FACTORS............................................................... 6
THE DEPOSITOR.............................................................. 8
USE OF PROCEEDS............................................................ 9
FORMATION OF THE TRUST..................................................... 9
MATURITY AND YIELD CONSIDERATIONS.......................................... 10
DESCRIPTION OF CERTIFICATES................................................ 11
General............................................................... 12
Distributions......................................................... 14
Interest on the Certificates.......................................... 15
Principal of the Certificates......................................... 23
Optional Redemption of Certificates................................... 23
Global Securities..................................................... 23
DESCRIPTION OF DEPOSITED ASSETS AND CREDIT SUPPORT......................... 26
General............................................................... 26
Underlying Securities................................................. 27
Principal Economic Terms of Underlying Securities..................... 28
Publicly Available Information........................................ 29
Other Deposited Assets................................................ 29
Credit Support........................................................ 30
Collections........................................................... 32
DESCRIPTION OF THE TRUST AGREEMENT......................................... 33
General............................................................... 33
Assignment of Deposited Assets........................................ 33
Collection and Other Administrative Procedures........................ 34
Retained Interest..................................................... 36
Advances in Respect of Delinquencies.................................. 37
</TABLE>
-4-
<PAGE>
Certain Matters Regarding the Administrative Agent and the Depositor... 37
Administrative Agent Termination Events; Rights Upon Administrative
Agent Termination Event........................................... 38
Modification and Waiver................................................ 40
Reports to Certificateholders.......................................... 41
Evidence as to Compliance.............................................. 42
Replacement Certificates............................................... 43
Termination............................................................ 43
Duties of the Trustee.................................................. 44
The Trustee............................................................ 44
PLAN OF DISTRIBUTION........................................................ 44
LEGAL OPINIONS.............................................................. 46
INDEX OF TERMS.............................................................. 47
-5-
<PAGE>
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Certificates:
Limited Liquidity. There will be no market for any Series (or Class within
such Series) of Certificates prior to the issuance thereof, and there can be no
assurance that a secondary market will develop or, if it does develop, that it
will provide Certificateholders with liquidity of investment or will continue
for the life of such Certificates.
Certain Legal Aspects. The applicable Prospectus Supplement may set forth
certain legal considerations that are applicable to a specific Series (or Class
or Classes within such Series) of Certificates being offered in connection with
that Prospectus Supplement or the assets deposited in or assigned to the related
Trust.
Limited Obligations and Interests of the Depositor or any of its
Affiliates. The Certificates will not represent a recourse obligation of or
interest in the Depositor or any of its affiliates. The Certificates of each
Series will not be insured or guaranteed by any government agency or
instrumentality, the Depositor, any Person affiliated with the Depositor or the
Issuer, or any other Person. The obligations, if any, of the Depositor with
respect to the Certificates of any Series will only be pursuant to certain
limited representations and warranties. The Depositor does not have, and is not
expected in the future to have, any significant assets with which to satisfy any
claims arising from a breach of any representation or warranty. If, for
example, the Depositor were required to repurchase an Underlying Security with
respect to which the Depositor has breached a representation or warranty, its
only sources of funds to make such repurchase would be from funds obtained from
the enforcement of a corresponding obligation, if any, on the part of the seller
of such Underlying Security to the Depositor, or from a reserve fund established
to provide funds for such repurchases. The Depositor has no obligation to
establish or maintain any such reserve fund.
Limited Assets. Although the Trust for any Series (or Class of such
Series) of Certificates may include, or the Certificateholders of such
Certificates may have the benefit of, certain assets which are designed to
support the payment upon, or otherwise ensure the servicing or distribution with
respect to, the Deposited Assets related to such Series or Class as described in
the related Prospectus Supplement, the Certificates do not represent obligations
of the Depositor, any Administrative Agent or any of their affiliates and,
unless otherwise specified in the applicable Prospectus Supplement, are not
insured or guaranteed by the Depositor, any Administrative Agent, any of their
affiliates or any other person or entity. Accordingly, Certificateholders'
receipt of distributions in respect of the Certificates will depend entirely on
the performance of and the Trust's receipt of payments with respect to the
Deposited Assets and any Credit Support identified in the related Prospectus
Supplement. See "Description of Deposited Assets and Credit Support."
-6-
<PAGE>
Credit Support Limitations. The Prospectus Supplement for a series of
Certificates will describe any Credit Support provided with respect thereto.
Use of Credit Support will be subject to the conditions and limitations
described herein and in the related Prospectus Supplement. Moreover, such
Credit Support may not cover all potential losses or risks.
The amount of any applicable Credit Support supporting one or more classes
of Certificates, including the subordination of one or more classes of
Certificates, will be determined on the basis of criteria established by each
Rating Agency rating such classes of Certificates based on an assumed level of
defaults, delinquencies and losses on the Underlying Securities and certain
other factors. There can, however, be no assurance that the loss experience on
the related Underlying Securities will not exceed such assumed levels. See
"Limited Nature of the Ratings of the Certificates", "Description of Deposited
Assets and Credit Support."
Maturity and Redemption Considerations. The timing of distributions of
interest, premium (if any) and principal of any Series (or of any Class within
such Series) of Certificates is affected by a number of factors, including the
performance of the related Deposited Assets, the extent of any early redemption,
repayment or extension of maturity with respect to the related Underlying
Securities and the manner and priority in which collections from such Underlying
Securities and any other Deposited Assets are allocated to each Class of such
Series. Certain of these factors may be influenced by a variety of accounting,
tax, economic, social and other factors. The related Prospectus Supplement will
discuss any calls, puts or other redemption options, any extension of maturity
provisions and certain other terms applicable to such Underlying Securities and
any other Deposited Assets. See "Maturity and Yield Considerations."
Early Termination of Trust. Unless otherwise set forth in the Prospectus
Supplement, the Trust may be subject to early termination. In the event of early
termination, the Certificates will have a shorter maturity than expected.
Furthermore, such event is likely to occur, if at all, at a time when the market
value of the Underlying Securities has increased due to a declining interest
rate environment. In such an environment, the interest rates available on
potiential reinvestment can be expected to be lower than the return that would
have been earned on the remaining life of the Certificates if they had not been
called and the Trust terminated. See "DESCRIPTION OF CERTIFICATES--Optional
Redemption of Certificates" and "DESCRIPTIONS OF THE TRUST AGREEMENT--
Termination.
Tax Considerations. The Federal income tax consequences of the purchase,
ownership and disposition of the Certificates and the tax treatment of the Trust
will depend on the specific terms of the Certificates, the Trust, any Credit
Support and the Deposited Assets. See the description under "Federal Income Tax
Considerations" in the related Prospectus Supplement.
Limited Nature of the Ratings of the Certificates. At the time of issue,
the Certificates of any given Series (or each Class of such Series that is
offered hereby) will be rated in one of the investment grade categories
recognized by one or more nationally recognized rating agencies (a "Rating
Agency"). Unless otherwise specified in the applicable Prospectus Supplement,
the rating of any Series or Class of Certificates is based primarily on the
related Deposited Assets and any Credit Support and the relative priorities of
the Certificateholders of such Series or Class to receive collections from, and
to assert claims against, the Trust with respect to such Deposited Assets and
any Credit Support. The rating is not a recommendation to purchase, hold or sell
Certificates, inasmuch as such rating does not comment as to market price or
suitability for a particular investor. There can be no assurance that the rating
will remain for any given period of time or that the rating will not be lowered
or withdrawn entirely by the Rating Agency if in its judgment circumstances in
the future so warrant. Any Class or Classes of a given Series of Certificates
may not be
-7-
<PAGE>
offered pursuant to this Prospectus, in which case such Class or Classes may or
may not be rated in an investment grade category by a Rating Agency.
Global Securities. Unless otherwise specified in the related Prospectus
Supplement, the Certificates of each Series (or, if more than one Class exists,
each Class of such Series) will initially be represented by one or more Global
Securities deposited with, or on behalf of, a Depository (as defined below) and
will not be issued as individual definitive Certificates to the purchasers of
such Certificates. Consequently, unless and until such individual definitive
Certificates of a particular Series or Class are issued, such purchasers will
not be recognized as Certificateholders under the Trust Agreement. Hence, until
such time, such purchasers will only be able to exercise the rights of
Certificateholders indirectly through the Depository and its respective
participating organizations and, as a result, the ability of any such purchaser
to pledge that Certificate to persons or entities that do not participate in the
Depository's system, or to otherwise act with respect to such Certificate, may
be limited. See "DESCRIPTION OF CERTIFICATES--GLOBAL SECURITIES" and any further
description contained in the related Prospectus Supplement.
Passive Nature of the Trust. The Trustee with respect to any Series of
Certificates will hold the Deposited Assets for the benefit of the
Certificateholders. Each Trust will generally hold the related Deposited Assets
to maturity and not dispose of them, regardless of adverse events, financial or
otherwise, which may affect any GSE Issuer or the value of the Deposited Assets.
Under certain circumstances the holders of the Certificates may direct the
Trustee to dispose of the Underlying Securities or take certain other actions in
respect of the Deposited Assets.
The Prospectus Supplement for each Series of Certificates will set forth
information regarding additional risk factors, if any, applicable to such Series
(and each Class within such Series) including any risk factors applicable to the
specific Underlying Securities, other Deposited Assets, and where a
concentration of credit risk exists, the Underlying Securities Issuer.
THE DEPOSITOR
The Depositor is an indirect wholly-owned subsidiary of Morgan Keegan, Inc.
The Depositor was incorporated in the State of Delaware on July 30, 1996. The
Depositor was organized for the purpose of acquiring Underlying Securities and
issuing securities backed by such Underlying Securities. The Depositor
anticipates that it will in many cases have acquired Underlying Securities
indirectly through Morgan Keegan & Company, Inc., which is also an indirect
wholly-owned subsidiary of Morgan Keegan, Inc. The Depositor does not have, nor
is it expected in the future to have, any significant assets. The Certificates
do not represent an interest in or an obligation of the Depositor.
The Depositor maintains its principal office at 50 North Front Street,
Memphis, Tennessee 38103. Its telephone number is (901) 524-4100.
-8-
<PAGE>
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the net
proceeds to be received from the sale of each Series or Class of Certificates
(whether or not offered hereby) will be used by the Depositor to purchase the
related Deposited Assets and arrange certain Credit Support including, if
specified in the related Prospectus Supplement, making required deposits into
any reserve account or the applicable Certificate Account (as defined below) for
the benefit of the Certificateholders of such Series or Class. Any remaining
net proceeds, if any, will be used by the Depositor for general corporate
purposes.
FORMATION OF THE TRUST
The Depositor will assign the Deposited Assets for each Series of
Certificates to the Trustee named in the applicable Prospectus Supplement, in
its capacity as Trustee, for the benefit of the Certificateholders of such
Series. See "DESCRIPTION OF THE TRUST AGREEMENT--ASSIGNMENT OF DEPOSITED
ASSETS." The Trustee named in the applicable Prospectus Supplement will
administer the Deposited Assets pursuant to the Trust Agreement and will receive
a fee for such services (the "Trustee's Fee"). Any Administrative Agent named in
the applicable Prospectus Supplement will perform such tasks as are specified
therein and in the Trust Agreement and will receive a fee for such services (the
"Administration Fee") as specified in the Prospectus Supplement. See
"DESCRIPTION OF THE TRUST AGREEMENT--COLLECTION AND OTHER ADMINISTRATIVE
PROCEDURES" and "--RETAINED INTEREST; ADMINISTRATIVE AGENT COMPENSATION AND
PAYMENT OF EXPENSES." The Trustee or an Administrative Agent, if applicable,
will either cause the assignment of the Deposited Assets to be recorded or will
obtain an opinion of counsel that no recordation is required to obtain a first
priority perfected security interest in such Deposited Assets.
Unless otherwise stated in the Prospectus Supplement, the Depositor's
assignment of the Deposited Assets to the Trustee will be without recourse. To
the extent provided in the applicable Prospectus Supplement, the obligations of
an Administrative Agent so named therein with respect to the Deposited Assets
will consist primarily of its contractual administrative obligations, if any,
under the Trust Agreement, its obligation, if any, to make certain cash advances
in the event of delinquencies in payments on or with respect to any Deposited
Assets in amounts described under "DESCRIPTION OF THE TRUST AGREEMENT--ADVANCES
IN RESPECT OF DELINQUENCIES," and its obligations, if any, to purchase Deposited
Assets as to which there has been a breach of certain representations and
warranties or as to which the documentation is materially defective. The
obligations of an Administrative Agent, if any, named in the applicable
Prospectus Supplement to make advances will be limited to amounts which any such
Administrative Agent believes ultimately would be recoverable under any Credit
Support, insurance coverage, the proceeds of liquidation of the Deposited
Assets or from other sources available for such purposes. See "DESCRIPTION OF
THE TRUST AGREEMENT--ADVANCES IN RESPECT OF DELINQUENCIES."
Unless otherwise provided in the related Prospectus Supplement, each Trust
will consist of (i) such Deposited Assets, or interests therein, exclusive of
any interest in such
-9-
<PAGE>
assets (the "Retained Interest") retained by the Depositor or any previous owner
thereof, as from time to time are specified in the Trust Agreement; (ii) such
assets as from time to time are identified as deposited in the related
Certificate Account; (iii) property, if any, acquired on behalf of
Certificateholders by foreclosure or repossession and any revenues received
thereon; (iv) those elements of Credit Support, if any, provided, with respect
to any Class within such Series that are specified as being part of the related
Trust in the applicable Prospectus Supplement, as described therein and under
"DESCRIPTION OF DEPOSITED ASSETS AND CREDIT SUPPORT--CREDIT SUPPORT"; (v) the
rights of the Depositor under the agreement or agreements entered into by the
Trustee on behalf of the Certificateholders which constitute, or pursuant to
which the Trustee has acquired, such Deposited Assets; and (vi) the rights of
the Trustee in any cash advances, reserve fund or surety bond, if any, as
described under "DESCRIPTION OF THE TRUST AGREEMENT--ADVANCES IN RESPECT OF
DELINQUENCIES."
In addition, to the extent provided in the applicable Prospectus
Supplement, the Depositor will obtain Credit Support for the benefit of the
Certificateholders of any related Series (or Class within such Series) of
Certificates.
MATURITY AND YIELD CONSIDERATIONS
Each Prospectus Supplement will, to the extent applicable, contain
information with respect to the type and maturities of the related Underlying
Securities and the terms, if any, upon which such Underlying Securities may be
subject to early redemption (either by the applicable obligor or pursuant to a
third-party call option), repayment (at the option of the holders thereof) or
extension of maturity. The provisions of the Underlying Securities with respect
to the foregoing will, unless otherwise specified in the applicable Prospectus
Supplement, affect the weighted average life of the related Series of
Certificates.
The effective yield to holders of the Certificates of any Series (and Class
within such Series) may be affected by certain aspects of the Deposited Assets
or any Credit Support or the manner and priorities of allocations of collections
with respect to such Deposited Assets between the Classes of a given Series.
