<PAGE>
Filed Pursuant to Rule No. 424(B)(2)
Registration No. 333-09883
Prospectus Supplement
(To Prospectus Dated November 15, 1996)
$10,000,000
Treasury Security-Backed Certificates, Series 1997-1
6.25% Certificates due February 15, 2003
Southpoint Structured Assets, Inc.
Depositor
The Treasury Security-Backed Certificates, Series 1997-1 offered hereby
(the "Certificates" ) will be issued by the Treasury Security-Backed Trust,
Series 1997-1 (the "Trust") to be formed pursuant to the Trust Agreement, dated
as of November 1, 1996, between Southpoint Structured Assets, Inc. (the
"Depositor") and Bank One, West Virginia, N.A., as trustee (the "Trustee"), as
supplemented by the Series 1997-1 Supplement, dated as of August 29, 1997
(collectively, the "Trust Agreement"). The Certificates will represent a
fractional undivided interest in the Trust and the principal asset of the Trust
will consist of a United States Treasury Note having an aggregate principal
amount of $10,000,000, a coupon of 6.25% and a maturity of February 15, 2003
(the "Treasury Security" or the "Underlying Security"). See "Description of the
Deposited Assets" herein. The Treasury Security will be acquired by an affiliate
of the Depositor in the secondary market before being deposited by the Depositor
into the Trust for the benefit of the Certificateholders. Terms used but not
otherwise defined herein are defined in the Prospectus attached hereto (the
"Prospectus").
Distributions of interest on the Certificates will be made semi-annually on
February 15 and August 15 of each year, commencing February 15, 1998 (each, a
"Distribution Date"). The last day on which distributions are scheduled to be
made on the Certificates, by which date the holders of the Certificates will
receive a distribution of all amounts allocable to principal on such
Certificates, is February 15, 2003 (the "Final Distribution Date"). See
"Description of the Certificates--Distributions" herein.
The Certificates may be paid in full on any date on or after February 28,
1998 (the "Early Termination Date") in an amount equal to par plus accrued
interest to the Early Termination Date (the "Early Termination Price"), upon the
purchase of the Treasury Security by the holder of the Call Warrant. See "Risk
Factors--Maturity and Yield Considerations" and "Description of the
Certificates--Early Termination" herein.
The Certificates have been authorized for listing, upon official notice of
issuance, with the New York Stock Exchange ("NYSE").
SOUTHPOINT
------------------------
Structured Assets
[LOGO APPEARS HERE]
See "Risk Factors" herein on page S-6 and in the Prospectus on pages 6 to
8.
(Cover continued on next page)
--------------------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT
AN OBLIGATION OF OR INTEREST IN THE DEPOSITOR OR ANY OF ITS RESPECTIVE
AFFILIATES. THE CERTIFICATES DO NOT REPRESENT A DIRECT OBLIGATION OF THE UNITED
STATES OF AMERICA AND WILL NOT BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY, OR BY THE DEPOSITOR.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
Morgan Keegan & Company, Inc. (the "Underwriter") has agreed to purchase
from the Depositor the Certificates at 99% of the Certificate Principal Balance
thereof ($9,900,000 aggregate proceeds to the Depositor, before deducting
expenses), subject to the terms and conditions set forth in the Underwriting
Agreement referred to herein under "Plan of Distribution."
The Underwriter proposes to offer the Certificates from time to time for
sale in negotiated transactions, at prices determined at the time of sale. For
further information with respect to the plan of distribution and any discounts,
commissions or profits that may be deemed underwriting discounts or commissions,
see "Plan of Distribution."
The Certificates are offered subject to receipt and acceptance by the
Underwriter, to prior sale and to the Underwriter's right to reject any order in
whole or in part and to withdraw, cancel or modify the offer without notice. It
is expected that delivery of the Certificates will be made in book-entry form
through the facilities of The Depository Trust Company on or about August 29,
1997 (the "Closing Date").
Morgan Keegan & Company, Inc.
August 25, 1997
<PAGE>
(Cover page continued.)
As and to the extent described herein, collections received by the Trustee
with respect to the Treasury Security will be distributed to the
Certificateholders in the manner and priority described herein. No agency or
instrumentality of the United States of America is participating in or will
receive any proceeds in connection with this offering.
There is currently no secondary market for the Certificates, and there can
be no assurance that a secondary market for the Certificates will develop or, if
it does develop, that it will continue. See "RISK FACTORS" in the Prospectus.
If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will also be used by the Underwriter
after the completion of the offering in connection with offers and sales related
to market-making transactions in the Offered Certificates in which the
Underwriter acts as principal. The Underwriter may also act as agent in such
transactions. Sales will be made at negotiated prices determined at the time of
sale.
The Certificates initially will be represented by certificates registered
in the name of CEDE & Co., as nominee of The Depository Trust Company ("DTC")
and will be available for purchase in denominations of $1,000 and any integral
multiple thereof. The interests of beneficial owners of such Certificates will
be represented by book entries on the records of participating members of DTC
("Participants"). Definitive certificates will be available for such
Certificates only under the limited circumstances described herein. See
"Description of The Certificates--Definitive Certificates."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF CERTIFICATES OFFERED
HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT
COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "PLAN OF DISTRIBUTION."
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT WILL CONSTITUTE A
SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE DEPOSITOR PURSUANT TO ITS
PROSPECTUS DATED NOVEMBER 15, 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 OR "RISK FACTORS" IN THE PROSPECTUS AND IN THIS
PROSPECTUS SUPPLEMENT.
S-2
<PAGE>
SUMMARY
The following summary of principal economic terms does not purport to be
complete and is qualified in its entirety by reference to the detailed
information appearing elsewhere herein and in the Prospectus, including under
the headings "Description of the Certificates" and "Description of the Deposited
Assets." Certain capitalized terms used herein are defined elsewhere in this
Prospectus Supplement on the pages indicated in the "Index of Terms" or, to the
extent not defined herein, have the meanings assigned to such terms in the
Prospectus.
The Certificates
The Trust.....................Treasury Security-Backed Trust, Series 1997-1 (the
"Trust"). The Trust will be formed pursuant to the
Trust Agreement, dated as of November 1, 1996 (the
"Base Trust Agreement"), between the Depositor and
the Trustee, as supplemented by the Series 1997-1
Supplement, dated as of the Closing Date (the
"Series Supplement" and, together with the Base
Trust Agreement, the "Trust Agreement").
Certificates Offered..........Treasury Security-Backed Certificates, Series
1997-1 (the "Certificates").
Initial Certificate
Principal Balance.............$10,000,000
Final Distribution Date.......February 15, 2003.
The actual maturity may be shorter than the Final
Distribution Date.
Pass-Through Rate.............The Pass-Through Rate applicable to the
calculation of the interest distributable on any
Distribution Date is fixed at 6.25% per annum.
