As Filed with the Securities and Exchange Commission
on February 7, 1997
Securities Act File No.
Investment Company Act File No.
=======================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM N-2
Registration Statement Under
The Securities Act of 1933 [X]
Pre-Effective Amendment No. ____ [X]
Post-Effective Amendment No.____ [ ]
Registration Statement Under
The Investment Company Act of 1940 [X]
[X]
--------------------------
ELMS TRUST
(Exact Name of Registrant as Specified in Charter)
c/o Lazard Freres & Co. LLC
30 Rockefeller Plaza
New York, New York 10020
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (212) 632-6000
Scott D. Hoffman
Lazard Freres & Co. LLC
30 Rockefeller Plaza
New York, New York 10020
(Name and Address of Agent for Service)
With copies to:
Seth Grosshandler, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
(212) 225-2000
Approximate Date of Proposed Public Offering: As soon as
practicable after the effective date of this Registration Statement.
If any securities being registered on this form will be
offered on a delayed or continuous basis in reliance on Rule 415
under the Securities Act of 1933, as amended, other than
securities offered in connection with a dividend reinvestment
plan, check the following box. [ ]
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
=======================================================================
Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
Being being Price Offering Registration
Registered Registered Per Share (1) Price (1) Fee
- -----------------------------------------------------------------------
ELMS
representing
shares of
beneficial
interest....1,000,000 Shares $10.00 $10,000,000 $3,448.28
=======================================================================
(1) Estimated solely for the purpose of calculating the registration
fee.
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a) may determine.
=======================================================================
<PAGE>
ELMS TRUST
Cross-Reference Sheet
Parts A and B of Prospectus*
Item
No. Caption Prospectus Caption
- ---- ------- ------------------
1. Outside Front Cover......... Front Cover Page
2. Inside Front and
Outside Back Cover......... Front Cover Page; Inside Front
Cover Page
3. Fee Table and Synopsis...... Prospectus Summary; Fees and
Expenses
4. Financial Highlights........ Not Applicable
5. Plan of Distribution........ Front Cover Page; Prospectus
Summary; Underwriting
6. Selling Shareholders........ Not Applicable
7. Use of Proceeds............. Use of Proceeds; Investment
Objectives and Policies
8. General Description of
the Registrant............. Front Cover Page; Prospectus
Summary; The Trust; Investment
Restrictions; Investment
Objectives and Policies; Risk
Factors Relating to ELMS
9. Management.................. Management and Administration
of the Trust
10. Capital Stock, Long-Term
Debt and Other
Securities; Federal
Income Tax Consideration... Description of ELMS
11. Defaults and Arrears on
Senior Securities.......... Not Applicable
12. Legal Proceedings........... Not Applicable
13. Table of Contents of the
Statement of Additional
Information................ Not Applicable
14. Cover Page.................. Not Applicable
15. Table of Contents........... Not Applicable
16. General Information and
History.................... The Trust
17. Investment Objective and
Policies................... Investment Objectives and
Policies; Investment
Restrictions
18. Management.................. Management and Administration
of the Trust
19. Control Persons and
Principal Holders.......... Management and Administration
of the Trust
20. Investment Advisory and
Other Services............. Management and Administration
of the Trust
21. Brokerage Allocation and
Other Practices............ Investment Objectives and
Policies
22. Tax Status.................. Certain United States Federal
Income Tax Considerations
23. Financial Statements........ Statement of Assets and
Liabilities
- ---------------------
* Pursuant to the General Instructions to Form N-2, all
information required to be set forth in Part B: Statement
of Additional Information has been included in Part A: The
Prospectus. Information required to be included in Part C
is set forth under the appropriate item, so numbered, in
Part C of the N-2 Registration Statement.
<PAGE>
Information contained herein is subject to completion or
amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission.
These securities may not be sold nor may offers to buy be
accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell
or the solicitation of any offer to buy nor shall there be any
sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
Subject to Completion
____________, 1997
Prospectus
1,000,000 ELMS SM (Equity-Linked-at-Maturity Securities)
ELMS TRUST
(Subject to Exchange into Shares of Company)
The issue price (the "Initial Price") of each of the ELMS
(each, an "ELMS") of the ELMS Trust (the "Trust") being offered
hereby will be $ (the last sale price of shares ("Linked
Shares") of Company (the "Company") on , 1997, as
reported on the New York Stock Exchange Composite Tape). Each
of the ELMS represents the right to receive an annual distribution
of $ , payable quarterly on , , and
, beginning , 1997, and will be mandatorily exchanged
on , 2001 (the "Exchange Date") for between 0.xxxx and
xxxx Linked Shares. In lieu of an exchange for Linked Shares on
the Exchange Date, ELMS may be exchanged as described herein for
an amount of cash (the "Cash Settlement Amount") 30 days following
the Exchange Date, on , 2001 (the "Cash Settlement Date").
The ELMS are not subject to redemption prior to the Exchange Date.
The Trust is a newly organized, finite-term Delaware busi-
ness trust established to purchase and hold (i) a series of
zero-coupon or stripped U.S. Treasury securities with face
amounts and maturities corresponding to the quarterly
distributions payable with respect to the ELMS and the payment
dates thereof, (ii) a forward purchase contract (the "Contract")
with an existing shareholder (the "Seller") of the Company
relating to the Linked Shares and (iii) as provided for under the
terms of the Contract, the Linked Shares (and any other property
distributed in respect thereof). The Trust will also be a party
to an option agreement (the "Option") with respect to the Linked
Shares delivered to the Trust, under which the Seller will have
the right, on written notice given not less than 60 days prior to
the Cash Settlement Date, to purchase such Linked Shares at a
price per share equal to the Average Market Price (as defined
herein) computed as of the Cash Settlement Date. Upon receipt of
notice of exercise of the Option from the Seller, the Trust will
notify holders of the ELMS that the ELMS will be exchanged for
cash, in an amount described herein, on the Cash Settlement Date.
If such notice of exercise is not given, the ELMS will be
exchanged for a number of Linked Shares described herein on the
Exchange Date.
The investment objectives of the Trust are to provide holders
of ELMS with a quarterly distribution of $ per ELMS over the
term of the Trust and, upon mandatory exchange of the ELMS, a number
of Linked Shares per ELMS determined in accordance with an
Exchange Rate (as defined herein) and delivered on the Exchange
Date, or, in lieu thereof, the Cash Settlement Amount, payable on
the Cash Settlement Date. The Exchange Rate is equal to, subject
to certain adjustments, (a) if the Average Market Price on the
Exchange Date is greater than or equal to $ per Linked Share
(the "Threshold Appreciation Price"), 0.xxxx Linked Shares per ELMS,
(b) if the Average Market Price on the Exchange Date is less than
the Threshold Appreciation Price but is greater than the Initial
Price, a fractional Linked Share per ELMS so that the value
thereof at the Average Market Price on the Exchange Date equals
the Initial
(Cover continued on next page)
See "Risk Factors Relating to ELMS" beginning on page 17 for a
discussion of certain factors that should be carefully considered
by prospective purchasers.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------
Price to Sales Proceeds to
Public Load the Trust
Per ELMS........... $ $ $
Total (1)......... .$ $ $
- ------------------------------------------------------------------
(1) The Trust has granted to the Underwriter an option, exercisable
within 30 days from the date hereof, to purchase up to an
additional ELMS to cover over-allotments, if any. If the
Underwriter exercises such option in full, the total Price to
Public, Sales Load and Proceeds to the Trust will be $ ,
$ and $ , respectively. See "Underwriting."
The ELMS are offered subject to receipt and acceptance by the
Underwriter, to prior sales and to the Underwriter's right to
reject any order in whole or in part and to withdraw, cancel or
modify the offer without notice. It is expected that delivery of
the ELMS will be made at the offices of Lazard Freres & Co. LLC,
New York, New York, or through the facilities of The Depository
Trust Company, on or about , 1997.
Lazard Freres & Co. LLC
The date of this Prospectus is , 1997.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY
OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE
MARKET PRICE OF THE ELMS OR THE LINKED SHARES AT LEVELS ABOVE
THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
----------------------------
(Continued from previous page)
Price and (c) if the Average Market Price on the Exchange Date is
less than or equal to the Initial Price, one Linked Share per
ELMS.
The Cash Settlement Amount is equal to the Exchange Rate
(determined according to the Average Market Price on the Exchange
Date) multiplied by the Average Market Price computed as of the
Cash Settlement Date. The "Average Market Price" on the Exchange
Date or on the Cash Settlement Date, as the case may be, means
the average Closing Price (as defined herein) per Linked Share on
the 10 Trading Days (as defined herein) immediately preceding the
date in question, except as otherwise described herein.
Accordingly, the value of the Linked Shares or cash to be
received by holders of the ELMS at the Exchange Date or Cash
Settlement Date will not necessarily equal the Initial Price. If
the Average Market Price on the Exchange Date is less than the
Initial Price, the value of the Linked Shares received by the
Trust at the Exchange Date will be less than the price paid for
the ELMS. See "Investment Objectives and Policies" and "Risk
Factors -- Price Risk of the Linked Shares between the Exchange
Date and the Cash Settlement Date."
The Trust has adopted a policy that the Contract and the
Linked Shares received thereunder may not be disposed of, and the
Option and its obligations thereunder may not be disposed of,
during the term of the Trust. The Trust will continue to hold the
Contract, the Linked Shares and the Option and its obligations
thereunder despite any significant decline in the market price of
the Linked Shares or adverse changes in the financial condition
of the Company.
The ELMS are designed to provide investors with a higher yield
than the current dividend yield on the Linked Shares. However,
there is no assurance that the yield on the ELMS will be higher
than the dividend yield on the Linked Shares over the term of the
Trust. ELMS may be a suitable investment for those investors who
are capable of evaluating the risks involved in making an
investment in shares of the Company and the advantages and
disadvantages of doing so in a manner which will give investors
in the ELMS a potentially higher yield but a lesser opportunity
for equity appreciation than would be afforded by a direct
investment in the Linked Shares. See "Investment Objectives and
Policies."
Attached hereto as Appendix A is a prospectus of the Company
relating to the Linked Shares that may be received by holders of
ELMS at the Exchange Date. The Company is not affiliated with the
Trust, will not receive any of the proceeds from the sale of the
ELMS and will have no obligations with respect to the ELMS. The
Linked Shares are listed on the New York Stock Exchange ("NYSE")
under the symbol " ."
The Trust will be a grantor trust for U.S. federal income tax
purposes and each holder will be treated as the owner of its pro
rata portion of the U.S. Treasury securities and the rights of
the Trust under the Contract and the Option. The U.S. Treasury
securities will be treated as having "original issue discount"
which holders must recognize currently as income as it accrues.
Holders will not recognize income, gain or loss upon the Trust's
entry into the Contract nor will the delivery of Linked Shares
pursuant to the Contract be taxable to holders. Although the
matter is not free from doubt, holders should not recognize
income, gain or loss with respect to the Contract over its term.
For a discussion of the principal United States federal income
tax consequences of ownership of ELMS, see "Certain United States
Federal Income Tax Considerations."
Application will be made to list the ELMS on the New York
Stock Exchange, subject to notice of issuance, under the symbol
___.
THE TRUST IS A NEWLY ORGANIZED CLOSED-END INVESTMENT COMPANY
WITH NO PREVIOUS HISTORY OF PUBLIC TRADING. TYPICAL CLOSED-END
FUND SHARES FREQUENTLY TRADE AT A PREMIUM TO OR DISCOUNT FROM NET
ASSET VALUE. THIS CHARACTERISTIC OF INVESTMENTS IN A CLOSED-END
INVESTMENT COMPANY IS A RISK SEPARATE AND DISTINCT FROM THE RISK
THAT THE TRUST'S NET ASSET VALUE WILL DECREASE. THE TRUST CANNOT
PREDICT WHETHER ITS SHARES WILL TRADE AT, BELOW OR ABOVE NET
ASSET VALUE. THE RISK OF PURCHASING INVESTMENTS IN A CLOSED-END
COMPANY THAT MIGHT TRADE AT A DISCOUNT MAY BE GREATER FOR
INVESTORS WHO WISH TO SELL THEIR INVESTMENTS SOON AFTER
COMPLETION OF AN INITIAL PUBLIC OFFERING.
The address of the Trust is 30 Rockefeller Plaza, New York,
New York 10020, and the Trust's telephone number is (212)
632-6000. Investors are advised to read this Prospectus and to
retain it for future reference.
"ELMS" is a service mark of Lazard Freres & Co. LLC.
2
<PAGE>
PROSPECTUS SUMMARY
The following is qualified in its entirety by reference to
the more detailed information included elsewhere in this
Prospectus.
The Trust
ELMS Trust (the "Trust") is a newly organized, finite-term
Delaware business trust that is registered as a non-diversified
closed-end management investment company under the Investment
Company Act of 1940, as amended (the "Investment Company Act").
The Trust will have a term of four years that will expire on ,
2001 (the "Cash Settlement Date"), subject to early termination
on , 2001 (the "Exchange Date") in the event that the
ELMS are exchanged for Linked Shares. The Trust will be treated
as a grantor trust for U.S. federal income tax purposes.
The Offering
ELMS representing shares of beneficial interest in the
Trust are being offered for sale by Lazard Freres & Co. LLC (the
"Underwriter") to the public at a purchase price of $ per
ELMS (the "Initial Price"), the last sale price of the Linked Shares
of Company (the "Company") on , 1997, as reported on the New York
Stock Exchange Composite Tape). In addition, the Underwriter has
been granted an option to purchase up to an additional ELMS
to cover over-allotments, if any. See "Underwriting."