With respect to any Series of Certificates the Underlying Securities of which
consist of one or more redeemable securities, extendable securities or
securities subject to a third-party call option, the yield to maturity of such
Series (or Class within such Series) may be affected by any optional or
mandatory redemption or repayment or extension of the related Underlying
Securities prior to the stated maturity thereof. A variety of tax, accounting,
economic, and other factors will influence whether an issuer exercises any right
of redemption in respect of its securities. The rate of redemption may also be
influenced by prepayments on the obligations a GSE Issuer holds for its own
account. All else remaining equal, if prevailing interest rates fall
significantly below the interest rates on the related Underlying Securities, the
likelihood of redemption would be expected to increase. There can be no
certainty as to whether any Underlying Security redeemable at the option of a
GSE Issuer will be repaid prior to its stated maturity.
-10-
<PAGE>
Unless otherwise specified in the related Prospectus Supplement, each of
the Underlying Securities will be subject to acceleration upon the occurrence of
certain Underlying Security Events of Default (as defined below). The maturity
and yield on the Certificates will be affected by any early repayment of the
Underlying Securities as a result of the acceleration of the Outstanding Debt
Securities by the holders thereof. See "DESCRIPTION OF THE DEPOSITED
ASSETS--UNDERLYING SECURITIES INDENTURE."
The extent to which the yield to maturity of such Certificates may vary
from the anticipated yield due to the rate and timing of payments on the
Deposited Assets will depend upon the degree to which they are purchased at a
discount or premium and the degree to which the timing of payments thereon is
sensitive to the rate and timing of payments on the Deposited Assets.
The yield to maturity of any Series (or Class) of Certificates will also be
affected by variations in the interest rates applicable to, and the
corresponding payments in respect of, such Certificates, to the extent that the
Pass-Through Rate for such Series (or Class) is based on variable or adjustable
interest rates. With respect to any Series of Certificates representing an
interest in a pool of corporate debt securities, disproportionate principal
payments (whether resulting from differences in amortization schedules, payments
due on scheduled maturity or upon early redemption) on the related Underlying
Securities having interest rates higher or lower than the then applicable Pass-
Through Rates applicable to such Certificates may affect the yield thereon.
Additionally, if the Certificates are subject to optional redemption, and
such right to cause an optional redemption of the Certificates is exercised, the
Certificates will have a shorter maturity than if such right were not exercised.
Furthermore, such right is likely to be exercised, if at all, at a time when the
market value of the Underlying Securities has increased due to a declining
interest rate environment. In such an environment, the interest rates available
on potential reinvestment can be expected to be lower than the return that would
have been earned over the remaining life of the Certificates if they had not
been called.
The Prospectus Supplement for each Series of Certificates will set forth
additional information regarding yield and maturity considerations applicable to
such Series (and each Class within such Series) and the related Deposited
Assets, including the applicable Underlying Securities.
DESCRIPTION OF CERTIFICATES
Each Series (or, if more than one Class exists, the Classes within such
Series) of Certificates will be issued pursuant to a Trust Agreement and a
separate series supplement thereto among the Depositor, the Administrative
Agent, if any, and the Trustee named in the related Prospectus Supplement, a
form of which Trust Agreement is attached as an exhibit to the Registration
Statement. The provisions of the Trust Agreement (as so supplemented) may vary
depending upon the nature of the Certificates to be issued thereunder and the
nature of the Deposited Assets, Credit Support and related Trust. The following
summaries
-11-
<PAGE>
describe certain provisions of the Trust Agreement which may be applicable to
each Series of Certificates. The applicable Prospectus Supplement for a Series
of Certificates will describe any provision of the Trust Agreement that
materially differs from the description thereof contained in this Prospectus.
The following summaries do not purport to be complete and are subject to the
detailed provisions of the form of Trust Agreement to which reference is hereby
made for a full description of such provisions, including the definition of
certain terms used, and for other information regarding the Certificates.
Wherever particular sections or defined terms of the Trust Agreement are
referred to, such sections or defined terms are incorporated herein by reference
as part of the statement made, and the statement is qualified in its entirety by
such reference. As used herein with respect to any Series, the term
"Certificate" refers to all the Certificates of that Series, whether or not
offered hereby and by the related Prospectus Supplement, unless the context
otherwise requires.
A copy of the applicable series supplement to the Trust Agreement relating
to each Series of Certificates issued from time to time will be filed by the
Depositor as an exhibit to a Current Report on Form 8-K to be filed with the
Commission following the issuance of such Series.
GENERAL
There is no limit on the amount of Certificates that may be issued under
the Trust Agreement, and the Trust Agreement will provide that Certificates of
the applicable Series may be issued in multiple Classes. The Series (or Classes
within such Series) of Certificates to be issued under the Trust Agreement will
represent the entire beneficial ownership interest in the Trust for such Series
created pursuant to the Trust Agreement and each such Class will be allocated
certain relative priorities to receive specified collections from, and a certain
percentage ownership interest of the assets deposited in, such Trust, all as
identified and described in the applicable Prospectus Supplement. See
"DESCRIPTION OF DEPOSITED ASSETS AND CREDIT SUPPORT--COLLECTIONS."
Reference is made to the related Prospectus Supplement for a description of
the following terms of the Series (and, if applicable, Classes within such
Series) of Certificates in respect of which this Prospectus and such Prospectus
Supplement are being delivered: (i) the title of such Certificates; (ii) the
Series of such Certificates and, if applicable, the number and designation of
Classes of such Series; (iii) certain information concerning the type,
characteristics and specifications of the Deposited Assets being deposited into
the related Trust by the Depositor (and, with respect to any Underlying Security
which at the time of such deposit represents a significant portion of all such
Deposited Assets and any related Credit Support, certain information concerning
the terms of each such Underlying Security, the identity of the issuer thereof
and where publicly available information regarding such issuer may be obtained);
(iv) the limit, if any, upon the aggregate principal amount or notional amount,
as applicable, of each Class thereof; (v) the dates on which or periods during
which such Series or Classes within such Series may be issued (each, an
"Original Issue Date"), the offering price thereof and the applicable
Distribution Dates on which the principal, if any, of (and premium, if any, on)
such Series or Classes within such Series will
-12-
<PAGE>
be distributable; (vi) if applicable, the relative rights and priorities of each
such Class (including the method for allocating collections from and defaults or
losses on the Deposited Assets to the Certificateholders of each such Class);
(vii) whether the Certificates of such Series or each Class within such Series
are Fixed Rate Certificates or Floating Rate Certificates (each as defined
below) and the applicable interest rate (the "Pass-Through Rate") for each such
Class including the applicable rate, if fixed (a "Fixed Pass-Through Rate"), or
the terms relating to the particular method of calculation thereof applicable to
such Series or each Class with such Series, if variable (a "Variable Pass-
Through Rate"); the date or dates from which such interest will accrue; the
applicable Distribution Dates on which interest, principal and premium, in each
case as applicable, on such Series or Class will be distributable and the
related Record Dates, if any; (viii) the option, if any, of the Depositor or
Administrative Agent, if any, or another third party to purchase or repurchase
any Deposited Assets (in each case to the extent not inconsistent with the
Depositor's continued satisfaction of the applicable requirements for exemption
under Rule 3a-7 under the Investment Company Act of 1940 and all applicable
rules, regulations and interpretations thereunder) and the periods within which
or the dates on which, and the terms and conditions upon which any such option
may be exercised, in whole or in part; (ix) the rating of each Series or each
Class within such Series offered hereby (provided, however, that one or more
Classes within such Series not offered hereunder may be unrated or may be rated
below investment grade); (x) if other than denominations of $1,000 and any
integral multiple thereof, the denominations in which such Series or Class
within such Series will be issuable; (xi) whether the Certificates of any Class
within a given Series are to be entitled to (1) principal distributions, with
disproportionate, nominal or no interest distributions, or (2) interest
distributions, with disproportionate, nominal or no principal distributions
("Strip Certificates"), and the applicable terms thereof; (xii) whether the
Certificates of such Series or of any Class within such series are to be issued
in the form of one or more Global Securities and, if so, the identity of the
Depository (as defined below), if other than The Depository Trust Company, for
such Global Security or Securities; (xiii) if a temporary Certificate is to be
issued with respect to such Series or any Class within such Series, whether any
interest thereon distributable on a Distribution Date prior to the issuance of a
definitive Certificate of such Series or Class will be credited to the account
of the Persons entitlted thereto on such Distribution Date; (xiv) if a temporary
Global Security is to be issued with respect to such Series or Class, the terms
upon which beneficial interests in such temporary Global Security may be
exchanged in whole or in part for beneficial interests in a definitive Global
Security or for individual Definitive Certificates (as defined below) of such
Series or Class and the terms upon which beneficial interests in a definitive
Global Security, if any, may be exchanged for individual Definitive Certificates
of such Series or Class; (xv) if any additional Administrative Agent Termination
Events (as defined below), if applicable, provided for with respect to such
Class; (xvi) all applicable Required Percentages and Voting Rights (each as
defined below) relating to the manner and percentage of votes of
Certificateholders of such Series and each Class within such Series required
with respect to certain actions by the Depositor or the applicable
Administrative Agent, if any, or Trustee under the Trust Agreement or with
respect to the applicable Trust; and (xvii) any other terms of such Series or
Class within such Series of Certificates not inconsistent with the provisions of
the Trust Agreement relating to such Series.
-13-
<PAGE>
Unless otherwise indicated in the applicable Prospectus Supplement,
Certificates of each Series (including any Class of Certificates not offered
hereby) will be issued only as Registered Certificates in denominations of
$1,000 and any integral multiple thereof and will be payable only in U.S.
dollars.
The United States Federal income tax consequences and ERISA consequences
relating to any Series or any Class within such Series of Certificates will be
described in the applicable Prospectus Supplement.
Unless otherwise provided in the applicable Prospectus Supplement,
Registered Certificates may be transferred or exchanged for like Certificates of
the same Series and Class at the corporate trust office or agency of the
applicable Trustee, subject to the limitations provided in the Trust Agreement,
without the payment of any service charge, other than any tax or governmental
charge payable in connection therewith. The Depositor may at any time purchase
Certificates at any price in the open market or otherwise. Certificates so
purchased by the Depositor may, at the discretion of the Depositor, be held or
resold or surrendered to the Trustee for cancellation of such Certificates.
DISTRIBUTIONS
Distributions allocable to principal, premium (if any) and interest on the
Certificates of each Series (and Class within such Series) will be made for such
Certificates by or on behalf of the Trustee on each Distribution Date as
specified in the related Prospectus Supplement and the amount of each
distribution will be determined as of the close of business on the date
specified in the related Prospectus Supplement (the "Determination Date").
Unless otherwise provided in the applicable Prospectus Supplement and
except as provided in the succeeding paragraph, distributions with respect to
Certificates will be made at the corporate trust office or agency of the Trustee
specified in the applicable Prospectus Supplement; provided, however, that any
such amounts distributable on the final Distribution Date of a Certificate will
be distributed only upon surrender of such Certificate at the applicable
location set forth above.
Unless otherwise specified in the applicable Prospectus Supplement,
distributions on Registered Certificates in U.S. dollars will be made, except as
provided below, by check mailed to the Registered Certificateholders of such
Certificates (which, in the case of Global Securities, will be a nominee of the
Depository); provided, however, that, in the case of a Series or Class of
Registered Certificates issued between a Record Date (as defined below) and the
related Distribution Dates, interest for the period beginning on the issue date
for such Series or Class and ending on the last day of the interest accrual
period ending immediately prior to or coincident with such Distribution Date
will, unless otherwise specified in the applicable Prospectus Supplement, be
distributed on the next succeeding Distribution Date to the Registered
Certificateholders of the Registered Certificates of such Series or Class on the
related Record Date. A Certificateholder of $10,000,000 or more in aggregate
principal amount of Registered Certificates of a given Series shall be entitled
to
-14-
<PAGE>
receive such U.S. dollar distributions by wire transfer of immediately available
funds, but only if appropriate wire transfer instructions have been received in
writing by the Trustee for such Series not later than fifteen calendar days
prior to the applicable Distribution Date. A Certificateholder shall provide
appropriate wire transfer instructions to the Trustee for such Series, and all
such payments will be made by wire transfer of immediately available funds to an
account maintained by the payee with a bank located outside the United States.
Except as otherwise specified in the applicable Prospectus Supplement,
"Business Day" with respect to any Certificate means any day, other than a
Saturday or Sunday, that is (i) not a day on which banking institutions are
authorized or required by law or regulation to be closed in The City of New York
and (ii) if the Pass-Through Rate for such Certificate is based on LIBOR, a
London Banking Day. "London Banking Day" with respect to any Certificate means
any day on which dealings in deposits in U.S. dollars are transacted in the
London interbank market. The Record Date with respect to any Distribution Date
for a Series or Class of Registered Certificates shall be specified as such in
the applicable Prospectus Supplement.
INTEREST ON THE CERTIFICATES
General. Each Class of Certificates (other than certain Classes of Strip
Certificates) of a given Series may have a different Pass-Through Rate, which
may be a fixed or variable Pass-Through Rate, as described below. In the case of
Strip Certificates with no or, in certain cases, a nominal Certificate Principal
Balance, such distributions of interest will be in an amount (as to any
Distribution Date, "Stripped Interest") described in the related Prospectus
Supplement. For purposes hereof, "Notional Amount" means the notional principal
amount specified in the applicable Prospectus Supplement on which interest on
Strip Certificates with no or, in certain cases, a nominal Certificate Principal
Balance will be made on each Distribution Date. Reference to the Notional Amount
of a Class of Strip Certificates herein or in a Prospectus Supplement does not
indicate that such Certificates represent the right to receive any distribution
in respect of principal in such amount, but rather the term "Notional Amount" is
used solely on a basis for calculating the amount of required distributions and
determining certain relative voting rights, all as specified in the related
Prospectus Supplement.
Fixed Rate Certificates. Each Series (or, if more than one Class exists,
each Class within such Series) of Certificates with a fixed Pass-Through Rate
("Fixed Rate Certificates") will bear interest, on the outstanding Certificate
Principal Balance (or Notional Amount, if applicable), from its Original Issue
Date (or such earlier date as specified in the applicable Prospectus
Supplement), or from the last date to which interest has been paid, at the fixed
Pass-Through Rate stated on the face thereof and in the applicable Prospectus
Supplement until the principal amount thereof is distributed or made available
for repayment (or in the case of Fixed Rate Certificates with no or a nominal
principal amount, until the Notional Amount thereof is reduced to zero), except
that, if so specified in the applicable Prospectus Supplement, the Pass-Through
Rate for such Series or any such Class or Classes may be subject to adjustment
from time to time in response to designated changes in the rating assigned to
such Certificates by one or more rating agencies, in accordance with a schedule
or otherwise, all as described in such Prospectus Supplement.
