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As filed with the Securities and Exchange Commission August 9, 1996
Registration No. 333-_____
________________________________________________________________________________
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SOUTHPOINT STRUCTURED ASSETS, INC.
(Exact name of registrant as specified in its charter)
Delaware 51-6503749
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
50 North Front Street
Memphis, Tennessee 38103
(901) 524-4100
(Address, including zip code, and telephone number, including area code, of
registrant's executive offices)
C. David Ramsey
Southpoint Structured Assets, Inc.
50 North Front Street
Memphis, Tennessee 38103
(901) 524-4100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
M. John Trofa, Esq.
Basil V. Godellas, Esq.
Chapman and Cutler
111 West Monroe
Chicago, Illinois 60603
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If the only Securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
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Proposed Proposed
Maximum Maximum
Title of each Class of Amount Offering Aggregate Amount of
Securities to be to be Price Per Offering Registration
Registered Registered Unit/(1)/ Price/(1)/ Fee
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<S> <C> <C> <C> <C>
Trust Certificates and Mortgage
Pass-Through Certificates $10,000,000 100% $10,000,000 $3,449
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</TABLE>
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(1) Estimated solely for purposes of calculating the registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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EXPLANATORY NOTE
This Registration Statement includes three different basic prospectuses
with corresponding forms of prospectus supplement for offering Series of
Certificates representing the entire beneficial ownership interest in various
trusts to be created from time to time, the assets of which will consist
primarily of a publicly issued, fixed income debt security or pool of such debt
securities together with certain other assets as described herein deposited in
trust by Southpoint Structured Assets, Inc. Following this Explanatory Note in
sequential order are the basic prospectus and form of prospectus supplement for
trusts consisting of (i) obligations of U.S. corporations, banking organizations
and insurance companies subject to the informational requirements of the
Securities Exchange Act of 1934, (ii) obligations of the United States of
America and U.S. government sponsored entities and (iii) mortgage pass-through
certificates issued by the Government National Mortgage Association, Federal
Home Loan Mortgage Corporation, Federal National Mortgage Association or other
entities engaged in the business of selling beneficial interests in pools of
mortgage loans.
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Subject to Completion Dated __________, 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 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 a trust (the "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 (i) in the secondary market (either directly or through an affiliate
of the Depositor), and will not be acquired from the issuer thereof as part of
any distribution by or agreement with such issuer, and/or (ii) from the
underwriter who purchased the Underlying Securities in connection with the
initial issuance thereof, provided that such Underwriter's participation in such
offering was no greater than 10%. The Underlying Securities discussed herein
and in the related Prospectus Supplement represent the obligation of one or more
corporations, banking organizations or insurance companies organized under the
laws of the United States or any State, which are subject to the information
requirements of the Securities Exchange Act of 1934, as amended, and which, in
accordance therewith, file reports and other information with the Securities
Exchange Commission. 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 obligation 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 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.
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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.
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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
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.
<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 exchange, whether mandatory or optional, the 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 Commission's Regional Offices at Seven World Trade
Center, New York, New York 10048, and Northwestern Atrium Center, 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.
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.
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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.
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TABLE OF CONTENTS
<TABLE>
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HEADING PAGE
PROSPECTUS SUPPLEMENT............................................. i
AVAILABLE INFORMATION............................................. i
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE................. ii
REPORTS TO CERTIFICATEHOLDERS..................................... ii
RISK FACTORS...................................................... 1
THE DEPOSITOR..................................................... 3
USE OF PROCEEDS................................................... 3
FORMATION OF THE TRUST............................................ 3
MATURITY AND YIELD CONSIDERATIONS................................. 5
DESCRIPTION OF CERTIFICATES..................... ................ 6
General........................................................ 7
Distributions.................................................. 9
Interest on the Certificates................................... 10
Principal of the Certificates.................................. 17
Optional Redemption of Certificates............................ 18
Optional Exchange.............................................. 18
Global Securities.............................................. 20
DESCRIPTION OF DEPOSITED ASSETS AND CREDIT SUPPORT................ 22
General........................................................ 22
Underlying Securities Indenture................................ 23
Principal Economic Terms of Underlying Securities.............. 26
Publicly Available Information................................. 27
Other Deposited Assets......................................... 27
Credit Support................................................. 28
Collections.................................................... 30
</TABLE>
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Description of the Trust Agreement................................ 30
General........................................................ 30
Assignment of Deposited Assets................................. 31
Collection and Other Administrative Procedures................. 32
Retained Interest; Administrative Agent Compensation
and Payment of Expenses...................................... 34
Advances in Respect of Delinquencies........................... 34
Certain Matters Regarding the Administrative Agent
and the Depositor............................................ 35
Administrative Agent Termination Events; Rights
Upon Administrative Agent Termination Event.................. 36
Modification and Waiver........................................ 38
Reports to Certificateholders; Notices......................... 39
Evidence as to Compliance...................................... 40
Replacement Certificates....................................... 41
Termination.................................................... 41
Duties of the Trustee.......................................... 42
The Trustee.................................................... 42
Plan of Distribution.............................................. 42
Legal Opinions.................................................... 44
</TABLE>
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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. The Certificates will not represent a
recourse obligation of or interest in the Depositor or any of its affiliates.
Unless otherwise specified in the applicable Prospectus Supplement, 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 a 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.
Credit Support; 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."
<PAGE>
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 (including acceleration resulting from any default or rescheduling
resulting from the bankruptcy or similar proceeding with respect to a Underlying
Securities Issuer) 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."
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 "Certain Federal
Income Tax Considerations" in the related Prospectus Supplement.
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 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
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<PAGE>
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 Underlying Securities 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).
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.
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
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<PAGE>
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 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."
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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 a corporate issuer exercises
any right of redemption in respect of its securities. 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 the Underlying Security Issuer will be repaid prior
to its stated maturity.
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." If a Underlying Securities Issuer becomes
subject to a bankruptcy proceeding, the timing and amount of payments with
respect to both interest and principal may be materially and adversely affected.
A variety of factors influence the performance of private debt issuers and
correspondingly may affect a Underlying Securities Issuer's ability to satisfy
its obligations under the Underlying Securities, including the company's
operating and financial condition, leverage, and social, geographic, legal and
economic factors.
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
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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 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
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<PAGE>
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 8K 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 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 within 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
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will be distributable and the related Record Dates, if any; (viii) the option,
if any, of any Certificateholder of such Series or Class to withdraw a portion
of the assets of the Trust in exchange for surrendering such Certificateholder's
Certificate or 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 entitled 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.
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.
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<PAGE>
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 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
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(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
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 as 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 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. 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
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Certificates") will bear interest, on the outstanding Certificate Principal
Balance (or Notional Amount, if applicable), from its Original Issue Date 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 Rates 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 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
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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 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).
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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 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.
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(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:
D X 360 X 100
Money Market Yield = -------------
360 - (D X M)
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.
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(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 as 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 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
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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).
(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
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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 or, if such a 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.
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
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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."
OPTIONAL EXCHANGE
If a holder may exchange Certificates of any given Series for a pro rata
portion of the Deposited Assets, the applicable Prospectus Supplement will
designate such Series as an "Exchangeable Series." The terms upon which a holder
may exchange Certificates of any Exchangeable Series for a pro rata portion of
the Deposited Assets of the related Trust will be specified in the related
Prospectus Supplement; provided that any right of exchange shall be exercisable
only to the extent that such exchange would not be inconsistent with the
Depositor's and such Trust'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. Such
terms may relate to, but are not limited to, the following:
(a) a requirement that the exchanging holder tender to the Trustee
Certificates of each Class within such Exchangeable Series;
(b) a minimum Certificate Principal Balance or Notional Amount, as
applicable, with respect to each Certificate being tendered for exchange;
(c) a requirement that the Certificate Principal Balance or Notional
Amount, as applicable, of each Certificate tendered for exchange be an
integral multiple of an amount specified in the Prospectus Supplement;
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(d) specified dates during which a holder may effect such an exchange
(each, an "Optional Exchange Date");
(e) limitations on the right of an exchanging holder to receive any
benefit upon exchange from any Credit Support or other non-Underlying
Securities deposited in the applicable Trust; and
(f) adjustments to the value of the proceeds of any exchange based
upon the required prepayment of future expense allocations and the
establishment of a reserve for any anticipated Extraordinary Trust
Expenses.
Unless otherwise specified in the related Prospectus Supplement, in order
for a Certificate of a given Exchangeable Series (or Class within such
Exchangeable Series) to be exchanged by the applicable Certificateholder, the
Trustee for such Certificate must receive, at least 30 (or such shorter period
acceptable to the Trustee) but not more than 45 days prior to an Optional
Exchange Date (i) such Certificate with the form entitled "Option to Elect
Exchange" on the reverse thereof duly completed, or (ii) in the case of
Registered Certificates, a telegram, telex, facsimile transmission or letter
from a member of a national securities exchange or the National Association of
Securities Dealers, Inc., the Depository (in accordance with its normal
procedures) or a commercial bank or trust company in the United States setting
forth the name of the holder of such Registered Certificate, the Certificate
Principal Balance or Notional Amount of such Registered Certificate to be
exchanged, the certificate number or a description of the tenor and terms of
such Registration Certificate, a statement that the option to elect exchange is
being exercised thereby and a guarantee that the Registered Certificate to be
exchanged with the form entitled "Option to Elect Exchange" on the reverse of
the Registered Certificate duly completed will be received by such Trustee not
later than five Business Days after the date of such telegram, telex, facsimile
transmission or letter. If the procedure described in clause (ii) of the
preceding sentence is followed, then such Registered Certificate and form duly
completed must be received by such Trustee by such fifth Business Day. Any
tender of a Certificate by the holder for exchange shall be irrevocable. The
exchange option may be exercised by the holder of a Certificate for less than
the entire Certificate Principal Balance of such Certificate provided that the
Certificate Principal Balance or Notional Amount, as applicable, of such
Certificate remaining outstanding after redemption is an authorized denomination
and all other exchange requirements set forth in the related Prospectus
Supplement are satisfied. Upon such partial exchange, such Certificate shall be
cancelled and a new Certificate or Certificates for the remaining Certificate
Principal Balance thereof shall be issued (which, in the case of any Registered
Certificate, shall be in the name of the holder of such exchanged Certificate).
Unless otherwise specified in the applicable Prospectus Supplement, because
initially and until Definitive Certificates are issued each Certificate will be
represented by a Global Security, the Depository's nominee will be the
Certificateholder of such Certificate and therefore will be the only entity that
can exercise a right of exchange. In order to ensure that the Depository's
nominee will timely exercise a right of exchange with respect to a particular
Certificate, the beneficial owner of such Certificate must instruct the broker
or
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other direct or indirect participant through which it holds an interest in such
Certificate to notify the Depository of its desire to exercise a right of
exchange. Different firms have different cut-off times for accepting
instructions from their customers and, accordingly, each beneficial owner should
consult the broker or other direct or indirect participant through which it
holds an interest in a Certificate in order to ascertain the cut-off time by
which such an instruction must be given in order for timely notice to be
delivered to the Depository.
Unless otherwise provided in the applicable Prospectus Supplement, upon the
satisfaction of the foregoing conditions and any applicable conditions with
respect to the related Deposited Assets, as described in such Prospectus
Supplement, the applicable Certificateholder will be entitled to receive a
distribution of a pro rata share of the Deposited Assets related to the
Exchangeable Series (and Class within such Exchangeable Series) of the
Certificate being exchanged, in the manner and to the extent described in such
Prospectus Supplement. Alternatively, to the extent so specified in the
applicable Prospectus Supplement, the applicable Certificateholder, upon
satisfaction of such conditions, may direct the related Trustee to sell, on
behalf of such Certificateholder, such pro rata share of the Deposited Assets,
in which event the Certificateholder shall be entitled to receive the net
proceeds of such sale, less any costs and expenses incurred by such Trustee in
facilitating such sale, subject to any additional adjustments set forth in the
Prospectus Supplement.
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 registered form
and 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 be transferred except as a
whole by the Depository for 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
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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 registration 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 case 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 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 of 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
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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 participants.
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, of $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 of Certificates
being offered thereby to the extent not set forth or different from the
description set forth above.
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) (i) in the secondary market and/or (ii) from
an underwriter who purchased the Underlying Securities in connection with the
initial issuance thereof, provided that such underwriter's participation in such
offering was no greater than 10%, and assigned to a Trust as described in the
applicable Prospectus Supplement. The Underlying Securities will represent
direct obligations of one or more
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corporations, banking organizations or insurance companies organized under the
laws of the United States or any state, which are subject to the informational
requirements of the Exchange Act and which, in accordance therewith, file
reports and other information with the Commission (with respect to each
Underlying Security, a "Underlying Securities Issuer").
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
Prospectus and Underlying Security Indenture (as defined below).
UNDERLYING SECURITIES INDENTURE
General. Unless otherwise specified in the related Prospectus Supplement
each Underlying Security will have been issued pursuant to an agreement (each, a
"Underlying Securities Indenture") between the Underlying Securities Issuer and
a trustee (the "Underlying Securities Trustee"). Unless otherwise specified,
the Underlying Securities Indenture and the Underlying Securities Trustee will
be qualified under the Trust Indenture Act of 1939 (the "Trust Indenture Act")
and the Underlying Securities Indenture will contain certain provisions required
by the Trust Indenture Act.
Certain Covenants. Indentures generally contain covenants intended to
protect security holders against the occurrence or effects of certain specified
events, including restrictions limiting the issuer's, and in some cases any
subsidiary's, ability to: (i) consolidate, merge, or transfer or lease assets;
(ii) incur or suffer to exist any lien, charge, or encumbrance upon any of its
property or assets, or to incur, assume, guarantee or suffer to exist any
indebtedness for borrowed money if the payment of such indebtedness is secured
by the grant of such a lien; (iii) declare or pay any cash dividends, or make
any distributions on or in respect of, or purchase, redeem, exchange or
otherwise acquire or retire for value any capital stock or subordinated
indebtedness of the issuer or its subsidiaries, if any. An indenture may also
contain financial covenants which, among other things, require the maintenance
of certain financial ratios or the creation or maintenance of reserves. Subject
to certain exceptions, indentures typically may be amended or supplemented and
past defaults may be waived with the consent of the indenture trustee, the
consent of the holders of not less than a specified percentage of the
outstanding securities, or both.
The Underlying Securities Indenture related to one or more Underlying
Securities included in a Trust may include some, all or none of the foregoing
provisions or variations thereof or additional covenants not discussed herein.
To the extent that the Underlying Securities are investment grade debt they are
unlikely to contain significant restrictive covenants although certain non-
investment grade debt may not be subject to restrictive covenants either. There
can be no assurance that any such provision will protect the Trust as a holder
of the Underlying Securities against losses. The Prospectus Supplement used to
offer any Series of Certificates will describe material covenants in relation to
any
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Concentrated Underlying Security and, as applicable, will describe material
covenants which are common to any pool of Underlying Securities.
Events of Default. Indentures generally provide that any one of a number
of specified events will constitute an event of default with respect to the
securities issued thereunder. 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
(subject to any specified grace period); (ii) failure by the issuer to observe
or perform any covenant, agreement or condition contained in the securities or
the indenture which failure is materially adverse to security holders and
continues for a specified period after notice thereof is given to the issuer by
the indenture trustee or the holders of not less than a specified percentage of
the outstanding securities; (iii) failure by the issuer to make any required
payment of principal (and premium, if any) or interest with respect to certain
of the other outstanding debt obligations of the issuer or the acceleration by
or on behalf of the holders thereof of such securities; and (iv) certain events
of insolvency or bankruptcy with respect to the Underlying Securities Issuer.
Remedies. Indentures generally provide that upon the occurrence of an
event of default, the indenture trustee may, and upon the written request of the
holders of not less than a specified percentage of the outstanding securities
must, take such action as it may deem appropriate to protect and enforce the
rights of the security holders. Certain indentures provide that the indenture
trustee or a specified percentage of the holders of the outstanding securities
have the right to declare all or a portion of the principal and accrued interest
on the outstanding securities immediately due and payable upon the occurrence of
certain events of default, subject to the issuer's right to cure, if applicable.
Generally, an indenture will contain a provision entitling the trustee
thereunder to be indemnified by the security holders prior to proceeding to
exercise any right or power under such indenture with respect to such securities
at the request of such security holders. An indenture is also likely to limit a
security holder's right to institute certain actions or proceedings to pursue
any remedy under the indenture unless certain conditions are satisfied,
including consent of the indenture trustee, that the proceeding be brought for
the ratable benefit of all holders of the security, and/or the indenture
trustee, after being requested to institute a proceeding by the owners of at
least a specified minimum percentage of the securities, shall have refused or
neglected to comply with such request within a reasonable time.
Each Underlying Securities Indenture 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
Indenture with respect to any Concentrated Underlying Security ("Underlying
Security Events of Default") and applicable remedies with respect thereto. With
respect to any Trust comprised 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 a Underlying Security Event of Default occurs and the
Trustee as a holder of the Underlying Securities is entitled
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to vote or take such other action to declare the principal amount of a
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.
Subordination. As set forth in the applicable Prospectus Supplement,
certain of the Underlying Securities with respect to any Trust may be either
senior ("Senior Underlying Securities") or subordinated ("Subordinated
Underlying Securities") in right to payment to other existing or future
indebtedness of the Underlying Securities Issuer. With respect to Subordinated
Underlying Securities, to the extent of the subordination provisions of such
securities, and after the occurrence of certain events, security holders and
direct creditors whose claims are senior to Subordinated Underlying Securities,
if any, may be entitled to receive payment of the full amount due thereon before
the holders of any subordinated debt securities are entitled to receive payment
on account of the principal (and premium, if any) or any interest on such
securities. Consequently, the Trust as a holder of subordinated debt may suffer
a greater loss than if it held unsubordinated debt of the Underlying Securities
Issuer. There can be no assurance, however, that in the event of a bankruptcy
or similar proceeding the Trust as a holder of Senior Underlying Securities
would receive all payments in respect of such securities even if holders of
subordinated securities receive amounts in respect of such securities.
Reference is made to the Prospectus Supplement used to offer any Series of
Certificates for a description of any subordination provisions with respect to
any Concentrated Underlying Securities and the percentage of Senior Underlying
Securities and Subordinated Underlying Securities, if any, in a Trust comprised
of a pool of securities.
Secured Obligations. Certain of the Underlying Securities with respect to
any Trust may represent secured obligations of the Underlying Securities Issuer
("Secured Underlying Securities"). Generally, unless an event of default shall
have occurred, or with respect to certain collateral or as otherwise set forth
in the indenture pursuant to which such securities were offered and sold, an
issuer of secured obligations generally has the right to remain in possession
and retain exclusive control of the collateral securing a security and to
collect, invest and dispose of any income related to the collateral. The
indenture pursuant to which any secured indebtedness is issued may also contain
certain provisions for release, substitution or disposition of collateral under
certain circumstances with or without the consent of the indenture trustee or
upon the direction of not less than a specified percentage of the security
holders. The indenture pursuant to which any secured indebtedness is issued
will also provide for the disposition of the collateral upon the occurrence of
certain events of default with respect thereto. In the event of a default in
respect of any secured obligation, security holders may experience a delay in
payments on account of principal (and premium, if any) or any interest on such
securities pending the sale of any collateral and prior to or during such period
the related collateral may decline in value. If proceeds of the sale of
collateral following an indenture event of default are insufficient to repay all
amounts due in respect of any secured obligations, the holders of such
securities (to the extent not repaid from the proceeds of the sale of the
collateral) would have only an unsecured claim ranking pari passu with the
claims of all other general unsecured creditors.
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The Underlying Securities Indenture with respect to any Secured Underlying
Security may include, some, all or none of the foregoing provisions or
variations thereof. The Prospectus Supplement used to offer any Series of
Certificates which includes Concentrated Underlying Securities which are Secured
Underlying Securities, will describe the security provisions of such Underlying
Securities and the related collateral. With respect to any Trust comprised of a
pool of securities, a substantial portion of which are Secured Underlying
Securities, the applicable Prospectus Supplement will disclose certain general
information with respect to such security provisions and the collateral.
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
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 Outstanding Debt Securities pursuant
to any sinking fund or analogous provisions, or at the option of a holder
thereof, 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 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 comprised 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.
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PUBLICLY AVAILABLE INFORMATION
In addition to the foregoing, with respect to each Concentrated Underlying
Security the applicable Prospectus Supplement will disclose the identity of the
applicable obligor and the Underlying Securities Trustee, 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 publicly available information will typically consist of the quarterly and
annual reports filed under the Exchange Act by such issuer with, and which are
available from, the Commission.
If an issuer of Concentrated Underlying Securities ceases to file periodic
reports under the Exchange Act, the Depositor, on behalf of the Trust, will
continue to be subject to the reporting requirements of the Exchange Act but
certain information with respect to such issuer may be unavailable.
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) and direct
obligations of the United States (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.
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.
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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
financial information with respect to any such obligor providing Credit Support
for 20% or more of the aggregate principal amount of such Class or Classes.
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 any
such Series that is subordinated to another Class, to the 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")
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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 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.
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. 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.
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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 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. Article and section
references in parentheses below are to articles and sections in the Trust
Agreement. Wherever particular sections or defined terms of the
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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 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
in the event any Underlying Security represents ten percent or more of the total
Underlying Securities with respect to any Series of Certificates, 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.
With respect to certain types of Deposited Assets specified in the
applicable Prospectus Supplement if and to the extent provided therein, if any
such document is found to be missing or defective in any material respect, the
Trustee (or such custodian) shall immediately notify the Administrative Agent,
if any, and the Depositor, and the Administrative Agent, if any, and otherwise
the Trustee shall immediately notify the relevant person who sold the applicable
Deposited Asset to the Depositor (a "Deposited Asset Provider"). If and to the
extent specified in the applicable Prospectus Supplement, if the Deposited Asset
Provider cannot cure such omission or defect within 60 days after receipt of
such notice, the Deposited Asset Provider will be obligated, within 90 days off
receipt of such notice, to repurchase the related Deposited Asset from the
Trustee at the Purchase Price (as defined below) or provide a substitute for
such Deposited Asset. There can be no assurance that a Deposited Asset Provider
will fulfill this repurchase or substitution obligation. Although the
Administrative Agent, if any, or otherwise the Trustee is obligated to use its
best efforts to enforce such obligation, neither such Administrative Agent nor
the Depositor will be obligated to repurchase or substitute for such Deposited
Asset if the Deposited Asset Provider defaults on its obligation. Unless
otherwise specified in the related
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Prospectus Supplement, when applicable, this repurchase or substitution
obligation constitutes the sole remedy available to the Certificateholders or
the Trustee for omission of, or a material defect in, or failure to provide, a
constituent document.
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 Agreement (as defined below).
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
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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 any 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
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
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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.
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
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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 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
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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. 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 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
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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 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
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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 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
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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;
(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;
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(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 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
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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 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
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subject to 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 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
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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 requirements of Schedule E of the By-Laws of the
National Association of Securities Dealers, Inc. regarding underwriting
securities of an affiliate.
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.
Affiliates of the Underwriters may act as agents or underwriters in
connection with the sale of the Certificates. Any affiliate of the Underwriters
so acting will be named, and its affiliation with the Underwriters described, in
the related Prospectus Supplement. Also, affiliates of the Underwriters may act
as principals or agents in connection with market-
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making transactions relating to the Certificates. A Prospectus Supplement will
be prepared with respect to the Certificates for use by such affiliates in
connection with offers and sales related to market-making transactions in the
Certificates.
LEGAL OPINIONS
Certain legal matters with respect to the Certificates 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.
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Subject to Completion Dated ____, 1996
Prospectus Supplement
(To Prospectus Dated ____, 1996)
Trust Certificates, Series 1996 -- [ ]
$ [Notional Amount] [(Approximate)], Class Certificates,
[______%] [Variable] Pass Through Rate
$ [Notional Amount] [(Approximate)], Class Certificates,
[______%] [Variable] Pass Through Rate
Southpoint Structured Assets, Inc.
Depositor
Each Trust Certificate Series 1996 -- [__________] offered hereby will
consist of classes of Certificates, designated as Class Certificates[,] [and]
Class Certificates [and list others], [all] of which [only the Class
Certificates[,] [and] Class Certificates [and list others]] (collectively, the
"Certificates") and will represent a fractional undivided beneficial interest in
the Series 1996 -- [__________] Trust (the "Trust") to be formed pursuant to the
Trust Agreement dated as of [ ], between Southpoint Structured Assets, Inc.
(the "Depositor") and [__________], as trustee (the "Trustee"), as supplemented
by the Series 1996 -- [__________] Supplement dated as of [__________]
(collectively, the "Trust Agreement"). The property of the Trust will consist
in part of [$][__________] aggregate principal amount of [a (______%) [floating
rate] [specify publicly issued debt security] due of [specify issuer]] [a pool
of [______%] [floating rate] publicly issued debt securities having a term of
[not less than years and not more than years] issued by one or more
corporations, banking organizations, or insurance companies organized under the
laws of the United States or any State [(other than the Retained Interest
referred to herein)] (collectively, the "Underlying Securities"), and having the
characteristics described herein under "Description of the Deposited Assets."
Terms used but not otherwise defined herein are defined in the Prospectus
attached hereto (the "Prospectus").
The Underlying Securities will be acquired by the Depositor and, pursuant
to the Trust Agreement, deposited into the Trust for the benefit of
Certificateholders. [The Underlying Securities were issued and sold as part of
an underwritten public offering in [__________].] The Underlying Securities are
obligations of the Underlying Securities Issuer and [explain whether senior or
subordinate, whether secured or unsecured and whether subject to any redemption
or put rights]. [Describe any required principal payments of Underlying
Securities.]
Distributions on the Certificates will be made [monthly] [quarterly] [semi-
annually] on [[______] of each year] [to be conformed to interest payment dates
for Underlying Securities], or, if any such date is not a business day, then on
the immediately following business day (each, a "Distribution Date") commencing
[__________]. The last day on which distributions are scheduled to be made on
the Certificates is [__________] (the "Final Distribution Date"), by which date
the holders of the Certificates will receive a distribution of all amounts
allocable to principal on such Certificates or, to the extent specified herein,
a pro rata share of any remaining Underlying Securities.
[The Certificates are redeemable in whole on any Distribution Date on or
after the ____________, 19__ Distribution Date at a price equal to par (the
"Redemption Price") plus accrued and unpaid interest, upon exercise of the
optional redemption right by the holder of the Call Warrant. See "Risk Factors-
- -Maturity and Yield Considerations" and "Description of the Certificates--
Optional Redemption" herein.]
[The Certificates have been authorized for listing, upon official notice of
issuance, with the [name of exchange].]
SEE "RISK FACTORS" HEREIN ON PAGES [__] TO [__] AND IN THE PROSPECTUS ON
PAGES [*] TO [*].
_______________
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
UNDERLYING SECURITIES ISSUER OR ANY OF ITS AFFILIATES.
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.
_______________
The Underwriter has agreed to purchase the Certificates from the Depositor
at [______]% of the Certificate Principal Balance thereof ($[__________]
aggregate proceeds to the Depositor, before deducting expenses estimated at
$[__________]) plus accrued interest, if any, at the Pass-Through Rate
calculated from [__________], 1996 (the "Expected Settlement 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 or otherwise, 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 [specify applicable classes] Certificates will
be made in book-entry form through the facilities of The Depository Trust
Company on or about the Expected Settlement Date.
[NAME OF UNDERWRITER]
__________, 1996
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.
<PAGE>
As and to the extent described herein, collections received by the Trustee
with respect to the Deposited Assets will be distributed to Certificateholders
[of each class] in the manner and priority described herein. [The rights of the
holders of the Class Certificates [and specify other classes] to receive
distributions of such collections are subordinated to the rights of the holders
of the Class Certificates [and specify other classes].] As and to the extent
described herein, losses realized on the Deposited Assets will be borne by the
holders of the Class Certificates [and specify other classes] before such losses
will be borne by the holders of the other classes of Offered Certificates [and
the Class Certificates [and specify other classes]]. To the extent described
herein, the relative priorities of each class of Certificates with respect to
collections from and losses on the Deposited Assets may each change over time,
either permanently or temporarily, upon the occurrence of certain circumstances
specified herein. See "Description of the Certificates--Subordination."
The Underlying Securities Issuer is not participating in, and will not
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.
The [specify applicable classes] 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. 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.
UNTIL, __________, 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT
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RELATES. 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.
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HEADING Page
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SUMMARY OF PRINCIPAL ECONOMIC TERMS............................ S-6
The Certificates............................................ S-6
The Underlying Securities................................... S-8
SUMMARY OF PROSPECTUS SUPPLEMENT............................... S-9
FORMATION OF THE TRUST......................................... S-13
RISK FACTORS................................................... S-14
DESCRIPTION OF THE DEPOSITED ASSETS............................ S-14
General..................................................... S-14
Underlying Securities Indenture............................. S-16
[DESCRIPTION OF CREDIT SUPPORT]................................ S-19
[The Letter of Credit....................................... S-19
[The Surety Bond............................................ S-20
[Reserve Account............................................ S-20
YIELD ON THE CERTIFICATES...................................... S-20
DESCRIPTION OF THE CERTIFICATES................................ S-21
General..................................................... S-21
Definitive Certificates..................................... S-22
Distributions............................................... S-22
[Optional Redemption........................................ S-24
[Advances................................................... S-25
Allocation of Losses........................................ S-25
[Restrictions on Transfer of the Class [ ] Certificates..... S-26
DESCRIPTION OF THE TRUST AGREEMENT............................. S-26
General..................................................... S-26
The Trustee................................................. S-26
Events of Default........................................... S-27
Voting Rights............................................... S-27
Voting of Underlying Securities, Modification of Indenture.. S-28
Termination................................................. S-29
</TABLE>
S-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
CERTAIN LEGAL ASPECTS OF THE DEPOSITED ASSETS.................. S-29
CERTAIN FEDERAL INCOME TAX CONSEQUENCES........................ S-30
Grantor Trust Certificates.................................. S-30
Income of Certificate Owners................................ S-31
Bond Premium................................................ S-34
Election to Treat All Interest as Original Issue Discount... S-35
Modification or Exchange of Underlying Securities........... S-35
Deductibility of Trust's Fees and Expenses.................. S-35
Purchase and Sale of a Certificate.......................... S-35
Backup Withholding.......................................... S-36
Foreign Certificate Owners.................................. S-37
Partnership Certificates.................................... S-37
Partnership Taxation........................................ S-38
Discount and Premium........................................ S-39
Modification or Exchange of Underlying Securities........... S-39
Tax Consequences of Other Assets Held by Trust.............. S-39
Section 708 Termination..................................... S-39
Disposition of Certificates................................. S-39
Allocations Between Transferors and Transferees............. S-40
Section 754 Election........................................ S-41
Administrative Matters...................................... S-41
Tax Consequences to Foreign Certificate Owners.............. S-42
[CERTAIN STATE TAX CONSEQUENCES................................ S-43
ERISA CONSIDERATIONS........................................... S-43
PLAN OF DISTRIBUTION........................................... S-45
RATINGS........................................................ S-46
LEGAL OPINIONS................................................. S-46
</TABLE>
S-5
<PAGE>
SUMMARY OF PRINCIPAL ECONOMIC TERMS
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," "Description of the Underlying
Securities" and "Description of Credit Support." 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.....................Series 1996-[ ]Trust. The Trust will be formed
pursuant to the Trust Agreement dated as of
[__________] (the "Base Trust Agreement"), between
the Depositor and the Trustee, as supplemented by
the Series 1996-[ ] Supplement dated as of the
Expected Settlement Date (the "Series Supplement"
and, together with the Base Trust Agreement, the
"Trust Agreement").
Certificates Offered..........Trust Certificates, Series 1996-[ ], consisting of
Class [ ] Certificates[,] [and] Class [ ]
Certificates [and specify others] (collectively,
the "Certificates").
[Initial Certificate
Principal Balance]
[Notional Amount].............Class [ ]: [$] [ ]. Class [ ]: [$] [ ].
Final Distribution Date.......Class [ ]. Class [ ].
Pass-Through Rates............[The Variable Pass-Through Rates applicable to the
calculation of the interest distributable on any
Distribution Date on the Certificates [(other than
the Class [ ] Certificates)] are equal to
[describe method for determining variable rates].
The initial Variable Pass-Through Rates for the
Class [ ] Certificates [,] [and] the Class [ ]
Certificates [and specify others] are
approximately __% [,] [and] ___% [and ___%] per
annum, respectively.] [The Pass-Through Rate
applicable to the calculation of the interest
distributable on any Distribution Date on the
[specify classes] Certificates is fixed at ___%
[and ___%, respectively,] per annum.]
S-6
<PAGE>
Deposited Assets..............The Deposited Assets shall consist of the
Underlying Securities [and describe any assets
which are ancillary or incidental to the
Underlying Securities]. See "--The Underlying
Securities" [, "--Other Deposited Assets"] and
"Description of the Deposited Assets" below.
Original Issue Date...........[ ].
Cut-off Date..................[ ].
Distribution Date.............[ ], commencing [ ].
Record Date...................The [ ] day immediately preceding each
Distribution Date.
Denominations.................The Class [ ] Certificates [,] [and] Class [ ]
Certificates [and specify others] will be
available for purchase in minimum denominations of
[$][ ] and [integral multiples thereof] [multiples
of [$][ ] in excess thereof].
Interest Accrual Periods......[Monthly] [Quarterly] [Semi-annually] (or, in the
case of the first Interest Accrual Period, from
and including the Original Issue Date to but
excluding the first Distribution Date).
[Optional Redemption..........On any Distribution Date occurring on or after the
Distribution Date occurring in ___________, 19__,
the Certificates may be redeemed by the Depositor,
in whole only, at a price equal to the Redemption
Price.]
[Redemption Price.............___________.]
Form of Security..............Book-entry Certificates with The Depository Trust
Company ("DTC"), except in certain limited
circumstances. See "Description of the
Certificates--Definitive Certificates."
Distributions thereon will be settled in
[immediately available (same-day)] [clearinghouse
(next-day)] funds.
Trustee.......................[ ], as trustee.
Ratings.......................[ ] by [ ] [and [ ] by [ ]]. [Specify specific
ratings requirements for particular classes,
including the extent to which the issuance of the
Certificates of a
S-7
<PAGE>
given class is conditioned upon satisfaction of
the ratings of each other class of Certificates.]
See "Ratings."
THE UNDERLYING SECURITIES
Underlying Securities.........[A [ ]%] [floating rate] [publicly issued debt
security due [ ] [A pool of publicly issued debt
securities of various issuers, exclusive of the
Retained Interest] [in/having] an aggregate
principal amount of [$][ ].
Underlying Securities Issuer..[Specify issuer] [Pool of various domestic
corporations, banking organizations and insurance
companies.]
Underlying Securities
Original Issue Date...........[ ].
Underlying Securities
Final Payment Date............[ ].
Amortization..................[Describe amortization schedule, if any].
Denominations.................The Underlying Securities are available in minimum
denominations of [$][ ] and [integral multiples
thereof] [multiples of [$][ ] in excess thereof].
Underlying Securities
Payment Dates.................[ ], commencing [ ].
Underlying Securities Rate....[ % per annum.] [A [Weighted Average] rate per
annum equal to [specify interest rate formula for
debt security].]
Underlying Securities
Interest Accrual Periods......[Monthly] [Quarterly] [Semi-annually].
Priority......................[Describe senior or subordinated status of
Underlying Securities].
Security......................[Describe existence of any security for
obligations or state that Underlying Securities
are unsecured].
Redemption/Put/Other
Features......................[Describe existence of any redemption, put or
other material features applicable to the
Underlying Securities].
S-8
<PAGE>
Form of Underlying
Securities....................Book-entry debt securities with DTC [listed on the
[New York] [American] Stock Exchange [specify
other listing]].
Underlying Securities
Trustee [Fiscal and
Paying Agent].................[ ]. The Underlying Securities have been issued
pursuant to [an indenture dated as of [ ], 19[ ]
(the "Indenture"), between the Underlying
Securities Trustee and the Underlying Securities
Issuer].
Ratings of the Underlying
Securities....................[ ] by [ ] [and [ ] by [ ]]. See "Description of
the Underlying Securities--Ratings of Underlying
Securities."
Other Deposited Assets
[Provide similar tabular summary description of the principal economic
terms of any credit support or other ancillary or incidental asset]
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary 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.
Depositor.....................Southpoint Structured Assets, Inc. (the
"Depositor"), an indirect wholly-owned subsidiary
of Morgan Keegan, Inc. See "The Depositor" in the
Prospectus.
Certificates..................The Certificates, each of which represents a
fractional undivided beneficial interest in the
Trust, will be issued pursuant to the Trust
Agreement. The Certificates will consist of [ ]
classes, designated as Class [ ] Certificates
[and] [,] Class [ ] Certificates [and [specify
other classes]], [all] of which [all but the Class
[ ] Certificates] are being offered hereby
(collectively, the "Certificates").
The Certificate Principal Balance of a Certificate
outstanding at any time represents the maximum
amount that the holder thereof is entitled to
receive as distributions allocable to principal.
The Certificate Principal Balance of a Certificate
will decline to the extent distributions allocable
to principal are made to such holder. [The
Notional Amount of the Class [ ] Certificates as
of any date of determination is equal to
S-9
<PAGE>
[specify]. Reference to the Notional Amount of the
Class [ ] Certificates is solely for convenience
in determining the basis on which distributions on
the Class [ ] Certificates are calculated [and
determining the relative voting rights of
Certificateholders of Class [ ] Certificates for
purposes of voting on a class-by-class basis or
otherwise]. The Notional Amount does not represent
the right to receive any distributions allocable
to principal.]
[The Class [ ] Certificates, which are not being
offered hereby, have in the aggregate an initial
Certificate Principal Balance of [$] [ ]
(approximate) and a [Variable] Pass-Through Rate
[of __%]. The Class [ ] Certificates represent the
right to receive distributions in respect of their
Certificate Principal Balance and interest thereon
at their applicable Pass-Through Rate.] Shortfalls
in collections with respect to the Deposited
Assets will be allocated solely to the Class [ ]
Certificates to the extent provided herein and,
thereafter, will be allocated among the
Certificates and the Class [ ] Certificates, as
provided herein. [The Class [ ] Certificates will
be transferred by the Depositor to an affiliate on
or about ____________, 1996 (the "Closing Date"),
and may be sold at any time in accordance with any
restrictions in the Trust Agreement.]]
The Underlying Securities.....Interest on the Underlying Securities accrues at
the Underlying Securities Rate for each Underlying
Securities Accrual Period and is payable on each
Underlying Securities Payment Date. The entire
principal amount of the Underlying Securities will
be payable on the Underlying Securities Final
Payment Date. [The Underlying Securities have a
remaining term to maturity of approximately
years.] [As of the Cut-off Date, the pool of
Underlying Securities has a weighted average
interest rate of [%] and a weighted average
remaining term to maturity of approximately ___
years. Approximately [%] [specify if greater than
10%] of such Underlying Securities consist of debt
securities of [U.S. corporate issuers].]
[Name such obligor] is a U.S. corporation whose
principal executive offices are located at
[specify address]. The obligor is subject to the
informational
S-10
<PAGE>
requirements of the Exchange Act and in accordance
therewith files reports and other information
(including financial information) with the
Commission. See "Description of the Deposited
Assets."
[Other Deposited Assets and
Credit Support................The Deposited Assets will also include [direct
obligations of the United States] [describe any
assets which are ancillary or incidental to the
Underlying Securities, including hedging contracts
such as puts, calls, interest rate swaps, currency
swaps, floors, caps and collars] (such assets,
together with the Underlying Securities, the
"Deposited Assets"). See "Description of the
Deposited Assets."
The Certificateholders of the [specify particular
classes] Certificates will have the benefit of
[describe credit support] to support or ensure the
[servicing and] [timely] [ultimate] distribution
of amounts due with respect to the Deposited
Assets, including providing certain coverage with
respect to losses thereon.]
Distributions.................Holders of the Certificates will be entitled to
receive on each Distribution Date, to the extent
of available funds on such Distribution Date,
after payment of the expenses of the Trustee and
its respective agents up to the Allowable Expense
Amount, (i) [in the case of each class of
Certificates other than the Class [ ]
Certificates,] distributions allocable to interest
at the applicable Pass-Through Rate on the
applicable Certificate Principal Balance, (ii) [in
the case of each class of Certificates other than
the Class [ ] Certificates,] distributions
allocable to principal and (iii) [in the case of
each class of Certificates other than the Class [
] Certificates,] distributions allocable to
premium (if any) in an amount equal to all
payments of premium (if any) received on the
Underlying Securities for the applicable
Collection Period. Distributions will be made to
Certificateholders only if, and to the extent
that, payments are made with respect to the
Deposited Assets or are otherwise covered by any
Credit Support. [The holders of the Class [ ]
Certificates will be entitled to receive on each
Distribution Date distributions allocable to
interest in an amount equal to [describe Stripped
Interest].] [The
S-11
<PAGE>
holders of the Class [ ] Certificates will not be
entitled to receive any distributions allocable to
principal or premium (if any).] See "Description
of the Certificates--Distributions."
Special Distribution Dates....If a payment with respect to the Underlying
Securities is made to the Trustee after the
Underlying Securities Payment Date on which such
payment was due, then the Trustee shall distribute
any such amount received on the next occurring
Business Day (a "Special Distribution Date") as if
such funds had constituted Available Funds on the
Distribution Date immediately preceding such
Special Distribution Date; provided, however, that
the Record Date for such Special Distribution Date
shall be [five Business Days (as such term is
defined in the Prospectus, "Business Day") prior
to the day on] which the related payment was
received from the Underlying Securities Trustee.
[Subordination................As and to the extent described herein, the rights
of the holders of the Class [ ] Certificates [and
specify other classes] to receive distributions of
principal, premium (if any), and interest with
respect to the Deposited Assets will be
subordinated to the rights of the holders of the
other classes of Certificates with respect to
losses attributable to principal, premium (if any)
and interest realized on a Deposited Asset (such
losses, "Realized Losses"). See "Description of
the Certificates--Allocation of Losses;
Subordination."]
[Optional Termination.........At its option, the [Depositor] may purchase all
the Deposited Assets in the Trust, and thereby
cause the termination of the Trust and early
retirement of the Certificates, on any
Distribution Date on which the aggregate principal
amount of the Deposited Assets remaining in the
Trust is less than [10%] of the aggregate
principal amount of the Deposited Assets as of the
Cut-off Date. [Specify any other purchase or
repurchase option of the Depositor.] See
"Description of the Trust Agreement--Termination"
herein and in the Prospectus.]
Certain Federal Income
Tax Consequences..............In the opinion of tax counsel to the Trust, the
Trust will be classified for Federal income tax
purposes [as a
S-12
<PAGE>
grantor trust] [as a partnership] and not as an
association taxable as a corporation. See "Certain
Federal Income Tax Consequences."
Ratings.......................It is a condition to the issuance of the
Certificates that the Certificates have the
ratings specified above under "Summary of
Principal Economic Terms--The Certificates--
Ratings." 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. A security
rating does not address the occurrence or
frequency of redemptions or prepayments on, or
extensions of the maturity of, the Deposited
Assets, the corresponding effect on yield to
investors [or whether investors in the Class [ ]
Certificates may fail to recover fully their
initial investment]. See "Ratings."
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."
FORMATION OF THE TRUST
The Trust will be formed pursuant to the Trust Agreement (including the
Series [ ] Supplement) between the Depositor and the Trustee. Concurrently with
the execution and delivery of the Series [ ] Supplement, the Depositor will
deposit the Underlying Securities in the Trust. The Trustee, on behalf of the
Trust, will accept such Underlying Securities and will deliver the Certificates
to or upon the order of the Depositor.
The Underlying Securities will be purchased by the Depositor in the
secondary market (either directly or through an affiliate of the Depositor). The
Underlying Securities will not be acquired from the Underlying Securities Issuer
as part of any distribution by or pursuant to any agreement with the Underlying
Securities Issuer. The Underlying Securities Issuer is not participating in this
offering and will not receive any of the proceeds of the sale of the Underlying
Securities to the Depositor or the issuance of the Certificates. [Neither the
Depositor nor any of its affiliates participated in the initial public offering
of the Underlying Securities] [Morgan Keegan & Company, Inc., an affiliate of
the Depositor, participated in the initial public offering of the Underlying
Securities as a [co-underwriter] [underwriter]].
S-13
<PAGE>
RISK FACTORS
[Describe risk factors applicable to the specific Underlying Securities,
other Deposited Assets and the particular structure of the Certificates being
offered, including factors relating to the yield on the Certificates and risks
associated with the Deposited Assets and the terms thereof, as described
elsewhere herein.] See "Risk Factors" and "Maturity and Yield Considerations" in
the Prospectus.
DESCRIPTION OF THE DEPOSITED ASSETS
GENERAL
This Prospectus Supplement sets forth certain relevant terms with respect
to the Underlying Securities, but does not provide detailed information with
respect to the Underlying Securities or the Underlying Securities Issuer. This
Prospectus Supplement relates only to the Certificates offered hereby and does
not relate to the Deposited Assets. All disclosure contained herein with respect
to the Underlying Securities and the Underlying Securities Issuer is derived
from publicly available documents. [Describe publicly available documents.]
[The] [Each] Underlying Securities Issuer is subject to the information
reporting requirements of the Exchange Act.
Although the Depositor has no reason to believe the information concerning
the Underlying Securities, [the] [each] Underlying Securities Issuer or each
Underlying Securities Prospectus related to the Underlying Securities is not
reliable, neither the Depositor nor any of the Underwriters has participated in
the preparation of such documents, or made any due diligence inquiry with
respect to the information provided therein. There can be no assurance that
events affecting the Underlying Securities or the Underlying Securities Issuer
have not occurred, which have not yet been publicly disclosed, which would
affect the accuracy or completeness of the publicly available documents
described above.
[The Underlying Securities will be deposited into the Trust subject to the
right of the holder of the Retained Interest to receive on each Distribution
Date from payments received on the Underlying Securities, a distribution equal
to [%] per annum multiplied by the principal amount of the Underlying Securities
(the "Interest Strip"). The right of the holder of the Retained Interest to
receive the Interest Strip is of equal priority with the rights of the
Certificateholders to receive distributions of interest on the Certificates.]
[Use the following where the Underlying Securities consist of a pool of
obligations of multiple obligors.]
[The Deposited Assets will consist primarily of the Underlying Securities,
which are a pool of publicly issued debt securities of [domestic corporations,
banking organizations and insurance companies]. The Underlying Securities will
be purchased by the Depositor in the secondary market (either directly or
through an affiliate of the Depositor) and will be
S-14
<PAGE>
deposited into the Trust. The Underlying Securities will not be acquired either
from the respective obligors on the Underlying Securities or pursuant to any
distribution by or agreement with such obligors.
The composition of the Underlying Securities pool and the distribution by
ratings, remaining term to maturity and interest rate of the Underlying
Securities as of the Cut-off Date are as set forth below:
Composition of the Underlying Securities Pool
as of the Cut-off Date
<TABLE>
<CAPTION>
Number of Underlying Securities:
<S> <C> <C>
Aggregate Principal Balance: [$]
Average Principal Balance: [$]
Largest Balance: [$]
Weighted Average Interest Rate: %
Weighted Average Original Term to years
Maturity:
Weighted Average Remaining Term to years
Maturity:
Longest Remaining Term to Maturity: years
</TABLE>
Distribution by Industry Classification
of the Underlying Securities Pool as of the Cut-off Date
Aggregate Percent of
Industry Principal Aggregate
Classification Number Balance Principal Balance
-------- ------------ -----------------
Total ======== ============ =================
Distribution by Ratings of the
Underlying Securities Pool as of the Cut-off Date
Aggregate Percent of
Principal Aggregate
Rating Number Balance Principal Balance
------ ------------ -----------------
Total ====== ============ =================
S-15
<PAGE>
Distribution by Remaining Term to Maturity of the
Underlying Securities Pool as of the Cut-off Date
Aggregate Percent of
Remaining Term Principal Aggregate
to Maturity Number Balance Principal Balance
------ ------------ -----------------
Total ====== ============ =================
Distribution by Interest Rate of the
Underlying Securities Pool as of the Cut-off Date
Aggregate Percent of
Interest Principal Aggregate
Rate Range Number Balance Principal Balance
% to % [$] %
Greater than % --------- ------------ -----------------
Total [$] 100%
========= =========== =================
The Underlying Securities consist of debt securities of [domestic corporate
issuers [specify other]]. As of the Cut-off Date, [all of] [approximately % of]
such Underlying Securities were rated [investment grade] [specify particular
rating] by at least one nationally recognized rating agency, and no obligor on
any Underlying Security was in default in the payment of any installments of
principal, interest or premium (if any) with respect thereto. Any such rating of
any of the Underlying Securities is not a recommendation to purchase, hold or
sell such Underlying Security or the Certificates, and there can be no assurance
that a rating will remain for any given period of time or that a rating will not
be lowered or withdrawn entirely by a rating agency if in its judgment
circumstances in the future so warrant. See "Ratings" herein and "Risk Factors--
Ratings of the Certificates" in the accompanying Prospectus regarding certain
considerations applicable to the ratings of the Certificates.
Underlying Securities Indenture
The Underlying Securities have been issued pursuant to [an] agreement[s]
([each,] an "Indenture") between the [various] Underlying Securities Issuer[s]
and Underlying Securities Trustee[s]. The following summary describes certain
general terms of such Indenture[s], but investors should refer to the
Indenture[s] [itself] [themselves] for all the terms governing the Underlying
Securities.
Each of the Indenture[s] limits the [respective] Underlying Securities
Issuer's ability to engage in certain activities and transactions and requires
that the Underlying Securities Issuer perform certain obligations with respect
to the Underlying Securities. [Describe
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<PAGE>
common restrictive, financial and other covenants on the Underlying Securities
Issuer contained in the Indentures.]
[The following is a summary of the typical Underlying Security Events of
Default for each series of Outstanding Debt Securities. [Any additional
Underlying Security Events of Default unique to a Concentrated Underlying
Security have been described following the summary]:
(a) failure to make payments of principal (and premium, if any) and
interest to holders of the Outstanding Debt Securities in the time periods
given in the Indentures;
(b) material breaches of certain representations, warranties or
covenants or failure to observe or perform in any material respect any
covenant or agreement under an Indenture continuing for a specified period
of time after notice thereof is given to the Underlying Securities Issuer
by the Underlying Securities Trustee or the holders of not less than a
specified percentage of the Outstanding Debt Securities;
(c) failure by the Underlying Securities Issuer to make any required
payment of principal (and premium, if any) or interest with respect to
certain of the other outstanding debt obligations of the Underlying
Securities Issuer or the acceleration by or on behalf of the holders
thereof of such securities; [and]
(d) certain events of bankruptcy or insolvency relating to the
Underlying Securities [Issuer]; and
[(e) describe any additional common events of default with respect to
the pool of Underlying Securities].]
As of the Cut-off Date, [all of] [approximately __% of] the Underlying
Securities were [subject to [describe any put, call or other conversion or
redemption options applicable to the Underlying Securities as well as the nature
of the obligation represented by such Underlying Securities (i.e., senior,
subordinate, secured) and describe commonalities with respect to any
subordination or security provisions or collateral].]
The [pool of] Underlying Securities, together with any other assets
described below and any Credit Support described under "Description of Credit
Support," represent the sole assets of the Trust that are available to make
distributions in respect of the Certificates.]
[Use the following with respect to each obligor the Underlying Securities
of which represent more than 10% of the total Underlying Securities available to
make distributions in respect of the Certificates -- only a single obligor is
referred to for purposes of this section of the form of Prospectus Supplement.]
[A significant portion of] [Virtually all of] [All of] the Deposited Assets
of the Trust will consist of the [___%] [floating rate] [specify publicly issued
debt security] due of
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<PAGE>
[specify issuer] [, exclusive of the interest therein retained by [the
Depositor] as described below (the "Retained Interest")], having an aggregate
principal amount outstanding as of the Cut-off Date of approximately [$] (the
"Underlying Securities"). The Underlying Securities will be purchased by the
Depositor in the secondary market (either directly or through an affiliate of
the Depositor) and will be deposited into the Trust. The Underlying Securities
will not be acquired either from [name such obligor] or pursuant to any
distribution by or agreement with [name such obligor]. [Describe any put, call
or other conversion or redemption options applicable to the Underlying
Securities, as well as the nature of the obligation represented by such
Underlying Securities (i.e., senior, subordinate, secured)]. As of the Cut-off
Date, the foregoing debt security comprising [ %] of the Underlying Securities
was rated [specify investment grade rating] [investment grade] by [specify
nationally recognized rating agency or agencies], and the obligor thereon was
not in default in the payment of any installments of principal, interest or
premium (if any) with respect thereto. Any such rating of such Underlying
Securities is not a recommendation to purchase, hold or sell such Underlying
Securities or the Certificates, and there can be no assurance that a rating will
remain for any given period of time or that a rating will not be lowered or
withdrawn entirely by a rating agency if in its judgment circumstances in the
future so warrant. See "Ratings" herein and "Risk Factors--Ratings of the
Certificates" in the accompanying Prospectus regarding certain considerations
applicable to the ratings of the Certificates.