Assets of the Trust; Investment Objectives and Policies
The Trust will purchase and hold (i) a series of
zero-coupon U.S. Treasury securities with face amounts and
maturities corresponding to the quarterly cash distributions
payable with respect to the ELMS and the payment dates thereof
comprising approximately xx% of the initial net assets of the
Trust and (ii) a forward purchase contract (the "Contract") with
an existing stockholder (the "Seller") of the Company relating to
the Linked Shares comprising approximately xx% of the initial net
assets of the Trust.
The Trust will also be a party to an option agreement (the
"Option"), which will become effective when Linked Shares are
delivered to the Trust on the Exchange Date, under which the
Seller will have the right, on not less than 60 days written
notice prior to the Cash Settlement Date, to purchase such Linked
Shares at a price per share equal to the Average Market Price (as
defined herein) on the Cash Settlement Date. Upon receipt of
notice of exercise from the Seller, the Trust will notify holders
of the ELMS that the ELMS will be exchanged for cash on the Cash
Settlement Date. Failure by the Seller to give the required
notice 60 days prior to the Cash Settlement Date will result in
the expiration of the Seller's rights under the Option. In the
event that the Option is not exercised, ELMS will be exchanged
for Linked Shares on the Exchange Date.
The Trust's investment objective is to provide each Holder
with a quarterly distribution of $ per ELMS over the
term of the Trust, equal to the pro rata portion of the quarterly
cash distributions from the U.S. Treasury securities. It is also
the Trust's investment objective to provide each Holder, upon
exchange of the ELMS, a number of Linked Shares per ELMS
determined in accordance with the Exchange Rate and delivered on
the Exchange Date, or, in lieu thereof, the Cash Settlement
Amount (as defined below), payable on the Cash Settlement Date.
The "Exchange Rate" is equal to, subject to certain adjustments,
(a) if the Average Market Price on the Exchange Date is greater
than or equal to the Threshold Appreciation Price, 0.xxxx Linked
Shares per ELMS, (b) if the Average Market Price on the Exchange
Date is less than the Threshold Appreciation Price but is greater
than the Initial Price, a fractional Linked Share per ELMS so
that the value thereof at the Average Market Price on the
Exchange Date equals the Initial Price and (c) if the Average
Market Price on the Exchange Date is less than or equal to the
Initial Price, one Linked Share per ELMS. The "Cash Settlement
Amount" is equal to the Exchange Rate (determined according to
the Average Market Price on the Exchange Date) multiplied by the
Average Market Price on the Cash Settlement Date. Holders
otherwise entitled to receive a fraction of a Linked Share in
respect of their aggregate holdings of ELMS will receive cash in
lieu thereof. See "Investment Objectives and Policies--The
Contract" and "--Delivery of Linked Shares; No Fractional Linked
Shares."
3
<PAGE>
While the ELMS and the Contract are outstanding, the Linked
Shares will be held by a financial institution (the "Custodian")
on behalf of the Trust.
Purpose of the Trust
The ELMS are designed to provide investors in ELMS (the
"Holders") with a higher yield than the current dividend yield
paid on the Linked Shares, while also providing the opportunity
for Holders to share in the appreciation, if any, of the Linked
Shares above the Threshold Appreciation Price (as defined below).
The distributions on the ELMS are as described below. Currently,
the dividend on the Linked Shares is .
Distributions
The Holders are entitled to receive distributions at the
rate per ELMS of $ per annum or $ per quarter,
payable quarterly on each , , and or ,
if any such date is not a Business Day (as defined herein), on the
next succeeding Business Day, to Holders of record as of each ,
, and , respectively. The first distribution
will be payable on , 1997 to Holders of record as
of , 1997. See "Investment Objectives and Policies--Trust
Assets."
Mandatory Exchange
Not less than twenty days prior to the Exchange Date, the
Trust will notify Holders whether the ELMS will be exchanged for
Linked Shares on the Exchange Date or for cash on the Cash
Settlement Date. In the event of an exchange for Linked Shares,
each ELMS will be exchanged automatically, on the Exchange Date,
for a number of Linked Shares determined in accordance with the
Exchange Rate, subject to adjustment in the event of certain
dividends or distributions, subdivisions, splits, combinations,
issuances of certain rights or warrants or distributions of
certain assets with respect to the Linked Shares. In the event
that the Option is exercised, each ELMS will be exchanged, on the
Cash Settlement Date, for an amount of cash equal to the Cash
Settlement Amount. In addition, in the event of a merger of the
Company into another entity, or the liquidation of the Company,
or in certain related events, Holders would receive consideration
in the form of cash or Reported Securities (as defined below
under the caption "Investment Objectives and Policies--The
Contract--Dilution Adjustments; Other Adjustment Events") rather
than Linked Shares. Further, the occurrence of certain defaults
by the Seller under the Contract or the collateral arrangements
would cause the acceleration of the Contract and the exchange of
each ELMS for an amount of Linked Shares, cash, or a combination
thereof, in respect of the Linked Shares and the U.S. Treasury
Securities. See "Investment Objectives and Policies--The
Contract--Collateral Requirements of the Contract; Acceleration";
"-- The Option" and "-- Trust Termination".
Voting Rights
The Holders have the right to vote on matters affecting the
Trust, as described under "Description of ELMS," but will not
have voting rights with respect to the Linked Shares prior to
receipt thereof by the Holders as a result of the exchange of
ELMS for Linked Shares on the Exchange Date. The Seller will hold
the voting rights on the Linked Shares at all times prior to the
Exchange Date and in the event that it acquires the Linked Shares
on the Cash Settlement Date upon exercise of the Option. (As of
the Exchange Date, the Seller will, if it exercises the Option,
have a right to acquire the Linked Shares on a date 30 days
thereafter.) During the period between the Exchange Date and the
Cash Settlement Date, the Trust will vote the Linked Shares
proportionately to the vote of all other holders of the Linked
Shares. See "Investment Objectives and Policies--The Company."
Certain United States Federal Income Tax Considerations
There are no regulations, published rulings or judicial
decisions addressing the characterization for federal income tax
purposes of securities with terms substantially the same as the ELMS.
The Trust intends to treat each ELMS for U.S. federal income tax
purposes as a beneficial interest in a grantor trust that holds
zero-coupon or stripped U.S. Treasury securities and certain rights
to receive Linked Shares or cash, as set forth in the Contract and
4
<PAGE>
the Option (the "Seller's Obligations"). The Trust intends
to report U. S. Holders' income to the Internal Revenue
Service in accordance with this treatment. Under this approach,
the tax consequences of holding an ELMS will be as described
below and as described in "Certain United States Federal Income
Tax Considerations." Prospective investors in the ELMS should be
aware that the Internal Revenue Service might take a different
view as to the proper characterization of the ELMS and of the tax
consequences to a U.S. Holder.
The U.S. Treasury securities held by the Trust will be
treated for U.S. federal income tax purposes as having "original
issue discount" that will accrue over the term of the U.S.
Treasury securities. It is currently anticipated that a
substantial portion of each quarterly cash distribution to U.S.
Holders will be treated as a tax-free return of the U.S. Holders'
costs of the U.S. Treasury securities and therefore will not be
considered current income for U.S. federal income tax purposes.
However, a U.S. Holder (whether on the cash or accrual method of
tax accounting) must recognize currently as income original issue
discount on the U.S. Treasury securities as it accrues.
A U.S. Holder will not recognize income, gain or loss upon
the Trust's entry into the Contract and should not recognize
income, gain or loss with respect to the Contract over its term.
Prospective investors in the ELMS should be aware that it is
possible that the Internal Revenue Service could assert that a
U.S. Holder should include in income over the term of the
Contract additional amounts which together with the original
issue discount on such U.S. Holder's pro rata portion of the U.S.
Treasury securities should not exceed the aggregate amount of the
quarterly cash distributions to such U.S. Holder.
The delivery of Linked Shares to the Trust pursuant to the
Contract will not be taxable to U.S. Holders. The distribution of
Linked Shares upon the termination of the Trust will not be
taxable to U.S. Holders. Each U.S. Holder's aggregate basis in
its Linked Shares will be equal to its basis in its pro rata
portion of the Seller's Obligations less the portion of such
basis allocable to pay any fractional number of Linked Shares for
which cash is received. A U.S. Holder will have taxable gain or
loss upon receipt of cash in lieu of Linked Shares distributed
upon termination of the Trust. In the event that the Seller
exercises its rights under the Option, cash distributions to
holders of ELMS on the Cash Settlement Date will be taxed as
short term capital gains or losses, as the case may be.
The Company
The Company is (description).
Attached hereto as Appendix A is a prospectus of the
Company which describes the Company and the Linked Shares that
may be delivered to the Holders upon exchange of the ELMS. The
Company is not affiliated with the Trust, will not receive any of
the proceeds from the sale of the ELMS and will have no
obligations with respect to the ELMS. The prospectus of the
Company is being attached hereto and delivered to prospective
purchasers of ELMS together with this Prospectus for convenience
of reference only. The prospectus of the Company does not
constitute a part of this Prospectus, nor is it incorporated by
reference herein.
Management and Administration of the Trust
The Trust will be internally managed and will not have an
investment adviser. The administration of the Trust will be
overseen by three Trustees. The day-to-day administration of the
Trust will be carried out by (or its successor) as trust
administrator (the "Administrator"). (or its successor) will
also act as custodian for the Trust's assets (the "Custodian") and as
paying agent, registrar and transfer agent (the "Paying Agent")
with respect to the ELMS. Except as aforesaid, has no
other affiliation with, and is not engaged in any other transaction
with, the Trust.
Term of the Trust
The Trust will terminate automatically on or shortly after
the Exchange Date or, if the ELMS are exchanged for cash, on or
shortly after the Cash Settlement Date. Promptly after the Exchange
Date (or the Cash Settlement Date if the ELMS are exchanged for
cash), Linked Shares to be exchanged for the ELMS, or the cash
5
<PAGE>
equivalent thereof, and other remaining Trust assets, if any, will
be distributed pro rata to Holders. See "Investment Objectives
and Policies--Trust Termination."
Risk Factors
The Trust has adopted a policy that the Contract, the
Linked Shares received thereunder and any property received as a
result of distributions thereon retained by the Trust may not be
disposed of, and that the Option and the Trust's obligations
thereunder may not be disposed of, during the term of the Trust
and that the U.S. Treasury securities held by the Trust may not
be disposed of prior to their respective maturities. The Trust
will continue to hold the Contract, the Linked Shares received
thereunder (and any such other property) and the Option and the
Trust's obligations thereunder, despite any significant decline
in the market price of the Linked Shares (or in the value of such
other property) or adverse changes in the financial condition of
the Company.
The yield on the ELMS is higher than the current dividend
yield on the Linked Shares. However, there is no assurance that
the yield on the ELMS will be higher than the dividend yield on
the Linked Shares over the term of the Trust. There can be no
assurance that the value of the Linked Shares (or the Cash
Settlement Amount) to be received by Holder will exceed the
Initial Price. In addition, the opportunity for equity
appreciation afforded by an investment in the ELMS is less than
the opportunity for equity appreciation afforded by an investment
in the Linked Shares. The value of the Linked Shares to be
received by Holders (or if the ELMS are exchanged for cash, the
value of the number of Linked Shares used in calculating the Cash
Settlement Amount) will only exceed the Initial Price if the
Average Market Price on the Exchange Date exceeds the Threshold
Appreciation Price, which represents an appreciation of xx% over
the Initial Price. Moreover, the value of Linked Shares to be
received by Holders (or if the ELMS are exchanged for cash, the
value as of the Exchange Date of the number of Linked Shares used
in calculating the Cash Settlement Amount) will only include xx%
of any appreciation of the value of the Linked Shares in excess
of the Threshold Appreciation Price.
The Cash Settlement Amount received for each ELMS is
computed by reference to the Average Market Price of the Linked
Shares on the Cash Settlement Date. Consequently, such Cash
Settlement Amount may be less than the amount in cash a holder
could have received for each ELMS if the ELMS had been exchanged
for Linked Shares on the Exchange Date and sold for cash by the
holder during the period between the Exchange Date and the Cash
Settlement Date.
The Trust is classified as a "non-diversified" investment
company under the Investment Company Act. Consequently, the Trust
is not limited by the Investment Company Act in the proportion of
its assets that may be invested in the securities of a single
issuer. Since the only securities held by the Trust will be the
U.S. Treasury securities, the Contract and the Linked Shares and
any property received as a result of distributions thereon, the
Trust may be subject to greater risk than would be the case for
an investment company with more diversified investments.
The trading prices of the ELMS in the secondary market will
be directly affected by the trading prices of the Linked Shares
in the secondary market. Trading prices of the Linked Shares will
be influenced by the Company's operating results and prospects
and by economic, financial and other factors and market
conditions.
Holders of the ELMS will not be entitled to any voting
rights with respect to the Linked Shares unless and until ELMS
are exchanged for Linked Shares at the Exchange Date, and shall
not be entitled to receive amounts in respect of dividends or
other distributions in respect of Linked Shares until such time
as the Seller shall have delivered Linked Shares pursuant to the
Contract on the Exchange Date.
A bankruptcy of the Seller could adversely affect performance
of the Contract, the timing of any delivery thereunder, the amount
that Holders will receive in respect of the ELMS, and the timing of
any such receipt. See "Risk Factors--Risk Relating to Bankruptcy
of Seller."