Distribution Dates............Distributions on the Certificates will be made
semi-annually on February 15 and August 15 of each
year, commencing February 15, 1998 (each, a
"Distribution Date"). The last day on which
distributions are scheduled to be made on the
Certificates, by which date the holders of the
Certificates will receive a distribution of all
amounts allocable to principal on such
Certificates, is February 15, 2003 (the "Final
Distribution Date").
Interest Accrual
Periods.......................For any Distribution Date, the period from and
including the preceding Distribution Date (or, in
the case of the first
S-3
<PAGE>
Interest Accrual Period, from and including the
Cut-off Date) to but excluding the current
Distribution Date.
Cut-off Date..................August 29, 1997.
Record Date...................The day immediately preceding the applicable
Distribution Date.
Denominations.................The Certificates will be available for purchase in
minimum denominations of $1,000 and integral
multiples thereof.
Early Termination Date........The Certificates may be paid in full on any date
on or after February 28, 1998 (the "Early
Termination Date") in an amount equal to par plus
accrued interest (the "Early Termination Price"),
upon the purchase of the Treasury Security by the
holder of the Call Warrant.
Early Termination Price.......Par plus accrued interest.
The Call Warrant..............The Call Warrant (as defined herein) represents
the right to purchase the Treasury Security at a
price of par plus accrued interest to the Early
Termination Date (the "Liquidation Price"). The
initial holder of the Call Warrant will be the
Depositor or an affiliate thereof. No Call
Warrants are being offered hereby.
Early Termination
Provisions....................The holder of a Call Warrant (a "Warrantholder")
may provide notice to the Trustee (a "Purchase
Request") no less than 35 days prior to an Early
Termination Date that it will purchase the
Treasury Security. The Trustee will notify the
Certificateholders of the Early Termination Date
no less than 30 days prior to such Early
Termination Date.
On, or before, the Early Termination Date, the
Warrantholder will deliver the Liquidation Price
for such Treasury Security and the Trustee will
deliver the Treasury Security to the
Warrantholder.
In the event that the Warrantholder fails to
deliver the Liquidation Price on the Early
Termination Date, the early termination will be
deemed not effective with respect to such Early
Termination Date. In such case, the Certificates
shall continue to remain outstanding and the
Warrantholder's rights with respect to that Call
Warrant shall be deemed surrendered to the
Depositor.
S-4
<PAGE>
Form of Security..............Book-entry Certificates to be deposited with The
Depository Trust Company ("DTC"), except in
certain limited circumstances. See "Description of
the Certificates--Definitive Certificates."
Distributions thereon will be settled in
immediately available (same-day) funds.
CUSIP Number..................844653 AB1
Trustee.......................Bank One, West Virginia, N.A., as trustee. The
Trustee's fee, in an amount not to exceed $9,600,
will be paid by the Depositor.
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 and not as an
association taxable as a corporation. See "Federal
Income Tax Consequences."
ERISA Considerations..........An employee benefit plan subject to the Employee
Retirement Income Security Act of 1974, as amended
("ERISA"), and an individual retirement account
(each, a "Plan") may purchase Certificates if
either (i) the Depositor is able to confirm the
existence of at least 100 independent purchasers
of the Certificates or (ii) the Plan can represent
that its purchase of the Certificates would not be
prohibited under ERISA or the Code. See "ERISA
Considerations."
Ratings.......................It is a condition to the issuance of the
Certificates that they be rated "AAA" by Standard
& Poor's Ratings Services. 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
likelihood of the exercise of the Call Warrant, or
the corresponding effect on yield to investors.
See "Ratings."
The Underlying Security
Underlying Security or
Treasury Security.............A United States Treasury Note having an aggregate
principal balance of $10,000,000 (the "Treasury
Note").
Denominations.................The Treasury Security is available in minimum
denominations of $1,000 and integral multiples
thereof.
S-5
<PAGE>
Underlying Security Original
Issue Date...................February 16, 1993
Underlying Security Maturity
Date.........................February 15, 2003
Underlying Security
Payment Dates................February 15 and August 15
Underlying Security Rate.....6.25%
Form of Underlying Security..Book-entry, maintained in the book-entry system
operated by the Federal Reserve Bank.
Rating of the Underlying
Security.....................United States Treasury securities are not rated by
S&P.
Risk Factors
Prospective purchasers should consider, among other things, the following
factors (as well as the factors set forth under "Risk Factors" in the
Prospectus) in connection with an investment in the Certificates.
Limited Liquidity. There is currently no secondary market for the
Certificates. The Underwriter is under no obligation to make a market in the
Certificates. It is unlikely that a secondary market will develop and, if a
secondary market does develop, it is unlikely that it will provide
Certificateholders with liquidity of investment or will continue for the life of
the Certificates.
Maturity and Yield Considerations. If a Warrantholder exercises the right
to purchase the Treasury Security, and thereby cause an early termination of the
Certificates, the Certificates will have a shorter average maturity and may have
a lower yield than if such right were not exercised. Additionally, such right is
likely to be exercised, if at all, at a time when the interest rates on
potential reinvestments are lower than the return that would have been earned
over the remaining life of the Certificates if they had not been called.
Limited Assets. The Trust has no significant assets other than the Treasury
Security. If the Treasury Security is insufficient to make payments or
distributions on the Certificates, no other assets will be available for payment
of the deficiency.
Formation of the Trust
The Trust will be formed pursuant to the Trust Agreement (including the
related Series Supplement) between the Depositor and the Trustee. Concurrently
with the execution and delivery of the Series Supplement, the Depositor will
deposit the Treasury Security into the Trust subject to the Call Warrant. The
Trustee, on behalf of the related Trust, will accept such Treasury Security
S-6
<PAGE>
and will deliver the Certificates to or upon the order of the Depositor. The
Trustee will hold the Treasury Security, when purchased, for the benefit of the
Certificateholders, subject to the rights of the Warrantholder. See "Description
of the Certificates--Early Termination" and "--Call Warrant."
The Treasury Security will be purchased by the Depositor in the secondary
market (either directly or through an affiliate of the Depositor). The Treasury
Security will not be acquired from the United States Treasury as part of any
distribution by or pursuant to any agreement with the United States Treasury.
The United States Treasury is not participating in this offering and will not
receive any of the proceeds of the sale of the Treasury Security to the
Depositor or the issuance of the Certificates. Neither the Depositor nor any of
its affiliates participated in the initial sale of the Treasury Security.
Description of the Deposited Assets
General
The Underlying Security consists of a United States Treasury Note having an
aggregate principal amount of $10,000,000, a coupon of 6.25% payable
semiannually on each February 15 and August 15 and a maturity of February 15,
2003 (the "Treasury Security"). The Treasury Security is not subject to
redemption by the United States of America prior to the stated maturity thereof.