According to [name such obligor]'s publicly available documents, [name such
obligor] is a [identify form of domestic corporation, banking organization or
insurance company] whose principal executive offices are located at [specify
address]. The Depositor is not an affiliate of [name such obligor]. [Name such
obligor] is subject to the informational requirements of the Exchange Act and in
accordance therewith files reports and other information (including financial
information) with the Commission [and makes available to the public upon request
certain annual reports containing financial and other information]. Copies of
such reports and other information [may be inspected and copied at the
Commission locations listed under "Available Information" in the accompanying
Prospectus and may be obtained from the Public Reference Section of the
Commission at Washington, D.C. 20549, at prescribed rates. In addition, such
reports and other information [can be inspected at the offices of the [New York
Stock Exchange at 20 Broad Street, New York, New York 10005] [American Stock
Exchange, 86 Trinity Place, New York, New York 10013]] [may be obtained from
[name such obligor], according to its most recent annual report, upon written or
oral request to [name such obligor]].
The Trust will have no other significant assets [other than any Credit
Support or those assets referred to below] from which to make distributions of
amounts due in respect of the Certificates. Consequently, the ability of
Certificateholders to receive distributions in respect of the Certificates will
depend [almost] entirely on the Trust's receipt of payments on the foregoing
Underlying Securities from [name such obligor]. Prospective purchasers of the
Certificates should consider carefully [name such obligor]'s financial condition
and its ability to make payments in respect of such Underlying Securities. This
Prospectus Supplement relates only to the Certificates being offered hereby and
does not relate to the Underlying Securities of [name such obligor]. All
information contained in this Prospectus
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Supplement regarding [name such obligor] is derived from the publicly available
documents described in the preceding paragraph. Neither the Depositor nor [any
of] the Underwriter[s] has participated in the preparation of such documents, or
takes any responsibility for the accuracy or completeness of the information
provided therein.
The Deposited Assets will also include [direct obligations of the United
States of America][describe any assets which are ancillary or incidental to the
Underlying Securities, including hedging contracts such as puts, calls, interest
rate swaps, currency swaps, floors, caps and collars, and any cash or other
security pledged to support the Underlying Securities] (such assets, together
with the Underlying Securities, the "Deposited Assets").
[DESCRIPTION OF CREDIT SUPPORT]
For the benefit [solely] of the [Offered] [Class [ ] Certificates [and the
Class [ ] Certificates]], Credit Support will be obtained [and will constitute
part of the Trust to the extent provided below] to support or ensure the
[servicing and] [timely] [ultimate] distribution of amounts due with respect to
the Deposited Assets, in the form and amount described below.
[THE LETTER OF CREDIT
Simultaneously with the Depositor's assignment of the Deposited Assets to
the Trust, the Depositor will obtain the Letter of Credit from [ ] (the "Letter
of Credit Bank") in favor of the Trustee on behalf of the Certificateholders.
The Letter of Credit will be irrevocable and will [support the
[timely][ultimate] remittance of amounts due with respect to the Deposited
Assets]. The maximum amount that the Trustee may draw under the Letter of Credit
will initially be equal to [$]. The initial amount of the Letter of Credit will
be [$]. Thereafter, the amount of the Letter of Credit with respect to any
Distribution Date will equal [the lesser of (i) [%] of the aggregate Certificate
Principal Balance outstanding on the preceding Distribution Date (after giving
effect to any payment of principal made on the preceding Distribution Date) but
in any event not less than [$], and (ii)] the amount of the Letter of Credit on
the preceding Distribution Date, plus [(a) reimbursement of certain advances
under the Letter of Credit and (b) recoveries on defaulted Deposited Assets]
[describe other methods]. The Letter of Credit expires on _________, 19___. The
Trustee will be obligated, in the event of a drawing on the Letter of Credit, to
pursue appropriate remedies against the Deposited Assets and other collateral,
and any realization thereon shall be paid to the Letter of Credit Bank to the
extent of any amounts owing, in the manner and priority specified herein.]
[Add language regarding the Letter of Credit Bank with respect to its debt
ratings, activities it engages in, regulatory authorities having jurisdiction
over it and the nature of such regulation, a narrative description of its
assets, liabilities (including deposits) and equity, and include an address for
further information concerning the Letter of Credit Bank. In addition, to the
extent that the Letter of Credit will cover payment of 20% or more of the
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aggregate principal amount of the Certificates covered thereby, provide
information of financial and other matters with respect to the Letter of Credit
Bank.]]
[THE SURETY BOND
Simultaneously with the Depositor's assignment of the Deposited Assets to
the Trust, the Depositor will obtain the Surety Bond from [ ] (the "Surety") in
favor of the Trustee on behalf of the Certificateholders. The Surety Bond will
guaranty [timely] [ultimate] distributions of the principal of and premium (if
any) and interest with respect to the [Offered][Class[ ]] Certificates. The
Surety Bond expires on _________, 19___. The Trustee will be obligated, in the
event of a drawing on the Surety Bond, to pursue appropriate remedies against
the Deposited Assets and other collateral, and any realization thereon shall be
paid to the Surety to the extent of any amounts owing, in the manner and
priority specified herein.
[Add language regarding the issuer of the Surety Bond with respect to its
debt ratings, activities it engages in, regulatory authorities having
jurisdiction over it and the nature of such regulation, a narrative description
of its assets, liabilities (including deposits) and equity, and include an
address for further information concerning the Surety. In addition, to the
extent that the Surety Bond will cover payment of 20% or more of the aggregate
principal amount of the Certificates covered thereby, provide information of
financial and other matters with respect to the issuer of the Surety Bond.]]
[RESERVE ACCOUNT
The Depositor will deposit with the Trustee on the Closing Date cash,
letters of credit and short-term investments acceptable to the Rating Agency
initially rating the Certificates in the amount of [$]. [Collections with
respect to the Deposited Assets not distributed with respect to the Certificates
shall be deposited in the Reserve Account.] Amounts so deposited in such Reserve
Account will be used by the Trustee to make payments of principal of and premium
(if any) and interest on the Certificates to the extent that funds are not
otherwise available. Immediately after any Distribution Date, amounts in the
Reserve Account in excess of [indicate formula] [may be paid to the Depositor].]
YIELD ON THE CERTIFICATES
[Describe factors relating to the Deposited Assets, the terms thereof and
the manner and priority in which collections thereon are allocated to the
Certificateholders of each class of the Certificates, as described elsewhere
herein.] See "Yield Considerations" and "Maturity and Prepayment Considerations"
in the Prospectus.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will consist of [ ] classes of Certificates, designated as
Class [ ][,] [and] Class [ ] [and Class [ ]] Certificates. The Certificates
represent in the aggregate the entire beneficial ownership interest in the
related Trust. The Class [ ] Certificates have in the aggregate an initial
[Certificate Principal Balance] [Notional Amount] of [$] (approximate) and a [%]
[Variable] Pass-Through Rate. The Class [ ] Certificates have in the aggregate
an initial [Certificate Principal Balance] [Notional Amount] of [$]
(approximate) and a [%] [Variable] Pass-Through Rate. [The Class [ ]
Certificates have in the aggregate an initial [Certificate Principal Balance]
[Notional Amount] of [$] (approximate) and a [%] [Variable] Pass-Through Rate.]
[The Class [ ] Certificates, which are not being offered hereby, will be
transferred by the Depositor to an affiliate on the Closing Date, and may be
sold at any time by the Depositor in accordance with the terms of the Trust
Agreement.]
The Certificates [(other than the Class [ ] Certificates [and specify
others] (the "Definitive Classes"))] will be issued, maintained and transferred
on the book-entry records of DTC and its Participants in minimum denominations
of [$ ] and [integral multiples thereof] [multiples of [$ ] in excess thereof].
[The Class [ ] Certificates [and specify any others] will be offered in
registered, certificated form, in minimum percentage interests corresponding to
the initial Notional Amounts or Certificate Principal Balances, as applicable,
of [$ ] and integral multiples thereof, except that one Certificate of each such
class may be issued with an initial Notional Amount or Certificate Principal
Balance, as applicable, equal to an integral multiple of [$ ] plus the excess of
the initial aggregate Notional Amount or Certificate Principal Balance, as
applicable, of such class over the greatest integral multiple of [$ ] that is
not more than such initial aggregate Notional Amount or Certificate Principal
Balance, as applicable.]
The Certificates [(other than the Definitive Classes of 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 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 affecting 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
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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 [(other than the Definitive Classes)] 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 [(other than the
Definitive Classes of 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.
DISTRIBUTIONS
Collections on the Deposited Assets 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:
(i) to the Trustee, all unpaid fees and expenses of the Trustee and
its respective agents, up to the Allowable Expense Amount (as defined
below) for the related Collection Period;
(ii) [to the providers of Credit Support ("Credit Support
Providers"), any amounts required to be paid or reimbursed to, or deposited
with, any such person (collectively, "Credit Support Payments");
(iii) ] to the Certificateholders of each Class of such Series,
first, to the payment of Required Interest [and on a pro rata basis to the
Credit Support Providers for the payment of any Credit Support Payments],
second, to the payment of Required Principal and third, to the payment of
Required Premium, in each case applicable to such Class, commencing with
the most highly ranked Class and, to the extent Available
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Funds remain available, to each other Class in accordance with the ranking
specified herein under "--Allocation of Losses; Subordination";
[(iii) to the Credit Support Providers, any Credit Support
Payments;]
[(iv)] to the Trustee, all its remaining unpaid fees and expenses
and those of its respective agents not otherwise paid pursuant to clause
(i) above;
[(v) all remaining amounts, if any, to the Depositor].
There can be no assurance that collections received from the Deposited
Assets and any applicable Credit Support relating to the Certificates over a
specified period will be sufficient, after payment of all Allowable Expense
Amounts [and payment of all amounts required to be paid to the Credit Support
Providers] for such period, to make all required distributions to the
Certificateholders of the Certificates. To the extent Available Funds are
insufficient to make any such distributions due to any such Series or Class, any
shortfall will be carried over and will be distributable on the next
Distribution Date on which sufficient funds exist to pay such shortfalls.
For purposes hereof, the following terms have the following meanings:
"Allowable Expense Amount" means, for any given Collection Period, the sum
of (x) [$] and (y) amounts in respect of the Allowable Expense Amount from the
preceding Collection Period that have not been applied on the Distribution Date
for such preceding Collection Period.
"Available Funds" for any Distribution Date means the sum of (a) all
amounts received on or with respect to the Deposited Assets (including
investment income on Eligible Investments) received during the preceding
Collection Period[,] [and] (b) amounts available as of such Distribution Date
pursuant to the Credit Support described herein [and (c) any additional amount
that the [Depositor] may remit to the Trustee from time to time according to the
terms of the Trust Agreement for application as Available Funds].
"Call Premium Percentage" for any given Distribution Date means [a fixed
percentage] [a percentage that varies depending on [describe basis for variable
formula, such as the applicable date or other factors or indices]].
"Eligible Investments" means, with respect to the Certificates, those
investments 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" allocable to the Retained Interest for any Distribution
Date means accrued and unpaid interest on the outstanding principal balance of
the Certificates, computed at an annual rate of [%].]
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"Required Interest" for the Certificates or any Class thereof on any given
Distribution Date means the accrued and unpaid interest on the outstanding
Certificate Principal Balance [or Notional Amount] of such Certificates,
computed at the applicable Pass-Through Rate.
"Required Premium" for the Certificates or any Class thereof for any
Distribution Date means an amount equal to the product of (a) the Required
Principal for such Certificates on such Distribution Date and (b) the Call
Premium Percentage for such Distribution Date.
"Required Principal" for the Certificates or any Class thereof for any
Distribution Date means the amount received on the Deposited Assets attributable
to principal payments thereon during the related Collection Period, to the
extent allocable to such Certificates. The Certificate Principal Balance of a
Certificate outstanding at any time represents the maximum amount that the
holder thereof is entitled to receive as distributions allocable to principal
from the cash flow on the Underlying Securities, the other assets in the Trust
and any Credit Support obtained for the benefit of such holder. The Certificate
Principal Balance of any class of Certificates [(other than the Class [ ]
Certificates)] as of any date of determination is equal to the initial
Certificate Principal Balance thereof, reduced by the aggregate of (a) all
amounts allocable to principal previously distributed with respect to such
Certificate and (b) any reductions in the Certificate Principal Balance deemed
to have occurred in connection with allocations of (i) Realized Losses allocable
to principal on the Deposited Assets and (ii) Extraordinary Trust Expenses, as
described herein. [The Notional Amount of the Class [ ] Certificates as of any
date of determination is equal to [specify amount].] [Holders of the Class [ ]
Certificates are not entitled to receive any distributions allocable to
principal.]
[Notwithstanding the priorities described above, holders of the Class [ ]
Certificates and the Class [ ] Certificates will be entitled to receive on any
Distribution Date 100% of all principal collections received in the related
Collection Period with respect to the Deposited Assets, to be distributed [on a
pro rata basis] in reduction of the Certificate Principal Balance of the Class
[ ] Certificates and the Class [ ] Certificates, if any of the following
conditions shall be satisfied: [describe conditions, if any, by which a certain
class is given 100% of the principal cash flow other than pursuant to
subordination that is in effect from the Closing Date].]
[OPTIONAL REDEMPTION
On each Distribution Date, or the next succeeding Business Day if such
Distribution Date is not a Business Day, on or after the Distribution Date in
[___________, 199_], the Certificates may be redeemed by the Trust at the
request of the Depositor at a price of [%] (the "Redemption Price"). In
addition, the Certificateholders shall be entitled to receive interest up to,
but not including, the Redemption Date.]
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[ADVANCES
Subject to the following limitations, the Trustee will be obligated to
advance or cause to be advanced on or before each Distribution Date its own
funds, or funds in the Certificate Account that are not included in the
Available Funds for such Distribution Date, in an amount equal to the aggregate
of payments of principal, premium (if any) and interest, net of that portion of
the Administrative Fee (as defined herein) attributable to fees and expenses of
the Trustee, that were due during the related Collection Period and that were
delinquent on the related Determination Date (any such advance, an "Advance").
Advances are required to be made only to the extent they are deemed by the
Trustee to be recoverable from related late collections, insurance proceeds, if
any, or Liquidation Proceeds. The purpose of making such Advances is to maintain
a regular cash flow to the Certificateholders, rather than to guarantee or
insure against losses. The Trustee will not be required to make any Advances
with respect to reductions in the amount of the payments on the Deposited Assets
due to bankruptcy proceedings with respect to the Deposited Assets.
All Advances will be reimbursable to the Trustee from late collections,
insurance proceeds, if any, and any proceeds from the liquidation of the
Deposited Asset ("Liquidation Proceeds") as to which such unreimbursed Advance
was made. In addition, any Advances previously made in respect of any Deposited
Asset that are deemed by the Trustee to be nonrecoverable from related late
collections, insurance proceeds, if any, or Liquidation Proceeds may be
reimbursed to the Trustee out of any funds in the Certificate Account allocable
to any of the Deposited Assets prior to the distributions on the Certificates.
In the event that the Trustee fails in its obligation to make any such Advance,
the Trustee may be obligated to make any such Advance, to the extent provided in
the Trust Agreement.]
ALLOCATION OF LOSSES; SUBORDINATION
The subordination described herein provided by the Class [ ] Certificates
[and the Class [ ] Certificates] is designed to protect holders of the remaining
classes of Certificates from certain losses and other shortfalls with respect to
the Deposited Assets. As a result, losses and other shortfalls with respect to
the Deposited Assets will be borne by the remaining classes of Certificates, to
the extent described below, only if such losses and other shortfalls are not so
covered, or the coverage in respect thereof has been exhausted.
[Realized Losses and Extraordinary Trust Expenses will be allocated on any
Distribution Date as follows: [describe allocation among the various classes].]
[An "Extraordinary Trust Expense" is an expense of a given Trust in excess
of the Allowable Expense Amount, including certain reimbursements to the
Depositor described in the Prospectus under "Description of Certificates--
Certain Matters Regarding the Depositor" and certain reimbursements to the
Trustee described under "Description of the Trust Agreement--The Trustee"
herein.]
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[RESTRICTIONS ON TRANSFER OF THE CLASS [ ] CERTIFICATES
Because the Class [ ] Certificates are subordinate to the Class [ ]
Certificates and the Class [ ] Certificates to the extent set forth herein, the
Class [ ] Certificates may not be purchased by or transferred to a Plan except
upon the delivery of an opinion of counsel as described herein. See "ERISA
Considerations."]
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 1996-[ ] Supplement) will consist of (i) the
Deposited Assets (exclusive of any Retained Interest, which is not part of the
Trust), (ii) all payments on or collections in respect of the Deposited Assets
due after the Cut-off Date, together with any proceeds thereof[,] [and] [(iii)
any Credit Support in respect of any class or classes of Certificates] [and (iv)
the rights of the Depositor under the Purchase Agreement between the Depositor
and the Seller]. [In addition, the Certificateholders of the Certificates may
also have the benefit of certain Credit Support discussed above. See
"Description of Credit Support."] 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 TRUSTEE
[ ], a [ ] corporation, will act as trustee for the Certificates and the
Trust pursuant to the Trust Agreement. The Trustee's offices are located at [ ]
and its telephone number is [ ].
The Trust Agreement will provide that the Trustee and any director,
officer, employee or agent of the Trustee will be indemnified by the 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 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.
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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 any Underlying 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 any Underlying
Security when the same becomes due and payable; and (iii) the occurrence and
continuance of such other events specified in the applicable Series Supplement.]
[Describe remedies available to Certificateholders upon the occurrence and
continuance of an Event of Default, including, as applicable, directing the
Trustee to vote the Underlying Securities in favor of declaring the principal
balance of and any accrued interest on the Outstanding Debt Securities to be
immediately due and payable].
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 [and the holder of the
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 premium, if any, or interest on any
of the Underlying 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 [and the holder of
the 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 Series evidencing not less than the
"Required Percentage--Remedies" specified in the applicable series supplement of
the aggregate Voting Rights of such Series 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 Series evidencing not less
than the Required Percentage--Remedies of the aggregate Voting Rights of such
Series.
VOTING RIGHTS
[At all times,] [Subject to the succeeding paragraph,] [ ]% of all Voting
Rights will be allocated among all holders of the Class [ ] Certificates[,]
[and] the Class [ ] Certificates [and specify other classes] in proportion to
the then outstanding Certificate Principal Balances [or Notional Amounts] of
their respective Certificates and [ ]% of all Voting Rights will be allocated
among all holders of the Class [ ] Certificates in proportion to the then
outstanding [Certificate Principal Balances] [Notional Amounts] of their
respective Certificates. [Specify whether and under what circumstances voting
will be class-by-class.]
[Specify conditions, if any, under which allocation of Voting Rights might
change from the foregoing percentages.]
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[Specify the rights, if any, of the holder of the Retained Interest to
consent to certain actions.]
VOTING OF UNDERLYING SECURITIES, MODIFICATION OF INDENTURE
The Trustee, as holder of the Underlying Securities, has the right to vote
and give consents and waivers in respect of such Underlying Securities as
permitted by DTC and except as otherwise limited by the Trust Agreement. In the
event that the Trustee receives a request from DTC, the Underlying Securities
Trustee or the Underlying Securities Issuer for its consent to any amendment,
modification or waiver of the Underlying Securities, the Indenture or any other
document thereunder or relating thereto, or receives any other solicitation for
any action with respect to the Underlying Securities, the Trustee shall mail a
notice of such proposed amendment, modification, waiver or solicitation to each
Certificateholder of record as of such date. The Trustee shall request
instructions from the 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 and Notional
Amounts of the Certificates, as applicable) as the Certificates of the 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 Underlying Securities, including, without
limitation, any demand to accelerate the Underlying Securities, except in the
event of a Underlying Security Event of Default or an event which with the
passage of time would become a Underlying Security Event of Default and with the
unanimous consent of all holders of Outstanding Certificates or (iii) which
would result in the exchange or substitution of any of the outstanding
Underlying Securities pursuant to a plan for the refunding or refinancing of
such Underlying Securities except in the event of a default under the Indenture
and only with the consent of Certificateholders representing 100% of the
aggregate voting rights of each outstanding Class of the Certificates and the
holder of the Retained Interest]. 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.
In the event that an offer is made by the Underlying Securities Issuer to
issue new obligations in exchange and substitution for any of the Underlying
Securities, pursuant to a plan for the refunding or refinancing of the
Outstanding Debt Securities or any other offer is made for the Underlying
Securities, the Trustee shall notify the Certificateholders and the holder of
the Retained Interest] of such offer as promptly as practicable. The Trustee
must reject any such offer unless an event of default under the Indenture has
occurred, the Trustee is directed by the affirmative vote of all of the
Certificateholders [and the holder of the Retained Interest] to accept such
offer and the Trustee has received the tax opinion described above. Accordingly,
a Certificateholder generally would be required to effect a
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withdrawal of Requested Underlying Securities from the Trust in order to accept
such offer. See "--Optional Exchange of Certificates."
If an event of default under the Indenture occurs and is continuing and if
directed by all the holders of outstanding Class [ ] Certificates and, unless
the Class [ ] Certificates are no longer outstanding, by all the holders of
outstanding Class [ ] Certificates, [and the holder of the Retained Interest,]
the Trustee shall vote the Underlying Securities in favor of directing, or take
such other action as may be appropriate to direct, the Underlying Securities
Trustee to declare the unpaid principal amount of the Underlying 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 Underlying
Securities, the Certificateholders' interests of each Class may differ and the
interests of either Class may differ from holders of other Outstanding Debt
Securities.
TERMINATION
The circumstances under which the obligations created by the Trust
Agreement will terminate in respect of the Certificates are described in
"Description of Certificates--Termination" in the Prospectus. The Depositor will
have the right to purchase all remaining Deposited Assets in the Trust and
thereby effect early retirement of the Certificates on any Distribution Date,
[(a)] once the aggregate principal amount of the Deposited Assets at the time of
any such purchase is less than [10%] of the aggregate principal amount of the
Deposited Assets as of the Cut-off Date [and (b) at the option of the Depositor
at [specify when and on what terms any such option may be exercised]]; provided,
however, that the right to exercise any such option is contingent on such
exercise being consistent 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. In the event the Depositor exercises any such option, the portion of
the purchase price allocable to the Certificates of each class will be, to the
extent of available funds, [100% of their then aggregate outstanding Certificate
Principal Balance or Notional Amount, as applicable, plus with respect to the
Certificates [one month's] [three month's] [specify other period] interest
thereon at the Fixed Pass-Through Rate or the then applicable Variable Pass-
Through Rate, as the case may be, plus, with respect to each class of
Certificates, any previously accrued but unpaid interest thereon.] [Specify
alternative allocation method if different from above.] In no event will the
Trust created by the Trust Agreement for the Certificates continue beyond the
expiration of 21 years from the death of the survivor of the person or persons
named in the Trust Agreement. See "Description of Certificates--Termination" in
the Prospectus.
CERTAIN LEGAL ASPECTS OF THE DEPOSITED ASSETS
[Describe any applicable legal aspects of the Deposited Assets or relating
to the enforceability by the Certificateholders of the security interest, if
any, securing such Deposited Assets.]
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain material Federal income
tax consequences of the purchase, ownership and disposition of the Certificates
by an initial holder of Certificates. Such consequences will depend on the terms
of the Certificate, whether the Trust is treated as a grantor trust or as a
partnership for Federal income tax purposes, and the assets collateralizing or
otherwise supporting such Certificate. The consequences of owning Certificates
which are deemed for Federal income tax purposes to be interests in a grantor
trust or in a partnership are discussed separately below under the captions
"Grantor Trust Certificates" and "Partnership Certificates," respectively. The
applicable Trust Agreement would include provisions appropriate to the
particulars of the transaction and to the relevant Federal income tax status of
the Trust and related Certificates.
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. The Prospectus Supplement for each series of Certificates will
tailor the description of the Federal income tax consequences to the specific
Certificates issued pursuant thereto, as therein limited.
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
If the Trust is intended to be classified as a grantor trust and not as an
association taxable as a corporation for Federal income tax purposes, Federal
Tax Counsel will so opine. The remainder of this discussion prior to
"Partnership Certificates" assumes that the Trust is a grantor trust and not 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, and as if it paid directly its share of
reasonable expenses paid by the Trust. The following discussion assumes that the
Underlying Securities were not
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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 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
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 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 Trust, including interest on and other amounts
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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. 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 each Underlying 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."
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 Trust.
In general, under the market discount provisions of the Code, all or a
portion of the principal payments received by the 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 Trust acquired the Underlying
Certificate (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
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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 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 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 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
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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 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 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 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.
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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, trustee fees and other fees paid or incurred by
the Trust and any allowable amortization deductions with respect to certain
other assets of the 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 increased by any amounts of undistributed taxable
income (e.g., OID or market discount) and reduced by any amortized premium (each
as described above) and any 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.
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 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
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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 or (c) upon receipt by the Trustee of payments of principal
on the 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 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 said 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 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 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.
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
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 are
prospective investors should consult with their tax advisors regarding the
potential effect of this provision on their investment in the Certificates.
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
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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 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.
Partnership Certificates
If the Trust is intended to be treated as a partnership for purposes of
Federal income taxation, Federal Tax Counsel will so opine. The availability of
any tax benefits of investing in Certificates depends upon the classification of
the Trust as a partnership, rather than as an association taxable as a
corporation, for federal income tax purposes. Federal Tax Counsel's opinion
regarding the status of the Trust as a partnership for federal income tax
purposes is based on provisions of the Trust Agreement which (1) provide that
the Trust will terminate upon the occurrence of certain events such as the
insolvency or bankruptcy of the Depositor, (2) restrict the transferability of
the Certificates, (3) impose personal liability on the Depositor for expenses
and other liabilities of the Trust, (4) require that the Depositor will have a
net worth sufficient to meet the net worth requirements set by the Service for
the issuance of an advance ruling that an organization lacks the corporate
characteristic of limited liability for federal income tax purposes, (5)
restrict the number of Certificate Owners and (6) restrict the transfer of
Certificates on an "established securities market" as defined in Section 7704 of
the Code.
If the Trust were taxable as a corporation, it would be subject to federal
income tax on any taxable income at regular corporate tax rates. Classification
of the Trust as a corporation would result in a substantial reduction in (or
elimination of) after-tax yield and cash flow to an Owner of a Certificates with
respect to its Certificate.
Final regulations have been issued that provide an anti-abuse rule under
Subchapter K of Chapter 1 of the Code. These regulations authorize the Service,
based upon all of the facts and circumstances, to recast a transaction involving
a partnership as appropriate to reflect the underlying economic arrangement or
to prevent the circumvention of other provisions of the Code. This authority to
recast a transaction includes, but is not limited to, disregarding and
reallocating allocations of the partnership's items of income, gain, loss,
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deductions, or credits. It cannot be predicted whether the Service will asset
that such a rule would apply to recast the Federal income tax treatment of
either the Trust of the Certificates. Holders should consult their own tax
advisers in this regard.
The Service has recently issued proposed Treasury Regulations Section
1.7701-1 through 1.7701-3 which simplifies the regulations relating to the
classification of unincorporated business organizations, including entities such
as the Trust, as partnerships and corporations for federal income tax purposes
and is seeking public comments on the proposed regulations. At this time, the
Service has not yet finalized the proposed regulations and it is unclear when
they will be finalized and the form such final regulations may take.
Accordingly, although the ultimate effect of such regulations cannot be
predicted, it is not believed that any such simplifying regulations should
adversely affect the classification of the Trust as a partnership. Investors
should consult their own tax advisors in this regard.
Partnership Taxation
As a partnership, the Trust will not be subject to Federal income tax, but
each Certificate Owner will be required to separately take into account such
holder's allocable share of income, gains, losses, deductions and credits of the
Trust. Each Certificate Owner will be required to take into account in
computing such Certificate Owner's federal income tax liability its share of
items of Trust income, gains, losses, deductions and credits for the tax year of
the Trust ending within or with the tax year of such Certificate Owner, without
regard to whether there are distributions from the Trust. A Certificate Owner's
distributive share of Trust income, expense, gain, loss or credit will be
determined in accordance with the Trust Agreement. All or a portion of any
allocated expenses (to the extent not otherwise disallowed under the Code) may
be treated as investment expenses subject to limitations on deductibility of
miscellaneous itemized deductions that do not exceed two percent of their
adjusted gross income in the case of Certificate Owners who are individuals,
estates or trusts.
A Certificate Owner's ability to recognize its distributive share of
expenses or losses, if any, may be subject to limitation under the Code (for
example, a Certificate Owner's distributive share of Trust loss, including
capital loss, may be allowed only to the extent of such Certificate Owner's
adjusted basis in its Certificate). A Certificate Owner should consult its tax
advisors in this regard.
Any cash distributions by the Trust to a Certificate Owner will constitute
(i) first, a return of capital to the extent of such Certificate Owner's tax
basis in the Certificate (with a corresponding dollar-for-dollar reduction in
such tax basis), and (ii) thereafter, to the extent in excess thereof, gain on
the sale or exchange of such Certificate Owner's Certificate. See "Disposition
of Certificates" below.
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DISCOUNT AND PREMIUM
It is believed that the Underlying Securities were not issued with OID and,
therefore, the Trust should not have OID income. However, the purchase price
paid by the Trust for the Underlying Securities may be greater or less than the
remaining principal balance of the Underlying Securities at the time of
purchase. If so, the Underlying Securities will have been acquired at a premium
or discount, as the case may be. Moreover, to the extent a deemed termination
of the Trust occurs as discussed below, it is possible that discount or premium
will be created, depending on the value of the Underlying Securities at such
time.
The amortization of bond premium and accrual of market discount are
discussed above under "Bond Premium" and "Tax Treatment of Certificates to the
Extent They Are Not Stripped Interests." For purposes of this discussion, the
Partnership will be considered the Certificate Owner.
MODIFICATION OR EXCHANGE OF UNDERLYING SECURITIES
Depending upon the circumstances, it is possible that a modification of the
terms of the Underlying Securities, or a substitution of other assets for the
Underlying Securities would be a taxable event to the Trust, which may result in
Federal income tax consequences to Certificate Owners.
TAX CONSEQUENCES OF OTHER ASSETS HELD BY TRUST
The manner in which income with respect to the other assets of the Trust
should be accrued will depend on the nature of those assets.
[Discuss specific tax consequences of other assets.]
SECTION 708 TERMINATION
Under Section 708 of the Code, the Trust will be deemed to terminate for
Federal income tax purposes if 50% or more of the capital and profits interests
in the Trust are sold or exchanged within a twelve-month period. Were such a
termination to occur, the Trust would be considered to have distributed its
assets to the partners, the Certificate Owners, who would then be treated as
having recontributed those assets to the Trust, as a new partnership.
DISPOSITION OF CERTIFICATES
Generally, capital gain or loss will be recognized on a sale or other
disposition of Certificates in an amount equal to the difference between the
amount realized and the seller's tax basis in the Certificates sold. A
Certificate Owner's tax basis in a Certificate will generally equal its cost
increased by his share of Trust income includible in his income (including for
the taxable year of sale) and decreased by any distributions received with
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respect to such Certificate. In addition, both his tax basis in, and the amount
realized on a sale of, a Certificate would include the holder's share of
liabilities of the Trust. A holder acquiring Certificates at different prices
may be required to maintain a single aggregate adjusted tax basis in such
Certificate and, upon sale or other disposition of some of the Certificates,
allocate a pro rata portion of such aggregate tax basis to the Certificates sold
(rather than maintaining a separate tax basis in each Certificate for purposes
of computing gain or loss on a sale of that Certificate).
"The Revenue Reconciliation Act of 1993" (the "Tax Act") raised tax rates
on ordinary income while capital gains remain subject to a 28 percent maximum
stated rate. Because some or all capital gains are taxed at a comparatively
lower rate under the Tax Act, the Tax 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. Prospective Certificate Owners
should consult with their tax advisors regarding the potential effect of this
provision with respect to any gains recognized on their investment in
Certificates.
In general, the transfer of interests in the Trust should not affect
Certificate Owners other than those disposing of or acquiring a Certificate.
However, under the partnership rules, as described above, a transfer during a
twelve-month period of 50% or more of the total interests in the partnership
capital and profits will result for Federal income tax purposes in a termination
and reconstitution of the Trust, with the result that the Trust's basis in the
Underlying Securities and Deposited Assets will equal the aggregate of the
Certificate Owner's basis in their Certificates. Upon the subsequent receipt of
principal payments on the Underlying Securities or the sale or redemption of the
Underlying Securities, this rule may result in the recognition of gain or loss
by a Certificate Owner in advance of the sale or redemption of its Certificate.
On the sale of a Certificate, any gain attributable to the holder's share
of any accrued market discount on the Underlying Securities that has not
otherwise been included in the holder's income would generally be treated as
ordinary income to the holder and would give rise to special tax reporting
requirements.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES
In general, the Trust's taxable income and losses will be determined
monthly and the tax items for a particular calendar month allocable to a
particular class of Certificates will be apportioned among holders of such
Certificates in proportion to the principal amount of such Certificates owned by
them as of the first business day following the end of such month. As a result,
a holder purchasing Certificates may be allocated tax items (which will affect
its tax liability and tax basis) attributable to periods before the actual
transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If such a convention is not allowed (or only applies to transfers
of less than all of a Certificate Owner's interest), taxable income or losses of
the Trust might be reallocated among the Certificate Owners. The Trustee is
authorized to revise the Trust's method of
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allocation between transferors and transferees to conform to a method permitted
by future regulations.
SECTION 754 ELECTION
In the event that a Certificate Owner sells its Certificates at a profit
(loss), the purchasing Certificate Owner will have a higher (lower) basis in the
Certificates than the selling Certificate Owner had. The tax basis of the
Trust's assets will not be adjusted to reflect that higher (or lower) basis
unless the Trust were to file an election under Section 754 of the Code. In
order to avoid the administrative complexities that would be involved in keeping
accurate accounting records, as well as potentially onerous information
reporting requirements, the Trust will not make such election. As a result
Certificate Owners might be allocated a greater or lesser amount of Trust income
than would be appropriate based on their own purchase price for Certificates.
ADMINISTRATIVE MATTERS
The Trustee is required to keep complete and accurate books of the Trust.
Such books will be maintained for financial reporting and tax purposes on an
accrual basis. The Trustee will file a partnership information return (Service
Form 1065) with the Service for each taxable year of the Trust and will report
each Certificate Owner's allocable share of items of Trust income and expense to
holders and the Service on Schedule K-1. The Trust will provide the Schedule K-
1 information to nominees that fail to provide the Trust with the information
statement described below and such nominees will be required to forward such
information to the beneficial owners of the Certificates. Generally, holders
must file tax returns that are consistent with the information return filed by
the Trust or be subject to penalties, unless the holder notifies the Service of
all such inconsistencies.
Under Code Section 6031, any person that holds Certificates as a nominee at
any time during a calendar year is required to furnish the Trust with a
statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (x) the name, address and taxpayer identification number of such person,
(y) whether such person is not a United States person, a tax-exempt entity, or a
foreign government, an international organization, or any wholly-owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold
Certificates through a nominee are required to furnish directly to the Trust
information as to themselves and their ownership of Certificates. A clearing
agency registered under Section 17A of the Exchange Act is not required to
furnish any such information statement to the Trust. The information referred
to above for any calendar year must be furnished to the Trust on or before the
following January 31. Nominees, brokers and financial institutions that fail to
provide the Trust with the information described above may be subject to
penalties.
S-41
<PAGE>
The Depositor, as the tax matters partner, will be responsible for
representing the Certificate Owners in any dispute with the Service. The Code
provides for administrative examination of a partnership as if the partnership
were a separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificate Owners and, under
certain circumstances, a Certificate Owner may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of a Certificate Owner's returns and adjustments of
items not related to the income (or loss) of the Trust.
TAX CONSEQUENCES TO FOREIGN CERTIFICATE OWNERS
It is not clear whether the Trust would be considered to be engaged in a
trade or business in the United States for purposes of Federal withholding taxes
with respect to non-U.S. persons because there is no clear authority dealing
with that issue under facts substantially similar to those described herein.
[Although it is not expected that the Trust would be engaged in a trade or
business in the United States for such purposes, the Trust expects to withhold
as if it were so engaged in order to protect the Trust from possible adverse
consequences of a failure to withhold. The Trust expects to withhold on the
portion of its taxable income that is allocable to foreign Certificate Owners
pursuant to Code Section 1446, as if such income were effectively connected to
U.S. trade or business, at a rate of 35% for foreign holders that are taxable as
corporations and 39.6% for all other foreign holders. Subsequent adoption of
Treasury regulations or the issuance of other administrative pronouncements may
require the Trust to change its withholding procedures. In determining a
holder's nonforeign status, the Trust may rely on Form W-8, Form W-9 or the
holder's certification of nonforeign status signed under penalties of perjury.]
[Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the branch
profits tax) on its share of the Trust's income. Each foreign holder must
obtain a taxpayer identification number from the Service and submit that number
to the Trust on Form W-8 in order to assure appropriate crediting of the taxes
withheld. A foreign holder generally would be entitled to file with the Service
a claim for refund with respect to taxes withheld by the Trust, taking the
position that no taxes were due because the Trust was not engaged in a U.S.
trade or business. The Trust will cooperate in any such refund claim if it can
do so without incurring any out-of-pocket cost. No assurance can be given as to
whether any such refund claim would be granted.]
[The foregoing summary will be modified, as necessary, to reflect
differences caused by the precise nature of the Deposited Assets relating to a
given Series of Certificates.]
S-42
<PAGE>
[CERTAIN STATE TAX CONSEQUENCES
[Describe any applicable state tax consequences that may arise, including
as a result of the specific nature of the Deposited Assets relating to a given
Series of Certificates or the degree of servicing required with respect to such
Deposited Assets.]]
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"). Moreover, based on the
reasoning of the United States Supreme Court's decision in John Hancock Life
Ins. Co. v. Harris Trust and Sav. Bank, 114 S.Ct. 517 (1993), an insurance
company investing assets in its general account might be treated as a Plan on
the grounds that such an investor may be investing assets of an employee benefit
plan subject to ERISA.
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
Trust being deemed to constitute Plan assets, which in turn might mean that
certain aspects of such investment, including the operation of the 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 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 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
S-43
<PAGE>
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 does not anticipate that 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 the Trust were deemed to be Plan assets, certain transactions
involving the Trust, including the acquisition of the Certificates themselves by
a Plan, could be prohibited transactions. If, for example, an obligor with
respect to any of the Deposited Assets, or any of such obligor's affiliates,
were a party in interest or disqualified person with respect to an acquiring
Plan, the acquisition of the Certificate could be construed as a prohibited
indirect loan from the Plan to the obligor. 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 Exemptions ("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 Trust. To the extent an insurance
company invests assets treated as assets of a Plan, it will be required to make
the foregoing representation as a condition to the acquisition of a Certificate.
Alternatively, if the Depositor is able to confirm the existence of at least 100
independent purchasers of a class, the foregoing representation will not be a
condition to acquisition of Certificates of such class.
Any Plan or insurance company investing assets of its general account
proposing to acquire Certificates should consult with its counsel.
S-44
<PAGE>
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, dated as of [ ], 199[ ] (the "Underwriting Agreement"), the Depositor
has agreed to sell and [Morgan Keegan & Company, Inc. (an affiliate of the
Depositor)] [each of the Underwriters named below, including Morgan Keegan &
Company, Inc. (an affiliate of the Depositor)] (the "Underwriter[s]")[,] has
[severally] agreed to purchase, the [Certificates] [the principal amount of each
class of Certificates set forth below opposite its name].
<TABLE>
<CAPTION>
Class [ ] Class [ ] Class [ ]
<S> <C> <C> <C>
Morgan Keegan & Company, Inc... $ $ $
________ ________ ________
Total..................... $ $ $
======== ======== ========
</TABLE>
[Morgan Keegan & Company, Inc. has] [The several Underwriters have] agreed,
subject to the terms and conditions set forth in the Underwriting Agreement, to
purchase all Certificates offered hereby if any of such Certificates are
purchased. [In the event of default by any Underwriter, the Underwriting
Agreement provides that, in certain circumstances, the purchase commitments of
non-defaulting Underwriters may be increased or the Underwriting Agreement may
be terminated.]
The Depositor has been advised by the Underwriter[s] that [it][they]
propose[s] to offer the Certificates from time to time in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. The Underwriter[s] 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[s] and
any purchasers of Certificates for whom they may act as agents. The
Underwriter[s] and any dealers that participate with the Underwriter[s] 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 Underwriting Agreement provides that the Depositor will indemnify the
Underwriter[s] against certain civil liabilities, including liabilities under
the Securities Act, or will contribute to payments the Underwriter[s] 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-45
<PAGE>
RATINGS
It is a condition to the issuance of the Certificates that the Certificates
be rated not lower than [specify ratings applicable to each class] by [Standard
& Poor's Corporation ("Standard & Poor's")][Moody's Investors Service, Inc.
("Moody's")][Fitch Investors Service, L.P. ("Fitch")] [and] [Duff & Phelps
Credit Rating Company ("Duff & Phelps")](the "Rating[Agency][Agencies]"). The
ratings address the likelihood of the receipt by Certificateholders of payments
required under the Trust Agreement, and are based primarily on the credit
quality of the Deposited Assets and any providers of Credit Support, as well as
on the relative priorities of the Certificateholders of each class of the
Certificates with respect to collections and losses with respect to the
Deposited Assets. 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 Deposited Assets, the corresponding
effect on yield to investors, or whether investors in the Class [ ] Certificates
[specify class with Notional Amount] may fail to recover fully their initial
investment.
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 any other
security rating.
The Depositor has not requested a rating on the Certificates by any rating
agency other than the Rating [Agency] [Agencies]. 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 Rating [Agency]
[Agencies].
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed upon for
the Depositor and the Underwriter[s] by Chapman and Cutler, Chicago, Illinois.
S-46
<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
Page
Summary of Principal Economic Terms...........................................
Summary of Prospectus Supplement..............................................
Formation of the Trust........................................................
Risk Factors..................................................................
Description of the Deposited Assets...........................................
[Description of Credit Support]...............................................
Yield on the Certificates.....................................................
Description of the Certificates...............................................
Description of the Trust Agreement............................................
Certain Legal Aspects of the Deposited Assets.................................
Certain Federal Income Tax Consequences.......................................
Certain State Tax Consequences................................................
ERISA Considerations..........................................................
Plan of Distribution..........................................................
Ratings.......................................................................
Legal Opinions................................................................
PROSPECTUS
Prospectus Supplement.........................................................
Available Information.........................................................
Incorporation of Certain Information by Reference.............................
Reports to Certificateholders.................................................
Risk Factors..................................................................
The Depositor.................................................................
Use of Proceeds...............................................................
Formation of the Trust........................................................
Maturity and Yield Considerations.............................................
Description of Certificates...................................................
Description of Deposited Assets and Credit Support............................
Description of the Trust Agreement............................................
Plan of Distribution..........................................................
Legal Opinions................................................................
_________________
Until 90 days after the date of each 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.
================================================================================
================================================================================
$_____________________
SOUTHPOINT STRUCTURED
ASSETS, INC.
TRUST CERTIFICATES, SERIES ___
____________________
PROSPECTUS SUPPLEMENT
____________________
[UNDERWRITER]
_____________, 199_
================================================================================
S-47
<PAGE>
Subject to Completion Dated__________,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 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 a trust (the "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 (i) 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,
and/or (ii) from the underwriter who purchased the Underlying Securities in
connection with the initial issuance thereof, provided such underwriter's
participation in such offering was no greater than 10%. 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 20% 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 20% 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 obligation 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
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 the 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.
<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 exchange, whether mandatory or optional, the 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 Commission's Regional Offices at Seven World
Trade Center, New York, New York 10048, and Northwestern Atrium Center, 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. 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.
-i-
<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.
-ii-
<PAGE>
TABLE OF CONTENTS
Heading Page
Prospectus Supplement..........................................................I
Available Information..........................................................I
Incorporation of Certain Information by Reference.............................II
Reports to Certificateholders.................................................II
Risk Factors...................................................................1
The Depositor..................................................................3
Use of Proceeds................................................................3
Formation of the Trust.........................................................3
Maturity and Yield Considerations..............................................5
Description of Certificates....................................................6
General.....................................................................7
Distributions...............................................................9
Interest on the Certificates...............................................10
Principal of the Certificates..............................................17
Optional Redemption of Certificates........................................18
Optional Exchange..........................................................18
Global Securities..........................................................20
Description of Deposited Assets and Credit Support............................22
General....................................................................22
Underlying Securities......................................................23
Principal Economic Terms of Underlying Securities..........................25
Publicly Available Information.............................................26
Other Deposited Assets.....................................................26
Credit Support.............................................................26
Collections................................................................28
Description of the Trust Agreement............................................29
General....................................................................29
Assignment of Deposited Assets.............................................30
Collection and Other Administrative Procedures.............................30
Retained Interest..........................................................32
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Advances in Respect of Delinquencies......................................33
Certain Matters Regarding the Administrative Agent and the Depositor......34
Administrative Agent Termination Events; Rights Upon Administrative
Agent Termination Event............................................35
Modification and Waiver...................................................36
Reports to Certificateholders.............................................37
Evidence as to Compliance.................................................39
Replacement Certificates..................................................39
Termination...............................................................39
Duties of the Trustee.....................................................40
The Trustee...............................................................41
Plan of Distribution.........................................................41
Legal Opinions...............................................................42
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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. The Certificates will not represent a
recourse obligation of or interest in the Depositor or any of its affiliates.
Unless otherwise specified in the applicable Prospectus Supplement, 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.
Credit Support; 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."
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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."
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 "Certain Federal
Income Tax Considerations" in the related Prospectus Supplement.
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 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,
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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).
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.
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
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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 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."
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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.
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,
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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 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.
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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 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 within 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 any Certificateholder of such
Series or Class to withdraw a portion of the assets of the Trust in exchange for
surrendering such Certificateholder's Certificate or of the Depositor or
Administrative Agent, if any, or another third party to purchase or repurchase
any
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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 entitled 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.
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
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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 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
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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 as 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 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. 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 to the first Interest Reset Date (as defined below)
for such Series or Class at the Initial Pass-Through Rate set forth on the
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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 Rates 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 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
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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 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.
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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 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.
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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)
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.
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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 as 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 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
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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).
(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
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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 or, if such a 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.
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
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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."
OPTIONAL EXCHANGE
If a holder may exchange Certificates of any given Series for a pro rata
portion of the Deposited Assets, the applicable Prospectus Supplement will
designate such Series as an "Exchangeable Series." The terms upon which a holder
may exchange Certificates of any Exchangeable Series for a pro rata portion of
the Deposited Assets of the related Trust will be specified in the related
Prospectus Supplement; provided that any right of exchange shall be exercisable
only to the extent that such exchange would not be inconsistent with the
Depositor's and such Trust'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. Such
terms may relate to, but are not limited to, the following:
(a) a requirement that the exchanging holder tender to the Trustee
Certificates of each Class within such Exchangeable Series;
(b) a minimum Certificate Principal Balance or Notional Amount, as
applicable, with respect to each Certificate being tendered for exchange;
(c) a requirement that the Certificate Principal Balance or Notional
Amount, as applicable, of each Certificate tendered for exchange be an
integral multiple of an amount specified in the Prospectus Supplement;
(d) specified dates during which a holder may effect such an exchange
(each, an "Optional Exchange Date");
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(e) limitations on the right of an exchanging holder to receive any
benefit upon exchange from any Credit Support or other non-Underlying
Securities deposited in the applicable Trust; and
(f) adjustments to the value of the proceeds of any exchange based
upon the required prepayment of future expense allocations and the
establishment of a reserve for any anticipated Extraordinary Trust
Expenses.
Unless otherwise specified in the related Prospectus Supplement, in order
for a Certificate of a given Exchangeable Series (or Class within such
Exchangeable Series) to be exchanged by the applicable Certificateholder, the
Trustee for such Certificate must receive, at least 30 (or such shorter period
acceptable to the Trustee) but not more than 45 days prior to an Optional
Exchange Date (i) such Certificate with the form entitled "Option to Elect
Exchange" on the reverse thereof duly completed, or (ii) in the case of
Registered Certificates, a telegram, telex, facsimile transmission or letter
from a member of a national securities exchange or the National Association of
Securities Dealers, Inc., the Depository (in accordance with its normal
procedures) or a commercial bank or trust company in the United States setting
forth the name of the holder of such Registered Certificate, the Certificate
Principal Balance or Notional Amount of such Registered Certificate to be
exchanged, the certificate number or a description of the tenor and terms of
such Registration Certificate, a statement that the option to elect exchange is
being exercised thereby and a guarantee that the Registered Certificate to be
exchanged with the form entitled "Option to Elect Exchange" on the reverse of
the Registered Certificate duly completed will be received by such Trustee not
later than five Business Days after the date of such telegram, telex, facsimile
transmission or letter. If the procedure described in clause (ii) of the
preceding sentence is followed, then such Registered Certificate and form duly
completed must be received by such Trustee by such fifth Business Day. Any
tender of a Certificate by the holder for exchange shall be irrevocable. The
exchange option may be exercised by the holder of a Certificate for less than
the entire Certificate Principal Balance of such Certificate provided that the
Certificate Principal Balance or Notional Amount, as applicable, of such
Certificate remaining outstanding after redemption is an authorized denomination
and all other exchange requirements set forth in the related Prospectus
Supplement are satisfied. Upon such partial exchange, such Certificate shall be
cancelled and a new Certificate or Certificates for the remaining Certificate
Principal Balance thereof shall be issued (which, in the case of any Registered
Certificate, shall be in the name of the holder of such exchanged Certificate).
Unless otherwise specified in the applicable Prospectus Supplement, because
initially and until Definitive Certificates are issued each Certificate will be
represented by a Global Security, the Depository's nominee will be the
Certificateholder of such Certificate and therefore will be the only entity that
can exercise a right of exchange. In order to ensure that the Depository's
nominee will timely exercise a right of exchange with respect to a particular
Certificate, the beneficial owner of such Certificate must instruct the broker
or other direct or indirect participant through which it holds an interest in
such Certificate to notify the Depository of its desire to exercise a right of
exchange. Different firms have different cut-off times for accepting
instructions from their customers and, accordingly,
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each beneficial owner should consult the broker or other direct or indirect
participant through which it holds an interest in a Certificate in order to
ascertain the cut-off time by which such an instruction must be given in order
for timely notice to be delivered to the Depository.
Unless otherwise provided in the applicable Prospectus Supplement, upon the
satisfaction of the foregoing conditions and any applicable conditions with
respect to the related Deposited Assets, as described in such Prospectus
Supplement, the applicable Certificateholder will be entitled to receive a
distribution of a pro rata share of the Deposited Assets related to the
Exchangeable Series (and Class within such Exchangeable Series) of the
Certificate being exchanged, in the manner and to the extent described in such
Prospectus Supplement. Alternatively, to the extent so specified in the
applicable Prospectus Supplement, the applicable Certificateholder, upon
satisfaction of such conditions, may direct the related Trustee to sell, on
behalf of such Certificateholder, such pro rata share of the Deposited Assets,
in which event the Certificateholder shall be entitled to receive the net
proceeds of such sale, less any costs and expenses incurred by such Trustee in
facilitating such sale, subject to any additional adjustments set forth in the
Prospectus Supplement.
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 be transferred except as a whole by the
Depository for 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.
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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 registration 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 case 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 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 of 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.
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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 participants.
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, of $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 of Certificates
being offered thereby to the extent not set forth or different from the
description set forth above.
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) (i) in the secondary market and/or (ii) from
the underwriter who purchased the Underlying Securities in connection with the
initial issuance thereof, provided that such underwriter's participation in such
offering was no greater than 10%, 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
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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 20% 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 20% 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 organization (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 ten percent of the Underlying Securities for any Series of
Certificates as of the date of such Prospectus Supplement. The specific terms
and conditions of the Underlying Securities will be set forth in the related
Prospectus Supplement.
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.
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
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("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
(subject to any specified grace period); (ii) failure by the issuer to observe
or perform 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 comprised of a pool of securities, the applicable Prospectus
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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, or at the option of a holder thereof, 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 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 comprised 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.
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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.
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
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(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 financial information with respect to any such
obligor providing Credit Support for 20% or more of the aggregate principal
amount of such Class or Classes.
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 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
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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 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.
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. 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
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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 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. Article and section
references in parentheses below are to articles and sections in the Trust
Agreement. 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.
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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 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
in the event any Underlying Security represents ten percent or more of the total
Underlying Securities with respect to any Series of Certificates, 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.
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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 Agreement (as defined below).
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 any 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
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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
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
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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.
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.
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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 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. 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
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successor of the Administrative Agent under the Trust Agreement with respect to
the Certificates of any given Series.
ADMINISTRATIVE AGENT TERMINATION EVENTS; RIGHTS UPON ADMINISTATIVE 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 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
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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 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
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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 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:
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(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;
(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.
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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 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
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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 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 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.
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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 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.
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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 requirements of Schedule E of the By-Laws of the
National Association of Securities Dealers, Inc. regarding underwriting
securities of an affiliate.
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.
Affiliates of the Underwriters may act as agents or underwriters in
connection with the sale of the Certificates. Any affiliate of the Underwriters
so acting will be named, and its affiliation with the Underwriters described, in
the related Prospectus Supplement. Also, affiliates of the Underwriters may act
as principals or agents in connection with market-making transactions relating
to the Certificates. A Prospectus Supplement will be prepared with respect to
the Certificates for use by such affiliates in connection with offers and sales
related to market-making transactions in the Certificates.
LEGAL OPINIONS
Certain legal matters with respect to the Certificates 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.
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Subject to Completion Dated ____, 1996
Prospectus Supplement
(To Prospectus Dated __________, 1996)
Trust Certificates, Series 1996 - [ ]
$ [Notional Amount] [(Approximate)], Class Certificates,
[ %] [Variable] Pass Through Rate
$ [Notional Amount] [(Approximate)], Class Certificates,
[ %] [Variable] Pass Through Rate
Southpoint Structured Assets, Inc.
