<PAGE>
Prospectus Supplement Filed pursuant to Rule 424(b)(2)
(To Prospectus Dated November 15, 1996) Registration No. 333-9883
$5,000,000
TVA Security-Backed Certificates, Series 1998-1
6.25% Certificates due December 15, 2017
Southpoint Structured Assets, Inc.
Depositor
The TVA Security-Backed Certificates, Series 1998-1 offered hereby (the
"Certificates") will be issued by the TVA Security-Backed Trust, Series 1998-1
(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 1998-1 Supplement, dated as of March 19, 1998 (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 $5,000,000 in
aggregate principal amount of Power Bonds 1997 Series E issued by the Tennessee
Valley Authority having a coupon of 6.25% and a maturity of December 15, 2017
(the "TVA Security" or the "Underlying Security"). See "Description of the
Deposited Assets" herein. The TVA Security will be acquired by the Underwriter
in the secondary market before being deposited into the Trust, subject to the
Call Warrant (as defined herein), for the benefit of the Certificateholders.
Interest and principal on the TVA Security are payable solely from Net Power
Proceeds (as described herein) and are not obligations of, or guaranteed by the
United States of America. 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
June 15 and December 15 of each year, commencing June 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 December 15, 2017 (the "Final Scheduled Distribution Date").
See "Description of the Certificates--Distributions" herein.
The Certificates may be paid in full on any date on or after June 15, 2001
(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 TVA 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 LOGO HERE]
See "Risk Factors" herein on page S-7 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 or the Tennessee Valley Authority 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.
-------------------------------------
Dain Rauscher Corporation (the "Underwriter") has agreed to purchase from
the Depositor the Certificates at 97.795% of the Certificate Principal Balance
thereof ($4,889,750 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 March 19,
1998 (the "Closing Date").
Dain Rauscher Corporation
March 16, 1998
<PAGE>
(Cover page continued.)
As and to the extent described herein, collections received by the Trustee
with respect to the Underlying Security will be distributed to the
Certificateholders in the manner and priority described herein. Neither the
Tennessee Valley Authority nor any 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 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 a global certificate
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 "Risk Factors" in the Prospectus and in this Prospectus
Supplement.
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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.................................TVA Security-Backed Trust, Series
1998-1 (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 1998-1
Supplement, dated as of the Closing
Date (the "Series Supplement" and,
together with the Base Trust
Agreement, the "Trust Agreement").
Certificates Offered......................TVA Security-Backed Certificates,
Series 1998-1 (the "Certificates").
Initial Certificate
Principal Balance.........................$5,000,000
Distribution Dates........................Distributions on the Certificates will
be made semi-annually on June 15 and
December 15 of each year, commencing
June 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 December 15, 2017
(the "Final Scheduled Distribution
Date").
Final Scheduled Distribution Date.........December 15, 2017
The actual distribution may occur
prior to the Final Scheduled
Distribution Date in the event of an
Early Termination Date.
Pass-Through Rate.........................6.25% per annum.
Required Interest.........................Interest on the Certificates will be
distributed each Distribution Date,
commencing June 15, 1998, in an
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amount equal to the accrued and unpaid
interest on the outstanding Certificate
Principal Balance, computed at the Pass-
Through Rate ("Required Interest").
Required Interest distributable on a
Distribution Date will accrue from and
including the preceding Distribution Date
(or, in the case of the first Distribution
Date, from and including the Cut-off Date)
to but excluding the then current
Distribution Date and will be calculated on
the basis of a 360-day year consisting of
twelve 30-day months. Required Interest
distributions with respect to the
Certificates will be made only from
Available Funds. See "Description of
Certificates--Distributions."
Cut-off Date.........................March 19, 1998.
Record Date..........................The day immediately preceding a
Distribution Date.
Denominations........................The Certificates will be available for
purchase in minimum denominations of $1,000
and integral multiples thereof.
Early Termination Dates..............The Certificates may be paid in full on any
date on or after June 15, 2001 (the "Early
Termination Date") in an amount equal to
par plus accrued interest (the "Early
Termination Price"), upon the purchase of
the TVA 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 TVA
Security at a price of par plus accrued
interest to the Early Termination Date (the
"Liquidation Price"). The holder of the
Call Warrant (the "Warrantholder")
initially will be the Depositor or an
affiliate thereof. The Depositor may
transfer the Call Warrant at any time but
the Call Warrant is not being offered
hereby.