The Treasury Security will be in such amount and will have such maturity as will
provide for payment in full on the Certificates of the Required Interest for
each Distribution Date and the Certificate Principal Balance on or about the
Final Distribution Date. This Prospectus Supplement sets forth certain relevant
terms with respect to the Treasury Security, but does not provide detailed
information with respect thereto. This Prospectus Supplement relates only to the
Certificates offered hereby and does not relate to the Treasury Security. An
investment in the Certificates is different from, and should not be considered a
substitute for, an investment in any Treasury Security. United States Treasury
securities, including the Treasury Security, are not rated by the Rating Agency.
Events of Default and Remedies
Holders of Treasury securities generally have the right upon default to
proceed individually in whatever manner is deemed to be appropriate. In such
event, any particular holder is not required to act in concert with other
holders. These remedies are generally exercisable by the Trustee on behalf of
the Certificateholders, not by Certificateholders directly. See "Description of
the Trust Agreement--Events of Default."
THE TREASURY SECURITY DEPOSITED IN THE TRUST REPRESENTS THE SOLE ASSET OF
THE TRUST THAT IS AVAILABLE TO MAKE DISTRIBUTIONS IN RESPECT OF THE
CERTIFICATES. CONSEQUENTLY, THE ABILITY OF CERTIFICATEHOLDERS TO RECEIVE
DISTRIBUTIONS IN RESPECT OF THE CERTIFICATES WILL DEPEND ON THE TRUST'S RECEIPT
OF PAYMENTS ON, OR IN RESPECT OF, THE TREASURY SECURITY. THIS PROSPECTUS
SUPPLEMENT RELATES ONLY TO THE CERTIFICATES BEING OFFERED HEREBY AND DOES NOT
RELATE TO THE TREASURY SECURITY.
S-7
<PAGE>
Description of the Certificates
General
The Certificates represent in the aggregate the entire beneficial ownership
interest in the Trust. The Certificates have in the aggregate an initial
Certificate Principal Balance of $10,000,000 and a 6.25% Pass-Through Rate.
The Certificates will be issued, maintained and transferred on the book-
entry records of DTC and its Participants in minimum denominations of $1,000 and
integral multiples thereof.
The Certificates will each initially be represented by one or more global
certificates registered in the name of the nominee of DTC (together with any
successor clearing agency selected by the Depositor, the "Clearing Agency"),
except as provided below. The Depositor has been informed by DTC that DTC's
nominee will be CEDE & Co. ("CEDE"). No holder of any such Certificate will be
entitled to receive a certificate representing such person's interest, except as
set forth below under "--Definitive Certificates." Unless and until Definitive
Certificates are issued under the limited circumstances described herein, all
references to actions by Certificateholders with respect to any such
Certificates shall refer to actions taken by DTC upon instructions from its
Participants. See --"Definitive Certificates" below and "Description of
Certificates--Global Securities" in the Prospectus.
Under the rules, regulations and procedures creating and effecting DTC and
its operations, DTC will take action permitted to be taken by a
Certificateholder under the Trust Agreement only at the direction of one or more
Participants to whose DTC account such Certificates are credited. Additionally,
DTC will take such actions with respect to specified Voting Rights only at the
direction and on behalf of Participants whose holdings of such Certificates
evidence such specified Voting Rights. DTC may take conflicting actions with
respect to Voting Rights, to the extent that Participants whose holdings of
Certificates evidence such Voting Rights, authorize divergent action.
Definitive Certificates
Definitive Certificates will be issued to Certificate Owners or their
nominees, respectively, rather than to DTC or its nominee, only if (i) the
Depositor advises the Trustee in writing that DTC is no longer willing or able
to discharge properly its responsibilities as Clearing Agency with respect to
each class of Certificates and the Depositor is unable to locate a qualified
successor or (ii) the Depositor, at its option, elects to terminate the book-
entry system through DTC.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee is required to notify all Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the definitive certificates representing the Certificates and receipt of
instructions for re-registration, the Trustee will reissue such Certificates as
Definitive Certificates issued in the respective principal amounts owned by the
individual owners of such Certificates, and thereafter the Trustee will
recognize the holders of such Definitive Certificates as Certificateholders
under the Trust Agreement.
S-8
<PAGE>
Listing on the New York Stock Exchange
The Certificates have been authorized for listing, upon official notice of
issuance, with the New York Stock Exchange (the "NYSE"). There can be no
assurance that the Certificates, once listed, will continue to be eligible for
trading on the NYSE.
Distributions
Collections on the Treasury Security 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 Certificateholders, the Required Interest, and to the
Depositor, the Initial Accrued Interest; and
(ii) to the Certificateholders, the Required Principal (if any).
If the Trustee has not received payment on the Treasury Security on or
prior to a Distribution Date, such distribution will be made upon receipt of
payment on the Treasury Security. No additional amounts will accrue on the
Certificates or be owed to Certificateholders as a result of any such delay. In
the event of a payment default on the Treasury Security, approved Extraordinary
Expenses (see "Description of the Trust Agreement--The Trustee" herein) of the
Trustee may be reimbursed to the Trustee out of Available Funds before any
distributions to Certificateholders are made.
All amounts received on or with respect to the Treasury Security, including
amounts received in connection with the purchase by a Warrantholder of the
Treasury Security, which are not distributed to Certificateholders on the date
of receipt, shall be invested by the Trustee in Eligible Investments.
There can be no assurance that collections received from the Treasury
Security over a specified period will be sufficient to make all required
distributions to the related Certificateholders. To the extent Available Funds
are insufficient to make any such distributions due, any shortfall will be
carried over and will be distributable on the next applicable Distribution Date
on which sufficient funds exist to pay such shortfalls.
For purposes hereof, the following terms have the following meanings:
"Available Funds" for any Distribution Date means the sum of all amounts
received on or with respect to the Treasury Security (including investment
income on Eligible Investments) received during the preceding Collection Period.
"Eligible Investments" means, with respect to the Certificates, United
States Treasury bills, provided that any investments must be consistent with the
Trust's status as a grantor trust for
S-9
<PAGE>
federal income tax purposes and acceptable to the Rating Agency as being
consistent with the rating of such Certificates, as specified in the Trust
Agreement. Generally, Eligible Investments must be limited to obligations or
securities that mature not later than the business day prior to the next
succeeding Distribution Date.
"Initial Accrued Interest" means, with respect to the Treasury Security,
the amount of interest that accrued thereon to, but excluding, the Cut-off Date.
"Required Interest" for the Certificates on any given Distribution Date
means the accrued and unpaid interest on the outstanding Certificate Principal
Balance, computed at the Pass-Through Rate.
"Required Principal" for the Certificates for any Distribution Date means
the amount received on the Treasury Security attributable to principal payments
thereon during the related Collection Period. No principal payments are
scheduled to be made on the Treasury Security until February 15, 2003.
Early Termination
The Certificates may be paid in full on any date on or after the February
28, 1998 (the "Early Termination Date") upon the purchase of the Treasury
Security by the holder of the Call Warrant. On the related Early Termination
Date, the Certificates will be paid in full in the amount of par plus accrued
interest (the "Early Termination Price").