Depositor
Each Trust Certificate Series 1996--[ ] offered hereby will consist of
classes of Certificates, designated as Class Certificates[,] [and] Class
Certificates [and list others], [all] of which [only the Class Certificates[,]
[and] Class Certificates [and list others]] (collectively, the "Certificates")
and will represent a fractional undivided beneficial interest in the Series 1996
- -- [ ] Trust (the "Trust") to be formed pursuant to the Trust Agreement dated as
of [ ], between Southpoint Structured Assets, Inc. (the "Depositor") and [ ], as
trustee (the "Trustee"), as supplemented by the Series 1996 -- [ ] Supplement
dated as of [ ] (collectively, the "Trust Agreement"). The property of the
Trust will consist in part of [$][ ] aggregate principal amount of [a [ %]
[floating rate] [specify publicly issued debt security] due of [specify issuer]]
[a pool of [ %] [floating rate] publicly issued debt securities having a term of
[not less than years and not more than years] issued by [the United States of
America] [U.S. Government sponsored entity issuers] [Government Trust
Certificates ("GTCs") [provided that such GTCs, together with any AID-Guaranteed
Underlying Securities (as defined below), shall not account for 20% or more of
the aggregate cash flows on the Underlying Securities securing any Series of
Certificates]] [obligations guaranteed by the United States Agency for
International Development ("AID--Guaranteed Underlying Securities") [provided
that such AID-Guaranteed Underlying Securities, together with any GTCs, shall
not account for 20% or more of the aggregate cash flows on the Underlying
Securities securing any Series of Certificates]] [(other than the Retained
Interest referred to herein)] (collectively, the "Underlying Securities"), and
having the characteristics described herein under "Description of the Deposited
Assets." Terms used but not otherwise defined herein are defined in the
Prospectus attached hereto (the "Prospectus").
The Underlying Securities will be acquired by the Depositor and, pursuant
to the Trust Agreement, deposited into the Trust for the benefit of
Certificateholders. [The Underlying Securities were issued and sold as part of
an underwritten public offering in [ ].] The Underlying Securities are
obligations of the Underlying Securities Issuer and [explain whether senior or
subordinate, whether secured or unsecured and whether subject to any redemption
or put rights]. [Describe any required principal payments of Underlying
Securities.]
Distributions on the Certificates will be made [monthly] [quarterly] [semi-
annually] on [[ ] of each year] [to be conformed to interest payment dates for
Underlying Securities], or, if any such date is not a business day, then on the
immediately following business day (each, a "Distribution Date") commencing [ ].
The last day on which distributions are scheduled to be made on the Certificates
is [ ] (the "Final Distribution Date"), by which date the holders of the
Certificates will receive a distribution of all amounts allocable to principal
on such Certificates or, to the extent specified herein, a pro rata share of any
remaining Underlying Securities.
[The Certificates are redeemable in whole on any Distribution Date on or
after the ____________, 19__ Distribution Date at a price equal to par (the
"Redemption Price") plus accrued and unpaid interest, upon exercise of the
optional redemption right by the holder of the Call Warrant. See "Risk Factors-
- -Maturity and Yield Considerations" and "Description of the Certificates--
Optional Redemption" herein.]
[The Certificates have been authorized for listing, upon official notice of
issuance, with the [name of exchange].]
SEE "RISK FACTORS" HEREIN ON PAGES [__] TO [__] AND IN THE PROSPECTUS ON
PAGES [*] TO [*].
-------------------
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
UNDERLYING SECURITIES ISSUER OR ANY OF ITS AFFILIATES.
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.
-------------------
The Underwriter has agreed to purchase the Certificates from the Depositor
at [ ]% of the Certificate Principal Balance thereof ($[ ] aggregate proceeds to
the Depositor, before deducting expenses estimated at $[ ]) plus accrued
interest, if any, at the Pass-Through Rate calculated from [ ], 1996 (the
"Expected Settlement 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 or otherwise, 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 [specify applicable classes] Certificates will
be made in book-entry form through the facilities of The Depository Trust
Company on or about the Expected Settlement Date.
[NAME OF UNDERWRITER]
__________, 1996
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 of 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.
<PAGE>
As and to the extent described herein, collections received by the Trustee
with respect to the Deposited Assets will be distributed to Certificateholders
[of each class] in the manner and priority described herein. [The rights of the
holders of the Class Certificates [and specify other classes] to receive
distributions of such collections are subordinated to the rights of the holders
of the Class Certificates [and specify other classes].] As and to the extent
described herein, losses realized on the Deposited Assets will be borne by the
holders of the Class Certificates [and specify other classes] before such losses
will be borne by the holders of the other classes of Offered Certificates [and
the Class Certificates [and specify other classes]]. To the extent described
herein, the relative priorities of each class of Certificates with respect to
collections from and losses on the Deposited Assets may each change over time,
either permanently or temporarily, upon the occurrence of certain circumstances
specified herein. See "Description of the Certificates--Subordination."
The Underlying Securities Issuer is not participating in, and will not
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.
The [specify applicable classes] 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. 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.
UNTIL __________, 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT
S-2
<PAGE>
RELATES. 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.
S-3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
HEADING PAGE
<S> <C>
SUMMARY OF PRINCIPAL ECONOMIC TERMS............................. S-6
The Certificates............................................. S-6
The Underlying Securities.................................... S-8
Other Deposited Assets....................................... S-9
SUMMARY OF PROSPECTUS SUPPLEMENT................................ S-9
FORMATION OF THE TRUST.......................................... S-14
RISK FACTORS.................................................... S-14
DESCRIPTION OF THE DEPOSITED ASSETS............................. S-14
General...................................................... S-14
[The Federal National Mortgage Association................... S-18
[The Federal Home Loan Mortgage Corporation.................. S-19
[The Student Loan Marketing Association...................... S-20
[The Resolution Funding Corporation.......................... S-20
[The Federal Home Loan Banks................................. S-21
[Tennessee Valley Authority.................................. S-21
[Federal Farm Credit Banks................................... S-22
[Government Trust Certificates............................... S-23
[AID-Guaranteed Underlying Securities........................ S-24
[DESCRIPTION OF CREDIT SUPPORT]................................. S-26
[The Letter of Credit........................................ S-27
[The Surety Bond............................................. S-27
[Reserve Account............................................. S-28
YIELD ON THE CERTIFICATES....................................... S-28
DESCRIPTION OF THE CERTIFICATES................................. S-28
General...................................................... S-28
Definitive Certificates...................................... S-29
Distributions................................................ S-30
[Optional Redemption......................................... S-32
[Advances.................................................... S-32
[Restrictions on Transfer of the Class [ ] Certificates...... S-33
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
DESCRIPTION OF THE TRUST AGREEMENT............................. S-33
General..................................................... S-33
The Trustee................................................. S-33
Events of Default........................................... S-34
Voting Rights............................................... S-35
Voting of Underlying Securities, Modification of Indenture.. S-35
Termination................................................. S-36
CERTAIN LEGAL ASPECTS OF THE DEPOSITED ASSETS.................. S-37
CERTAIN FEDERAL INCOME TAX CONSEQUENCES........................ S-37
Grantor Trust Certificates.................................. S-38
Income of Certificate Owners................................ S-38
Bond Premium................................................ S-42
Election to Treat All Interest as Original Issue Discount... S-42
Modification or Exchange of Underlying Securities........... S-42
Deductibility of Trust's Fees and Expenses.................. S-42
Purchase and Sale of a Certificate.......................... S-43
Backup Withholding.......................................... S-44
Foreign Certificate Owners.................................. S-44
Partnership Certificates.................................... S-44
Partnership Taxation........................................ S-45
Discount and Premium........................................ S-46
Modification or Exchange of Underlying Securities........... S-46
Tax Consequences of Other Assets Held by Trust.............. S-46
Section 708 Termination..................................... S-46
Disposition of Certificates................................. S-47
Allocations Between Transferors and Transferees............. S-48
Section 754 Election........................................ S-48
Administrative Matters...................................... S-48
Tax Consequences to Foreign Certificate Owners.............. S-49
CERTAIN STATE TAX CONSEQUENCES................................ S-50
ERISA CONSIDERATIONS........................................... S-50
PLAN OF DISTRIBUTION........................................... S-52
RATINGS........................................................ S-53
LEGAL OPINIONS................................................. S-53
</TABLE>
S-5
<PAGE>
SUMMARY OF PRINCIPAL ECONOMIC TERMS
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," "Description of the Underlying
Securities" and "Description of Credit Support." 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................... Series 1996-[ ] Trust. The Trust will be formed
pursuant to the Trust Agreement dated as of [ ]
(the "Base Trust Agreement"), between the
Depositor and the Trustee, as supplemented by the
Series 1996-[ ] Supplement dated as of the
Expected Settlement Date (the "Series Supplement"
and, together with the Base Trust Agreement, the
"Trust Agreement").
Certificates Offered........ Trust Certificates, Series 1996-[ ], consisting of
Class [ ] Certificates[,] [and] Class [ ]
Certificates [and specify others] (collectively,
the "Certificates").
[Initial Certificate
Principal Balance]
[Notional Amount]........... Class [ ]: [$] [ ]. Class [ ]: [$] [ ].
Final Distribution Date..... Class [ ]. Class [ ].
Pass-Through Rates.......... [The Variable Pass-Through Rates applicable to the
calculation of the interest distributable on any
Distribution Date on the Certificates [(other than
the Class [ ] Certificates)] are equal to
[describe method for determining variable rates].
The initial Variable Pass-Through Rates for the
Class [ ] Certificates [,] [and] the Class [ ]
Certificates [and specify others] are
approximately ___%[,] [and] ___% [and ___%] per
annum, respectively.] [The Pass-Through Rate
applicable to the calculation of the interest
distributable on any Distribution Date on the
[specify classes] Certificates is fixed at ___%
[and ___%, respectively,] per annum.]
S-6
<PAGE>
Deposited Assets............ The Deposited Assets shall consist of the
Underlying Securities [and describe any assets
which are ancillary or incidental to the
Underlying Securities]. See "--The Underlying
Securities" [, "--Other Deposited Assets"] and
"Description of the Deposited Assets" below.
Original Issue Date......... [ ].
Cut-off Date................ [ ].
Distribution Date........... [ ], commencing [ ].
Record Date................. The [ ] day immediately preceding each
Distribution Date.
Denominations............... The Class [ ] Certificates [,] [and] Class [ ]
Certificates [and specify others] will be
available for purchase in minimum denominations of
[$] [ ] and [integral multiples thereof]
[multiples of [$][ ] in excess thereof].
Interest Accrual
Periods..................... [Monthly] [Quarterly] [Semi-annually] (or, in the
case of the first Interest Accrual Period, from
and including the Original Issue Date to but
excluding the first Distribution Date).
[Optional Redemption........ On any Distribution Date occurring on or after the
Distribution Date occurring in ___________, 19__,
the Certificates may be redeemed by the Depositor,
in whole only, at a price equal to the Redemption
Price.]
[Redemption Price........... ___________.]
Form of Security............ Book-entry Certificates 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)] [clearinghouse
(next-day)] funds.
Trustee..................... [ ], as trustee.
Ratings..................... [ ] by [ ] [and [ ] by [ ]]. [Specify specific
ratings requirements for particular classes,
including the
S-7
<PAGE>
extent to which the issuance of the Certificates
of a given class is conditioned upon satisfaction
of the ratings of each other class of
Certificates.] See "Ratings."
THE UNDERLYING SECURITIES
Underlying Securities....... [A [ ]%] [floating rate] [publicly issued
[treasury] [debt] security due [ ] [A pool of
publicly issued [treasury securities] [debt
securities of various United States government
sponsored entities] [Government Trust Certificates
("GTCs") [provided that such GTCs, together with
any AID-GUARANTEEd Underlying Securities (as
defined below), shall not account for 20% or more
of the aggregate cash flows on the Underlying
Securities securing any Series of Certificates]]
[obligations guaranteed by the United States
Agency for International Development("AID-
GUARANTEED UNDERLYING SECURITIES") [provided that
such AID-Guaranteed Underlying Securities,
together with any GTCs, shall not account for 20%
or more of the aggregate cash flows on the
Underlying Securities securing any Series of
Certificates]], exclusive of the Retained
Interest] [in/having] an aggregate principal
amount of [$][ ].
[GSE Issuer]................ [Specify issuer] [Pool of various U.S. government
sponsored entity issuers].
Underlying Securities
Original Issue Date......... [ ].
Underlying Securities
Final Payment Date.......... [ ].
Amortization................ [Describe amortization schedule, if any].
Denominations............... The Underlying Securities are available in minimum
denominations of [$] [ ] and [integral multiples
thereof] [multiples of [$][ ] in excess thereof].
Underlying Securities
Payment Dates............... [ ], commencing [ ].
Underlying Securities Rate.. [ % per annum.] [A [Weighted Average] rate per
annum equal to [specify interest rate formula for
debt security].]
S-8
<PAGE>
Underlying Securities
Interest Accrual Periods......[Monthly] [Quarterly] [Semi-annually].
Priority......................[Describe senior or subordinated status of
Underlying Securities].
Security......................[Describe existence of any security for
obligations or state that Underlying Securities
are unsecured].
Redemption/Put/Other Features.[Describe existence of any redemption, put or
other material features applicable to the
Underlying Securities].
Form of Underlying Securities.Book-entry debt securities with [DTC] [Federal
Reserve Bank] [listed on the [New York] [American]
Stock Exchange [specify other listing]].
[Fiscal Agent]................[ ]. [The Underlying Securities have not been
issued pursuant to [an indenture and no trustee is
provided for.] [ ] acts as fiscal agent for the
Outstanding Debt Securities pursuant to an
agreement dated as of [ ], 19[ ] (the "Fiscal
Agency Agreement"), between the Fiscal Agent and
the GSE Issuer.
Ratings of the Underlying
Securities....................[ ] by [ ] [and [ ] by [ ]]. See "Description of
the Underlying Securities--Ratings of Underlying
Securities."
OTHER DEPOSITED ASSETS
[Provide similar tabular summary description of the principal economic
terms of any credit support or other ancillary or incidental asset]
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary 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.
Depositor.....................Southpoint Structured Assets, Inc. (the
"Depositor"), an indirect wholly-owned subsidiary
of Morgan Keegan, Inc. See "The Depositor" in the
Prospectus.
Certificates..................The Certificates, each of which represents a
fractional undivided beneficial interest in the
Trust, will be
S-9
<PAGE>
issued pursuant to the Trust Agreement. The
Certificates will consist of [ ] classes,
designated as Class [ ] Certificates [and] [,]
Class [ ] Certificates [and [specify other
classes]], [all] of which [all but the Class [ ]
Certificates] are being offered hereby
(collectively, the "Certificates").
The Certificate Principal Balance of a Certificate
outstanding at any time represents the maximum
amount that the holder thereof is entitled to
receive as distributions allocable to principal.
The Certificate Principal Balance of a Certificate
will decline to the extent distributions allocable
to principal are made to such holder. [The
Notional Amount of the Class [ ] Certificates as
of any date of determination is equal to
[specify].
Reference to the Notional Amount of the Class [ ]
Certificates is solely for convenience in
determining the basis on which distributions on
the Class [ ] Certificates are calculated [and
determining the relative voting rights of
Certificateholders of Class [ ] Certificates for
purposes of voting on a class-by-class basis or
otherwise]. The Notional Amount does not
represent the right to receive any distributions
allocable to principal.]
[The Class [ ] Certificates, which are not being
offered hereby, have in the aggregate an initial
Certificate Principal Balance of [$][ ]
(approximate) and a [Variable] Pass-Through Rate
[of ___%]. The Class [ ] Certificates represent
the right to receive distributions in respect of
their Certificate Principal Balance and interest
thereon at their applicable Pass-Through Rate.]
Shortfalls in collections with respect to the
Deposited Assets will be allocated solely to the
Class [ ] Certificates to the extent provided
herein and, thereafter, will be allocated among
the Certificates and the Class [ ] Certificates,
as provided herein. [The Class [ ] Certificates
will be transferred by the Depositor to an
affiliate on or about ________, 1996 (the "Closing
Date"), and may be sold at any time in accordance
with any restrictions in the Trust Agreement.]]
S-10
<PAGE>
The Underlying Securities....Interest on the Underlying Securities accrues at
the Underlying Securities Rate for each Underlying
Securities Accrual Period and is payable on each
Underlying Securities Payment Date. The entire
principal amount of the Underlying Securities will
be payable on the Underlying Securities Final
Payment Date. [The Underlying Securities have a
remaining term to maturity of approximately
years.] [As of the Cut-off Date, the pool of
Underlying Securities has a weighted average
interest rate of [%] and a weighted average
remaining term to maturity of approximately ___
years. Approximately [%] [specify if greater than
10%] of such Underlying Securities consist of debt
securities of [specify U.S. government sponsored
entity or agency].
[Name such obligor] is a [U.S. government-
sponsored entity][specify other] whose principal
executive offices are located at [specify
address]. The obligor [makes available to the
public upon request certain annual financial and
other information]. See "Description of the
Deposited Assets."
[Other Deposited
Assets and Credit Support.....The Deposited Assets will also include [describe
any assets which are ancillary or incidental to
the Underlying Securities, including hedging
contracts such as puts, calls, interest rate
swaps, currency swaps, floors, caps and collars]
(such assets, together with the Underlying
Securities, the "Deposited Assets"). See
"Description of the Deposited Assets."
The Certificateholders of the [specify particular
classes] Certificates will have the benefit of
[describe credit support] to support or ensure the
[servicing and] [timely] [ultimate] distribution
of amounts due with respect to the Deposited
Assets, including providing certain coverage with
respect to losses thereon.]
Distributions.................Holders of the Certificates will be entitled to
receive on each Distribution Date, to the extent
of available funds on such Distribution Date,
after payment of the expenses of the Trustee and
its respective agents up to the Allowable Expense
Amount, (i) [in the case of each class of
Certificates other than the Class [ ]
Certificates,] distributions allocable to interest
at the
S-11
<PAGE>
applicable Pass-Through Rate on the applicable
Certificate Principal Balance, (ii) [in the case
of each class of Certificates other than the Class
[ ] Certificates,] distributions allocable to
principal and (iii) [in the case of each class of
Certificates other than the Class [ ]
Certificates,] distributions allocable to premium
(if any) in an amount equal to all payments of
premium (if any) received on the Underlying
Securities for the applicable Collection Period.
Distributions will be made to Certificateholders
only if, and to the extent that, payments are made
with respect to the Deposited Assets or are
otherwise covered by any Credit Support. [The
holders of the Class [ ] Certificates will be
entitled to receive on each Distribution Date
distributions allocable to interest in an amount
equal to [describe Stripped Interest].] [The
holders of the Class [ ] Certificates will not be
entitled to receive any distributions allocable to
principal or premium (if any).] See "Description
of the Certificates--Distributions."
Special Distribution Dates...If a payment with respect to the Underlying
Securities is made to the Trustee after the
Underlying Securities Payment Date on which such
payment was due, then the Trustee shall distribute
any such amount received on the next occurring
Business Day (a "Special Distribution Date") as if
such funds had constituted Available Funds on the
Distribution Date immediately preceding such
Special Distribution Date; provided, however, that
the Record Date for such Special Distribution Date
shall be [five Business Days (as such term is
defined in the Prospectus, "Business Day") prior
to the day on] which the related payment was
received from the Underlying Securities Trustee.
[Subordination................As and to the extent described herein, the rights
of the holders of the Class [ ] Certificates [and
specify other classes] to receive distributions of
principal, premium (if any), and interest with
respect to the Deposited Assets will be
subordinated to the rights of the holders of the
other classes of Certificates with respect to
losses attributable to principal, premium (if any)
and interest realized on a Deposited Asset (such
losses, "Realized Losses"). See "Description of
the Certificates--Allocation of Losses;
Subordination."]
S-12
<PAGE>
[Optional Termination.........At its option, the [Depositor] may purchase all
the Deposited Assets in the Trust, and thereby
cause the termination of the Trust and early
retirement of the Certificates, on any
Distribution Date on which the aggregate principal
amount of the Deposited Assets remaining in the
Trust is less than [10%] of the aggregate
principal amount of the Deposited Assets as of the
Cut-off Date. [Specify any other purchase or
repurchase option of the Depositor.]
See "Description of the Trust Agreement--
Termination" herein and in the Prospectus.]
Certain Federal
Income Tax Consequences.......In the opinion of tax counsel to the Trust, the
Trust will be classified for Federal income tax
purposes [as a grantor trust] [as a partnership]
and not as an association taxable as a
corporation. See "Certain Federal Income Tax
Consequences."
Ratings.......................It is a condition to the issuance of the
Certificates that the Certificates have the
ratings specified above under "Summary of
Principal Economic Terms--The Certificates--
Ratings." 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. A security
rating does not address the occurrence or
frequency of redemptions or prepayments on, or
extensions of the maturity of, the Deposited
Assets, the corresponding effect on yield to
investors [or whether investors in the Class [ ]
Certificates may fail to recover fully their
initial investment]. See "Ratings."
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."
S-13
<PAGE>
FORMATION OF THE TRUST
The Trust will be formed pursuant to the Trust Agreement (including the
Series [ ] Supplement) between the Depositor and the Trustee. Concurrently with
the execution and delivery of the Series [ ] Supplement, the Depositor will
deposit the Underlying Securities in the Trust. The Trustee, on behalf of the
Trust, will accept such Underlying Securities and will deliver the Certificates
to or upon the order of the Depositor.
The Underlying Securities will be purchased by the Depositor in the
secondary market (either directly or through an affiliate of the Depositor).
The Underlying Securities will not be acquired from any GSE Issuer as part of
any distribution by or pursuant to any agreement with such issuer. [No] [The]
GSE Issuer is [not] participating in this offering and [none] will [not] receive
any of the proceeds of the sale of the Underlying Securities to the Depositor or
the issuance of the Certificates. [Neither the Depositor nor any of its
affiliates participated in the initial public offering of the Underlying
Securities] [Morgan Keegan & Company, Inc., an affiliate of the Depositor,
participated in the initial public offering of the Underlying Securities as a
[co-underwriter] [underwriter]].
RISK FACTORS
[Describe risk factors applicable to the specific Underlying Securities,
other Deposited Assets and the particular structure of the Certificates being
offered, including factors relating to the yield on the Certificates and risks
associated with the Deposited Assets (including any material risks as a result
of the inclusion in the Deposited Assets of GTCs or AID-Guaranteed Underlying
Securities) and the terms thereof, as described elsewhere herein.] See "Risk
Factors" and "Maturity and Yield Considerations" in the Prospectus.
[The Underlying Securities are not guaranteed by the federal government or
any agency or instrumentally thereof, other than the Underlying Securities
Issuer.]
DESCRIPTION OF THE DEPOSITED ASSETS
GENERAL
This Prospectus Supplement sets forth certain relevant terms with respect
to the Underlying Securities, but does not provide detailed information with
respect to the Underlying Securities. This Prospectus Supplement relates only
to the Certificates offered hereby and does not relate to the Deposited Assets.
All disclosure contained herein with respect to the Underlying Securities is
derived from publicly available documents. [Identify publicly available
documents]. Although the Depositor has no reason to believe the information
concerning the Underlying Securities, or any GSE Issuer in the Underlying
Securities Prospectus[es] [and other publicly available information] is not
reliable, neither the Depositor nor any of the Underwriters has participated in
the preparation of such documents, or made any due diligence inquiry with
respect to the information provided
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<PAGE>
therein. There can be no assurance that events affecting the Underlying
Securities or a GSE Issuer have not occurred, which have not yet been publicly
disclosed, which would affect the accuracy or completeness of the publicly
available documents described above.
[The Underlying Securities will be deposited into the Trust subject to the
right of the holder of the Retained Interest to receive on each Distribution
Date from payments received on the Underlying Securities, a distribution equal
to [%] per annum multiplied by the principal amount of the Underlying Securities
(the "Interest Strip"). The right of the holder of the Retained Interest to
receive the Interest Strip is of equal priority with the rights of the
Certificateholders to receive distributions of interest on the Certificates.]
[Use the following where the Underlying Securities consist of a pool of
obligations of multiple obligors.]
[The Deposited Assets will consist primarily of the Underlying Securities,
which are a pool of [treasury securities] [and] [publicly issued debt securities
of U.S. government-sponsored entities] [Government Trust Certificates ("GTCs")
[provided that such GTCs, together with any AID-Guaranteed Underlying Securities
(as defined below), shall not account for 20% or more of the aggregate cash
flows on the Underlying Securities securing any Series of Certificates]]
[obligations guaranteed by the United States Agency for International
Development ("AID-Guaranteed Underlying Securities") [provided that such AID-
Guaranteed Underlying Securities, together with any GTCs, shall not account for
20% or more of the aggregate cash flows on the Underlying Securities securing
any Series of Certificates]]. The Underlying Securities will be purchased by
the Depositor in the secondary market (either directly or through an affiliate
of the Depositor) and will be deposited into the Trust. The Underlying
Securities will not be acquired either from the respective obligors on the
Underlying Securities or pursuant to any distribution by or agreement with such
obligors.
The composition of the Underlying Securities pool and the distribution by
ratings, remaining term to maturity and interest rate of the Underlying
Securities as of the Cut-off Date are as set forth below:
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COMPOSITION OF THE UNDERLYING SECURITIES POOL
AS OF THE CUT-OFF DATE
Number of Underlying Securities:
Aggregate Principal Balance: [$]
Average Principal Balance: [$]
Largest Balance: [$]
Weighted Average Interest Rate: %
Weighted Average Original Term to Maturity: years
Weighted Average Remaining Term to Maturity: years
Longest Remaining Term to Maturity: years
DISTRIBUTION BY RATINGS OF THE
UNDERLYING SECURITIES POOL AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE AGGREGATE
RATING NUMBER PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
_____________ ______________ _____________
Total ============= ============== =============
</TABLE>
DISTRIBUTION BY REMAINING TERM TO MATURITY
OF THE UNDERLYING SECURITIES POOL AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENT OF
REMAINING TERM TO AGGREGATE AGGREGATE
MATURITY NUMBER PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
_____________ ______________ _____________
Total ============= ============== =============
</TABLE>
DISTRIBUTION BY INTEREST RATE OF THE
UNDERLYING SECURITIES POOL AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE AGGREGATE
RATING NUMBER PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
% to % [$] %
Greater than % _____________ ______________ _____________
[$] 100%
</TABLE>
S-16
<PAGE>
Total ======== ============ ============
The Underlying Securities consist of [treasury securities] [debt securities
of U.S. government-sponsored entities] [GTCs [provided that such GTCs, together
with any AID-Guaranteed Underlying Securities, shall not account for 20% or more
of the aggregate cash flows on the Underlying Securities securing any Series of
Certificates]] [AID-Guaranteed Underlying Securities [provided that such AID-
Guaranteed Underlying Securities, together with any GTCs, shall not account for
20% or more of the aggregate cash flows on the Underlying Securities securing
any Series of Certificates]]. As of the Cut-off Date, [all of] [approximately %
of] such Underlying Securities were rated [investment grade] [specify particular
rating] by at least one nationally recognized rating agency, and, based on
publicly available information, no obligor on any Underlying Security was in
default in the payment of any installments of principal, interest or premium (if
any) with respect thereto. Any such rating of any of the Underlying Securities
is not a recommendation to purchase, hold or sell such Underlying Security or
the Certificates, and there can be no assurance that a rating will remain for
any given period of time or that a rating will not be lowered or withdrawn
entirely by a rating agency if in its judgment circumstances in the future so
warrant. See "Ratings" herein and "Risk Factors -- Ratings of the Certificates"
in the accompanying Prospectus regarding certain considerations applicable to
the ratings of the Certificates.
[The following is a summary of the typical Underlying Security Events of
Default for each series of Outstanding Debt Securities. Any additional
Underlying Security Events of Default unique to a Concentrated Underlying
Security have been described following the summary:
(a) failure to make payments of principal (and premium, if any) and
interest to holders of the Outstanding Debt Securities when the same shall
be due;
(b) material breaches of certain representations, warranties or
covenants or failure to observe or perform in any material respect any
covenant or agreement continuing for a specified period of time after
notice thereof is given to the GSE Issuer by the holders of not less than a
specified percentage of the Outstanding Debt Securities;
(c) certain events of bankruptcy or insolvency relating to the GSE
Issuer[; and
(d) describe any additional common events of default with respect to
the pool of Underlying Securities].]
As of the Cut-off Date, [all of] [approximately ___% of] the Underlying
Securities were [subject to [describe any put, call or other conversion or
redemption options applicable to the Underlying Securities]] [and [all of]
[approximately % of] the Underlying Securities were [describe the nature of the
obligation represented by such Underlying Securities (i.e.,
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senior, subordinate, secured) and describe commonalities with respect to any
subordination or security provisions or collateral.]]
The pool of Underlying Securities, together with any other assets described
below and any Credit Support described under "Description of Credit Support,"
represent the sole assets of the Trust that are available to make distributions
in respect of the Certificates.]
[Use the following with respect to each obligor the Underlying Securities
of which represent more than 10% of the total Underlying Securities available to
make distributions in respect of the Certificates -- only a single obligor is
referred to for purposes of this section of the form of Prospectus Supplement.]
[A significant portion of] [Virtually all of] [All of] the Deposited Assets
of the Trust will consist of the [___%] [floating rate] [specify publicly issued
debt security] due of [specify issuer][, exclusive of the interest therein
retained by [the Depositor] as described below (the "Retained Interest")],
having an aggregate principal amount outstanding as of the Cut-off Date of
approximately [$] (the "Underlying Securities"). The Underlying Securities
(other than Underlying Securities which are issued by the United States of
America) will be purchased by the Depositor in the secondary market (either
directly or through an affiliate of the Depositor) and will be deposited into
the Trust. The Underlying Securities will not be acquired either from [name
such obligor] or pursuant to any distribution by or agreement with [name such
obligor]. [Describe any put, call or other conversion or redemption options
applicable to the Underlying Securities, as well as the nature of the obligation
represented by such Underlying Securities (i.e., senior, subordinate, secured)].
As of the Cut-off Date, the foregoing debt security comprising [ %] of the
Underlying Securities was rated [specify investment grade rating] [investment
grade] by [specify nationally recognized rating agency or agencies], and, based
on publicly available information, the obligor thereon was not in default in the
payment of any installments of principal, interest or premium (if any) with
respect thereto. Any such rating of such Underlying Securities is not a
recommendation to purchase, hold or sell such Underlying Securities or the
Certificates, and there can be no assurance that a rating will remain for any
given period of time or that a rating will not be lowered or withdrawn entirely
by a rating agency if in its judgment circumstances in the future so warrant.
See "Ratings" herein and "Risk Factors -- Ratings of the Certificates" in the
accompanying Prospectus regarding certain considerations applicable to the
ratings of the Certificates.
[THE FEDERAL NATIONAL MORTGAGE ASSOCIATION
The Federal National Mortgage Association ("Fannie Mae") is a federally
chartered and stockholder-owned corporation organized and existing under the
Federal National Mortgage Association Charter Act, 12 U.S.C. 1716 et seq. It
is the largest investor in home mortgage loans in the United States. Fannie Mae
originally was established in 1938, as a United States government agency to
provide supplemental liquidity to the mortgage market and was transformed into a
stockholder-owned and privately managed corporation by legislation enacted in
1968. Fannie Mae provides funds to the mortgage market by purchasing mortgage
loans from lenders, thereby replenishing their funds for additional
S-18
<PAGE>
lending. Fannie Mae acquires funds to purchase loans from many capital market
investors that ordinarily may not invest in mortgage loans, thereby expanding
the total amount of funds available for housing. Operating nationwide, Fannie
Mae helps to redistribute mortgage funds from capital-surplus to capital-short
areas. Fannie Mae also issues mortgaged-backed securities ("MBS"). Fannie Mae
receives guaranty fees for its guaranty of timely payment of principal of and
interest on MBS. Fannie Mae issues MBS primarily in exchange for pools of
mortgage loans from lenders. The issuance of MBS enables Fannie Mae to further
its statutory purpose of increasing the liquidity of residential mortgage loans.
Fannie Mae prepares an Information Statement annually which describes
Fannie Mae, its business and operations and contains Fannie Mae's audited
financial statements. From time to time Fannie Mae prepares supplements to its
Information Statement which include certain unaudited financial data and other
information concerning the business and operations of Fannie Mae. These
documents can be obtained without charge from Paul Paquin, Senior Vice President
- -- Investor Relations, Fannie Mae, 3900 Wisconsin Avenue, N.W., Washington, D.C.
20016 (telephone: (202) 752-7115). Fannie Mae is not subject to the periodic
reporting requirements of the Securities Exchange Act of 1934.]
[THE FEDERAL HOME LOAN MORTGAGE CORPORATION
The Federal Home Loan Mortgage Corporation ("Freddie Mac") is a publicly
held government-sponsored enterprise created on July 24, 1970 pursuant to the
Federal Home Loan Mortgage Corporation Act, Title III of the Emergency Home
Finance Act of 1970, as amended (the "FHLMC Act"). Freddie Mac's statutory
mission is to provide stability in the secondary market for home mortgages, to
respond appropriately to the private capital market and to provide ongoing
assistance to the secondary market for home mortgages (including mortgages
secured by housing for low-and moderate-income families involving a reasonable
economic return to Freddie Mac) by increasing the liquidity of mortgage
investments and improving the distribution of investment capital available for
home mortgage financing. The principal activity of Freddie Mac consists of the
purchase of first lien, conventional, residential mortgages and participation
interests in such mortgages from mortgage lending institutions and the resale of
the mortgages so purchased in the form of guaranteed mortgage securities.
Freddie Mac generally matches and finances its purchases or mortgages with sales
of guaranteed securities. Mortgages retained by Freddie Mac are financed with
short-and long-term debt, cash temporarily held pending disbursement to security
holders, and equity capital.
Freddie Mac prepares an Information Statement annually which describes
Freddie Mac, its business and operations and contains Freddie Mac's audited
financial statements. From time to time Freddie Mac prepares supplements to its
Information Statement which include certain unaudited financial data and other
information concerning the business and operations of Freddie Mac. These
documents can be obtained from Freddie Mac by writing or calling Freddie Mac's
Investor Inquiry Department at 8200 Jones Branch Drive, McLean, Virginia 22102
(outside Washington, D.C. metropolitan area, telephone (800) 336-3672; within
Washington, D.C. metropolitan area, telephone (703) 759-8160). Freddie Mac is
not subject to the periodic reporting requirements of the Securities Exchange
Act of 1934.]
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<PAGE>
[THE STUDENT LOAN MARKETING ASSOCIATION
The Student Loan Marketing Association ("Sallie Mae") is a stockholder-
owned corporation established by the 1972 amendments to the Higher Education Act
of 1965, as amended, to provide liquidity, primarily through secondary market
and warehousing activities, for lenders participating in the Federal Family
Education Loan ("FFEL") program and the Health Education Assistance Loan
Program. Under the Higher Education Act, Sallie Mae is authorized to purchase,
warehouse, sell and offer participations or pooled interests in, or otherwise
deal in, student loans, including, but not limited to, loans insured under the
FFEL program, and to make commitments for any of the foregoing. Sallie Mae is
also authorized to buy, sell, hold, underwrite and otherwise deal in obligations
of eligible lenders, if such obligations are issued by such eligible lender for
the purpose of making or purchasing federally guaranteed student loans under the
Higher Education Act. As a federally chartered corporation, Sallie Mae's
structure and operational authorities are subject to revision by amendments to
the Higher Education Act of other federal enactments.
Sallie Mae prepares an Information Statement annually which describes
Sallie Mae, its business and operations and contains Sallie Mae's audited
financial statements. From time to time Sallie Mae prepares supplements to its
Information Statement which include certain unaudited financial data and other
information concerning the business and operations of Sallie Mae. These
documents can be obtained without charge upon written request to the Corporate
and Investor Relations Division of Sallie Mae at 1050 Thomas Jefferson Street,
N.W., Washington, D.C. 20007, telephone (202) 298-3010. Sallie Mae is not
subject to the periodic reporting requirements of the Securities Exchange Act of
1934.]
[THE RESOLUTION FUNDING CORPORATION
The Resolution Funding Corporation ("REFCORP") is a mixed-ownership
government corporation established by Title V of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 (the "FIRRE Act"). The sole
purpose of the REFCORP is to provide financing for the Resolution Trust
Corporation (the "RTC"). REFCORP is to be dissolved, as soon as practicable,
after the maturity and full payment of all obligations issued by it. REFCORP is
subject to the general oversight and direction of the Oversight Board, which is
comprised of the Secretary of the Treasury, the Chairman of the Federal Reserve
Board of Governors, the Secretary of Housing and Urban Development and two
independent members from different political parties to be appointed by the
President with the advice and consent of the Senate. The day-to-day operations
of REFCORP are under the management of a three-member Directorate comprised of
the Director of the Office of Finance of the FHLBs and two members selected by
the Oversight Board from among the presidents of twelve FHLBs.
The RTC was established by the FIRRE Act to manage and resolve cases
involving failed savings and loan institutions pursuant to policies established
by the Oversight Board. The RTC is to manage and resolve cases for which a
receiver or conservator was appointed between January 1, 1989 through August 9,
1992. The RTC is authorized to issue nonvoting capital certificates to REFCORP
in exchange for the funds transferred from REFCORP to
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<PAGE>
the RTC. The RTC will terminate on or before December 31, 1996. The FIRRE Act
limits the aggregate principal amount of interest bearing obligations which may
be issued by REFCORP to $30 billion, which amount of obligations was issued in
1989. Pursuant to the FIRRE Act, the net proceeds of these obligations are used
to purchase nonvoting capital certificates issued by the RTC or to retire
previously issued REFCORP obligations.
Information concerning REFCORP may be obtained from the Resolution Funding
Corporation, Suite 850, 655 Fifteenth Street, N.W., Washington, D.C. 20005.
REFCORP is not subject to the periodic reporting requirements of the Securities
Exchange Act of 1934.]
[THE FEDERAL HOME LOAN BANKS
The Federal Home Loan Banks constitute a system of twelve federally
chartered corporations (collectively, the FHLBs). The mission of each FHLB is to
enhance the availability of residential mortgage credit by providing a readily
available, low-cost source of funds to its member institutions. A primary source
of funds for the FHLBs is the proceeds from the sale to the public of debt
instruments issued by the Federal Housing Finance Board, which are the joint and
several obligations of all of the FHLBs. The FHLBs are supervised and regulated
by the Federal Housing Finance Board, which is an independent federal agency in
the executive branch of the United States government, but obligations of the
FHLBs are not obligations of the United States government.
The Federal Home Loan Bank System produces annual and quarterly financial
reports in connection with the original offering and issuance by the Federal
Housing Finance Board of consolidated bonds and consolidated notes of the FHLBs.
Questions regarding the Federal Home Loan Banks Combined Financial Statement
should be directed to the Deputy Director, Financial Reporting and Operations
Divisions, Federal Housing Finance Board, 1777 F Street, N.W., Washington, D.C.
20006, (202) 406-2901. Copies of the Financial Reports will be furnished upon
request to the Capital Markets Divisions, Office of Finance.]
[TENNESSEE VALLEY AUTHORITY
TVA is a wholly owned corporate agency and instrumentality of the United
States of America established pursuant to the Tennessee Valley Authority Act of
1933, as amended (the "TVA Act"). TVA's objective is to develop the resources of
the Tennessee Valley region in order to strengthen the regional and national
economy and the national defense. The programs of TVA consist of power and
nonpower programs. For the fiscal year ending September 30, 1994, TVA received
$140 million in congressional appropriations from the federal government for the
nonpower programs. The power program is required to be self-supporting from
revenues it produces. The TVA Act authorizes TVA to issue evidences of
indebtedness that may only be used to finance its power program.
TVA prepares an Information Statement annually which describes TVA, its
business and operations and contains TVA's audited financial statements. From
time to time TVA prepares supplements to its Information Statement which include
certain unaudited financial
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<PAGE>
data and other information concerning the business and operations of TVA. These
documents can be obtained upon written request directed to Tennessee Valley
Authority, 400 West Summit Hill Drive, Knoxville, Tennessee 37902, Attention:
Vice President and Treasurer, or by calling (615) 632-3366.]
[FEDERAL FARM CREDIT BANKS
The Farm Credit System is a nationwide system of lending institutions and
affiliated service and other entities (the "System"). Through its Banks ("FCBs")
and related associations, the System provides credit and related services to
farmers, ranchers, producers and harvesters of aquatic products, rural
homeowners, certain farm-related businesses, agricultural and aquatic
cooperatives and rural utilities. System institutions are federally chartered
under the Farm Credit Act of 1971, as amended (the "Farm Credit Act"), and are
subject to regulation by a Federal agency, the Farm Credit Administration (the
"FCA"). The FBCs and associations are not commonly owned or controlled. They are
cooperatively owned, directly or indirectly, by their respective borrowers.
Unlike commercial banks and other financial institutions that lead to the
agricultural sector in addition to other sectors of the economy, under the Farm
Credit Act the System institutions are restricted solely to making loans to
qualified borrowers in the agricultural sector and to certain related
businesses. Moreover, the System is required to make credit and other services
available in all areas of the nation. In order to fulfill its broad statutory
mandate, the System maintains lending units in all 50 states and the
Commonwealth of Puerto Rico.
The System obtains funds for its lending operations primarily from the sale
of debt securities issued under Section 4.2(d) of the Farm Credit Act
("Systemwide Debt Securities"). The FCBs are jointly and severally liable on all
Systemwide Debt Securities. Systemwide Debt Securities are issued by the FCBs
through the Federal Farm Credit Banks Funding Corporation, as agent for the FCBs
(the "Funding Corporation"). Each FCB determines its participation in each issue
of Systemwide Debt Securities based on its funding and operating requirements,
subject to the availability of eligible collateral, to determinations by the
Funding Corporation as to conditions of participation and terms of each
issuance, and to FCA approval.
Important information regarding the FCBs and the Farm Credit System,
including combined financial information, is contained in disclosure information
made available by the Funding Corporation. This information consists of the most
recent Farm Credit System Annual Information Statement and any Quarterly
Information Statements issued subsequent thereto (collectively, "Information
Statements") and certain press releases issued from time to time by the Funding
Corporation. Such information and the Farm Credit System Annual Report to
Investors for the current and two preceding fiscal years are available for
inspection at the Federal Farm Credit Banks Funding Corporation, Investment
Banking Services Department, 10 Exchange Place, Suite 1401, Jersey City, New
Jersey 07302; Telephone: (201) 200-8000. Upon request, the Funding Corporation
will furnish, without charge, copies of the above information.]
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<PAGE>
[GOVERNMENT TRUST CERTIFICATES
Government Trust Certificates ("GTCs") consist of certificates evidencing
undivided fractional interests in a trust, the assets of which consist of
promissory notes (the "Notes"), payable in U.S. Dollars, of a certain foreign
government, backed by a full faith and credit guaranty issued by the United
States of America, acting through the Defense Security Assistance Agency of the
Department of Defense (the "DSAA"), of the due and punctual payment of 90% of
all payments of principal and interest due on the Notes and a security interest
in collateral, consisting of non-callable securities issued or guaranteed by the
United States government or agencies thereof, sufficient to pay the remaining
10% of all payments of principal and interest due on the Notes.
Many issuances of GTCs were undertaken pursuant to Title III of the Foreign
Operations, Export Financing and Related Programs Appropriations Acts (the
"Appropriations Acts"), which permit borrowers to prepay certain eligible high-
interest loans made by the Federal Financing Bank (the "FFB") under the Foreign
Military Sales ("FMS") Credit Program. The Appropriations Acts permit prepayment
of the FMS loans with the proceeds of new loans and authorize the issuance of a
United States government guaranty covering no more and no less than ninety
percent (90%) of the payments due on each such new loan, in accordance with the
requirements of the Arms Export Control Act, as amended (the "AECA"). It is a
condition to the issuance of Certificates under such program that the DSAA
approve the refinancing of any such FMS loan.
Although 90% of all payments of principal and interest on the Notes are
guaranteed by the United States government or agencies thereof, and 10% of such
payments are secured by securities of the United States government or agencies
thereof, the GTCs themselves are not so guaranteed. In the event of a default on
the Notes, the trustee of the Trust would be required by the operative documents
to make a claim against the United States government or an agency thereof or
would be required to liquidate the collateral securing the Notes.
Payments Under the Guaranty. If the borrower under the Notes (the
"Borrower") fails to deposit with the related trustee (the "Trustee") all
amounts due on the Notes on any Note payment date (each, a "Note Payment Date"),
the Trustee will first notify the Borrower and, one business day thereafter,
will send a notice to the Director of the DSAA and to the related depositary
(the "Depositary") setting forth the amounts due on the Notes on such Note
Payment Date and the amounts, if any, received from the Borrower. On the [11th
calendar day] following the Note Payment Date, if any amounts due on a Note
remain unpaid, the Trustee will demand payment from DSAA on the applicable
Guaranty in accordance with its terms. On the day the Trustee receives such
payment, it will instruct the Depositary immediately to deliver sufficient funds
to pay the amounts remaining unpaid on the Note.
On the occurrence of an Event of Default (as defined in the related Loan
Agreement), the Trustee in its discretion may proceed to protect and enforce the
rights of the GTC holders under the Declaration of Trust by a suit, action or
other proceeding. As provided in
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the Loan Agreement, the Guaranty and the Depositary Agreement, the Trustee has
the legal power to exercise all the rights, powers and privileges of a holder of
the Note.
The Trustee is required to take all necessary action, as permitted by the
Declaration of Trust and applicable law (i) to enforce payments due from DSAA
under the Guaranty and (ii) to take possession of collateral maturing or paying
interest on or prior to the Note payment date on which default occurred, and to
apply such funds in accordance with the Declaration of Trust for the benefit of
holders of GTCs. The Trustee is required to notify the Borrower upon taking the
foregoing actions. Neither the Trust holding a Note nor DSAA has the right to
accelerate payment of the Note, notwithstanding any failure of the Borrower to
make payment on the Note or other Event of Default with respect to the Note.
[The applicable Prospectus Supplement will specify, to the extent GTCs are
included as Underlying Securities, the waiting period that must elapse before
reimbursement for a default on the Notes, and the delay between payment on the
Notes and payment on the GTCs that is built into the GTCs to protect against a
delay in reimbursement.
In addition, the related Prospectus Supplement will specify, to the extent
applicable: (i) the aggregate principal amount of such GTCs; (ii) the coupon, if
any, borne by such GTCs; (iii) the stated maturity of each GTC; (iv) the
identity of each underlying obligor; and (v) the conditions under which, and the
terms on which, any underlying obligation may be prepaid or redeemed prior to
the stated maturity of the obligation.]]
[AID-GUARANTEED UNDERLYING SECURITIES
General. AID-Guaranteed Underlying Securities consist of notes, bonds,
credit facilities and other debt instruments which are issued or arranged by
intermediary financial institutions ("IFIs") and guaranteed in whole or in part
by AID. Most AID guarantees are established under the auspices of the Private
Sector Investment Program (the "Investment Program"), created in 1983 under
Section 108 of the Foreign Assistance Act of 1961 and administered by AID. The
Investment Program seeks to promote sustainable economic development by
strengthening the private sector in developing countries, primarily through the
facilitation of small business financing needs. In 1988 Congress provided the
Investment Program with loan guarantee authority, and guarantees have become the
Investment Program's principal financing instrument. AID guarantees are backed
by the full faith and credit of the United States government.
AID Housing Guaranty Program. The Housing Guaranty Program (the "Housing
Program") is administered by the AID Office of Housing and Urban Programs. The
Housing Program facilitates collaboration between AID and host-country housing
institution borrowers in both the public and private sectors. Under the Housing
Program AID participates in the planning, structuring and execution of a housing
or shelter finance program. Through the conclusion of "implementation
Agreements" the Housing Program aids developing countries in securing favorable
terms in U.S. capital markets for a U.S. government-guaranteed loan.
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<PAGE>
Payments under the AID Guarantees. Pursuant to the Fiscal Agency Agreement,
if the Borrower does not deposit with the Fiscal Agent thereunder at or before
12 o'clock noon, New York City time, on any date on which a payment of
principal, interest or maturity amount on the guaranteed AID-Guaranteed
Underlying Securities is due (each, an "AID-Guaranteed Underlying Security
Payment Date"), immediately available funds in an amount sufficient to pay in
full any interest and principal, and any maturity amount, due on such AID-
Guaranteed Underlying Security Payment Date with respect to the guaranteed AID-
Guaranteed Underlying Securities, the Fiscal Agent, acting on behalf of the
holders of the guaranteed AID-Guaranteed Underlying Securities, is obligated to
make a demand upon AID, not later than 2 o'clock p.m., New York City time, on
such AID-Guaranteed Underlying Security Payment Date for payment pursuant to the
Guarantees.
Pursuant to the Guarantees, AID is required, not later than three (3)
Business Days following receipt of such demand, to pay to the demanding AID-
Guaranteed Underlying Securityholders the applicable Guaranteed Amount.
Upon receipt by the Fiscal Agent of payments from AID pursuant to the
Guarantees, the Fiscal Agent will be required, if such payments are received at
or prior to 12 o'clock noon, New York City time, on any Business Date, to remit
such payments to the registered holders of the guaranteed AID-Guaranteed
Underlying Securities entitled thereto on such Business Day and, if such
payments are received after such time, to remit such payments to such registered
holders on the next such Business Day.
Each AID-Guaranteed Underlying Securityholder is deemed by the acceptance
of a guaranteed AID-Guaranteed Underlying Security to have irrevocably appointed
the Fiscal Agent as its agent for the purpose of making a demand for payment
upon AID pursuant to the Guarantees and receiving any payment to an AID-
Guaranteed Underlying Securityholder by AID pursuant to the Guarantees. The
Regulations also provide that any AID-Guaranteed Underlying Securityholder may
make demand for payment on AID under a Guarantee on its own behalf immediately
upon the failure of the Borrower to make any payment when due under such AID-
Guaranteed Underlying Securityholder's guaranteed AID-Guaranteed Underlying
Security. All payments made by AID to the Fiscal Agent pursuant to the
Guarantees will be held in trust by the Fiscal Agent solely for the benefit of
the registered holders of the guaranteed AID-Guaranteed Underlying Securities
until remitted to such holders. AID will be discharged from its obligations to
make a payment pursuant to the Guarantees upon the making of such payment to the
Fiscal Agent on behalf of the AID-Guaranteed Underlying Securityholders,
provided that such discharge will be effective only as to such payment and to
the extent of the amount of such payment.
Events of Default. As provided by the terms of each AID-Guaranteed
Underlying Security, an Event of Default will be deemed to have occurred if the
borrower fails to make any payment on such AID-Guaranteed Underlying Security on
the applicable Payment Date. On the occurrence of an Event of Default, the
trustee of such AID-Guaranteed Underlying Security (the "Underlying Trustee") or
the Trustee may make demand on AID under the Guarantees. However, none of the
Fiscal Agent, the Trustee or AID may accelerate payment
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of any AID-Guaranteed Underlying Security, notwithstanding any failure of the
borrower to make payment on the AID-Guaranteed Underlying Securities.
[The related Prospectus Supplement will specify, to the extent applicable:
(i) the aggregate principal or notional principal amount of such AID-Guaranteed
Underlying Securities; (ii) the coupon, if any, borne by such AID-Guaranteed
Underlying Securities; (iii) the stated maturity of each underlying obligation;
(iv) the identity of each underlying obligor; (v) the credit characteristics of
such obligor; (vi) the rating, if any, assigned to each such obligor, whether an
actual or a shadow rating; (vii) the conditions under which, and the terms on
which, any underlying obligation may be prepaid or redeemed prior to the stated
maturity of the obligation; and (viii) the identity of the Fiscal Agent.]
The Federal Credit Reform Act of 1990, Pub. Law 101-508 (the "Credit Reform
Act"), provides that payments in respect of loan guarantee commitments made on
or after October 1, 1991, including the guarantee commitments made by AID under
the Guarantees, will be made by the U.S. Treasury from a "financing account"
established under Section 502(7) of the Credit Reform Act. Section 505(c) of the
Credit Reform Act authorizes the Secretary of the Treasury to lend or pay to the
financing account such amounts as may be necessary to make any payments required
to discharge loan guarantee obligations and commitments in the event funds in
the financing account are insufficient.]
The Trust will have no other significant assets [other than any Credit
Support or those assets referred to below] from which to make distributions of
amounts due in respect of the Certificates. Consequently, the ability of
Certificateholders to receive distributions in respect of the Certificates will
depend [almost] entirely on the Trust's receipt of payments on the foregoing
Underlying Securities from [name such obligor]. Prospective purchasers of the
Certificates should consider carefully [name such obligor]'s financial condition
and its ability to make payments in respect of such Underlying Securities. This
Prospectus Supplement relates only to the Certificates being offered hereby and
does not relate to the Underlying Securities of [name such obligor]. All
information contained in this Prospectus Supplement regarding [name such
obligor] is derived from the publicly available documents described in the
preceding paragraph. Neither the Depositor nor [any of] the Underwriter[s] has
participated in the preparation of such documents, or takes any responsibility
for the accuracy or completeness of the information provided therein.
The Deposited Assets will also include [describe any assets which are
ancillary or incidental to the Underlying Securities, including hedging
contracts such as puts, calls, interest rate swaps, currency swaps, floors, caps
and collars, and any cash or other security pledged to support the Underlying
Securities] (such assets, together with the Underlying Securities, the
"Deposited Assets").