Early Termination
Provisions...........................The 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 TVA Security. The
Trustee will notify the Certificateholders
of the Early Termination Date no
S-4
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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 TVA Security and the Trustee
will deliver the TVA 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.
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......................873055 AA5
Trustee...........................Bank One, West Virginia, N.A., as trustee. The
initial Trustee's fee, in an amount not to
exceed $4,200, will be paid by the Depositor
on the Closing Date. Thereafter, the Trustee
will be paid $1,200 each year from funds other
than assets of the Trust.
Federal Income
Tax Consequences..................In the opinion of tax counsel to the
Depositor, 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
S-5
<PAGE>
Certificates would not be prohibited
under ERISA or the Code. See "ERISA
Considerations."
Rating Agency............................Standard & Poor's Ratings Group
("S&P").
Rating...................................It is a condition to the issuance of
the Certificates that they be rated
"AAA" by the Rating Agency. 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 TVA Security
Underlying Security or
TVA Security.............................$5,000,000 in aggregate principal
amount of a Power Bond 1997 Series E
issued by the Tennessee Valley
Authority (the "TVA Security").
Principal and interest on the TVA
Security will be payable solely from
the Tennessee Valley Authority's Net
Power Proceeds (as described herein).
Denominations............................The TVA Securities are available in
minimum denominations of $1,000 and
integral multiples thereof.
TVA Security Original
Issue Date...............................December 22, 1997
TVA Security Maturity
Date.....................................December 15, 2017
TVA Security
Payment Dates............................June 15 and December 15, commencing
June 15, 1998
TVA Security Interest Rate...............6.25% per annum (30/360 payment basis)
Form of Underlying Security..............Book-entry, maintained and transferred
only on the book-entry system operated
by the Federal Reserve Bank.
S-6
<PAGE>
Rating of the TVA
Security......................The TVA Security is rated AAA 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 TVA Security, and thereby causes 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 TVA
Security. If the TVA 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 TVA Security into the Trust subject to the Call Warrant. The
Trustee, on behalf of the Trust, will accept such TVA Security and will deliver
the Certificates to or upon the order of the Depositor. The Trustee will hold
the TVA Security, when purchased, for the benefit of the Certificateholders,
subject to the rights of the Warrantholder. See "Description of the
Certificates--General," "--Early Termination" and "--Call Warrants."
The TVA Security will be purchased by the Underwriter in the secondary
market. The TVA Security will not be acquired from the Tennessee Valley
Authority as part of any distribution by or pursuant to any agreement with the
Tennessee Valley Authority . The Tennessee Valley Authority is not participating
in this offering and will not receive any of the proceeds of the sale of the TVA
Security to the Underwriter or the issuance of the
S-7
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Certificates. Neither the Depositor, the Underwriter, nor any of their
affiliates participated in the initial sale of the TVA Security.
Description of the TVA Security
General
The only asset of the Trust will consist of $5,000,000 in aggregate
principal amount of Power Bonds 1997 Series E issued by the Tennessee Valley
Authority (the "TVA"), with a coupon of 6.25% payable on June 15 and December 15
of each year and a maturity of December 15, 2017 and which is subject to the
Call Warrant (the "TVA Security"). The TVA Security is not subject to redemption
by the TVA prior to the stated maturity thereof. This Prospectus Supplement sets
forth certain relevant terms with respect to the TVA 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 TVA
Security. An investment in the Certificates is different from, and should not be
considered a substitute for, an investment in any Security Issued by the
Tennessee Valley Authority.
The TVA Security was issued pursuant to authority vested in TVA by the
Tennessee Valley Authority Act of 1933, as amended (the "Act") and pursuant to
the Basic Tennessee Valley Authority Power Bond Resolution adopted on October 6,
1960, as amended on September 28, 1976, October 17, 1989 and March 25, 1992 (the
"Basic Resolution"), and the Supplemental Resolution authorizing the TVA
Security adopted on December 17, 1997 (the "Supplemental Resolution" and
together with the Basic Resolution, the "Resolutions"). TVA has entered into a
Fiscal Agency Agreement, dated as of October 7, 1997 (the "Fiscal Agency
Agreement"), with the Federal Reserve Banks, as fiscal agents (together, the
"Fiscal Agent"). The Secretary of the Treasury has approved the time of issuance
of, and the maximum rate of interest to be borne by, the TVA Security in
compliance with Section 15d(c) of the Act. The TVA Security represents
obligations of TVA payable solely from TVA's Net Power Proceeds (as described
below) and are not obligations of, or guaranteed by, the United States of
America.