-15-
<PAGE>
Unless otherwise set forth in the applicable Prospectus Supplement, interest on
each Series or Class of Fixed Rate Certificates will be distributable in arrears
on each Distribution Date specified in such Prospectus Supplement. Each such
distribution of interest shall include interest accrued through the day
specified in the applicable Prospectus Supplement. Unless otherwise specified in
the applicable Prospectus Supplement, interest on Fixed Rate Certificates will
be computed on the basis of a 360-day year of twelve 30-day months.
Floating Rate Certificates. Each Series (or, if more than one Class exists,
each Class within such Series) of Certificates with a variable Pass-Through Rate
("Floating Rate Certificates") will bear interest, on the outstanding
Certificate Principal Balance (or Notional Amount, if applicable), from its
Original Issue Date (or such earlier date as specified in the applicable
Prospectus Supplement) to the first Interest Reset Date (as defined below) for
such Series or Class at the Initial Pass-Through Rate set forth on the face
thereof and in the applicable Prospectus Supplement. Thereafter, the Pass-
Through Rate on such Series or Class for each Interest Reset Period (as defined
below) will be determined by reference to an interest rate basis (the "Base
Rate"), plus or minus the Spread, if any, or multiplied by the Spread
Multiplier, if any. The "Spread" is the number of basis points (one basis point
equals one one-hundredth of a percentage point) that may be specified in the
applicable Prospectus Supplement as being applicable to such Series or Class,
and the "Spread Multiplier" is the percentage that may be specified in the
applicable Prospectus Supplement as being applicable to such Series or Class,
except that if so specified in the applicable Prospectus Supplement, the Spread
or Spread Multiplier on such Series or any such Class or Classes of Floating
Rate Certificates may be subject to adjustment from time to time in response to
designated changes in the rating assigned to such Certificates by one or more
rating agencies, in accordance with a schedule or otherwise, all as described in
such Prospectus Supplement. The applicable Prospectus Supplement, unless
otherwise specified therein, will designate one of the following Base Rats as
applicable to a Floating Rate Certificate: (i) LIBOR (a "LIBOR Certificate"),
(ii) the Commercial Paper Rate (a "Commercial Paper Rate Certificate"), (iii)
the Treasury Rate (a "Treasury Rate Certificate"), (iv) the Federal Funds Rate
(a "Federal Funds Rate Certificate"), (v) the CD Rate (a "CD Rate Certificate")
or (vi) such other Base Rate (which may be based on, among other things, one or
more market indices or the interest and/or other payments (whether scheduled or
otherwise) paid, accrued or available with respect to a designated asset, pool
of assets or type of asset) as is set forth in such Prospectus Supplement and in
such Certificate. The "Index Maturity" for any Series or Class of Floating Rate
Certificates is the period of maturity of the instrument or obligation from
which the Base Rate is calculated. "H.15(519)" means the publication entitled
"Statistical Release H.15(519), Selected Interest Rates," or any successor
publication, published by the Board of Governors of the Federal Reserve System.
"Composite Quotations" means the daily statistical release entitled "Composite
3:30 p.m. Quotations for U.S. Government Securities" published by the Federal
Reserve Bank of New York.
As specified in the applicable Prospectus Supplement, Floating Rate
Certificates of a given Series or Class may also have either or both of the
following (in each case expressed as a rate per annum on a simple interest
basis): (i) a maximum limitation, or ceiling, on the rate at which interest may
accrue during any interest accrual period specified in the applicable Prospectus
Supplement ("Maximum Pass-Through Rate"), and (ii) a minimum
-16-
<PAGE>
limitation, or floor, on the rate at which interest may accrue during any such
interest accrual period ("Minimum Pass-Through Rate"). In addition to any
Maximum Pass-Through Rate that may be applicable to any Series or Class of
Floating Rate Certificates, the Pass-Through Rate applicable to any Series or
Class of Floating Rate Certificates will in no event be higher than the maximum
rate permitted by applicable law, as the same may be modified by United States
law of general application.
The Depositor will appoint, and enter into agreements with, agents (each a
"Calculation Agent") to calculate Pass-Through Rates on each Series or Class of
Floating Rate Certificates. The applicable Prospectus Supplement will set forth
the identity of the Calculation Agent for each Series or Class of Floating Rate
Certificates. All determinations of interest by the Calculation Agent shall, in
the absence of manifest error, be conclusive for all purposes and binding on the
holders of Floating Rate Certificates of a given Series or Class.
The Pass-Through Rate on each Class of Floating Rate Certificates will be
reset daily, weekly, monthly, quarterly, semiannually or annually (such period
being the "Interest Reset Period" for such Class, and the first day of each
Interest Reset Period being an "Interest Reset Date"), as specified in the
applicable Prospectus Supplement. Interest Reset Dates with respect to each
Series, and any Class within such Series of Floating Rate Certificates, will be
specified in the applicable Prospectus Supplement; provided, however, that
unless otherwise specified in such Prospectus Supplement, the Pass-Through Rate
in effect for the ten days immediately prior to the Scheduled Final Distribution
Date will be that in effect on the tenth day preceding such Scheduled Final
Distribution Date. If an Interest Reset Date for any Class of Floating Rate
Certificates would otherwise be a day that is not a Business Day, such Interest
Reset Date will occur on a prior or succeeding Business Day, specified in the
applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement,
interest payable in respect of Floating Rate Certificates shall be the accrued
Interest from and including the Original Issue Date of such Series or Class or
the last Interest Reset Date to which interest has accrued and been distributed,
as the case may be, to but excluding the immediately following Distribution
Date.
With respect to a Floating Rate Certificate, accrued interest shall be
calculated by multiplying the Certificate Principal Balance of such Certificate
(or, in the case of a Strip Certificate with no or a nominal Certificate
Principal Balance, the Notional Amount specified in the applicable Prospectus
Supplement) by an accrued interest factor. Such accrued interest factor will be
computed by adding the interest factors calculated for each day in the period
for which accrued interest is being calculated. Unless otherwise specified in
the applicable Prospectus Supplement, the interest factor (expressed as a
decimal calculated to seven decimal places without rounding) for each such day
is computed by dividing the Pass-Through Rate in effect on such day by 360, in
the case of LIBOR Certificates, Commercial Paper Rate Certificates, Federal
Funds Rate Certificates and CD Rate Certificates or by the actual number of days
in the year, in the case of Treasury Rate
-17-
<PAGE>
Certificates. For purposes of making the foregoing calculation, the variable
Pass-Through Rate in effect on any Interest Reset Date will be the applicable
rate as reset on such date.
Unless otherwise specified in the applicable Prospectus Supplement, all
percentages resulting from any calculation of the Pass-Through Rate on a
Floating Rate Certificate will be rounded, if necessary, to the nearest
1/100,000 of 1% (.0000001), with five one-millionths of a percentage point
rounded upward, and all currency amounts used in or resulting from such
calculation on Floating Rate Certificates will be rounded to the nearest one-
hundredth of a unit (with .005 of a unit being rounded upward).
Interest on any Series (or Class within such Series) of Floating Rate
Certificates will be distributable on the Distribution Dates and for the
interest accrual periods as and to the extent set forth in the applicable
Prospectus Supplement.
Upon the request of the holder of any Floating Rate Certificate of a given
Series or Class, the Calculation Agent for such Series or Class will provide
the Pass-Through Rate then in effect and, if determined, the Pass-Through Rate
that will become effective on the next Interest Reset Date with respect to such
Floating Rate Certificate.
(1) CD Rate Certificates. Each CD Rate Certificate will bear interest
for each Interest Reset Period at the Pass-Through Rate calculated with
reference to the CD Rate and the Spread or Spread Multiplier, if any, specified
in such Certificate and in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the "CD
Rate" for each Interest Reset Period shall be the rate as of the second Business
Day prior to the Interest Reset Date for such Interest Reset Period (a "CD Rate
Determination Date") for negotiable certificates of deposit having the Index
Maturity designated in the applicable Prospectus Supplement as published in
H.15(519) under the heading "CDs (Secondary Market)." In the event that such
rate is not published prior to 3:00 p.m., New York City time, on the Calculation
Date (as defined below) pertaining to such CD Rate Determination Date, then the
"CD Rate" for such Interest Reset Period will be the rate on such CD Rate
Determination Date for negotiable certificates of deposit of the Index Maturity
designated in the applicable Prospectus Supplement as published in Composite
Quotations under the heading "Certificates of Deposit." If by 3:00 p.m., New
York City time, on such Calculation Date such rate is not yet published in
either H.15(519) or Composite Quotations, then the "CD Rate" for such Interest
Reset Period will be calculated by the Calculation Agent for such CD Rate
Certificate and will be the arithmetic mean of the secondary market offered
rates as of 10:00 a.m., New York City time, on such CD Rate Determination Date,
of three leading nonbank dealers in negotiable U.S. dollar certificates of
deposit in The City of New York selected by the Calculation Agent for such CD
Rate Certificate for negotiable certificates of deposit of major United States
money center banks of the highest credit standing (in the market for negotiable
certificates of deposit) with a remaining maturity closest to the Index Maturity
designated in the related Prospectus Supplement in a denomination of $5,000,000;
provided, however, that if the dealers selected as aforesaid by such Calculation
Agent are not quoting offered rates as mentioned in this sentence, the "CD
-18-
<PAGE>
Rate" for such Interest Reset Period will be the same as the CD Rate for the
immediately preceding Interest Reset Period (or, if there was no such Interest
Reset Period, the Initial Pass-Through Rate).
The "Calculation Date" pertaining to any CD Rate Determination Date shall
be the first to occur of (a) the tenth calendar day after such CD Rate
Determination Date or, if such day is not a Business Day, the next succeeding
Business Day or (b) the second Business Day preceding the date any distribution
of interest is required to be made following the applicable Interest Reset Date.
(2) Commercial Paper Rate Certificates. Each Commercial Paper Rate
Certificate will bear interest for each Interest Reset Period at the Pass-
Through Rate calculated with reference to the Commercial Paper Rate and the
Spread or Spread Multiplier, if any, specified in such Certificate and in the
applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the
"Commercial Paper Rate" for each Interest Reset Period will be determined by the
Calculation Agent for such Commercial Paper Rate Certificate as of the second
Business Day prior to the Interest Reset Date for such Interest Reset Period (a
"Commercial Paper Rate Determination Date") and shall be the Money Market Yield
(as defined below) on such Commercial Paper Rate Determination Date of the rate
for commercial paper having the Index Maturity specified in the applicable
Prospectus Supplement, as such rate shall be published in H.15(519) under the
heading "Commercial Paper." In the event that such rate is not published prior
to 3:00 p.m. New York City time, on the Calculation Date (as defined below)
pertaining to such Commercial Paper Rate Determination Date, then the
"Commercial Paper Rate" for such Interest Reset Period shall be the Money Market
Yield on such Commercial Paper Rate Determination Date of the rate for
commercial paper of the specified Index Maturity as published in Composite
Quotations under the heading "Commercial Paper." If by 3:00 p.m., New York City
time, on such Calculation Date such rate is not yet published in either
H.15(519) or Composite Quotations, then the "Commercial Paper Rate" for such
Interest Reset Period shall be the Money Market Yield of the arithmetic mean of
the offered rates, as of 11:00 a.m., New York City time, on such Commercial
Paper Rate Determination Date of three leading dealers of commercial paper in
The City of New York selected by the Calculation Agent for such Commercial Paper
Rate Certificate for commercial paper of the specified Index Maturity placed for
an industrial issuer whose bonds are rated "AA" or the equivalent by a
nationally recognized rating agency; provided, however, that if the dealers
selected as aforesaid by such Calculation Agent are not quoting offered rates as
mentioned in this sentence, the "Commercial Paper Rate" for such Interest Reset
Period will be the same as the Commercial Paper Rate for the immediately
preceding Interest Reset Period (or, if there was no such Interest Reset Period,
the Initial Pass-Through Rate).
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
Money Market Yield = D X 360 X 100
-------------
360 - (D X M)
-19-
<PAGE>
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the specified Index Maturity.
The "Calculation Date" pertaining to any Commercial Paper Rate
Determination Date shall be the first to occur of (a) the tenth calendar day
after such Commercial Paper Rate Determination Date or, if such day is not a
Business Day, the next succeeding Business Day or (b) the second Business Day
preceding the date any distribution of interest is required to be made following
the applicable Interest Reset Date.
(3) Federal Funds Rate Certificates. Each Federal Funds Rate Certificate
will bear interest for each Interest Reset Period at the Pass-Through Rate
calculated with reference to the Federal Funds Rate and the Spread or Spread
Multiplier, if any, specified in such Certificate and in the applicable
Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the
"Federal Funds Rate" for each Interest Reset Period shall be the effective rate
on the Interest Reset Date for such Interest Reset Period (a "Federal Funds Rate
Determination Date") for Federal Funds a published in H.15(519) under the
heading "Federal Funds (Effective)." In the event that such rate is not
published prior to 3:00 p.m., New York City time, on the Calculation Date (as
defined below) pertaining to such Federal Funds Rate Determination Date, the
"Federal Funds Rate" for such Interest Reset Period shall be the rate on such
Federal Funds Rate Determination Date as published in Composite Quotations under
the heading "Federal Funds/Effective Rate." If by 3:00 p.m., New York City
time, on such Calculation Date such rate is not yet published in either
H.15(519) or Composite Quotations, then the "Federal Funds Rate" for such
Interest Reset Period shall be the rate on such Federal Funds Rate Determination
Date made publicly available by the Federal Reserve Bank of New York which is
equivalent to the rate which appears in H.15(519) under the heading "Federal
Funds (Effective)"; provided, however, that if such rate is not made publicly
available by the Federal Reserve Bank of New York by 3:00 p.m., New York City
time, on such Calculation Date, the "Federal Funds Rate" for such Interest Reset
Period will be the same as the Federal Funds Rate in effect for the immediately
preceding Interest Reset Period (or, if there was no such Interest Reset Period,
the Initial Pass-Through Rate). Unless otherwise specified in the applicable
Prospectus Supplement, in the case of a Federal Funds Rate Certificate that
resets daily, the Pass-Through Rate on such Certificate for the period from and
including a Monday to but excluding the succeeding Monday will be reset by the
Calculation Agent for such Certificate on such second Monday (or, if not a
Business Day, on the next succeeding Business Day) to a rate equal to the
average of the Federal Funds Rates in effect with respect to each such day in
such week.
The "Calculation Date" pertaining to any Federal Funds Rate Determination
Date shall be the next succeeding Business Day.
(4) LIBOR Certificates. Each LIBOR Certificate will bear interest for
each Interest Reset Period at the Pass-Through Rate calculated with reference to
LIBOR and the
-20-
<PAGE>
Spread or Spread Multiplier, if any, specified in such Certificate and in the
applicable Prospectus Supplement.