The holder of a Call Warrant (the "Warrantholder") (see below) may provide
notice to the Trustee (a "Purchase Request") no less than 35 days prior to the
Early Termination Date that it will purchase the Treasury Security. The Trustee
will notify Certificateholders of the Early Termination Date not less than 30
days prior to such Early Termination Date.
On, or before, the Early Termination Date, the Warrantholder shall provide
the Trustee with the Liquidation Price for the Treasury Security. Upon receiving
such Liquidation Price, the Trustee will immediately deliver the Treasury
Security to the Warrantholder.
Delivery of the Treasury Security by the Trust to the Warrantholder will
only be made against payment by the Warrantholder in immediately available
funds. Such payment must occur no later than 10:00 a.m. New York City time on
the Early Termination Date. In the event that the Warrantholder fails to make
payment by such time (a "Purchase Default"), the sale of the Treasury Security
will be voided and the early termination will be deemed to not be effective with
respect to such Early Termination Date. In the event of a Purchase Default, the
Certificates shall continue to remain outstanding and the Warrantholder's rights
with respect to the Call Warrant shall be deemed surrendered to the Depositor.
Call Warrant
The Call Warrant represents the right to purchase the Treasury Security
from the Trustee for the price of par plus accrued interest to the Early
Termination Date (the "Liquidation Price").
S-10
<PAGE>
Under the terms of the Call Warrant and the Trust Agreement,
Certificateholders will not be entitled to terminate the Trust or cause the sale
or other disposition of the Treasury Security without the consents of the holder
of the Call Warrant. In addition, amendment of the Trust Agreement may require,
and amendment of the Call Warrant generally will require, consent of the
Warrantholder. See "Description of the Trust Agreement--Voting Rights." No Call
Warrants are being offered hereby.
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 will consist of (i) the
Treasury Security (upon the purchase thereof and subject to the Call Warrant)
and (ii) all payments on or collections in respect of the Treasury Security due
after the Cut-off Date. Reference is made to the Prospectus for important
information in addition to that set forth herein regarding the Trust, the terms
and conditions of the Trust Agreement and the Certificates. The following
summaries of certain provisions of the Trust Agreement do not purport to be
complete and are subject to the detailed provisions contained in the form of
Trust Agreement, to which reference is hereby made for a full description of
such provisions, including the definition of certain terms used herein.
The discussions in the Prospectus under "Description of the Trust Agreement
- --Advances in Respect of Delinquencies", "--Certain Matters Regarding the
Administrative Agent and the Depositor" (to the extent the discussion relates to
the Administrative Agent), "--Administrative Agent Termination Events; Rights
upon Administrative Agent Termination Event", and "--Evidence as to Compliance"
are not applicable to the Certificates.
The Trustee
Bank One, West Virginia, N.A., a national banking association, will act as
trustee for the Certificates and the Trust pursuant to the Trust Agreement. The
Trustee's offices are located at 707 Virginia Street East, 2nd Floor,
Charleston, West Virginia 25301, Attn: Corporate Trust Department and its
telephone number is (304) 348-4416.
Pursuant to the Trust Agreement, the Depositor shall pay the Ordinary
Expenses of the Trustee.
"Ordinary Expenses" are defined in the Trust Agreement and are generally
described as the Trustee's customary fee for its services as Trustee, including
(i) the costs and expenses of preparing, sending and receiving all reports,
statements, notices, returns, filings, solicitation of consent or instructions,
or other communications required by the Trust Agreement, (ii) the costs and
expenses of holding and making ordinary collection or payments on the assets of
the Trust and
S-11
<PAGE>
of determining and making payments of interest or principal, (iii) the costs and
expenses of the Trust's or Trustee's counsel, accountants and other experts for
ordinary or routine consultation or advice in connection with the establishment,
administration and termination of the Trust, and (iv) any other costs and
expenses that are or reasonably should have been expected to be incurred in the
ordinary course of administration of the Trust.
The Trust Agreement provides that the Trustee may not take any action
which, in the Trustee's opinion, would or might cause it to incur Extraordinary
Expenses with respect to a particular Trust, unless (i) the Trustee is satisfied
that it will have adequate security or indemnity in respect of such costs,
expenses and liabilities and (ii) the Trustee has been instructed to do so by
the Certificateholders representing not less than 100% of the aggregate voting
rights of the Certificates then outstanding; provided, however, that for
purposes of clause (ii) of this sentence, in the event of a payment default on
the Underlying Securities, a vote of not less than 66-2/3% of the aggregate
voting rights of the Certificates then outstanding shall suffice to instruct the
Trustee to incur such Extraordinary Expenses. Extraordinary Expenses so incurred
may be reimbursed to the Trustee out of the related Available Funds on any
Distribution Date before any distributions to the Certificateholders on such
Distribution Date are made, unless the Certificateholders voting to incur such
Extraordinary Expenses shall have agreed to bear the entire amount of such
Extraordinary Expenses. "Extraordinary Expenses" are defined in the Trust
Agreement as any and all costs, expenses or liabilities arising out of the
establishment, existence or administration of the Trust, other than (i) Ordinary
Expenses and (ii) costs and expenses payable by a particular Certificateholder,
the Trustee or the Depositor pursuant to the Trust Agreement.
The Trust Agreement will provide that the Trustee and any director,
officer, employee or agent of the Trustee will be indemnified by the Depositor
and will be held harmless against any loss, liability or expense incurred in
connection with any legal action relating to the Trust Agreement or the
Certificates or the performance of the Trustee's duties under the Trust
Agreement, other than any loss, liability or expense (i) that constitutes a
specific liability of the Trustee under the Trust Agreement or (ii) incurred by
reason of willful misfeasance, bad faith or negligence in the performance of the
Trustee's duties under the Trust Agreement or as a result of a breach, or by
reason of reckless disregard, of the Trustee's obligations and duties under the
Trust Agreement.
Events of Default
An event of default with respect to the Certificates under the Trust
Agreement (an "Event of Default") will consist of (i) a default in the payment
of any interest on the Treasury Security after the same becomes due and payable
(subject to any applicable grace period) or (ii) a default in the payment of the
principal of or any installment of principal of the Treasury Security when the
same becomes due and payable.
In the event of a default in the payment of any amount on the Treasury
Security the Trustee is required to proceed on behalf of the Certificateholders
to enforce its rights under the Treasury Security or otherwise protect the
interests of such Certificateholders. See "Description of the Trust
Agreement--Collection and Other Administrative Procedures" in the prospectus.
S-12
<PAGE>
The Trust Agreement will provide that, within 30 days after the occurrence
of an Event of Default in respect of the Certificates, the Trustee will give
notice to the holders of such Certificates and the Warrantholder, transmitted by
mail, of all such uncured or unwaived Events of Default known to it. However,
except in the case of an Event of Default relating to the payment of principal
of or interest on the Treasury Security, 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 and the
Warrantholder.