The TVA Security is payable as to both principal and interest solely from
TVA's Net Power Proceeds, which are defined as the remainder of TVA's Gross
Power Revenues (as defined in the Basic Resolution) after deducting the costs of
operating, maintaining, and administering its power properties (including
multiple-purpose properties in the proportion that multiple-purpose costs are
allocated to power) and payments to states and counties in lieu of taxes, but
before deducting depreciation accruals or other charges representing the
amortization of capital expenditures, plus the net proceeds of the sale or other
disposition of any Power Facility (as defined in the Basic Resolution) or
interest therein.
S-8
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Available Information
The TVA does not file reports or other information with the U.S. Securities
and Exchange Commission. TVA is required annually to file with the President and
with the Congress a financial statement and a complete report as to the business
of TVA. The Comptroller General of the United States is authorized to
periodically audit the transactions of TVA.
The TVA has prepared an Offering Circular dated December 17, 1997 and an
Information Statement that contains the terms of the TVA Securities and other
information as the TVA considers necessary or appropriate. Copies of the
Offering Circular, the current Information Statement, the Act, the Resolutions
and the Fiscal Agency Agreement may 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 (423) 632-3366.
The then current Information Statement and other information concerning TVA may
be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
The Tennessee Valley Authority
TVA is a wholly owned corporate agency and instrumentality of the United
States established by the Act with the objective of developing the resources of
the Tennessee Valley region in order to strengthen the regional and national
economy and the national defense.
TVA's programs fall into two types of activities - the power program and
the nonpower programs. Substantially all TVA revenues and assets are
attributable to the power program. The power program is required to be self-
supporting from revenues it produces and capital it raises in the public
markets. Financial accounts for the two types of TVA activities - power and
nonpower - are kept separately. Proceeds from the sale of TVA's new power bonds,
discount notes, and other indebtedness (collectively "Evidences of
Indebtedness") may be used only for the power program. TVA is authorized by the
Act to issue Evidences of Indebtedness to assist in financing its power program
in an amount not exceeding $30 billion outstanding at any one time.
Congress has reserved the right to alter, amend or repeal the Act, but has
provided that no amendment or repeal shall operate to impair the obligation of
any contract made by TVA in the exercise of any power conferred by the Act.
TVA is administered by the Board of Directors of TVA (the "Board") which is
composed of three persons appointed by the President and confirmed by the
Senate. Appointments are for nine-year staggered terms with one term expiring
with each three-year interval. The Board has sole authority for determining the
rates which TVA charges for power. The Act requires TVA to charge rates for
power which, among other things, will produce gross revenues sufficient to
provide funds for operation, maintenance, and administration of its power
system; payments to states and counties in lieu of taxes; debt
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service on outstanding Evidences of Indebtedness, including provision and
maintenance of reserve funds and other funds established in connection
therewith.
Events of Default and Remedies
Holders of TVA 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 TVA Security does not provide for
acceleration upon an event of default.
The TVA Securities deposited in the Trust represent the sole assets of the
Trust that are available to make distributions in respect of the Certificates.
Consequently, the ability of Certificateholders to receive distributions in
respect of the Certificates will depend on the Trust's receipt of payments on,
or in respect of, the TVA Securities. This Prospectus Supplement relates only to
the Certificates being offered hereby and does not relate to the TVA Securities.
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 $5,000,000 and a Pass-Through Rate of 6.25%.
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. See "NDTC Book-Entry System" below and "Description
of Certificates--Global Securities" in the Prospectus.
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.
Interest
Interest on the Certificates will be distributed each Distribution Date,
commencing June 15, 1998, in an amount equal to the accrued and unpaid interest
on the outstanding Certificate Principal Balance, computed at the Pass-Through
Rate ("Required Interest"). Required Interest distributable on a Distribution
Date will accrue from and including the
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preceding Distribution Date (or, in the case of the first Distribution Date,
from and including the Cut-off Date) to but excluding the current Distribution
Date and will be calculated on the basis of a 360-day year consisting of twelve
30-day months. Required Interest distributions with respect to the Certificates
will be made only from Available Funds. See "--DISTRIBUTIONS."