With respect to LIBOR indexed to the offered rates for U.S. dollar
deposits, unless otherwise specified in the applicable Prospectus Supplement,
"LIBOR" for each Interest Reset Period will be determined by the Calculation
Agent for any LIBOR Certificate as follows:
(i) On the second London Banking Day prior to the Interest Reset Date
for such Interest Reset Period (a "LIBOR Determination Date"), the
Calculation Agent for such LIBOR Certificate will determine the arithmetic
mean of the offered rates for deposits in U.S. dollars for the period of
the Index Maturity specified in the applicable Prospectus Supplement,
commencing on such Interest Reset Date, which appear on the Reuters Screen
LIBO Page at approximately 11:00 a.m., London time, on such LIBOR
Determination Date. "Reuters Screen LIBO Page" means the display designated
as page "LIBOR" on the Reuters Monitor Money Rates Service (or such other
page may replace the LIBO page on that service for the purpose of
displaying London interbank offered rates of major banks). If at least two
such offered rates appear on the Reuters Screen LIBO Page, "LIBOR" for such
Interest Reset Period will be the arithmetic mean of such offered rates as
determined by the Calculation Agent for such LIBOR Certificate.
(ii) If fewer than two offered rates appear on the Reuters Screen
LIBO Page on such LIBOR Determination Date, the Calculation Agent for such
LIBOR Certificate will request the principal London offices of each of four
major banks in the London interbank market selected by such Calculation
Agent to provide such Calculation Agent with its offered quotations for
deposits in U.S. dollars for the period of the specified Index Maturity,
commencing on such Interest Reset Date, to prime banks in the London
interbank market at approximately 11:00 a.m., London time, on such LIBOR
Determination Date and in a principal amount equal to an amount of not less
than $1,000,000 that is representative of a single transaction in such
market at such time. If at least two such quotations are provided, "LIBOR"
for such Interest Reset Period will be the arithmetic mean of such
quotations. If fewer than two such quotations are provided, "LIBOR" for
such Interest Reset Period will be the arithmetic mean of rates quoted by
three major banks in The City of New York selected by the Calculation Agent
for such LIBOR Certificate at approximately 11:00 a.m., New York City time,
on such LIBOR Determination Date for loans in U.S. dollars to leading
European banks, for the period of the specified Index Maturity, commencing
on such Interest Reset Date, and in a principal amount equal to an amount
of not less than $1,000,000 that is representative of a single transaction
in such market at such time; provided, however, that if fewer than three
banks selected as aforesaid by such Calculation Agent are quoting rates as
mentioned in this sentence, "LIBOR" for such Interest Reset Period will be
the same as LIBOR for the immediately preceding Interest Reset Period (or,
if there was no such Interest Reset Period, the Initial Pass-Through Rate).
-21-
<PAGE>
(5) Treasury Rate Certificates. Each Treasury Rate Certificate will bear
interest for each Interest Reset Period at the Pass-Through Rate calculated with
reference to the Treasury Rate and the Spread or Spread Multiplier, if any,
specified in such Certificate and in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the
"Treasury Rate" for each Interest Reset Period will be the rate for the auction
held on the Treasury Rate Determination Date (as defined below) for such
Interest Reset Period of direct obligations of the United States ("Treasury
bills") having the Index Maturity specified in the applicable Prospectus
Supplement, as such rate shall be published in H.15(519) under the heading "U.S.
Government Certificates--Treasury Bills-auction average (investment)" or, in
the event that such rate is not published prior to 3:00 p.m., New York City
time, on the Calculation Date (as defined below) pertaining to such Treasury
Rate Determination Date, the auction average rate (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and applied
on a daily basis) on such Treasury Rate Determination Date as otherwise
announced by the United States Department of the Treasury. In the event that the
results of the auction of Treasury bills having the specified Index Maturity are
not published or reported as provided above by 3:00 p.m., New York City time, on
such Calculation Date, or if no such auction is held on such Treasury Rate
Determination Date, then the "Treasury Rate" for such Interest Reset Period
shall be calculated by the Calculation Agent for such Treasury Rate Certificate
and shall be a yield to maturity (expressed as a bond equivalent on the basis of
a year of 365 or 366 days, as applicable, and applied on a daily basis) of the
arithmetic mean of the secondary market bid rates, as of approximately 3:30
p.m., New York City time, on such Treasury Rate Determination Date, of three
leading primary United States government securities dealers selected by such
Calculation Agent for the issue of Treasury bills with a remaining maturity
closest to the specified Index Maturity; provided, however, that if the dealers
selected as aforesaid by such Calculation Agent are not quoting bid rates as
mentioned in this sentence, then the "Treasury Rate" for such Interest Reset
Period will be the same as the Treasury Rate for the immediately preceding
Interest Reset Period (or, if there was no such Interest Reset Period, the
Initial Pass-Through Rate.)
The "Treasury Rate Determination Date" for such Interest Reset Period will
be the day of the week in which the Interest Reset Date for such Interest Reset
Period falls on which Treasury bills would normally be auctioned. Treasury bills
are normally sold at auction on Monday of each week, unless that day is a legal
holiday, in which case the auction is normally held on the following Tuesday,
except that such auction may be held on the preceding Friday. If, as the result
of a legal holiday, an auction is so held on the preceding Friday, such Friday
will be the Treasury Rate Determination Date pertaining to the Interest Reset
Period commencing in the next succeeding week. Unless otherwise specified in the
applicable Prospectus Supplement, if an auction date shall fall on any day that
would otherwise be an Interest Reset Date for a Treasury Rate Certificate, then
such Interest Reset Date shall instead be the Business Day immediately following
such auction date.
The "Calculation Date" pertaining to any Treasury Rate Determination Date
shall be the first to occur of (a) the tenth calendar day after such Treasury
Rate Determination Date
-22-
<PAGE>
or, if such a day is not a Business Day, the next succeeding Business Day or (b)
the second Business Day preceding the date of any distribution of interest is
required to be made following the applicable Interest Reset Date.
PRINCIPAL OF THE CERTIFICATES
Unless the related Prospectus Supplement provides otherwise, each
Certificate (other than certain Classes of Strip Certificates) will have a
"Certificate Principal Balance" which, at any time, will equal the maximum
amount that the holder thereof will be entitled to receive in respect of
principal out of the future cash flow on the Deposited Assets and other assets
included in the related Trust. Unless otherwise specified in the related
Prospectus Supplement, distributions generally will be applied to undistributed
accrued interest on, then to principal of, and then to premium (if any) on, each
such Certificate of the Class or Classes entitled thereto (in the manner and
priority specified in such Prospectus Supplement) until the aggregate
Certificate Principal Balance of such Class or Classes has been reduced to zero.
The outstanding Certificate Principal Balance of a Certificate will be reduced
to the extent of distributions of principal thereon, and, if applicable pursuant
to the terms of the related Series, by the amount of any net losses realized on
any Deposited Asset ("Realized Losses") allocated thereto. Unless the related
Prospectus Supplement provides otherwise, the initial aggregate Certificate
Principal Balance of all Classes of Certificates of a Series will equal the
outstanding aggregate principal balance of the related Deposited Assets as of
the applicable Cut-off Date. The initial aggregate Certificate Principal Balance
of a Series and each Class thereof will be specified in the related Prospectus
Supplement. Unless the Prospectus Supplement provides otherwise, distributions
of principal of any Class of Certificates will be made on a pro rata basis among
all the Certificates of such Class. Strip Certificates with no Certificate
Principal Balance will not receive distributions of principal.
OPTIONAL REDEMPTION OF CERTIFICATES
If so specified in the Prospectus Supplement relating to a Series, one or
more Classes of Certificates of any Series may be redeemed in whole at such time
and under the circumstances and at the redemption prices set forth in such
Prospectus Supplement. See also "Description of the Trust Agreement--
Termination."
GLOBAL SECURITIES
Unless otherwise specified in the applicable Prospectus Supplement, all
Certificates of a given Series (or, if more than one Class exists, any given
Class within that Series) will, upon issuance, be represented by one or more
Global Securities that will be deposited with, or on behalf of, The Depository
Trust Company, New York, New York (for Registered Certificates denominated and
payable in U.S. dollars), or such other depository identified in the related
Prospectus Supplement (the "Depository"), and registered in the name of a
nominee of the Depository. Global Securities may be issued in either temporary
or definitive form. Unless and until it is exchanged in whole or in part for the
individual Certificates represented thereby (each a "Definitive Certificate"), a
Global Security may not
-23-
<PAGE>
be transferred except as a whole by the Depository of such Global Security to a
nominee of such Depository or by a nominee of such Depository to such Depository
or another nominee of such Depository or by such Depository or any such nominee
to a successor of such Depository or a nominee of such successor.
The Depository Trust Company has advised the Depositor as follows: The
Depository Trust Company is a limited-purpose trust company organized under the
laws of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. The Depository Trust Company was created to hold
securities of its participants and to facilitate the clearance and settlement of
securities transactions among the institutions that have accounts with such
Depository ("participants") in such securities through electronic book-entry
changes in accounts of the participants, thereby eliminating the need for
physical movement of securities certificates. Such Depository's participants
include securities brokers and dealers (including the Offering Agent), banks,
trust companies, clearing corporations, and certain other organizations, some of
whom (and/or their representatives) own such Depository. Access to such
Depository'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. The Depository
Trust Company has confirmed to the Depositor that it intends to follow such
procedures.
Upon the issuance of a Global Security, the Depository for such Global
Security will credit, on its book-entry registraton and transfer system, the
respective principal amounts of the individual Certificates represented by such
Global Security to the accounts of its participants. The accounts to be
accredited shall be designated by the underwriters of such Certificates, or, if
such Certificates are offered and sold directly through one or more agents, by
the Depositor or such agent or agents. Ownership of beneficial interests in a
Global Security will be limited to participants or Persons that may hold
beneficial interests through participants. Ownership of beneficial interests in
a Global Security will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the Depository for such Global
Security or by participants or Persons that hold through participants. The laws
of some states require that certain purchasers of securities take physical
delivery of such securities. Such limits and such laws may limit the market for
beneficial interests in a Global Security.
So long as the Depository for a Global Security, or its nominee, is the
owner of such Global Security, such Depository or such nominee, as the cause may
be, will be considered the sole Certificateholder of the individual Certificates
represented by such Global Security for all purposes under the Trust Agreement
governing such Certificates. Except as set forth below, owners of beneficial
interests in a Global Security will not be entitled to have any of the
individual Certificates represented by such Global Security registered in their
names, will not receive or be entitled to receive physical delivery of any such
Certificates and will not be considered the Certificateholder thereof under the
Trust Agreement governing such Certificates. Because the Depository can only act
on behalf of its participants, the ability of a holder of any Certificate to
pledge that Certificate to persons, or entities that do not
-24-
<PAGE>
participate in the Depository's system, or to otherwise act with respect to such
Certificate, may be limited due to the lack of a physical certificate for such
Certificate.
Distributions of principal of (and premium, if any) and any interest on
individual Certificates represented by a Global Security will be made to the
Depository or its nominee, as the case may be, as the Certificateholder of such
Global Security. None of the Depositor, the Administrative Agent, if any, the
Trustee for such Certificates, any Paying Agent or the Certificate Registrar for
such Certificates will have responsibility or liability for any aspect or the
records relating to or payments made on account of beneficial interests in such
Global Security or for maintaining, supervising or reviewing any records
relating to such beneficial interests.
The Depositor expects that the Depository for Certificates of a given Class
and Series, upon receipt of any distribution of principal, premium or interest
in respect of a definitive Global Security representing any of such
Certificates, 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 such Depository. The
Depositor 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 participant.
If the Depository for Certificates of a given Class of any Series is at any
time unwilling or unable to continue as depository and a successor depository is
not appointed by the Depositor within ninety days, the Depositor will issue
individual Definitive Certificates in exchange for the Global Security or
Securities representing such Certificates. In addition, the Depositor may at any
time and in its sole discretion determine not to have any Certificates of a
given Class represented by one or more Global Securities and, in such event,
will issue individual Definitive Certificates of such Class in exchange for the
Global Security or Securities representing such Certificates. Further, if the
Depositor so specifies with respect to the Certificates of a given Class, an
owner of a beneficial interest in a Global Security representing Certificates of
such Class may, on terms acceptable to the Depositor and the Depository for such
Global Security, receive individual Definitive Certificates in exchange for such
beneficial interest. In any such instance, an owner of a beneficial interest in
a Global Security will be entitled to physical delivery of individual Definitive
Certificates of the Class represented by such Global Security equal in principal
amount to such beneficial interest and to have such Definitive Certificates
registered in its name (if the Certificates of such Class are issuable as
Registered Certificates). Individual Definitive Certificates of such Class so
issued will be issued as Registered Certificates in denominations, unless
otherwise specified by the Depositor, or $1,000 and integral multiples thereof.
The applicable Prospectus Supplement will set forth any specific terms of
the depository arrangement with respect to any Class or Series or Certificates
being offered thereby to the extent not set forth or different from the
description set forth above.
-25-
<PAGE>
DESCRIPTION OF DEPOSITED ASSETS AND CREDIT SUPPORT
General
Each Certificate of each Series (or if more than one Class exists, each
Class (whether or not each such Class is offered hereby) within such Series)
will represent an ownership interest specified for such Series (or Class) of
Certificates in a designated, publicly issued, fixed income debt security or a
pool of such debt securities (the "Underlying Securities"), purchased by the
Depositor (or an affiliate thereof) in the secondary market, and will not be
acquired from the issuer thereof as part of any distribution by or agreement
with such issuer, and assigned to a Trust as described in the applicable
Prospectus Supplement. Each Underlying Security will represent (i) an
obligation issued or guaranteed by the United States of America or any agency
thereof for the payment of which the full faith and credit of the United States
of America is pledged ("Treasury Securities"), (ii) an obligation of one or more
U.S. government sponsored entities created pursuant to federal statute ("a
GSE"), (iii) Government Trust Certificates ("GTCs") (provided that such GTCs,
together with any AID-Guaranteed Underlying Securities (as defined below), shall
not account for 10% or more of the aggregate cash flows on the Underlying
Securities securing any Series of Certificates), or (iv) obligations guaranteed
by the United States Agency for International Development pursuant to the AID
Housing Guaranty Program ("AID-Guaranteed Underlying Securities") (provided that
such AID-Guaranteed Underlying Securities, together with any GTCs, shall not
account for 10% or more of the aggregate cash flows on the Underlying Securities
securing any Series of Certificates). As specified in the applicable Prospectus
Supplement, the obligations of one or more of the following GSEs may be included
in a Trust: Federal National Mortgage Association ("Fannie Mae"), Federal Home
Loan Mortgage Association ("Freddie Mac"), Student Loan Marketing Association
("Sallie Mae"), Resolution Funding Corporation ("REFCORP"), Federal Home Loan
Banks ("FHLB") (to the extent such obligations represent the joint and several
obligations of the twelve Federal Home Loan Banks), Tennessee Valley Authority
("TVA") and Federal Farm Credit Banks ("FFCB"). GSE debt securities are exempt
from registration under the Securities Act pursuant to Section 3(a)(2) of the
Securities Act (or are deemed by statute to be so exempt) and are not required
to be registered under the Exchange Act. The securities of any GSE will be
included in a Trust only to the extent (A) its obligations are supported by the
full faith and credit of the U.S. government or (B) such organization makes
publicly available its annual report, which shall include financial statements
or similar financial information with respect to such organizations (a "GSE
Issuer"). GTCs and AID-Guaranteed Obligations will have been registered under
the Securities Act of 1933 (or will qualify for an exemption from registration)
and will have been acquired by the Depositor in purely secondary market
transactions. Based on information contained in the prospectus pursuant to
which any GSE Issuer's securities were originally offered (an "Underlying
Security Prospectus"), the applicable Prospectus Supplement will set forth
certain information with respect to the public availability of information with
respect to any GSE Issuer the debt securities of which constitute more than 10
percent of the Underlying Securities for any Series of Certificates as of the
date of such Prospectus Supplement (a "Concentrated Underlying Security"). The
specific terms and conditions of the Underlying Securities will be set forth in
the related Prospectus Supplement.