6
<PAGE>
Listing
Application will be made to list the ELMS on the New York
Stock Exchange ("NYSE") under the symbol " ."
FEES AND EXPENSES
The public offering price of the ELMS includes an
underwriting discount payable by the Trust to the Underwriter of
% . Estimated organization costs of the Trust in the amount of
$ and estimated costs of the Trust in connection with the
initial registration and public offering of the ELMS in the amount
of $ will be paid by Lazard Freres & Co. LLC ("Lazard") at
the closing of this offering. In addition, each of the Administrator,
the Custodian and the Paying Agent, and each Trustee will be paid by
Lazard at the closing of this offering a one-time, up-front
amount in respect of its ongoing fees and, in the case of the
Administrator, anticipated expenses of the Trust (estimated to be
$ in the aggregate) over the term of the Trust. Lazard has also
agreed to pay any on-going expenses of the Trust in excess of
these estimated amounts and to reimburse the Trust for any
amounts it may be required to pay as indemnification to any
Trustee, the Administrator, the Custodian or the Paying Agent.
Lazard will be reimbursed by the Seller for all fees and expenses
of the Trust and all reimbursements of indemnifications paid by
it. See "Management and Administration of the Trust--Estimated
Expenses."
Regulations of the Securities and Exchange Commission (the
"Commission") applicable to closed-end investment companies
designed to assist investors in understanding the costs and
expenses that an investor will bear directly or indirectly
require the presentation of Trust expenses in the following
format. Because the Trust will not bear any ongoing fees or
expenses, investors will not bear any direct expenses and the
only expense which investors might be considered to be bearing
indirectly is the proportion of the Sales Load applicable to
their ELMS which is payable by the Trust to the Underwriter from
the proceeds of the offering.
Investor transaction expenses
Sales load (as a percentage of offering price)......... %
=====
Annual Expenses
Management Fees........................................ 0%
Other Expenses......................................... 0%
-----
Total Annual Expenses................................ 0%
=====
Commission regulations also require that closed-end investment
companies present an illustration of cumulative expenses (both
direct and indirect) that an investor would bear. The example is
required to factor in the applicable Sales Load and to assume, in
addition to a 5% annual return, the reinvestment of all
distributions at net asset value. Investors should note that the
assumption of a 5% annual return does not accurately reflect the
financial terms of the Trust. See "Investment Objectives and
Policies--Trust Assets." Additionally, the Trust does not permit
the reinvestment of distributions.
1 Year 3 Years
------ -------
You would pay the following expenses
(i.e., the applicable sales load)
on a $1,000 investment, assuming
a 5% annual return.................... $ $
7
<PAGE>
THE TRUST
ELMS Trust is a newly organized Delaware business trust
that is registered as a closed-end management investment company
under the Investment Company Act. The Trust was formed on
February 7, 1997 pursuant to a Declaration of Trust dated as of
February 6, 1997 (the "Declaration of Trust").
USE OF PROCEEDS
The net proceeds of this offering will be used (i) to pay
the purchase price under the Contract to the Seller upon closing
of this offering and (ii) on or shortly after the date on which
this offering is completed, to purchase a fixed portfolio
comprised of a series of zero-coupon or stripped U.S. Treasury
securities with face amounts and maturities corresponding to the
quarterly cash distributions payable with respect to the ELMS and
the payment dates thereof.
INVESTMENT OBJECTIVES AND POLICIES
Trust Assets
The investment objectives of the Trust are to provide
holders of ELMS with a quarterly distribution of $ per ELMS over
the term of the Trust and, upon mandatory exchange of the ELMS, a
number of Linked Shares per ELMS determined in accordance with an
Exchange Rate (as defined herein) and delivered on the Exchange
Date, or, in lieu thereof, the Cash Settlement Amount, payable on
the Cash Settlement Date. The Exchange Rate is equal to, subject
to certain adjustments, (a) if the Average Market Price on the
Exchange Date is greater than or equal to $ per Linked Share
(the "Threshold Appreciation Price"), 0.xxxx Linked Shares per ELMS,
(b) if the Average Market Price on the Exchange Date is less than
the Threshold Appreciation Price but is greater than the Initial
Price, a fractional Linked Share per ELMS so that the value
thereof at the Average Market Price on the Exchange Date equals
the Initial Price and (c) if the Average Market Price on the
Exchange Date is less than or equal to the Initial Price, one
Linked Share per ELMS. The Cash Settlement Amount is equal to the
Exchange Rate (determined according to the Average Market Price
on the Exchange Date) multiplied by the Average Market Price on
the Cash Settlement Date.
There can be no assurance that the value of the Linked
Shares or cash to be received by holder of ELMS at the Exchange
Date will be equal to or greater than the Initial Price of the
ELMS. If the ELMS are to be exchanged for Linked Shares and the
Average Market Price of the Linked Shares on the Exchange Date is
less than the Initial Price, such value of the Linked Shares to
be received at the Exchange Date will be less than the amount
paid for the ELMS, in which case an investment in ELMS will
result in a loss. If the ELMS are to be exchanged for cash and
the Average Market Price of the Linked Shares on either of the
Exchange Date or the Cash Settlement Date is less than the
Initial Price, the value of the cash to be received may be less
than the amount paid for the ELMS, in which case an investment in
ELMS may result in a loss. Holders otherwise entitled to receive
fractional shares in respect of their aggregate holdings of ELMS
will receive cash in lieu thereof. See "--Delivery of Linked
Shares; No Fractional Linked Shares" below. Notwithstanding the
foregoing, (i) in the case of certain dilution events, the
Exchange Rate will be subject to adjustment and (ii) in the case
of certain reorganization events, the consideration received by
Holders at the Exchange Date will be cash or Reported Securities
(as defined herein) or a combination thereof, rather than Linked
Shares. See "--The Contract--Dilution Adjustments; Other
Adjustment Events" below.
The Trust has adopted a fundamental policy to invest at
least [xx%] of its portfolio in the Contract or the Linked Shares
or other assets received in respect thereof. The Contract will
comprise [xx%] of the Trust's initial assets. The Trust has also
adopted a fundamental policy that the Contract and the Linked
Shares received thereunder may not be disposed of, and the Option
and the Trust's obligations thereunder may not be assigned or
otherwise disposed of, during the term of the Trust and that
the U.S. Treasury securities held by the Trust may not
be disposed of prior to their respective maturities. The
foregoing fundamental policies of the Trust may not be changed
without the vote of a majority in interest of the Holders.
8
<PAGE>
The Trust will also be a party to an option agreement (the
"Option"), which will become effective when Linked Shares are
delivered to the Trust on the Exchange Date, under which the
Seller will have the right, on not less than 60 days written
notice prior to the Cash Settlement Date, to purchase such Linked
Shares at a price per share equal to the Average Market Price on
the Cash Settlement Date. Upon receipt of notice of exercise from
the Seller, the Trust will notify holders of the ELMS that the
ELMS will be exchanged for cash on the Cash Settlement Date.
Failure by the Seller to give the required notice 60 days prior
to the Cash Settlement Date will result in the expiration of the
Seller's rights under the Option. In the event that the Option is
not exercised, an exchange of ELMS into Linked Shares will take
place on the Exchange Date.
The "Average Market Price" on the Exchange Date or on the
Cash Settlement Date means the average Closing Price per Linked
Share on the 10 immediately preceding Trading Days; provided,
however, that if there are not 10 Trading Days for the Linked
Shares following the 60th calendar day immediately prior to, but
not including, the Exchange Date or the Cash Settlement Date, the
Average Market Price shall be defined as the market value per
Linked Share as of the Exchange Date or the Cash Settlement Date,
as the case may be, as determined by a nationally recognized
independent investment banking firm retained for this purpose by
the Seller. The "Closing Price" of any security on any date of
determination means the closing sale price (or, if no closing
price is reported, the last reported sale price) of such security
on the NYSE on such date or, if such security is not listed for
trading on the NYSE on any such date, as reported in the
composite transactions for the principal U.S. securities exchange
on which such security is so listed, or if such security is not
so listed on a U.S. national or regional securities exchange, as
reported by The NASDAQ National Market, or, if such security is
not so reported, the last quoted bid price for such security in
the over-the-counter market as reported by the National Quotation
Bureau or similar organization. A "Trading Day" is defined as a
day on which the security the Closing Price of which is being
determined (A) is not suspended from trading on any national or
regional securities exchange or association or over-the-counter
market at the close of business and (B) has traded at least once
on the national or regional securities exchange or association or
over-the-counter market that is the primary market for the
trading of such security.
For illustrative purposes only, the following chart shows
the number of Linked Shares that a Holder would receive for each
ELMS (or if the ELMS are exchanged for cash, the number of Linked
Shares that would be used to calculate the Cash Settlement
Amount) at various values of the Average Market Price at the
Exchange Date. The chart assumes that there would be no
adjustments to the Exchange Rate by reason of the occurrence of
any of the events described under "--The Contract--Dilution
Adjustments; Other Adjustment Events" below. There can be no
assurance that the Average Market Price at the Exchange Date will
be within the range set forth below. Given the Initial Price of
$ per ELMS and a Threshold Appreciation Price of $ ,
a Holder would receive at the Exchange Date the following number
of Linked Shares per ELMS:
Average Market Price of Number of Linked Shares
Linked Shares at the
Exchange Date
In the event that the Seller exercises the Option, the
amount of cash per Linked Share to be received by a Holder will
be determined based on the Average Market Price on the Cash
Settlement Date, which can be expected to be different from the
Average Market Price on the Exchange Date. See "Risk Factors --
Price Risk of the Linked Shares between the Exchange Date and the
Cash Settlement Date."
The following table sets forth information regarding the distri-
butions to be received on the U.S. Treasury securities held by the
Trust, the portion of each year's distributions that will constitute
a return of capital for U.S. federal income tax purposes and the amount
of original issue discount accruing on the U.S. Treasury securities with
9
<PAGE>
respect to a Holder who acquires its ELMS at the issue price from an
Underwriter pursuant to the original offering. See "Certain United
States Federal Income Tax Considerations."
Annual Annual Gross
Gross Distri- Distributions from Annual Inclusion
butions from U.S. Treasury Annual Return of Original Issue
U.S. Treasury securities of Capital Discount in
securities per ELMS per ELMS Income per ELMS
------------- ------------------ ------------- -----------------
Year
- ----
1997 $ $ $ $
1998
1999
2000
The annual distribution of $ per ELMS is payable
quarterly on each , , and ,
commencing , 1997. Quarterly distributions on the ELMS
will consist solely of the cash received from the U.S. Treasury
securities. The Trust will not be entitled to any dividends with respect
to the Linked Shares until such time as the Seller shall have delivered
Linked Shares pursuant to the Contract at the Exchange Date.
Enhanced Yield; Less Potential for Equity Appreciation than Linked Shares
The yield on the ELMS is higher than the current dividend
yield on the Linked Shares. However, there is no assurance that
the yield on the ELMS will be higher than the dividend yield on
the Linked Shares over the term of the Trust. In addition, the
opportunity for equity appreciation afforded by an investment in
the ELMS is less than the opportunity for equity appreciation
afforded by an investment in the Linked Shares. The value of the
Linked Shares to be received by Holders (or if the ELMS are
exchanged for cash, the value of the number of Linked Shares used
in calculating the Cash Settlement Amount) will only exceed the
Initial Price if the Average Market Price at the Exchange Date
exceeds the Threshold Appreciation Price, which represents an
appreciation of [xx]% over the Initial Price. Moreover, the value
of Linked Shares received by Holders (or if the ELMS are
exchanged for cash, the value of the number of Linked Shares used
in calculating the Cash Settlement Amount) will only include
[xx]% (the percentage equal to the Initial Price divided by the
Threshold Appreciation Price) of any appreciation of the value of
the Linked Shares in excess of the Threshold Appreciation Price.
The Company
(description of the Company)
Holders of the ELMS will not be entitled to any rights with
respect to the Linked Shares (including, without limitation,
voting rights and rights to receive any dividends or other
distributions in respect thereof) unless and until such time, if
any, as the Seller shall have delivered Linked Shares pursuant to
the Contract at the Exchange Date. If the ELMS are exchanged for
cash and the record date for any dividend on the Linked Shares
falls between the Exchange Date and the Cash Settlement Date, the
Trust will be entitled to a portion of any ordinary dividends
received by the Trust after the Exchange Date and prior to the
Cash Settlement Date equal to the duration of the Trust's period
of ownership of the Linked Shares during the dividend period divided
by the duration of the dividend period.
10
<PAGE>
Attached hereto as Appendix A is a prospectus of the
Company which describes the Company and the Linked Shares to be
delivered to the Trust pursuant to the Contract on the Exchange
Date.
The Linked Shares are traded on the NYSE. The following
table sets forth, for the indicated periods, the reported high
and low sales prices of the Linked Shares on the NYSE Composite
Tape and the cash dividends per Linked Share. As of , 1996,
there were record holders of the Linked Shares, including The
Depository Trust Company (the "Depositary") which holds Linked
Shares on behalf of an indeterminate number of beneficial owners.
High Low Dividend Per Share
---- --- ------------------
1995 $ $ $
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
1996
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
The Company is subject to the information requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Accordingly, the Company files reports, proxy and
information statements and other information with the Securities
and Exchange Commission (the "Commission"). Copies of such
material can be inspected and copied at the public reference
facilities maintained by the Commission at the addresses
specified under "Available Information" in the prospectus of the
Company attached hereto. Reports, proxy and information
statements and other information concerning the Company may also
be inspected at the offices of the NYSE.