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 evidencing not less than the "Required Percentage--
Remedies" specified in the Series Supplement of the aggregate Voting Rights 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 evidencing
not less than the Required Percentage--Remedies of the aggregate Voting Rights
of such Series.
Voting Rights
At all times, 100% of all voting rights ("Voting Rights") will be allocated
among all holders of the Certificates in proportion to the then outstanding
Certificate Principal Balances of their respective Certificates.
The "Required Percentage--Amendment" of Voting Rights of those Certificates
that are materially adversely affected by any modification or amendment of the
Trust Agreement necessary to consent to such modification or amendment shall be
66-2/3%. In addition to the other restrictions on modification and amendment,
the Trustee will not enter into any amendment or modification of the Trust
Agreement which would adversely affect in any material respect the interests of
a Warrantholder without the consent of the Warrantholder; provided, however,
that no such amendment or modification will be permitted which would alter the
timing or amount of any payment of the Early Termination Price or which would
alter the status of a Trust as a grantor trust for Federal income tax purposes.
See "Description of the Trust Agreement--Modification and Waiver" in the
Prospectus. Further, no amendment to a Call Warrant will be permitted which
would adversely affect in any material respect the interests of the
Certificateholders without the consent of Certificateholders representing
66-2/3% of the aggregate Voting Rights of those Certificates that are materially
adversely affected by such modification or amendment and without confirmation by
the Rating Agency that such amendment will not result in a downgrading or
withdrawal of its rating of the Certificates; provided, however, that no such
amendment or modification will be permitted which would alter the timing or
amount of any payment of the Liquidation Price for the Treasury Security,
without the consent of Certificateholders representing 100% of the aggregate
Voting Rights or which would alter the status of the Trust as a grantor trust
for Federal income tax purposes. In addition, the Call Warrant may not be
amended without the consent of the Warrantholder.
S-13
<PAGE>
Voting of Underlying Securities, Modification Trust Agreement
The Trustee, as holder of the Treasury Security, has the right to vote and
give consents and waivers in respect of such Underlying Securities as permitted
by the Federal Reserve Bank and except as otherwise limited by the Trust
Agreement. In the event that the Trustee receives a request from Federal Reserve
Bank for its consent to any amendment, modification or waiver of the Treasury
Security or any other document thereunder or relating thereto, or receives any
other solicitation for any action with respect to the Treasury Security, 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 of the Certificates) 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 Treasury Security, including, without
limitation, any demand to accelerate the Treasury Security, except in the event
of an event of default with respect to the Treasury Security or an event which
with the passage of time would become an event of default and with the unanimous
consent of all applicable Certificateholders or (iii) which would result in the
exchange or substitution of the outstanding Treasury Security pursuant to a plan
for the refunding or refinancing of such Treasury Security except in the event
of a default under the Treasury Security and only with the unanimous consent of
the related Certificateholders. The Trustee shall have no liability for any
failure to act resulting from Certificateholders' late return of, or failure to
return, directions requested by the Trustee from the Certificateholders.
In the event that an offer is made by the United States to issue new
obligations in exchange and substitution for the Treasury Security, pursuant to
a plan for the refunding or refinancing of the Treasury Security or any other
offer is made for the Treasury Security, the Trustee shall notify the
Certificateholders of such offer as promptly as practicable. The Trustee must
reject any such offer unless an event of default under the Treasury Security has
occurred, the Trustee is directed by the affirmative vote of all of the
Certificateholders to accept such offer and the Trustee has received the tax
opinion described above.
If an event of default under the Treasury Security occurs and is continuing
and if directed by all the holders of outstanding Certificates, the Trustee
shall vote the Treasury Security in favor of directing, or take such other
action as may be appropriate to declare the unpaid principal amount of the
Treasury Security and any accrued and unpaid interest thereon to be due and
payable. In connection with a vote concerning whether to declare the
acceleration of the Treasury Security, the Certificateholders and the
Warrantholder may differ from each other and from holders of other securities of
the United States Treasury.
S-14
<PAGE>
Termination of the Trust
The Trust shall terminate upon the earliest to occur of the payment in full
at maturity or sale by the Trust in accordance with the Call Warrant of the
Treasury Security and the distribution in full of all amounts due to the
Certificateholders and the Warrantholder. See "Description of the Trust
Agreement--Termination" in the Prospectus. Under the terms of the Trust
Agreement, the Certificateholders will not be entitled to terminate the Trust or
cause the sale or other disposition of the Treasury Security, if and for so long
as the Call Warrant remains outstanding, without the consent of the
Warrantholder.
Federal Income Tax Consequences
This summary is based upon laws, regulations, rulings and decisions
currently in effect, all of which are subject to change, possibly on a
retroactive basis. The discussion does not deal with all Federal tax
consequences applicable to all categories of investors, some of which may be
subject to special rules. In addition, this summary is generally limited to
investors who will hold the Certificates as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended (the "Code"), and who do not hold their
Certificates as part of a "straddle", a "hedge" or a "conversion transaction."
Investors should consult their own tax advisors to determine the Federal, state,
local and other tax consequences of the purchase, ownership and disposition of
the Certificates.
The Trust has been provided with an opinion of Chapman and Cutler, Chicago,
Illinois, special Federal tax counsel to the Depositor ("Federal Tax Counsel")
regarding certain Federal income tax matters discussed below. An opinion of
Federal Tax Counsel, however, is not binding on the Internal Revenue Service
(the "Service") or the courts. Prospective investors should note that no rulings
have been or will be sought from the Service with respect to any of the Federal
income tax consequences discussed below, and no assurance can be given that the
Service will not take contrary positions.
Grantor Trust Certificates
In the opinion of Federal Tax Counsel, the Trust will be classified as a
grantor trust and not as an association taxable as a corporation for Federal
income tax purposes. Accordingly, each owner of a Certificate (a "Certificate
Owner") will be subject to Federal income taxation as if it owned directly the
portion of the Deposited Assets allocable to such Certificates, as if it issued
directly the portion of the Call Warrant allocable to such Certificates, as if
it received interest, if any, on Eligible Investments held in the Trust and as
if it paid directly its share of expenses paid by the Trust. The following
discussion assumes that the Underlying Security was 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, if
any, in the Trust in proportion to
S-15
<PAGE>
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, if any, 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 Security 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 Security to the extent the Certificate is entitled to receive a
proportionate amount of all principal of a particular maturity represented by
the Underlying Security and all interest relating thereto. A Certificate will be
considered to represent a stripped interest in the Underlying Security if the
Certificate is entitled to receive less than all of the interest on a particular
maturity represented by the Underlying Security or if the Certificate is
entitled to receive all or part of the interest on a particular maturity
represented by the Underlying Security but no principal on the Underlying
Security. In addition, if a Certificate is entitled to receive interest and
principal on a particular maturity represented by the Underlying Security, but
the interest it is entitled to receive on a particular maturity represented by
the Underlying Security is disproportionately more than the principal it is
entitled to receive on a particular maturity represented by the Underlying
Security, 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 Security 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
Security and (b) a stripped interest in a particular maturity represented by the
Underlying Security to the extent of any additional interest to which it is
entitled on a particular maturity represented by the Underlying Security. 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 Security, 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, if any, held by the Trust, any gain or loss upon collection or
disposition of the corresponding Underlying Security, other Deposited Assets, or
as further described below under "Purchase and Sale of a Certificate" the sale
or other disposition of a Certificate. In addition, gross income of a Trust may
include any expenses of a Trust paid by the Depositor or other party. The
portion of each monthly payment to a Certificate Owner that is allocable to
principal on the corresponding Underlying Security (other than amounts
representing market discount, as described below) will represent a recovery of
capital, which will reduce the tax basis of such Certificate Owner's undivided
interest in the Underlying Security.