PRINCIPAL
Principal on the Certificates will be distributed on the Final Scheduled
Distribution Date or upon the Early Termination Date. Principal distributions
with respect to the Certificates will be made from Available Funds. See
"DESCRIPTION OF CERTIFICATES--DISTRIBUTIONS."
DISTRIBUTIONS
Collections on the TVA 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 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 TVA Security on or prior to
a Distribution Date, such distribution will be made upon receipt of payment on
the TVA 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 TVA 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 TVA Security, including
amounts received in connection with the purchase by the Warrantholder of the TVA
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 TVA Security
over a specified period will be sufficient to make all required distributions to
the 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 Distribution Date, if any, on which sufficient funds
exist to pay such shortfalls.
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<PAGE>
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 TVA Security (including investment income on
Eligible Investments) received during the preceding Collection Period.
"Collection Period" means, (i) with respect to each June 15 Distribution
Date, the period beginning on the day after the December 15 Distribution Date of
the previous year and ending on such June 15 Distribution Date, inclusive,
except for the June 15, 1998 Distribution Date, as to which the Collection
Period will be the period beginning on Closing Date and ending on such June 15,
1998 Distribution Date, inclusive and, (ii) with respect to each December 15
Distribution Date, the period beginning on the day after the June 15
Distribution Date of that year and ending on such December 15 Distribution Date,
inclusive.
"Eligible Investments" means, with respect to the Certificates, United
States Treasury bills, provided that any investments must be 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 TVA Security, the
amount of interest that accrued thereon prior 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 TVA Security attributable to principal payments
thereon during the Collection Period. No principal payments are scheduled to
be made on the TVA Security until December 15, 2017.
EARLY TERMINATION
The Certificates may be paid in full on any date on or after June 15, 2001
(the "Early Termination Date") upon the purchase of the TVA Security by the
Warrantholder. On the Early Termination Date, the Certificates will be paid in
full in the amount of par plus accrued interest (the "Early Termination Price").
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 TVA Security. The Trustee will notify
Certificateholders of the Early Termination Date not less than 30 days prior to
such Early Termination Date with a copy of such notice being delivered to the
Warrantholder at such time as the same is distributed to the Certificateholders.
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On, or before, the Early Termination Date, the Warrantholder shall provide
the Trustee with the Liquidation Price for such TVA Security. Upon receiving
such Liquidation Price, the Trustee will immediately deliver the TVA Security to
the Warrantholder.
Delivery of the TVA 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 TVA 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 TVA Security from the
Trustee for the price of par plus accrued interest to the Early Termination Date
(the "Liquidation Price").
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 TVA Security without the consent 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.
DTC BOOK-ENTRY SYSTEM
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 beneficial owner 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
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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 beneficial 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
the 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 global certificate 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.
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 the TVA
Security (upon the purchase thereof and subject to the Call Warrant) and
(ii) all payments on or collections in respect of the TVA 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.
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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 initial
Ordinary Expenses of the Trustee on the Closing Date, thereafter, on each
December 15 Distribution Date, commencing December 15, 1998, the Trustee shall
be paid in an amount equal to $1200 for payment of the Trustee's Ordinary
Expenses for such year, such fee to be paid from funds other than the assets of
the Trust.
"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 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 Security, 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 Available Funds on any Distribution Date
before any distributions to 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
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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 TVA 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 TVA Security when the same
becomes due and payable.
In the event of a default in the payment of any amount on the TVA Security
the Trustee is required to proceed on behalf of the Certificateholders to
enforce its rights under the TVA Security or otherwise protect the interests of
such Certificateholders. See "Description of the Trust Agreement--Collection and
Other Administrative Procedures" in the Prospectus.
The Trust Agreement will provide that, within 3 Business 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 facsimile communication, of all such uncured or unwaived Events
of Default known to it. However, except in the case of an Event of Default
relating to the payment of principal of or interest on any of the TVA 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.
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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
the 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. 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 TVA Security, without the consent of Certificateholders
representing 100% of the aggregate Voting Rights. In addition, the Call Warrant
may not be amended without the consent of the Warrantholder.