[DESCRIPTION OF CREDIT SUPPORT]
For the benefit [solely] of the [Offered] [Class [ ] Certificates [and the
Class [ ] Certificates]], Credit Support will be obtained [and will constitute
part of the Trust to the extent provided below] to support or ensure the
[servicing and] [timely] [ultimate]
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distribution of amounts due with respect to the Deposited Assets, in the form
and amount described below.
[THE LETTER OF CREDIT
Simultaneously with the Depositor's assignment of the Deposited Assets to
the Trust, the Depositor will obtain the Letter of Credit from [ ] (the "Letter
of Credit Bank") in favor of the Trustee on behalf of the Certificateholders.
The Letter of Credit will be irrevocable and will [support the [timely]
[ultimate] remittance of amounts due with respect to the Deposited Assets]. The
maximum amount that the Trustee may draw under the Letter of Credit will
initially be equal to [$]. The initial amount of the Letter of Credit will be
[$]. Thereafter, the amount of the Letter of Credit with respect to any
Distribution Date will equal [the lesser of (i) % of the aggregate Certificate
Principal Balance outstanding on the preceding Distribution Date (after giving
effect to any payment of principal made on the preceding Distribution Date) but
in any event not less than [$], and (ii)] the amount of the Letter of Credit on
the preceding Distribution Date, plus [(a) reimbursement of certain advances
under the Letter of Credit and (b) recoveries on defaulted Deposited Assets]
[describe other methods]. The Letter of Credit expires on _________, 19__. The
Trustee will be obligated, in the event of a drawing on the Letter of Credit, to
pursue appropriate remedies against the Deposited Assets and other collateral,
and any realization thereon shall be paid to the Letter of Credit Bank to the
extent of any amounts owing, in the manner and priority specified herein.]
[Add language regarding the Letter of Credit Bank with respect to its debt
ratings, activities it engages in, regulatory authorities having jurisdiction
over it and the nature of such regulation, a narrative description of its
assets, liabilities (including deposits) and equity, and include an address for
further information concerning the Letter of Credit Bank. In addition, to the
extent that the Letter of Credit will cover payment of 20% or more of the
aggregate principal amount of the Certificates covered thereby, provide
information of financial and other matters with respect to the Letter of Credit
Bank.]]
[THE SURETY BOND
Simultaneously with the Depositor's assignment of the Deposited Assets to
the Trust, the Depositor will obtain the Surety Bond from [ ] (the "Surety") in
favor of the Trustee on behalf of the Certificateholders. The Surety Bond will
guaranty [timely] [ultimate] distributions of the principal of and premium (if
any) and interest with respect to the [Offered] Class [ ]] Certificates. The
Surety Bond expires on , 19__. The Trustee will be obligated, in the event of a
drawing on the Surety Bond, to pursue appropriate remedies against the Deposited
Assets and other collateral, and any realization thereon shall be paid to the
Surety to the extent of any amounts owing, in the manner and priority specified
herein.
[Add language regarding the issuer of the Surety Bond with respect to its
debt ratings, activities it engages in, regulatory authorities having
jurisdiction over it and the nature of such regulation, a narrative description
of its assets, liabilities (including deposits) and
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equity, and include an address for further information concerning the Surety. In
addition, to the extent that the Surety Bond will cover payment of 20% or more
of the aggregate principal amount of the Certificates covered thereby, provide
information of financial and other matters with respect to the issuer of the
Surety Bond.]]
[RESERVE ACCOUNT
The Depositor will deposit with the Trustee on the Closing Date cash,
letters of credit and short-term investments acceptable to the Rating Agency
initially rating the Certificates in the amount of [$]. [Collections with
respect to the Deposited Assets not distributed with respect to the Certificates
shall be deposited in the Reserve Account.] Amounts so deposited in such Reserve
Account will be used by the Trustee to make payments of principal of and premium
(if any) and interest on the Certificates to the extent that funds are not
otherwise available. Immediately after any Distribution Date, amounts in the
Reserve Account in excess of [indicate formula] [may be paid to the Depositor].]
YIELD ON THE CERTIFICATES
[Describe factors relating to the Deposited Assets, the terms thereof and
the manner and priority in which collections thereon are allocated to the
Certificateholders of each class of the Certificates, as described elsewhere
herein.] See "Yield Considerations" and "Maturity and Prepayment Considerations"
in the Prospectus.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will consist of [ ] classes of Certificates, designated as
Class [ ] [,] [and] Class [ ] [and Class [ ]] Certificates. The Certificates
represent in the aggregate the entire beneficial ownership interest in the
related Trust. The Class [ ] Certificates have in the aggregate an initial
[Certificate Principal Balance] [Notional Amount] of [$] (approximate) and a [%]
[Variable] Pass-Through Rate. The Class [ ] Certificates have in the aggregate
an initial [Certificate Principal Balance] [Notional Amount] of [$]
(approximate) and a [%] [Variable] Pass-Through Rate. [The Class [ ]
Certificates have in the aggregate an initial [Certificate Principal Balance]
[Notional Amount] of [$] (approximate) and a [ %] [Variable] Pass-Through Rate.
[The Class [ ] Certificates, which are not being offered hereby, will be
transferred by the Depositor to an affiliate on the Closing Date, and may be
sold at any time by the Depositor in accordance with the terms of the Trust
Agreement.]
The Certificates [(other than the Class [ ] Certificates [and specify
others] (the "Definitive Classes"))] will be issued, maintained and transferred
on the book-entry records of DTC and its Participants in minimum denominations
of [$ ] and [integral multiples thereof] [multiples of [$ ] in excess thereof].
[The Class [ ] Certificates [and specify any others] will be offered in
registered, certificated form, in minimum percentage interests
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corresponding to the initial Notional Amounts or Certificate Principal Balances,
as applicable, of [$ ] and integral multiples thereof, except that one
Certificate of each such class may be issued with an initial Notional Amount or
Certificate Principal Balance, as applicable, equal to an integral multiple of
[$ ] plus the excess of the initial aggregate Notional Amount or Certificate
Principal Balance, as applicable, of such class over the greatest integral
multiple of [$ ] that is not more than such initial aggregate Notional Amount or
Certificate Principal Balance, as applicable.]
The Certificates [(other than the Definitive Classes of 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 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 [(other than the Definitive Classes)] 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 [(other than the
Definitive Classes of Certificates)] and receipt of instructions
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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.
DISTRIBUTIONS
Collections on the Deposited Assets 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:
(i) to the Trustee, all unpaid fees and expenses of the Trustee and
its respective agents, up to the Allowable Expense Amount (as defined
below) for the related Collection Period;
(ii) [to the providers of Credit Support ("Credit Support
Providers"), any amounts required to be paid or reimbursed to, or deposited
with, any such person (collectively, "Credit Support Payments");
(iii)] to the Certificateholders of each Class of such Series,
first, to the payment of Required Interest [and on a pro rata basis to the
Credit Support Providers for the payment of any Credit Support Payments],
second, to the payment of Required Principal and third, to the payment of
Required Premium, in each case applicable to such Class, commencing with
the most highly ranked Class and, to the extent Available Funds remain
available, to each other Class in accordance with the ranking specified
herein under "--Allocation of Losses; Subordination";
[(iii) to the Credit Support Providers, any Credit Support
Payments;]
[(iv)] to the Trustee, all its remaining unpaid fees and expenses
and those of its respective agents not otherwise paid pursuant to clause
(i) above;
[(v)] all remaining amounts, if any, to the Depositor].
There can be no assurance that collections received from the Deposited
Assets and any applicable Credit Support relating to the Certificates over a
specified period will be sufficient, after payment of all Allowable Expense
Amounts [and payment of all amounts required to be paid to the Credit Support
Providers] for such period, to make all required distributions to the
Certificateholders of the Certificates. To the extent Available Funds are
insufficient to make any such distributions due to any such Series or Class, any
shortfall will be carried over and will be distributable on the next
Distribution Date on which sufficient funds exist to pay such shortfalls.
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For purposes hereof, the following terms have the following meanings:
"Allowable Expense Amount" means, for any given Collection Period, the sum
of (x) [$] and (y) amounts in respect of the Allowable Expense Amount from the
preceding Collection Period that have not been applied on the Distribution Date
for such preceding Collection Period.
"Available Funds" for any Distribution Date means the sum of (a) all
amounts received on or with respect to the Deposited Assets (including
investment income on Eligible Investments) received during the preceding
Collection Period[,] [and] (b) amounts available as of such Distribution Date
pursuant to the Credit Support described herein [and (c) any additional amount
that the [Depositor] may remit to the Trustee from time to time according to the
terms of the Trust Agreement for application as Available Funds].
"Call Premium Percentage" for any given Distribution Date means [a fixed
percentage] [a percentage that varies depending on [describe basis for variable
formula, such as the applicable date or other factors or indices]].
"Eligible Investments" means, with respect to the Certificates, those
investments 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" allocable to the Retained Interest for any Distribution
Date means accrued and unpaid interest on the outstanding principal balance of
the Certificates, computed at an annual rate of [%].]
"Required Interest" for the Certificates or any Class thereof on any given
Distribution Date means the accrued and unpaid interest on the outstanding
Certificate Principal Balance [or Notional Amount] of such Certificates,
computed at the applicable Pass-Through Rate.
"Required Premium" for the Certificates or any Class thereof for any
Distribution Date means an amount equal to the product of (a) the Required
Principal for such Certificates on such Distribution Date and (b) the Call
Premium Percentage for such Distribution Date.
"Required Principal" for the Certificates or any Class thereof for any
Distribution Date means the amount received on the Deposited Assets attributable
to principal payments thereon during the related Collection Period, to the
extent allocable to such Certificates. The Certificate Principal Balance of a
Certificate outstanding at any time represents the maximum amount that the
holder thereof is entitled to receive as distributions allocable to principal
from the cash flow on the Underlying Securities, the other assets in the Trust
and any Credit Support obtained for the benefit of such holder. The Certificate
Principal Balance of any class of Certificates [(other than the Class [ ]
Certificates)] as of any date of determination is equal to the initial
Certificate Principal Balance thereof, reduced by the
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aggregate of (a) all amounts allocable to principal previously distributed with
respect to such Certificate and (b) any reductions in the Certificate Principal
Balance deemed to have occurred in connection with allocations of (i) Realized
Losses allocable to principal on the Deposited Assets and (ii) Extraordinary
Trust Expenses, as described herein. [The Notional Amount of the Class [ ]
Certificates as of any date of determination is equal to [specify amount].]
[Holders of the Class [ ] Certificates are not entitled to receive any
distributions allocable to principal.]
[Notwithstanding the priorities described above, holders of the Class [ ]
Certificates and the Class [ ] Certificates will be entitled to receive on any
Distribution Date 100% of all principal collections received in the related
Collection Period with respect to the Deposited Assets, to be distributed [on a
pro rata basis] in reduction of the Certificate Principal Balance of the Class
[ ] Certificates and the Class [ ] Certificates, if any of the following
conditions shall be satisfied: [describe conditions, if any, by which a certain
class is given 100% of the principal cash flow other than pursuant to
subordination that is in effect from the Closing Date].]
[OPTIONAL REDEMPTION
On each Distribution Date, or the next succeeding Business Day if such
Distribution Date is not a Business Day, on or after the Distribution Date in
[__, 199_], the Certificates may be redeemed by the Trust at the request of the
Depositor at a price of [%] (the "Redemption Price"). In addition, the
Certificateholders shall be entitled to receive interest up to, but not
including, the Redemption Date.]
[ADVANCES
Subject to the following limitations, the Trustee will be obligated to
advance or cause to be advanced on or before each Distribution Date its own
funds, or funds in the Certificate Account that are not included in the
Available Funds for such Distribution Date, in an amount equal to the aggregate
of payments of principal, premium (if any) and interest, net of that portion of
the Administrative Fee (as defined herein) attributable to fees and expenses of
the Trustee, that were due during the related Collection Period and that were
delinquent on the related Determination Date (any such advance, an "Advance").
Advances are required to be made only to the extent they are deemed by the
Trustee to be recoverable from related late collections, insurance proceeds, if
any, or Liquidation Proceeds. The purpose of making such Advances is to maintain
a regular cash flow to the Certificateholders, rather than to guarantee or
insure against losses. The Trustee will not be required to make any Advances
with respect to reductions in the amount of the payments on the Deposited Assets
due to bankruptcy proceedings with respect to the Deposited Assets.
All Advances will be reimbursable to the Trustee from late collections,
insurance proceeds, if any, and any proceeds from the liquidation of the
Deposited Asset ("Liquidation Proceeds") as to which such unreimbursed Advance
was made. In addition, any Advances
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previously made in respect of any Deposited Asset that are deemed by the Trustee
to be nonrecoverable from related late collections, insurance proceeds, if any,
or Liquidation Proceeds may be reimbursed to the Trustee out of any funds in the
Certificate Account allocable to any of the Deposited Assets prior to the
distributions on the Certificates. In the event that the Trustee fails in its
obligation to make any such Advance, the Trustee may be obligated to make any
such Advance, to the extent provided in the Trust Agreement.]
[RESTRICTIONS ON TRANSFER OF THE CLASS [ ] CERTIFICATES
Because the Class [ ] Certificates are subordinate to the Class [ ]
Certificates and the Class [ ] Certificates to the extent set forth herein, the
Class [ ] Certificates may not be purchased by or transferred to a Plan except
upon the delivery of an opinion of counsel as described herein. See "ERISA
Considerations."]
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 1996-[ ] Supplement) will consist of (i) the
Deposited Assets (exclusive of any Retained Interest, which is not part of the
Trust), (ii) all payments on or collections in respect of the Deposited Assets
due after the Cut-off Date, together with any proceeds thereof[,] [and] [(iii)
any Credit Support in respect of any class or classes of Certificates] [and (iv)
the rights of the Depositor under the Purchase Agreement between the Depositor
and the Seller]. [In addition, the Certificateholders of the Certificates may
also have the benefit of certain Credit Support discussed above. See
"Description of Credit Support."] 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 TRUSTEE
[ ], a [ ] corporation, will act as trustee for the Certificates and the
Trust pursuant to the Trust Agreement. The Trustee's offices are located at [ ]
and its telephone number is [ ].
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The Trust Agreement will provide that the Trustee and any director,
officer, employee or agent of the Trustee will be indemnified by the 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 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 any Underlying 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 any Underlying
Security when the same becomes due and payable; and (iii) the occurrence and
continuance of such other events specified in the applicable series supplement.]
[Describe remedies available to Certificateholders upon the occurrence and
continuance of an Event of Default, including, as applicable, directing the
Trustee to vote the Underlying Securities in favor of declaring the principal
balance of and any accrued interest on the Outstanding Debt Securities to be
immediately due and payable].
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 [and the holder of the
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 premium, if any, or interest on any
of the Underlying 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 [and the holder of
the 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 Series evidencing not less than the
"Required Percentage--Remedies" specified in the applicable series supplement of
the aggregate Voting Rights of such Series 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 Series evidencing not less
than the Required Percentage--Remedies of the aggregate Voting Rights of such
Series.
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VOTING RIGHTS
[At all times,] [Subject to the succeeding paragraph,] [ ]% of all Voting
Rights will be allocated among all holders of the Class [ ] Certificates[,]
[and] the Class [ ] Certificates [and specify other classes] in proportion to
the then outstanding Certificate Principal Balances [or Notional Amounts] of
their respective Certificates and [ ]% of all Voting Rights will be allocated
among all holders of the Class [ ] Certificates in proportion to the then
outstanding [Certificate Principal Balances] [Notional Amounts] of their
respective Certificates. [Specify whether and under what circumstances voting
will be class-by-class.]
[Specify conditions, if any, under which allocation of Voting Rights might
change from the foregoing percentages.]
[Specify the rights, if any, of the holder of the Retained Interest to
consent to certain actions.]
VOTING OF UNDERLYING SECURITIES, MODIFICATION OF INDENTURE
The Trustee, as holder of the Underlying Securities, has the right to vote
and give consents and waivers in respect of such Underlying Securities as
permitted by [DTC] [Federal Reserve Bank] and except as otherwise limited by the
Trust Agreement. In the event that the Trustee receives a request from [DTC]
[Federal Reserve Bank], the [Fiscal Agent] or the GSE Issuer for its consent to
any amendment, modification or waiver of the Underlying Securities or any other
document thereunder or relating thereto, or receives any other solicitation for
any action with respect to the Underlying Securities, the Trustee shall mail a
notice of such proposed amendment, modification, waiver or solicitation to each
Certificateholder of record as of such date. The Trustee shall request
instructions from the 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 and Notional
Amounts of the Certificates, as applicable) as the Certificates of the 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 Underlying Securities, including, without
limitation, any demand to accelerate the Underlying Securities, except in the
event of an event of default with respect to the Underlying Securities or an
event which with the passage of time would become an event of default and with
the unanimous consent of all Outstanding Certificates and the holder of the
Retained Interest] or (iii) which would result in the exchange or substitution
of any of the outstanding Underlying Securities pursuant to a plan for the
refunding or refinancing of such Underlying Securities except in the event of a
default under the Underlying Securities and only with the consent of
Certificateholders representing 100% of the aggregate voting rights of each
outstanding Class of the Certificates [and the holder of the Retained Interest].
The Trustee shall have no
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liability for any failure to act resulting from Certificateholders' late return
of, or failure to return, directions requested by the Trustee from the
Certificateholders.
In the event that an offer is made by the GSE Issuer to issue new
obligations in exchange and substitution for any of the Underlying Securities,
pursuant to a plan for the refunding or refinancing of the Outstanding Debt
Securities or any other offer is made for the Underlying Securities, the Trustee
shall notify the Certificateholders [and the holder of the Retained Interest] of
such offer as promptly as practicable. The Trustee must reject any such offer
unless an event of default under the Underlying Securities has occurred, the
Trustee is directed by the affirmative vote of all of the Certificateholders
[and the holder of the Retained Interest] to accept such offer and the Trustee
has received the tax opinion described above. [Accordingly, a Certificateholder
generally would be required to effect a withdrawal of Requested Underlying
Securities from the Trust in order to accept such offer. See "--Optional
Exchange of Certificates."]
If an event of default under the Underlying Securities occurs and is
continuing and if directed by all the holders of outstanding Class [ ]
Certificates [and Class [ ] Certificates,] [and the holder of the Retained
Interest,] the Trustee shall vote the Underlying Securities in favor of
directing, or take such other action as may be appropriate to declare the unpaid
principal amount of the Underlying 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 Underlying Securities, the
Certificateholders' interests of each Class may differ and the interests of
either Class may differ from holders of other Outstanding Debt Securities.
TERMINATION
[The circumstances under which the obligations created by the Trust
Agreement will terminate in respect of the Certificates are described in
"Description of Certificates--Termination" in the Prospectus.] [Describe
additional termination provisions.] The Depositor will have the right to
purchase all remaining Deposited Assets in the Trust and thereby effect early
retirement of the Certificates on any Distribution Date, [(a)] once the
aggregate principal amount of the Deposited Assets at the time of any such
purchase is less than [10%] of the aggregate principal amount of the Deposited
Assets as of the Cut-off Date [and (b) at the option of the Depositor at
[specify when and on what terms any such option may be exercised]]; provided,
however, that the right to exercise any such option is contingent on such
exercise being consistent 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. In the event the Depositor exercises any such option, the portion
of the purchase price allocable to the Certificates of each class will be, to
the extent of available funds, [100% of their then aggregate outstanding
Certificate Principal Balance or Notional Amount, as applicable, plus with
respect to the Certificates [one month's] [three month's] [specify other period]
interest thereon at the Fixed Pass-Through Rate or the then applicable Variable
Pass-Through Rate, as the case may be, plus, with respect to each class of
Certificates, any previously accrued but unpaid interest thereon.] [Specify
alternative allocation method if different from above.]
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In no event will the Trust created by the Trust Agreement for the Certificates
continue beyond the expiration of 21 years from the death of the survivor of the
person or persons named in the Trust Agreement. See "Description of Certificates
- --Termination" in the Prospectus.
CERTAIN LEGAL ASPECTS OF THE DEPOSITED ASSETS
[Describe any applicable legal aspects of the Deposited Assets or relating
to the enforceability by the Certificateholders of the security interest, if
any, securing such Deposited Assets.]
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain material Federal income
tax consequences of the purchase, ownership and disposition of the Certificates
by an initial holder of Certificates. Such consequences will depend on the
terms of the Certificate, whether the Trust is treated as a grantor trust or as
a partnership for Federal income tax purposes, and the assets collateralizing or
otherwise supporting such Certificate. The consequences of owning Certificates
which are deemed for Federal income tax purposes to be interests in a grantor
trust or in a partnership are discussed separately below under the captions
"Grantor Trust Certificates" and "Partnership Certificates," respectively. The
applicable Trust Agreement would include provisions appropriate to the
particulars of the transaction and to the relevant Federal income tax status of
the Trust and related Certificates.
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. The Prospectus Supplement for each series of Certificates
will tailor the description of the Federal income tax consequences to the
specific Certificates issued pursuant thereto, as therein limited.
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.
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GRANTOR TRUST CERTIFICATES
If the Trust is intended to be classified as a grantor trust and not as an
association taxable as a corporation for Federal income tax purposes, Federal
Tax Counsel will so opine. The remainder of this discussion prior to
"Partnership Certificates" assumes that the Trust is a grantor trust and not 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, and as if it paid directly its share of
reasonable expenses paid by the 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 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
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 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
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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 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. 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 each Underlying 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."
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 Trust.
In general, under the market discount provisions of the Code, all or a
portion of the principal payments received by the Trust and the gain recognized
upon a sale, maturity or
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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 Trust acquired the Underlying Certificate (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 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 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
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each new purchaser of a Certificate of the stripped interest from the date of
purchase of the Underlying Security by the 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 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 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.
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BOND PREMIUM
In the event that a Certificate represents an interest in an Underlying
Security purchased (either initially upon the formation of the 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, trustee fees and other fees paid or incurred by
the Trust and any allowable amortization deductions with respect to certain
other assets of the 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.
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PURCHASE AND SALE OF A CERTIFICATE
A Certificate Owner's tax basis in a Certificate generally will equal the
cost of such Certificate increased by any amounts of undistributed taxable
income (e.g., OID or market discount) and reduced by any amortized premium (each
as described above) and any 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.
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 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 or (c) upon receipt by the Trustee of payments of
principal on the 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 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 said 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
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 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.
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
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.
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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 are
prospective investors should consult with their tax advisors regarding the
potential effect of this provision on their investment in the Certificates.
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 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.
PARTNERSHIP CERTIFICATES
If the Trust is intended to be treated as a partnership for purposes of
Federal income taxation, Federal Tax Counsel will so opine. The availability of
any tax benefits of investing in Certificates depends upon the classification of
the Trust as a partnership, rather than as an association taxable as a
corporation, for federal income tax purposes. Federal Tax Counsel's opinion
regarding the status of the Trust as a partnership for federal income tax
purposes is based on provisions of the Trust Agreement which (1) provide that
the Trust will terminate upon the occurrence of certain events such as the
insolvency or bankruptcy of the Depositor, (2) restrict the transferability of
the Certificates, (3) impose personal liability on the Depositor for expenses
and other liabilities of the Trust, (4) require that the Depositor will have a
net worth sufficient to meet the net worth requirements set by the Service for
the issuance of an advance ruling that an organization lacks the corporate
characteristic of limited liability for federal income tax purposes, (5)
restrict the number of Certificate
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Owners and (6) restrict the transfer of Certificates on an "established
securities market" as defined in Section 7704 of the Code.
If the Trust were taxable as a corporation, it would be subject to federal
income tax on any taxable income at regular corporate tax rates. Classification
of the Trust as a corporation would result in a substantial reduction in (or
elimination of) after-tax yield and cash flow to an Owner of a Certificates with
respect to its Certificate.
Final regulations have been issued that provide an anti-abuse rule under
Subchapter K of Chapter 1 of the Code. These regulations authorize the Service,
based upon all of the facts and circumstances, to recast a transaction involving
a partnership as appropriate to reflect the underlying economic arrangement or
to prevent the circumvention of other provisions of the Code. This authority to
recast a transaction includes, but is not limited to, disregarding and
reallocating allocations of the partnership's items of income, gain, loss,
deductions, or credits. It cannot be predicted whether the Service will asset
that such a rule would apply to recast the Federal income tax treatment of
either the Trust of the Certificates. Holders should consult their own tax
advisers in this regard.
The Service has recently issued proposed Treasury Regulations Section
1.7701-1 through 1.7701-3 which simplifies the regulations relating to the
classification of unincorporated business organizations, including entities such
as the Trust, as partnerships and corporations for federal income tax purposes
and is seeking public comments on the proposed regulations. At this time, the
Service has not yet finalized the proposed regulations and it is unclear when
they will be finalized and the form such final regulations may take.
Accordingly, although the ultimate effect of such regulations cannot be
predicted, it is not believed that any such simplifying regulations should
adversely affect the classification of the Trust as a partnership. Investors
should consult their own tax advisors in this regard.
PARTNERSHIP TAXATION
As a partnership, the Trust will not be subject to Federal income tax, but
each Certificate Owner will be required to separately take into account such
holder's allocable share of income, gains, losses, deductions and credits of the
Trust. Each Certificate Owner will be required to take into account in
computing such Certificate Owner's federal income tax liability its share of
items of Trust income, gains, losses, deductions and credits for the tax year of
the Trust ending within or with the tax year of such Certificate Owner, without
regard to whether there are distributions from the Trust. A Certificate Owner's
distributive share of Trust income, expense, gain, loss or credit will be
determined in accordance with the Trust Agreement. All or a portion of any
allocated expenses (to the extent not otherwise disallowed under the Code) may
be treated as investment expenses subject to limitations on deductibility of
miscellaneous itemized deductions that do not exceed two percent of their
adjusted gross income in the case of Certificate Owners who are individuals,
estates or trusts.
A Certificate Owner's ability to recognize its distributive share of
expenses or losses, if any, may be subject to limitation under the Code (for
example, a Certificate Owner's
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distributive share of Trust loss, including capital loss, may be allowed only to
the extent of such Certificate Owner's adjusted basis in its Certificate). A
Certificate Owner should consult its tax advisors in this regard.
Any cash distributions by the Trust to a Certificate Owner will constitute
(i) first, a return of capital to the extent of such Certificate Owner's tax
basis in the Certificate (with a corresponding dollar-for-dollar reduction in
such tax basis), and (ii) thereafter, to the extent in excess thereof, gain on
the sale or exchange of such Certificate Owner's Certificate. See "Disposition
of Certificates" below.
DISCOUNT AND PREMIUM
It is believed that the Underlying Securities were not issued with OID and,
therefore, the Trust should not have OID income. However, the purchase price
paid by the Trust for the Underlying Securities may be greater or less than the
remaining principal balance of the Underlying Securities at the time of
purchase. If so, the Underlying Securities will have been acquired at a premium
or discount, as the case may be. Moreover, to the extent a deemed termination
of the Trust occurs as discussed below, it is possible that discount or premium
will be created, depending on the value of the Underlying Securities at such
time.
The amortization of bond premium and accrual of market discount are
discussed above under "Bond Premium" and "Tax Treatment of Certificates to the
Extent They Are Not Stripped Interests." For purposes of this discussion, the
Partnership will be considered the Certificate Owner.
MODIFICATION OR EXCHANGE OF UNDERLYING SECURITIES
Depending upon the circumstances, it is possible that a modification of the
terms of the Underlying Securities, or a substitution of other assets for the
Underlying Securities would be a taxable event to the Trust, which may result in
Federal income tax consequences to Certificate Owners.
TAX CONSEQUENCES OF OTHER ASSETS HELD BY TRUST
The manner in which income with respect to the other assets of the Trust
should be accrued will depend on the nature of those assets.
[Discuss specific tax consequences of other assets.]
SECTION 708 TERMINATION
Under Section 708 of the Code, the Trust will be deemed to terminate for
Federal income tax purposes if 50% or more of the capital and profits interests
in the Trust are sold or exchanged within a twelve-month period. Were such a
termination to occur, the Trust would be considered to have distributed its
assets to the partners, the Certificate Owners,
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who would then be treated as having recontributed those assets to the Trust, as
a new partnership.
DISPOSITION OF CERTIFICATES
Generally, capital gain or loss will be recognized on a sale or other
disposition of Certificates in an amount equal to the difference between the
amount realized and the seller's tax basis in the Certificates sold. A
Certificate Owner's tax basis in a Certificate will generally equal its cost
increased by his share of Trust income includible in his income (including for
the taxable year of sale) and decreased by any distributions received with
respect to such Certificate. In addition, both his tax basis in, and the amount
realized on a sale of, a Certificate would include the holder's share of
liabilities of the Trust. A holder acquiring Certificates at different prices
may be required to maintain a single aggregate adjusted tax basis in such
Certificate and, upon sale or other disposition of some of the Certificates,
allocate a pro rata portion of such aggregate tax basis to the Certificates sold
(rather than maintaining a separate tax basis in each Certificate for purposes
of computing gain or loss on a sale of that Certificate).
"The Revenue Reconciliation Act of 1993" (the "Tax Act") raised tax rates
on ordinary income while capital gains remain subject to a 28 percent maximum
stated rate. Because some or all capital gains are taxed at a comparatively
lower rate under the Tax Act, the Tax 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. Prospective Certificate Owners
should consult with their tax advisors regarding the potential effect of this
provision with respect to any gains recognized on their investment in
Certificates.
In general, the transfer of interests in the Trust should not affect
Certificate Owners other than those disposing of or acquiring a Certificate.
However, under the partnership rules, as described above, a transfer during a
twelve-month period of 50% or more of the total interests in the partnership
capital and profits will result for Federal income tax purposes in a termination
and reconstitution of the Trust, with the result that the Trust's basis in the
Underlying Securities and Deposited Assets will equal the aggregate of the
Certificate Owner's basis in their Certificates. Upon the subsequent receipt of
principal payments on the Underlying Securities or the sale or redemption of the
Underlying Securities, this rule may result in the recognition of gain or loss
by a Certificate Owner in advance of the sale or redemption of its Certificate.
On the sale of a Certificate, any gain attributable to the holder's share
of any accrued market discount on the Underlying Securities that has not
otherwise been included in the holder's income would generally be treated as
ordinary income to the holder and would give rise to special tax reporting
requirements.
S-47
<PAGE>
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES
In general, the Trust's taxable income and losses will be determined
monthly and the tax items for a particular calendar month allocable to a
particular class of Certificates will be apportioned among holders of such
Certificates in proportion to the principal amount of such Certificates owned by
them as of the first business day following the end of such month. As a result,
a holder purchasing Certificates may be allocated tax items (which will affect
its tax liability and tax basis) attributable to periods before the actual
transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If such a convention is not allowed (or only applies to transfers
of less than all of a Certificate Owner's interest), taxable income or losses of
the Trust might be reallocated among the Certificate Owners. The Trustee is
authorized to revise the Trust's method of allocation between transferors and
transferees to conform to a method permitted by future regulations.
SECTION 754 ELECTION
In the event that a Certificate Owner sells its Certificates at a profit
(loss), the purchasing Certificate Owner will have a higher (lower) basis in the
Certificates than the selling Certificate Owner had. The tax basis of the
Trust's assets will not be adjusted to reflect that higher (or lower) basis
unless the Trust were to file an election under Section 754 of the Code. In
order to avoid the administrative complexities that would be involved in keeping
accurate accounting records, as well as potentially onerous information
reporting requirements, the Trust will not make such election. As a result
Certificate Owners might be allocated a greater or lesser amount of Trust income
than would be appropriate based on their own purchase price for Certificates.
ADMINISTRATIVE MATTERS
The Trustee is required to keep complete and accurate books of the Trust.
Such books will be maintained for financial reporting and tax purposes on an
accrual basis. The Trustee will file a partnership information return (Service
Form 1065) with the Service for each taxable year of the Trust and will report
each Certificate Owner's allocable share of items of Trust income and expense to
holders and the Service on Schedule K-1. The Trust will provide the Schedule K-
1 information to nominees that fail to provide the Trust with the information
statement described below and such nominees will be required to forward such
information to the beneficial owners of the Certificates. Generally, holders
must file tax returns that are consistent with the information return filed by
the Trust or be subject to penalties, unless the holder notifies the Service of
all such inconsistencies.
Under Code Section 6031, any person that holds Certificates as a nominee at
any time during a calendar year is required to furnish the Trust with a
statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the
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<PAGE>
nominee and (ii) as to each beneficial owner (x) the name, address and taxpayer
identification number of such person, (y) whether such person is not a United
States person, a tax-exempt entity, or a foreign government, an international
organization, or any wholly-owned agency or instrumentality of either of the
foregoing, and (z) certain information on Certificates that were held, bought or
sold on behalf of such person throughout the year. In addition, brokers and
financial institutions that hold Certificates through a nominee are required to
furnish directly to the Trust information as to themselves and their ownership
of Certificates. A clearing agency registered under Section 17A of the Exchange
Act is not required to furnish any such information statement to the Trust. The
information referred to above for any calendar year must be furnished to the
Trust on or before the following January 31. Nominees, brokers and financial
institutions that fail to provide the Trust with the information described above
may be subject to penalties.
The Depositor, as the tax matters partner, will be responsible for
representing the Certificate Owners in any dispute with the Service. The Code
provides for administrative examination of a partnership as if the partnership
were a separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificate Owners and, under
certain circumstances, a Certificate Owner may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of a Certificate Owner's returns and adjustments of
items not related to the income (or loss) of the Trust.
TAX CONSEQUENCES TO FOREIGN CERTIFICATE OWNERS
It is not clear whether the Trust would be considered to be engaged in a
trade or business in the United States for purposes of Federal withholding taxes
with respect to non-U.S. persons because there is no clear authority dealing
with that issue under facts substantially similar to those described herein.
[Although it is not expected that the Trust would be engaged in a trade or
business in the United States for such purposes, the Trust expects to withhold
as if it were so engaged in order to protect the Trust from possible adverse
consequences of a failure to withhold. The Trust expects to withhold on the
portion of its taxable income that is allocable to foreign Certificate Owners
pursuant to Code Section 1446, as if such income were effectively connected to
U.S. trade or business, at a rate of 35% for foreign holders that are taxable as
corporations and 39.6% for all other foreign holders. Subsequent adoption of
Treasury regulations or the issuance of other administrative pronouncements may
require the Trust to change its withholding procedures. In determining a
holder's nonforeign status, the Trust may rely on Form W-8, Form W-9 or the
holder's certification of nonforeign status signed under penalties of perjury.]
[Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the branch
profits tax) on its share of the Trust's income. Each foreign holder must
obtain a taxpayer identification number from the Service and submit that number
to the Trust on Form W-8 in order to assure appropriate
S-49
<PAGE>
crediting of the taxes withheld. A foreign holder generally would be entitled to
file with the Service a claim for refund with respect to taxes withheld by the
Trust, taking the position that no taxes were due because the Trust was not
engaged in a U.S. trade or business. The Trust will cooperate in any such refund
claim if it can do so without incurring any out-of-pocket cost. No assurance can
be given as to whether any such refund claim would be granted.]
[The foregoing summary will be modified, as necessary, to reflect
differences caused by the precise nature of the Deposited Assets relating to a
given Series of Certificates.]
[CERTAIN STATE TAX CONSEQUENCES
[Describe any applicable state tax consequences that may arise, including
as a result of the specific nature of the Deposited Assets relating to a given
Series of Certificates or the degree of servicing required with respect to such
Deposited Assets.]]
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"). Moreover, based on the
reasoning of the United States Supreme Court's decision in John Hancock Life
Ins. Co. v. Harris Trust and Sav. Bank, 114 S.Ct. 517 (1993), an insurance
company investing assets in its general account might be treated as a Plan on
the grounds that such an investor may be investing assets of an employee benefit
plan subject to ERISA.
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
Trust being deemed to constitute Plan assets, which in turn might mean that
certain aspects of such investment, including the operation of the 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
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<PAGE>
"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 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
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 does not anticipate that 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 the Trust were deemed to be Plan assets, certain transactions
involving the Trust, including the acquisition of the Certificates themselves by
a Plan, could be prohibited transactions. If, for example, an obligor with
respect to any of the Deposited Assets, or any of such obligor's affiliates,
were a party in interest or disqualified person with respect to an acquiring
Plan, the acquisition of the Certificate could be construed as a prohibited
indirect loan from the Plan to the obligor. 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 Trust.
S-51
<PAGE>
To the extent an insurance company invests assets treated as assets of a Plan,
it will be required to make the foregoing representation as a condition to the
acquisition of a Certificate. Alternatively, if the Depositor is able to confirm
the existence of at least 100 independent purchasers of a class, the foregoing
representation will not be a condition to acquisition of Certificates of such
class.
Any Plan or insurance company investing assets of its general account
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 [ ], 199[ ] (the "Underwriting Agreement"), the Depositor
as agreed to sell and [Morgan Keegan & Company, Inc. (an affiliate of the
Depositor)] [each of the Underwriters named below, including Morgan Keegan &
Company, Inc. (an affiliate of the Depositor)] (the "Underwriter[s]")[,] has
[severally] agreed to purchase, the [Certificates] [the principal amount of each
class of Certificates set forth below opposite its name].
<TABLE>
<CAPTION>
Class [ ] Class [ ] Class [ ]
<S> <C> <C> <C>
Morgan Keegan & Company, Inc... $ $ $
--------- --------- ---------
Total..................... $ $ $
========= ========= =========
</TABLE>
[Morgan Keegan & Company, Inc. has] [The several Underwriters have] agreed,
subject to the terms and conditions set forth in the Underwriting Agreement, to
purchase all Certificates offered hereby if any of such Certificates are
purchased. [In the event of default by any Underwriter, the Underwriting
Agreement provides that, in certain circumstances, the purchase commitments of
non-defaulting Underwriters may be increased or the Underwriting Agreement may
be terminated.]
The Depositor has been advised by the Underwriter[s] that [it] [they]
propose[s] to offer the Certificates from time to time in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. The Underwriter[s] 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[s] and
any purchasers of Certificates for whom they may act as agents. The
Underwriter[s] and any dealers that participate with the Underwriter[s] 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 Underwriting Agreement provides that the Depositor will indemnify the
Underwriter[s] against certain civil liabilities, including liabilities under
the Securities Act, or will contribute to payments the Underwriter[s] may be
required to make in respect thereof.
S-52
<PAGE>
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.
RATINGS
It is a condition to the issuance of the Certificates that the Certificates
be rated not lower than [specify ratings applicable to each class] by [Standard
& Poor's Corporation ("Standard & Poor's")] [Moody's Investors Service, Inc.
("Moody's")] [Fitch Investors Service, L.P. ("Fitch")] [and] [Duff & Phelps
Credit Rating Company ("Duff & Phelps")] (the "Rating [Agency] [Agencies]").
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 Deposited Assets and any providers of Credit Support, as
well as on the relative priorities of the Certificateholders of each class of
the Certificates with respect to collections and losses with respect to the
Deposited Assets. 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 Deposited Assets, the corresponding
effect on yield to investors, or whether investors in the Class [ ] Certificates
[specify class with Notional Amount] may fail to recover fully their initial
investment.
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 any other
security rating.
The Depositor has not requested a rating on the Certificates by any rating
agency other than the Rating [Agency] [Agencies]. 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 Rating [Agency]
[Agencies].
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed upon for
the Depositor and the Underwriter[s] by Chapman and Cutler, Chicago, Illinois.
S-53
<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
Page
Summary of Principal Economic Terms .......................................
Summary of Prospectus Supplement ..........................................
Formation of the Trust ....................................................
Risk Factors ..............................................................
Description of the Deposited Assets .......................................
[Description of Credit Support] ...........................................
Yield on the Certificates .................................................
Description of the Certificates ...........................................
Description of the Trust Agreement ........................................
Certain Legal Aspects of the Deposited Assets .............................
Certain Federal Income Tax Consequences ...................................
Certain State Tax Consequences ............................................
ERISA Considerations ......................................................
Plan of Distribution ......................................................
Ratings ...................................................................
Legal Opinions ............................................................
PROSPECTUS
Prospectus Supplement .....................................................
Available Information .....................................................
Incorporation of Certain Information by Reference .........................
Reports to Certificateholders .............................................
Risk Factors ..............................................................
The Depositor .............................................................
Use of Proceeds ...........................................................
Formation of the Trust ....................................................
Maturity and Yield Considerations .........................................
Description of Certificates ...............................................
Description of Deposited Assets and Credit Support ........................
Description of the Trust Agreement ........................................
Plan of Distribution ......................................................
Legal Opinions ............................................................
--------------
Until 90 days after the date of each 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.
================================================================================
================================================================================
$___________
SOUTHPOINT STRUCTURED
ASSETS, INC.
TRUST CERTIFICATES, SERIES ___
---------------------
PROSPECTUS SUPPLEMENT
---------------------
[UNDERWRITER]
_________, 199_
===============================================================================
S-54
<PAGE>
SUBJECT TO COMPLETION DATED ___________, 1996
PROSPECTUS
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
SOUTHPOINT STRUCTURED ASSETS, INC.
DEPOSITOR
The Mortgage Pass-Through Certificates (the "Certificates") offered hereby
may be sold from time to time in series and in one or more classes within each
such series, as described in the related Prospectus Supplement. Each series of
Certificates will represent in the aggregate the entire beneficial ownership
interest, excluding any interest retained by Southpoint Structured Assets, Inc.
(the "Depositor") or any other entity specified in the related Prospectus
Supplement, in a trust fund consisting primarily of a segregated pool of Fannie
Mae Securities, Freddie Mac Securities or Ginnie Mae Securities (the "Agency
Securities") or Private Mortgage-Backed Securities (such securities, together
with the Agency Securities, the "Underlying Securities"). See "The Trust
Funds."
The Underlying Securities and certain other assets described herein under
"The Trust Funds" and in the related Prospectus Supplement will be held in trust
(collectively, a "Trust Fund") for the benefit of the holders of the related
series of Certificates pursuant to a trust agreement (each, a "Trust Agreement")
among the Depositor, the certificate administrator, if any (the "Certificate
Administrator") and the trustee (the "Trustee") named in the Prospectus
Supplement as described herein under "The Trust Funds" and in the related
Prospectus Supplement. Each Trust Fund will consist of one or more types of the
various types of Underlying Securities described under "The Trust Funds."
Information regarding each class of Certificates of a series, and the general
characteristics of the Underlying Securities to be evidenced by such
Certificates, will be set forth in the related Prospectus Supplement. If so
specified in the related Prospectus Supplement, the Trust Fund for a series of
Certificates may include any one or any combination of a letter of credit,
reserve fund, surety bond or other form of credit support. In addition to or in
lieu of the foregoing, credit enhancement may be provided by means of
subordination. See "Description of Credit Enhancement."
Each series of Certificates will include one or more classes. Each class
of Certificates of any series will represent the right, which right may be
senior or subordinate to the rights of one or more of the other classes of the
Certificates, to receive a specified portion of payments of principal or
interest (or both) on the Underlying Securities in the related Trust Fund in the
manner described herein and in the related Prospectus Supplement. See
"Description of the Certificates--Distributions." A series may include one or
more classes of Certificates entitled to principal distributions, with
disproportionate, nominal or no interest distributions, or to interest
distributions, with disproportionate, nominal or no principal distributions. A
series may include two or more classes of Certificates which differ as to the
timing, sequential order, priority of payment, pass-through rate or amount of
distributions of principal or interest or both.
FOR A DISCUSSION OF SIGNIFICANT MATTERS AFFECTING INVESTMENTS IN THE
CERTIFICATES, SEE "RISK FACTORS" COMMENCING HEREIN ON PAGE 1.
One or more separate elections may be made to treat a Trust Fund as a "real
estate mortgage investment conduit" (a "REMIC") for federal income tax purposes.
The Prospectus Supplement for a series of Certificates will specify which class
or classes of the related series of Certificates will be considered to be
regular interests in the related REMIC and which class of Certificates or other
interests will be designated as the residual interest in the related REMIC, if
applicable. See "Certain Federal Income Tax Consequences."
Proceeds of the Underlying Securities in the Trust Fund are the sole source
of payments on the Certificates. The Certificates do not represent an interest
in or obligation of the Depositor, the Certificate Administrator or any of their
affiliates. neither the Certificates nor the Underlying Securities will be
guaranteed or insured by any governmental agency or instrumentality (except in
the case of Ginnie Mae Securities) or by the Depositor, the Certificate
Administrator or any of their affiliates.
_____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
_____________________
Offers of the Certificates may be made through one or more different
methods, including offerings through underwriters, as described under "Plan of
Distribution" and in the related Prospectus Supplement. Retain this Prospectus
for future reference. This Prospectus may not be used to consummate sales of
securities offered hereby unless accompanied by a Prospectus Supplement.
The date of this Prospectus is ____________, 1996.
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.
<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
Underlying Securities and any credit enhancement for such series or class, (d)
the relative rights and priorities of each such Class (including the method for
allocating collections from the Underlying Securities to the Certificateholders
of each class and the relative ranking of the claims of the Certificateholders
of each class to such Underlying Securities), (e) the name of the Trustee and
the Certificate Administrator, 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 exchange, whether mandatory or optional, the redemption
terms and any other specific terms of Certificates of each such series or class.
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 Commission's Regional Offices at Seven World
Trade Center, New York, New York 10048, and Northwestern Atrium Center, 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. 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.
Copies of Ginnie Mae's information statement and annual report can be
obtained by writing or calling the United States Department of Housing and Urban
Development, 451-7th
<PAGE>
Street S.W., Room 6210, Washington, D.C. 20410-9000 (202-708-3649). Copies of
Freddie Mac's most recent offering circular for Freddie Mac Certificates,
Freddie Mac's information statement and most recent supplement to such
information statement and any quarterly report made available by Freddie Mac can
be obtained by writing or calling the Investor Relations Department of Freddie
Mac at Post Office Box 4112, Reston, Virginia 22090 (outside the Washington,
D.C. metropolitan area, telephone 800-424-5401, ext. 8160; within the
Washington, D.C. metropolitan area, telephone 703-759-8160). Copies of Fannie
Mae's most recent prospectus for Fannie Mae Certificates and Fannie Mae's annual
report and quarterly financial statements, as well as other financial
information, are available from the Director of Investor Relations of Fannie
Mae, 3900 Wisconsin Avenue, N.W., Washington, D.C. 20016 (202-537-7115). The
Depositor does not, and will not, participate in the preparation of Ginnie Mae's
information statements or annual reports, Freddie Mac's offering circulars,
information statements or any supplements thereto or any of its quarterly
reports or Fannie Mae's prospectuses or any of its reports, financial statements
or other information and, accordingly, makes no representations as to the
accuracy or completeness of the information set forth therein.
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
Unaudited reports which contain information concerning the Trust Fund for a
series of Certificates will be sent by the Certificate Administrator or the
Trustee to each holder of record of the Certificates of the related Series on
each Distribution Date. See "Description of the Certificates--Reports to
Certificateholders." The Depositor will file with the Commission such periodic
reports with respect to the Trust Fund for a series of
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Certificates as are required under the Exchange Act, and the rules and
regulations of the Commission thereunder.
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TABLE OF CONTENTS
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HEADING PAGE
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PROSPECTUS SUPPLEMENT................................................i
AVAILABLE INFORMATION................................................i
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE...................ii
REPORTS TO CERTIFICATEHOLDERS.......................................ii
RISK FACTORS.........................................................1
THE TRUST FUNDS......................................................3
General...........................................................3
The Agency Securities.............................................4
Private Mortgage-Backed Securities................................6
DESCRIPTION OF THE CERTIFICATES......................................7
General...........................................................7
Form of Certificates..............................................8
Assignment of Agency Securities..................................10
Assignment of Private Mortgage-Backed Securities.................10
Payments on Underlying Securities................................10
Collection of Payments on Underlying Securities..................11
Distributions of Principal and Interest on the Certificates......11
Optional Redemption of Certificates..............................13
Reports to Certificateholders....................................13
DESCRIPTION OF CREDIT ENHANCEMENT...................................14
General..........................................................14
Subordination....................................................14
Letters of Credit................................................15
Reserve Funds....................................................16
Surety Bonds.....................................................16
Maintenance of Credit Enhancement................................16
Reduction or Substitution of Credit Enhancement..................17
THE DEPOSITOR.......................................................18
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THE TRUST AGREEMENT.................................................18
Administration...................................................18
Events of Default................................................18
Rights upon Event of Default.....................................19
Amendment........................................................19
Termination; Retirement of Certificates..........................20
The Trustee......................................................21
MATURITY AND YIELD CONSIDERATIONS...................................22
LEGAL INVESTMENT MATTERS............................................24
USE OF PROCEEDS.....................................................25
PLAN OF DISTRIBUTION................................................26
LEGAL MATTERS.......................................................27
FINANCIAL INFORMATION...............................................27
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RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Certificates:
Limited Liquidity. There can be no assurance that a secondary market for
the Certificates of any series will develop or, if it does develop, that it will
provide Certificateholders with liquidity of investment or that it will continue
for the life of the Certificates of any series. The Prospectus Supplement for
any series of Certificates may indicate that an underwriter specified therein
intends to establish a secondary market in such Certificates, however no
underwriter will be obligated to do so.
Yield and Prepayment Considerations. The yield to maturity of the
Certificates of each series will depend on the rate and timing of principal
payments on the Mortgage Loans underlying the Underlying Securities and the
price paid by Certificateholders. Such yield may be adversely affected by a
higher or lower than anticipated rate of prepayments on the related Underlying
Securities. The yield to maturity on Strip Certificates will be extremely
sensitive to the rate of prepayments on the related Underlying Securities. In
addition, the yield to maturity on certain other types of classes of
Certificates, including Accrual Certificates, Certificates with a Pass-Through
Rate that fluctuates inversely with an index or certain other classes, may be
relatively more sensitive to the rate of prepayment on the related Underlying
Securities than other classes of Certificates. Prepayments are influenced by a
number of factors, including prevailing mortgage market interest rates, local
and regional economic conditions and homeowner mobility. See "Maturity and Yield
Considerations."
Limited Obligations. The Certificates will not represent an interest in or
obligation of the Depositor, the Certificate Administrator or any of their
affiliates. Neither the Certificates nor the Underlying Securities will be
guaranteed or insured by any governmental agency or instrumentality (except in
the case of Ginnie Mae Securities), or by the Depositor, the Certificate
Administrator or any of their affiliates. Proceeds of the assets included in
the related Trust Fund (including the Underlying Securities and any form of
credit enhancement) will be the sole source of payments on the Certificates, and
there will be no recourse to the Depositor, the Certificate Administrator or any
other entity in the event that such proceeds are insufficient or otherwise
unavailable to make all payments provided for under the Certificates.
Limitations, Reduction and Substitution of Credit Enhancement. With
respect to each series of Certificates, credit enhancement may be provided in
limited amounts to cover certain types of losses on the underlying Underlying
Securities. Credit enhancement will be provided in one or more of the forms
referred to herein, including, but not limited to: subordination of other
classes of Certificates of the same series; a Letter of Credit; a Reserve Fund;
a Surety Bond; or any combination thereof. See "Subordination" and "Description
of Credit Enhancement" herein. Regardless of the form of credit enhancement
provided, the amount of coverage will be limited in amount and in most cases
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will be subject to periodic reduction in accordance with a schedule or formula.
Furthermore, such credit enhancement may provide only very limited coverage as
to certain types of losses or risks, and may provide no coverage as to certain
other types of losses or risks. In the event losses exceed the amount of
coverage provided by any credit enhancement or losses of a type not covered by
any credit enhancement occur, such losses will be borne by the holders of
related Certificates (or certain classes thereof). The Certificate Administrator
will generally be permitted to reduce, terminate or substitute all or a portion
of the credit enhancement for any series of Certificates, if each Rating Agency
indicates that the then-current rating thereof will not be adversely affected.
The rating of any series of Certificates by any Rating Agency may be lowered
following the initial issuance thereof as a result of the downgrading of the
obligations of any applicable credit support provider, or as a result of losses
on the related Underlying Securities in excess of the levels contemplated by
such Rating Agency at the time of its initial rating analysis. None of the
Depositor, the Trustee, the Certificate Administrator nor any of their
affiliates will have any obligation to replace or supplement any credit
enhancement, or to take any other action to maintain any rating of any series of
Certificates. See "Description of Credit Enhancement--Reduction or Substitution
of Credit Enhancement."
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
enhancement and Underlying Securities. See the description under "Certain
Federal Income Tax Considerations" in the related Prospectus Supplement.
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 of Certificates
is based primarily on the related Underlying Securities and any credit
enhancement and the relative priorities of the Certificateholders of such series
to receive collections from, and to assert claims against, the Trust with
respect to such Underlying Securities and any credit enhancement. 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 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.
Book-Entry Certificates. 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 Book-Entry Certificates deposited with, or on behalf of, the Depository
Trust Company ("DTC") 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,
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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 DTC 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 DTC's system, or to otherwise act with respect to such
Certificte, may be limited. See "Description of Certificates--Form of
Certificates" and any further description contained in the related Prospectus
Supplement.
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).