The Company is not affiliated with the Trust, will not
receive any of the proceeds from the sale of the ELMS and will
have no obligations with respect to the ELMS. This Prospectus
relates only to the ELMS offered hereby and does not relate to
the Company or the Linked Shares. The Company has filed a
registration statement on Form F-3 with the Commission with
respect to the Linked Shares to be received by a Holder of ELMS
at the Exchange Date. The prospectus of the Company constituting
a part of such registration statement includes information
relating to the Company and the Linked Shares, including certain
risk factors relevant to an investment in Linked Shares. The
prospectus of the Company is being attached hereto and delivered
to prospective purchasers of ELMS together with this Prospectus
for convenience of reference only. The prospectus of the Company
does not constitute a part of this Prospectus, nor is it
incorporated by reference herein.
The Contract
General. The Trust will enter into the Contract with the
Seller obligating the Seller to deliver to the Trust on the
Exchange Date a number of Linked Shares equal to the product of
the Exchange Rate times the initial number of Linked Shares
subject to the Contract. The aggregate initial number of Linked
Shares under the Contract will equal the aggregate number of ELMS
offered hereby (subject to increase in the event the Underwriters
exercise their overallotment option). The Contract may not be
assigned by either party without the prior written consent of the
other party thereto.
The purchase price under the Contract is equal to $ per
Linked Share and $ in the aggregate and is payable to the
Seller by the Trust on the closing of this offering. The purchase
price and other terms of the Contract were arrived at by arm's
length negotiations between the Trust and the Seller taking into
consideration factors including the price, expected dividend level
and volatility of the Linked Shares, current interest rates, the
term of the Contract, current market volatility generally, the
collateral security pledged by the Seller, the value of other similar
11
<PAGE>
instruments and the costs and anticipated proceeds of the offering
of the ELMS. All matters relating to the administration of the Contract
will be the responsibility of either the Trust's Administrator or
Custodian.
Dilution Adjustments; Other Adjustment Events. The Exchange
Rate is subject to adjustment if on or prior to the Exchange Date
the Company shall (i) pay a stock dividend or make a
distribution, in either case, with respect to Linked Shares in
such shares, (ii) subdivide or split its outstanding Linked
Shares, (iii) combine its outstanding Linked Shares into a
smaller number of shares, (iv) issue by reclassification (other
than a reclassification pursuant to clause (ii), (iii), (iv) or
(v) of the definition of Adjustment Event below) of Linked Shares
any shares of the Company or (v) issue rights or warrants to all
holders of Linked Shares entitling them to subscribe for or
purchase Linked Shares (other than rights to purchase Linked
Shares pursuant to a plan for the reinvestment of dividends or
interest) at a price per share less than the Market Price (as
defined below) of the Linked Shares on the Business Day next
following the record date for the determination of holders of
Linked Shares entitled to receive such rights or warrants. Any
such event shall be deemed to occur prior to the Exchange Date if
it occurs or the record date therefor falls on or prior to the
Exchange Date.
In the case of the events referred to in clauses (i), (ii),
(iii) and (iv) above, the Exchange Rate shall be adjusted by
adjusting each of the Share Components (as defined below) of the
Exchange Rate in effect immediately prior to such event so that a
Holder of any ELMS shall be entitled to receive, in the event
that ELMS are exchanged for Linked Shares on the Exchange Date,
the number of Linked Shares (or, in the case of a
reclassification referred to in clause (iv) above, the number of
other shares of the Company issued pursuant thereto) which such
Holder would have owned or been entitled to receive immediately
following such event had such ELMS been exchanged immediately
prior to such event or any record date with respect thereto. The
Seller shall be obligated to deliver under the Contract such
aggregate number of Linked Shares as so adjusted. Each of the
numbers of Linked Shares per ELMS specified in clause (a) and (c)
of the definition of Exchange Rate is a "Share Component."
In the case of the event referred to in clause (v) above,
the Exchange Rate shall be adjusted by multiplying each of the
Share Components of the Exchange Rate in effect on the record
date for the issuance of the rights or warrants referred to in
clause (v) above, by a fraction, of which the numerator shall be
(A) the number of Linked Shares outstanding on the record date
for the issuance of such rights or warrants, plus (B) the number
of additional Linked Shares offered for subscription or purchase
pursuant to such rights or warrants, and of which the denominator
shall be (x) the number of Linked Shares outstanding on the
record date for the issuance of such rights or warrants, plus (y)
the number specified in clause (B) above multiplied by the
exercise price of such rights or warrants and then divided by the
Market Price of the Linked Shares on the Business Day next
following the record date for the determination of holders of
Linked Shares entitled to receive such rights or warrants. To the
extent that such rights or warrants expire prior to the Exchange
Date and Linked Shares are not delivered pursuant to such rights
or warrants prior to such expiration, the Exchange Rate shall be
readjusted to the Exchange Rate which would then be in effect had
such adjustments for the issuance of such rights or warrants been
made upon the basis of delivery of only the number of Linked
Shares actually delivered pursuant to such rights or warrants.
Any Linked Shares issuable in payment of a dividend shall be
deemed to have been issued immediately prior to the close of
business on the record date for such dividend for purposes of
calculating the number of outstanding Linked Shares under this
paragraph.
"Market Price" means, as of any date of determination, the
average Closing Price per Linked Share on the 10 Trading Days
immediately prior to the date of determination; provided,
however, that if there are not 10 Trading Days for the Linked
Shares occurring later than the 60th calendar day immediately
prior to, but not including, such date, the Market Price shall be
determined as the market value per Linked Share as of such date
as determined by a nationally recognized investment banking firm
retained for such purpose by the Seller.
All adjustments to the Exchange Rate will be calculated to
the nearest 1/10,000th of a Linked Share (or, if there is not a
nearest 1/10,000th of a share, to the next lower 1/10,000th of a
share). No adjustment in the Exchange Rate shall be required
unless such adjustment would require an increase or decrease of
at least one percent therein; provided, however, that any
adjustments which by reason of the foregoing are not required to
be made shall be carried forward and taken into account in any
subsequent adjustment. If an adjustment is made to the Exchange
Rate pursuant to clauses (i), (ii), (iii), (iv) or (v) above,
an adjustment shall also be made to the Average Market
12
<PAGE>
Price at the Exchange Date as such term is used throughout the
definition of Exchange Rate. The required adjustment to the Average
Market Price at the Exchange Date shall be made at the Exchange Date
by multiplying the Average Market Price at the Exchange Date by the
cumulative number or fraction determined pursuant to the Exchange
Rate adjustment procedure described above. In the case of the
reclassification of any Linked Shares into any shares of common
stock of the Company other than Linked Shares, such shares shall
be deemed Linked Shares solely to determine the Average Market
Price at the Exchange Date and to apply the Exchange Rate at the
Exchange Date. Each such adjustment to the Exchange Rate and the
Average Market Price at the Exchange Date shall be made
successively.
In the event on or prior to the Exchange Date of (i) any
dividend or distribution by the Company to all holders of Linked
Shares of evidences of its indebtedness or other assets
(excluding any dividends or distributions referred to in clause
(i) of the first paragraph under this caption "--Dilution
Adjustments; Other Adjustment Events," any Linked Shares issued
pursuant to a reclassification referred to in clause (iv) of such
paragraph and any Ordinary Cash Dividends (as defined below)) or
any issuance by the Company to all holders of Linked Shares of
rights or warrants to subscribe for or purchase any of its
securities (other than rights or warrants referred to in clause
(v) of the first paragraph under this caption "--Dilution
Adjustments; Other Adjustment Events"), (ii) any consolidation or
merger of the Company with or into another entity (other than a
merger or consolidation in which the Company is the continuing
corporation and in which the Linked Shares outstanding
immediately prior to the merger or consolidation are not
exchanged for cash, securities or other property of the Company
or another corporation), (iii) any sale, transfer, lease or
conveyance to another corporation of the property of the Company
as an entirety or substantially as an entirety, (iv) any
statutory exchange of securities of the Company with another
corporation (other than in connection with a merger or
acquisition) or (v) any liquidation, dissolution or winding up of
the Company (any such event, an "Adjustment Event"), the Seller
shall be obligated to deliver at the Exchange Date, and each
Holder will receive at the Exchange Date, in lieu of or (in the
case of an Adjustment Event described in clause (i) above) in
addition to, Linked Shares or the Cash Settlement Amount, as
applicable, cash in an amount per ELMS equal to (A) if the
Maturity Price (as defined below) is greater than or equal to the
Threshold Appreciation Price, 0.xxxx multiplied by the
Transaction Value (as defined below), (B) if the Maturity Price
is less than the Threshold Appreciation Price but is greater than
the Initial Price, the product of (x) the Initial Price divided
by the Maturity Price multiplied by (y) the Transaction Value and
(C) if the Maturity Price is less than or equal to the Initial
Price, the Transaction Value. Following an Adjustment Event, the
"Maturity Price" shall equal the sum of (A) if Linked Shares are
outstanding at the Exchange Date, the Average Market Price at the
Exchange Date of such Linked Shares (as adjusted pursuant to the
method set forth in the preceding paragraph), otherwise zero,
plus (B) the Transaction Value. Any Adjustment Event shall be
deemed to occur prior to the Exchange Date if it occurs or if the
record date therefor falls on or prior to the Exchange Date.
Notwithstanding the foregoing, with respect to any
securities received in an Adjustment Event that (A) are (i)
listed on a United States national securities exchange, (ii)
reported on a United States national securities system subject to
last sale reporting, (iii) traded in the over-the-counter market
and reported on the National Quotation Bureau or similar
organization or (iv) for which bid and ask prices are available
from at least three nationally recognized investment banking
firms and (B) are either (x) perpetual equity securities or (y)
non-perpetual equity or debt securities with a stated maturity
after the Exchange Date of the ELMS ("Reported Securities"), the
Seller may, at its election, in lieu of delivering the amount of
cash deliverable in respect of Reported Securities received in an
Adjustment Event, as determined in accordance with the previous
paragraph, deliver a number of such Reported Securities with a
value equal to such cash amount, as determined in accordance with
clause (ii) of the definition of Transaction Value; provided,
however, that if such election is made, the Seller shall deliver
Reported Securities in respect of all, but not less than all,
cash amounts that would otherwise be deliverable in respect of
Reported Securities received in an Adjustment Event. If the
Seller elects to deliver Reported Securities, each Holder of
ELMS will be responsible for the payment of any and all
brokerage and other transaction costs upon the sale of such
Reported Securities. If, following any Adjustment Event, any
Reported Security ceases to qualify as a Reported Security, then
(x) the Seller may no longer elect to deliver such Reported Security
in lieu of an equivalent amount of cash and (y) notwithstanding
clause (ii) of the definition of Transaction Value, the Transaction
Value of such Reported Security shall mean the fair market value
of such Reported Security on the date such security ceases to
13
<PAGE>
qualify as a Reported Security, as determined by a nationally
recognized investment banking firm retained for this purpose by
the Seller.
The amount of cash and/or the kind and number of securities
into which the ELMS shall be exchangeable after an Adjustment
Event shall be subject to adjustment following the date of such
Adjustment Event in the same manner and upon the occurrence
of the same type of events as described under this caption
"--Dilution Adjustments; Other Adjustment Events" with respect to
Linked Shares and the Company.
For purposes of the foregoing, the term "Ordinary Cash
Dividend" means, with respect to any consecutive 365-day period,
any dividend with respect to Linked Shares paid in cash to the
extent that the amount of such dividend, together with the
aggregate amount of all other dividends on the Linked Shares paid
in cash during such 365 day period, does not exceed on a per
share basis xx% of the average of the Closing Prices of the
Linked Shares over such 365-day period. For purposes of this
paragraph, any dividends will be deemed to be paid as of the
record date for such dividend.
The term "Transaction Value" means (i) for any cash
received in any Adjustment Event, the amount of cash received per
Linked Share, (ii) for any Reported Securities received in any
Adjustment Event, an amount equal to (x) the average Closing
Price per security of such Reported Securities on the 10 Trading
Days immediately prior to the Exchange Date multiplied by (y) the
number of such Reported Securities (as adjusted pursuant to the
second preceding paragraph) received per Linked Share and (iii)
for any property received in any Adjustment Event other than cash
or such Reported Securities, an amount equal to the fair market
value of the property received per Linked Share on the date such
property is received, as determined by a nationally recognized
investment banking firm retained for this purpose by the Seller;
provided, however, that in the case of clause (ii), (x) with
respect to securities that are Reported Securities by virtue of
only clause (iv) of the definition of Reported Securities above,
Transaction Value with respect to any such Reported Security
means the average of the mid-point of the last bid and ask prices
for such Reported Security as of the Exchange Date from each of
at least three nationally recognized investment banking firms
retained for such purpose by the Seller multiplied by the number
of such Reported Securities (as adjusted pursuant to the method
set forth in the second preceding paragraph) received per Linked
Share and (y) with respect to all other Reported Securities, if
there are not 10 Trading Days for any particular Reported
Security occurring after the 60th calendar day immediately prior
to, but not including, the Exchange Date, Transaction Value with
respect to such Reported Security means the market value per
security of such Reported Security as of the Exchange Date as
determined by a nationally recognized investment banking firm
retained for such purpose by the Seller multiplied by the number
of such Reported Securities (as adjusted pursuant to the method
set forth in the second preceding paragraph) received per Linked
Share. For purposes of calculating the Transaction Value, any
cash, Reported Securities or other property receivable in an
Adjustment Event shall be deemed to have been received
immediately prior to the close of business on the record date for
such Adjustment Event or, if there is no record date for such
Adjustment Event, immediately prior to the close of business on
the effective date of such Adjustment Event.