S-16
<PAGE>
To the extent that the portion of the purchase price of a Certificate
allocated to a Certificate Owner's undivided interest in an Underlying Security,
based on the relative fair market value of a Treasury Security in which an
interest is acquired as well as other Deposited Assets in which an interest is
acquired, is greater than or less than the portion of the principal balance of
the Underlying Security allocable to the Certificate, such interest in the
Underlying Security will have been acquired at a premium or discount, as the
case may be (the "Allocated Purchase Price"). This allocation is required to be
calculated separately for each Underlying Security represented by a Certificate.
To the extent that the allocated Purchase Price is less than the principal
balance of an Underlying Security, the Certificate Owner's interest in such
Underlying Security will be treated as purchased at a "market discount." The
market discount on a Underlying Security will, however, be considered to be zero
if it is less than a statutorily defined de minimis amount. Conversely, to the
extent that the allocated Purchase Price exceeds the principal balance of an
Underlying Security, the Certificate Owner's interest therein will be treated as
purchased with "bond premium." See the discussion below under "Bond Premium."
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, if any, of the
Trust.
In general, under the market discount provisions of the Code, all or a
portion of the principal payments received by the related Trust and the gain
recognized upon a sale, maturity or disposition of the 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 the 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 Security (or a Certificate Owner acquired a Certificate
related thereto) and up and to the date of the maturity of the Underlying
Security. At the election of a Certificate Owner, market discount can be accrued
under a constant yield method as further described on the Code. The ordinary
income treatment on dispositions described above will not apply if a Certificate
Owner elects (or has previously elected) to include market discount in income
currently as it accrues for each taxable year during which it holds the
Certificate. Such election, if made, will also apply to all debt instruments
acquired directly or indirectly, by the Certificate Owner during the year in
which the election is made and all debt instruments acquired thereafter and is
irrevocable without the consent of the Service. If a Certificate Owner does not
elect to annually include accrued market discount in taxable income as it
accrues, deductions for any interest expense incurred by a Certificate Owner
that is incurred to purchase or carry a Certificate will be reduced by such
accrued market discount. In general, the portion of any interest expense that
was not currently deductible would ultimately be deductible when the accrued
market discount is included in income. Certificate Owners should consult their
tax advisors regarding whether an
S-17
<PAGE>
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 Security, 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 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
S-18
<PAGE>
Interests," a Certificate Owner would report its share of the income of the
related Trust under its usual method of accounting.
If the OID with respect to the stripped interest in a particular maturity
represented by the Underlying Security 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. The Depositor has been
advised that the premium associated with the purchase of the Treasury Security
should be considered to be $16.00 for each $1,000 principal amount of
Certificate.
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.
S-19
<PAGE>
Modification or Exchange of the Underlying Security
Depending upon the circumstances, it is possible that a modification of the
terms of the Underlying Security, or a substitution of other assets for the
Underlying Security, 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 (A) increased by the sum of (i) the fair market value
of the Call Warrant allocable to such Certificate and (ii) any amounts of
undistributed taxable income (e.g., OID or market discount) and (B) reduced by
any (i) amortized premium (as described above) and (ii) payments other than
payments of qualified stated interest, if any (subject to the application of the
discussion set forth above in the preamble to the De Minimis Regulation), on an
Underlying Security represented by the Certificate. In addition a Certificate
Owner's tax basis in a Certificate may be reduced by expenses of the Trust paid
by the Depositor or other party.
If a Certificate Owner sells its Certificate, gain, if any, will constitute
ordinary income to the extent of the aggregate of the accrued market discount
(which has not previously been included in such Certificate Owner's taxable
income) with respect to the Certificate Owner's pro rata portion of the
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) the tax on which will be dependent on the holding period of the
Certificates and other factors. A Certificate Owner will recognize taxable gains
(or losses) (a) upon redemption or sale of its Certificate, (b) if the Trustee
disposes of an asset of the Trust or (c) upon receipt by the Trustee of payments
of principal on the Underlying Security. 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 the Underlying Security 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 the Code relating to amortization of bond premium may, under
some circumstances, result in the Certificate Owner realizing a taxable gain
when its Certificates are sold or redeemed for an amount equal to its original
cost. In addition, Certificate Owners must reduce the tax basis of its
Certificates and
S-20
<PAGE>
their pro rata portion of the Underlying Security of the Trust for their share
of accrued interest received by the Trust, if any, on Underlying Security
delivered after the Certificate Owner pays for its Certificates to the extent
that such interest accrued on such Underlying Security during the period from
the Certificate Owner's settlement date to the date such Underlying Security is
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 Security.
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 remained subject to a 28% maximum stated
rate for taxpayers other than corporations. Because some or all capital gains
are taxed at a comparatively lower rate under the Act, the Act includes a
provision that recharacterizes capital gains as ordinary income in the case of
certain financial transactions that are "conversion transactions" effective for
transactions entered into after April 30, 1993. Certificate Owners and
prospective investors should consult with their tax advisors regarding the
potential effect of this provision on their investment in the Certificates.
Call Premium; Exercise of Call Warrant
As described above, each Certificateholder should be deemed to have
received at the time of its purchase of its Certificate a call premium in an
amount equal to the fair market value of the portion of the Call Warrant
allocable to its Certificate. The receipt of such call premium should not be a
taxable event to the Certificateholder until such time as the Call Warrant so
allocable to its Certificate is exercised or lapses. If the Call Warrant lapses
unexercised, the Certificateholder will be required to include the call premium
in income for the taxable year the Call Warrant terminated as short-term capital
gain. If the related Call Warrant is exercised, the proceeds of sale of the
Certificate will be increased by the amount of the call premium. The gain from
such sale will be long-term or short-term capital gain, depending upon whether
the Certificate was then held for the requisite holding period.
Backup Withholding
Payments made on the Certificates and proceeds from the sale of the
Certificates will not be subject to a "backup" withholding tax of 31% unless, in
general, the Certificate Owner fails to comply with certain reporting procedures
and is not an exempt recipient under applicable provisions of the Code.