THE TRUST FUNDS
GENERAL
A Trust Fund for a series of Certificates may include assets that consist
of (i) Agency Securities which are mortgage pass-through certificates (a)
guaranteed and/or issued by the Government National Mortgage Association
("Ginnie Mae" and such securities, "Ginnie Mae Securities"), (b) issued by the
Federal Home Loan Mortgage Corporation ("Freddie Mac" and such securities,
"Freddie Mac Securities") or (c) issued by the Federal National Mortgage
Association ("Fannie Mae" and such securities, "Fannie Mae Securities"), (ii)
Private Mortgage-Backed Securities which are mortgage pass-through certificates
issued by a financial institution or other entity engaged generally in the
business of mortgage lending, a public agency or instrumentality of a state,
local or Federal government, or a limited purpose corporation organized for the
purpose of, among other things, acquiring and selling mortgage loans to such
trusts, and selling beneficial interests therein ("PMBS Issuer" and such
securities "Private Mortgage-Backed Securities"; Agency Securities and Private
Mortgage Backed Securities are collectively referred to herein as the
"Underlying Securities"), (iii) the amounts required to be held from time to
time in a trust account (the "Certificate Account"), into which payments in
respect of the Underlying Securities may be deposited, maintained by the Trustee
or the Certificate Administrator, as the case may be, pursuant to the Trust
Agreement and (iv) if so specified in the related Prospectus Supplement, one or
more other cash accounts, insurance policies or other forms of credit
enhancement with respect to the Certificates, the Underlying Securities or all
or any part of the Trust Fund, required to be maintained pursuant to the related
Trust Agreement. See "Description of Credit Enhancement."
Each Certificate will evidence the interest specified in the related
Prospectus Supplement in a Trust Fund, containing a pool of Underlying
Securities (an "Underlying Securities Pool") having the aggregate principal
balance as of the date (the "Cut-off Date") specified in the related Prospectus
Supplement. Certificateholders of a series will have interests only in such
Underlying Securities Pool and will have no interest in the Underlying
Securities Pool created with respect to any other series of Certificates.
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The related Prospectus Supplement may identify a Certificate Administrator
for the Trust Fund. The related Prospectus Supplement will identify an entity
that will serve as trustee (the "Trustee") for a series of Certificates.
The following is a brief description of the Underlying Securities expected
to be included in the Trust Funds. If specific information respecting the
Underlying Securities is not known to the Depositor at the time Certificates are
initially offered, more general information of the nature described below will
be provided in the Prospectus Supplement, and specific information will be set
forth in a Current Report on Form 8-K (a "Form 8-K") to be filed with the
Securities and Exchange Commission (the "Commission") within fifteen days after
the initial issuance of such Certificates. A copy of the Trust Agreement, as
applicable, with respect to each series will be an exhibit to the Form 8-K. A
schedule of Underlying Securities will be an exhibit to the related Trust
Agreement.
THE AGENCY SECURITIES
Government National Mortgage Association. Ginnie Mae is a wholly-owned
corporate instrumentality of the United States within HUD. Section 306(g) of
Title III of the National Housing Act of 1934, as amended (the "Housing Act"),
authorizes Ginnie Mae to guarantee the timely payment of the principal of and
interest on certificates representing interests in a pool of mortgages (i)
insured by the FHA, under the Housing Act or under Title V of the Housing Act of
1949, or (ii) partially guaranteed by the VA under the Servicemen's Readjustment
Act of 1944, as amended, or under Chapter 37 of Title 38, United States Code.
Section 306(g) of the Housing Act provides that "the full faith and credit
of the United States is pledged to the payment of all amounts which may be
required to be paid under any guarantee under this subsection." In order to
meet its obligations under any such guarantee, Ginnie Mae may, under Section
306(d) of the Housing Act, borrow from the United States Treasury an amount that
is at any time sufficient to enable Ginnie Mae to perform its obligations under
its guarantee. See "Additional Information" for the availability of further
information regarding Ginnie Mae and Ginnie Mae Securities.
Ginnie Mae Securities. Unless otherwise specified in the related
Prospectus Supplement, each Ginnie Mae Security relating to a series (which may
be a "Ginnie Mae I Certificate" or a "Ginnie Mae II Certificate" as referred to
by Ginnie Mae) will be a "fully modified pass-through" mortgage-backed
certificate issued and serviced by a mortgage banking company or other financial
concern approved by Ginnie Mae, except with respect to any stripped mortgage
backed securities guaranteed by Ginnie Mae or any REMIC securities issued by
Ginnie Mae. The characteristics of any Ginnie Mae Securities included in the
Trust Fund for a series of Certificates will be set forth in the related
Prospectus Supplement.
Federal Home Loan Mortgage Corporation. Freddie Mac is a corporate
instrumentality of the United States created pursuant to Title III of the
Emergency Home Finance Act of 1970, as amended (the "Freddie Mac Act"). Freddie
Mac was established primarily for the purpose of increasing the availability of
mortgage credit for the financing of needed housing. The principal activity of
Freddie Mac currently consists of purchasing
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first-lien, conventional, residential mortgage loans or participation interests
in such mortgage loans and reselling the mortgage loans so purchased in the form
of guaranteed mortgage securities, primarily Freddie Mac Securities. In 1981,
Freddie Mac initiated its Home Mortgage Guaranty Program under which it
purchases mortgage loans from sellers with Freddie Mac Securities representing
interests in the mortgage loans so purchased. All mortgage loans purchased by
Freddie Mac must meet certain standards set forth in the Freddie Mac Act.
Freddie Mac is confined to purchasing, so far as practicable, mortgage loans
that it deems to be of such quality and type as to meet generally the purchase
standards imposed by private institutional mortgage investors. See "Additional
Information" for the availability of further information regarding Freddie Mac
and Freddie Mac Securities. Neither the United States nor any agency thereof is
obligated to finance Freddie Mac's operations or to assist Freddie Mac in any
other manner.
Freddie Mac Securities. Unless otherwise specified in the related
Prospectus Supplement, each Freddie Mac Security relating to a series will
represent an undivided interest in a pool of mortgage loans that typically
consists of conventional loans (but may include FHA Loans and VA Loans)
purchased by Freddie Mac, except with respect to any stripped mortgage backed
securities issued by Freddie Mac. Each such pool will consist of mortgage loans
(i) substantially all of which are secured by one- to four-family residential
properties or (ii) if specified in the related Prospectus Supplement, are
secured by five or more family residential properties. The characteristics of
any Freddie Mac Securities included in the Trust Fund for a series of
Certificates will be set forth in the related Prospectus Supplement.
Federal National Mortgage Association. Fannie Mae is a federally chartered
and privately owned corporation organized and existing under the Federal
National Mortgage Association Charter Act (12 U.S.C. (S)(S) 1716 et seq.). It is
the nation's largest supplier of residential mortgage funds. Fannie Mae was
originally established in 1938 as a United States government agency to provide
supplemental liquidity to the mortgage market and was transformed into a
stockholder-owned and privately managed corporation by legislation enacted in
1968. Fannie Mae provides funds to the mortgage market primarily by purchasing
home mortgage loans from local lenders, thereby replenishing their funds for
additional lending. See "Additional Information" for the availability of further
information respecting Fannie Mae and Fannie Mae Securities. Although the
Secretary of the Treasury of the United States has authority to lend Fannie Mae
up to $2.25 billion outstanding at any time, neither the United States nor any
agency thereof is obligated to finance Fannie Mae's operations or to assist
Fannie Mae in any other manner.
Fannie Mae Securities. Unless otherwise specified in the related
Prospectus Supplement, each Fannie Mae Security relating to a series will
represent a fractional undivided interest in a pool of mortgage loans formed by
Fannie Mae, except with respect to any stripped mortgage backed securities
issued by Fannie Mae. Mortgage loans underlying Fannie Mae Securities will
consist of (i) fixed, variable or adjustable rate conventional mortgage loans or
(ii) fixed-rate FHA Loans or VA Loans. Such mortgage loans may be secured by
either one- to four-family or multi-family residential properties. The
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characteristics of any Fannie Mae Securities included in the Trust Fund for a
series of Certificates will be set forth in the related Prospectus Supplement.
PRIVATE MORTGAGE-BACKED SECURITIES
General. Private Mortgage-Backed Securities may consist of (a) mortgage
pass-through certificates, evidencing an undivided interest in a pool of
mortgage loans, (b) collateralized mortgage obligations secured by mortgage
loans or (c) pass-through certificates representing beneficial interests in
Agency Securities. Private Mortgage-Backed Securities will have been issued
pursuant to a pooling and servicing agreement, an indenture or similar agreement
(a "PMBS Agreement"). The seller/servicer of the underlying mortgage loans will
have entered into the PMBS Agreement with the trustee under such PMBS Agreement
(the "PMBS Trustee"). The PMBS Trustee or its agent, or a custodian, will
possess the mortgage loans underlying such Private Mortgage-Backed Security.
Mortgage loans underlying a Private Mortgage-Backed Security will be serviced by
a servicer (the "PMBS Servicer") directly or by one or more subservicers who may
be subject to the supervision of the PMBS Servicer. The PMBS Servicer will be a
Fannie Mae-or Freddie Mac-approved servicer and, if FHA mortgage loans underlie
the Private Mortgage-Backed Securities, approved by HUD as an FHA mortgagee.
The issuer of the Private Mortgage-Backed Securities (the "PMBS Issuer")
will be a financial institution or other entity engaged generally in the
business of mortgage lending, a public agency or instrumentality of a state,
local or federal government, or a limited purpose corporation organized for the
purpose of, among other things, establishing trusts and acquiring and selling
housing loans to such trusts, and selling beneficial interests in such trusts.
If so specified in the Prospectus Supplement, the PMBS Issuer may be the
Depositor or an affiliate of the Depositor. The obligations of the PMBS Issuer
will generally be limited to certain representations and warranties with respect
to the assets conveyed by it to the related trust. Unless otherwise specified
in the related Prospectus Supplement, the PMBS Issuer will not have guaranteed
any of the assets conveyed to the related trust or any of the Private Mortgage-
Backed Securities issued under the PMBS Agreement. Additionally, although the
mortgage loans underlying the Private Mortgage-Backed Securities may be
guaranteed by an agency or instrumentality of the United States, the Private
Mortgage-Backed Securities themselves will not be so guaranteed.
Distributions of principal and interest will be made on the Private
Mortgage-Backed Securities on the dates specified in the related Prospectus
Supplement. The Private Mortgage-Backed Securities may be entitled to receive
nominal or no principal distributions or nominal or no interest distributions.
Principal and interest distributions will be made on the Private Mortgage-Backed
Securities by the PMBS Trustee or the PMBS Servicer. The PMBS Issuer or the
PMBS Servicer may have the right to repurchase assets underlying the Private
Mortgage-Backed Securities after a certain date or under other circumstances
specified in the related Prospectus Supplement.
Credit Support Relating to Private Mortgage-Backed Securities. Credit
support in the form of reserve funds, subordination of other private mortgage
certificates issued under the
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PMBS Agreement, over-collateralization, letters of credit, insurance policies or
other types of credit support may be provided with respect to the mortgage loans
underlying the Private Mortgage-Backed Securities or with respect to the Private
Mortgage-Backed Securities themselves. The type, characteristics and amount of
credit support, if any, will be a function of certain characteristics of the
mortgage loans and other factors and will have been established for the Private
Mortgage-Backed Securities on the basis of requirements of the rating agencies
which initially assigned a rating to the Private Mortgage-Backed Securities.
Additional Information. The Prospectus Supplement for a Series for which
the Trust Fund includes Private Mortgage-Backed Securities will specify (i) the
aggregate approximate principal amount and type of the Private Mortgage-Backed
Securities to be included in the Trust Fund, (ii) certain characteristics of the
mortgage loans which comprise the underlying assets for the Private Mortgage-
Backed Securities including (A) the payment features of such mortgage loans
(i.e., whether they are fixed rate or adjustable rate and whether they provide
for fixed level payments or other payment features), (B) the approximate
aggregate principal balance, if known, of underlying mortgage loans insured or
guaranteed by a governmental entity, (C) the servicing fee or range of servicing
fees with respect to the mortgage loans, and (D) the minimum and maximum stated
maturities of the underlying mortgage loans at origination, (iii) the maximum
original term-to-stated maturity of the Private Mortgage-Backed Securities, (iv)
the weighted average term-to-stated maturity of the Private Mortgage-Backed
Securities, (v) the pass-through or certificate rate or ranges thereof for the
Private Mortgage-Backed Securities, (vi) the weighted average pass-through or
certificate rate of the Private Mortgage-Backed Securities, (vii) the PMBS
Issuer, the PMBS Servicer (if other than the PMBS Issuer) and the PMBS Trustee
for such Private Mortgage-Backed Securities, (viii) certain characteristics of
credit support, if any, such as reserve funds, insurance policies, letters of
credit or guarantees relating to the mortgage loans underlying the Private
Mortgage-Backed Securities or to such Private Mortgage-Backed Securities
themselves, (ix) the terms on which the underlying mortgage loans for such
Private Mortgage-Backed Securities may, or are required to, be purchased prior
to their stated maturity or the stated maturity of the Private Mortgage-Backed
Securities and (x) the terms on which mortgage loans may be substituted for
those originally underlying the Private Mortgage-Backed Securities.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued in series. Each series of Certificates
(or, in certain instances, two or more series of Certificates) will be issued
pursuant to a Trust Agreement, similar to one of the forms filed as an exhibit
to the Registration Statement of which this Prospectus is a part. Each Trust
Agreement will be filed with the Commission as an exhibit to a Form 8-K. The
following summaries (together with additional summaries under "The Trust
Agreement" below) describe certain provisions relating to the Certificates
common to each Trust Agreement. The summaries do not purport to be complete and
are subject to,
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and are qualified in their entirety by reference to, all of the provisions of
the Trust Agreement for each Trust Fund and the related Prospectus Supplement.
Each series of Certificates may consist of any one or a combination of the
following: (i) a single class of Certificates; (ii) two or more classes of
Certificates, one or more classes of which may be Senior Certificates that are
senior in right of payment to any class or classes of Mezzanine Certificates and
to any other class or classes of Subordinate Certificates, and as to which
certain classes of Senior Certificates may be senior to other classes of Senior
Certificates, as described in the respective Prospectus Supplement (any such
series, a "Senior/Subordinate Series"); (iii) one or more classes of Strip
Certificates which will be entitled to (a) principal distributions, with
disproportionate, nominal or no interest distributions or (b) interest
distributions, with disproportionate, nominal or no principal distributions;
(iv) two or more classes of Certificates which differ as to the timing,
sequential order, rate, pass-through rate or amount of distributions of
principal or interest or both, or as to which distributions of principal or
interest or both on any class may be made upon the occurrence of specified
events, in accordance with a schedule or formula (including "planned
amortization classes" and "targeted amortization classes"), or on the basis of
collections from designated portions of the Underlying Securities, which series
may include one or more classes of Accrual Certificates with respect to which
certain accrued interest will not be distributed but rather will be added to the
principal balance thereof on each Distribution Date for the period described in
the related Prospectus Supplement; or (v) other types of classes of
Certificates, as described in the related Prospectus Supplement. Credit support
for each series of Certificates may be provided by a Letter of Credit, Reserve
Fund or other credit enhancement as described under "Description of Credit
Enhancement," or by the subordination of one or more classes of Certificates as
described under "Subordination" or by any combination of the foregoing.
FORM OF CERTIFICATES
As specified in the related Prospectus Supplement, the Certificates of each
series will be issued either as physical certificates or in book-entry form. If
issued as physical certificates, the Certificates will be in fully registered
form only in the denominations specified in the related Prospectus Supplement,
and will be transferable and exchangeable at the corporate trust office of the
person appointed under the related Trust Agreement to register the Certificates
(the "Certificate Registrar"). No service charge will be made for any
registration of exchange or transfer of Certificates, but the Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge. The term "Certificateholder" as used herein refers to the entity whose
name appears on the records of the Certificate Registrar (or, if applicable, a
transfer agent) as the registered holder thereof, except as otherwise indicated
in the related Prospectus Supplement.
If issued in book-entry form, specified classes of a series of Certificates
will be initially issued through the book-entry facilities of The Depository
Trust Company ("DTC"). As to any such class of Certificates so issued ("Book-
Entry Certificates"), the record holder of such Certificates will be DTC's
nominee.
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DTC is a limited-purpose trust company organized under the laws of the
State of New York, which holds securities for its participating organizations
("Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in the
accounts of Participants. Participants include securities brokers and dealers,
banks, trust companies and clearing corporations and may include certain other
organizations. Other institutions that are not Participants but clear through
or maintain a custodial relationship with Participants (such institutions,
"Indirect Participants") have indirect access to DTC's clearance system.
Unless otherwise specified in the related Prospectus Supplement, no person
acquiring an interest in any Book-Entry Certificate (each such person, a
"Beneficial Owner") will be entitled to receive a Certificate representing such
interest in registered, certificated form, unless either (i) DTC ceases to act
as depository in respect thereof and a successor depository is not obtained or
(ii) the Depositor elects in its sole discretion to discontinue the registration
of such Certificates through DTC. Prior to any such event, Beneficial Owners
will not be recognized by the Trustee, or the Certificate Administrator as
holders of the related Certificates for purposes of the Trust Agreement, and
Beneficial Owners will be able to exercise their rights as owners of such
Certificates only indirectly through DTC, Participants and Indirect
Participants. Any Beneficial Owner that desires to purchase, sell or otherwise
transfer any interest in Book-Entry Certificates may do so only through DTC,
either directly if such Beneficial Owner is a Participant or indirectly through
Participants and, if applicable, Indirect Participants. Pursuant to the
procedures of DTC, transfers of the beneficial ownership of any Book-Entry
Certificates will be required to be made in minimum denominations specified in
the related Prospectus Supplement. The ability of a Beneficial Owner to pledge
Book-Entry Certificates to persons or entities that are not Participants in the
DTC system, or to otherwise act with respect to such Certificates, may be
limited because of the lack of physical certificates evidencing such
Certificates and because DTC may act only on behalf of Participants.
Distributions in respect of the Book-Entry Certificates will be forwarded
by the Trustee to DTC, and DTC will be responsible for forwarding such payments
to Participants, each of which will be responsible for disbursing such payments
to the Beneficial Owners it represents or, if applicable, to Indirect
Participants. Accordingly, Beneficial Owners may experience delays in the
receipt of payments in respect of their Certificates. Under DTC's procedures,
DTC will take actions permitted to be taken by holders of any class of Book-
Entry Certificates under the Trust Agreement only at the direction of one or
more Participants to whose account the Book-Entry Certificates are credited and
whose aggregate holdings represent no less than any minimum amount of Percentage
Interests or voting rights required therefor. DTC may take conflicting actions
with respect to any action of Certificateholders of any Class to the extent that
Participants authorize such actions. None of the Depositor, the Certificate
Administrator, the Trustee or any of their respective affiliates will have any
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Book-Entry Certificates, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
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ASSIGNMENT OF AGENCY SECURITIES
The Depositor will transfer, convey and assign to the Trustee or its
nominee all right, title and interest of the Depositor in the Underlying
Securities and other property to be included in the Trust Fund for a series.
Such assignment will include all principal and interest due on or with respect
to the Underlying Securities after the Cut-off Date specified in the related
Prospectus Supplement (except for any Spread). The Depositor will cause the
Underlying Securities to be registered in the name of the Trustee or its
nominee, and the Trustee will concurrently authenticate and deliver the
Certificates. Unless otherwise specified in the related Prospectus Supplement,
the Trustee will not be in possession of or be assignee of record of any
underlying assets for a Agency Security. Each Agency Security will be
identified in a schedule appearing as an exhibit to the related Trust Agreement,
which will specify as to each Agency Security the original principal amount and
outstanding principal balance as of the Cut-off Date; the annual pass-through
rate or interest rate for each Agency Security conveyed to the Trustee.
ASSIGNMENT OF PRIVATE MORTGAGE-BACKED SECURITIES
The Depositor will cause Private Mortgage-Backed Securities to be
registered in the name of the Trustee (or its nominee or correspondent). The
Trustee (or its agent or correspondent) will have possession of any certificated
Private Mortgage-Backed Securities. Unless otherwise specified in the related
Prospectus Supplement, the Trustee will not be in possession of or be assignee
of record of any underlying assets for a Private Mortgage-Backed Security. See
"The Trust Funds--Private Mortgage-Backed Securities" herein. Each Private
Mortgage-Backed Security will be identified in a schedule appearing as an
exhibit to the related Trust Agreement (the "Mortgage Certificate Schedule"),
which will specify the original principal amount, outstanding principal balance
as of the Cut-off Date, annual pass-through rate or interest rate and maturity
date for each Private Mortgage-Backed Security conveyed to the Trustee.
PAYMENTS ON UNDERLYING SECURITIES
The Trustee or the Certificate Administrator, if any, will, as to each
series of Certificates, establish and maintain in trust the Certificate Account
which will be a separate account that may be interest bearing or non-interest
bearing in the name of the Trustee, maintained with a depository institution and
in a manner acceptable to each Rating Agency. If permitted by each such Rating
Agency, a Certificate Account may contain funds relating to one or more series
of Certificates.
Amounts held in the Certificate Account may be invested in Permitted
Investments. In addition, if so stated in such Prospectus Supplement, one or
more other trust accounts, including any Reserve Funds, will be established into
which cash, certificates of deposit or letters of credit, or a combination
thereof, will be deposited by the Depositor, if such assets are required to make
timely distributions with respect to the Certificates of a series, are
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required as a condition to the rating of such Certificates or are required in
order to provide for certain contingencies as described in the related
Prospectus Supplement.
The Certificate Account must be either (i) maintained with a depository
institution whose debt obligations at the time of any deposit therein are rated
by any Rating Agency that rated any Certificates of the related series not less
than a specified level comparable to the rating category of such Certificates,
(ii) an account or accounts the deposits in which are fully insured to the
limits established by the FDIC, provided that any deposits not so insured shall
be otherwise maintained such that, as evidenced by an opinion of counsel, the
Certificateholders have a claim with respect to the funds in such accounts or a
perfected first priority security interest in any collateral securing such funds
that is superior to the claims of any other depositors or creditors of the
depository institution with which such accounts are maintained, account or
accounts maintained in either the corporate trust department or the corporate
asset services department of a financial institution which has debt, (iii) in
the case of the Certificate Account, a trust account or accounts maintained with
the Trustee or (iv) such other account or accounts acceptable to any applicable
Rating Agency (an "Eligible Account"). The collateral that is eligible to secure
amounts in an Eligible Account is limited to certain permitted investments,
which are generally limited to United States government securities and other
investments that are rated, at the time of acquisition, in one of the categories
permitted by the related Trust Agreement ("Permitted Investments").
COLLECTION OF PAYMENTS ON UNDERLYING SECURITIES
The Trustee or the Certificate Administrator, as specified in the related
Prospectus Supplement, will deposit in the Certificate Account all payments on
the Underlying Securities as they are received after the Cut-off Date. If the
Trustee has not received a distribution with respect to any Underlying Security
by the second business day after the date on which such distribution was due and
payable, the Trustee will request the issuer or guarantor, if any, of such
Underlying Security to make such payment as promptly as possible and legally
permitted. The Trustee may take such legal action against such issuer or
guarantor as the Trustee deems appropriate under the circumstances, including
the prosecution of any claims in connection therewith. The reasonable legal fees
and expenses incurred by the Trustee in connection with the prosecution of such
legal action will be reimbursable to the Trustee out of the proceeds of any such
action and will be retained by the Trustee prior to the deposit of any remaining
proceeds in the Certificate Account pending distribution thereof to the
Certificateholders of the affected series. In the event that the Trustee has
reason to believe that the proceeds of any such legal action may be insufficient
to cover its projected legal fees and expenses, the Trustee will notify such
Certificateholders that it is not obligated to pursue any such available
remedies unless adequate indemnity for its legal fees and expenses is provided
by such Certificateholders.
DISTRIBUTIONS OF PRINCIPAL AND INTEREST ON THE CERTIFICATES
Distributions of principal and interest (or, where applicable, of principal
only or interest only) on each class of Certificates entitled thereto will be
made on the date set forth
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in the related Prospectus Supplement (the "Distribution Date") either by the
Trustee or the Certificate Administrator acting on behalf of the Trustee or a
paying agent appointed by the Trustee (the "Paying Agent"). Such distributions
will be made to the persons who are registered as the holders of such
Certificates at the close of business on the last business day of the preceding
month (the "Record Date"). Distributions will be made in immediately available
funds (by wire transfer or otherwise) to the account of a Certificateholder at a
bank or other entity having appropriate facilities therefor, if such
Certificateholder has so notified the Trustee, the Certificate Administrator or
the Paying Agent, as the case may be, and the applicable Trust Agreement
provides for such form of payment, or by check mailed to the address of the
person entitled thereto as it appears on the Certificate Register. The final
distribution in retirement of the Certificates will be made only upon
presentation and surrender of the Certificates at the office or agency of the
Trustee specified in the notice to Certificateholders. Distributions will be
made to each Certificateholder in accordance with such holder's Percentage
Interest in a particular class. The "Percentage Interest" represented by a
Certificate of a particular class will be equal to the percentage obtained by
dividing the initial principal balance or notional amount of such Certificate by
the aggregate initial amount or notional balance of all the Certificates of such
class.
The method of determining, and the amount of, distributions of principal
and interest (or, where applicable, of principal only or interest only) on a
particular series of Certificates will be described in the related Prospectus
Supplement. Distributions of interest on each class of Certificates will be made
prior to distributions of principal thereon. Each class of Certificates (other
than certain classes of Strip Certificates) may have a different Pass-Through
Rate, which may be a fixed, variable or adjustable Pass-Through Rate, or any
combination of two or more such Pass-Through Rates. The related Prospectus
Supplement will specify the Pass-Through Rate or Rates for each class, or the
initial Pass-Through Rate or Rates and the method for determining the Pass-
Through Rate or Rates. Unless otherwise specified in the related Prospectus
Supplement, interest on the Certificates will be calculated on the basis of a
360-day year consisting of twelve 30-day months.
On each Distribution Date for a series of Certificates, the Trustee or the
Certificate Administrator on behalf of the Trustee will distribute or cause the
Paying Agent to distribute, as the case may be, to each holder of record on the
Record Date of a class of Certificates, an amount equal to the Percentage
Interest represented by the Certificate held by such holder multiplied by such
class's Distribution Amount. The "Distribution Amount" for a class of
Certificates for any Distribution Date will be the portion, if any, of the
Principal Distribution Amount (as defined in the related Prospectus Supplement)
allocable to such class for such Distribution Date, plus, if such class is
entitled to payments of interest on such Distribution Date, one month's interest
at the applicable Pass-Through Rate on the principal balance or notional amount
of such class specified in the applicable Prospectus Supplement.
In the case of a series of Certificates which includes two or more classes
of Certificates, the timing, sequential order, priority of payment or amount of
distributions in respect of principal, and any schedule or formula or other
provisions applicable to the determination thereof (including distributions
among multiple classes of Senior Certificates
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or Subordinate Certificates) shall be set forth in the related Prospectus
Supplement. Distributions in respect of principal of any class of Certificates
will be made on a pro rata basis among all of the Certificates of such class
unless otherwise set forth in the related Prospectus Supplement.
On the date set forth in the related Prospectus Supplement (the
"Determination Date"), the Trustee or the Certificate Administrator will
determine the amounts of principal and interest which will be passed through to
Certificateholders on the succeeding Distribution Date. Prior to the close of
business on the business day succeeding each Determination Date, the Trustee or
the Certificate Administrator, as applicable, will furnish a statement to the
Trustee (the information in such statement to be made available to
Certificateholders by the Certificate Administrator on request) setting forth,
among other things, the amount to be distributed on the next succeeding
Distribution Date.
OPTIONAL REDEMPTION OF CERTIFICATES
If so specified in the Prospectus Supplement relating to a series of
Certificates, 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; Retirement of Certificates."
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise provided in the applicable Prospectus Supplement, on each
Distribution Date, the Certificate Administrator will forward or cause to be
forwarded to each Certificateholder of record a statement or statements with
respect to the related Trust Fund setting forth the information described in the
related Trust Agreement. Except as otherwise provided in the related Trust
Agreement, such information generally will include the following (as
applicable):
(i) the amount, if any, of such distribution allocable to
principal;
(ii) the amount, if any, of such distribution allocable to interest
and the amount, if any, of any shortfall in the amount of interest and
principal;
(iii) the aggregate unpaid principal balance of the Underlying
Securities after giving effect to the distribution of principal on such
Distribution Date;
(iv) the outstanding principal balance or notional amount of each
class of Certificates after giving effect to the distribution of principal
on such Distribution Date;
(v) the balance of the Reserve Fund, if any, at the close of
business on such Distribution Date; and
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(vi) the amount of coverage under any Letter of Credit, or other
form of credit enhancement covering default risk as of the close of
business on the applicable Determination Date and a description of any
credit enhancement substituted therefor.
Each amount set forth pursuant to clause (i) and (ii) above will be
expressed as a dollar amount per Single Certificate. As to a particular class of
Certificates, a "Single Certificate" generally will evidence a Percentage
Interest obtained by dividing $1,000 by the initial principal balance or
notional balance of all the Certificates of such class, except as otherwise
provided in the related Trust Agreement. In addition to the information
described above, reports to Certificateholders will contain such other
information as is set forth in the applicable Trust Agreement.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee or the Certificate Administrator, as applicable, will
furnish a report to each person that was a holder of record any class of
Certificates at any time during such calendar year. Such report will include
information as to the aggregate of amounts reported pursuant to clauses (i) and
(ii) above for such calendar year or, in the event such person was a holder of
record of a class of Certificates during a portion of such calendar year, for
the applicable portion of such year.
DESCRIPTION OF CREDIT ENHANCEMENT
GENERAL
Each Prospectus Supplement will include a description of (a) the amount
payable under the credit enhancement arrangement, if any, provided with respect
to a series, (b) any conditions to payment thereunder not otherwise described
herein, (c) the conditions under which the amount payable under such credit
support may be reduced and under which such credit support may be terminated or
replaced and (d) the material provisions of any agreement relating to such
credit support. Additionally, each such Prospectus Supplement will set forth
certain information with respect to the issuer of any third-party credit
enhancement.
The descriptions of any insurance policies, bonds or other instruments
described in this Prospectus or any Prospectus Supplement and the coverage
thereunder do not purport to be complete and are qualified in their entirety by
reference to the actual forms of such policies, copies of which will be exhibits
to the Form 8-K to be filed with the Commission in connection with the issuance
of the related series of Certificates.
SUBORDINATION
A Senior/Subordinate Series of Certificates will consist of one or more
classes of Senior Certificates and one or more classes of Subordinate
Certificates, as set forth in the related Prospectus Supplement. Subordination
of the Subordinate Certificates of any
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Senior/Subordinate Series will generally provide some additional credit support
to the Senior Certificateholders.
With respect to any Senior/Subordinate Series, the total amount available
for distribution on each Distribution Date, as well as the method for allocating
such amount among the various classes of Certificates included in such series,
will be described in the related Prospectus Supplement. Generally, with respect
to any such series, the amount available for distribution will be allocated
first to interest on the Senior Certificates and then to principal of the Senior
Certificates up to the amounts described in the related Prospectus Supplement,
prior to allocation of any amounts to the Subordinate Certificates.
In the event any losses are realized during a given period on the
Underlying Securities ("Realized Losses"), the rights of the Subordinate
Certificateholders to receive distributions will be subordinate to the rights of
the Senior Certificateholders. Realized Losses will be allocated to the
Subordinate Certificates of the related series in the manner provided in the
related Prospectus Supplement. Additional Realized Losses, if any, will be
allocated to the Senior Certificates. If such series includes more than one
class of Senior Certificates, such additional Realized Losses will be allocated
either on a pro rata basis among all of the Senior Certificates in proportion to
their respective outstanding principal balances or as otherwise provided in the
related Prospectus Supplement.
If so provided in the related Prospectus Supplement, certain amounts
otherwise payable on any Distribution Date to holders of Subordinate
Certificates may be deposited into a Reserve Fund. Amounts held in any Reserve
Fund may be applied as described under "Description of Credit Enhancement--
Reserve Funds" and in the related Prospectus Supplement.
With respect to any Senior/Subordinate Series, the terms and provisions of
the subordination may vary from those described above. Any such variation and
any additional credit enhancement will be described in the related Prospectus
Supplement.
LETTERS OF CREDIT
If any component of credit enhancement as to any series of Certificates is
to be provided by a letter of credit (the "Letter of Credit"), a bank (the
"Letter of Credit Bank") will deliver to the Trustee an irrevocable Letter of
Credit. The Letter of Credit may provide direct coverage with respect to the
Underlying Securities. The Letter of Credit Bank, the amount available under the
Letter of Credit with respect to each component of credit enhancement, the
expiration date of the Letter of Credit, and a more detailed description of the
Letter of Credit will be specified in the related Prospectus Supplement. On or
before each Distribution Date, the Letter of Credit Bank will be required to
make certain payments after notification from the Trustee, to be deposited in
the related Certificate Account with respect to the coverage provided thereby.
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RESERVE FUNDS
If so specified in the related Prospectus Supplement, the Depositor will
deposit or cause to be deposited in an account (a "Reserve Fund") any
combination of cash or Permitted Investments in specified amounts, or any other
instrument satisfactory to the Rating Agency or Agencies, 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, to the
extent described in the related Prospectus Supplement, a Reserve Fund may be
funded through application of all or a portion of amounts otherwise payable on
any related Subordinate Certificates. Amounts in a Reserve Fund may be
distributed to Certificateholders, or may be used for other purposes, in the
manner and to the extent specified in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, any such Reserve Fund
will not be deemed to be part of the related Trust Fund. A Reserve Fund 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 Fund. However, to the extent
that the Depositor, any affiliate thereof or any other entity has an interest in
any Reserve Fund, in the event of the bankruptcy, receivership or insolvency of
such entity, there could be delays in withdrawals from the Reserve Fund 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 Fund for a series will be invested in
Permitted Investments by, or at the direction of, and for the benefit of the
Certificate Administrator or any other person named in the related Prospectus
Supplement.
SURETY BONDS
If so specified in the related Prospectus Supplement, the Depositor may
obtain one or more surety bonds (each, a "Surety Bond"), issued by insurers
acceptable to the Rating Agency or Agencies rating the Certificates offered
pursuant to such Prospectus Supplement, insuring the holders of one or more
classes of Certificates the payment of amounts due in accordance with the terms
of such class or classes of Certificates. Any surety bond will have the
characteristics described in and will be subject to such limitations and
exceptions as set forth in the related Prospectus Supplement.
MAINTENANCE OF CREDIT ENHANCEMENT
If credit enhancement has been obtained for a series of Certificates, the
Trustee or the Certificate Administrator will be obligated to exercise its best
reasonable efforts to keep or cause to be kept such credit enhancement in full
force and effect throughout the term of the Trust Agreement, unless coverage
thereunder has been exhausted through payment of claims or otherwise, or
substitution therefor is made as described below under "--Reduction or
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Substitution of Credit Enhancement." The Certificate Administrator, on behalf of
itself, the Trustee and Certificateholders, will be required to provide
information required for the Trustee to draw under any applicable credit
enhancement.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee or the Certificate Administrator will agree to pay the premiums for each
Surety Bond on a timely basis. In the event the related insurer ceases to be a
"Qualified Insurer" because it ceases to be qualified under applicable law to
transact such insurance business or coverage is terminated for any reason other
than exhaustion of such coverage, the Trustee or the Certificate Administrator
will use its best reasonable efforts to obtain from another Qualified Insurer a
comparable replacement insurance policy or bond with a total coverage equal to
the then outstanding coverage of such policy or bond. If the cost of the
replacement policy is greater than the cost of such policy or bond, the coverage
of the replacement policy or bond will, unless otherwise agreed to by the
Depositor, be reduced to a level such that its premium rate does not exceed the
premium rate on the original insurance policy.
REDUCTION OR SUBSTITUTION OF CREDIT ENHANCEMENT
Unless otherwise specified in the Prospectus Supplement, the amount of
credit support provided with respect to any series of Certificates may be
reduced under certain specified circumstances. In most cases, the amount
available as credit support will be subject to periodic reduction on a non-
discretionary basis in accordance with a schedule or formula set forth in the
related Trust Agreement. Additionally, in most cases, such credit support may be
replaced, reduced or terminated, and the formula used in calculating the amount
of coverage may be changed, without the consent of the Certificateholders, upon
the written assurance from each applicable Rating Agency that the then-current
rating of the related series of Certificates will not be adversely affected
thereby. Furthermore, in the event that the credit rating of any obligor under
any applicable credit enhancement is downgraded, the credit rating of each class
of the related Certificates may be downgraded to a corresponding level, and,
unless otherwise specified in the related Prospectus Supplement, the Trustee or
the Certificate Administrator, as applicable, will not be obligated to obtain
replacement credit support in order to restore the rating of the Certificates.
The Trustee or the Certificate Administrator, as applicable, will also be
permitted to replace such credit support with other credit enhancement
instruments issued by obligors whose credit ratings are equivalent to such
downgraded level and in lower amounts which would satisfy such downgraded level,
provided that the then-current rating of each class of the related series of
Certificates is maintained. Where the credit support is in the form of a Reserve
Fund, a permitted reduction in the amount of credit enhancement will result in a
release of all or a portion of the assets in the Reserve Fund to the Depositor
or such other person that is entitled thereto. Any assets so released will not
be available for distributions in future periods.
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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.
THE TRUST AGREEMENT
As described above under "Description of the Certificates--General," each
series of Certificates will be issued pursuant to a Trust Agreement. The
following summaries describe certain additional provisions common to each Trust
Agreement and are qualified entirely by reference to the actual terms of the
Trust Agreement for a series of Certificates.
ADMINISTRATION
A Certificate Administrator, if any, for each series of Certificates under
the Trust Agreement will be named in the related Prospectus Supplement. The
entity serving as Certificate Administrator 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. Generally the Certificate Administrator will perform
collection, administrative and reporting functions pursuant to a Trust
Agreement.
EVENTS OF DEFAULT
Events of Default under the Trust Agreement in respect of a series of
Certificates, unless otherwise specified in the Prospectus Supplement, will
include: (i) any failure by the Trustee or the Certificate Administrator to make
a required deposit to the Certificate Account or, if the Certificate
Administrator is the Paying Agent, to distribute to the holders of any class of
Certificates of such series any required payment which continues unremedied for
five days after the giving of written notice of such failure to the Certificate
Administrator by the Trustee or the Depositor, or to the Certificate
Administrator, the Depositor and the Trustee by the holders of Certificates of
such class evidencing not less than 25% of the aggregate Percentage Interests
constituting such class; (ii) any failure by the Certificate Administrator duly
to observe or perform in any material respect any other of its covenants or
agreements in the Trust Agreement with respect to such series of Certificates
which continues unremedied for 30 days (15 days in the case of a failure to pay
the premium
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for any insurance policy which is required to be maintained under the Trust
Agreement) after the giving of written notice of such failure to the Certificate
Administrator by the Trustee or the Depositor, or to the Certificate
Administrator, the Depositor and the Trustee by the holders of any class of
Certificates of such series evidencing not less than 33% of the aggregate
Percentage Interests constituting such class; and (iii) certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings regarding the Certificate Administrator and certain actions
by the Certificate Administrator indicating its insolvency or inability to pay
its obligations. A default pursuant to the terms of any Underlying Securities
included in any Trust Fund will not constitute an Event of Default under the
related Trust Agreement.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default remains unremedied, either the Depositor or
the Trustee may, and, at the direction of the holders of Certificates evidencing
not less than 51% of the aggregate voting rights in the related Trust Fund, the
Trustee shall, by written notification to the Certificate Administrator and to
the Depositor or the Trustee, terminate all of the rights and obligations of the
Certificate Administrator under the Trust Agreement (other than any rights of
the Certificate Administrator as Certificateholder) covering such Trust Fund and
in and to the Underlying Securities and the proceeds thereof, whereupon the
Trustee or, upon notice to the Depositor and with the Depositor's consent, its
designee will succeed to all responsibilities, duties and liabilities of the
Certificate Administrator under such Trust Agreement and will be entitled to
similar compensation arrangements.
No Certificateholder will have any right under a Trust Agreement to
institute any proceeding with respect to such Trust Agreement unless such holder
previously has given to the Trustee written notice of default and the
continuance thereof and unless the holders of Certificates of any class
evidencing not less than 25% of the aggregate Percentage Interests constituting
such class 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 60 days after receipt of such request
and indemnity has neglected or refused to institute any such proceeding.
However, the Trustee will be under no obligation to exercise any of the trusts
or powers vested in it by the Trust Agreement 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 such 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.
AMENDMENT
Each Trust Agreement may be amended by the Depositor, the Certificate
Administrator and the Trustee, without the consent of the related
Certificateholders: (i) to cure any ambiguity; (ii) to correct or supplement any
provision therein which may be inconsistent with any other provision therein or
to correct any error; (iii) to change the timing and/or nature of deposits in
the Certificate Account or to change the name in which
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the Certificate Account is maintained (except that (a) deposits to the
Certificate Account may not occur later than the related Distribution Date, (b)
such change may not adversely affect in any material respect the interests of
any Certificateholder, as evidenced by an opinion of counsel, and (c) such
change may not adversely affect the then-current rating of any rated classes of
Certificates, as evidenced by a letter from each applicable Rating Agency); (iv)
if a REMIC election has been made with respect to the related Trust Fund, to
modify, eliminate or add to any of its provisions (a) to the extent necessary to
maintain the qualification of the Trust Fund as a REMIC or to avoid or minimize
the risk of imposition of any tax on the related Trust Fund, provided that the
Trustee has received an opinion of counsel to the effect that (1) such action is
necessary or desirable to maintain such qualification or to avoid or minimize
such risk and (2) such action will not adversely affect in any material respect
the interests of any related Certificateholder or (b) to restrict the transfer
of the REMIC Residual Certificates, provided that the Depositor has determined
that such change would not adversely affect the applicable ratings of any
classes of the Certificates, as evidenced by a letter from each applicable
Rating Agency, and that any such amendment will not give rise to any tax with
respect to the transfer of the REMIC Residual Certificates to a non-permitted
transferee; or (v) to make any other provisions with respect to matters or
questions arising under such Trust Agreement which are not materially
inconsistent with the provisions thereof, so long as such action will not
adversely affect in any material respect the interests of any Certificateholder.
The Trust Agreement may also be amended by the Depositor, the Certificate
Administrator and the Trustee with the consent of the holders of Certificates of
each class affected thereby evidencing, in each case, not less than 66% of the
aggregate Percentage Interests constituting such class for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of such Trust Agreement or of modifying in any manner the rights of the related
Certificateholders, except that no such amendment may (i) reduce in any manner
the amount of, or delay the timing of, payments received on Underlying
Securities which are required to be distributed on a Certificate of any class
without the consent of the holder of such Certificate or (ii) reduce the
percentage of Certificates of any class the holders of which are required to
consent to any such amendment unless the holders of all Certificates of such
class have consented to the change in such percentage.
Notwithstanding the foregoing, if a REMIC election has been made with
respect to the related Trust Fund, the Trustee will not be entitled to consent
to any amendment to a Trust Agreement without having first received an opinion
of counsel to the effect that such amendment or the exercise of any power
granted to the Certificate Administrator, the Depositor or the Trustee in
accordance with such amendment will not result in the imposition of a tax on the
related Trust Fund or cause such Trust Fund to fail to qualify as a REMIC.
TERMINATION; RETIREMENT OF CERTIFICATES
The obligations created by the Trust Agreement for each series of
Certificates (other than certain limited payment and notice obligations of the
Trustee and the Depositor,
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respectively) will terminate upon the payment to the related Certificateholders
of all amounts held in the Certificate Account and required to be paid to
Certificateholders following the earlier of (i) the final payment or other
liquidation or disposition (or any advance with respect thereto) of the last
item of Underlying Securities subject thereto and (ii) the purchase by the
Certificate Administrator or the Depositor or, if specified in the related
Prospectus Supplement, by the holder of the REMIC Residual Certificates (see
"Certain Federal Income Tax Consequences" below) from the Trust Fund for such
series of all remaining Underlying Securities and all property acquired in
respect of such Underlying Securities. In addition to the foregoing, the
Certificate Administrator or the Depositor may have the option to purchase, in
whole but not in part, the Certificates specified in the related Prospectus
Supplement in the manner set forth in the related Prospectus Supplement. Upon
the purchase of such Certificates or at any time thereafter, at the option of
the Certificate Administrator or the Depositor, the Underlying Securities may be
sold, thereby effecting a retirement of the Certificates and the termination of
the Trust Fund, or the Certificates so purchased may be held or resold by the
Certificate Administrator or the Depositor. Written notice of termination of the
Trust Agreement will be given to each Certificateholder, and the final
distribution will be made only 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. If the Certificateholders are permitted
to terminate the trust under the applicable Trust Agreement, a penalty may be
imposed upon the Certificateholders based upon the fee that would be foregone by
the Certificate Administrator because of such termination.
Any such purchase of Underlying Securities and property acquired in respect
of Underlying Securities evidenced by a series of Certificates shall be made at
the option of the Certificate Administrator, the Depositor or, if applicable,
the holder of the REMIC Residual Certificates at the price specified in the
related Prospectus Supplement. The exercise of such right will effect early
retirement of the Certificates of that series, but the right of any such entity
to purchase the Underlying Securities and related property will be subject to
the criteria, and will be at the price, set forth in the related Prospectus
Supplement. Such early termination may adversely affect the yield to holders of
certain classes of such Certificates. If a REMIC election has been made, the
termination of the related Trust Fund will be effected in a manner consistent
with applicable federal income tax regulations and its status as a REMIC.
THE TRUSTEE
The Trustee under each Trust Agreement will be named in the related
Prospectus Supplement. The commercial bank or trust company serving as Trustee
may have normal banking relationships with the Depositor and/or its affiliates.
The Trustee may resign at any time, in which event the Depositor will be
obligated to appoint a successor trustee. The Depositor may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the Trust
Agreement or if the Trustee becomes insolvent. Upon becoming aware of such
circumstances, the Depositor will be obligated to appoint a successor Trustee.
The Trustee may also be removed at any time by
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the holders of Certificates evidencing not less than 51% of the aggregate voting
rights in the related Trust Fund. Any resignation or removal of the Trustee and
appointment of a successor Trustee will not become effective until acceptance of
the appointment by the successor Trustee.
MATURITY AND YIELD CONSIDERATIONS
The final scheduled Distribution Date of each class of any series of
Certificates other than a multiple class series will be the Distribution Date
following the latest stated maturity of any Underlying Security in the related
Trust Fund. The final scheduled Distribution Date of each class of Certificates
of any multiple class series, if specified in the related Prospectus Supplement,
will be the date (calculated on the basis of the assumptions applicable to such
Series described therein) on which the aggregate principal balance of such Class
will be reduced to zero. Since prepayments on the mortgage loans underlying the
Underlying Securities will be used to make distributions in reduction of the
outstanding principal amount of the Certificates, it is likely that the actual
maturity of any Class will occur earlier, and may occur substantially earlier,
than originally anticipated. Additionally, if the Certificates are subject to an
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. Additionally, 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.
Weighted average life refers to the average amount of time that will elapse
from the date of issue of a security until each dollar of the principal of such
security will be repaid to the investor. The weighted average life of the
Certificates will be influenced by the rate at which principal of the mortgage
loans underlying the Underlying Securities for such Certificates is paid, which
may be in the form of scheduled amortization or prepayments (for this purpose,
the term "prepayment" includes prepayments, in whole or in part, and
liquidations due to default).
The rate of principal prepayments on pools of housing loans is influenced
by a variety of economic, demographic, geographic, legal, tax, social and other
factors. The rate of prepayments of conventional housing loans has fluctuated
significantly in recent years. In general, however, if prevailing mortgage
market interest rates fall significantly below the interest rates on the
mortgage loans underlying the Underlying Securities for a Series, such mortgage
loans are likely to prepay at rates higher than if prevailing interest rates
remain at or above the interest rates borne by such mortgage loans. In this
regard, it should be noted that the mortgage loans underlying the Underlying
Securities of a Series may have different interest rates, and the stated pass-
through or interest rate of certain Underlying Securities or the interest rate
or pass-through rate on the Certificates may be a number of percentage points
less than interest rates on such mortgage loans. In addition, the weighted
average life of the Certificates may be affected by the varying maturities of
the mortgage loans underlying the Underlying Securities. If any mortgage loans
comprising or underlying the
-22-
<PAGE>
Underlying Securities for a Series have actual terms-to-stated maturity of less
than those assumed in calculating the final scheduled Distribution Date of the
related Certificates, one or more Class of the Series may be fully paid prior to
its final scheduled Distribution Date, even in the absence of prepayments and a
reinvestment return higher than assumed.
Prepayments on loans are commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ("CPR") prepayment
model, the Standard Prepayment Assumption ("SPA") prepayment model or another
prepayment model as may be identified and described in the Prospectus
Supplement. CPR represents a constant assumed rate of prepayment each month
relative to the then outstanding principal balance of a pool of loans for the
life of such loans. SPA represents an assumed rate of prepayment each month
relative to the then outstanding principal balance of a pool of loans. A
prepayment assumption of 100% of SPA assumes prepayment rates of 0.2% per annum
of the then outstanding principal balance of such loans in the first month of
the life of the loans and an additional 0.2% per annum in each month thereafter
until the thirtieth month and in each month thereafter during the life of the
loans, 100% of SPA assumes a constant prepayment rate of 6% per annum.
Neither CPR or SPA nor any other prepayment model or assumption purports to
be an historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
mortgage loans underlying the Underlying Securities. Thus, it is likely that
prepayment of any mortgage loans underlying the Underlying Securities for any
series will not conform to any level of CPR or SPA.
The Prospectus Supplement for each Series may describe the prepayment
standard or model used to prepare the illustrative tables setting forth the
weighted average life of each Class of such Series under a given set of
prepayment assumptions. The related Prospectus Supplement may also describe the
percentage of the initial principal balance of each class of such series of
Certificates that would be outstanding on specified Distribution Dates for such
series based on the assumptions stated in such Prospectus Supplement, including
assumptions that prepayments on the Underlying Securities underlying the related
Underlying Securities are made at rates corresponding to various percentages of
CPR, SPA or at such other rates specified in such Prospectus Supplement. Such
tables and assumptions are intended to illustrate the sensitivity of weighted
average life of the Certificates to various prepayment rates and will not be
intended to predict or to provide information which will enable investors to
predict the actual weighted average life of the Certificates or prepayment rates
of the mortgage loans underlying the related Underlying Securities.
The yield to maturity of a Certificate will depend on the price paid by the
holder for such Certificate, the Pass-Through Rate on any such Certificate
entitled to payments of interest (which Pass-Through Rate may vary if so
specified in the related Prospectus Supplement) and the rate and timing of
principal payments (including prepayments, defaults, liquidations and
repurchases) on the Underlying Securities and the allocation thereof to reduce
the principal balance of such Certificate (or notional amount thereof, if
applicable).
-23-
<PAGE>
The Prospectus Supplement for each series of Certificates will set forth
additional information regarding yield and maturity considerations applicable to
such Certificates and the related Underlying Securities.
LEGAL INVESTMENT MATTERS
Each class of Certificates offered hereby and by the related Prospectus
Supplement will be rated at the date of issuance in one of the four highest
rating categories by at least one Rating Agency. Unless otherwise specified in
the related Prospectus Supplement, each such class that is, and continues to be,
rated in one of the two highest rating categories by at least one nationally
recognized statistical rating organization will constitute "mortgage related
securities" for purposes of Secondary Mortgage Market Enhancement Act of 1984,
as amended ("SMMEA"), and, as such, will be legal investments for persons,
trusts, corporations, partnerships, associations, business trusts and business
entities (including depository institutions, life insurance companies and
pension funds) created pursuant to or existing under the laws of the United
States or of any State whose authorized investments are subject to state
regulation to the same extent that, under applicable law, obligations issued by
or guaranteed as to principal and interest by the United States or any agency or
instrumentality thereof constitute legal investments for such entities. Under
SMMEA, if a State enacted legislation on or prior to October 3, 1991
specifically limiting the legal investment authority of any such entities with
respect to "mortgage related securities," such securities will constitute legal
investments for entities subject to such legislation only to the extent provided
therein. Certain States enacted legislation which overrides the preemption
provisions of SMMEA. SMMEA provides, however, that in no event will the
enactment of any such legislation affect the validity of any contractual
commitment to purchase, hold or invest in "mortgage related securities," or
require the sale or other disposition of such securities, so long as such
contractual commitment was made or such securities acquired prior to the
enactment of such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with "mortgage
related securities" without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without regard
to the limitations generally applicable to investment securities set forth in 12
U.S.C. (S) 24 (Seventh), subject in each case to such regulations as the
applicable federal regulatory authority may prescribe.
The Federal Financial Institutions Examination Council has issued a
supervisory policy statement (the "Policy Statement") applicable to all
depository institutions, setting forth guidelines for and significant
restrictions on investments in "high-risk mortgage securities." The Policy
Statement has been adopted by the Federal Reserve Board, the Office of the
Comptroller of the Currency, the FDIC and the Office of Thrift Supervision (the
"OTS") with an effective date of February 10, 1992. The Policy Statement
generally indicates that a mortgage derivative product will be deemed to be high
risk if it exhibits greater price volatility than a standard fixed-rate thirty-
year mortgage security. According to the Policy
-24-
<PAGE>
Statement, prior to purchase, a depository institution will be required to
determine whether a mortgage derivative product that it is considering acquiring
is high-risk and, if so, that the proposed acquisition would reduce the
institution's overall interest rate risk. Reliance on analysis and documentation
obtained from a securities dealer or other outside party without internal
analysis by the institution would be unacceptable. There can be no assurance as
to which classes of Certificates will be treated as high-risk under the Policy
Statement.
The predecessor to the OTS issued a bulletin, entitled "Mortgage Derivative
Products and Mortgage Swaps," which is applicable to thrift institutions
regulated by the OTS. The bulletin established guidelines for the investment by
savings institutions in certain "high-risk" mortgage derivative securities and
limitations on the use of such securities by insolvent, undercapitalized or
otherwise "troubled" institutions. According to the bulletin, such "high-risk"
mortgage derivative securities include securities having certain specified
characteristics, which may include certain classes of Certificates. In addition,
the National Credit Union Administration has issued regulations governing
federal credit union investments which prohibit investment in certain specified
types of securities, which may include certain classes of Certificates. Similar
policy statements have been issued by regulators having jurisdiction over other
types of depository institutions.