No adjustments will be made for certain other events, such
as offerings of Linked Shares by the Company for cash or in
connection with acquisitions. Likewise, no adjustments will be
made for any sales of Linked Shares by the Seller.
The Trust is required, within ten Business Days following
the occurrence of an event that requires an adjustment to the
Exchange Rate or the occurrence of an Adjustment Event (or, in
either case, if the Trust is not aware of such occurrence, as
soon as practicable after becoming so aware), to provide written
notice to each Holder of ELMS of the occurrence of such event
including a statement in reasonable detail setting forth the
method by which the adjustment to the Exchange Rate or change in
the consideration to be received by holders following the
Adjustment Event was determined and setting forth the revised
Exchange Rate or consideration, as the case may be; provided,
however, that, in respect of any adjustment to the Average Market
Price at the Exchange Date, such notice will only disclose the
factor by which the Average Market Price at the Exchange Date is
to be multiplied in order to determine which clause of the Exchange
Rate definition will apply at the Exchange Date.
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Collateral Requirements of the Contract; Acceleration. The
Seller's obligations under the Contract will be secured by a
security interest in the maximum number of Linked Shares subject
to such Contract (subject to adjustment in accordance with the
dilution provisions of such Contract), pursuant to a Collateral
Agreement among such Seller, the Trust and , as collateral
agent (the "Collateral Agent"). Unless the Seller is in default in
its obligations under the Collateral Agreement, the Seller will be
permitted to substitute for the pledged Linked Shares collateral
consisting of short-term, direct obligations of the U.S.
Government. Any U.S. Government obligations pledged as substitute
collateral for Linked Shares will be required to have an
aggregate market value at the time of substitution and at daily
mark-to-market valuations thereafter of not less than 150% of the
product of the market price of the Linked Shares at the time of
each valuation times the number of Linked Shares for which such
obligations are being substituted. The Collateral Agreement will
provide that, in the event of an Adjustment Event, the Seller
will pledge as alternative collateral any Reported Securities,
plus cash in an amount at least equal to the Transaction Value of
any consideration other than Reported Securities, received by it
in respect of the maximum number of Linked Shares subject to the
Contract at the time of the Adjustment Event. The number of
shares of Reported Securities required to be pledged shall be
subject to adjustment if any event requiring a dilution
adjustment under the Contract shall occur. The Seller will be
permitted to substitute U.S. Government obligations for Reported
Securities or cash pledged after any Adjustment Event. Any U.S.
Government obligations so substituted will be required to have an
aggregate market value at the time of substitution and at daily
mark-to-market valuations thereafter of: (A) in the case of
obligations substituted for pledged shares of Reported
Securities, not less than 150% of the product of the market price
per share of Reported Securities at the time of each valuation
times the number of Reported Securities for which such
obligations are being substituted; and (B) in the case of
obligations substituted for pledged cash, not less than 105% of
the amount of cash for which such obligations are being
substituted. The Collateral Agent will promptly pay over to the
Seller any dividends, interest, principal or other payments
received by the Collateral Agent in respect of any collateral,
including any substitute collateral, unless the Seller is in
default of its obligations under the Collateral Agreement, or
unless the payment of such amount to the Seller would cause the
collateral to become insufficient under the Collateral Agreement.
The occurrence of a Collateral Event of Default (as defined
below) under the Collateral Agreement, or the bankruptcy or
insolvency of the Seller, will cause an automatic acceleration of
the Contract. In any such event, the Seller will become obligated
to deliver Linked Shares (or, after an Adjustment Event, Reported
Securities or cash or a combination thereof) having an aggregate
value equal to the "Aggregate Acceleration Value" under the
Contract. The Aggregate Acceleration Value will be based on an
"Acceleration Value" determined by the Administrator on the basis
of quotations from independent dealers. Each quotation will be
for the amount that would be paid to the relevant dealer in
consideration of an agreement between the Trust and such dealer
that would have the effect of preserving the Trust's rights to
receive Linked Shares on the Exchange Date (or, after an
Adjustment Event, the alternative consideration provided under
the Contract) under a portion of the Contract that corresponds to
an initial number of Linked Shares equal to 1,000. The
Administrator will request quotations from four nationally
recognized independent dealers on or as soon as reasonably
practicable following the date of acceleration. If four
quotations are provided, the Acceleration Value will be the
arithmetic mean of the two quotations remaining after
disregarding the highest and lowest quotations. If two or three
quotations are provided, the Acceleration Value will be the
arithmetic mean of such quotations. If one quotation is provided,
the Acceleration Value will be equal to such quotation. The
Aggregate Acceleration Value will be computed by dividing the
Acceleration Value by 1,000 and multiplying the quotient by the
initial number of Linked Shares subject to the Contract, except
that, if no quotations are provided, the Aggregate Acceleration
Value will be (A) the Average Market Price per Linked Share
computed as of the acceleration date times the number of Linked
Shares that would be required to be delivered on such date under
the Contract if the Exchange Date were redefined to be the
acceleration date or (B) after an Adjustment Event, the value of
the alternative consideration that would be required to be
delivered on such date under the Contract if the Exchange Date
were redefined to be the acceleration date.
A "Collateral Event of Default" under any Collateral Agree-
ment shall mean, at any time, (A) if no U.S. Government obligations
shall be pledged as substitute collateral at such time, failure
of the collateral to consist of at least the maximum number of
Linked Shares subject to the Contract at such time (or, if an
Adjustment Event shall have occurred at or prior to such time,
failure of the collateral to include the amount of cash and the
maximum number of Reported Securities required to be pledged
as described above); (B) if any U.S. Government obligations
shall be pledged as substitute collateral for Linked Shares
(or Reported Securities) at such time, failure of such U.S.
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Government obligations to have a market value at such time of at
least 150% of the market price of the Linked Shares (or the then-
current market price per security of Reported Securities, as the
case may be) times the difference between (x) the maximum number of
Linked Shares (or Reported Securities) subject to the Contract at
such time and (y) the number of Linked Shares (or Reported Securi-
ties) pledged as collateral at such time; and (C) if any U.S.
Government obligations shall be pledged as substitute collateral
for any cash at such time, failure of such U.S. Government
obligations to have a market value at such time of at least 105%
of such cash, if such failure shall not be cured within five
Business Days after notice thereof is delivered to the Seller.
Upon any acceleration, the Collateral Agent will distribute
to the Trust for distribution pro rata to the Holders the value
of the number of Linked Shares determined according to the second
preceding paragraph, in the form of the Linked Shares then
pledged by the Seller, or cash generated from the liquidation in
accordance with applicable law of collateral then pledged by the
Seller, or a combination thereof (or, after an Adjustment Event,
in the form of Reported Securities then pledged, cash then
pledged, cash generated from the liquidation of collateral then
pledged, or a combination thereof). In addition, in the event
that by the Exchange Date any substitute collateral has not been
replaced by Linked Shares (or, after an Adjustment Event, cash or
Reported Securities) sufficient to meet the obligations under the
Contract, the Collateral Agent will distribute to the Trust for
distribution pro rata to the Holders the market value of the
Linked Shares required to be delivered thereunder, in the form of
any Linked Shares then pledged by the Seller, or cash generated
from the liquidation of collateral then pledged by the Seller, or
a combination thereof (or, after an Adjustment Event, the market
value of the alternative consideration required to be delivered
thereunder, in the form of any Reported Securities then pledged,
cash then pledged, or cash generated from the liquidation of
collateral then pledged, or a combination thereof).
Description of Seller. A brief description of the Seller
will be added by amendment. Specific information on the holdings
of the Seller, as required by the Securities Act of 1933, as
amended (the "Securities Act"), will be included in the
prospectus of the Company attached hereto.
The Option
The Trust and the Seller will enter into an option
agreement (the "Option") which, once it has become effective,
will entitle the Seller to purchase all, but not a fraction, of
the Linked Shares held by the Trust on the Cash Settlement Date
at a price per Linked Share equal to the Average Market Price on
the Cash Settlement Date. The Option will become effective on the
Exchange Date provided that (i) the Seller has given notice to
the Trust not less than 30 days prior to the Exchange Date of its
intent to exercise the Option and (ii) the Seller has performed
its obligations under the Contract by delivering Linked Shares to
the Trust. The Option may not be assigned or otherwise disposed
of by either party without the prior written consent of the other
party thereto.
In the event of an Adjustment Event (other than an
Adjustment Event detailed in clauses (i) and (iii) in the
definition thereof) on or prior to the Cash Settlement Date but
after the Exchange Date, the Option and the Seller's rights and
obligations thereunder shall terminate. In the event of a
reclassification of Linked Shares into any shares of common stock
of the Company other than Linked Shares, such shares shall be
deemed Linked Shares for purposes of the Option and shall be
subject to the Seller's rights thereunder.
If, after giving notice of its intent to exercise the
Option, the Seller fails to purchase the Linked Shares held by
the Trust on the Cash Settlement Date, then the Trust, without
waiver of its rights against the Seller, will distribute Linked
Shares to the Holders on or shortly after the Cash Settlement
Date.
Temporary Investments
For cash management purposes, the Trust may invest the
proceeds of the U.S. Treasury securities held by the Trust and
any other cash held by the Trust in short-term obligations of the
U.S. Government maturing no later than the Business Day preceding
the next following distribution date.
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Trust Termination
The Trust will terminate automatically on or shortly after
the Exchange Date or, if the ELMS are exchanged for cash, on or
shortly after the Cash Settlement Date. Promptly after the
Exchange Date (or the Cash Settlement Date if the ELMS are
exchanged for cash), Linked Shares to be exchanged for the ELMS
(or after an Adjustment Event, other assets as described herein),
or the cash equivalent thereof, and other remaining Trust assets,
if any, will be distributed pro rata to Holders.
In the event that the Contract is accelerated, then any
U.S. Treasury securities held by the Trust will be liquidated by
the Administrator and the proceeds thereof distributed pro rata
to the Holders, together with the amounts distributed upon
acceleration, and the term of the Trust will expire. See "--The
Contract--Collateral Requirements of the Contract; Acceleration"
above.
Delivery of Linked Shares; No Fractional Linked Shares
If the Option is not exercised by the Seller, the ELMS will
be exchanged for Linked Shares, which are expected to be
delivered to Holders shortly after the Exchange Date. Each Holder
will receive the greatest number of whole Linked Shares allocable
to its ELMS, plus the cash value, based on the Average Market
Price on the Exchange Date, of any fractional Linked Shares.
INVESTMENT RESTRICTIONS
The Trust has adopted a fundamental policy that the Trust
may not purchase any securities or instruments other than the
U.S. Treasury securities, the Contract and the Linked Shares or
other assets received pursuant to the Contract and, for cash
management purposes, short-term obligations of the U.S.
Government; issue any securities or instruments except for the
ELMS; make short sales or purchase securities on margin; write
put or call options except for the Option, borrow money;
underwrite securities; purchase or sell real estate, commodities
or commodities contracts; or make loans. The Trust has also
adopted a fundamental policy that the Contract and the Linked
Shares received thereunder may not be disposed of, and the Option
and the Trust's obligations thereunder may not be assigned or
otherwise disposed of, during the term of the Trust and that the
U.S. Treasury securities may not be disposed of prior to their
respective maturities.
RISK FACTORS RELATING TO ELMS
Internal Management; No Portfolio Management
The Trust will be internally managed by its Trustees and
will not have any separate investment adviser. It is a
fundamental policy of the Trust that the Contract and the Linked
Shares received thereunder may not be disposed of, and the Option
and the Trust's obligations thereunder may not be disposed of,
during the term of the Trust and that the U.S. Treasury
securities held by the Trust may not be disposed of prior to
their respective maturities. As a result, the Trust will continue
to hold the Contract or the Linked Shares despite any significant
decline in the market price of the Linked Shares or adverse
changes in the financial condition of the Company (or, after an
Adjustment Event, comparable developments affecting any Reported
Securities or the issuer thereof). The Trust will not be managed
like a typical closed-end investment company.
Relationship to Linked Shares; Limitations on Opportunity
for Equity Appreciation; Potential Losses
The yield on the ELMS is higher than the current dividend
yield on the Linked Shares. However, there is no assurance that
the yield on the ELMS will be higher than the dividend yield on
the Linked Shares over the term of the Trust.
There can be no assurance that the value of the
Linked Shares (or the Cash Settlement Amount) will be equal
to or greater than the Initial Price of the ELMS. For
example, if the Average Market Price on the Exchange
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Date is less than the Initial Price, the value of the Linked
Shares to be received by Holders (or if the ELMS are exchanged
for cash, the value of the number of Linked Shares used in
calculating the Cash Settlement Amount) would be less than
the amount paid for the ELMS, in which case an investment in
ELMS would result in a loss.
In addition, the opportunity for equity appreciation
afforded by an investment in the ELMS is less than the
opportunity for equity appreciation afforded by an investment in
the Linked Shares. The value of the Linked Shares to be received
by Holders (or if the ELMS are exchanged for cash, the value of
the number of Linked Shares used in calculating the Cash
Settlement Amount) will only exceed the Initial Price if the
Average Market Price on the Exchange Date exceeds the Threshold
Appreciation Price, which represents an appreciation of xx% over
the Initial Price. Moreover, the value of the Linked Shares to be
received by Holders (or if the ELMS are exchanged for cash, the
value as of the Exchange Date of the number of Linked Shares used
in calculating the Cash Settlement Amount) at the Exchange Date
will only include [xx]% of any appreciation of the value of the
Linked Shares in excess of the Threshold Appreciation Price.