-26-
<PAGE>
This Prospectus relates only to the Certificates offered hereby and does
not relate to the Underlying Securities. The following description of the
Underlying Securities is intended only to summarize certain characteristics of
the Underlying Securities the Depositor is permitted to deposit in a Trust and
does not purport to be a complete description of any Underlying Security and is
qualified in its entirety by reference to the applicable Prospectus Supplement,
Underlying Security Prospectus, if any, and, to the extent applicable, the
statement of terms or similar document with respect to any Underlying Security.
The Prospectus Supplement used to offer any Series of Certificates will contain
a brief discussion of the business activities of each GSE Issuer and information
concerning the market prices of the Underlying Securities.
UNDERLYING SECURITIES
General. Unless otherwise specified in the related Prospectus Supplement,
none of the Underlying Securities will have been issued pursuant to an
indenture, and no trustee is provided for with respect to any Underlying
Security. There will generally be a fiscal agent ("Fiscal Agent") for a GSE
Issuer with respect to any related Underlying Security whose actions will be
governed by a fiscal agency agreement. A Fiscal Agent is not a trustee for the
holders of the Underlying Securities and does not have the same responsibilities
or duties to act for the holders of a GSE's securities as would a trustee.
Unless otherwise specified in the related Prospectus Supplement, the Underlying
Securities with respect to any GSE Issuer will not be guaranteed by the United
States and do not constitute a debt or obligation of the United States or of any
agency or instrumentality thereof other than the related GSE.
Contractual and Statutory Restrictions. A GSE Issuer and the related
Underlying Securities may be subject to certain contractual and statutory
restrictions which may provide some protection to securityholders against the
occurrence or effects of certain specified events. Unless otherwise specified
in the related Prospectus Supplement, each GSE is limited to such activities as
will promote its statutory purposes as set forth in the publicly available
information with respect to such issuer. See "DESCRIPTION OF THE DEPOSITED
ASSETS -- PUBLICLY AVAILABLE INFORMATION" in the related Prospectus Supplement.
A GSE's promotion of its statutory purposes, as well as its statutory,
structural and regulatory relationships with the federal government may cause or
require such GSE to conduct its business in a manner that differs from that an
enterprise which is not a GSE might employ.
Neither the United States nor any agency thereof is obligated to finance
any GSE Issuer's operations or to assist a GSE Issuer in any manner.
Prospective purchasers should consult the publicly available information with
respect to each GSE Issuer for a more detailed description of the regulatory and
statutory restrictions on the related GSE's activities.
Events of Default. Underlying Securities issued by a GSE Issuer may
provide that any one of a number of specified events will constitute an event of
default with respect thereto. Such events of default typically include the
following or variations thereof: (i) failure by the issuer to pay an installment
of interest or principal on the securities at the time required (subject to any
specified grace period) or to redeem any of the securities when required
-27-
<PAGE>
(subject to any specified grace period); (ii) failure by the issuer to observe
or preform any covenant, agreement or condition contained in the securities or
authorizing legislation or regulation, as the case may be, which failure is
materially adverse to securityholders and continues for a specified period after
notice thereof; and (iii) certain events of insolvency or bankruptcy with
respect to the GSE Issuer. The Underlying Securities will generally provide
that, upon the occurrence of an event of default, the holders of not less than a
specified percentage of the outstanding securities may declare all or a portion
of the principal and accrued interest on the outstanding securities immediately
due and payable, subject to the issuer's right to cure, if applicable.
Each Underlying Security may include some, all or none of the foregoing
provisions or variations thereof or additional events of default not discussed
herein. The Prospectus Supplement with respect to any Series of Certificates
will describe the events of default under the Underlying Securities with respect
to any Concentrated Underlying Security ("Underlying Security Events of
Default") and applicable remedies with respect thereto. With respect to any
Trust compromised of a pool of securities, the applicable Prospectus Supplement
will describe certain common Underlying Security Events of Default with respect
to such pool. There can be no assurance that any such provision will protect the
Trust, as a holder of the Underlying Securities, against losses. If an
Underlying Security Event of Default occurs and the Trustee as a holder of the
Underlying Securities is entitled to vote or take such other action to declare
the principal amount of an Underlying Security and any accrued and unpaid
interest thereon to be due and payable, the Certificateholders' objectives may
differ from those of holders of other securities of the same series and class as
any Underlying Security ("Outstanding Debt Securities") in determining whether
to declare the acceleration of the Underlying Securities.
PRINCIPAL ECONOMIC TERMS OF UNDERLYING SECURITIES
Reference is made to the applicable Prospectus Supplement with respect to
each Series of Certificates for a description of the following terms, as
applicable, of any Concentrated Underlying Security: (i) the title and series of
such Underlying Securities, the aggregate principal amount, denomination and
form thereof; (ii) whether such securities are senior or subordinated to any
other obligations of the Underlying Securities Issuer; (iii) whether any of the
obligations are secured or unsecured and the nature of any collateral; (iv) the
limit, if any, upon the aggregate principal amount of such debt securities; (v)
the dates on which, or the range of dates within which, the principal of (and
premium, if any, on) such debt securities will be payable; (vi) the rate or
rates or the method of determination thereof, at which such Underlying
Securities will bear interest, if any ("Underlying Securities Rate"); the date
or dates from which such interest will accrue ("Underlying Securities Interest
Accrual Periods"); and the dates on which such interest will be payable
("Underlying Securities Payment Dates"); (vii) the obligation, if any, of the
Underlying Securities Issuer to redeem the securities pursuant to any sinking
fund or analogous provisions, and the periods within which or the dates on
which, the prices at which and the terms and conditions upon which such debt
securities may be redeemed or repurchased, in whole or in part, pursuant to such
obligation; (viii) the periods within which or the dates on which, the prices at
which and the terms and conditions upon which such debt securities may be
redeemed, if
-28-
<PAGE>
any, in whole or in part, at the option of the Underlying Securities Issuer;
(ix) whether the Underlying Securities were issued at a price lower than the
principal amount thereof; (x) material events of default or restrictive
covenants provided for with respect to such Underlying Securities; (xi) the
rating thereof, if any; and (xii) any other material terms of such Underlying
Securities.
With respect to a Trust compromised of a pool of Underlying Securities, the
related Prospectus Supplement will describe the composition of the Underlying
Securities pool as of the Cut-off Date, certain material events of default or
restrictive covenants common to the Underlying Securities, and, on an aggregate,
percentage or weighted average basis, as applicable, the characteristics of the
pool with respect to the terms set forth in (ii), (iii), (v), (vi), (vii),
(viii) and (ix) of the preceding paragraph and any other material terms
regarding such pool of securities.
PUBLICLY AVAILABLE INFORMATION
In addition to the foregoing, with respect to each Concentrated Underlying
Security issued by a GSE Issuer the applicable Prospectus Supplement will
disclose the identity of the applicable obligor, and will describe the existence
and type of certain information that is made publicly available by each obligor
regarding such Underlying Security or Underlying Securities and will disclose
where and how prospective purchasers of the Certificates may obtain such
publicly available information with respect to each such obligor. Such
information will typically consist of such obligor's annual report, which
contains financial statements or similar financial information, and can be
obtained from the Commission, if so specified in the applicable Prospectus
Supplement, or from the office of such obligor identified in the related
Prospectus Supplement. However, the precise nature of such publicly available
information and where and how it may be obtained with respect to any given GSE
Issuer will vary, and, as described above, will be set forth in the applicable
Prospectus Supplement with respect to any such obligor.
OTHER DEPOSITED ASSETS
In addition to the Underlying Securities, the Depositor may also deposit
into a given Trust, or the Trustee on behalf of the Certificateholders of a
Trust may enter into an agreement constituting or providing for the purchase of,
to the extent described in the related Prospectus Supplement, certain assets
related or incidental to one or more of such Underlying Securities or to some
other asset deposited in the Trust, including hedging contracts and other
similar arrangements (such as puts, calls, interest rate swaps, currency swaps,
floors, caps and collars, cash and assets ancillary or incidental to the
foregoing or to the Underlying Securities (including assets obtained through
foreclosure or in settlement of claims with respect thereto) (all such assets
for any given Series, together with the related Underlying Securities, the
"Deposited Assets"). The applicable Prospectus Supplement will, to the extent
appropriate, contain analogous disclosure with respect to the foregoing assets
as referred to above with respect to the Underlying Securities.
-29-
<PAGE>
Unless otherwise specified in the related Prospectus Supplement, the
Deposited Assets for a given Series of Certificates and the related Trust will
not constitute Deposited Assets for any other Series of Certificates and the
related Trust and the Certificates of each Class of a given Series possess an
equal and ratable undivided ownership interest in such Deposited Assets. The
applicable Prospectus Supplement may, however, specify that certain assets
constituting a part of the Deposited Assets relating to any given Series may be
beneficially owned solely by or deposited solely for the benefit of one Class or
a group of Classes within such Series. In such event, the other Classes of such
Series will not possess any beneficial ownership interest in those specified
assets constituting a part of the Deposited Assets.
CREDIT SUPPORT
As specified in the applicable Prospectus Supplement for a given Series of
Certificates, the Trust for any Series of Certificates may include, or the
Certificateholders of such Series (or any Class or group of Classes within such
Series) may have the benefit of, Credit Support for any Class or group of
Classes within such Series. Such Credit Support may be provided by any
combination of the following means described below or any other means described
in the applicable Prospectus Supplement. The applicable Prospectus Supplement
will set forth whether the Trust for any Class or group of Classes of
Certificates contains, or the Certificateholders of such Certificates have the
benefit of, Credit Support and, if so, the amount, type and other relevant terms
of each element of Credit Support with respect to any such Class or Classes and
certain information with respect to the obligors of each such element, including
(i) a brief description of its principal business activities, (ii) its principal
place of business, place of incorporation and the jurisdiction under which it is
chartered or licensed to do business, (iii) if applicable, the identity of
regulatory agencies that exercise primary jurisdiction over the conduct of its
business and (iv) its total assets, and its stockholders' equity or
policyholders' surplus, if applicable, as of a date that will be specified in
the Prospectus Supplement. Additionally, with respect to any obligor, or group
of affiliated obligors, providing Credit Support for 10% or more of the
aggregate principal amount of such Class or Classes, the Prospectus Supplement
will include summarized financial statements of such entity and, with respect to
any obligor, or group of affiliated obligors, providing Credit Support for 20%
or more of the aggregate principal amount of such Class or Classes, the
Prospectus Supplement will include audited financial statements of such entity.
Subordination. As discussed below under "--Collections," the rights of the
Certificateholders of any given Class within a Series of Certificates to receive
collections from the Trust for such Series and any Credit Support obtained for
the benefit of the Certificateholders of such Series (or Classes within such
Series) may be subordinated to the rights of the Certificateholders of one or
more other Classes of such Series to the extent described in the related
Prospectus Supplement. Such subordination accordingly provides some additional
credit support to those Certificateholders of those other Classes. For example,
if losses are realized during a given period on the Deposited Assets relating to
a Series of Certificates such that the collections received thereon are
insufficient to make all distributions on the Certificates of such Series,
those realized losses would be allocated to the Certificateholders of any Class
of such Series that is subordinated to another Class, to the
-30-
<PAGE>
extent and in the manner provided in the related Prospectus Supplement. In
addition, if so provided in the applicable Prospectus Supplement, certain
amounts otherwise payable to Certificateholders of any Class that is
subordinated to another Class may be required to be deposited into a reserve
account. Amounts held in any reserve account may be applied as described below
under "--Reserve Accounts" and in the related Prospectus Supplement.
If so provided in the related Prospectus Supplement, the Credit Support for
any Series or Class of Certificates may include, in addition to the
subordination of certain Classes of such Series and the establishment of a
reserve account, any of the other forms of Credit Support described below. Any
such other forms of Credit Support that are solely for the benefit of a given
Class will be limited to the extent necessary to make required distributions to
the Certificateholders of such Class or as otherwise specified in the related
Prospectus Supplement. In addition, if so provided in the applicable Prospectus
Supplement, the obligor of any other forms of Credit Support may be reimbursed
for amounts paid pursuant to such Credit Support out of amounts otherwise
payable to one or more of the Classes of the Certificates of such Series.
Letter of Credit; Surety Bond. The Certificateholders of any Series (or
Class or group of Classes of Certificates within such Series) may, if specified
in the applicable Prospectus Supplement, have the benefit of a letter or letters
of credit (a "Letter of Credit") issued by a bank (a "Letter of Credit Bank") or
a surety bond or bonds (a "Surety Bond") issued by a surety company (a
"Surety"). In either case, the Trustee or such other person specified in the
applicable Prospectus Supplement will use its reasonable efforts to cause the
Letter of Credit or the Surety Bond, as the case may be, to be obtained, to be
kept in full force and effect (unless coverage thereunder has been exhausted
through payment of claims) and to pay timely the fees or premiums therefor
unless, as described in the related Prospectus Supplement, the payment of such
fees or premiums is otherwise provided for. The Trustee or such other person
specified in the applicable Prospectus Supplement will make or cause to be made
draws under the Letter of Credit or the Surety Bond, as the case may be, under
the circumstances and to cover the amounts specified in the applicable
Prospectus Supplement. Any amounts otherwise available under the Letter of
Credit or the Surety Bond will be reduced to the extent of any prior
unreimbursed draws thereunder. The applicable Prospectus Supplement will provide
the manner, priority and source of funds by which any such draws are to be
repaid.