S-21
<PAGE>
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 (i) an individual citizen or resident of the
U.S., (ii) a corporation or partnership organized in or under the laws of the
U.S. or any political subdivision thereof, (iii) an estate the income of which
is includible in gross income for U.S. Federal income tax purposes, regardless
of its source, or (iv) a trust if a court within the U.S. is able to exercise
primary supervision over the administrations of such trust and one or more U.S.
fiduciaries have the authority to control all the substantial decisions of such
trust.
State and Other Tax Consequences
Under Federal legislation, interest on Treasury obligations is generally
exempt from state and local income taxes on individual investors. This exemption
should apply to an individual Certificate Owner's share of interest on the
Treasury Security. The exemption does not extend to gain on sale or other
disposition of a Certificate or on exercise or expiration of a Call Warrant
(including any such gain arising under an alternate tax position described
above). Prospective purchasers should consult their tax advisors concerning
state, local, foreign and other tax consequences of the acquisition and holding
of Certificates.
ERISA Considerations
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain requirements on (a) an employee benefit plan (as
defined in Section 3(3) of ERISA), (b) a plan described in Section 4975(e)(I) of
the Code or (c) any entity whose underlying assets include plan assets by reason
of a plan's investment in the entity (each, a "Plan").
In accordance with ERISA's general fiduciary standards, before investing in
a Certificate, a Plan fiduciary should determine whether such an investment is
permitted under the governing Plan instruments and is appropriate for the Plan
in view of its overall investment policy and the composition and diversification
of its portfolio. Other provisions of ERISA and the Code prohibit certain
transactions involving the assets of a Plan and persons who have certain
specified relationships to the Plan ("parties in interest" within the meaning of
ERISA or "disqualified persons" within the meaning of the Code). Thus, a Plan
fiduciary considering an investment in Certificates should also consider whether
such an investment might constitute or give rise to a prohibited transaction
under ERISA or the Code.
An investment in Certificates by a Plan might result in the assets of the
related Trust being deemed to constitute Plan assets, which in turn might mean
that certain aspects of such investment, including the operation of the related
Trust, might be prohibited transactions under ERISA and the
S-22
<PAGE>
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
related Trust unless (1) such Certificate is a "publicly-offered security" or
(2) equity participation in such class by benefit plan investors is not
"significant."
A publicly-offered security is a security that is (1) freely transferable,
(2) part of a class of securities that is owned by 100 or more investors
independent of the issuer and of one another at the conclusion of the initial
offering and (3) either is (A) part of a class of securities registered under
Section 12(b) or 12(g) of the Exchange Act, or (B) sold to the Plan as a part of
an offering of securities to the public pursuant to an effective registration
statement under the Securities Act and the class of securities of which such
security is a part is registered under the Exchange Act within 120 days (or such
later time as may be allowed by the Commission) after the end of the fiscal year
of the issuer during which the offering of such securities to the public
occurred. The Depositor makes no representation as to whether the Certificates
of any class will be considered publicly-offered securities within the meaning
of the Regulation.
Participation by benefit plan investors in any class of Certificates would
not be significant if immediately after the most recent acquisition of
Certificates of such class, whether or not from the Depositor or an Agent or
Underwriter, less than 25 percent of the value of such class were held by
benefit plan investors, which are defined as Plans and employee benefit plans
not subject to ERISA (for example, governmental plans). There can be no
assurance that less than 25 percent of the value of any given class of
Certificates will be held by benefit plan investors.
If assets of a Trust were deemed to be Plan assets, certain transactions
involving such Trust, including the acquisition of the Certificates themselves
by a Plan, could be prohibited transactions. If, for example, any holder of a
Call Warrant were a party in interest or disqualified person with respect to a
Plan investor, the exercise of the Call Warrant could be construed as a
prohibited indirect sale from the Plan to the holder of the Call Warrant. Any
such prohibited transaction could be treated as exempt under ERISA and the Code
if the Certificates were acquired pursuant to and in accordance with one or more
"class exemptions" issued by the DOL, such as Prohibited Transaction Class
Exemption ("PTCE") 84-14 (an exemption for certain transactions determined by an
independent qualified professional asset manager), PTCE 91-38 (an exemption for
certain transactions involving bank collective investment funds), PTCE 90-1 (an
exemption for certain transactions involving insurance company pooled separate
accounts) or PTCE 95-60 (an exemption for certain transactions involving
insurance company general accounts).
Certificates will not be sold to any Plan unless such Plan represents that
the acquisition of a Certificate would not be prohibited under ERISA and the
Code because an exemption is applicable to the acquisition and holding of the
Certificates and the activities of the related Trust. Alternatively, if the
Depositor is able to confirm the existence of at least 100 independent
S-23
<PAGE>
purchasers of a class, the foregoing representation will not be a condition to
acquisition of Certificates of such class.
Any Plan proposing to acquire Certificates should consult with its counsel.
Plan of Distribution
Subject to the terms and conditions set forth in the Underwriting
Agreement, dated as of August 25, 1997 (the "Underwriting Agreement"), the
Depositor has agreed to sell and Morgan Keegan & Company, Inc. (an affiliate of
the Depositor) (the "Underwriter") has agreed to purchase, all of the
Certificates at a price of 99%.
The Depositor has been advised by the Underwriter that it proposes to offer
the Certificates from time to time in negotiated transactions at varying prices
to be determined at the time of sale. The Underwriter may effect such
transactions by selling Certificates to or through dealers and such dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriter and any purchasers of Certificates for whom
they may act as agents. Concession to dealers may vary but will not exceed 1%.
The Underwriter and any dealers that participate with the Underwriter in the
distribution of Certificates may be deemed to be underwriters, and any profit on
the resale of Certificates by them may be deemed to be underwriting discounts or
commissions under the Securities Act. The acquisition by the Depositor of the
Call Warrant at a discount to their value may be deemed to represent
underwriting compensation.
If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will also be used by the Underwriter
after the completion of the offering in connection with offers and sales related
to market-making transactions in the Offered Certificates in which the
Underwriter acts as principal. The Underwriter may also act as agent in such
transactions. Sales will be made at negotiated prices determined at the time of
sale.
The Underwriter may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves syndicate sales in excess of
the offering size, which creates a syndicate short position. Stabilizing
transactions permit bids and purchases of the Certificates so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Certificates in the open market in order
to cover syndicate short positions. Penalty bids permit the Underwriter to
reclaim a selling concession from a syndicate member when the Certificates
originally sold by such syndicate member are purchased in a stabilizing
transaction or syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the Certificates to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the New York Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.
S-24
<PAGE>
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Securities Act, or will contribute to payments the Underwriter may be required
to make in respect thereof.