It is impossible to predict whether the price of the Linked
Shares will rise or fall. Trading prices of Linked Shares will be
influenced by the Company's operational results and by complex
and interrelated political, economic, financial and other factors
that can affect the capital markets generally, the stock exchange
on which Linked Shares are traded and the market segment of which
the Company is a part. See the prospectus relating to the Company
and to the Linked Shares attached hereto as Appendix A. Trading
prices of the Linked Shares also may be influenced if the Seller
or another principal shareholder of the Company hereafter issues
securities with terms similar to those of the ELMS or otherwise
transfers Linked Shares. As of the date hereof, the Seller held
an aggregate of Linked Shares, shares of which ( shares if
the Underwriter's over-allotment option is exercised in full) the
Seller is obligated under the Contract to deliver at the Exchange
Date.
Price Risk of the Linked Shares between the Exchange Date
and the Cash Settlement Date
The Cash Settlement Amount received for each ELMS if the
Option is exercised is computed by multiplying the number of
Linked Shares per ELMS delivered under the Contract, determined
on the Exchange Date, by the Average Market Price of the Linked
Shares on the Cash Settlement Date, which can be expected to be
different from the Average Market Price on the Exchange Date.
Consequently, such Cash Settlement Amount may be less than the
amount in cash a holder could have received for each ELMS if the
ELMS had been exchanged for Linked Shares on the Exchange Date
and sold for cash by the holder during the period between the
Exchange Date and the Cash Settlement Date. A change in the
Average Market Price on the Cash Settlement Date from the Average
Market Price on the Exchange Date will not result in a change in
the number of Linked Shares per ELMS delivered under the
Contract.
Dilution Adjustments; Stockholder Rights
The number of Linked Shares that Holders are entitled to
receive at the termination of the Trust (or that will be used to
calculate the Cash Settlement Amount) is subject to adjustment
for certain events arising from stock splits and combinations,
stock dividends and certain other actions of the Company that
modify its capital structure. See "Investment Objectives and
Policies--The Contract--Dilution Adjustments; Other Adjustment
Events." Such number of shares may not be adjusted for other
events, such as offerings of Linked Shares for cash or in
connection with acquisitions, that may adversely affect the price
of the Linked Shares and, because of the relationship between
the number of Linked Shares to be received pursuant to the
Contract and the price of the Linked Shares, such other events
may adversely affect the trading price of the ELMS. There can be
no assurance that the Company will not take any of the foregoing
actions, or that it will not make offerings of, or that major
shareholders will not sell any, Linked Shares in the future, or
as to the amount of any such offerings or sales. In addition,
Holders of the ELMS will not be entitled to voting rights with
respect to the Linked Shares unless and until the ELMS are
exchanged for Linked Shares at the Exchange Date and shall not be
entitled to receive amounts in respect of dividends or other
distributions in respect of Linked Shares until such time as the
Seller shall have delivered Linked Shares pursuant to the
Contract at the Exchange Date.
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Trading Value; Listing
The ELMS have no trading history, and it is not possible to
predict how they will trade in the secondary market. The trading
price of the ELMS may vary considerably prior to the Exchange
Date due to, among other things, fluctuations in the price of the
Linked Shares (which may occur due to changes in the Company's
financial condition, results of operations or prospects, or
because of complex and interrelated political, economic,
financial and other factors that can affect the capital markets
generally, the stock exchanges or quotation systems on which the
Linked Shares are traded and the market segment of which the
Company is a part) and fluctuations in interest rates and other
factors that are difficult to predict and beyond the Trust's
control.
The Underwriter currently intends, but is not obligated, to
make a market in the ELMS. There can be no assurance that a
secondary market will develop or, if a secondary market does
develop, that it will provide the Holders of the ELMS with
liquidity of investment or that it will continue for the life of
the ELMS.
Application will be made to list the ELMS on the NYSE.
Assuming the acceptance of such application, there can be no
assurance that the ELMS will not later be delisted or that
trading in the ELMS on the NYSE will not be suspended. In the
event of a delisting or suspension of trading on such exchange,
the Trust will apply for listing of the ELMS on another national
securities exchange or for quotation on another trading market.
If the ELMS are not listed or traded on any securities exchange
or trading market, or if trading of the ELMS is suspended,
pricing information for the ELMS may be more difficult to obtain,
and the price and liquidity of the ELMS may be adversely
affected.
Net Asset Value
The Trust is a newly organized closed-end investment
company with no previous operating history. Shares of closed-end
investment companies frequently trade at a discount from their
net asset value, which is a risk separate and distinct from the
risk that the Trust's net asset value will decrease. The Trust
cannot predict whether the ELMS will trade at, below or above
their net asset value. The risk of purchasing investments that
might trade at a discount is more pronounced for investors who
wish to sell their investments in a relatively short period of
time after completion of the Trust's initial public offering
because for those investors realization of a gain or loss on
their investments is likely to be more dependent upon the
existence of a premium or discount than upon portfolio
performance. The ELMS are not subject to redemption.
Non-Diversified Status
The Trust is considered non-diversified under the
Investment Company Act, which means that the Trust is not limited
in the proportion of its assets that may be invested in the
obligations of a single issuer. Because the only securities held
or received by the Trust will be U.S. Treasury securities, the
Contract and Linked Shares received thereunder or other assets
consistent with the terms of the Contract, the Trust may be
subject to greater risk than would be the case for an investment
company with more diversified investments.
Risk Relating to Bankruptcy of Seller
The Trust believes that the Contract constitutes a
"securities contract" for purposes of the Bankruptcy Code,
performance of which would not be subject to the automatic stay
provisions of the Bankruptcy Code in the event of a U.S.
bankruptcy of the Seller. It is, however, possible that the
Contract will be determined not to qualify as a "securities
contract" for this purpose, in which case the Seller's bankruptcy
may cause a delay in settlement of the Contract, or otherwise
subject the Contract to the bankruptcy proceedings, which could
adversely affect performance of the Contract, the timing of any
delivery thereunder, the amount that Holders will receive in
respect of the ELMS, and the timing of any such receipt.
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NET ASSET VALUE
The net asset value of the portfolio will be calculated by
the Administrator no less frequently than quarterly by dividing
the value of the net assets of the Trust (the value of its assets
less its liabilities) by the total number of ELMS outstanding.
The Trust's net asset value will be published semi-annually as
part of the Trust's semi-annual report to Holders and at such
other times as the Trustees may determine. The U.S. Treasury
securities held by the Trust will be valued at the mean between
the last current bid and asked prices or, if quotations are not
available, as determined in good faith by the Trustees.
Short-term investments having a maturity of 60 days or less are
valued at cost with accrued interest or discount earned included
in interest to be received. The Contract and, in the event that
the value of the assets of the Trust is calculated between the
Exchange Date and the Cash Settlement Date, the Option will be
valued at the mean of the bid prices received by the Trust from
at least three independent broker-dealer firms unaffiliated with
the Trust who are in the business of making bids on financial
instruments similar to the Contract and the Option and with terms
comparable thereto.
DESCRIPTION OF THE ELMS
Each ELMS represents an equal proportional interest in the
Trust. Upon liquidation of the Trust, Holders are entitled to
share pro rata in the net assets of the Trust available for
distribution. ELMS have no preemptive, redemption or conversion
rights. The ELMS, when issued and outstanding, will be fully paid
and nonassessable.
Holders are entitled to one vote for each ELMS held on all
matters to be voted on by Holders and are not able to cumulate
their votes in the election of Trustees. The Trustees of the
Trust have been selected initially by Lazard Freres & Co. LLC as
the initial holder of beneficial interests in the Trust. The
Trust intends to hold annual meetings as required by the rules of
the NYSE. The Holders have the right, upon the declaration in
writing or vote of more than two-thirds of the outstanding ELMS,
to remove a Trustee. The Trustees will call a meeting of Holders
to vote on the removal of a Trustee upon the written request of
the record Holders of 10% of the ELMS or to vote on other matters
upon the written request of the record Holders of 51% of the ELMS
(unless substantially the same matter was voted on during the
preceding 12 months).
Book-Entry System
The ELMS will be issued in the form of one or more global
securities (the "Global Securities") deposited with The
Depository Trust Company (the "Depositary") and registered in the
name of a nominee of the Depositary.
The Depositary has advised the Trust and the Underwriter as
follows: The Depositary is a limited-purpose trust company
organized under the laws of the State of New York, a member of
the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to Section 17A of the Exchange Act.
The Depositary was created to hold securities of persons who have
accounts with the Depositary ("participants") and to facilitate
the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry
changes in accounts of the participants, thereby eliminating the
need for physical movement of certificates. Such participants
include securities brokers and dealers, banks, trust companies
and clearing corporations. Indirect access to the Depositary's
book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either
directly or indirectly.
Upon the issuance of a Global Security, the Depositary or
its nominee will credit the respective ELMS represented by such
Global Security to the accounts of participants. The accounts to
be credited shall be designated by the Underwriter. Ownership of
beneficial interests in such Global Securities will be limited to
participants or persons that may hold interests through
participants. Ownership of beneficial interests by participants
in such Global Securities will be shown on, and the transfer of
those ownership interests will be effected only through, records
maintained by the Depositary or its nominee for such Global
Securities. Ownership of beneficial interests in such Global
Securities by persons that hold through participants will be shown
on, and the transfer of that ownership interest within such
participant will be effected only through, records maintained by such
participant. The laws of some jurisdictions require that certain
purchasers of securities take physical delivery of such securities in
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definitive form. Such limits and such laws may impair the ability
to transfer beneficial interests in a Global Security.
So long as the Depositary for a Global Security, or its
nominee, is the registered owner of such Global Security, such
Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the ELMS. Except as set
forth below, owners of beneficial interests in such Global
Securities will not be entitled to have the ELMS registered in
their names and will not receive or be entitled to receive
physical delivery of the ELMS in definitive form and will not be
considered the owners or holders thereof.
Linked Shares or other consideration deliverable on
exchange of, and any quarterly distributions on, ELMS registered
in the name of or held by the Depositary or its nominee will be
made to the Depositary or its nominee, as the case may be, as the
registered owner or the holder of the Global Security. None of
the Trust, the Company, the Seller, any Trustee, the Paying
Agent, the Administrator or the Custodian for the ELMS will have
any responsibility or liability for any aspect of the records
relating to, or payments made on account of, beneficial ownership
interests in a Global Security or for maintaining, supervising or
reviewing any records relating to such beneficial ownership
interests.
The Trust expects that the Depositary, upon receipt of any
payment in respect of a permanent Global Security, will credit
immediately participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the
principal amount of such Global Security as shown on the records
of the Depositary. The Trust also expects that payments by
participants to owners of beneficial interests in such Global
Security held through such participants will be governed by
standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form
or registered in "street name," and will be the responsibility of
such participants.
A Global Security may not be transferred except as a whole
by the Depositary to a nominee or a successor of the Depositary.
If the Depositary is at any time unwilling or unable to continue
as depositary and a successor depositary is not appointed by the
Trust within ninety days, the Trust will issue ELMS in definitive
registered form in exchange for the Global Security representing
such ELMS. In addition, the Trust may at any time and in its sole
discretion determine not to have any ELMS represented by one or
more Global Securities and, in such event, will issue ELMS in
definitive form in exchange for all of the Global Securities
representing the ELMS. Further, if the Trust so specifies with
respect to the ELMS, an owner of a beneficial interest in a
Global Security representing ELMS may, on terms acceptable to the
Trust and the Depositary for such Global Security, receive ELMS
in definitive form. In any such instance, an owner of a
beneficial interest in a Global Security will be entitled to
physical delivery in definitive form of ELMS represented by such
Global Security equal in number to that represented by such
beneficial interest and to have such ELMS registered in its name.
MANAGEMENT AND ADMINISTRATION OF THE TRUST
Trustees
The Trust will be internally managed by three Trustees and
will not have an investment adviser. Under the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"),
applicable to grantor trusts, the Trustees will not have the
power to vary the investments held by the Trust. It is a
fundamental policy that the Contract and the Linked Shares
received thereunder may not be disposed of, and the Option and
the Trust's obligations thereunder may not be disposed of, during
the term of the Trust and that the U.S. Treasury securities may
not be disposed of prior to their respective maturities.
The names of the persons who have been elected by Lazard
Freres & Co. LLC, the initial Holder of the Trust, and who will
serve as the Trustees are set forth below. The positions and the
principal occupations of the individual Trustees during the past
five years are also set forth below.
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Principal Occupation
Name, Age and Address Title During Past Five Years
--------------------- ----- ----------------------
Each Trustee who is not a director, officer or employee of
any Underwriter or the Administrator, or of any affiliate
thereof, will be paid by Lazard, on behalf of the Trust, in
respect of its annual fee and anticipated out-of-pocket expenses,
a one-time, up-front fee of $ . The Trust's Managing Trustee
will also receive an additional up-front fee of $ for serving
in that capacity. The Trustees will not receive, either directly or
indirectly, any compensation, including any pension or retirement
benefits, from the Trust. None of the Trustees receives any
compensation for serving as a trustee or director of any other
affiliated investment company.
Administrator
The day-to-day affairs of the Trust will be managed by ,
as Trust Administrator pursuant to an Administration Agreement.