Certain classes of Certificates offered hereby, including any class that is
not rated in one of the two highest rating categories by at least one nationally
recognized statistical rating organization will not constitute "mortgage related
securities" for purposes of SMMEA. Any such class of Certificates will be
identified in the related Prospectus Supplement. Prospective investors in such
classes of Certificates, in particular, should consider the matters discussed in
the following paragraph.
There may be other restrictions on the ability of certain investors either
to purchase certain classes of Certificates or to purchase any class of
Certificates representing more than a specified percentage of the investors'
assets. The Depositor will make no representations as to the proper
characterization of any class of Certificates for legal investment or other
purposes, or as to the ability of particular investors to purchase any class of
Certificates under applicable legal investment restrictions. These uncertainties
may adversely affect the liquidity of any class of Certificates. Accordingly,
all investors whose investment activities are subject to legal investment laws
and regulations, regulatory capital requirements or review by regulatory
authorities should consult with their own legal advisors in determining whether
and to what extent the Certificates of any class constitute legal investments or
are subject to investment, capital or other restrictions, and, if applicable,
whether SMMEA has been overridden in any jurisdiction relevant to such investor.
USE OF PROCEEDS
Unless otherwise specified in the related Prospectus Supplement,
substantially all of the net proceeds to be received from the sale of
Certificates will be applied by the Depositor to finance the purchase of, or to
repay short-term loans incurred to finance the purchase of, the Underlying
Securities underlying the Certificates or will be used by the Depositor for
general corporate purposes. The Depositor expects that it will make additional
sales of
-25-
<PAGE>
securities similar to the Certificates from time to time, but the timing and
amount of any such additional offerings will be dependent upon a number of
factors, including the volume of mortgage loans, contracts or mortgage
securities purchased by the Depositor, prevailing interest rates, availability
of funds and general market conditions.
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 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 will 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
-26-
<PAGE>
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 in the offer and sale of Certificates
complies with the requirements of Schedule E of the By-Laws of the National
Association of Securities Dealers, Inc. regarding underwriting securities of an
affiliate.
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.
Affiliates of the Underwriters may act as agents or underwriters in
connection with the sale of the Certificates. Any affiliate of the Underwriters
so acting will be named, and its affiliation with the Underwriters described, in
the related Prospectus Supplement. Also, affiliates of the Underwriters may act
as principals or agents in connection with market-making transactions relating
to the Certificates. A Prospectus Supplement will be prepared with respect to
the Certificates for use by such affiliates in connection with offers and sales
related to market-making transactions in the Certificates.
LEGAL MATTERS
Certain legal matters, including certain federal income tax matters, will
be passed upon for the Depositor by Chapman and Cutler, Chicago, Illinois, as
specified in the Prospectus Supplement.
FINANCIAL INFORMATION
The Depositor has determined that its financial statements are not material
to the offering made hereby. The Certificates do not represent an interest in or
an obligation of the Depositor.
-27-
<PAGE>
Subject to Completion, Dated _________, 1996
Prospectus Supplement
(To Prospectus dated _______ __, 1996)
$[____________]
SOUTHPOINT STRUCTURED ASSETS, INC.
DEPOSITOR
[NAME OF CERTIFICATE ADMINISTRATOR]
CERTIFICATE ADMINISTRATOR
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES [199_-_]
$[__________] [____]% Class A-1 Certificates
$[__________] [____]% Class A-2 Certificates
$[__________] [____]% Class A-3 Certificates
$ 0 [____]%/(1)/ Class S Certificates
$[__________] [____]% Class R Certificates
- --------------------
/(1)/ Based upon the related Notional Amount, (as described herein under
"Description of the Offered Certificates--Interest Distributions"). The
Class S Certificates will be Fixed Strip Certificates and will not be
entitled to receive distributions of principal.
The Series [199_-_] Mortgage Pass-Through Certificates offered hereby will
include the following five classes (the "Offered Certificates"): (i) Class A-1
Certificates, Class A-2 Certificates and Class A-3 Certificates, (ii) Class S
Certificates (the "Fixed Strip Certificates") and (iii) Class R Certificates
(the "Residual Certificates"). The Offered Certificates in the aggregate will
represent the entire beneficial ownership interest in a trust fund (the "Trust
Fund") consisting primarily of Ginnie Mae Securities (the "Underlying Agency
Securities"). Each Underlying Agency Security is a ["fully-modified pass-
through" mortgage-backed certificate] [issued and serviced by a mortgage banking
company or other financial concern approved by Ginnie Mae (a "Ginnie Mae
Issuer")] based on and backed by a pool of mortgage loans (each, a "Mortgage
Pool") which may consist of FHA-insured or VA-guaranteed mortgage loans secured
by one- to four-family residential properties and eligible for inclusion in
mortgage pools underlying Ginnie Mae Securities, which may be level payment or
graduated payment first lien mortgage loans with terms to maturity of not more
than 30 years (collectively, the "Mortgage Loans"). Certain characteristics of
the Underlying Agency Securities are described herein under "Description of the
Underlying Agency Securities."
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS
THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES DO NOT REPRESENT AN INTEREST
IN OR OBLIGATION OF THE DEPOSITOR, THE CERTIFICATE ADMINISTRATOR, OR ANY OF
THEIR AFFILIATES. ALTHOUGH PAYMENT OF PRINCIPAL AND INTEREST ON THE UNDERLYING
AGENCY SECURITIES IS GUARANTEED BY GINNIE MAE, THE OFFERED CERTIFICATES ARE NOT
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE
DEPOSITOR, THE CERTIFICATE ADMINISTRATOR OR ANY OF THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON tHE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FOR A DISCUSSION OF SIGNIFICANT MATTERS AFFECTING INVESTMENTS IN THE
CERTIFICATES, SEE "RISK FACTORS" [COMMENCING ON PAGE S-[ ] HEREIN AND]
COMMENCING IN THE PROSPECTUS ON PAGE [ ].
[Name of Underwriter] (the "Underwriter") intends to make a secondary
market in the Offered Certificates, but has no obligation to do so. There can
be no assurance that a secondary market for the Offered Certificates will
develop or, if it does develop, that it will continue. [The Offered
Certificates have been authorized for listing, upon official notice of issuance,
with the __________.]
The Offered Certificates will be purchased from the Depositor by the
Underwriter, and will be offered by the Underwriter from time to time to the
public, directly or through dealers, in negotiated transactions or otherwise at
varying prices to be determined at the time of sale. The proceeds to the
Depositor from the sale of the Offered Certificates, before deducting expenses
payable by the Depositor, will be equal to approximately [____]% of the initial
aggregate principal balance of the Offered Certificates, plus accrued interest
thereon from [__________ __, 199_] (the "Reference Date"). The Offered
Certificates are offered by the Underwriter subject to prior sale, when, as and
if delivered to and accepted by the Underwriter and subject to certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify
such offer and to reject any order in whole or in part. It is expected that
delivery of the Offered Certificates will be made on or about [__________ __,
199_], [at the offices of [ ]], [through the facilities of The Depository
Trust Company], against payment therefor in immediately available funds.
[NAME OF UNDERWRITER]
[__________ __, 199_]
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.
<PAGE>
It is a condition to the issuance of the Offered Certificates that the
Class A-1, Class A-2, Class A-3, Fixed Strip and Residual Certificates be rated
"[__]" by [_______] and "[__]" by [________].
[As described herein, a "real estate mortgage investment conduit" (a
"REMIC") election will be made in connection with the Trust Fund for federal
income tax purposes. Each class of the Offered Certificates (other than the
Residual Certificates) will represent ownership of "regular interests" in the
REMIC and the Residual Certificates will be the sole class of "residual
interests" in the REMIC. See "Certain Federal Income Tax Consequences" herein.
[Transfers of the Residual Certificates may be made only to "qualified
institutional buyers" as defined in Rule 144A under the Securities Act of 1933,
as amended, and will be prohibited to any non-United States person, and will be
subject to certain additional transfer restrictions described under "Certain
Federal Income Tax Consequences--REMICs--Tax and Restrictions on Transfers of
REMIC Residual Certificates to Certain Organizations".]
Distributions on the Offered Certificates will be made on the third
business day following each distribution date for the Underlying Agency
Securities (each, a "Distribution Date"), commencing on [__________ __, 199_]
for the Offered Certificates other than the Class A-3 Certificates, and
commencing on the Accretion Termination Date (as defined herein) for the Class
A-3 Certificates. With respect to any of the Underlying Agency Securities, the
distribution date is the [15th day of each calendar month in the case of a GNMA
I Certificate] [the 20th day of each calendar month in the case of a GNMA II
Certificate] (or, if such day is not a business day, the next business day)
(each, an "Underlying Security Distribution Date"). As described herein under
"Description of the Offered Certificates--Interest Distributions," interest
distributions on the Offered Certificates will be based on the Certificate
Principal Balance thereof (or the Notional Amount (as defined herein) in the
case of the Fixed Strip Certificates) and the applicable Pass-Through Rate
thereof, which will be fixed for all classes of Offered Certificates.
Distributions in respect of principal of the Offered Certificates will be
allocated among the various classes of the Offered Certificates (other than the
Fixed Strip Certificates), as described herein under "Description of the Offered
Certificates--Principal Distributions."
The yield to maturity on the Offered Certificates will depend on the rate
and timing of principal payments on the Underlying Agency Securities, which in
turn will be affected by the rate and timing of principal payments on the
underlying Mortgage Loans. The yield to investors on the Fixed Strip
Certificates will be extremely sensitive to the rate and timing of principal
payments on the related Underlying Agency Securities, which in turn will be
affected by the rate and timing on the underlying Mortgage Loans which may
fluctuate significantly over time. An extremely rapid rate of principal payments
on the Mortgage Loans could result in the failure of investors in the Fixed
Strip Certificates to recover their initial investments. See "Summary--Special
Prepayment Considerations," "Summary--Special Yield Considerations" and "Certain
Yield and Prepayment
S-1
<PAGE>
Considerations" herein and "Maturity and Yield Considerations" in the
Prospectus."
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE PART OF A
SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE DEPOSITOR PURSUANT TO ITS
PROSPECTUS DATED [__________ __, 199_], OF WHICH THIS PROSPECTUS SUPPLEMENT IS A
PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING NOT CONTAINED HEREIN AND
PROSPECTIVE INVESTORS ARE URGED TO READ tHE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL. SALES OF THE OFFERED CERTIFICATES MAY NOT BE CONSUMMATED
UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS.
UNTIL [__________ __, 199_] (90 DAYS AFTER THE DATE OF THIS PROSPECTUS
SUPPLEMENT), ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES. 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.
[IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE OFFERED
CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET, SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.]
S-2
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
Heading Page
<S> <C>
Summary............................................................................ S-4
Risk Factors....................................................................... S-13
Description of the Offered Certificates............................................ S-13
General......................................................................... S-13
Available Distribution Amount................................................... S-13
Interest Distributions.......................................................... S-14
Principal Distributions......................................................... S-15
Description of the Underlying Agency Securities.................................... S-16
Certain Yield and Prepayment Considerations........................................ S-18
General......................................................................... S-18
Modeling Assumptions............................................................ S-20
Fixed Strip Certificate Yield Considerations.................................... S-22
Additional Yield Considerations Applicable Solely to the Residual Certificates.. S-24
Trust Agreement.................................................................... S-24
General......................................................................... S-24
The Certificate Administrator................................................... S-25
Assignment of the Underlying Agency Securities.................................. S-25
Compensation of Certificate Administrator....................................... S-25
Actions in Respect of the Underlying Agency Securities.......................... S-25
Voting Rights................................................................... S-26
Termination..................................................................... S-26
Certain Federal Income Tax Consequences............................................ S-26
General......................................................................... S-26
REMICs.......................................................................... S-27
State and Other Tax Consequences................................................... S-48
ERISA Considerations............................................................... S-49
Plan of Distribution............................................................... S-51
Ratings............................................................................ S-51
Legal Opinions..................................................................... S-52
Legal Investment Matters........................................................... S-52
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
SUMMARY
<S> <C>
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used herein and not otherwise defined herein have the meanings
assigned in the Prospectus.
Securities Offered.......... Mortgage Pass-Through Certificates, Series [199_-_] (the
"Certificates").
Depositor................... Southpoint Structured Assets, Inc. (the "Depositor"), a corporation
organized under the laws of the State of Delaware
which is an indirect wholly-owned subsidiary of
Morgan Keegan, Inc. See "The Depositor" in the
Prospectus.
Certificate Administrator... [____________] in its capacity as certificate
administrator (the "Certificate Administrator").
See "Trust Agreement--The Certificate Administrator"
herein.
Trustee..................... [Name of Trustee], a [national bank] [[state bank] [trust company]
organized under the laws of __________] (the
"Trustee"). See "The Trust Agreement--The Trustee"
in the Prospectus.
Reference Date.............. [__________ 1, 199_] (the "Reference Date").
Delivery Date............... On or about [__________ __, 199_] (the "Delivery Date").
Distribution Date........... The third business day following each distribution date for
the Underlying Agency Securities commencing on
[__________ __, 199_] (each, a "Distribution Date").
With respect to any of the Underlying Agency
Securities, the distribution date is the [15th day
of each calendar month in the case of a GNMA I
Certificate] [the 20th day of each calendar month in
the case of a GNMA II Certificate] (or, if such day
is not a business day, the next business day) (each,
an "Underlying Security Distribution Date").
The Trust Fund.............. The Trust Fund, in which the Offered Certificates in the
aggregate represent the entire beneficial ownership
interest, consists primarily of the Underlying
Agency Securities. The Offered Certificates will be
issued pursuant to a Trust Agreement (the "Trust
Agreement"),
</TABLE>
S-4
<PAGE>
dated as of the Reference Date, among
the Depositor, the Certificate Administrator and the
Trustee. See "Description of the Offered
Certificates--General" herein.
The Underlying Agency
Securities................. The Underlying Agency Securities are [GNMA][I] [II]
Certificates. Each Underlying Agency Security is a
["fully-modified pass-through" mortgage-backed
certificate] [issued and serviced by a mortgage
banking company or other financial concern approved
by Ginnie Mae (a "Ginnie Mae Issuer")]based on and
backed by a pool of FHA-insured or VA-guaranteed
mortgage loans secured by one- to four-family
residential properties and eligible for inclusion in
mortgage pools underlying Ginnie Mae Securities,
which may be level payment or graduated payment
first lien mortgage loans with terms to maturity of
not more than 30 years (the "Mortgage Loans").
Information relating to the Underlying Agency
Securities is provided as of the Reference Date.
The Underlying Agency Securities will have an
aggregate outstanding principal balance of
approximately $[_________], pass-through rates of
[____]% and a weighted average remaining term to
stated maturity of approximately [____] months as of
the Reference Date.
The Underlying Agency Securities are guaranteed as
to full and timely payment of principal and interest
by Ginnie Mae. The guaranty of Ginnie Mae is backed
by the full faith and credit of the United States.
For a further description of the underlying Agency
Securities, see "Description of the Underlying
Agency Securities" herein.
The Offered Certificates... The Offered Certificates in the aggregate will
represent the entire beneficial ownership interest
in the Trust Fund. The Offered Certificates will
have the following Pass-Through Rates, Certificate
Principal Balances and other features as of the
Reference Date:
Class A-1 Certificate [____]% $[____] Fixed
Class A-2 Certificates [____]% $[____] Fixed
Class A-3 Certificates [____]% $[____] Fixed/Accrual
Class S Certificates [____]% 0 Fixed Strip
[Class R Certificates [____]% $[____] Residual]
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<PAGE>
Residual Certificates....... The Class R Certificates are designated as the
"Residual Certificates." [The Residual
Certificates have no Certificate Principal Balance
and no Pass-Through Rate. The Residual
Certificates represent the right to receive
certain distributions, if any, of amounts which
are in excess of the amounts required to be
distributed to all other classes of Offered
Certificates following the retirement of all of
the Offered Certificates.] [The Residual
Certificates are not being offered hereby.]
[The Depositor initially will retain [a de minimis
portion of] the Residual Certificates; however,
the Residual Certificates held by the Depositor
may be sold at any time in accordance with the
terms of the Trust Agreement.]
Denominations............... The Class A-1, Class A-2 and Class A-3
Certificates will be offered in registered form,
in minimum denominations of $[_________] and
integral multiples of $[_________] in excess
thereof [, with one Class [____] Certificate
evidencing the sum of an authorized denomination
thereof plus the remainder of the aggregate
initial Certificate Principal Balance of such
class]. The Fixed Strip Certificates and Residual
Certificates will be offered in registered form in
minimum denominations of a [____]% Percentage
Interest [, except, in the case of the Residual
Certificates, as otherwise set forth herein under
"Certain Federal Income Tax Consequences."]
Certificate Registration.... The Offered Certificates (other than the [Fixed
Strip and Residual] Certificates) will be
represented by one or more certificates registered
in the name of Cede & Co., as nominee of The
Depository Trust Company ("DTC"). No person
acquiring an interest in the Offered Certificates
(other than the [Fixed Strip and Residual]
Certificates) will be entitled to receive a
Certificate of such class in fully-registered,
certificated form, except under the limited
circumstances described in the Prospectus under
"Description of the Certificates--Form of
Certificates." The [Fixed Strip and Residual]
Certificates will be offered in fully-registered,
certificated form. See "Description of the
Certificates--Form of Certificates" in the
Prospectus.]
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<PAGE>
Pass-Through Rates on
the Offered Certificates.... The Pass-Through Rates on all classes of the
Offered Certificates are the fixed rates set forth
above. The Fixed Strip Certificates have no
Certificate Principal Balance and will accrue
interest at the applicable Pass-Through Rate on
the related Notional Amount (as defined herein).
Interest Distributions on
the Offered Certificates.... Holders of each class of Offered Certificates (the
"Certificateholders") will be entitled to receive
interest distributions in an amount equal to the
Accrued Certificate Interest on such class on each
Distribution Date, (i) in the case of the Class A-
1 Certificates, Class A-2 Certificates, Fixed
Strip Certificates and Residual Certificates, to
the extent of the amount available for interest
distributions (as described herein under
"Description of the Offered Certificates--Interest
Distributions") for such Distribution Date and
(ii) in the case of the Class A-3 Certificates, to
the extent of the Available Distribution Amount
for such Distribution Date after distributions of
interest and principal to the Class A-1
Certificates, Class A-2 Certificates, Fixed Strip
Certificates and Residual Certificates, commencing
on the first Distribution Date in the case of all
classes of Offered Certificates (other than the
Class A-3 Certificates) and commencing on the
Accretion Termination Date (as defined below) in
the case of the Class A-3 Certificates.
With respect to any Distribution Date, "Accrued
Certificate Interest" will be equal to (a) in the
case of each class of Offered Certificates (other
than the Fixed Strip Certificates), one month's
interest accrued on the related Certificate
Principal Balance of such class, at the Pass-
Through Rate on such class and (b) in the case of
the Fixed Strip Certificates, one month's interest
accrued on the related Notional Amount thereof at
the Pass-Through Rate set forth below.
The "Notional Amount" of the Fixed Strip
Certificates with respect to any Distribution Date
is equal to the aggregate Certificate Principal
Balance of the Underlying Agency Securities
immediately prior to the most recent Underlying
Security Distribution Date.
S-7
<PAGE>
The Accretion Termination Date is the first
Distribution Date to occur on which the
Certificate Principal Balance of the Residual,
Class A-1 and Class A-2 Certificates have been
reduced to zero. On each Distribution Date
preceding the Accretion Termination Date, an
amount equal to the Accrued Certificate Interest
on the Class A-3 Certificates will be added to the
Certificate Principal Balance thereof (the
"Accretion Amount") and will thereafter accrue
interest at the applicable Pass-Through Rate. On
each Distribution Date on or after the Accretion
Termination Date, Accrued Certificate Interest
will generally be payable to the holders of the
Class A-3 Certificates, as described herein.
See "DESCRIPTION OF THE OFFERED CERTIFICATES--
INTEREST DISTRIBUTIONS" herein.
Principal Distributions on
the Offered Certificates.... Holders of the Offered Certificates (other than
the Fixed Strip Certificates) will be entitled to
receive, in the aggregate, on each Distribution
Date, to the extent of the portion of the
Available Distribution Amount (as defined herein)
remaining after the aggregate amount of Accrued
Certificate Interest to be distributed to the
holders of the Offered Certificates is
distributed, a distribution allocable to principal
which will be equal to the sum of (i) the
aggregate amount distributed in respect of
principal on all of the Underlying Agency
Securities on the immediately preceding Underlying
Security Distribution Date and (ii) the Accretion
Amount. Distributions of principal on the Offered
Certificates will be made first to the Residual
Certificates, second to Class A-1 Certificates,
third to the Class A-2 Certificates and fourth to
the Class A-3 Certificates, in each case until the
Certificate Principal Balance thereof is reduced
to zero. The Fixed Strip Certificates have no
Certificate Principal Balance and, accordingly,
will not be entitled to any principal
distributions. See "Description of the Offered
Certificates--Principal Distributions" herein.
As to each of the Underlying Agency Securities,
principal distributions will be made thereon on
each Underlying Security Distribution Date in the
respective amounts described herein under
"Description of the Underlying Agency Securities."
S-8
<PAGE>
Optional Termination........ At its option, the Certificate Administrator or
the Depositor may repurchase from the Trust Fund
all of the Underlying Agency Securities remaining
in the Trust Fund, and thereby effect early
retirement of the Offered Certificates, at such
time as the aggregate Certificate Principal
Balance of the Underlying Agency Securities is
less than [____]% of the aggregate Certificate
Principal Balance thereof as of the Delivery Date,
as described herein. See "Trust Agreement--
Termination" herein and "Trust Agreement--
Termination; Retirement of Certificates" in the
Prospectus.
Special Prepayment
Considerations ............. The rate and timing of principal payments on the
Offered Certificates will depend, among other
things, on the rate and timing of principal
payments on the Underlying Agency Securities,
which in turn will be affected by the rate and
timing of principal payments on the Mortgage
Loans. As is the case with mortgage-backed
securities generally, the Underlying Agency
Securities and, as a result, the Offered
Certificates are subject to substantial inherent
cash-flow uncertainties because the Mortgage Loans
may be prepaid at any time. Generally, when
prevailing interest rates increase, prepayment
rates on mortgage loans tend to decrease,
resulting in a slower return of principal to
investors at a time when reinvestment at such
higher prevailing rates would be desirable.
Conversely, when prevailing interest rates
decline, prepayment rates on mortgage loans tend
to increase, resulting in a faster return of
principal to investors at a time when reinvestment
at comparable yields may not be possible.
The allocation of prepayments among certain
classes of the Offered Certificates will be
affected by certain other factors, as follows:
Distributions of principal to the Offered
Certificates will be made first to the Residual
Certificates, second, to the Class A-1
Certificates, third, to the Class A-2 Certificates
and fourth, to the Class A-3 Certificates, in each
case until the Certificate Principal Balance
thereof is reduced to zero. The timing of
commencement of principal distributions and the
weighted average lives of the Class A-2
Certificates and Class A-3 Certificates will be
affected by the rates of prepayment experienced
both
S-9
<PAGE>
before and after the commencement of principal
distributions on such classes.
See "Description of the Offered Certificates--
Principal Distributions," "Description of the
Underlying Agency Securities" and "Certain Yield
and Prepayment Considerations" herein and
"Maturity and Yield Considerations" in the
Prospectus.
For further information regarding the effect of
principal prepayments on the weighted average
lives of the Offered Certificates (other than the
Fixed Strip Certificates and Residual
Certificates), see the table entitled "Percent of
Initial Certificate Principal Balance Outstanding
at the Following Percentages of SPA" herein.
Special Yield
Considerations.............. The yield to maturity on each class of the Offered
Certificates will depend, among other things, on
the rate and timing of principal payments on the
Underlying Agency Securities, which in turn will
be affected by the rate and timing of principal
payments on the Mortgage Loans and the allocation
thereof to reduce the Certificate Principal
Balance or Notional Amount of such class. The
yield to maturity on each class of Offered
Certificates will also depend on the Pass-Through
Rate and the purchase price for such class.
In general, if a class of Offered Certificates is
purchased at a premium and principal distributions
thereon occur at a rate faster than anticipated at
the time of purchase, the investor's actual yield
to maturity will be lower than that assumed at the
time of purchase. Conversely, if a class of
Offered Certificates is purchased at a discount
and principal distributions thereon occur at a
rate slower than that assumed at the time of
purchase, the investor's actual yield to maturity
will be lower than that assumed at the time of
purchase.
The Offered Certificates were structured assuming,
among other things, a prepayment assumption of
[____]% SPA (as defined herein) and corresponding
weighted average lives as described herein under
"Description of the Underlying Agency Securities."
The prepayment, yield and other
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<PAGE>
assumptions to be used for pricing purposes for
the respective classes that are to be offered
hereunder may vary as determined at the time of
sale.
The yield of certain classes of the Offered
Certificates will be particularly sensitive to
changes in the rates of prepayment of the Mortgage
Loans and other factors, as follows:
The yield to investors on the Fixed Strip
Certificates will be extremely sensitive to the
rate and timing of principal payments on the
Underlying Agency Securities, which in turn will
be affected by the rate and timing of principal
payments on the Mortgage Loans included in the
related Mortgage Pools, which rate may fluctuate
significantly over time.
An extremely rapid rate of principal payments on
the Underlying Agency Securities could result in
the failure of investors in the Fixed Strip
Certificates to recover their initial investments.
Because the Class A-3 Certificates do not receive
any distribution of interest until the Accretion
Termination Date, the Class A-3 Certificates will
likely experience greater price and yield
volatility than would mortgage pass-through
certificates which are otherwise similar but that
are entitled to current distributions of interest.
Investors should consider whether such volatility
is in accordance with their investment needs.
Holders of the Residual Certificates are entitled
to receive distributions of principal and interest
as described herein under "Description of the
Offered Certificates--Interest Distributions" and
"Principal Distributions"; however, holders of
such Certificates may have tax liabilities with
respect to their Certificates during the early
years of the term of the Trust Fund that
substantially exceed the principal and interest
payable thereon during such periods.
See "Certain Yield and Prepayment Considerations,"
especially "Fixed Strip Certificate Yield
Considerations" and "Additional Yield
Considerations Applicable Solely to the Residual
Certificates" herein,
S-11
<PAGE>
"Certain Federal Income Tax Consequences" herein
and "Maturity and Yield Considerations" in the
Prospectus.
Certain Federal Income
Tax Consequences............ [A "real estate mortgage investment conduit" (a
"REMIC") election will be made with respect to the
Trust Fund for federal income tax purposes. Upon
the issuance of the Offered Certificates, Chapman
and Cutler, Chicago, Illinois, tax counsel to the
Depositor, will deliver its opinion generally to
the effect that, assuming compliance with all
provisions of the Trust Agreement, the Trust Fund
will qualify as a REMIC under Sections 860A
through 860G of the Internal Revenue Code of 1986
(the "Code").]
[ADDITIONAL TAX CONSEQUENCES TO BE INCLUDED AS
APPROPRIATE.]
For further information regarding the federal
income tax consequences of investing in the
Offered Certificates, see "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES" herein.
ERISA Considerations........ [ERISA considerations to be included as
necessary.] See "ERISA Considerations" herein.
Ratings..................... It is a condition to the issuance of the Offered
Certificates that the Class A-1, Class A-2, Class
A-3, Fixed Strip and Class R Certificates be rated
"[__]" by [__________] and "[__]" by [________]. 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 organization. A security rating
does not address the frequency of prepayments of
Mortgage Loans, or the corresponding effect on
yield to investors. The rating of the Fixed Strip
Certificates does not address the possibility that
the holders of such Certificates may fail to fully
recover their initial investments. See "Certain
Yield and Prepayment Considerations" and "Ratings"
herein and "Maturity and Yield Considerations" in
the Prospectus.
Legal Investment Matters.... The Offered Certificates will constitute "mortgage
related securities" for purposes of the Secondary
S-12
<PAGE>
Mortgage Market Enhancement Act of 1984, as
amended ("SMMEA"), for so long as they are rated
in one of the two highest rating categories by at
least one nationally recognized statistical rating
organization, and, as such, will be legal
investments for certain entities to the extent
provided in SMMEA. Institutions whose investment
activities are subject to legal investment laws
and regulations or review by regulatory
authorities should consult with their legal
advisors in determining whether and to what extent
the Offered Certificates constitute legal
investments under SMMEA or are subject to
restriction on investment, capital requirements or
otherwise. See "Legal Investment Matters" herein
and in the Prospectus.
RISK FACTORS
[Prospective Certificateholders should consider, among other things, the
items discussed under "RISK FACTORS" in the Prospectus and the following factors
in connection with the purchase of the Certificates:]
[APPROPRIATE RISK FACTORS REGARDING UNDERLYING SECURITIES TO BE INSERTED AS
NECESSARY]
DESCRIPTION OF THE OFFERED CERTIFICATES
GENERAL
The Series [199_-_] Mortgage Pass-Through Certificates will include the
following five classes (the "Offered Certificates"): (i) Class A-1 Certificates,
Class A-2 Certificates and Class A-3 Certificates, (ii) the Class S Certificates
(the "Fixed Strip Certificates") and (iii) the Class R Certificates (the
"Residual Certificates").
The Offered Certificates in the aggregate will represent the entire
beneficial ownership interest in the Trust Fund. The Trust Fund will consist of:
(i) the Underlying Agency Securities, including all distributions thereon
payable after the Delivery Date; and (ii) such assets as from time to time are
identified as deposited in respect of the Underlying Agency Securities in the
Certificate Account and belonging to the Trust Fund.
AVAILABLE DISTRIBUTION AMOUNT
The "Available Distribution Amount" with respect to the Offered
Certificates for any Distribution Date will be equal to the aggregate amount of
distributions on the Underlying Agency Securities on the immediately preceding
Underlying Security Distribution Date,
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<PAGE>
after deduction of the related Servicing Fee (as described herein under "Trust
Agreement--Compensation of Certificate Administrator").
INTEREST DISTRIBUTIONS
Holders of each class of Offered Certificates will be entitled to receive
interest distributions in an amount equal to the Accrued Certificate Interest on
such class on each Distribution Date, (i) in the case of the Class A-1
Certificates, Class A-2 Certificates, Fixed Strip Certificates and Residual
Certificates, to the extent of the Available Distribution Amount for such
Distribution Date and (ii) in the case of the Class A-3 Certificates to the
extent of the Available Distribution Amount for such Distribution Date after
distributions of interest and principal on the Class A-1 Certificates, Class A-2
Certificates, Fixed Strip Certificates and Residual Certificates, commencing on
the first Distribution Date in the case of all classes of Offered Certificates
(other than the Class A-3 Certificates) and commencing on the Accretion
Termination Date in the case of the Class A-3 Certificates. Notwithstanding the
foregoing sentence, the amount available for interest distributions on the
Offered Certificates on any Distribution Date shall not exceed the aggregate
amounts distributed on the Underlying Agency Securities on the preceding
Underlying Security Distribution Date in respect of interest, reduced by the
Servicing Fee (as defined herein), which is calculated at a rate of [%] per
annum.
With respect to any Distribution Date, "Accrued Certificate Interest" will
be equal to (a) in the case of each class of Offered Certificates (other than
the Fixed Strip Certificates) one month's interest accrued on the Certificate
Principal Balance of such class at the Pass-Through Rate set forth on the cover
hereof and (b) in the case of the Fixed Strip Certificates, one month's interest
accrued on the Notional Amount at the applicable Pass-Through Rate.
The "Accretion Termination Date" for the Class A-3 Certificates is the
first Distribution Date on or after the Certificate Principal Balances of the
Residual Certificates, Class A-1 Certificates and Class A-2 Certificates have
been reduced to zero. On each Distribution Date preceding the Accretion
Termination Date, an amount equal to the amount of Accrued Certificate Interest
on the Class A-3 Certificates for such date will be added to the Certificate
Principal Balance thereof (the "Accretion Amount"), and such amount will be
distributed to the holders of the Offered Certificates, other than the Class A-3
Certificates, as described herein, in reduction of the Certificate Principal
Balances thereof, as described herein. On each Distribution Date on or after the
Accretion Termination Date, the entire amount of Accrued Certificate Interest on
the Class A-3 Certificates for such Distribution Date will be payable to the
holders of the Class A-3 Certificates, to the extent not required to fully
retire the remaining Offered Certificates (other than the Class A-3
Certificates) on the Accretion Termination Date.
The Pass-Through Rates on all classes of Offered Certificates are the fixed
rates set forth on the cover hereof. The Fixed Strip Certificates have no
Certificate Principal Balance and will accrue interest at the applicable Pass-
Through Rate on the Notional Amount.
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<PAGE>
As described herein, the Accrued Certificate Interest allocable to each
class of Offered Certificates is based on the Certificate Principal Balance
thereof or, in the case of the Fixed Strip Certificates, on the Notional Amount.
The "Certificate Principal Balance" of any Offered Certificate as of any date of
determination is equal to the initial Certificate Principal Balance thereof,
reduced by the aggregate of all amounts allocable to principal previously
distributed with respect to such Offered Certificate and, in the case of the
Class A-3 Certificates, increased by the amount of any Accrued Certificate
Interest added to the Certificate Principal Balance of such class. The "Notional
Amount" of the Fixed Strip Certificates is initially [$] and with respect to any
Distribution Date is equal to the aggregate Certificate Principal Balance of the
Underlying Agency Securities immediately prior to the most recent Underlying
Security Distribution Date.
PRINCIPAL DISTRIBUTIONS
Holders of the Offered Certificates (other than the Fixed Strip
Certificates, which are not entitled to receive any principal distributions)
will be entitled to receive, in the aggregate on each Distribution Date, to the
extent of the portion of the Available Distribution Amount remaining after
Accrued Certificate Interest has been distributed to the holders of the Class A-
1 Certificates, Class A-2 Certificates, Fixed Strip Certificates and Residual
Certificates for such Distribution Date (and, in the case of any payments of
principal to the Class A-3 Certificates, after Accrued Certificate Interest has
been distributed to the holders thereof for such Distribution Date), a
distribution allocable to principal which will be equal to the sum of (i) the
aggregate amount distributed in respect of principal on all of the Underlying
Agency Securities on the immediately preceding Underlying Security Distribution
Date and (ii) the Accretion Amount (together, the "Principal Distribution
Amount").
On each Distribution Date, the Principal Distribution Amount shall be
distributed as follows:
(i) first, to the holders of the Residual Certificates, until the
Certificate Principal Balance thereof is reduced to zero;
(ii) second, to the holders of the Class A-1 Certificates, until the
Certificate Principal Balance thereof is reduced to zero;
(iii) third, to the holders of the Class A-2 Certificates, until the
Certificate Principal Balance thereof is reduced to zero; and
(iv) fourth, to the holders of the Class A-3 Certificates, until the
Certificate Principal Balance thereof is reduced to zero.
S-15
<PAGE>
DESCRIPTION OF THE UNDERLYING AGENCY SECURITIES
[Each Underlying Agency Security (which may be a GNMA I Certificate or a
GNMA II Certificate as referred to by Ginnie Mae) underlying the Series [199_-_]
Certificates will be a "fully-modified pass-through" mortgage-backed certificate
issued and serviced by a mortgage banking company or other financial concern (a
"Ginnie Mae Issuer") approved by Ginnie Mae as a seller-servicer of FHA Loans
and VA Loans.
The mortgage loans underlying Ginnie Mae Securities may consist of FHA
Loans or VA Loans secured by one- to four-family residential properties and
eligible for inclusion in mortgage pools underlying Ginnie Mae Securities, which
may be level payment first lien mortgage loans (including "buy-down" mortgage
loans) or graduated payment first lien mortgage loans.
Ginnie Mae has approved the issuance of each Underlying Agency Security in
accordance with a guarantee agreement (a "Guarantee Agreement") between Ginnie
Mae and the Ginnie Mae Issuer. Pursuant to its Guarantee Agreement, a Ginnie Mae
Issuer will be required to advance its own funds in order to make timely
payments of all amounts due on each Underlying Agency Security, even if the
payments received by the Ginnie Mae Issuer on the Mortgage Loans relating to
each Underlying Agency Security are less than the amounts due on each such
Underlying Agency Security.
The full and timely payment of principal and interest on each Underlying
Agency Security will be guaranteed by Ginnie Mae, which obligation is backed by
the full faith and credit of the United States. See "THE TRUST FUNDS--THE AGENCY
SECURITIES--Government National Mortgage Association" and "Ginnie Mae
Securities" in the Prospectus. Each Underlying Agency Security will have an
original maturity of not more than 30 years. Each Underlying Agency Security
will be based on and backed by a Mortgage Pool and will provide for the payment
by or on behalf of the Ginnie Mae Issuer to the registered holder of such
Underlying Agency Security of fixed monthly payments of principal and interest
equal to the aggregate amount of the scheduled monthly principal and interest
payments on the Mortgage Loans relating to such Underlying Agency Security, less
a servicing and guarantee fee of 0.5% and up to 1.5% per annum of the
outstanding principal balance for such GNMA I Certificates and GNMA II
Certificates, respectively. In addition, each payment will include any
prepayments of principal of the Mortgage Loans relating to such Underlying
Agency Security and liquidation proceeds in the event of a foreclosure or other
disposition of any such Mortgage Loans.
Mortgage loans underlying a particular GNMA I Certificate must have the
same annual interest rate (except for pools of mortgage loans secured by mobile
homes). The annual pass-through rate on each GNMA I Certificate is the annual
interest rate on the mortgage loans included in the pool of mortgages backing
such GNMA I Certificate less 0.5% per annum of the unpaid principal balance of
such loans. This amount consists of 0.44% to be paid to the Ginnie Mae Issuer of
the GNMA I Certificate (or its agent) as a fee for servicing the loans and the
GNMA I Certificates and a guaranty fee of 0.06%, which must be paid out to
Ginnie Mae by the Ginnie Mae Issuer. Mortgage loans underlying a
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<PAGE>
particular GNMA II Certificate may have annual interest rates that vary from
each other by up to 1%. The annual pass-through rate on each GNMA II Certificate
will be between 0.5% and 1.5% per annum less than the highest annual interest
rate on the mortgage loans included in the pool of mortgages backing such GNMA
II Certificate. The difference between the GNMA II Certificate rate and rates on
the underlying mortgages consists of a guaranty fee of 0.06% which must be paid
to Ginnie Mae by the Ginnie Mae Issuer and a servicing fee of between 0.44% and
1.44% to be paid to the Ginnie Mae Issuer (or its agent).
All Ginnie Mae Securities underlying the Series [199_-_] Certificates will
have original maturities of not more than 30 years (but may have original
maturities of substantially less than 30 years). In general, Ginnie Mae requires
that at least 90% of the original principal amount of the mortgage pool
underlying a Ginnie Mae Security must be mortgages with maturities of 20 years
or more. However, in certain circumstances, Ginnie Mae Securities may be backed
by pools of mortgage loans at least 90% of the original principal amount of
which have original maturities of at least 15 years. Each mortgage loan
underlying a Ginnie Mae Security, at the time Ginnie Mae issues its guarantee
commitment, must be originated no more than 12 months prior to such commitment
date.
No Ginnie Mae Issuer will insure or guarantee the Offered Certificates or
the Underlying Agency Securities. Each Ginnie Mae Issuer will be obligated under
its Guarantee Agreement with Ginnie Mae to service the pooled Mortgage Loans in
accordance with FHA and VA requirements and with generally accepted practices in
the mortgage lending industry. Each Ginnie Mae Issuer's responsibilities with
respect to the pooled Mortgage Loans will include collection of all principal
and interest payments and payments made by borrowers toward escrows established
for taxes and insurance premiums; maintenance of necessary hazard insurance
policies; institution of all actions necessary to foreclose on, or take other
appropriate action with respect to, loans in default; and collection of FHA
insurance and VA guarantee benefits.
If a Ginnie Mae Issuer is unable to make the payments on an Underlying
Agency Security as it becomes due, it must promptly notify Ginnie Mae and
request Ginnie Mae to make such payment. Upon notification and request, Ginnie
Mae will make such payments directly to the registered holder of such Underlying
Agency Security. In the event no payment is made by a Ginnie Mae Issuer and the
Ginnie Mae Issuer fails to notify and request Ginnie Mae to make such payment,
the holder of such Underlying Agency Security will have recourse only against
Ginnie Mae to obtain such payment. The Trustee or its nominee, as registered
holder of the Underlying Agency Security, will have the right to proceed
directly against Ginnie Mae under the terms of the Guaranty Agreement relating
to such Underlying Agency Security for any amounts that are not paid when due.
Regular monthly installment payments on each Underlying Agency Security
will be comprised of interest due as specified on such Underlying Agency
Security plus the scheduled principal payments on the related Mortgage Loans due
on the first day of the month in which the scheduled monthly installment on such
Underlying Agency Security is due. Such regular monthly installments on each
such Underlying Agency Security will be paid to the Trustee as registered holder
by the 15th day of each month in the case of a
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<PAGE>
GNMA I Certificate and will be mailed to the Trustee by the 20th day of each
month in the case of a GNMA II Certificate (each, an "Underlying Security
Distribution Date"). Any principal prepayments on any Mortgage Loans underlying
an Underlying Agency Security or any other early recovery of principal of such
loans will be passed through to the Trustee as the registered holder of the
Underlying Agency Security.
Pools of non-graduated payment mortgages evidenced by certain of the Ginnie
Mae Securities may consist of level payment mortgages for which funds have been
provided (and deposited in escrow accounts) by one or more Ginnie Mae Issuers,
their affiliates or other persons to reduce the borrowers' monthly payments
during the early years of such mortgage loans. Payments due the registered
holders of such "buy down" Ginnie Mae Securities, however, will be computed in
the same manner as payments derived from level payment non-buy down Ginnie Mae
Securities and will include amounts to be collected from both the borrowers and
the escrow accounts under the control of the Ginnie Mae Issuer. The obligations
of Ginnie Mae and the Ginnie Mae Issuer with respect to such buy down Ginnie Mae
Security will be the same as with respect to non-buy down Ginnie Mae
Securities.]
The Underlying Agency Securities had an aggregate outstanding principal
balance of approximately [$], pass-through rates of [%] and a weighted average
remaining term to stated maturity of approximately [_____] months as of the
Reference Date.
[INSERT ADDITIONAL DESCRIPTION OF UNDERLYING AGENCY SECURITIES AS
APPROPRIATE]
A Current Report on Form 8-K will be available to purchasers of the Offered
Certificates and will be filed, together with the Trust Agreement, with the
Securities and Exchange Commission within fifteen days after the initial
issuance of the Offered Certificates.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL
The yield to maturity and the aggregate amount of distributions on the
Offered Certificates will be affected by the rate and timing of principal
payments on the Underlying Agency Securities, which in turn will be affected by
the rate and timing of principal payments on the Mortgage Loans. Such yield may
be adversely affected by a higher or lower than anticipated rate of principal
payments on the Mortgage Loans in the Trust Fund. The rate of principal payments
on such Mortgage Loans will in turn be affected by the amortization schedules of
the Mortgage Loans, the rate and timing of principal prepayments thereon by the
Mortgagors and liquidations of defaulted Mortgage Loans. The timing of changes
in the rate of prepayments and liquidations of the Mortgage Loans may affect the
yield to an investor, even if the average rate of principal payments experienced
over time is consistent with an investor's expectation. Since the rate and
timing of principal payments on
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<PAGE>
the Mortgage Loans will depend on future events and on a variety of factors, no
assurance can be given as to such rate or the timing of principal payments on
the Offered Certificates.
The Mortgage Loans generally may be prepaid by the Mortgagors at any time
without payment of any prepayment fee or penalty. The Mortgage Loans generally
contain due-on-sale clauses. Prepayments (to the extent of distributions thereof
on the related Underlying Agency Securities) and liquidations of the Mortgage
Loans will result in distributions to holders of the Offered Certificates of
principal amounts which would otherwise be distributed over the remaining terms
of the Mortgage Loans. Factors affecting prepayment of mortgage loans include
changes in mortgagors' housing needs, job transfers, unemployment, mortgagors'
net equity in the mortgaged properties, changes in the value of the mortgaged
properties, mortgage market interest rates, solicitations and servicing
decisions. In addition, if prevailing mortgage rates fall significantly below
the Mortgage Rates on the Mortgage Loans, the rate of prepayments (including
refinancings) would be expected to increase. Conversely, if prevailing mortgage
rates rise significantly above the Mortgage Rates on the Mortgage Loans, the
rate of prepayment on the Mortgage Loans would be expected to decrease.
The yield to maturity of the Offered Certificates will depend on the price
paid by the holders of the Offered Certificates and the related Pass-Through
Rate. The extent to which the yield to maturity of an Offered Certificate is
sensitive to prepayments will depend, in part, upon the degree to which it is
purchased at a discount or premium. In general, if a class of Offered
Certificates is purchased at a premium and principal distributions thereon occur
at a rate faster than anticipated at the time of purchase, the investor's actual
yield to maturity will be lower than that assumed at the time of purchase.
Conversely, if a class of Offered Certificates is purchased at a discount and
principal distributions thereon occur at a rate slower than that assumed at the
time of purchase, the investor's actual yield to maturity will be lower than
that assumed at the time of purchase.
The yield to maturity on the Offered Certificates will be less that the
yield that would otherwise be produced by the applicable Pass-Through Rate and
the applicable purchase price because, while interest on the Mortgage Loans will
accrue monthly and will be payable of the first day of each month, distributions
on the Underlying Agency Certificates will be made on the [15th][20th] day of
each month (or, if such day is not a business day, the next business day) and
distributions on the Offered Certificates will not be made until the [third]
business day following such distribution date.
Weighted average life refers to the average amount of time that will elapse
from the date of issuance of a security to the date of distribution to the
investor of each dollar distributed in reduction of principal of such security
(assuming no losses). The weighted average life of the Offered Certificates will
be influenced by, among other things, the rate at which principal of the
Mortgage Loans is paid, which may be in the form of scheduled amortization,
prepayments or liquidations.
The assumed final Distribution Date with respect to each class of the
Offered Certificates is [__________ __, 20__] which is the Distribution Date
[immediately] [____
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<PAGE>
months] following the latest scheduled maturity date for any Mortgage Loan. No
event of default, change in the priorities for distribution among the various
classes or other provisions under the Trust Agreement will arise or become
applicable solely by reason of the failure to retire the entire Certificate
Principal Balance of any class of Offered Certificates on or before its assumed
final Distribution Date.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement, the
standard prepayment assumption ("SPA"), represents an assumed rate of prepayment
each month relative to the then outstanding principal balance of a pool of new
mortgage loans. A prepayment assumption of 100% SPA assumes constant prepayment
rates of 0.2% per annum of the then outstanding principal balance of such
mortgage loans in the first month of the life of the mortgage loans and an
additional 0.2% per annum in each month thereafter until the thirtieth month.
Beginning in the thirtieth month and in each month thereafter during the life of
the mortgage loans, 100% SPA assumes a constant prepayment rate of 6% per annum
each month. As used in the table below, "0% SPA" assumes prepayment rates equal
to 0% of SPA (i.e., no prepayments). Correspondingly, "[%] SPA" assumes
prepayment rates equal to [%] of SPA, and so forth. SPA does not purport to be a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Loans.
As described herein under "CERTAIN FEDERAL INCOME TAX CONSEQUENCES," the
prepayment assumption with respect to the Underlying Agency Securities that will
be used in determining the rate of accrued original issue discount, market
discount and premium, if any, on the Offered Certificates for federal income tax
purposes will be [%] SPA.
MODELING ASSUMPTIONS
The table set forth below entitled "Percent of Initial Certificate
Principal Balance Outstanding at the Following Percentage of SPA" has been
prepared on the basis of certain assumptions as described below (the "Modeling
Assumptions") regarding the weighted average characteristics of the Mortgage
Loans that are included in the Mortgage Pools and the performance thereof.
Modeling Assumptions include among other things, that as of the Reference Date,
the characteristics of the Mortgage Loans in each respective Mortgage Pool and
the Pass-Through Rate for the related Underlying Agency Securities are as set
forth in the following table:
<TABLE>
<CAPTION>
Aggregate
Outstanding
Principal Balance
of the Weighted Average Weighted Average
Series Mortgage Loans Mortgage Rate Servicing Fee
$__________ _____% _____%
<S> <C> <C> <C>
</TABLE>
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<PAGE>
Pass-Through
Weighted Weighted Rate on the
Average Average Term Underlying
Original Term to Scheduled Maturity/(1)/ Agency
Series to Maturity/(1)/ Securities
Aggregate $__________
- -------------
(1) In months.
In addition, the Modeling Assumptions, among other things, assume that: (i)
the Underlying Agency Security Principal Balance is [$]; (ii) the scheduled
monthly payment for a Mortgage Loan in each respective Mortgage Pool has been
based on its outstanding balance, interest rate and term to scheduled maturity,
such that the Mortgage Loan will amortize in amounts sufficient for repayment
thereof over its remaining term to maturity; (iii) the [Ginnie Mae Issuer] will
not repurchase any Mortgage Loan or exercise any option to purchase the
remaining Mortgage Loans in any Mortgage Pool, and neither the Certificate
Administrator nor the Depositor will exercise any option to purchase the
Underlying Agency Securities and thereby cause a termination of the Trust Fund;
(iv) there are no delinquencies on the Mortgage Loans, and principal payments on
the Mortgage Loans will be timely received together with prepayments, if any, at
the respective constant percentages of SPA set forth in the table; (v) there is
no Prepayment Interest Shortfall or any other interest shortfall in any month;
(vi) as of the date of issuance of the Offered Certificates, the Underlying
Agency Securities are as described herein under "DESCRIPTION OF THE UNDERLYING
AGENCY SECURITIES"; (vii) payments on the Offered Certificates will be received
on the 28th day of each month, commencing [__________ __, 199_]; (viii) payments
on the Mortgage Loans earn no reinvestment return; (ix) there are no additional
ongoing Trust Fund expenses payable out of the Trust Fund; and (x) the Offered
Certificates will be purchased on [__________ __, 19__].
The actual characteristics and performance of the Mortgage Loans differ
from the Modeling Assumptions used in constructing the table set forth below,
which is hypothetical in nature and is provided only to give a general sense of
how the principal cash flows might behave under varying prepayment scenarios.
For example, it is very unlikely that the Mortgage Loans will prepay at a
constant level of SPA until maturity or that all of the
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Mortgage Loans will prepay at the same level of SPA. Moreover, the diverse
remaining terms to maturity of the Mortgage Loans could produce slower or faster
principal distributions than indicated in the table at the various constant
percentages of SPA specified, even if the weighted average remaining term to
maturity of the Mortgage Loans is as assumed. Any difference between the
Modeling Assumptions and the actual characteristics and performance of the
Mortgage Loans, or actual prepayment or loss experience, will affect the
percentages of initial Certificate Principal Balances outstanding over time and
the weighted average lives of the classes of Offered Certificates.
Subject to the foregoing discussion and the Modeling Assumptions, the
following table indicates the weighted average lives of the Class A-1, Class A-2
and Class A-3 Certificates, and sets forth the percentages of the initial
Certificate Principal Balance of each such Class A-1, Class A-2 and Class A-3
Certificate that would be outstanding after each of the dates shown at various
percentages of SPA.
Percent of Initial Certificate Principal Balance
Outstanding at the Following Percentages of SPA
<TABLE>
<CAPTION>
Class A-1 Class A-2 Class A-3
<S> <C> <C> <C>
Distribution 0% __% __% __% __% 0% __% __% __% __% 0% __% __% __% __%
Date
Initial
Percentage*
Weighted
Average
Life in Years**
- --------------------
</TABLE>
* Indicates a number that is greater than zero but less than 0.5%.
** The weighted average life of a Certificate of any class is determined by
(i) multiplying the amount of each net distribution in reduction of
Certificate Principal Balance by the number of years from the date of
issuance of the Certificate to the related Distribution Date, (ii) adding
the results, and (iii) dividing the sum by the aggregate of the net
distributions described in clause (i) above.
This table has been prepared based on the Modeling Assumptions (including
the assumptions regarding the characteristics and performance of the Mortgage
Loans, which differ from the actual characteristics and performance thereof) and
should be read in conjunction therewith.
FIXED STRIP CERTIFICATE YIELD CONSIDERATIONS
The yield to maturity on each class of the Fixed Strip Certificates will be
extremely sensitive to the rate and timing of receipt of principal payments on
the Underlying Agency Securities, which in turn will be affected by the rate and
timing of principal payments
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<PAGE>
(including prepayments, defaults and liquidations) on the Mortgage Loans
included in the corresponding Mortgage Pools, which rate may fluctuate
significantly over time.
The following table indicates the sensitivity of the yield to maturity on
each class of the Fixed Strip Certificates to various constant rates of
prepayment by projecting the monthly aggregate payments of interest on the Fixed
Strip Certificates and computing the corresponding pre-tax yields to maturity on
a corporate bond equivalent basis, based on the Modeling Assumptions including
the assumptions regarding the characteristics and performance of the Mortgage
Loans included in the corresponding Mortgage Pools which differ from the actual
characteristics and performance thereof, and assuming further that the Pass-
Through Rate and Notional Amount on the Fixed Strip Certificates are as set
forth herein. Any differences between the Modeling Assumptions and the actual
characteristics and performance of the corresponding Mortgage Loans may result
in yields being different from those shown in such table. Discrepancies between
assumed and actual characteristics and performance underscore the hypothetical
nature of the table, which is provided only to give a general sense of the
sensitivity of yields in varying prepayment scenarios.