Morgan Keegan & Company, Inc. is an affiliate of the Depositor, and the
participation by Morgan Keegan & Company, Inc. in the offering of the
Certificates complies with Schedule E of the By-Laws of the National Association
of Securities Dealers, Inc. regarding underwriting securities of an affiliate.
It is expected that delivery of the Certificates will be made against
payment therefor on or about the date specified in the last paragraph of the
cover page of this Prospectus Supplement, which is more than three business days
following the date hereof. Under Rule 15c6-1 of the U.S. Securities and Exchange
Commission under the Exchange Act, trades in the secondary market generally are
required to settle in three business days, unless the parties to any such trade
expressly agree otherwise. Accordingly, purchasers who wish to trade
Certificates on the date hereof or prior to August 26, 1997 will be required, by
virtue of the fact that the Certificates initially will settle more than three
business days after the date hereof, to specify an alternate settlement cycle at
the time of any such trade to prevent a failed settlement. Purchasers of
Certificates who wish to trade Certificates on the date hereof or prior to
August 26, 1997 should consult their own advisor.
Ratings
It is a condition to the issuance of the Certificates that the Certificates
be rated not lower than "AAA" by Standard & Poor's Ratings Services ("Standard &
Poor's" or the "Rating Agency"). The ratings address the likelihood of the
receipt by the Certificateholders of payments required under the Trust
Agreement, and are based primarily on the credit quality of the Treasury
Security. The rating on the Certificates does not, however, constitute a
statement regarding the occurrence or frequency of redemptions or prepayments
on, or extensions of the maturity of, the Certificates, the corresponding effect
on yield to investors.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning Rating
Agency. Each security rating should be evaluated independently of similar
ratings on different securities. A security rating does not address the
likelihood of the exercise of the Call Warrant, or the corresponding effect on
yield to investors.
The Depositor has not requested a rating on the Certificates by any rating
agency other than the Standard & Poor's. However, there can be no assurance as
to whether any other rating agency will rate the Certificates, or, if it does,
what rating would be assigned by any such other rating agency. A rating on the
Certificates by another rating agency, if assigned at all, may be lower than the
ratings assigned to the Certificates by the Standard & Poor's.
Legal Opinions
Certain legal matters relating to the Certificates will be passed upon for
the Depositor and the Underwriter by Chapman and Cutler, Chicago, Illinois.
S-25
<PAGE>
Index of Terms
<TABLE>
<CAPTION>
Term Page
<S> <C>
Act.............................................................. S-22
Allocated Purchase Price......................................... S-18
Available Funds.................................................. S-10
Base Trust Agreement............................................. S-4
CEDE............................................................. S-9
Certificate Owner................................................ S-16
Certificates..................................................... S-1, S-4
Clearing Agency.................................................. S-9
Closing Date..................................................... S-2
Code............................................................. S-16
De Minimis Regulation............................................ S-19
Depositor........................................................ S-1
Distribution Date................................................ S-1, S-4
DOL.............................................................. S-24
DTC.............................................................. S-3, S-6
Early Termination Date........................................... S-1, S-5, S-11
Early Termination Price.......................................... S-1, S-5, S-11
Eligible Investments............................................. S-10
ERISA............................................................ S-6, S-23
Event of Default................................................. S-13
Extraordinary Expenses........................................... S-13
Federal Tax Counsel.............................................. S-16
Final Distribution Date.......................................... S-1, S-4
Foreign Certificate Owners....................................... S-23
Initial Accrued Interest......................................... S-11
Liquidation Price................................................ S-5
NYSE............................................................. S-1, S-10
OID.............................................................. S-16
Ordinary Expenses................................................ S-12
Participants..................................................... S-3
Plan............................................................. S-6, S-23
Prospectus....................................................... S-1
PTCE............................................................. S-24
Purchase Default................................................. S-11
Purchase Request................................................. S-5, S-11
Rating Agency.................................................... S-26
Regulation....................................................... S-24
Required Interest................................................ S-11
Required Principal............................................... S-11
Series Supplement................................................ S-4
Service.......................................................... S-16
Standard & Poor's................................................ S-26
stripped interest................................................ S-17
</TABLE>
S-26
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Superfund Tax.................................................... S-22
Treasury Note.................................................... S-6
Treasury Security................................................ S-1, S-8
Trust............................................................ S-1, S-4
Trust Agreement.................................................. S-1, S-4
Trustee.......................................................... S-1
Underlying Security.............................................. S-1
Underwriter...................................................... S-2, S-25
Underwriting Agreement........................................... S-25
United States person............................................. S-23
Voting Rights.................................................... S-14
Warrantholder.................................................... S-5, S-11
</TABLE>
S-27
<PAGE>
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or make any representations not contained in this Prospectus
Supplement and the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Depositor or by the Underwriter. This Prospectus Supplement and the Prospectus
do not constitute an offer to sell, or a solicitation of an offer to buy, the
securities offered hereby to anyone in any jurisdiction in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make any such offer or solicitation. Neither the delivery of
this Prospectus Supplement and the Prospectus nor any sale made hereunder shall,
under any circumstances, create an implication that information herein or
therein is correct as of any time since the date of this Prospectus Supplement.
-------------------
Table of Contents
Prospectus Supplement
<TABLE>
<CAPTION>
Page
<S> <C>
Summary...................................................................S-3
Risk Factors..............................................................S-6
Formation of the Trust....................................................S-6
Description of the Deposited Assets.......................................S-7
Description of the Certificates...........................................S-8
Description of the Trust Agreement.......................................S-11
Federal Income Tax Consequences..........................................S-15
State and Other Tax Consequences.........................................S-22
ERISA Considerations.....................................................S-22
Plan of Distribution.....................................................S-24
Ratings..................................................................S-25
Legal Opinions...........................................................S-25
Index of Terms...........................................................S-26
Prospectus
Prospectus Supplement.......................................................2
Available Information.......................................................2
Incorporation of Certain Information by Reference...........................3
Reports to Certificateholders...............................................3
Risk Factors................................................................6
The Depositor...............................................................8
Use of Proceeds.............................................................9
Formation of the Trust......................................................9
Maturity and Yield Considerations..........................................10
Description of Certificates................................................12
Description of Deposited Assets and Credit Support.........................26
Description of the Trust Agreement.........................................33
Plan of Distribution.......................................................45
Legal Opinions.............................................................46
Index of Terms.............................................................47
</TABLE>
-------------------
Until 25 days after the date of the Prospectus Supplement, all dealers
effecting transactions in the related Certificates, whether or not participating
in the distribution thereof, may be required to deliver this Prospectus and the
related Prospectus Supplement. This delivery requirement is in addition to the
obligation of dealers to deliver a Prospectus Supplement and Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
================================================================================
================================================================================
$10,000,000
Southpoint Structured
Assets, Inc.
6.25%
Treasury Security-Backed Certificates,
Series 1997-1
--------------------
Prospectus Supplement
--------------------
Morgan Keegan & Company, Inc.
August 25, 1997
================================================================================