Under the Administration Agreement, the Trustees have delegated
most of their operational duties to the Administrator, including
without limitation, the duties to: (i) receive invoices for and
pay, or cause to be paid, all expenses incurred by the Trust;
(ii) with the approval of the Trustees, engage legal and other
professional advisors (other than the independent public
accountants for the Trust); (iii) instruct the Paying Agent to
pay distributions on ELMS as described herein; (iv) prepare and
mail, file or publish all notices, proxies, reports, tax returns
and other communications and documents, and keep all books and
records, for the Trust; (v) at the direction of the Trustees,
institute and prosecute legal and other appropriate proceedings
to enforce the rights and remedies of the Trust; and (vi) make
all necessary arrangements with respect to meetings of Trustees
and any meetings of holders of ELMS. The Administrator will not,
however, select the independent public accountants for the Trust
or sell or otherwise dispose of the Trust assets (except in
connection with an acceleration of the Contract, the settlement
of the Contract at the Exchange Date or performance under the
Option, if exercised, on the Cash Settlement Date, and upon
termination of the Trust).
The Administration Agreement may be terminated by either
the Trust or the Administrator upon 60 days' prior written
notice, except that no termination shall become effective until a
successor Administrator has been chosen and has accepted the
duties of the Administrator.
Except for its roles as Administrator, custodian, paying
agent, registrar and transfer agent of the Trust, and except for
its role as Collateral Agent under the Collateral Agreements,
has no other affiliation with, and is not engaged in
any other transactions with, the Trust.
The address of the Administrator is .
Custodian
The Trust's custodian (the "Custodian") is pursuant
to a custodian agreement (the "Custodian Agreement"). In the event
of any termination of the Custodian Agreement by the Trust or the
resignation of the Custodian, the Trust must engage a new
Custodian to carry out the duties of the Custodian as set forth
in the Custodian Agreement. Pursuant to the Custodian Agreement,
all net cash received by the Trust will be invested by the
Custodian in short-term U.S. Government securities maturing on or
shortly before the next quarterly distribution date. The
Custodian will also act as Collateral Agent under the Collateral
Agreement and will hold a perfected security interest in the
Linked Shares and U.S. Government obligations or other assets
consistent with the terms of the Contract.
Paying Agent
The transfer agent, registrar and paying agent (the
"Paying Agent") for the ELMS is pursuant to a paying
agent agreement (the "Paying Agent Agreement"). In the
event of any termination of the Paying Agent
22
<PAGE>
Agreement by the Trust or the resignation of the Paying Agent,
the Trust will use its best efforts to engage a new
Paying Agent to carry out the duties of the Paying Agent.
Indemnification
The Trust will indemnify each Trustee, the Administrator,
the Custodian and the Paying Agent with respect to any claim,
liability, loss or expense (including the costs and expenses of
the defense against any claim or liability) which it may incur in
acting as Trustee, Administrator, Custodian or Paying Agent, as
the case may be, except in the case of willful misfeasance, bad
faith, gross negligence or reckless disregard of their respective
duties or where applicable law prohibits such indemnification.
Lazard has agreed to reimburse the Trust for any amounts it may
be required to pay as indemnification to any Trustee, the
Administrator, the Custodian or the Paying Agent. Lazard will in
turn be entitled to reimbursement from the Seller for all such
reimbursements paid by it.
Distributions
The Trust intends to distribute to Holders on a quarterly
basis the proceeds of the U.S. Treasury securities held by the
Trust. The first distribution, reflecting the Trust's operations
from the date of the offering, will be made on , 1997
to Holders of record as of , 1997. Thereafter, distri-
butions will be made on , , and
or, if any such date is not a Business Day, on the next succeeding
Business Day, of each year to Holders of record as of each
, , and , respectively. Upon
termination of the Trust as described in "Investment Objectives
and Policies--Trust Termination," each Holder will receive its
pro rata share of any remaining net assets of the Trust.
Estimated Expenses
Lazard will pay at the Trust's inception to each of the
Administrator, the Custodian and the Paying Agent, and to each
Trustee, a one-time, up-front amount in respect of its fee and,
in the case of the Administrator, anticipated expenses of the
Trust over the term of the Trust. The anticipated Trust expenses
to be borne by the Administrator include, among other things,
expenses for legal and independent accountants' services, costs
of printing proxies, ELMS certificates and Holder reports,
expenses of the Trustees, fidelity bond coverage, stock exchange
listing fees and expenses of qualifying the ELMS for sale in the
various states. The aggregate of the one-time, up-front payments
described above will be in the amount of $ . Lazard will
also pay estimated organization costs of the Trust in the amount
of $ and estimated costs of the Trust in connection with
the initial registration and public offering of the ELMS in the
amount of $ at the closing of the offering.
The amount payable to the Administrator in respect of
ongoing expenses of the Trust was determined based on estimates
made in good faith on the basis of information currently
available to the Trust, including estimates furnished by the
Trust's agents. There cannot, however, be any assurance that
actual operating expenses of the Trust will not be substantially
more than this amount. Any excess expenses will be paid by Lazard
or, in the event of its failure to pay such amounts, the Seller, or,
in the event of the failure of either Lazard or the Seller to pay such
amounts, the Trust. Lazard will be entitled to reimbursement from
the Seller for all fees and expenses of the Trust paid by it.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the principal U.S. federal
income tax consequences that may be relevant to a holder of ELMS
that is a citizen or resident of the United States, a domestic
corporation or a person that is otherwise subject to U.S. federal
income taxation on a net income basis in respect of an ELMS (a
"U.S. Holder"). The discussion below is based on the advice of
Cleary, Gottlieb, Steen & Hamilton.
This summary is based on the U.S. federal income tax laws,
regulations, rulings and decisions now in effect, all of which
are subject to change. Except to the extent discussed below under
"Non-United States Persons," this summary deals only with U.S.
Holders that will hold ELMS as capital assets. This summary deals
only with initial Holders and does not address tax considerations
applicable to investors that may be subject to special tax
23
<PAGE>
rules, such as banks, insurance companies, dealers in securities,
persons that will hold ELMS as a position in a "straddle" for tax
purposes or as a part of a "synthetic security" or a "conversion
transaction" or other integrated investment comprised of an ELMS
and one or more other investments, or persons that have a
functional currency other than the U.S. dollar. It does not
include any description of the tax laws of any state or local
governments or of any foreign government that may be applicable
to the ELMS or to the Holders thereof. It also does not discuss
the tax consequences of the ownership of the Linked Shares or
Reported Securities. Prospective purchasers of ELMS are urged to
review the discussion under in the accompanying prospectus
of the Company concerning the federal income tax consequences of
an investment in the Linked Shares. INVESTORS SHOULD CONSULT
THEIR OWN TAX ADVISORS IN DETERMINING THE TAX CONSEQUENCES TO
THEM OF HOLDING ELMS, INCLUDING THE APPLICATION TO THEIR PARTICULAR
SITUATION OF THE U.S. FEDERAL INCOME TAX CONSIDERATIONS DISCUSSED
BELOW, AS WELL AS THE APPLICATION OF STATE, LOCAL OR OTHER TAX LAWS.
There are no regulations, published rulings or judicial
decisions addressing the characterization for federal income tax
purposes of securities with terms substantially the same as the
ELMS. Pursuant to the terms of the Indenture, the Trust and every
holder of ELMS will be obligated (in the absence of an
administrative determination or judicial ruling to the contrary)
to treat an ELMS for all tax purposes as a beneficial interest in
a trust that holds zero-coupon or stripped U.S. Treasury
securities and certain rights to receive Linked Shares or cash,
as set forth in the Contract and the Option (the "Seller's
Obligations"), and to treat the Contract as a prepaid forward
contract for the purchase of a variable number of Linked Shares.
The Trust intends to report U.S. Holders' income to the Internal
Revenue Service in accordance with this treatment. Under this
approach, the tax consequences of holding an ELMS will be as
described below. However, prospective investors in the ELMS
should be aware that the Internal Revenue Service might take a
different view as to the proper characterization of the ELMS and
of the tax consequences to a U.S. Holder.
Tax Status of the Trust
The Trust will be taxable as a grantor trust for federal
income tax purposes, and income received by the Trust will be
treated as income of the U.S. Holders in the manner set forth
below.
Tax Consequences to United States Holders
Tax Basis of the U.S. Treasury Securities and the Seller's
Obligations. Each U.S. Holder will be considered the owner of its
pro rata portion of the zero-coupon or stripped U.S. Treasury
securities and the Seller's Obligations in the Trust. The cost to
the U.S. Holder of its ELMS will be allocated among the U.S.
Holder's pro rata portion of the U.S. Treasury securities and the
Seller's Obligations (in proportion to the fair market values
thereof on the date on which the U.S. Holder acquires its ELMS)
in order to determine the U.S. Holder's tax bases. It is
currently anticipated that approximately xx% and xx% of the net
proceeds of the offering will be used by the Trust to purchase
the U.S. Treasury securities and as payment in consideration of
the Seller's Obligations, respectively.
Recognition of Original Issue Discount on the U.S. Treasury
Securities. The U.S. Treasury securities in the Trust will
consist of zero-coupon or stripped U.S. Treasury securities. A
U.S. Holder will be required to treat its pro rata portion of
each U.S. Treasury security in the Trust as a bond that was
originally issued on the date the U.S. Holder purchased its ELMS
at an original issue discount equal to the excess of the U.S.
Holder's pro rata portion of the amounts payable on such U.S.
Treasury security over the U.S. Holder's tax basis therefor. The
amount of such excess, however, will constitute only a portion of
the total amounts payable in respect of U.S. Treasury securities
held by the Trust and, consequently, a substantial portion of
each quarterly cash distribution to the U.S. Holders will be
treated as a tax-free return of the U.S. Holders' investment in
the U.S. Treasury securities and will not be considered current
income for federal income tax purposes. See "Investment Objective
and Policies--Trust Assets."
24
<PAGE>
A U.S. Holder (whether on the cash or accrual method of tax
accounting) will be required to include original issue discount
(other than original issue discount on short-term U.S. Treasury
securities as defined below) in income for federal income tax
purposes as it accrues on a constant yield basis. The Trust
expects that more than 20% of the U.S. Holders will be accrual
basis taxpayers, in which case original issue discount on any
short-term U.S. Treasury security (i.e., any U.S. Treasury
security with a maturity of one year or less from the date it is
purchased) held by the Trust also will be required to be included
in income by the U.S. Holders as it is accrued. Unless a U.S.
Holder elects to accrue the original issue discount on a
short-term U.S. Treasury security according to a constant yield
method based on daily compounding, such original issue discount
will be accrued on a straight-line basis. The U.S. Holder's tax
basis in a U.S. Treasury security will be increased by the
amounts of any original issue discount included in income by the
U.S. Holder with respect to such U.S. Treasury security.
Treatment of the Seller's Obligations. Each U.S. Holder
will be treated as owning a pro rata portion of the Seller's
Obligations and as having received a pro rata portion of the
Linked Shares (or cash) delivered to the Trust pursuant to the
Seller's Obligations on the Exchange Date (or the Cash Settlement
Date).
Distribution of the Linked Shares. The delivery of Linked
Shares to the Trust on the Exchange Date pursuant to the Contract
will not be taxable to U.S. Holders. The distribution of Linked
Shares upon the termination of the Trust will not be taxable to
the U.S. Holders. Each U.S. Holder's aggregate basis in its
Linked Shares will be equal to its basis in its pro rata portion
of the Seller's Obligations less the portion of such basis
allocable to any fractional Linked Shares for which cash is
received. A U.S. Holder will have taxable gain or loss upon
receipt of cash in lieu of fractional Linked Shares distributed
upon termination of the Trust equal to the difference between the
amount of cash received and the basis of such fractional Linked
Shares. A U.S. Holder's holding period for the Linked Shares will
begin on the day after the Exchange Date.
Exercise of the Option. If the Seller exercises the Option
each U.S. Holder will be treated as having sold its pro rata
portion of the Linked Shares on the Cash Settlement Date.
Accordingly, each U.S. Holder will recognize short-term capital
gain or loss equal to the difference between the amount realized
and its adjusted tax basis in such portion of the Linked Shares.
It is unclear whether the Option will be treated as an instrument
separate from the Contract in accordance with its form, or
whether the Seller's Obligations will be considered a single
instrument for federal income tax purposes. Assuming that the
Option is treated as a separate instrument, if the Seller does
not exercise the Option, each U.S. Holder will recognize its pro
rata share of the premium in respect of the Option as short-term
capital gain. The amount of such premium is anticipated to be
minimal.
Sale of the ELMS. Upon a sale of all or some of a U.S.
Holder's ELMS, a U.S. Holder will be treated as having sold its
pro rata portion of the U.S. Treasury securities and the Seller's
Obligations underlying the ELMS. The selling U.S. Holder will
recognize gain or loss equal to the difference between the amount
realized and the U.S. Holder's aggregate tax bases in its pro
rata portion of the U.S. Treasury securities and the Seller's
Obligations. Any gain or loss will be long-term capital gain or
loss if the U.S. Holder has held the ELMS for more than one year,
except that if the U.S. Holder sells the ELMS after the Linked
Shares have been delivered to the Trust on the Exchange Date, the
gain or loss in respect of the Linked Shares will be short-term
capital gain or loss. The distinction between capital gain or loss
and ordinary income or loss is important for purposes of the
limitations on a U.S. Holder's ability to offset capital losses
against ordinary income. In addition, certain individuals are
subject to taxation at a reduced rate on long-term capital gains.