Unless otherwise specified in the applicable Prospectus Supplement, in the
event that the Letter of Credit Bank or the Surety, as applicable, ceases to
satisfy any credit rating or other applicable requirements specified in the
related Prospectus Supplement, the Trustee or such other person specified in the
applicable Prospectus Supplement will use its reasonable efforts to obtain or
cause to be obtained a substitute Letter of Credit or Surety Bond, as
applicable, or other form of credit enhancement providing similar protection,
that meets such requirements and provides the same coverage to the extent
available for the same cost. There can be no assurance that any Letter of
Credit Bank or any Surety, as applicable, will continue to satisfy such
requirements or that any such substitute Letter of Credit, Surety Bond or
similar credit enhancement will be available providing equivalent coverage for
the same cost. To the extent not so available, the credit support otherwise
provided by the
-31-
<PAGE>
Letter of Credit or the Surety Bond (or similar credit enhancement) may be
reduced to the level otherwise available for the same cost as the original
Letter of Credit or Surety Bond. A copy of any such Letter of Credit or Surety
Bond will accompany the Current Report on Form 8-K to be filed with the
Commission within 15 days of the issuance of the Certificates of the related
Series.
Reserve Accounts. If so provided in the related Prospectus Supplement, the
Trustee or such other person specified in the Prospectus Supplement will deposit
or cause to be deposited into an account maintained with an eligible institution
(which may be the Trustee) (a "Reserve Account") any combination of cash or
permitted investments in specified amounts, which will be applied and maintained
in the manner and under the conditions specified in such Prospectus Supplement.
In the alternative or in addition to such deposit, a Reserve Account may be
funded through application of a portion of collections received on the Deposited
Assets for a given Series of Certificates, in the manner and priority specified
in the applicable Prospectus Supplement. Amounts may be distributed to
Certificateholders of such Class or group of Classes within such Series, or may
be used for other purposes, in the manner and to the extent provided in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, any such Reserve Account will not be deemed to be part of
the related Trust Fund. A Reserve Account may provide coverage to more than one
series of Certificates, if set forth in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee will have a perfected security interest for the benefit of the
Certificateholders in the assets in the Reserve Account. However, to the extent
that the Depositor, any affiliate thereof or any other entity has an interest in
any Reserve Account, in the event of the bankruptcy, receivership or insolvency
of such entity, there could be delays in withdrawls from the Reserve Account and
the corresponding payments to the Certificateholders. Such delays could
adversely affect the yield to investors on the related Certificates. Amounts
deposited in any Reserve Account will be invested in certain permitted
investments by, or at the direction of, the Trustee, the Depositor or such other
person named in the related Prospectus Supplement.
COLLECTIONS
The Trust Agreement will establish procedures by which the Trustee or such
other person specified in the Prospectus Supplement is obligated, for the
benefit of the Certificateholders of each Series of Certificates, to administer
the related Deposited Assets, including making collections of all payments made
thereon, depositing from time to time prior to any applicable Distribution Date
such collections into a segregated account maintained or controlled by the
applicable Trustee for the benefit of such Series (each a "Certificate
Account"). An Administrative Agent, if any is appointed pursuant to the
applicable Prospectus Supplement, will direct the Trustee, and otherwise the
Trustee will make all determinations, as to the appropriate application of such
collections and other amounts available for distribution to the payment of any
administrative or collection expenses (such as the administrative fee) and
certain Credit Support-related ongoing fees (such as insurance premiums, letter
of credit fees or any required account deposits) and to
-32-
<PAGE>
the payment of amounts then due and owing on the Certificates of such Series
(and Classes within such Series), all in the manner and priorities described in
the related Prospectus Supplement. The applicable Prospectus Supplement will
specify the collection periods, if applicable, and Distribution Dates for a
given Series of Certificates and the particular requirements relating to the
segregation and investment of collections received on the Deposited Assets
during a given collection period or on or by certain specified dates. There can
be no assurance that amounts received from the Deposited Assets and any Credit
Support obtained for the benefit of Certificateholders for a particular Series
or Class of Certificates over a specified period will be sufficient, after
payment of all prior expenses and fees for such period, to pay amounts then due
and owing to holders of such Certificates. The applicable Prospectus Supplement
will also set forth the manner and priority by which any Realized Loss will be
allocated among the Classes of any Series of Certificates, if applicable.
The relative priorities of distributions with respect to collections from
the assets of the Trust assigned to Classes of a given Series of Certificates
may permanently or temporarily change over time upon the occurrence of certain
circumstances specified in the applicable Prospectus Supplement. Moreover, the
applicable Prospectus Supplement may specify that the relative distribution
priority assigned to each Class of a given Series for purposes of payments of
certain amounts, such as principal, may be different from the relative
distribution priority assigned to each such Class for payments of other amounts,
such as interest or premium.
DESCRIPTION OF THE TRUST AGREEMENT
GENERAL
The following summary of certain provisions of the Trust Agreement and the
Certificates do not purport to be complete and such summary is qualified in its
entirety by reference to the detailed provisions of the form of Trust Agreement
filed as an exhibit to the Registration Statement. Wherever particular sections
or defined terms of the Trust Agreement are referred to, such sections or
defined terms are incorporated herein by reference as part of the statement
made, and the statement is qualified in its entirety by such reference.
ASSIGNMENT OF DEPOSITED ASSETS
At the time of issuance of any Series of Certificates, the Depositor will
cause the Underlying Securities to be included in the related Trust, and any
other Deposited Asset specified in the Prospectus Supplement, to be assigned to
the related Trustee, together with all principal, premium (if any) and interest
received by or on behalf of the Depositor on or with respect to such Deposited
Assets after the cut-off date specified in the Prospectus Supplement (the "Cut-
off Date"), other than principal, premium (if any) and interest due on or before
the Cut-off Date and other than any Retained Interest. The Trustee will,
concurrently with such assignment, deliver the Certificates to the Depositor in
exchange for
-33-
<PAGE>
certain assets to be deposited in the Trust. Each Deposited Asset will be
identified in a schedule appearing as an exhibit to the Trust Agreement. Such
schedule will include certain statistical information with respect to each
Underlying Security and each other Deposited Asset as of the Cut-off Date, and
with respect to each Concentrated Underlying Security, such schedule will
include, to the extent applicable, information regarding the payment terms
thereof, the Retained Interest, if any, with respect thereto, the maturity or
terms thereof, the rating, if any, thereof and certain other information with
respect thereto.
In addition, the Depositor will, with respect to each Deposited Asset,
deliver or cause to be delivered to the Trustee (or to the custodian hereinafter
referred to) all documents necessary to transfer ownership of such Deposited
Asset to the Trustee. The Trustee (or such custodian) will review such documents
upon receipt thereof or within such period as is permitted in the Prospectus
Supplement, and the Trustee (or such custodian) will hold such documents in
trust for the benefit of the Certificateholders.
Each of the Depositor and the Administrative Agent, if any, will make
certain representations and warranties regarding its authority to enter into,
and its ability to perform its obligations under, the Trust Agreement. Upon a
breach of any such representation of the Depositor or any such Administrative
Agent, as the case may be, which materially and adversely affects the interests
of the Certificateholders, the Depositor or any such Administrative Agent,
respectively, will be obligated to cure the breach in all material respects.
COLLECTION AND OTHER ADMINISTRATIVE PROCEDURES
General. With respect to any Series of Certificates the Trustee or such
other person specified in the Prospectus Supplement directly or through sub-
administrative agents, will make reasonable efforts to collect all scheduled
payments under the Deposited Assets and will follow or cause to be followed such
collection procedures, if any, as it would follow with respect to comparable
financial assets that it held for its own account, provided that such procedures
are consistent with the Trust Agreement and any related instrument governing any
Credit Support (collectively, the "Credit Support Instruments") and provided
that, except as otherwise expressly set forth in the applicable Prospectus
Supplement, it shall not be required to expend or risk its own funds or
otherwise incur personal financial liability.
Sub-Administration. Any Trustee or Administrative Agent may delegate its
obligations in respect of the Deposited Assets to third parties they deem
qualified to perform such obligations (each, a "Sub-Administrative Agent"), but
the Trustee or Administrative Agent will remain obligated with respect to such
obligations under the Trust Agreement. Each Sub-Administrative Agent will be
required to perform the customary functions of an administrator of comparable
financial assets, including, if applicable, collecting payments from obligors
and remitting such collections to the Trustee; maintaining accounting records
relating to the Deposited Assets, attempting to cure defaults and delinquencies;
and enforcing any other remedies with respect thereto all as and to the extent
provided in the applicable Sub-Administration Agreements (as defined below).
-34-
<PAGE>
The agreement between any Administrative Agent or Trustee and a Sub-
Administrative Agent (a "Sub-Administration Agreement") will be consistent with
the terms of the Trust Agreement and such assignment to the Sub-Administrator by
itself will not result in a withdrawal or downgrading of the rating of any Class
of Certificates issued pursuant to the Trust Agreement. With respect to any Sub-
Administrative Agreement between an Administrative Agent and a Sub-
Administrative Agent, although each such Sub-Administration Agreement will be a
contract solely between such Administrative Agent and the Sub-Administrative
Agent, the Trust Agreement pursuant to which a Series of Certificates is issued
will provide that, if for any reason such Administrative Agent for such Series
of Certificates is no longer acting in such capacity, the Trustee or any
successor Administrative Agent must recognize the Sub-Administrative Agent's
rights and obligations under such Sub-Administration Agreement.
The Administrative Agent or Trustee, as applicable, will be solely liable
for all fees owed by it to any Sub-Administrative Agent, irrespective of whether
the compensation of the Administrative Agent or Trustee, as applicable, pursuant
to the Trust Agreement with respect to the particular Series of Certificates is
sufficient to pay such fees. However, a Sub-Administrative Agent may be entitled
to a Retained Interest in certain Deposited Assets to the extent provided in the
related Prospectus Supplement. Each Sub-Administrative Agent will be reimbursed
by the Administrative Agent, if any, or otherwise the Trustee for certain
expenditures which it makes, generally to the same extent the Administrative
Agent or Trustee, as applicable, would be reimbursed under the terms of the
Trust Agreement relating to such Series. See "--RETAINED INTEREST;
ADMINISTRATIVE AGENT COMPENSATION AND PAYMENT OF EXPENSES."
The Administrative Agent or Trustee, as applicable, may require any Sub-
Administrative Agent to agree to indemnify the Administrative Agent or Trustee,
as applicable, for any liability or obligation sustained by the Administrative
Agent or Trustee, as applicable, in connection with any act or failure to act by
the Sub-Administrative Agent.
Realization upon Defaulted Deposited Assets. Unless otherwise specified in
the applicable Prospectus Supplement, as administrator with respect to the
Deposited Assets, the Trustee, on behalf of the Certificateholders of a given
Series (or and Class or Classes within such Series), will present claims under
each applicable Credit Support Instrument, and will take such reasonable steps
as are necessary to receive payment or to permit recovery thereunder with
respect to defaulted Deposited Assets. As set forth above, all collections by or
on behalf of the Trustee or Administrative Agent under any Credit Support
Instrument are to be deposited in the Certificate Account for the related Trust,
subject to withdrawal as described above.
Unless otherwise provided in the applicable Prospectus Supplement, if
recovery on a defaulted Deposited Asset under any related Credit Support
Instrument is not available, the Trustee will be obligated to follow or cause to
be followed such normal practices and procedures as it deems necessary or
advisable to realize upon the defaulted Deposited Asset, provided that, except
as otherwise expressly provided in the applicable Prospectus Supplement, it
shall not be required to expend or risk its own funds or otherwise incur
-35-
<PAGE>
personal financial liability. If the proceeds of any liquidation of the
defaulted Deposited Asset are less than the sum of (i) the outstanding principal
balance of the defaulted Deposited Asset, (ii) interest accrued thereon at the
applicable interest rate and (iii) the aggregate amount of expenses incurred by
the Administrative Agent and the Trustee, as applicable, in connection with such
proceedings to the extent reimbursable from the assets of the Trust under the
Trust Agreement, the Trust will realize a loss in the amount of such difference.
Only if and to the extent provided in the applicable Prospectus Supplement, the
Administrative Agent or Trustee, as so provided, will be entitled to withdraw or
cause to be withdrawn from the related Certificate Account out of the net
proceeds recovered on any defaulted Deposited Asset, prior to the distribution
of such proceeds to Certificateholders, amounts representing its normal
administrative compensation on the Deposited Asset, unreimbursed administrative
expenses incurred with respect to the Deposited Asset and any unreimbursed
advances of delinquent payments made with respect to the Deposited Asset.
RETAINED INTEREST; ADMINISTRATIVE AGENT COMPENSATION AND PAYMENT OF
EXPENSES
The Prospectus Supplement for a Series of Certificates will specify whether
there will be any Retained Interest in the Deposited Assets, and, if so, the
owner thereof. If so provided, the Retained Interest will be established on an
asset-by-asset basis and will be specified in an exhibit to the applicable
series supplement to the Trust Agreement. A Retained Interest in a Deposited
Asset represents a specified interest therein. Payments in respect of the
Retained Interest will be deducted from payments on the Deposited Assets as
received and, in general, will not be deposited in the applicable Certificate
Account or become a part of the related Trust. Unless otherwise provided in the
applicable Prospectus Supplement, any partial recovery of interest on a
Deposited Asset, after deduction of all applicable administration fees, will be
allocated between the Retained Interest (if any) and interest distributions to
Certificateholders on a pari passu basis.
The applicable Prospectus Supplement will specify the Administrative
Agent's, if any, and the Trustee's compensation, and the source, manner and
priority of payment thereof, with respect to a given Series of Certificates.
If and to the extent specified in the applicable Prospectus Supplement, in
addition to amounts payable to any Sub-Administrative Agent, the Administrative
Agent, if any, and otherwise the Trustee will pay from its compensation certain
expenses incurred in connection with its administration of the Deposited Assets,
including, without limitation, payment of the fees and disbursements of the
Trustee, if applicable, and independent accountants, payment of expenses
incurred in connection with distributions and reports to Certificateholders, and
payment of any other expenses described in the related Prospectus Supplement.
-36-
<PAGE>
ADVANCES IN RESPECT OF DELINQUENCIES
Unless otherwise specified in the applicable Prospectus Supplement, the
Administrative Agent, if any, specified therein will have no obligation to make
any advances with respect to collections on the Deposited Assets or in favor of
the Certificateholders of the related Series of Certificates. However, to the
extent provided in the applicable Prospectus Supplement, any such Administrative
Agent will advance on or before each Distribution Date its own funds or funds
held in the Certificate Account for such Series that are not part of the funds
available for distribution for such Distribution Date, in an amount equal to the
aggregate of payments of principal, premium (if any) and interest (net of
related administration fees and any Retained Interest) with respect to the
Deposited Assets that were due during the related Collection Period and were
delinquent on the related Determination Date, subject to (i) any such
Administrative Agent's good faith determination that such advances will be
reimbursable from Related Proceeds (as defined below) and (ii) such other
conditions as may be specified in the Prospectus Supplement.