Pre-Tax Yield to Maturity of the Fixed Strip Certificates
at the Following Percentages of SPA
<TABLE>
<S> <C> <C> <C> <C> <C>
Assumed Purchase Price 0% [___]% [___]% [___]% [___]%
$[__________] [___]% [___]% [___]% [___]% [___]%
</TABLE>
Each pre-tax yield to maturity set forth in the preceding table was
calculated by determining the monthly discount rate which, when applied to the
assumed stream of cash flows to be paid on the Fixed Strip Certificates, would
cause the discounted present value of such assumed stream of cash flows to equal
the assumed purchase price listed in the table for such class of Fixed Strip
Certificates. Accrued interest is included in the purchase prices shown and is
used in computing the corporate bond equivalent yields shown. These yields do
not take into account the different interest rates at which investors may be
able to reinvest funds received by them as distributions on the Fixed Strip
Certificates, and thus do not reflect the return on any investment in the Fixed
Strip Certificates when any reinvestment rates other than the discount rates are
considered.
Notwithstanding the assumed prepayment rates reflected in the preceding
table, it is highly unlikely that the Mortgage Loans included in the
corresponding Mortgage Pools will be prepaid according to one particular
pattern. For this reason, and because the timing of cash flows is critical to
determining yields, the pre-tax yields to maturity on the Fixed Strip
Certificates are likely to differ from those shown in the table, even if all of
the corresponding Mortgage Loans prepay at the indicated constant percentages of
SPA over any given time period or over the entire life of the Offered
Certificates.
There can be no assurance that the corresponding Mortgage Loans will prepay
at any particular rate or that the yield on the Fixed Strip Certificates will
conform to the yields
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<PAGE>
described herein. Moreover, the various remaining terms to maturity of the
corresponding Mortgage Loans could produce slower or faster principal
distributions than indicated in the preceding table at the various constant
percentages of SPA specified, even if the weighted average remaining term to
maturity of the corresponding Mortgage Loans is as assumed. Investors are urged
to make their investment decisions based on their determinations as to
anticipated rates of prepayment under a variety of scenarios. Investors in the
Fixed Strip Certificates should fully consider the risk that a rapid rate of
prepayments on the Mortgage Loans could result in the failure of such investors
to fully recover their investments.
ADDITIONAL YIELD CONSIDERATIONS APPLICABLE SOLELY TO THE RESIDUAL
CERTIFICATES
The Residual Certificateholders' after-tax rate of return on their Residual
Certificates will reflect their pre-tax rate of return, reduced by the taxes
required to be paid with respect to the Residual Certificates. Holders of
Residual Certificates may have tax liabilities with respect to their Residual
Certificates during the early years of the Trust Fund's term that substantially
exceed any distributions payable thereon during any such period. In addition,
holders of Residual Certificates may have tax liabilities with respect to their
Residual Certificates the present value of which substantially exceeds the
present value of distributions payable thereon and of any tax benefits that may
arise with respect thereto. Accordingly, the after-tax rate of return on the
Residual Certificates may be negative or may otherwise be significantly
adversely affected. The timing and amount of taxable income attributable to the
Residual Certificates will depend on, among other things, the timing and amounts
of prepayments and losses experienced with respect to the Mortgage Loans
underlying the Underlying Agency Securities.
The Residual Certificateholders should consult their tax advisors as to the
effect of taxes and the receipt of any payments made to such holders in
connection with the purchase of the Residual Certificates on after-tax rates of
return on the Residual Certificates. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES" herein.
TRUST AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Trust Agreement (the "Trust
Agreement"), dated as of [__________ __, 199_], among the Depositor, the
Certificate Administrator, and [____________________________________], as
Trustee. Reference is made to the Prospectus for important information in
addition to that set forth herein regarding the terms and conditions of the
Trust Agreement and the Offered Certificates. The Offered Certificates will be
transferable and exchangeable at the corporate trust office of the Trustee,
which will serve as Certificate Registrar and Paying Agent. The Depositor will
provide a prospective or actual Certificateholder without charge, on written
request, a copy of the Trust Agreement (without exhibits). Requests should be
addressed to the
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<PAGE>
President, Southpoint Structured Assets, Inc., 50 North Front Street, Memphis,
Tennessee 38103.
THE CERTIFICATE ADMINISTRATOR
[__________] will act as certificate administrator with respect to the
Offered Certificates pursuant to the Trust Agreement.
ASSIGNMENT OF THE UNDERLYING AGENCY SECURITIES
On the Delivery Date, the Depositor will deliver to the Trustee, with
respect to each class of Underlying Agency Securities, the Certificate for such
class registered in the name of the Trustee, evidencing the entire interest in
such class. The Trustee will be entitled to receive distributions in respect of
each Underlying Agency Security beginning with the distributions thereon in
[__________, 199_]. A Certificate Account will be established as part of the
Trust Fund, which shall be an Eligible Account as described in the Prospectus
under "Description of the Certificates--Payments on Underlying Securities," into
which the Trustee shall deposit all amounts received as distributions on the
Underlying Agency Securities (net of the Servicing Fee described below), pending
distributions on the Offered Certificates on each Distribution Date.
COMPENSATION OF CERTIFICATE ADMINISTRATOR
The primary compensation to be paid to the Certificate Administrator in
respect of its certificate administration activities in respect of the Offered
Certificates pursuant to the Trust Agreement will be [%] per annum of the
aggregate outstanding Certificate Principal Balance of the Underlying Agency
Securities (the "Servicing Fee"), payable monthly out of the interest
distributions on such Underlying Agency Securities. The Certificate
Administrator is obligated to pay certain ongoing expenses associated with the
Trust Fund and incurred by the Certificate Administrator in connection with its
responsibilities under the Trust Agreement.
ACTIONS IN RESPECT OF THE UNDERLYING AGENCY SECURITIES
If at any time the Trustee, in its capacity as the registered holder of the
Underlying Agency Securities, is requested to take any action or to give any
consent, approval or waiver, the Trust Agreement provides that the Trustee, in
its capacity as holder of the Underlying Agency Securities, may take action in
connection with the enforcement of any rights and remedies available to it in
such capacity with respect thereto, will promptly notify all of the holders of
the Offered Certificates and will act only in accordance with the written
directions of holders of the Offered Certificates evidencing at least 51% of the
voting rights.
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<PAGE>
VOTING RIGHTS
Certain actions specified in the Prospectus that may be taken by holders of
Offered Certificates evidencing a specified percentage of all undivided
interests in the Trust Fund may be taken by holders of Offered Certificates
entitled in the aggregate to such percentage of the voting rights. [____]% of
all voting rights will be allocated among all holders of the Class A-1, Class A-
2 and Class A-3 Certificates in proportion to their then-outstanding Certificate
Principal Balances and [____]% and [____]% of all voting rights will be
allocated among holders of the Class S Certificates and Residual Certificates,
respectively, in proportion to the Percentage Interests (as defined in the
Prospectus) evidenced by their respective Certificates. The Trust Agreement
will be subject to amendment without the consent of the holders of the Residual
Certificates in certain circumstances.
TERMINATION
Either the Certificate Administrator or the Depositor may, at its option,
repurchase from the Trust Fund all of the Underlying Agency Securities remaining
in such Trust Fund and other assets thereof, and thereby effect early retirement
of the Offered Certificates at such time as the aggregate of the Certificate
Principal Balances of such Underlying Agency Securities is less than [____]% of
the aggregate of the Certificate Principal Balances of the Underlying Agency
Securities as of the Closing Date. In the event such option is exercised, the
purchase price distributed with respect to each of the Offered Certificates will
be 100% of its then outstanding Certificate Principal Balance plus interest
thereon at the Pass-Through Rate.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of certain anticipated material
federal income tax consequences of the purchase, ownership and disposition of
the Certificates offered hereunder. This discussion is directed solely to
Certificateholders that hold the Certificates as capital assets within the
meaning of Section 1221 of the Code and does not purport to discuss all federal
income tax consequences that may be applicable to particular categories of
investors, some of which (such as banks, insurance companies and foreign
investors) may be subject to special rules. In addition, the authorities on
which this discussion, and the opinion referred to below, are based are subject
to change or differing interpretations, which could apply retroactively.
Taxpayers and preparers of tax returns (including those filed by any REMIC or
other issuer) should be aware that under applicable Treasury regulations a
provider of advice on specific issues of law is not considered an income tax
return preparer unless the advice (i) is given with respect to events that have
occurred at the time the advice is rendered and is not given with respect to the
consequences of contemplated actions, and (ii) is directly relevant to the
determination of an entry on a tax return. Accordingly, taxpayers should consult
their tax advisors and tax return preparers regarding the preparation of any
item on a tax return, even where the anticipated tax treatment has been
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<PAGE>
discussed herein or in a Prospectus Supplement. In addition to the federal
income tax consequences described herein, potential investors should consider
the state and local tax consequences, if any, of the purchase, ownership and
disposition of the Certificates. See "State and Other Tax Consequences."
Certificateholders are advised to consult their tax advisors concerning the
federal, state, local or other tax consequences to them of the purchase,
ownership and disposition of the Certificates offered hereunder.
The following discussion addresses certificates (the "REMIC Certificates")
representing interests in a Trust Fund, or a portion thereof, which the
Certificate Administrator will covenant to elect to have treated as a REMIC
under Sections 860A through 860G (the "REMIC Provisions") of the Code. The
Prospectus Supplement for each series of Certificates will indicate whether a
REMIC election (or elections) will be made for the related Trust Fund and, if
such an election is to be made, will identify all "regular interests" and
"residual interests" in the REMIC. If a REMIC election will not be made for a
Trust Fund, the federal income consequences of the purchase, ownership and
disposition of the related Certificates will be set forth in the related
Prospectus Supplement. For purposes of this tax discussion, references to a
"Certificateholder" or a "holder" are to the beneficial owner of a Certificate.
The following discussion is based in part upon the rules governing original
issue discount that are set forth in Sections 1271 through 1273 and Section 1275
of the Code and in the Treasury regulations issued thereunder (the "OID
Regulations"), and in part upon the REMIC Provisions and the Treasury
regulations issued thereunder (the "REMIC Regulations"). The OID Regulations do
not adequately address certain issues relevant to, and in some instances provide
that they are not applicable to, securities such as the Certificates.
REMICs
Classification of REMICs
Upon the issuance of each series of REMIC Certificates, Chapman and Cutler,
counsel to the Depositor, will deliver their opinion generally to the effect
that, assuming compliance with all provisions of the related Trust Agreement,
the related Trust Fund (or each applicable portion thereof) will qualify as a
REMIC and the REMIC Certificates offered with respect thereto will be considered
to evidence ownership of "regular interests" ("REMIC Regular Certificates") or
"residual interests" ("REMIC Residual Certificates") in that REMIC within the
meaning of the REMIC Provisions.
If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for such status during any taxable
year, the Code provides that the entity will not be treated as a REMIC for such
year and thereafter. In that event, such entity may be taxable as a separate
corporation under Treasury regulations, and the related REMIC Certificates may
not be accorded the status or given the tax treatment described below. Although
the Code authorizes the Treasury Department to issue regulations providing
relief in the event of an inadvertent termination of REMIC status, no
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<PAGE>
such regulations have been issued. Any such relief, moreover, may be accompanied
by sanctions, such as the imposition of a corporate tax on all or a portion of
the Trust Fund's income for the period in which the requirements for such status
are not satisfied. The Trust Agreement, with respect to each REMIC will include
provisions designed to maintain the Trust Fund's status as a REMIC under the
REMIC Provisions. It is not anticipated that the status of any Trust Fund as a
REMIC will be terminated.
Taxation of Owners of REMIC Regular Certificates
General. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, holders of REMIC Regular Certificates that otherwise report income
under a cash method of accounting will be required to report income with respect
to REMIC Regular Certificates under an accrual method.
Original Issue Discount. Certain REMIC Regular Certificates may be issued
with "original issue discount" within the meaning of Section 1273(a) of the
Code. Any holders of REMIC Regular Certificates issued with original issue
discount generally will be required to include original issue discount in income
as it accrues, in accordance with the method described below, in advance of the
receipt of the cash attributable to such income. In addition, Section
1272(a)(6) of the Code provides special rules applicable to REMIC Regular
Certificates and certain other debt instruments issued with original issue
discount. Regulations have not been issued under that section.
The Code requires that a prepayment assumption be used with respect to
Mortgage Collateral held by a REMIC in computing the accrual of original issue
discount on REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of such discount to
reflect differences between the actual prepayment rate and the prepayment
assumption. The prepayment assumption is to be determined in a manner prescribed
in Treasury regulations; as noted above, those regulations have not been issued.
The Conference Committee Report (the "Committee Report") accompanying the Tax
Reform Act of 1986 indicates that the regulations will provide that the
prepayment assumption used with respect to a REMIC Regular Certificate must be
the same as that used in pricing the initial offering of such REMIC Regular
Certificate. The Prepayment Assumption used by the Certificate Administrator in
reporting original issue discount for each series of REMIC Regular Certificates
will be consistent with this standard and will be disclosed in the related
Prospectus Supplement. However, neither the Depositor nor the Certificate
Administrator will make any representation that the Mortgage Collateral will in
fact prepay at a rate conforming to the Prepayment Assumption or at any other
rate.
The original issue discount, if any, on a REMIC Regular Certificate will be
the excess of its stated redemption price at maturity over its issue price. The
issue price of a particular class of REMIC Regular Certificates will be the
initial offering price at which a substantial amount of REMIC Regular
Certificates of that class is sold (excluding sales to bond houses, brokers and
underwriters). If less than a substantial amount of a particular class of REMIC
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<PAGE>
Regular Certificates is sold for cash on or prior to the date of their initial
issuance (the "Closing Date"), the issue price for such class will be treated as
the fair market value of such class on the Closing Date. Under the OID
Regulations, the stated redemption price of a REMIC Regular Certificate is equal
to the total of all payments to be made on such Certificate other than
"qualified stated interest." "Qualified stated interest" includes interest that
is unconditionally payable at least annually at a single fixed rate, or in the
case of a variable rate debt instrument, at a "qualified floating rate," an
"objective rate," a combination of a single fixed rate and one or more
"qualified floating rates" or one "qualified inverse floating rate," or a
combination of "qualified floating rates" that generally does not operate in a
manner that accelerates or defers interest payments on such REMIC Regular
Certificate.
In the case of REMIC Regular Certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and the
timing of the inclusion thereof will vary according to the characteristics of
such REMIC Regular Certificates. If the original issue discount rules apply to
such Certificates, the related Prospectus Supplement will describe the manner in
which such rules will be applied by the Certificate Administrator with respect
to those Certificates in preparing information returns to the Certificateholders
and the Internal Revenue Service (the "IRS").
Certain classes of the REMIC Regular Certificates may provide for the first
interest payment with respect to such Certificates to be made more than one
month after the date of issuance, a period which is longer than the subsequent
monthly intervals between interest payments. Assuming the "accrual period" (as
defined herein) for original issue discount is each monthly period that begins
or ends on a Distribution Date, in some cases, as a consequence of this "long
first accrual period," some or all interest payments may be required to be
included in the stated redemption price of the REMIC Regular Certificate and
accounted for as original issue discount.
In addition, if the accrued interest to be paid on the first Distribution
Date is computed with respect to a period that begins prior to the Closing Date,
a portion of the purchase price paid for a REMIC Regular Certificate will
reflect such accrued interest. In such cases, information returns to the
Certificateholders and the IRS will be based on the position that the portion of
the purchase price paid for the interest accrued with respect to periods prior
to the Closing Date is treated as part of the overall cost of such REMIC Regular
Certificate (and not as a separate asset the cost of which is recovered entirely
out of interest received on the next Distribution Date) and that portion of the
interest paid on the first Distribution Date in excess of interest accrued for a
number of days corresponding to the number of days from the Closing Date to the
first Distribution Date should be included in the stated redemption price of
such REMIC Regular Certificate. However, the OID Regulations state that all or
some portion of such accrued interest may be treated as a separate asset the
cost of which is recovered entirely out of interest paid on the first
Distribution Date. It is unclear how an election to do so would be made under
the OID Regulations and whether such an election could be made unilaterally by a
Certificateholder.
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Notwithstanding the general definition of original issue discount, original
issue discount on a REMIC Regular Certificate will be considered to be de
minimis if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average life. For this purpose,
the weighted average life of the REMIC Regular Certificate is computed as the
sum of the amounts determined, as to each payment included in the stated
redemption price of such REMIC Regular Certificate, by multiplying (i) the
number of complete years (rounding down for partial years) from the issue date
until such payment is expected to be made (presumably taking into account the
Prepayment Assumption) by (ii) a fraction, the numerator of which is the amount
of the payment, and the denominator of which is the stated redemption price at
maturity of such REMIC Regular Certificate. Under the OID Regulations, original
issue discount of only a de minimis amount (other than de minimis original issue
discount attributable to a so-called "teaser" interest rate or an initial
interest holiday) will be included in income as each payment of stated principal
is made, based on the product of the total amount of such de minimis original
issue discount and a fraction, the numerator of which is the amount of such
principal payment and the denominator of which is the outstanding stated
principal amount of the REMIC Regular Certificate. The OID Regulations also
would permit a Certificateholder to elect to accrue de minimis original issue
discount into income currently based on a constant yield method. See "--Market
Discount" for a description of such election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess of a
de minimis amount, the holder of such Certificate must include in ordinary gross
income the sum of the "daily portions" of original issue discount for each day
during its taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In the case of
an original holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as follows.
As to each "accrual period," that is, unless otherwise stated in the
related Prospectus Supplement, each period that begins or ends on a date that
corresponds to a Distribution Date and begins on the first day following the
immediately preceding accrual period (or in the case of the first such period,
begins on the Closing Date), a calculation will be made of the portion of the
original issue discount that accrued during such accrual period. The portion of
original issue discount that accrues in any accrual period will equal the
excess, if any, of (i) the sum of (A) the present value, as of the end of the
accrual period, of all of the distributions remaining to be made on the REMIC
Regular Certificate, if any, in future periods and (B) the distributions made on
such REMIC Regular Certificate during the accrual period of amounts included in
the stated redemption price, over (ii) the adjusted issue price of such REMIC
Regular Certificate at the beginning of the accrual period. The present value of
the remaining distributions referred to in the preceding sentence will be
calculated (1) assuming that distributions on the REMIC Regular Certificate will
be received in future periods based on the Mortgage Collateral being prepaid at
a rate equal to the Prepayment Assumption and (2) using a discount rate equal to
the original yield to maturity of the Certificate. For these purposes, the
original yield to maturity of the Certificate will be calculated based on its
issue price and assuming that distributions on the Certificate will be made in
all accrual periods based on the Mortgage Collateral being prepaid at a rate
equal to the Prepayment Assumption. The adjusted issue price of a REMIC Regular
Certificate at
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the beginning of any accrual period will equal the issue price of such
Certificate, increased by the aggregate amount of original issue discount that
accrued with respect to such Certificate in prior accrual periods, and reduced
by the amount of any distributions made on such REMIC Regular Certificate in
prior accrual periods of amounts included in its stated redemption price. The
original issue discount accruing during any accrual period, computed as
described above, will be allocated ratably to each day during the accrual period
to determine the daily portion of original issue discount for such day.
The OID Regulations suggest that original issue discount with respect to
securities that represent multiple uncertificated REMIC regular interests, in
which ownership interests will be issued simultaneously to the same buyer and
which may be required under the related Trust Agreement to be transferred
together, should be computed on an aggregate method. In the absence of further
guidance from the IRS, original issue discount with respect to securities that
represent the ownership of multiple uncertificated REMIC regular interests will
be reported to the IRS and the Certificateholders on an aggregate method based
on a single overall constant yield and the prepayment assumption stated in the
related Prospectus Supplement, treating all such uncertificated regular
interests as a single debt instrument as set forth in the OID Regulations, so
long as the Trust Agreement requires that such uncertificated regular interests
be transferred together.
A subsequent purchaser of a REMIC Regular Certificate that purchases such
Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of any
original issue discount with respect to such Certificate. However, each such
daily portion will be reduced, if such cost is in excess of its "adjusted issue
price," in proportion to the ratio such excess bears to the aggregate original
issue discount remaining to be accrued on such REMIC Regular Certificate. The
adjusted issue price of a REMIC Regular Certificate on any given day equals the
sum of (i) the adjusted issue price (or, in the case of the first accrual
period, the issue price) of such Certificate at the beginning of the accrual
period which includes such day and (ii) the daily portions of original issue
discount for all days during such accrual period prior to such day.
Market Discount. A Certificateholder that purchases a REMIC Regular
Certificate at a market discount, that is, in the case of a REMIC Regular
Certificate issued without original issue discount, at a purchase price less
than its remaining stated principal amount, or in the case of a REMIC Regular
Certificate issued with original issue discount, at a purchase price less than
its adjusted issue price will recognize income upon receipt of each distribution
representing stated redemption price. In particular, under Section 1276 of the
Code such a Certificateholder generally will be required to allocate the portion
of each such distribution representing stated redemption price first to accrued
market discount not previously included in income, and to recognize ordinary
income to that extent. A Certificateholder may elect to include market discount
in income currently as it accrues rather than including it on a deferred basis
in accordance with the foregoing. If made, such election will apply to all
market discount bonds acquired by such Certificateholder on or after the first
day of the first taxable year to which such election applies. In addition, the
OID Regulations permit a Certificateholder to elect to accrue all interest,
discount (including de minimis market or
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original issue discount) and premium in income as interest, based on a constant
yield method. If such an election were made with respect to a REMIC Regular
Certificate with market discount, the Certificateholder would be deemed to have
made an election to include currently market discount in income with respect to
all other debt instruments having market discount that such Certificateholder
acquires during the taxable year of the election or thereafter, and possibly
previously acquired instruments. Similarly, a Certificateholder that made this
election for a Certificate that is acquired at a premium would be deemed to have
made an election to amortize bond premium with respect to all debt instruments
having amortizable bond premium that such Certificateholder owns or acquires.
See "--Premium." Each of these elections to accrue interest, discount and
premium with respect to a Certificate on a constant yield method or as interest
would be irrevocable.
However, market discount with respect to a REMIC Regular Certificate will
be considered to be de minimis for purposes of Section 1276 of the Code if such
market discount is less than 0.25% of the stated redemption price at maturity of
such REMIC Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. The Committee Report indicates
that in each accrual period market discount on REMIC Regular Certificates should
accrue, at the Certificateholder's option: (i) on the basis of a constant yield
method, (ii) in the case of a REMIC Regular Certificate issued without original
issue discount, in an amount that bears the same ratio to the total remaining
market discount as the stated interest paid in the accrual period bears to the
total amount of stated interest remaining to be paid on the REMIC Regular
Certificate as of the beginning of the accrual period, or (iii) in the case of a
REMIC Regular Certificate issued with original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the original
issue discount accrued in the accrual period bears to the total original issue
discount remaining on the REMIC Regular Certificate at the beginning of the
accrual period. Moreover, the Prepayment Assumption used in calculating the
accrual of original issue discount is to be used in calculating the accrual of
market discount. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a REMIC Regular Certificate purchased at a discount
in the secondary market.
To the extent that REMIC Regular Certificates provide for monthly or other
periodic distributions throughout their term, the effect of these rules may be
to require market discount to be includible in income at a rate that is not
significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of such Certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
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In addition, under Section 1277 of the Code, a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
Premium. A REMIC Regular Certificate purchased at a cost (excluding any
portion of such cost attributable to accrued qualified stated interest) greater
than its remaining stated redemption price will be considered to be purchased at
a premium. The holder of such a REMIC Regular Certificate may elect under
Section 171 of the Code to amortize such premium under the constant yield method
over the life of the Certificate. If made, such an election will apply to all
debt instruments having amortizable bond premium that the holder owns or
subsequently acquires. Amortizable premium will be treated as an offset to
interest income on the related REMIC Regular Certificate, rather than as a
separate interest deduction. The OID Regulations also permit Certificateholders
to elect to include all interest, discount and premium in income based on a
constant yield method, further treating the Certificateholder as having made the
election to amortize premium generally. See "--Market Discount." The Committee
Report states that the same rules that apply to accrual of market discount
(which rules will require use of a Prepayment Assumption in accruing market
discount with respect to REMIC Regular Certificates without regard to whether
such Certificates have original issue discount) will also apply in amortizing
bond premium under Section 171 of the Code.
Realized Losses. Under Section 166 of the Code, both corporate holders of
the REMIC Regular Certificates and noncorporate holders of the REMIC Regular
Certificates that acquire such Certificates in connection with a trade or
business should be allowed to deduct, as ordinary losses, any losses sustained
during a taxable year in which their Certificates become wholly or partially
worthless as the result of one or more Realized Losses on the Mortgage
Collateral. However, it appears that a noncorporate holder that does not acquire
a REMIC Regular Certificate in connection with a trade or business will not be
entitled to deduct a loss under Section 166 of the Code until such holder's
Certificate becomes wholly worthless (i.e., until its outstanding principal
balance has been reduced to zero) and that the loss will be characterized as a
short-term capital loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate, without
giving effect to any reductions in distributions attributable to defaults or
delinquencies on the Mortgage Collateral until it can be established that any
such reduction ultimately will not be recoverable. As a result, the amount of
taxable income reported in any period by the holder of a REMIC Regular
Certificate could exceed the amount of economic income actually realized by the
holder in such period. Although the holder of a REMIC Regular Certificate
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eventually will recognize a loss or reduction in income attributable to
previously accrued and included income that, as the result of a realized loss,
ultimately will not be realized, the law is unclear with respect to the timing
and character of such loss or reduction in income.
Taxation of Owners of REMIC Residual Certificates
General. As residual interests, the REMIC Residual Certificates will be
subject to tax rules that differ significantly from those that would apply if
the REMIC Residual Certificates were treated for federal income tax purposes as
direct ownership interests in the Mortgage Collateral or as debt instruments
issued by the REMIC.
A holder of a REMIC Residual Certificate generally will be required to
report its daily portion of the taxable income or, subject to the limitations
noted in this discussion, the net loss of the REMIC for each day during a
calendar quarter that such holder owned such REMIC Residual Certificate. For
this purpose, the taxable income or net loss of the REMIC will be allocated to
each day in the calendar quarter ratably using a "30 days per month/90 days per
quarter/360 days per year" convention unless otherwise disclosed in the related
Prospectus Supplement. The daily amounts will then be allocated among the REMIC
Residual Certificateholders in proportion to their respective ownership
interests on such day. Any amount included in the gross income or allowed as a
loss of any REMIC Residual Certificateholder by virtue of this allocation will
be treated as ordinary income or loss. The taxable income of the REMIC will be
determined under the rules described below in "-Taxable Income of the REMIC" and
will be taxable to the REMIC Residual Certificateholders without regard to the
timing or amount of cash distributions by the REMIC. Ordinary income derived
from REMIC Residual Certificates may be "portfolio income" for purposes of the
taxation of taxpayers subject to limitations under Section 469 of the Code on
the deductibility of "passive losses."
A holder of a REMIC Residual Certificate that purchased such Certificate
from a prior holder of such Certificate also will be required to report on its
federal income tax return amounts representing its daily portion of the taxable
income (or net loss) of the REMIC for each day that it holds such REMIC Residual
Certificate. These daily portions generally will equal the amounts of taxable
income or net loss determined as described above. The Committee Report indicates
that certain modifications of the general rules may be made, by regulations,
legislation or otherwise, to reduce (or increase) the income or loss of a holder
of a REMIC Residual Certificateholder that purchased such REMIC Residual
Certificate from a prior holder of such Certificate at a price greater than (or
less than) the adjusted basis (as defined herein) such REMIC Residual
Certificate would have had in the hands of an original holder of such
Certificate. The REMIC Regulations, however, do not provide for any such
modifications.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such REMIC Residual Certificate from the
purchaser of such Certificate will be taken into account in determining the
income of such holder for federal income tax purposes. Although it appears
likely that any such payment would be includible in income immediately upon its
receipt, the IRS might assert that such payment should be
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included in income over time according to an amortization schedule or according
to some other method. Because of the uncertainty concerning the treatment of
such payments, holders of REMIC Residual Certificates should consult their tax
advisors concerning the treatment of such payments for income tax purposes.
The amount of income REMIC Residual Certificateholders will be required to
report (or the tax liability associated with such income) may exceed the amount
of cash distributions received from the REMIC for the corresponding period.
Consequently, REMIC Residual Certificateholders should have other sources of
funds sufficient to pay any federal income taxes due as a result of their
ownership of REMIC Residual Certificates or unrelated deductions against which
income may be offset, subject to the rules relating to "excess inclusions,"
residual interests without "significant value" and "noneconomic" residual
interests discussed below. The fact that the tax liability associated with the
income allocated to REMIC Residual Certificateholders may exceed the cash
distributions received by such REMIC Residual Certificateholders for the
corresponding period may significantly adversely affect such REMIC Residual
Certificateholders' after-tax rate of return.
Taxable Income of the REMIC. The taxable income of the REMIC will equal
the income from the Mortgage Collateral and other assets of the REMIC plus any
cancellation of indebtedness income due to the allocation of realized losses to
REMIC Regular Certificates, less the deductions allowed to the REMIC for
interest (including original issue discount and reduced by the amortization of
any premium received on issuance) on the REMIC Regular Certificates (and any
other class of REMIC Certificates constituting "regular interests" in the REMIC
not offered hereby), amortization of any premium on the Mortgage Collateral, bad
debt deductions with respect to the Mortgage Collateral and, except as described
below, for servicing, administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to their fair market value
immediately after their transfer to the REMIC. For this purpose, the Certificate
Administrator intends to treat the fair market value of the Mortgage Collateral
as being equal to the aggregate issue prices of the REMIC Regular Certificates
and REMIC Residual Certificates. Such aggregate basis will be allocated among
the Mortgage Collateral collectively and the other assets of the REMIC in
proportion to their respective fair market values. The issue price of any REMIC
Certificates offered hereby will be determined in the manner described above
under "--Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount." Accordingly, if one or more classes of REMIC Certificates are
retained initially rather than sold, the Certificate Administrator may be
required to estimate the fair market value of such interests in order to
determine the basis of the REMIC in the Mortgage Collateral and other property
held by the REMIC.
Subject to the possible application of the de minimis rules, the method of
accrual by the REMIC of original issue discount income and market discount
income with respect to Mortgage Collateral that it holds will be equivalent to
the method of accruing original issue discount income for REMIC Regular
Certificateholders (that is, under the constant yield method taking into account
the Prepayment Assumption). However, a REMIC that acquires
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Mortgage Collateral at a market discount must include such discount in income
currently, as it accrues, on a constant interest basis. See "--Taxation of
Owners of REMIC Regular Certificates" above, which describes a method of
accruing discount income that is analogous to that required to be used by a
REMIC as to Mortgage Collateral with market discount that it holds.
An item of Mortgage Collateral will be deemed to have been acquired with
discount (or premium) to the extent that the REMIC's basis therein, determined
as described in the preceding paragraph, is less than (or greater than) its
stated redemption price. Any such discount will be includible in the income of
the REMIC as it accrues, in advance of receipt of the cash attributable to such
income, under a method similar to the method described above for accruing
original issue discount on the REMIC Regular Certificates. It is anticipated
that each REMIC will elect under Section 171 of the Code to amortize any premium
on the Mortgage Collateral. Premium on any item of Mortgage Collateral to which
such election applies may be amortized under a constant yield method, presumably
taking into account a Prepayment Assumption.
The REMIC will be allowed deductions for interest (including original issue
discount) on the REMIC Regular Certificates (including any other class of REMIC
Certificates constituting "regular interests" in the REMIC not offered hereby)
equal to the deductions that would be allowed if the REMIC Regular Certificates
(including any other class of REMIC Certificates constituting "regular
interests" in the REMIC not offered hereby) were indebtedness of the REMIC.
Original issue discount will be considered to accrue for this purpose as
described above under "--Taxation of Owners of REMIC Regular Certificates--
Original Issue Discount," except that the de minimis rule and the adjustments
for subsequent holders of REMIC Regular Certificates (including any other class
of Certificates constituting "regular interests" in the REMIC not offered
hereby) described therein will not apply.
If a class of REMIC Regular Certificates is issued at a price in excess of
the stated redemption price of such class (such excess, "Issue Premium"), the
net amount of interest deductions that are allowed the REMIC in each taxable
year with respect to the REMIC Regular Certificates of such class will be
reduced by an amount equal to the portion of the Issue Premium that is
considered to be amortized or repaid in that year. Although the matter is not
entirely certain, it is likely that Issue Premium would be amortized under a
constant yield method in a manner analogous to the method of accruing original
issue discount described above under "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount."
As a general rule, the taxable income of the REMIC will be determined in
the same manner as if the REMIC were an individual having the calendar year as
its taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See "--Prohibited Transactions and Other Possible REMIC
Taxes" below. Further, the limitation on miscellaneous itemized deductions
imposed on individuals by Section 67 of the Code (which allows such deductions
only to the extent they exceed in the aggregate two percent of the taxpayer's
adjusted gross income) will not be applied at the REMIC level so that the REMIC
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will be allowed deductions for servicing, administrative and other non-interest
expenses in determining its taxable income. All such expenses will be allocated
as a separate item to the holders of REMIC Certificates, subject to the
limitation of Section 67 of the Code. See "--Possible Pass-Through of
Miscellaneous Itemized Deductions" below. If the deductions allowed to the REMIC
exceed its gross income for a calendar quarter, such excess will be the net loss
for the REMIC for that calendar quarter.
Basis Rules, Net Losses and Distributions. The adjusted basis of a REMIC
Residual Certificate will be equal to the amount paid for such REMIC Residual
Certificate, increased by amounts included in the income of the related
Certificateholder and decreased (but not below zero) by distributions made, and
by net losses allocated, to such Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account any
net loss for any calendar quarter to the extent such net loss exceeds such REMIC
Residual Certificateholder's adjusted basis in its REMIC Residual Certificate as
of the close of such calendar quarter (determined without regard to such net
loss). Any loss that is not currently deductible by reason of this limitation
may be carried forward indefinitely to future calendar quarters and, subject to
the same limitation, may be used only to offset income from the REMIC Residual
Certificate. The ability of holders of REMIC Residual Certificates to deduct
net losses may be subject to additional limitations under the Code, as to which
such Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a non-
taxable return of capital to the extent it does not exceed the holder's adjusted
basis in such REMIC Residual Certificate. To the extent a distribution on a
REMIC Residual Certificate exceeds such adjusted basis, it will be treated as
gain from the sale of such REMIC Residual Certificate. Holders of certain REMIC
Residual Certificates may be entitled to distributions early in the term of the
related REMIC under circumstances in which their bases in such REMIC Residual
Certificates will not be sufficiently large that such distributions will be
treated as nontaxable returns of capital. Their bases in such REMIC Residual
Certificates will initially equal the amount paid for such REMIC Residual
Certificates and will be increased by their allocable shares of taxable income
of the Trust Fund. However, such basis increases may not occur until the end of
the calendar quarter, or perhaps the end of the calendar year, with respect to
which such REMIC taxable income is allocated to the holders of REMIC Residual
Certificates. To the extent such Certificateholders' initial bases are less
than the distributions to such REMIC Residual Certificateholders, and increases
in such initial bases either occur after such distributions or (together with
their initial bases) are less than the amount of such distributions, gain will
be recognized to such Certificateholders on such distributions and will be
treated as gain from the sale of their REMIC Residual Certificates.
The effect of these rules is that a Certificateholder may not amortize its
basis in a REMIC Residual Certificate, but may only recover its basis through
distributions, through the deduction of its share of any net losses of the REMIC
or upon the sale of its REMIC Residual Certificate. See "--Sales of REMIC
Certificates" below. For a discussion of possible modifications of these rules
that may require adjustments to income of a holder of a
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REMIC Residual Certificate other than an original holder in order to reflect any
difference between the cost of such REMIC Residual Certificate to such holder
and the adjusted basis such REMIC Residual Certificate would have had in the
hands of the original holder, see "--General" above.
Excess Inclusions. Any "excess inclusions" with respect to a REMIC
Residual Certificate will, with an exception discussed below for certain REMIC
Residual Certificates held by thrift institutions, be subject to federal income
tax in all events.
In general, the "excess inclusions" with respect to a REMIC Residual
Certificate for any calendar quarter will be the excess, if any, of (i) the sum
of the daily portions of REMIC taxable income allocable to such REMIC Residual
Certificate over (ii) the sum of the "daily accruals" (as defined herein) for
each day during such quarter that such REMIC Residual Certificate was held by
such REMIC Residual Certificateholder. The daily accruals of a REMIC Residual
Certificateholder will be determined by allocating to each day during a calendar
quarter its ratable portion of the product of the "adjusted issue price" of the
REMIC Residual Certificate at the beginning of the calendar quarter and 120% of
the "long-term federal rate" in effect on the Closing Date. For this purpose,
the adjusted issue price of a REMIC Residual Certificate as of the beginning of
any calendar quarter will be equal to the issue price of the REMIC Residual
Certificate, increased by the sum of the daily accruals for all prior quarters
and decreased (but not below zero) by any distributions made with respect to
such REMIC Residual Certificate before the beginning of such quarter. The issue
price of a REMIC Residual Certificate is the initial offering price to the
public (excluding bond houses and brokers) at which a substantial amount of the
REMIC Residual Certificates were sold.
For REMIC Residual Certificateholders, an excess inclusion (i) will not be
permitted to be offset by deductions, losses or loss carryovers from other
activities, (ii) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (iii) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the 30%
United States withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however, "--Foreign
Investors in REMIC Certificates" below.
As an exception to the general rules described above, thrift institutions
are allowed to offset their excess inclusions with unrelated deductions, losses
or loss carryovers, but only if the REMIC Residual Certificates are considered
to have "significant value." The REMIC Regulations provide that in order to be
treated as having significant value, the REMIC Residual Certificates must have
an aggregate issue price at least equal to two percent of the aggregate issue
prices of all of the related REMIC's Regular and Residual Certificates. In
addition, based on the Prepayment Assumption, the anticipated weighted average
life of the REMIC Residual Certificates must equal or exceed 20% of the
anticipated weighted average life of the REMIC and on any required or permitted
clean up calls or required qualified liquidation provided for in the REMIC's
organizational documents. Although it has not done so, the Treasury also has
authority to issue regulations that would treat the entire amount of income
accruing on a REMIC Residual Certificate as an excess inclusion if the
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REMIC Residual Certificates are considered not to have "significant value." The
related Prospectus Supplement will disclose whether offered REMIC Residual
Certificates may be considered to have "significant value" under the REMIC
Regulations; except that any disclosure that a REMIC Residual Certificate will
have "significant value" will be based upon certain assumptions, and the
Depositor will make no representation that a REMIC Residual Certificate will
have "significant value" for purposes of the above-described rules. The above-
described exception for thrift institutions applies only to those residual
interests held directly by, and deductions, losses and loss carryovers incurred
by, such institutions (and not by other members of an affiliated group of
corporations filing a consolidated income tax return) or by certain wholly-owned
direct subsidiaries of such institutions formed or operated exclusively in
connection with the organization and operation of one or more REMICs.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Section 857(b)(2) of the
Code, excluding any net capital gain), will be allocated among the shareholders
of such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and certain cooperatives; the
REMIC Regulations currently do not address this subject.
Noneconomic REMIC Residual Certificates. Under the REMIC Regulations,
transfers of "noneconomic" REMIC Residual Certificates will be disregarded for
all federal income tax purposes if "a significant purpose of the transfer was to
enable the transferor to impede the assessment or collection of tax." If such
transfer is disregarded, the purported transferor will continue to remain liable
for any taxes due with respect to the income on such "noneconomic" REMIC
Residual Certificate. The REMIC Regulations provide that a REMIC Residual
Certificate is noneconomic unless, based on the Prepayment Assumption and on any
required or permitted clean up calls, or required qualified liquidation provided
for in the REMIC's organizational documents, (1) the present value of the
expected future distributions (discounted using the "applicable federal rate"
for obligations whose term ends on the close of the last quarter in which excess
inclusions are expected to accrue with respect to the REMIC Residual
Certificate, which rate is computed and published monthly by the IRS) on the
REMIC Residual Certificate equals at least the present value of the expected tax
on the anticipated excess inclusions, and (2) the transferor reasonably expects
that the transferee will receive distributions with respect to the REMIC
Residual Certificate at or after the time the taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes.
Accordingly, all transfers of REMIC Residual Certificates that may constitute
noneconomic residual interests will be subject to certain restrictions under the
terms of the related Trust Agreement that are intended to reduce the possibility
of any such transfer being disregarded. Such restrictions will require each
party to a transfer to provide an affidavit that no purpose of such transfer is
to impede the assessment or collection of tax, including certain representations
as to the financial condition of the prospective transferee,
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as to which the transferor also is required to make a reasonable investigation
to determine such transferee's historic payment of its debts and ability to
continue to pay its debts as they come due in the future. Prior to purchasing a
REMIC Residual Certificate, prospective purchasers should consider the
possibility that a purported transfer of such REMIC Residual Certificate by such
a purchaser to another purchaser at some future date may be disregarded in
accordance with the above-described rules which would result in the retention of
tax liability by such purchaser.
The related Prospectus Supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations. Any such disclosure that a REMIC Residual Certificate
will not be considered "noneconomic" will be based upon certain assumptions, and
the Depositor will make no representation that a REMIC Residual Certificate will
not be considered "noneconomic" for purposes of the above-described rules. See
"--Foreign Investors in REMIC Certificates" below for additional restrictions
applicable to transfers of certain REMIC Residual Certificates to foreign
persons.
Mark-to-Market Rules. On December 28, 1993, the IRS released temporary
regulations (the "Mark-to-Market Regulations") relating to the requirement that
a securities dealer mark to market securities held for sale to customers. This
mark-to-market requirement applies to all securities owned by a dealer, except
to the extent that the dealer has specifically identified a security as held for
investment. The Mark-to-Market Regulations provide that for purposes of this
mark-to-market requirement, a "negative value" REMIC Residual Certificate is not
treated as a security and thus generally may not be marked to market. This
exclusion from the mark-to-market requirement is expanded to include all REMIC
Residual Certificates under proposed Treasury regulations published January 4,
1995 which provide that any REMIC Residual Certificate issued after January 4,
1995 will not be treated as a security and therefore generally may not be marked
to market. Prospective purchasers of a REMIC Residual Certificate should
consult their tax advisors regarding the possible application of the mark-to-
market requirement to REMIC Residual Certificates.
Possible Pass-Through of Miscellaneous Itemized Deductions. Fees and
expenses of a REMIC generally will be allocated to the holders of the related
REMIC Residual Certificates. The applicable Treasury regulations indicate,
however, that in the case of a REMIC that is similar to a single class grantor
trust, all or a portion of such fees and expenses should be allocated to the
holders of the related REMIC Regular Certificates. Unless otherwise stated in
the related Prospectus Supplement, such fees and expenses will be allocated to
holders of the related REMIC Residual Certificates in their entirety and not to
the holders of the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular Certificates
the holders of which receive an allocation of fees and expenses in accordance
with the preceding discussion, if any holder thereof is an individual, estate or
trust, or a "pass- through entity" beneficially owned by one or more
individuals, estates or trusts, (i) an amount equal to such individual's,
estate's or trust's share of such fees and expenses will be added to the gross
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income of such holder and (ii) such individual's, estate's or trust's share of
such fees and expenses will be treated as a miscellaneous itemized deduction
allowable subject to the limitation of Section 67 of the Code, which permits
such deductions only to the extent they exceed in the aggregate two percent of a
taxpayer's adjusted gross income. In addition, Section 68 of the Code provides
that the amount of itemized deductions otherwise allowable for an individual
whose adjusted gross income exceeds a specified amount will be reduced by the
lesser of (i) 3% of the excess of the individual's adjusted gross income over
such amount or (ii) 80% of the amount of itemized deductions otherwise allowable
for the taxable year. The amount of additional taxable income reportable by
REMIC Certificateholders that are subject to the limitations of either Section
67 or Section 68 of the Code may be substantial. Furthermore, in determining the
alternative minimum taxable income of such a holder of a REMIC Certificate that
is an individual, estate or trust, or a "pass-through entity" beneficially owned
by one or more individuals, estates or trusts, no deduction will be allowed for
such holder's allocable portion of servicing fees and other miscellaneous
itemized deductions of the REMIC, even though an amount equal to the amount of
such fees and other deductions will be included in such holder's gross income.
Accordingly, such REMIC Certificates may not be appropriate investments for
individuals, estates, or trusts, or pass-through entities beneficially owned by
one or more individuals, estates or trusts. Such prospective investors should
consult with their tax advisors prior to making an investment in such
Certificates.
Taxation of Investors who are Real Estate Investment Trusts
and/or Certain Financial Institutions
In general, the REMIC Certificates will be "qualifying real property loans"
within the meaning of Section 593(d) of the Code, "real estate assets" within
the meaning of Section 856(c)(5)(A) of the Code and assets described in Section
7701(a)(19)(C) of the Code in the same proportion that the assets of the REMIC
underlying such Certificates would be so treated. Moreover, if 95% or more of
the assets of the REMIC qualify for any of the foregoing treatments at all times
during a calendar year, the REMIC Certificates will qualify for the
corresponding status in their entirety for that calendar year. Interest
(including original issue discount) on the REMIC Regular Certificates and income
allocated to the class of REMIC Residual Certificates will be interest described
in Section 856(c)(3)(B) of the Code to the extent that such Certificates are
treated as "real estate assets" within the meaning of Section 856(c)(5)(A) of
the Code. The determination as to the percentage of the REMIC's assets that
constitute assets described in the foregoing sections of the Code will be made
with respect to each calendar quarter based on the average adjusted basis of
each category of the assets held by the REMIC during such calendar quarter. The
Certificate Administrator will report those determinations to Certificateholders
in the manner and at the times required by applicable Treasury regulations.
The assets of the REMIC will include, in addition to Underlying Securities,
payments on Mortgage Collateral held pending distribution on the REMIC
Certificates and property acquired by foreclosure held pending sale, and may
include amounts in reserve accounts. It is unclear whether property acquired by
foreclosure held pending sale and amounts in reserve accounts would be
considered to be part of the Underlying Securities, or whether
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such assets (to the extent not invested in assets described in the foregoing
sections) otherwise would receive the same treatment as the Underlying
Securities for purposes of all of the foregoing sections. In addition, in some
instances Underlying Securities may not be treated entirely as assets described
in the foregoing sections. If so, the related Prospectus Supplement will
describe the Underlying Securities that may not be so treated. The REMIC
Regulations do provide, however, that payments on Underlying Securities held
pending distribution are considered part of the Underlying Securities for
purposes of Sections 593(d) and 856(c)(5)(A) of the Code.
Tiered REMIC Structures
For certain series of REMIC Certificates, two or more separate elections
may be made to treat designated portions of the related Trust Fund as REMICs
("Tiered REMICs") for federal income tax purposes. Upon the issuance of any such
series of REMIC Certificates, Chapman and Cuter, counsel to the Depositor, will
deliver their opinion generally to the effect that, assuming compliance with all
provisions of the related Trust Agreement, the Tiered REMICs will each qualify
as a REMIC and the REMIC Certificates issued by the Tiered REMICs, respectively,
will be considered to evidence ownership of REMIC Regular Certificates or REMIC
Residual Certificates in the related REMIC within the meaning of the REMIC
Provisions.
Solely for purposes of determining whether the REMIC Certificates will be
"qualifying real property loans" under Section 593(d) of the Code, "real estate
assets" within the meaning of Section 856(c)(5)(A) of the Code, and "loans
secured by an interest in real property" under Section 7701(a)(19)(C) of the
Code, and whether the income on such Certificates is interest described in
Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
Sales of REMIC Certificates
If a REMIC Certificate is sold, the selling Certificateholder will
recognize gain or loss equal to the difference between the amount realized on
the sale and its adjusted basis in the REMIC Certificate. The adjusted basis of
a REMIC Regular Certificate generally will equal the cost of such REMIC Regular
Certificate to such Certificateholder, increased by income reported by such
Certificateholder with respect to such REMIC Regular Certificate (including
original issue discount and market discount income) and reduced (but not below
zero) by distributions on such REMIC Regular Certificate received by such
Certificateholder and by any amortized premium. The adjusted basis of a REMIC
Residual Certificate will be determined as described under "--Taxation of Owners
of REMIC Residual Certificates--Basis Rules, Net Losses and Distributions"
above. Except as described below, any such gain or loss generally will be
capital gain or loss. The Code as of the date of this Prospectus provides for a
top marginal tax rate of 39.6% for individuals and a maximum marginal rate for
long-term capital gains of individuals of 28%. No such rate differential exists
for corporations. In addition, the distinction between a capital gain or loss
and ordinary income or loss remains relevant for other purposes.
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Gain from the sale of a REMIC Regular Certificate that might otherwise be
capital gain will be treated as ordinary income to the extent such gain does not
exceed the excess, if any, of (i) the amount that would have been includible in
the seller's income with respect to such REMIC Regular Certificate had income
accrued thereon at a rate equal to 110% of the "applicable federal rate"
(generally, a rate based on an average of current yields on Treasury securities
having a maturity comparable to that of the Certificate, which rate is computed
and published monthly by the IRS), determined as of the date of purchase of such
REMIC Regular Certificate, over (ii) the amount of ordinary income actually
includible in the seller's income prior to such sale. In addition, gain
recognized on the sale of a REMIC Regular Certificate by a seller who purchased
such REMIC Regular Certificate at a market discount will be taxable as ordinary
income to the extent of any accrued and previously unrecognized market discount
that accrued during the period the Certificate was held. See "--Taxation of
Owners of REMIC Regular Certificates--Market Discount" above.
REMIC Certificates will be "evidences of indebtedness" within the meaning
of Section 582(c)(1) of the Code, so that gain or loss recognized from the sale
of a REMIC Certificate by a bank or thrift institution to which such section
applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such Certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in Certificates or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for the taxable year, for purposes
of the limitation on the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Except as may be provided in Treasury regulations yet to be issued, if the
seller of a REMIC Residual Certificate reacquires the Certificate, any other
residual interest in a REMIC or any similar interest in a "taxable mortgage
pool" (as defined in Section 7701(i) of the Code) within six months of the date
of such sale, the sale will be subject to the "wash sale" rules of Section 1091
of the Code. In that event, any loss realized by the REMIC Residual
Certificateholder on the sale will not be deductible, but instead will be added
to such REMIC Residual Certificateholder's adjusted basis in the newly-acquired
asset.
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Prohibited Transactions and Other Possible REMIC Taxes
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions" (the "Prohibited Transactions Tax"). In general,
subject to certain specified exceptions a prohibited transaction means the
disposition of an item of Mortgage Collateral, the receipt of income from a
source other than an item of Mortgage Collateral or certain other permitted
investments, the receipt of compensation for services, or gain from the
disposition of an asset purchased with the payments on the Mortgage Collateral
for temporary investment pending distribution on the REMIC Certificates. It is
not anticipated that any REMIC will engage in any prohibited transactions in
which it would recognize a material amount of net income.
In addition, certain contributions to a REMIC made after the day on which
the REMIC issues all of its interests could result in the imposition of a tax on
the REMIC equal to 100% of the value of the contributed property (the
"Contributions Tax"). Each Trust Agreement will include provisions designed to
prevent the acceptance of any contributions that would be subject to such tax.
REMICs also are subject to federal income tax at the highest corporate rate
on "net income from foreclosure property," determined by reference to the rules
applicable to real estate investment trusts. "Net income from foreclosure
property" generally means the excess of gain from the sale of a foreclosure
property that is inventory property and gross income from foreclosure property
other than qualifying rents and other qualifying income for a real estate
investment trust over the deductions allowed which are directly connected with
the production of income. Unless otherwise disclosed in the related Prospectus
Supplement, it is not anticipated that any REMIC will recognize "net income from
foreclosure property" subject to federal income tax.
Unless otherwise disclosed in the related Prospectus Supplement, it is not
anticipated that any material state or local income or franchise tax will be
imposed on any REMIC.
Unless otherwise stated in the related Prospectus Supplement, and to the
extent permitted by then applicable laws, any Prohibited Transactions Tax,
Contributions Tax, tax on "net income from foreclosure property" or state or
local income or franchise tax that may be imposed on the REMIC will be borne by
the related Certificate Administrator or the Trustee in either case out of its
own funds, provided that the Certificate Administrator or the Trustee, as the
case may be, has sufficient assets to do so, and provided further that such tax
arises out of a breach of the Certificate Administrator's or the Trustee's
obligations, as the case may be, under the related Trust Agreement and in
respect of compliance with applicable laws and regulations. Any such tax not
borne by the Certificate Administrator or the Trustee will be payable out of the
related Trust Fund resulting in a reduction in amounts payable to holders of the
related REMIC Certificates.