Voting of Underlying Security, Modification Trust Agreement
The Trustee, as holder of the TVA Security, has the right to vote and give
consents and waivers in respect of such Underlying Security as permitted by the
rules and regulations of the book-entry system of the U.S. Federal Reserve Banks
and except as otherwise limited by the Trust Agreement. In the event that the
Trustee receives a request from a U.S. Federal Reserve Bank for its consent to
any amendment, modification or waiver of the TVA Security or any other document
thereunder or relating thereto, or receives any other solicitation for any
action with respect to the TVA 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
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on the TVA Security, including, without limitation, any demand to accelerate the
TVA Security, except in the event of an event of default with respect to the TVA
Security or an event which with the passage of time would become an event of
default and with the unanimous consent of all Certificateholders or (iii) which
would result in the exchange or substitution of any of the outstanding TVA
Security pursuant to a plan for the refunding or refinancing of such TVA
Security except in the event of a default under the TVA Security and only with
the unanimous consent of the 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 Tennessee Valley Authority to
issue new obligations in exchange and substitution for any of the TVA Security,
pursuant to a plan for the refunding or refinancing of the TVA Security or any
other offer is made for the TVA 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 TVA 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 a TVA Security occurs and is continuing and if
directed by all the holders of outstanding Certificates, the Trustee shall vote
the TVA Security in favor of directing, or take such other action as may be
appropriate to declare the unpaid principal amount of the TVA 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 TVA Security, the
Certificateholders and the Warrantholder may differ from each other and from
holders of other securities of the Tennessee Valley Authority.
Termination of a Trust
A Trust shall terminate upon the earliest to occur of the payment in full
at maturity or sale by the Trust in accordance with the Call Warrant of all of
the TVA 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 TVA 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
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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 Underlying Securities allocable to such Certificate, as if it
issued directly the portion of the Call Warrant allocable to such Certificate,
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.
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 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 each 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.
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. 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
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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.
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 an 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 an 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 Security allocable to the Certificate, one or more Underlying
Securities will have been purchased at a discount if a portion of such purchase
price is allocated to 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 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
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 in 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
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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.
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 TVA Security should
be considered to be $37.70 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 the Underlying Security using the constant yield method described
above. Such an election with respect to the Underlying Security 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 advisor as to whether to make such an
election.
Modification or Exchange of Underlying Security
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 Security, would be a taxable event to Certificate
Owners on which they would recognize gain or loss.
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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 (each as described above) and (ii) payments other than
payments of qualified stated interest, if any, 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 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.
The Taxpayer Relief Act of 1997 (the "1997 Act") provides that for
taxpayers other than corporations, net capital gain (which is defined as net
long-term capital gain over net short-term capital loss for the taxable year) is
subject to a maximum marginal stated tax rate of either 28% or 20%, depending
upon the holding periods of the capital assets. Capital gain or loss is long-
term if the holding period for the asset is more than one year, and is short-
term if the holding period for the asset is one year or less. Generally,
capital gains realized from assets held for more than one year but not more than
18 months are taxed at a maximum marginal stated tax rate of 28% and capital
gains realized from assets (with certain exclusions) held for more than 18
months are taxed at a maximum marginal stated tax rate of 20% (10% in the case
of certain taxpayers in the lowest tax bracket). Further, capital gains
realized from assets held for one year or less are taxed at the same rates as
ordinary income. Legislation is currently pending that provides the appropriate
methodology that should be applied in netting the realized capital gains and
losses. Such legislation is proposed to be effective retroactively for tax
years ending after May 6, 1997.
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
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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 their pro rata portion of the Underlying Security of Trust
for their share of accrued interest received by the Trust, if any, on the
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 remain subject to a lower 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 Call Warrant is exercised, the proceeds of sale of the Certificate
will be increased by the amount of the
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call premium. The gain from such sale will be long-term or short-term capital
gain, depending upon whether the Certificate was then held for the requisite
holding period.
Backup Withholding
Payments made on the Certificates and proceeds from the sale of the
Certificates will not be subject to a "backup" withholding tax of 31% unless, in
general, the Certificate Owner fails to comply with certain reporting procedures
and is not an exempt recipient under applicable provisions of the Code.
Foreign Certificate Owners
To the extent that amounts paid to Certificate Owners that are not United
States persons ("Foreign Certificate Owners") are treated as interest with
respect to Underlying Security 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 TVA Securities is generally exempt
from state and local income taxes on individual investors. This exemption
should apply to an individual Certificateholder's share of interest on the TVA
Security. The exemption does not extend to gain on sale or other disposition of
a Certificate or on exercise or expiration of the 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").
S-24
<PAGE>
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 Plan as a part of
an offering of securities to the public pursuant to an effective registration
statement under the Security 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
S-25
<PAGE>
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 Trust. 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 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 March 16, 1998 (the "Underwriting Agreement"), the
Depositor has agreed to sell and Dain Rauscher Corporation (the "Underwriter")
has agreed to purchase, all of the Certificates at a price of 97.795%.