Advances are intended to maintain a regular flow of scheduled interest,
premium (if any) and principal payments to holders of the Class or Classes of
Certificates entitled thereto, rather than to guarantee or insure against
losses. Unless otherwise provided in the related Prospectus Supplement, advances
of an Administrative Agent's funds, if any, will be reimbursable only out of
related recoveries on the Deposited Assets (and amounts received under any form
of Credit Support) for such Series with respect to which such advances were made
(as to any Deposited Assets, "Related Proceeds"); provided, however, that any
such advance will be reimbursable from any amounts in the Certificate Account
for such Series to the extent that such Administrative Agent shall determine, in
its sole judgment, that such advance (a "Nonrecoverable Advance") is not
ultimately recoverable from Related Proceeds. If advances have been made by such
Administrative Agent from excess funds in the Certificate Account for any
Series, such Administrative Agent will replace such funds in such Certificate
Account on any future Distribution Date to the extent that funds in such
Certificate Account on such Distribution Date are less than payments required to
be made to Certificateholders on such date. If so specified in the related
Prospectus Supplement, the obligations, if any, of an Administrative Agent to
make advances may be secured by a cash advance reserve fund or a surety bond. If
applicable, information regarding the characteristics of, and the identity of
any obligor on, any such surety bond, will be set forth in the related
Prospectus Supplement.
CERTAIN MATTERS REGARDING THE ADMINISTRATIVE AGENT AND THE DEPOSITOR
An Administrative Agent, if any, for each Series of Certificates under the
Trust Agreement will be named in the related Prospectus Supplement. The entity
serving as Administrative Agent for any such Series may be the Trustee, the
Depositor, an affiliate of either thereof, or any third party and may have other
normal business relationships with the Trustee, the Depositor or their
affiliates.
The Trust Agreement will provide that an Administrative Agent may resign
from its obligations and duties under the Trust Agreement with respect to any
Series of Certificates
-37-
<PAGE>
only if such resignation, and the appointment of a successor, will not result in
a withdrawal or downgrading of the rating of any Class of Certificates of such
Series or upon a determination that its duties under the Trust Agreement with
respect to such Series are no longer permissible under applicable law. No such
resignation will become effective until the Trustee or a successor has assumed
the Administrative Agent's obligations and duties under the Trust Agreement with
respect to such Series.
The Trust Agreement will further provide that neither such an
Administrative Agent, the Depositor nor any director, officer, employee, or
agent or the Administrative Agent or the Depositor will incur any liability to
the related Trust or Certificateholders for any action taken, or for refraining
from taking any action, in good faith pursuant to the Trust Agreement or for
errors in judgment; provided, however, that none of the Administrative Agent,
the Depositor nor any such person will be protected against any liability that
would otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties thereunder or by reason of reckless
disregard of obligations and duties thereunder. The Trust Agreement will further
provide that, unless otherwise provided in the applicable series supplement
thereto, such an Administrative Agent, the Depositor and any director, officer,
employee or agent of the Administrative Agent or the Depositor will be entitled
to indemnification by the related Trust and will be held harmless against any
loss, liability or expense incurred in connection with any legal action relating
to the Trust Agreement or the Certificates, other than any loss, liability or
expense incurred by reason of willful misfeasance, bad faith or gross negligence
in the performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. Nothing contained in the Trust Agreement is
in any way intended to be construed as a waiver, release, or alteration of a
Certificateholder's rights against any person under the federal securities laws.
In addition, the Trust Agreement will provide that neither such an
Administrative Agent nor the Depositor will be under any obligation to appear
in, prosecute or defend any legal action which is not incidental to their
respective responsibilities under the Trust Agreement or which in its opinion
may involve it in any expense or liability. Each of such Administrative Agent or
the Depositor may, however, in its discretion undertake any such action which it
may deem necessary or desirable with respect to the Trust Agreement and the
rights and duties of the parties thereto and the interests of the
Certificateholders thereunder. The applicable Prospectus Supplement will
describe how such legal expenses and costs of such action and any liability
resulting therefrom will be allocated.
Any person into which an Administrative Agent may be merged or
consolidated, or any person resulting from any merger or consolidation to which
an Administrative Agent is a part, or any person succeeding to the business of
an Administrative Agent, will be the successor of the Administrative Agent under
the Trust Agreement with respect to the Certificates of any given Series.
ADMINISTRATIVE AGENT TERMINATION EVENTS; RIGHTS UPON ADMINISTRATIVE AGENT
TERMINATION EVENT
Unless otherwise provided in the related Prospectus Supplement,
"Administrative Agent Termination Events" under the Trust Agreement with respect
to any given Series of
-38-
<PAGE>
Certificates will consist of the following: (i) any failure by an Administrative
Agent to remit to the Trustee any funds in respect of collections on the
Deposited Assets and Credit Support, if any, as required under the Trust
Agreement, that continues unremedied for five days after the giving of written
notice of such failure to the Administrative Agent by the Trustee or the
Depositor, or to the Administrative Agent, the Depositor and the Trustee by the
holders of such Certificates evidencing not less than 25% of the Voting Rights
(as defined below); (ii) any failure by an Administrative Agent duly to observe
or perform in any material respect any of its other covenants or obligations
under the Trust Agreement with respect to such Series which continues unremedied
for thirty days after the giving of written notice of such failure to the
Administrative Agent by the Trustee or the Depositor, or to the Administrative
Agent, the Depositor and the Trustee by the holders of such Certificates
evidencing not less than 25% of the Voting Rights; and (iii) certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings and certain actions by or on behalf of an Administrative
Agent indicating its insolvency or inability to pay its obligations. Any
additional Administrative Agent Termination Events with respect to any given
Series of Certificates will be set forth in the applicable Prospectus
Supplement. In addition, the applicable Prospectus Supplement and the related
series supplement to the Trust Agreement will specify as to each matter
requiring the vote of holders of Certificates of a Class or group of Classes
within a given Series, the circumstances and manner in which the Required
Percentage (as defined below) applicable to each such matter is calculated.
"Required Percentage" means, with respect to any matter requiring a vote of
holders of Certificates of a given Series, the specified percentage (computed on
the basis of outstanding Certificate Principal Balance or Notional Amount, as
applicable) of Certificates of a designated Class or group of Classes within
such Series (either voting as separate classes or as a single class) applicable
to such matter, all as specified in the applicable Prospectus Supplement and the
related series supplement to the Trust Agreement. "Voting Rights" evidenced by
any Certificate will be the portion of the voting rights of all the Certificates
in the related Series allocated in the manner described in the related
Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, so long
as an Administrative Agent Termination Event under the Trust Agreement with
respect to a given Series of Certificates remains unremedied, the Depositor or
the Trustee may, and at the direction of holders of such Certificates evidencing
not less than the "Required Percentage--Administrative Agent Termination" of the
Voting Rights, the Trustee will, terminate all the rights and obligations of
such Administrative Agent under the Trust Agreement relating to the applicable
Trust and in and to the related Deposited Assets (other than any Retained
Interest of such Administrative Agent), whereupon the Trustee will succeed to
all the responsibilities, duties and liabilities of such Administrative Agent
under the Trust Agreement with respect to such Series (except that if the
Trustee is prohibited by law from obligating itself to make advances regarding
delinquent Deposited Assets, then the Trustee will not be so obligated) and will
be entitled to similar compensation arrangements. In the event that the Trustee
is unwilling or unable to act, it may or, at the written request of the holders
of such Certificates evidencing not less than the "Required Percentage--
Administrative Agent Termination" of the Voting Rights, it will appoint, or
petition a court of competent jurisdiction for the appointment of, an
administration agent acceptable to the
-39-
<PAGE>
Rating Agency with a net worth at the time of such appointment of at least
$15,000,000 to act as successor to such Administrative Agent under the Trust
Agreement with respect to such Series. Pending such appointment, the Trustee is
obligated to act in such capacity (except that if the Trustee is prohibited by
law from obligating itself to make advances regarding delinquent Deposited
Assets, then the Trustee will not be so obligated). The Trustee and any such
successor may agree upon the compensation be paid to such successor, which in no
event may be greater than the compensation payable to such Administrative Agent
under the Trust Agreement with respect to such Series.
No Certificateholder will have the right under the Trust Agreement to
institute any proceeding with respect thereto unless such holder previously
has given to the Trustee written notice of breach and unless the holders of
Certificates evidencing not less than the "Required Percentage--Remedies" of
the Voting Rights have made written request upon the Trustee to institute such
proceeding in its own name as Trustee thereunder and have offered to the Trustee
reasonable indemnity, and the Trustee for fifteen days has neglected or refused
to institute any such proceeding. The Trustee, however, is under no obligation
to exercise any of the trusts or powers vested in it by the Trust Agreement or
to make any investigation of matters arising thereunder or to institute, conduct
or defend any litigation thereunder or in relation thereto at the request, order
or direction of any of the holders of Certificates covered by the Trust
Agreement, unless such Certificateholders have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may be
incurred therein or thereby.
MODIFICATION AND WAIVER
Unless otherwise specified in the applicable Prospectus Supplement, the
Trust Agreement for each Series of Certificates may be amended by the Depositor
and the Trustee with respect to such Series, without notice to or consent of the
Certificateholders, for certain purposes including (i) to cure any ambiguity,
(ii) to correct or supplement any provision therein which may be inconsistent
with any other provision therein or in the Prospectus Supplement, (iii) to add
or supplement any Credit Support for the benefit of any Certificateholders
(provided that if any such addition affects any series or class of
Certificateholders differently than any other series or class of
Certificateholders, then such addition will not, as evidenced by an opinion of
counsel, have a material adverse effect on the interests of any affected series
or class of Certificateholders), (iv) to add to the covenants, restrictions or
obligations of the Depositor, the Administrative Agent, if any, or the Trustee
for the benefit of the Certificateholders, (v) to add, change or eliminate any
other provisions with respect to matters or questions arising under such Trust
Agreement so long as (x) any such addition, change or elimination will not, as
evidenced by an opinion of counsel, affect the tax status of the Trust or result
in a sale or exchange of any Certificate for tax purposes and (y) the Trustee
has received written confirmation from each Rating Agency rating such
Certificates that such amendment will not cause such Rating Agency to reduce
or withdraw the then current rating thereof, or (vi) to comply with any
requirements imposed by the Code. Without limiting the generality of the
foregoing, unless otherwise specified in the applicable Prospectus Supplement,
the Trust Agreement may also be modified or amended from time to time by the
Depositor, and the Trustee, with the consent
-40-
<PAGE>
of the holders of Certificates evidencing not less than the "Required
Percentage--Amendment" of the Voting Rights of those Certificates that are
materially adversely affected by such modification or amendment for the purpose
of adding any provision to or changing in any manner or eliminating any
provision of the Trust Agreement or of modifying in any manner the rights of
such Certificateholders; provided, however, that in the event such modification
or amendment would materially adversely affect the rating of any Series or Class
by each Rating Agency, the "Required Percentage--Amendment" specified in the
related series supplement to the Trust Agreement shall include an additional
specified percentage of the Certificates of such Series or Class.
Except as otherwise set forth in the applicable Prospectus Supplement, no
such modification or amendment may, however, (i) reduce in any manner the amount
of or alter the timing of, distributions or payments which are required to be
made on any Certificate without the consent of the holder of such Certificate or
(ii) reduce the aforesaid Required Percentage of Voting Rights required for the
consent to any such amendment without the consent of the holders of all
Certificates covered by the Trust Agreement then outstanding.
Unless otherwise specified in the applicable Prospectus Supplement, holders
of Certificates evidencing not less than the "Required Percentage--Waiver" of
the Voting Rights of a given Series may, on behalf of all Certificateholders of
that Series, (i) waive, insofar as that Series is concerned, compliance by the
Depositor, the Trustee or the Administrative Agent, if any, with certain
restrictive provisions, if any, of the Trust Agreement before the time for such
compliance and (ii) waive any past default under the Trust Agreement with
respect to Certificates of that Series, except a default in the failure to
distribute amounts received as principal of (and premium, if any) or any
interest on any such Certificate and except a default in respect of a covenant
or provision the modification or amendment of which would require the consent of
the holder of each outstanding Certificate affected thereby.
REPORTS TO CERTIFICATEHOLDERS; NOTICES
Reports to Certificateholders. Unless otherwise provided in the applicable
Prospectus Supplement, with each distribution to Certificateholders of any Class
of Certificates of a given Series, the Administrative Agent or the Trustee, as
provided in the related Prospectus Supplement, will forward or cause to be
forwarded to each such Certificateholder, to the Depositor and to such other
parties as may be specified in the Trust Agreement, a statement setting forth:
(i) the amount of such distribution to Certificateholders of such
Class allocable to principal of or interest or premium, if any, on the
Certificates of such Class; and the amount of aggregate unpaid interest as
of such Distribution Date;
(ii) in the case of Certificates with a variable Pass-Through Rate,
the Pass-Through Rate applicable to such Distribution Date, as calculated
in accordance with the method specified herein and in the related
Prospectus Supplement;
-41-
<PAGE>
(iii) the amount of compensation received by the Administrative
Agent, if any, and the Trustee for the period relating to such Distribution
Date, and such other customary information as the Administrative Agent, if
any, or otherwise the Trustee deems necessary or desirable to enable
Certificateholders to prepare their tax returns;
(iv) if the Prospectus Supplement provides for advances, the
aggregate amount of advances included in such distribution, and the
aggregate amount of unreimbursed advances at the close of business on such
Distribution Date;
(v) the aggregate stated principal amount or, if applicable,
notional principal amount of the Deposited Assets and the current interest
rate thereon at the close of business on such Distribution Date;
(vi) the aggregate Certificate Principal Balance or aggregate
Notional Amount, if applicable, of each Class of Certificates (including
any Class of Certificates not offered hereby) at the close of business on
such Distribution Date, separately identifying any reduction in such
aggregate Certificate Principal Balance or aggregate Notional Amount due
to the allocation of any Realized Losses or otherwise; and
(vii) as to any Series (or Class within such Series) for which
Credit Support has been obtained, the amount of coverage of each element
of Credit Support included therein as of the close of business on such
Distribution Date.
In the case of information furnished pursuant to subclauses (i) and (iii)
above, the amounts shall be expressed as a U.S. dollar amount per minimum
denomination of Certificates or for such other specified portion thereof.
Within a reasonable period of time after the end of each calendar year, the
Administrative Agent or the Trustee, as provided in the related Prospectus
Supplement, shall furnish to each person who at any time during the calendar
year was a Certificateholder a statement containing the information set forth in
subclauses (i) and (iii) above, aggregated for such calendar year or the
applicable portion thereof during which such person was a Certificateholder.
Such obligation of the Administrative Agent or the Trustee, as applicable, shall
be deemed to have been satisfied to the extent that substantially comparable
information shall be provided by the Administrative Agent or the Trustee, as
applicable, pursuant to any requirements of the Code as are from time to time in
effect.
Notices. Unless otherwise provided in the applicable Prospectus
Supplement, any notice required to be given to a holder of a Registered
Certificate will be mailed to the last address of such holder set forth in the
applicable Certificate Register.