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Tax and Restrictions on Transfers of REMIC Residual Certificates to Certain
Organizations
If a REMIC Residual Certificate is transferred to a "disqualified
organization" (as defined below), a tax would be imposed in an amount
(determined under the REMIC Regulations) equal to the product of (i) the present
value (discounted using the "applicable federal rate" for obligations whose term
ends on the close of the last quarter in which excess inclusions are expected to
accrue with respect to the Certificate, which rate is computed and published
monthly by the IRS) of the total anticipated excess inclusions with respect to
such REMIC Residual Certificate for periods after the transfer and (ii) the
highest marginal federal income tax rate applicable to corporations. The
anticipated excess inclusions must be determined as of the date that the REMIC
Residual Certificate is transferred and must be based on events that have
occurred up to the time of such transfer, the Prepayment Assumption and any
required or permitted clean up calls or required liquidation provided for in the
REMIC's organizational documents. Such a tax generally would be imposed on the
transferor of the REMIC Residual Certificate, except that where such transfer is
through an agent for a disqualified organization, the tax would instead be
imposed on such agent. However, a transferor of a REMIC Residual Certificate
would in no event be liable for such tax with respect to a transfer if the
transferee furnishes to the transferor an affidavit that the transferee is not a
disqualified organization and, as of the time of the transfer, the transferor
does not have actual knowledge that such affidavit is false. Moreover, an entity
will not qualify as a REMIC unless there are reasonable arrangements designed to
ensure that (i) residual interests in such entity are not held by disqualified
organizations and (ii) information necessary for the application of the tax
described herein will be made available. Restrictions on the transfer of REMIC
Residual Certificates and certain other provisions that are intended to meet
this requirement will be included in the Trust Agreement, including provisions
(a) requiring any transferee of a REMIC Residual Certificate to provide an
affidavit representing that it is not a "disqualified organization" and is not
acquiring the REMIC Residual Certificate on behalf of a "disqualified
organization," undertaking to maintain such status and agreeing to obtain a
similar affidavit from any person to whom it shall transfer the REMIC Residual
Certificate, (b) providing that any transfer of a REMIC Residual Certificate to
a "disqualified person" shall be null and void and (c) granting to the
Certificate Administrator the right, without notice to the holder or any prior
holder, to sell to a purchaser of its choice any REMIC Residual Certificate that
shall become owned by a "disqualified organization" despite (a) and (b) above.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (i) the amount
of excess inclusions on the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by such disqualified organization and
(ii) the highest marginal federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for any period, however, if
each record holder of an interest in such pass-through entity furnishes to such
pass-through entity (i) such holder's social security number and a statement
under penalties of perjury that such social security number is that of the
record holder or (ii) a statement under penalties of perjury that such record
holder is not a disqualified organization.
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For these purposes, a "disqualified organization" means (i) the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing,
(ii) any organization (other than a cooperative described in Section 521 of the
Code) that is exempt from federal income tax, unless it is subject to the tax
imposed by Section 511 of the Code or (iii) any organization described in
Section 1381(a)(2)(C) of the Code. For these purposes, a "pass-through entity"
means any regulated investment company, real estate investment trust, trust,
partnership or certain other entities described in Section 860E(e)(6) of the
Code. In addition, a person holding an interest in a pass-through entity as a
nominee for another person will, with respect to such interest, be treated as a
pass-through entity.
Termination
A REMIC will terminate immediately after the Distribution Date following
receipt by the REMIC of the final payment in respect of the Mortgage Collateral
or upon a sale of the REMIC's assets following the adoption by the REMIC of a
plan of complete liquidation. The last distribution on a REMIC Regular
Certificate will be treated as a payment in retirement of a debt instrument. In
the case of a REMIC Residual Certificate, if the last distribution on such REMIC
Residual Certificate is less than the Certificateholder's adjusted basis in such
Certificate, such Certificateholder should be treated as realizing a loss equal
to the amount of such difference, and such loss may be treated as a capital
loss.
Reporting and Other Administrative Matters
Solely for purposes of the administrative provisions of the Code, the REMIC
will be treated as a partnership and holders of REMIC Residual Certificates will
be treated as partners. Unless otherwise stated in the related Prospectus
Supplement, the Certificate Administrator will file REMIC federal income tax
returns on behalf of the related REMIC and will be designated as and will act as
the "tax matters person" for the REMIC in all respects, and may hold a nominal
amount of REMIC Residual Certificates.
As the tax matters person, the Certificate Administrator subject to certain
notice requirements and various restrictions and limitations, generally will
have the authority to act on behalf of the REMIC and the holders of REMIC
Residual Certificates in connection with the administrative and judicial review
of items of income, deduction, gain or loss of the REMIC, as well as the REMIC's
classification. Holders of REMIC Residual Certificates generally will be
required to report such REMIC items consistently with their treatment on the
related REMIC's tax return and may in some circumstances be bound by a
settlement agreement between the Certificate Administrator as tax matters
person, and the IRS concerning any such REMIC item. Adjustments made to the
REMIC tax return may require a holder of a REMIC Residual Certificate to make
corresponding adjustments on its return, and an audit of the REMIC's tax return,
or the adjustments resulting from such an audit, could result in an audit of
such Certificateholder's return. No REMIC will be registered as a tax shelter
pursuant to Section 6111 of the Code because it is not anticipated that any
REMIC will have a net loss for any of the first five taxable years of its
existence. Any person that holds a REMIC Residual Certificate as a nominee for
another person may be
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required to furnish to the related REMIC, in a manner to be provided in Treasury
regulations, the name and address of such person and other information.
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be required
more frequently under Treasury regulations. These information reports generally
are required to be sent to individual holders of REMIC Regular Interests and the
IRS; holders of REMIC Regular Certificates that are corporations, trusts,
securities dealers and certain other non-individuals will be provided interest
and original issue discount income information and the information set forth in
the following paragraph upon request in accordance with the requirements of the
applicable regulations. The information must be provided by the later of 30 days
after the end of the quarter for which the information was requested, or two
weeks after the receipt of the request. The REMIC must also comply with rules
requiring a REMIC Regular Certificate issued with original issue discount to
disclose on its face certain information including the amount of original issue
discount and the issue date, and requiring such information to be reported to
the IRS. Reporting with respect to the REMIC Residual Certificates, including
income, excess inclusions, investment expenses and relevant information
regarding qualification of the REMIC's assets will be made as required under the
Treasury regulations, generally on a quarterly basis.
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular Certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method requires information relating to the holder's purchase
price that the Certificate Administrator will not have, such regulations only
require that information pertaining to the appropriate proportionate method of
accruing market discount be provided. See "--Taxation of Owners of REMIC Regular
Certificates Market Discount."
The responsibility for complying with the foregoing reporting rules will be
borne by the Certificate Administrator. Certificateholders may request any
information with respect to the returns described in Section 1.6049-7(e)(2) of
the Treasury regulations. Such request should be directed to the Certificate
Administrator at ____________________.
Backup Withholding with Respect to REMIC Certificates
Payments of interest and principal, as well as payments of proceeds from
the sale of REMIC Certificates, may be subject to the "backup withholding tax"
under Section 3406 of the Code at a rate of 31% if recipients of such payments
fail to furnish to the payor certain information, including their taxpayer
identification numbers, or otherwise fail to establish an exemption from such
tax. Any amounts deducted and withheld from a distribution to a recipient would
be allowed as a credit against such recipient's federal income tax. Furthermore,
certain penalties may be imposed by the IRS on a recipient of payments that is
required to supply information but that does not do so in the proper manner.
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Foreign Investors in REMIC Certificates
A REMIC Regular Certificateholder that is not a "United States person" and
is not subject to federal income tax as a result of any direct or indirect
connection to the United States in addition to its ownership of a REMIC Regular
Certificate will not be subject to United States federal income or withholding
tax in respect of a distribution on a REMIC Regular Certificate, provided that
the holder complies to the extent necessary with certain identification
requirements (including delivery of a statement, signed by the Certificateholder
under penalties of perjury, certifying that such Certificateholder is not a
United States person and providing the name and address of such
Certificateholder). For these purposes, "United States person" means a citizen
or resident of the United States, a corporation, partnership or other entity
created or organized in, or under the laws of, the United States or any
political subdivision thereof, or an estate or trust whose income from sources
without the United States is includible in gross income for United States
federal income tax purposes regardless of its connection with the conduct of a
trade or business within the United States. It is possible that the IRS may
assert that the foregoing tax exemption should not apply with respect to a REMIC
Regular Certificate held by a Certificateholder that owns directly or indirectly
a 10% or greater interest in the REMIC Residual Certificates. If the holder does
not qualify for exemption, distributions of interest, including distributions in
respect of accrued original issue discount, to such holder may be subject to a
tax rate of 30%, subject to reduction under any applicable tax treaty.
In addition, the foregoing rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on such United
States shareholder's allocable portion of the interest income received by such
controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate would not be included
in the estate of a non-resident alien individual and would not be subject to
United States estate taxes. However, Certificateholders who are non-resident
alien individuals should consult their tax advisors concerning this question.
Unless otherwise stated in the related Prospectus Supplement, transfers of
REMIC Residual Certificates to investors that are not United States persons will
be prohibited under the related Trust Agreement.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the state
and local tax consequences of the acquisition, ownership, and disposition of the
Certificates offered. State tax law may differ substantially from the
corresponding federal tax law, and the discussion above does not purport to
describe any aspect of the tax laws of any state or other jurisdiction.
Therefore, prospective investors should consult their tax advisors with respect
to the various tax consequences of investments in the Certificates offered
hereby.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the Code impose requirements on employee benefit plans (and
on certain other retirement plans and arrangements, including individual
retirement accounts and annuities, Keogh plans and collective investment funds
and separate accounts in which such plans, accounts or arrangements are
invested) (collectively, "Plans") subject to ERISA and Section 4975 of the Code
and on persons who are fiduciaries with respect to such Plans. Among other
things, ERISA requires that the assets of Plans be held in trust and that the
trustee, or other duly authorized fiduciary, have exclusive authority and
discretion to manage and control the assets of such Plans. ERISA also imposes
certain duties on persons who are fiduciaries of Plans. Under ERISA, any person
who exercises any authority or control respecting the management or disposition
of the assets of a Plan is considered to be a fiduciary of such Plan (subject to
certain exceptions not here relevant). In addition to the imposition of general
fiduciary standards of investment prudence and diversification, ERISA prohibits
a broad range of transactions ("Prohibited Transactions") involving Plan assets
and persons ("Parties in Interest") having certain specified relationships to a
Plan and imposes additional prohibitions where Parties in Interest are
fiduciaries with respect to such Plan. Section 4975 of the Code provides many
requirements and prohibitions similar to those under ERISA and applies excise
taxes on person engaged in Prohibited Transactions.
The United States Department of Labor (the "DOL") has issued regulations
concerning the definition of what constitutes the assets of a Plan (DOL Reg.
Section 2510.3-101, the "Plan Asset Regulations"). Under the Plan Asset
Regulations, the underlying assets and properties of corporations, partnerships
and certain other entities in which a Plan makes an "equity" investment could be
deemed for purposes of ERISA to be assets of the investing Plan in certain
circumstances. In such case, the fiduciary making such an investment for the
Plan could be deemed to have delegated his or her asset management
responsibility, and the underlying assets and properties could be subject to
ERISA reporting and disclosure. The Certificates of a Series will be treated as
"equity" for purposes of ERISA. Certain exceptions to the regulation may apply
in the case of a Plan's investment in the Certificates that constitute "equity"
investments, but the Depositor cannot predict in advance whether such exceptions
apply due to the factual nature of the conditions to be met. Accordingly,
because the Agency Securities may be deemed Plan assets of each Plan that
purchases such Certificates, an investment in such Certificates by a Plan might
give rise to a prohibited transaction under ERISA Section 406 and 407 and be
subject to an excise tax under Code Section 4975 unless a statutory or
administrative exemption applies.
DOL Prohibited Transaction Class Exemption 83-1 ("PTCE 83-1") exempts from
ERISA's prohibited transaction rules certain transactions relating to the
operation of residential mortgage pool investment trusts and the purchase, sale
and holding of "mortgage pool pass-through certificates" in the initial issuance
of such certificates. PTCE 83-1 permits, subject to certain conditions,
transactions which might otherwise be prohibited between Plans and Parties in
Interest with respect to those Plans involving the origination, maintenance and
termination of mortgage pools consisting of mortgage loans secured by first or
second mortgages or deeds of trust on single-family residential property, and
the
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<PAGE>
acquisition and holding of certain mortgage pool pass-through certificates
representing an interest in such mortgage pools by Plans.
PTCE 83-1 sets forth three general conditions which must be satisfied for
any transaction to be eligible for exemption: (i) the maintenance of a system of
insurance or other protection for the pooled mortgage loans and property
securing such loans, and for indemnifying certificateholders against reductions
in pass-through payments due to property damage or defaults in loan payments in
an amount not less than the greater of one percent of the aggregate principal
balance of all covered pooled mortgage loans or the principal balance of the
largest covered pooled mortgage loan; (ii) the existence of a pool trustee who
is not an affiliate of the pool sponsor; and (iii) a limitation on the amount of
the payments retained by the pool sponsor, together with other funds inuring to
its benefit, to not more than adequate consideration for selling the mortgage
loans plus reasonable compensation for services provided by the pool sponsor to
the mortgage pool.
Although the Trustee for any series of Certificates will be unaffiliated
with the Depositor, there can be no assurance that the system of insurance or
subordination will meet the general or specific conditions referred to above. In
addition, the nature of a Trust Fund's assets or the characteristics of one or
more classes of the related series of Certificates may not be included within
the scope of PTCE 83-1 or any other class exemption under ERISA. The Prospectus
Supplement will provide additional information with respect to the application
of ERISA and the Code to the related Certificates.
Several underwriters of mortgage-backed securities have applied for and
obtained ERISA prohibited transactions exemptions which are in some respects
broader than PTCE 83-1. Such exemptions can only apply to mortgage-backed
securities which, among other conditions, are sold in an offering with respect
to which such underwriter serves as the sole or a managing underwriter, or as a
selling or placement agent. Several other underwriters have applied for similar
exemptions.
Each Plan fiduciary who is responsible for making the investment decisions
whether to purchase or commit to purchase and to hold Certificates must make its
own determination as to whether the general and the specific conditions of PTCE
83-1 have been satisfied, or as to the availability of any other prohibited
transaction exemptions. Each Plan fiduciary should also determine whether, under
the general fiduciary standards of investment prudence and diversification, an
investment in the Certificates is appropriate for the Plan, taking into account
the overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
Any Plan proposing to invest in Certificates should consult with its
counsel to confirm that such investment will not result in a Prohibited
Transaction and will satisfy the other requirements of ERISA and the Code.
S-50
<PAGE>
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, dated as of [ ], 199[ ] (the "Underwriting Agreement"), the Depositor
as agreed to sell and [Morgan Keegan & Company, Inc. (an affiliate of the
Depositor)] [each of the Underwriters named below, including Morgan Keegan &
Company, Inc. (an affiliate of the Depositor)] (the "Underwriter[s]")[,] has
[severally] agreed to purchase, the [Certificates] [the principal amount of each
class of Certificates set forth below opposite its name].
<TABLE>
<CAPTION>
CLASS [ ] CLASS [ ] CLASS [ ]
<S> <C> <C> <C>
Morgan Keegan & Company, Inc. $ $ $
............................. --------- --------- ---------
Total................... $ $ $
========= ========= =========
</TABLE>
[Morgan Keegan & Company, Inc. has] [The several Underwriters have] agreed,
subject to the terms and conditions set forth in the Underwriting Agreement, to
purchase all Certificates offered hereby if any of such Certificates are
purchased. [In the event of default by any Underwriter, the Underwriting
Agreement provides that, in certain circumstances, the purchase commitments of
non-defaulting Underwriters may be increased or the Underwriting Agreement may
be terminated.]
The Depositor has been advised by the Underwriter[s] that [it] [they]
propose[s] to offer the Certificates from time to time in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. The Underwriter[s] 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[s] and
any purchasers of Certificates for whom they may act as agents. The
Underwriter[s] and any dealers that participate with the Underwriter[s] 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 Underwriting Agreement provides that the Depositor will indemnify the
Underwriter[s] against certain civil liabilities, including liabilities under
the Securities Act, or will contribute to payments the Underwriter[s] 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.
RATINGS
It is a condition to the issuance of the Certificates that the Certificates
be rated not lower than [specify ratings applicable to each class] by [Standard
& Poor's Corporation
S-51
<PAGE>
("Standard & Poor's")] [Moody's Investors Service, Inc. ("Moody's")] [Fitch
Investors Service, L.P. ("Fitch")] [and] [Duff & Phelps Credit Rating Company
("Duff & Phelps")] (the "Rating [Agency] [Agencies]"). 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
Underlying Agency Securities and any providers of credit enhancement, as well as
on the relative priorities of the Certificateholders of each class of the
Certificates with respect to collections and losses with respect to the
Underlying Agency 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 Underlying Agency
Securities, the corresponding effect on yield to investors, or whether investors
in the Class [ ] Certificates [specify class with Notional Amount] may fail to
recover fully their initial investment.
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 any other
security rating.
The Depositor has not requested a rating on the Certificates by any rating
agency other than the Rating [Agency] [Agencies]. 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 Rating [Agency]
[Agencies].
LEGAL OPINIONS
Certain legal matters relating to the Offered Certificates will be passed
upon for the Depositor by Chapman and Cutler, Chicago, Illinois.
LEGAL INVESTMENT MATTERS
[The Offered Certificates will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984, as amended
("SMMEA"), for so long as they are rated in one of the two highest rating
categories by at least one nationally recognized statistical rating
organization, and, as such, will be legal investments for certain entities to
the extent provided in SMMEA. SMMEA provides, however, that states could
override its provisions on legal investment and restrict or condition investment
in mortgage related securities by taking statutory action on or prior to October
3, 1991. Certain states have enacted legislation which overrides the preemption
provisions of SMMEA.]
The Depositor makes no representations as to the proper characterization of
any class of the Offered Certificates for legal investment or other purposes, or
as to the ability of particular investors to purchase any class of the Offered
Certificates under applicable legal investment restrictions. These uncertainties
may adversely affect the liquidity of any class of Offered Certificates.
Accordingly, all institutions whose investment activities are subject to
S-52
<PAGE>
legal investment laws and regulations, regulatory capital requirements or review
by regulatory authorities should consult with their own legal advisors in
determining whether and to what extent any class of the Offered Certificates
constitutes a legal investment or is subject to investment, capital or other
restrictions.
See "LEGAL INVESTMENT MATTERS" in the Prospectus.
S-53
<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
Page
Summary....................................................................
Risk Factors...............................................................
Description of the Offered Certificates....................................
Description of the Underlying Agency Securities............................
Certain Yield and Prepayment Considerations................................
Trust Agreement............................................................
Certain Federal Income Tax Consequences....................................
State and Other Tax Consequences...........................................
ERISA Considerations.......................................................
Plan of Distribution.......................................................
Ratings....................................................................
Legal Opinions.............................................................
Legal Investment Matters...................................................
PROSPECTUS
Prospectus Supplement......................................................
Available Information......................................................
Incorporation of Certain Information by Reference..........................
Reports to Certificateholders..............................................
Risk Factors...............................................................
The Trust Funds............................................................
Description of the Certificates............................................
Description of Credit Enhancement..........................................
The Depositor..............................................................
The Trust Agreement........................................................
Maturity and Yield Considerations..........................................
Legal Investment Matters...................................................
Use of Proceeds............................................................
Plan of Distribution.......................................................
Legal Matters..............................................................
Financial Information......................................................
_________________
Until 90 days after the date of each 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.
================================================================================
================================================================================
$_____________________
SOUTHPOINT STRUCTURED
ASSETS, INC.
MORTGAGE PASS-THROUGH
CERTIFICATES, SERIES ___
_________________
PROSPECTUS SUPPLEMENT
_________________
[UNDERWRITER]
_____________, 199_
================================================================================
S-54
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The expenses expected to be incurred in connection with the issuance and
distribution of the securities being registered, other than underwriting
compensation, are as set forth below. All such expenses, except for the SEC
registration and filing fees, are estimated:
<TABLE>
<S> <C>
SEC Registration Fee............................................ $3,449.00
Legal Fees and Expenses......................................... $ *
Accounting Fees and Expenses.................................... $ *
Trustee's Fees and Expenses..................................... $ *
(including counsel Fees)......................................
Blue Sky Qualification Fees..................................... $ *
and expenses..................................................
Printing and Engraving Fees..................................... $ *
Rating Agency Fees.............................................. $ *
Miscellaneous................................................... $ *
---------
Total........................................................ $ *
=========
</TABLE>
- ---------
* To be provided by amendment.
Item 15. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of Delaware empowers a
corporation to indemnify any person who was or is a party or witness or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he or she is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise.
Depending on the character of the proceeding, a corporation may indemnify
against expenses, costs and fees (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred in connection
with such action suit or proceeding if the person indemnified acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. If the person indemnified is not wholly successful in such action,
suit or proceeding, but is successful, on the merits or otherwise, in one or
more but less than all claims, issues or matters in such proceeding, he or she
may be indemnified against expenses actually and reasonably incurred in
connection with each successfully resolved claim, issue or matter. In the case
of an action or suit by or
II-1
<PAGE>
in the right of the corporation, no indemnification may be made in respect to
any claim, issue or matter as to which such person shall have been adjudged to
be liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
that despite the adjudication of liability such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
Section 145 provides that to the extent a director, officer, employee or agent
of a corporation has been successful in the defense of any action, suit or
proceeding referred to above or in the defense of any claim, issue or manner
therein, he or she shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him or her in connection therewith.
The Certification of Incorporation of the Registrant provides that no
Director of the Registrant shall be personally liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a Director;
provided, however, that this limitation of liability of a Director shall not
apply with respect to (i) any breach of the Director's duty of loyalty to the
Registrant or its stockholder, (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) any
liability arising under Section 174 of the General Corporation Law of the State
of Delaware and (iv) for any transaction from which the Director derives an
improper personal benefit. Section 7 of the By-Laws of the Registrant provides
for the indemnification of the Directors and Officers of the Registrant in
certain circumstances. Reference is made to Exhibit 3.2 to this Registration
Statement for the complete text of Section 7 of the By-Laws.
Reference is made to Section 7 of the form of Underwriting Agreement filed
as Exhibit 1.1 hereto for provisions relating to the indemnification of
directors, officers and controlling persons against certain liabilities
including liabilities under the Securities Act of 1933, as amended.
Item 16. Exhibits:
* 1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of Southpoint Structured Assets, Inc.
3.2 By-Laws of Southpoint Structured Assets, Inc.
* 4.1 Form of Trust Agreement (Trust Certificates), with forms of
Certificates attached thereto.
* 4.2 Form of Trust Agreement (Mortgage Pass-Through Certificates),
with forms of Certificates attached thereto.
* 5.1 Opinion of Chapman and Cutler as to legality (including consent
of such firm)
* 8.1 Opinion of Chapman and Cutler as to certain tax matters
(including consent of such firm)
II-2
<PAGE>
* 23.1 Consent of Chapman and Cutler (included in Exhibits 5.1 and 8.1)
24.1 Power of Attorney (included on page II-6)
- -----------------
* To be filed by amendment
Item 17. Undertakings.
A. Undertaking Pursuant to Rule 415.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change of such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933 each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
C. Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant, pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
II-3
<PAGE>
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant, as the case may be, will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the act and will be governed by the
final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
hereby certifies on behalf of Southpoint Structured Assets, Inc. (the
"Depositor") that he has reasonable grounds to believe that the Depositor meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement dated as of August 9, 1996 to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Memphis, State of
Tennessee, on the 9th day of August, 1996.
Southpoint Structured Assets, Inc.
By: /s/ C. David Ramsey
------------------------------------
C. David Ramsey, President
II-5
<PAGE>
Know All Men By These Presents, that each person whose signature appears
below constitutes and appoints C. David Ramsey and Charles D. Maxwell, and each
of them, his/her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him/her and in his/her name, place and
stead, in any and all capacities (including his/her capacity as director and/or
officer of Southpoint Structured Assets, Inc.), to sign any or all amendments
(including post-effective amendments) to this Registration Statement, including,
if applicable, any Registration Statement filed pursuant to Rule 462, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully and to all intents and purposes as he/she might
or could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents or any of them, or their or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Position Date
<S> <C> <C>
/s/ C. David Ramsey President (Principal August 9, 1996
- ---------------------- Executive Officer) and
C. David Ramsey Director
/s/ Charles D. Maxwell Treasurer August 9, 1996
- ---------------------- (Principal Financial Officer
Charles D. Maxwell and Principal Accounting
Officer) and Director
/s/ Barbara A. Steen Secretary and Director August 9, 1996
- ----------------------
Barbara A. Steen
</TABLE>
II-6
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
SOUTHPOINT STRUCTURED ASSETS, INC.
First. The name of the corporation is Southpoint Structured Assets, Inc.
(the "Corporation").
Second. The address of the Corporation's registered office in the State of
Delaware is 900 Market Street, Suite 200, Wilmington, Delaware 19801, in the
County of New Castle. The name of its registered agent at such address is
Griffin Corporate Services, Inc.
Third. The nature of the business or purposes to be conducted or promoted
by the Corporation is to engage in any of the following acts or activities:
(a) acting as settlor or depositor of trusts formed to issue
securities ("Securities") consisting of: participation certificates
representing beneficial interests in, or bonds, notes and other debt
securities secured by, (i) bonds, notes and other evidences of
indebtedness, and participation certificates evidencing beneficial
interests therein, the interest on which is exempt from federal income
taxation or excludable from gross income for federal income tax purposes;
(ii) bonds, notes and other evidences of indebtedness of any other type or
kind, including, without limitation, evidences of indebtedness that are
unsecured or that are secured by mortgage-related assets or secured by
other assets of every type or kind, and participation certificates
evidencing beneficial interests in any of the foregoing; (iii) mortgage
pass-through certificates (A) guaranteed and/or issued by the Government
National Mortgage Association; (B) issued by the Federal Home Loan Mortgage
Corporation; (C) issued by the Federal National Mortgage Association; or
(D) issued by a financial institution or other entity engaged generally in
the business of mortgage lending, a public agency or instrumentality of a
state, local or Federal government, or a limited purpose corporation
organized for the purpose of, among other things, acquiring and selling
mortgage loans to such trusts, and selling beneficial interests in such
trusts; (iv) interest rate swaps, interest rate caps, any other kinds of
swap contracts, exchange contracts, hedging contracts and financial
contracts and instruments of every other type or kind; (v) participation
certificates representing beneficial interests in assets of any type or
types described in clauses (i), (ii) (iii) or (iv) above; and (vi) debt or
equity instruments evidencing rights to receive payments or distributions
out of amounts received from any of the foregoing; (such property and
assets described in clauses (i) through (vi) hereinafter referred to as
"Depositable Assets");
(b) acquiring, owning, holding, selling, assigning, pledging or
otherwise dealing with Depositable Assets and any other property to be
deposited therewith;
(c) acquiring any letter of credit, guaranty, loan agreement, standby
letter of credit or loan facility, surety bond, financial guaranty
insurance policy or other similar financial guaranty or credit enhancement
or liquidity enhancement contract or instrument to be deposited with
Depositable Assets;
<PAGE>
(d) entering into loan, liquidity or other financing agreements or
similar financial contracts or incurring obligations of any type or kind in
connection with the issuance of Securities;
(e) authorizing, issuing, selling and delivering Securities;
(f) authorizing, issuing, selling and delivering instruments
evidencing the Corporation's indebtedness which is completely subordinated
to any Securities, and to enter into agreements by which the Corporation
incurs such indebtedness; and
(g) engaging in any lawful act or activity and exercising any powers
permitted to corporations organized under the General Corporation Law of
Delaware (currently codified at Title 8 of the Delaware Code) (as may be
amended, herein referred to as the "General Corporation Law of Delaware")
that are incidental to the necessary or convenient for the accomplishment
of the above mentioned business and purposes.
Fourth. The Corporation shall have authority to issue ten thousand
(10,000) shares of Common Stock. Each share of Common Stock shall have one cent
($.01) par value.
Fifth. The board of directors (the "Board of Directors") of the
Corporation is expressly authorized and empowered to adopt, alter or repeal the
by-laws of the Corporation (the "By-Laws"), subject to any limitations set forth
therein or in this Certificate of Incorporation, and subject to the power of the
stockholders to alter the By-Laws adopted by the Board of Directors.
Sixth. (a) Elections of directors need not be by written ballot except
and to the extent provided in the By-Laws of the Corporation.
(b) While the Corporation is solvent, the Corporation shall not (i)
commence a voluntary case or consent to an involuntary case, for relief against
the Corporation under Title 11 of the United States Code, 11 U.S.C. (S) (S) 101
et seq., or file a petition or an answer or consent to a petition seeking
liquidation, reorganization or other relief under any applicable law of any
jurisdiction relating to bankruptcy, insolvency, reorganization or relief of
debtors, or consent to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) for the Corporation or a
substantial part of its property, or make any assignment for the benefit of
creditors, or, except as may be required by any fiduciary obligation of the
Board of Directors or as may be required by applicable law, admit in writing its
inability to pay its debts generally as they become due, or take any corporate
action in furtherance of any such action; (ii) dissolve or liquidate, in whole
or in part, merge or consolidate with or into any other entity, or convey or
transfer all or substantially all of its properties and assets to any other
entity, except as otherwise provided in Article Eight; (iii) incur, assume or
guarantee any indebtedness for borrowed money or for the deferred purchase price
of goods or services, except as specifically provided herein; or (iv) engage in
any other action that bears upon whether the separate identity of the
Corporation and its parent will be respected, or the assets of the Corporation
will be
-2-
<PAGE>
consolidated with those of its parent under applicable Federal or state
bankruptcy or insolvency law; in each such case without the unanimous consent of
the Board of Directors, and the Independent Officer (each as defined in (c)
below).
(c) At all times, at least one-third of the directors serving on the Board
of Directors and any Executive Committee of the Board of Directors ("Independent
Directors") and at least one executive officer of the Corporation ("Independent
Officer") shall be Independent Persons (as defined below) (except in the event
of the resignation, death or removal of any such person in which event the
vacancy shall be filled by another Independent Person). For purposes hereof, the
term "Independent Person" means an individual who is not, and has not been
within the preceding 12 months, (i) an owner of any shares of the common stock
of the Corporation, or 10% or more of the voting securities of any Controlling
Entity (as defined below), nor (ii) a director, officer or employee of any
Controlling Entity; provided, however, that any such director and any such
executive officer may be the same individual; provided, further, that the
Independent Person serving as an executive officer and/or director of the
Corporation may, if such individual satisfies the remaining requirements of the
definition of "Independent Person", have retired from employment by a
Controlling Entity (other than the direct parent of the Corporation) during the
12-month period preceding such individual's becoming an executive officer and/or
director of the Corporation, and such individual may continue to receive
compensation from a Controlling Entity (other than the direct parent of the
Corporation) for services performed as an independent contractor, provided that
such individual is not dependent on such compensation to maintain such
individual's customary standard of living. For purposes hereof, the term
"Controlling Entity" means any entity other than the Corporation (A) which owns
beneficially, directly or indirectly, 10% or more of the outstanding shares of
common stock of the Corporation, or which is otherwise in control of the
Corporation, (B) of which 10% or more of the outstanding voting securities are
owned beneficially, directly or indirectly, by any entity described in clause
(A) above or (C) which otherwise controls or is otherwise controlled by any
entity described in clause (A) above; provided that for purposes of this
definition the term "control" and "controlled by" shall have the meanings
assigned to them in Rule 405 under the Securities Act of 1933, as amended.
Seventh. No director of the Corporation shall be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that the foregoing shall not eliminate or limit liability of
a director (i) for any breach of such director's duty of loyalty to the
Corporation or its stockholders, (ii) for any act or omission of the director
that is not taken in good faith or which involves the intentional misconduct or
a violation of law with such director's knowledge, or if such director, at the
time of the act or omission, has reasonable cause to believe that the same is
unlawful, (iii) under Section 174 of Title 8 of the General Corporation Law of
Delaware, or (iv) for any transaction from which such director derived an
improper personal benefit. If the General Corporation Law of Delaware is
amended after the date of the filing of this Certificate of Incorporation to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law of Delaware as so amended.
-3-
<PAGE>
Eighth. Notwithstanding any other provision of this Certificate of
Incorporation and any provision of law that otherwise so empowers the
Corporation, the Corporation shall not, without the prior written consent of
each of its Independent Directors and its Independent Officer, and of each
nationally recognized rating agency which has rated the outstanding Securities,
do any of the following:
(a) engage in any business or activity other than the business and
activities which the Corporation is permitted to engage in under Article
Third;
(b) dissolve or liquidate, in whole or in part, in accordance with
applicable state non-bankruptcy law; or
(c) consolidate or merge with or into any other entity, or permit any
entity to consolidate or merge with or into the Corporation, or, convey
transfer or lease its properties and assets substantially as an entirety to
any entity, unless --
(1) The corporation formed by such consolidation or into which
the Corporation is merged or the entity which acquires by conveyance
or transfer, or which leases, the properties and assets of the
Corporation substantially as an entirety (i) shall be a corporation
organized and existing under the laws of the United States of America,
any State thereof or the District of Columbia, (ii) shall have a
certificate of incorporation containing provisions identical to the
provisions of Article Third, Article Sixth, this Article Eighth,
paragraphs (c) and (d) of Article Ninth and Article Eleventh hereof,
and (iii) shall expressly assume in writing the due and punctual
payment of all obligations of the Corporation in connection with the
indebtedness of the Corporation; and
(2) immediately after giving effect to such transaction, no
default or event of default shall have occurred and be continuing
under the terms of any trust agreement or similar document entered
into by the Corporation to facilitate the issuance of Securities.
Ninth: For the management of the business and for the conduct of the
affairs of the Corporation and in further definition, limitation and regulation
of the powers of the Corporation and of its directors and stockholders, it is
further provided:
(a) The number of directors of the Corporation shall not be less than
three or more than nine, with the exact number to be determined in
accordance with the By-Laws of the Corporation.
(b) Meetings of stockholders may be held within or without the State
of Delaware, as the By-Laws may provide. The books of the Corporation may
be kept, subject to any applicable statutory provisions, outside of the
State of Delaware at such place or places as may be designated from time to
time by the Board of Directors or in the By-Laws of the Corporation.
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(c) The Corporation shall at all times have a sufficient number of
officers and employees to manage its operations.
(d) The Corporation shall at all times (A)(i) maintain the
Corporation's principal executive office separate and apart from that of
any Controlling Entity and conspicuously identified as the Corporation's
office and (ii) pay fair market rent for its executive office space located
in the offices of any Controlling Entity, (B) maintain the Corporation's
books, financial statements, accounting records and other corporate
documents and records separate from those of any Controlling Entity or any
other entity, (C) not commingle the Corporation's assets with those of any
Controlling Entity or any other entity, (D) maintain the Corporation's bank
accounts, payroll and books of account separate from those of any
Controlling Entity, (E) act solely in its corporate name and through its
own authorized officers and agents, (F) make investments directly or by
brokers engaged and paid by the Corporation or its agents (provided that if
any such agent is an affiliate of the Corporation it shall be compensated
at a fair market rate for its services), (G) separately manage the
Corporation's liabilities from those of any Controlling Entity, and pay its
own liabilities, including all administrative expenses, from its own
separate assets, and (H) pay from the Corporation's assets all obligations
and indebtedness of any kind incurred by the Corporation. The Corporation
shall abide by all corporate formalities, including the maintenance of
current minute books, and the Corporation shall cause its financial
statements to be prepared in accordance with generally accepted accounting
principles in a manner that indicates the separate existence of the
Corporation and its assets and liabilities. The Corporation shall not
commingle its assets with those of any Controlling Entity or any other
entity. The Corporation shall (i) pay all its liabilities, (ii) not assume
the liabilities of any Controlling Entity and (iii) not guarantee the
liabilities of any Controlling Entity. The Corporation shall not acquire
obligations or securities of, or make loans or advances to, any Controlling
Entity, except for any obligations or loans fully supported as to principal
and interest by an unaffiliated third-party. The officers and directors of
the Corporation (as appropriate) shall make decisions with respect to the
business and daily operations of the Corporation independent of and not be
dictated by any Controlling Entity.
Tenth. Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of the General Corporation Law of Delaware or on the
application of trustees in dissolution or of any receiver or receivers appointed
for the Corporation under the provisions of Section 279 of the General
Corporation Law of Delaware, order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
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arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
Eleventh. The Corporation shall not, without the prior written consent of
each of its Independent Directors and its Independent Officer, and of each
nationally recognized rating agency which has rated the outstanding Securities,
amend, alter, change or repeal Article Third, Article Sixth, Article Eighth,
paragraphs (c) and (d) of Article Ninth or this Article Eleventh of this
Certificate of Incorporation. Subject to the foregoing, the Corporation
reserves the right to amend, alter, change or repeal any provisions contained in
this Certificate of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders, directors and officers
herein are granted subject to this reservation.
Twelfth. The name and mailing address of the sole incorporator are as
follows:
Name Mailing Address
Kristi A. Maher 111 West Monroe Street
Suite 1600
Chicago, Illinois 60603-4080
Thirteenth. The Corporation shall indemnify each person who is or was a
director or officer of the Corporation to the fullest extent permitted by the
General Corporation Law of Delaware, as it may be in effect from time to time.
I, the undersigned, being the sole incorporator herein before named, for
the purpose of forming a corporation pursuant to the General Corporation Law of
Delaware, does hereby make this Certificate of Incorporation, declaring and
certifying that this is such incorporator's act and deed and the facts herein
stated are true, and accordingly has hereunto set such incorporator's hand this
30th day of July, 1996.
/s/ Kristi A. Maher
----------------------------
Kristi A. Maher
Sole Incorporator
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Exhibit 3.2
BYLAWS
OF
SOUTHPOINT STRUCTURED ASSETS, INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office shall be
established and maintained at the office of Griffin Corporate Services, Inc. in
the City of Wilmington, in the County of New Castle, in the State of Delaware,
and said corporation shall be the registered agent of the corporation in charge
thereof. The corporation may have other offices, either within or without the
State of Delaware, at such place or places as the Board of Directors may from
time to time appoint or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders for
the election of directors shall be held at such place as may be fixed from time
to time by the Board of Directors, or at such place either within or without the
State of Delaware, as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting. Meetings of stockholders for
any other purpose may be held at such time and place, within or without the
State of Delaware, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2. Annual Meetings. Annual meetings of stockholders,
commencing with the year 1996, shall be held on such day and at such time as
shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting, at which they shall elect a Board of Directors and
transact such other business as may properly be brought before the meeting. If
the date of the annual meeting shall fall upon a legal holiday, the meeting
shall be held on the next succeeding business day. At each annual meeting, the
stockholders entitled to vote shall elect a Board of Directors and they may
transact such other corporate business as shall be stated in the notice of the
meeting.
Section 3. Notice. Written notice of the annual meeting stating the
place, date and hour of the meeting shall be given to each stockholder entitled
to vote at such meeting not less than ten nor more than sixty days before the
date of the meeting.
Section 4. Stockholder List. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, showing the address of each
stockholder and the number of shares registered by each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose
<PAGE>
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special Meetings. Special meetings of the stockholders
for any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the President and shall be called
by the President or Secretary at the request in writing of a majority of the
Board of Directors, or at the request in writing of stockholders owning a
majority of the shares of any class of the capital stock of the corporation
issued and outstanding and entitled to vote. Such request shall state the
purpose or purposes of the proposed meeting.
Section 6. Notice of Special Meetings. Written notice of a special
meeting stating the place, date and hour of the meeting, and the purpose or
purposes for which the meeting is called, shall be given not less than ten nor
more than sixty days before the date of the meeting to each stockholder entitled
to vote at such meeting.
Section 7. Business at Special Meetings. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice.
Section 8. Quorum. The holders of such number of the shares of
issued and outstanding stock as are entitled to cast a majority of the votes
thereat, present in person or by proxy, or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the Certificate of
Incorporation or the laws of the State of Delaware. If, however, such quorum
shall not be present or represented at any meeting of the stockholders, the
stockholders, entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented any business may be transacted which might have been transacted at
the meeting as originally notified. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting. A quorum, once present to organize a
meeting, is not broken by the subsequent withdrawal of any stockholders.
Section 9. Voting. When a quorum is present at any meeting, a
majority of the votes cast by holders of stock having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of the
statutes or of the Certificate of Incorporation, a different vote is required in
which case such express provision shall govern and control the decision of such
question.
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Section 10. Proxies. Each stockholder shall at every meeting of the
stockholders be entitled to vote in person or by proxy, but no proxy shall be
voted on after three years from its date, unless the proxy provides for a longer
period.
Section 11. Written Consent. Unless otherwise provided in the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders of the corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
Section 12. Inspectors. The Board of Directors, in advance of any
stockholders' meeting, may appoint one or more inspectors to act at the meeting
or any adjournment thereof. If inspectors are not so appointed, the person
presiding at the stockholders' meeting may, and on the request of any
stockholder entitled to vote thereat shall, appoint one or more inspectors. In
case any person appointed fails to appear or act, the vacancy may be filled by
appointment made by the Board of Directors in advance of the meeting or at the
meeting by the persons presiding thereat. Each inspector, before entering upon
the discharge of his duties, shall take and sign an oath faithfully to execute
the duties of inspector at such meeting with strict impartiality and according
to the best of his ability.
The inspectors shall determine the number of shares outstanding and
the voting power of each, the shares represented at the meeting, the existence
of a quorum, the validity and effect of proxies, and shall receive votes,
ballots or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the person
presiding at the meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, question or matter
determined by them and execute a certificate of any fact found by them. Any
report or certificate made by them shall be prima facie evidence of the facts
stated and of the vote as certified by them.
ARTICLE III
DIRECTORS
Section 1. Number. The number of directors which shall constitute
the whole Board of Directors shall be not less than three (3) nor more than nine
(9). At all times as required under the Certificate of Incorporation, at least
one-third of the directors serving on the Board of Directors shall be
Independent Directors as defined therein. The first Board of Directors shall
consist of three (3) directors. Thereafter, within the limits above specified,
the number of directors shall be determined by resolution of the Board of
Directors or by the stockholders
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at the annual meeting. The directors shall be elected at the annual meeting of
the stockholders, except as provided in Section 2 of this Article, and each
director shall be elected to serve until his successor is elected and qualified
or until his earlier resignation or removal. Directors need not be stockholders.
Section 2. Vacancies and Newly Created Directorships. Vacancies and
newly created directorships resulting from any increase in the authorized number
of directors may be filled by a majority of directors then in office, though
less than a quorum, or by a sole remaining director so elected. If there are no
directors in office, then an election of directors may be held in the manner
provided by statute.
Directors chosen under this Section 2 shall hold office until their
successors shall be elected and qualified.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole Board of Directors (as constituted immediately prior to any such
increase), the Court of Chancery of Delaware may, upon application of any
stockholder or stockholders holding at least ten percent of the total number of
the shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in office as aforesaid, which election shall be governed by statute.
Section 3. Management. The business of the corporation shall be
managed by or under the direction of the Board of Directors which may exercise
all such powers of the corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these Bylaws
directed or required to be exercised or done by the stockholders. Without in
any way limiting the generality of the foregoing, the Board of Directors is
specifically granted the authority to approve the hiring of all salaried
employees of the corporation. No such salaried employee may be hired without
such prior approval.
Section 4. Place of Meetings. The Board of Directors of the
corporation may hold meetings, both regular and special, either within or
without the State of Delaware.
Section 5. First Meeting. The first meeting of each newly elected Board
of Directors shall be held at such time and place as shall be fixed by the vote
of the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
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Section 6. Regular Meetings. Regular meetings of the directors may
be held without notice at such time and at such place as shall from time to time
be determined by the Board of Directors.
Section 7. Special Meetings. Special meetings of the Board of
Directors may be called by the President on three (3) days' notice to each
director, either personally or by mail or by telegram; special meetings shall be
called by the President or Secretary in like manner and on like notice on the
written request of two directors unless the board consists of only one director
in which case special meetings shall be called by the President or Secretary in
like manner and on like notice on the written request of the sole director.
Section 8. Quorum and Voting. At all meetings of the Board of
Directors a majority of the whole Board of Directors shall constitute a quorum
for the transaction of business and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors, except as may be otherwise specifically provided by statute or by
the Certificate of Incorporation. If a quorum shall not be present at any
meeting of the Board of Directors, the directors present thereafter may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 9. Written Consent. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting, if all members of the Board of
Directors or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of the proceedings of the Board
of Directors or committee.
Section 10. Telephonic Participation. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
Section 11. Committees. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board of Directors, designate one
or more committees, each committee to consist of one or more of the directors of
the corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee.
In the absence or disqualification of any member of such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he, she or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
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Any such committee, to the extent provided in the resolution of the
Board of Directors, or in these Bylaws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending
these Bylaws; and, unless the resolution, these Bylaws, or the Certificate of
Incorporation expressly so provides, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock.
Section 12. Minutes. Each committee shall keep regular minutes of
its meetings and report the same to the Board of Directors.
Section 13. Compensation. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, the Board of Directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, for attendance at each meeting of the Board of
Directors. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
Section 14. Removal. Unless otherwise restricted by the Certificate
of Incorporation or by law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of shares entitled to cast a
majority of the votes for the election of directors. A director elected or
appointed by the holders of a particular class of stock may be removed only by
the vote of the holders of a majority of the shares of such class.
Section 15. Resignations. Any director, member of a committee or
other officer may resign at any time. Such resignation shall be made in writing
and shall take effect at the time specified therein, and if no time be
specified, at the time of its receipt by the President or Secretary. The
acceptance of a resignation shall not be necessary to make it effective.
ARTICLE IV
NOTICES
Section 1. Notice. Whenever, under the provisions of the statutes or
of the Certificate of Incorporation or of these Bylaws, notice is required to be
given to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
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Section 2. Waiver of Notice. Whenever any notice is required to be
given under the provisions of the statutes or of the Certificate of
Incorporation or of these Bylaws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. Officers. The officers of the corporation shall be chosen
by the Board of Directors and shall be at least a President, a Secretary and a
Treasurer. At all times as required under the Certificate of Incorporation, at
least one officer set forth in the preceding sentence (other than President)
shall be an Independent Officer as defined in the Certificate of Incorporation.
The Board of Directors may also choose Vice Presidents, and one or more
Assistant Secretaries and Assistant Treasurers. Any number of offices may be
held by the same person, unless the Certificate of Incorporation or these Bylaws
otherwise provide.
Section 2. Other Officers. The Board of Directors may appoint such
other officers and agents as it may deem necessary who shall hold their offices
for such terms and shall exercise such powers and perform such duties as shall
be determined from time to time by the board.
Section 3. Compensation. The salaries of all officers of the
corporation shall be fixed by the Board of Directors.
Section 4. Tenure. The officers of the corporation shall hold office
until their successors are chosen and qualify. Any officer elected or appointed
by the Board of Directors may be removed at any time by the affirmative vote of
a majority of the whole Board of Directors. Any vacancy occurring in any office
of the corporation shall be filled by the Board of Directors.
Section 5. President. The President shall be the chief executive
officer of the corporation, shall preside at all meetings of the stockholders
and the Board of Directors, shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe. He or she
shall have general charge of the business of the corporation and shall see to it
that all orders and resolutions of the Board of Directors are performed and
carried into effect. He or she shall direct the activities of the other
officers in the execution of those duties not specifically associated with their
office. He or she shall have general and active management of the business of
the corporation and shall execute all orders and resolutions of the Board of
Directors, subject, however, to the right of the directors to delegate any
specific power, except as may by statute exclusively be conferred to any other
officer or officers of the corporation.
Section 6. Execution of Contracts. The President shall execute
bonds, mortgages and other contracts requiring a seal, under the seal of the
corporation, except where required or permitted by law to be otherwise signed
and
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executed and except where the signing and execution thereof shall be expressly
delegated by the Board of Directors to some other officer or agent of the
corporation.
Section 7. Vice Presidents. In the absence of the President or in
the event of his or her inability or refusal to act, the Vice President if one
is elected (or in the event there be more than one Vice President, the Vice
Presidents in the order designated by the directors, or in the absence of any
designation, then in the order of their election) shall perform the duties of
the President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President. The Vice Presidents shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
Section 8. Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He or she shall give, or cause to be given,
notice of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or President, under whose supervision he or she shall be. He or
she shall have custody of the corporate seal of the corporation and he or she,
or an Assistant Secretary, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by his or her
signature or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his or her signature.
Section 9. Assistant Secretary. The Assistant Secretary, if one is
elected or if there be more than one, the Assistant Secretaries in the order
determined by the Board of Directors (or if there be no such determination, then
in the order of their election), shall, in the absence of the Secretary or in
the event of his or her inability or refusal to act, perform the duties and
exercise the powers of the Secretary and shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
Section 10. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuables in the name and to the credit of the
corporation in such depositaries as may be designated by the Board of Directors.
The Treasurer shall have exclusive authority to open bank accounts or otherwise
transact the financial business of the corporation; provided, however, that the
President shall have complete access to the financial records of the corporation
and shall be provided unaudited quarterly financial statements of the
corporation.
Section 11. Treasurer Duties. The Treasurer shall disburse the funds
of the corporation as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements and shall render to the President and the Board
of Directors at its regular meetings, or when the Board of Directors so
requires, an account of all his or her transactions as Treasurer and of the
financial condition of the corporation.
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Section 12. Treasurer Bond. If required by the Board of Directors,
the Treasurer shall give the corporation a bond in such sum and with such surety
or sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his or her office and for the restoration to the
corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his or her possession or under his or her control belonging to the
corporation.
Section 13. Assistant Treasurer. The Assistant Treasurer, if one is
elected or if there shall be more than one, the Assistant Treasurers in the
order determined by the Board of Directors (or if there be no such
determination, then in the order of their election), shall, in the absence of
the Treasurer or in the event of his or her inability or refusal to act, perform
the duties and exercise the powers of the Treasurer and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Certificates. Every holder of stock in the corporation
shall be entitled to have a certificate, signed by, or in the name of the
corporation by, the President or a Vice President, and the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary, of the
corporation, certifying the number of shares owned by such holder in the
corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock; provided that, except as
otherwise provided in Section 202 of the General Corporation Law of the State of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate which the corporation shall issue to represent
such class or series of stock, a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights of
each class or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights.
Section 2. Signatures. Any of or all the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
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Section 3. Lost Certificates. The Board of Directors may direct a
new certificate or certificates to be issued in the place of any certificate or
certificates theretofore issued by the corporation, alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representatives, to advertise the same in such manner
as it shall require and/or to give the corporation a bond, in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 4. Transfer of Stock. Upon surrender to the corporation or
the transfer agent of the corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books; provided, however, that such duty shall be subject
to federal and state securities and other applicable laws, the Certificate of
Incorporation, and any legends and stop transfer instructions with respect to
such old certificate.
Section 5. Record Date. In order that the corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. In
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 6. Registered Stockholders. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of the State of Delaware.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash,
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in property, or in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation.
Section 2. Reserves. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall think conducive to the interest of
the corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 3. Corporate Condition. The Board of Directors shall present
at each annual meeting, and at any special meeting of the stockholders when
called for by vote of the stockholders, a full and clear statement of the
business and condition of the corporation.
Section 4. Checks. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers, person or persons as
the Board of Directors may from time to time designate.
Section 5. Fiscal Year. The fiscal year of the corporation shall
be fixed by resolution of the Board of Directors.
Section 6. Seal. The corporate seal shall have inscribed thereon the
name of the corporation. The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
Section 7. Indemnification of Officers, Directors, Employees and
Agents; Insurance. (a) To the extent permitted by Delaware law from time to
time in effect and subject to the provisions of paragraph (h) of this Section 7,
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation), by reason of the fact that he or she is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprises,
shall be indemnified by the corporation against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such action, suit or proceeding if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction of upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he or she reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his or
her conduct was unlawful.
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(b) To the extent permitted by Delaware law from time to time in effect
and subject to the provisions of paragraph (h) of this Section 7, the
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of the
fact that he or she is or was a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her in connection with the defense or settlement of such action or suit if he or
she acted in good faith and in a manner he or she reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery of Delaware or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery of Delaware, or such other court shall deem
proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraphs (a) and (b) of this Section
7, or in defense of any claim, issue or matter therein, he or she shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection therewith.
(d) Any indemnification pursuant to paragraphs (a) and (b) of this
Section 7 (unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in the said paragraphs (a)
or (b), as the case may be. Such determination shall be made (i) by the Board
of Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (ii) if such a quorum is not
obtainable (or, even if obtainable a quorum of disinterested directors so
directs) by independent legal counsel in written opinion, or (iii) by the
stockholders.
(e) Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of the director, officer, employee or agent to repay such amount if it shall
ultimately be determined that he or she is not entitled to be indemnified by the
corporation as authorized in this Section 7. The indemnification and
advancement of expenses provided in this Section 7 shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office, and
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
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(f) The corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity, or
arising out of his or her status as such, whether or not the provision of this
Section 7.
(g) For the purpose of this Section 7, all words and phrases used herein
shall have the meanings ascribed to them under Section 145 of the General
Corporation Law of the State of Delaware.
(h) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section 7 shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ARTICLE VIII
AMENDMENTS
Section 1. Amendments. These Bylaws may be altered, amended or repealed
only to the extent that any alterations, amendments or deletions are consistent
with the provisions and restrictions set forth in the Certificate of
Incorporation. These Bylaws may be altered, amended or repealed or new Bylaws
may be adopted by the stockholders or by the Board of Directors, when such power
is conferred upon the Board of Directors by the Certificate of Incorporation, at
any regular meeting of the stockholders or of the Board of Directors or at any
special meeting of the stockholders or Board of Directors if notice of such
alteration, amendment, repeal or adoption of new Bylaws be contained in the
notice of such special meeting. If the power to adopt, amend or repeal Bylaws is
conferred upon the Board of Directors by the Certificate of Incorporation, it
shall not divest or limit the power of the stockholders to adopt, amend or
repeal Bylaws.
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