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
2.205%. The Underwriter and any dealers that participate with the Underwriter
in the distribution of Certificates may be deemed to be underwriter, and any
profit on the resale of Certificates by them may be deemed to be underwriting
discounts or commissions under the Security Act. The sale by the Depositor of
the TVA Security subject to the Call Warrant at a discount to its 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.
S-26
<PAGE>
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.
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.
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 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 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 TVA 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, or the corresponding effect on
yield to investors.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning Rating
Agency. Each security rating should be evaluated independently of similar
ratings on different securities. A security rating does not address the
likelihood of the exercise of a Call Warrant, or the corresponding effect on
yield to investors.
S-27
<PAGE>
The Depositor has not requested a rating on the Certificates by any rating
agency other than 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 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-28
<PAGE>
Index of Terms
<TABLE>
<CAPTION>
Term Page
<S> <C>
Act............................................................ S-8, S-23
Allocated Purchase Price....................................... S-20
Available Funds................................................ S-12
Base Trust Agreement........................................... S-3
Basic Resolution............................................... S-8
CEDE........................................................... S-13
Certificate Owner.............................................. S-19
Certificates................................................... S-3
Clearing Agency................................................ S-13
Code........................................................... S-19
Collection Period.............................................. S-12
Distribution Date.............................................. S-3
DOL............................................................ S-25
DTC............................................................ S-2, S-5
Early Termination Date......................................... S-4, S-12
Early Termination Price........................................ S-4, S-12
Eligible Investments........................................... S-12
ERISA.......................................................... S-5, S-24
Event of Default............................................... S-16
Extraordinary Expenses......................................... S-15
Federal Tax Counsel............................................ S-19
Final Scheduled Distribution Date.............................. S-3
Fiscal Agency Agreement........................................ S-8
Foreign Certificate Owners..................................... S-24
Initial Accrued Interest....................................... S-12
Liquidation Price.............................................. S-4
NYSE........................................................... S-10
OID............................................................ S-19
Ordinary Expenses.............................................. S-15
Participants................................................... S-2
Plan........................................................... S-5, S-24
PTCE........................................................... S-26
Purchase Default............................................... S-13
Purchase Request............................................... S-4, S-12
Rating Agency.................................................. S-27
Regulation..................................................... S-25
Required Interest.............................................. S-4, S-10, S-12
Required Principal............................................. S-12
Series Supplement.............................................. S-3
Service........................................................ S-19
Standard & Poor's.............................................. S-27
Superfund Tax.................................................. S-23
Trust.......................................................... S-3
</TABLE>
S-29
<PAGE>
<TABLE>
<S> <C>
Trust Agreement....................................................... S-3
TVA................................................................... S-8
TVA Security.......................................................... S-6, S-8
Underwriter........................................................... S-26
Underwriting Agreement................................................ S-26
United States person.................................................. S-24
Voting Rights......................................................... S-17
Warrantholder......................................................... S-4
</TABLE>
S-30
<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-7
Formation of the Trust .................................................. S-7
Description of the TVA Security ......................................... S-8
Description of the Certificates ......................................... S-10
Description of the Trust Agreement ...................................... S-14
Federal Income Tax Consequences ......................................... S-18
State and Other Tax Consequences ........................................ S-24
ERISA Considerations .................................................... S-24
Plan of Distribution .................................................... S-26
Ratings ................................................................. S-27
Legal Opinions .......................................................... S-28
Index of Terms .......................................................... S-29
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
Prospectus Supplement ................................................... 2
Available Information ................................................... 2
Incorporation of Certain Information by Reference ....................... 3
Reports to Certificateholders ........................................... 3
Risk Factors ............................................................ 6
The Depositor ........................................................... 8
Use of Proceeds ......................................................... 9
Formation of the Trust .................................................. 9
Maturity and Yield Considerations ....................................... 10
Description of Certificates ............................................. 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 underwriter and with respect to their unsold allotments or
subscriptions.
================================================================================
================================================================================
$5,000,000
SOUTHPOINT STRUCTURED
ASSETS, INC.
6.25%
TVA Security-Backed Certificates,
Series 1998-1
---------------
PROSPECTUS SUPPLEMENT
---------------
Dain Rauscher Corporation
March 16, 1998
================================================================================