EVIDENCE AS TO COMPLIANCE
Unless otherwise specified in the applicable Prospectus Supplement, the
Trust Agreement will provide that commencing on a certain date and on or before
a specified date in each year thereafter, a firm of independent public
accountants will furnish a statement to the Trustee to the effect that such firm
has examined certain documents and records relating
-42-
<PAGE>
to the administration of the Deposited Assets during the related 12-month period
(or, in the case of the first such report, the period ending on or before the
date specified in the Prospectus Supplement, which date shall not be more than
one year after the related Original Issue Date) and that, on the basis of
certain agreed upon procedures considered appropriate under the circumstances,
such firm is of the opinion that such administration was conducted in compliance
with the terms of the Trust Agreement, except for such exceptions as such firm
shall believe to be immaterial and such other exceptions and qualifications as
shall be set forth in such report.
The Trust Agreement will also provide for delivery to the Depositor,
the Administrative Agent, if any, and the Trustee on behalf of the
Certificateholders, on or before a specified date in each year, of an annual
statement signed by two officers of the Trustee to the effect that the Trustee
has fulfilled its obligations under the Trust Agreement throughout the preceding
year with respect to any Series of Certificates.
Copies of the annual accountants' statement, if any, and the statement of
officers of the Trustee may be obtained by Certificateholders without charge
upon written request to either the Administrative Agent or the Trustee, as
applicable, at the address set forth in the related Prospectus Supplement.
REPLACEMENT CERTIFICATES
Unless otherwise provided in the applicable Prospectus Supplement, if a
Certificate is mutilated, destroyed, lost or stolen, it may be replaced at the
corporate trust office or agency of the applicable Trustee at the location
specified in the applicable Prospectus Supplement, upon payment by the holder of
such expenses as may be incurred by the applicable Trustee in connection
therewith and the furnishing of such evidence and indemnity as such Trustee may
require. Mutilated Certificates must be surrendered before new Certificates
will be issued.
TERMINATION
The obligations created by the Trust Agreement for each Series of
Certificates will terminate upon the payment to Certificateholders of that
Series of all amounts held in the related Certificate Account or by an
Administrative Agent, if any, and required to be paid to them pursuant to the
Trust Agreement following the earlier of (i) the final payment or other
liquidation of the last Deposited Asset subject thereto or the disposition of
all property acquired upon foreclosure or liquidation of any such Deposited
Asset and (ii) the purchase of all the assets of the Trust by the party entitled
to effect such termination, under the circumstances and in the manner set forth
in the related Prospectus Supplement. In no event, however, will any trust
created by the Trust Agreement continue beyond the respective date specified in
the related Prospectus Supplement. Written notice of termination of the
obligations with respect to the related Series of Certificates under the Trust
Agreement will be provided as set forth above under "--REPORTS TO
CERTIFICATEHOLDERS; NOTICES--NOTICES," and the final distribution will be made
only
-43-
<PAGE>
upon surrender and cancellation of the Certificates at an office or agency
appointed by the Trustee which will be specified in the notice of termination.
Any such purchase of Deposited Assets and property acquired in respect of
Deposited Assets evidenced by a Series of Certificates shall be made at a price
approximately equal to the aggregate fair market value of all the assets in the
Trust (as determined by the Trustee, the Administrative Agent, if any, and, if
different than both such persons, the person entitled to effect such
termination), in each case taking into account accrued interest at the
applicable interest rate to the first day of the month following such purchase
or, to the extent specified in the applicable Prospectus Supplement, a specified
price as determined therein (such price, a "Purchase Price"). The exercise of
such right will effect early retirement of the Certificates of that Series, but
the right of the person entitled to effect such termination is subject to (i)
the ability of the Trustee to pay the Certificateholders all amounts due under
the related Trust Agreement, as specified in the related Prospectus Supplement
and (ii) the aggregate principal balance of the outstanding Deposited Assets for
such Series at the time of purchase being less than the percentage of the
aggregate principal balance of the Deposited Assets at the Cut-off Date for that
Series specified in the related Prospectus Supplement.
DUTIES OF THE TRUSTEE
The Trustee makes no representations as to the validity or sufficiency of
the Trust Agreement, the Certificates of any Series or any Deposited Asset or
related document and is not accountable for the use or application by or on
behalf of any Administrative Agent of any funds paid to such Administrative
Agent or its designee in respect of such Certificates or the Deposited Assets,
or deposited into or withdrawn from the related Certificate Account or any other
account by or on behalf of such Administrative Agent. If no Administrative
Agent Termination Event has occurred and is continuing with respect to any given
Series, the Trustee is required to perform only those duties specifically
required under the Trust Agreement with respect to such Series. However, upon
receipt of the various certificates, reports or other instruments required to be
furnished to it, the Trustee is required to examine such documents and to
determine whether they conform to the applicable requirements of the Trust
Agreement.
THE TRUSTEE
The Trustee for any given Series of Certificates under the Trust Agreement
will be named in the related Prospectus Supplement. The commercial bank,
national banking association or trust company serving as Trustee will be
unaffiliated with, but may have normal banking relationships with, the
Depositor, any Administrative Agent and their respective affiliates.
PLAN OF DISTRIBUTION
Certificates may be offered in any of three ways: (i) through underwriters
or dealers; (ii) directly to one or more purchasers; or (iii) through agents.
The applicable Prospectus Supplement will set forth the terms of the offering of
any Series of Certificates, which may
-44-
<PAGE>
include the names of any underwriters, or initial purchasers, the purchase price
of such Certificates and the proceeds to the Depositor from such sale, any
underwriting discounts and other items constituting underwriters' compensation,
any initial public offering price, any discounts or concessions allowed or
reallowed or paid to dealers, any securities exchanges on which such
Certificates may be listed and the place and time of delivery of the
Certificates to be offered thereby.
If underwriters are used in the sale, Certificates will be acquired by the
underwriters for their own account and may be resold from time to time in one or
more transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale. Such Certificates may
be offered to the public either through underwriting syndicates represented by
managing underwriters or by underwriters without a syndicate. Such managing
underwriters or underwriters in the United States may include Morgan Keegan &
Company, Inc., an affiliate of the Depositor. Unless otherwise set forth in the
applicable Prospectus Supplement, the obligations of the underwriters to
purchase such Certificates will be subject to certain conditions precedent, and
the underwriters will be obligated to purchase all such Certificates if any of
such Certificates are purchased. Any initial public offering price and any
discounts or concessions allowed or reallowed or paid to dealers may be changed
from time to time.
Certificates may also be sold through agents designated by the Depositor
from time to time. Any agent involved in the offer or sale of Certificates will
be named, and any commissions payable by the Depositor to such agent will be set
forth, in the applicable Prospectus Supplement. Unless otherwise indicated in
the applicable Prospectus Supplement, any such agent will act on a best efforts
basis for the period of its appointment.
If so indicated in the applicable Prospectus Supplement, the Depositor will
authorize agents, underwriters or dealers to solicit offers by certain specified
institutions to purchase Certificates at the public offering price described in
such Prospectus Supplement pursuant to delayed delivery contracts providing for
payment and delivery on a future date specified in such Prospectus Supplement.
Such contracts will be subject only to those conditions set forth in the
applicable Prospectus Supplement and such Prospectus Supplement will set forth
the commissions payable for solicitation of such contracts.
Any underwriters, dealers or agents participating in the distribution of
Certificates may be deemed to be underwriters and any discounts or commissions
received by them on the sale or resale of Certificates may be deemed to be
underwriting discounts and commissions under the Securities Act. Agents and
underwriters may be entitled under agreements entered into with the Depositor to
indemnification by the Depositor against certain civil liabilities, including
liabilities under the Securities Act, or to contribution with respect to
payments that the agents or underwriters may be required to make in respect
thereof. Agents and underwriters may be customers of, engage in transactions
with, or perform services for, the Depositor or its affiliates in the ordinary
course of business.
Morgan Keegan & Company, Inc. is an affiliate of the Depositor. Morgan
Keegan & Company, Inc.'s participation, if any, in the offer and sale of
Certificates complies with the
-45-
<PAGE>
requirements of Schedule E of the By-Laws of the National Association of
Securities Dealers, Inc. regarding underwriting securities of an affiliate.
If and to the extent required by applicable law or regulation, this
Prospectus will be used by Morgan Keegan & Company, Inc., an affiliate of the
Depositor, in connection with offers and sales related to market-making
transactions in the Offered Certificates previously offered hereunder in
transactions in which Morgan Keegan & Company, Inc. acts as principal. Morgan
Keegan & Company, Inc. may also act as agent in such transactions. Sales may be
made at negotiated prices determined at the time of sale.
As to each Series of Certificates, only those Classes rated in one of the
investment grade rating categories by a Rating Agency will be offered hereby.
Any unrated Classes or Classes rated below investment grade may be retained by
the Depositor or sold at any time to one or more purchasers.
LEGAL OPINIONS
Certain legal matters with respect to the Certificates, including federal
income tax matters, will be passed upon for the Depositor and the underwriters
by Chapman and Cutler, Chicago, Illinois or other counsel identified in the
applicable Prospectus Supplement.
-46-
<PAGE>
INDEX OF TERMS
<TABLE>
<CAPTION>
Term Page
<S> <C>
Administration Fee...................................................... 9
Administrative Agent.................................................... 1
AID-Guaranteed Underlying Securities.................................... 1, 26
Base Rate............................................................... 16
Calculation Agent....................................................... 17
CD Rate Certificate..................................................... 16
CD Rate Determination Date.............................................. 18
Cede.................................................................... 3
Certificate Account..................................................... 32
Certificate Principal Balance........................................... 23
Certificateholders...................................................... 1
Certificates............................................................ 1
Class................................................................... 1
Commercial Paper Rate Certificate....................................... 16
Commercial Paper Rate Determination Date................................ 19
Commission.............................................................. 2
Concentrated Underlying Security........................................ 26
Credit Support.......................................................... 1
Credit Support Instruments.............................................. 34
Cut-off Date............................................................ 33
Definitive Certificate.................................................. 23
Deposited Assets........................................................ 1, 29
Depositor............................................................... 1
Depository.............................................................. 23
Determination Date...................................................... 14
Distribution Date....................................................... 2
Exchange Act............................................................ 2
Fannie Mae.............................................................. 26
Federal Funds Rate Certificate.......................................... 16
Federal Funds Rate Determination Date................................... 20
FFCB.................................................................... 26
FHLB.................................................................... 26
Fiscal Agent............................................................ 27
Fixed Pass-Through Rate................................................. 13
Fixed Rate Certificates................................................. 15
Floating Rate Certificates.............................................. 16
Freddie Mac............................................................. 26
Global Security......................................................... 1
GSE..................................................................... 26
GSE Issuer.............................................................. 26
GTCs.................................................................... 1
Interest Reset Date..................................................... 17
Interest Reset Period................................................... 17
</TABLE>
-47-
<PAGE>
<TABLE>
<S> <C>
Letter of Credit.......................................................... 31
Letter of Credit Bank..................................................... 31
LIBOR Certificate......................................................... 16
LIBOR Determination Date.................................................. 21
Maximum Pass-Through Rate................................................. 16
Minimum Pass-Through Rate................................................. 17
Nonrecoverable Advance.................................................... 37
Original Issue Date....................................................... 12
Outstanding Debt Securities............................................... 28
participants.............................................................. 24
Pass-Through Rate......................................................... 13
Prospectus Supplement..................................................... 1
Purchase Price............................................................ 44
Rating Agency............................................................. 7
Realized Losses........................................................... 23
REFCORP................................................................... 26
Registered Certificates................................................... 1
Registration Statement.................................................... 2
Related Proceeds.......................................................... 37
Reserve Account........................................................... 32
Retained Interest......................................................... 10
Sallie Mae................................................................ 26
Securities Act............................................................ 2
Series.................................................................... 1
Strip Certificates........................................................ 13
Stripped Interest......................................................... 15
Sub-Administration Agreement.............................................. 35
Sub-Administrative Agent.................................................. 34
Surety.................................................................... 31
Surety Bond............................................................... 31
Treasury bills............................................................ 22
Treasury Rate Certificate................................................. 16
Treasury Securities....................................................... 26
Trust Agreement........................................................... 1
Trustee................................................................... 1
Trustee's Fee............................................................. 9
TVA....................................................................... 26
Underlying Securities.....................................................1, 26
Underlying Securities Interest Accrual Periods............................ 28
Underlying Securities Payment Dates....................................... 28
Underlying Securities Rate................................................ 28
Underlying Security Events of Default..................................... 28
Underlying Security Prospectus............................................ 26
Variable Pass-Through Rate................................................ 13
</TABLE>
-48-
<PAGE>
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or make any representations not contained in this Prospectus
Supplement and the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Depositor or by the Underwriter. This Prospectus Supplement and the Prospectus
do not constitute an offer to sell, or a solicitation of an offer to buy, the
securities offered hereby to anyone in any jurisdiction in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make any such offer or solicitation. Neither the delivery of
this Prospectus Supplement and the Prospectus nor any sale made hereunder shall,
under any circumstances, create an implication that information herein or
therein is correct as of any time since the date of this Prospectus Supplement.
-----------------
Table of Contents
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary................................................................... S-3
Risk Factors.............................................................. S-9
Formation of the Trust.................................................... S-9
Description of the Deposited Assets....................................... S-10
Description of the Certificates........................................... S-11
Description of the Trust Agreement........................................ S-16
Federal Income Tax Consequences........................................... S-20
State and Other Tax Consequences.......................................... S-28
ERISA Considerations...................................................... S-28
Plan of Distribution...................................................... S-30
Ratings................................................................... S-31
Legal Opinions............................................................ S-31
Index of Terms............................................................ S-32
Prospectus
Prospectus Supplement..................................................... 2
Available Information..................................................... 2
Incorporation of Certain Information by Reference......................... 3
Reports to Certificateholders............................................. 3
Risk Factors.............................................................. 6
The Depositor............................................................. 8
Use of Proceeds........................................................... 9
Formation of the Trust.................................................... 9
Maturity and Yield Considerations......................................... 10
Description of Certificates............................................... 12
Description of Deposited Assets and Credit Support........................ 26
Description of the Trust Agreement........................................ 33
Plan of Distribution...................................................... 45
Legal Opinions............................................................ 46
Index of Terms............................................................ 47
</TABLE>
-----------------
Until ___ days after the date of the Prospectus Supplement, all dealers
effecting transactions in the related Certificates, whether or not participating
in the distribution thereof, may be required to deliver this Prospectus and the
related Prospectus Supplement. This delivery requirement is in addition to the
obligation of dealers to deliver a Prospectus Supplement and Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
================================================================================
<PAGE>
===============================================================================
$15,000,000
Southpoint Structured
Assets, Inc.
Treasury Note-Backed Certificates,
Series 1996-1
$5,000,000 __% Class A Certificates
$5,000,000 __% Class B Certificates
$5,000,000 __% Class C Certificates
____________________
Prospectus Supplement
____________________
Morgan Keegan & Company, Inc.
November __, 1996
================================================================================