Distribution of Cash or Reported Securities. If as a result
of an Adjustment Event, cash, Reported Securities, or a
combination of cash and Reported Securities is delivered pursuant
to the Contract, a U.S. Holder will have taxable gain or loss
upon receipt equal to the difference between the amount of cash
received, including cash received in lieu of fractional Reported
Securities, and its basis in its pro rata portion of the Seller's
Obligations allocable to any Linked Shares for which such cash or
fractional Reported Securities were received. Any gain or loss
will be capital gain or loss, and if the U.S. Holder has held the
ELMS for more than one year, such gain or loss will be long-term
capital gain or loss (unless the Adjustment Event occurs after
the Exchange Date and before the Cash Settlement Date). A U.S.
Holder's basis in any Reported Securities received will be equal
to its basis in its pro rata portion of the Seller's Obligations
less the portion of such basis allocable to any Linked Shares for
which cash or fractional Reported Securities were received. See
"Investment Objectives and Policies -- The Contract."
25
<PAGE>
Alternative Characterizations. The Trust believes the
Contract should be treated for federal income tax purposes as a
prepaid forward contract for the purchase of a variable number of
Linked Shares. Nevertheless, the Internal Revenue Service might
assert that the Contract should be treated as a loan to
the Seller in exchange for a contingent debt obligation of the
Seller. If the Internal Revenue Service were to prevail in making
such an assertion, a U.S. Holder might be required to include
original issue discount in income over the life of the ELMS based
on the excess of the anticipated value of the Linked Shares to be
received in respect of the Contract over the amount paid for the
Contract. In addition, a U.S. Holder would be required to include
interest (rather than capital gain) in income on the Exchange
Date in an amount equal to the excess, if any, of the value of
the Linked Shares received on the Exchange Date (or the proceeds
from prior disposition of the Contract) over the aggregate of the
basis of the Contract and any interest on the Contract previously
included in income (or might be entitled to an ordinary deduction
to the extent of interest previously included in income and not
ultimately received). The Internal Revenue Service might also
assert that a U.S. Holder should simply include in income as
interest the amount of cash actually received each year in respect
of the ELMS.
Fees and Expenses of the Trust. A U.S. Holder's pro rata
portion of the expenses in connection with the organization of
the Trust, underwriting discounts and commissions and other
offering expenses should be includable in the cost to the U.S.
Holder of the ELMS. However, there can be no assurance that the
Internal Revenue Service will not take a contrary view. If the
Internal Revenue Service were to prevail in treating such
expenses as excludable from the U.S. Holder's cost of the ELMS,
such expenses would not be includable in the basis of the assets
of the Trust and should instead be amortizable and deductible
over the term of the Trust. If such expenses were treated as
amortizable and deductible, an individual U.S. Holder who
itemizes deductions would be entitled to amortize and deduct
(subject to any other applicable limitations on itemized
deductions) such expenses over the term of the Trust only to
the extent that such amortized annual expenses together with
such U.S. Holder's other miscellaneous deductions exceeds 2%
of such U.S. Holder's adjusted gross income.
Non-United States Persons
In the case of a Holder of the ELMS that is a non-resident
alien individual or a foreign corporation (a "Non-U.S. Person"),
payments made with respect to the ELMS will not be subject to
U.S. withholding tax, provided that such Holder complies with
applicable certification requirements (including in general the
furnishing of an Internal Revenue Service Form W-8 or a
substitute form). Any capital gain realized upon the sale or
other disposition of the ELMS by a Holder that is a Non-U.S.
Person will generally not be subject to U.S. federal income tax
if (i) such gain is not effectively connected with a U.S. trade
or business of such Holder and (ii) in the case of an individual,
such individual is not present in the United States for 183 days
or more in the taxable year of the sale or other disposition or
the gain is not attributable to a fixed place of business
maintained by such individual in the United States.
Backup Withholding and Information Reporting
A Holder of ELMS may be subject to information reporting
and to backup withholding at a rate of 31 percent of certain
amounts paid to the Holder unless such Holder (a) is a
corporation or comes within certain other exempt categories and,
when required, provides proof of such exemption or (b) provides a
correct taxpayer identification number, certifies as to no loss
of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules.
Information reporting and backup withholding do not apply to
payments made to a Holder of ELMS that is a Non-U.S. Person if
the beneficial owner of the ELMS certifies as to its non-U.S.
status or otherwise establishes an exemption, provided that the
Trust or its agent does not have actual knowledge that the Holder
is a U.S. person.
Any amounts withheld under the backup withholding rules are
not an additional tax and may be credited against the U.S.
Holder's U.S. federal income tax liability, provided that the
required information is furnished to the Internal Revenue
Service.
26
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the
Underwriting Agreement (the "Underwriting Agreement") among the
Trust, [the Company,] each of the Seller and Lazard Freres & Co.
LLC, the Trust has agreed to sell to the Underwriter, and the
Underwriter has agreed to purchase the number of ELMS set forth
below:
Underwriter Number of ELMS
----------- --------------
Lazard Freres & Co. LLC..............
In the Underwriting Agreement, the Underwriter has agreed,
subject to the terms and conditions set forth therein, that the
obligations of the Underwriter are subject to certain conditions
precedent and that the Underwriter will be obligated to purchase
all the ELMS offered hereby if any of the ELMS are purchased.
The Underwriter proposes to offer the ELMS directly to the
public initially at the public offering price set forth on the
cover of this Prospectus, and to certain dealers at such price
less a concession not in excess of $ per ELMS. The
Underwriter may allow, and such dealers may reallow, a concession
not in excess of $ per ELMS to other dealers. After the initial
public offering, such public offering price and such concession and
reallowance may be changed.
The Trust has granted to the Underwriter an option,
exercisable for a 30-day period after the date of this
Prospectus, to purchase up to an additional ELMS at
the same price per ELMS as the initial ELMS to be purchased by
the Underwriter. The Underwriter may exercise such option only for
the purpose of covering over-allotments, if any, incurred in
connection with the sale of the ELMS offered hereby.
The ELMS will be a new issue of securities with no established
trading market. The Underwriter intends to make a market in the
ELMS, subject to applicable laws and regulations. However, the
Underwriter is not obligated to do so and any such market-making
may be discontinued at any time at the sole discretion of the
Underwriter without notice. Accordingly, no assurances can be
given as to the liquidity of such market.
The Underwriting Agreement provides that the Seller has
agreed to indemnify the Underwriter against certain liabilities,
including liabilities under the Securities Act of 1933, as amended,
or contribute to payments the Underwriter may be required to make
in respect thereof.
27
<PAGE>
LEGAL MATTERS
Certain legal matters will be passed upon for the Trust and
the Underwriter by Cleary, Gottlieb, Steen & Hamilton, New York,
New York. Certain legal matters will be passed upon for the
Company and the Seller by . Certain legal matters with respect
to the Contract and the Option will be passed upon for the Seller by
. Certain U.S. federal income tax matters will be passed
upon for the Trust by Cleary, Gottlieb, Steen & Hamilton.
EXPERTS
The statement of assets, liabilities and capital included
in this Prospectus has been audited by , independent auditors,
as stated in their report appearing herein, and is included in
reliance upon the report of such firm given upon their authority
as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Trust has filed with the Securities and Exchange
Commission, Washington, D.C. 20549, a Registration Statement
under the Securities Act of 1933, as amended, with respect to the
ELMS offered hereby. Further information concerning the ELMS and
the Trust may be found in the Registration Statement, of which
this Prospectus constitutes a part. The Registration Statement
may be inspected without charge at the Commission's office in
Washington, D.C., and copies of all or any part thereof may be
obtained from such office after payment of the fees prescribed by
the Commission.
28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Trustees of
ELMS Trust
In our opinion, the accompanying statement of assets and
liabilities presents fairly, in all material respects, the
financial position of ELMS Trust (the "Trust") as of , 1997
in conformity with generally accepted accounting principles. This
financial statement is the responsibility of the Trust's
management; our responsibility is to express an opinion on this
financial statement based on our audit. We conducted our audit of
this financial statement in accordance with generally accepted
auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the
opinion expressed above.
New York, New York
, 1997
29
<PAGE>
ELMS TRUST
STATEMENT OF ASSETS AND LIABILITIES
, 1997
ASSETS
Cash.............................................. $
Deferred organization expenses (Note 1)........... $
Total Assets...................................... $
LIABILITIES
Organization expenses payable (Note 1)........... $
SHAREHOLDERS' EQUITY
ELMS representing shares of beneficial interest,
$ par value, share authorized,
shares issued and outstanding $
Total liabilities and shareholders' equity........ $
NET ASSETS........................................ $
Net asset value per share......................... $
Note 1. Organization
ELMS Trust (the "Trust") was established as a Delaware
business trust on February 6, 1997, and has had no operations to
date other than matters relating to its organization and registration
as a non-diversified, closed-end management investment company under
the Investment Company Act of 1940, as amended, and the sale and
issuance of ELMS for $ to Lazard Freres & Co. LLC
("Lazard"). The costs incurred in connection with the organization
of the Trust and this offering will be paid by Lazard.
30
<PAGE>
APPENDIX A
(Company Prospectus)
A-1
<PAGE>
No dealer, salesperson or any other person has been
authorized to give any information or to make any representation
not contained in this Prospectus and, if given or made, such
information or representation must not be relied upon as having
been authorized by the Trust or the Underwriter.
Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Trust since
the date hereof or that the information herein is correct as of
any time subsequent to its date. However, if any material change
occurs while this Prospectus is required by law to be delivered,
this Prospectus will be amended or supplemented accordingly. This
Prospectus does not constitute an offer or solicitation by anyone
in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or
solicitation is not qualified to do so or to any person to whom
it is unlawful to make such an offer or solicitation.
Table of Contents
Page
Prospectus Summary......... 3
Fees and Expenses.......... 7
The Trust.................. 8
Use of Proceeds............ 8
Investment Objectives and Policies 8
Investment Restrictions.... 17
Risk Factors Relating to ELMS 17
Net Asset Value............ 20
Description of the ELMS.... 20
Management and Administration
of the Trust............. 21
Certain United States Federal
Income Tax Considerations 23
Underwriting............... 27
Legal Matters.............. 28
Experts.................... 28
Additional Information..... 28
Report of Independent Accountants 29
Statement of Assets and Liabilities 30
Appendix A................. A-1
-------------
Until , 1997, all dealers effecting transactions
in the ELMS, whether or not participating in this distribution,
may be required to deliver a Prospectus. This is in addition
to the obligation of dealers to deliver a Prospectus when acting
as underwriters and with respect to their unsold allotments or
subscriptions.
1,000,000 ELMS (SM)
ELMS TRUST
Prospectus
Dated , 1997
Lazard Freres & Co. LLC
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
1. Financial Statements
Part A -- (i) Report of Independent Accountants
(ii) Statement of Assets and Liabilities
as of , 1997
Part B -- none
2. Exhibits
(a)(1) -- Declaration of Trust dated as of February 6, 1997/**/
(a)(2) -- Certificate of Trust/**/
(b) -- Not applicable
(c ) -- Not applicable
(d)(1) -- Form of specimen certificate of ELMS/*/
(d)(2) -- Portions of the Declaration of Trust defining
the rights of Holders of ELMS/*/
(e) -- Not applicable
(f) -- Not applicable
(g) -- Not applicable
(h) -- Form of Underwriting Agreement/*/
(i) -- Not applicable
(j) -- Form of Custodian Agreement/*/
(k)(1) -- Form of Administration Agreement/*/
(k)(2) -- Form of Paying Agent Agreement/*/
(k)(3) -- Form of Purchase Contract/*/
(l) -- Opinion and Consent of Counsel to the Trust/*/
(m) -- Not applicable
(n)(1) -- Tax Opinion of Counsel to the Trust (Consent
contained in Exhibit 2.1)/*/
(n)(2) -- Consent of Independent Public Accountants/*/
(o) -- Not applicable
(p) -- Form of Subscription Agreement/*/
(q) -- Not applicable
(r) -- Not applicable
/*/ To be filed by amendment.
/**/ Filed herewith.
Item 25. Marketing Arrangements
See Exhibit (h) to this Registration Statement.
C-1
<PAGE>
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be
incurred in connection with the offering described in this
Registration Statement:
Registration fees $3,448.28
New York Stock Exchange listing fee *
Printing (other than certificates) *
Engraving and printing certificates *
Fees and expenses of qualification under state
securities laws (including fees of counsel) *
Accounting fees and expenses *
Legal fees and expenses *
NASD fees *
Miscellaneous *
Total $ *
/*/ To be furnished by amendment.
Item 27. Person Controlled by or under Common Control with Registrant
The Trust will be internally managed and will not have an
investment adviser. The information in the Prospectus under the
caption "Management and Administration of the Trust" is
incorporated herein by reference.
Item 28. Number of Holders of ELMS
As of the effective date of this Registration Statement:
Title of Class Number of Record Holders
-------------- ------------------------
Shares of beneficial interest... 0
Item 29. Indemnification
The Underwriting Agreement (Exhibit (h) to this
Registration Statement) provides for indemnification.
Insofar as indemnification for liabilities arising under
the Securities Act of 1933, as amended (the "Securities Act"),
may be permitted to directors, officers and controlling persons
of the Registrant, pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
C-2
<PAGE>
Item 30. Business and other Connections of Investment Adviser
Not applicable.
Item 31. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940
and the Rules thereunder are maintained as follows: journals,
ledgers, securities records and other original records are
maintained principally at the offices of the Registrant, c/o
Lazard Freres & Co. LLC, 30 Rockefeller Plaza, New York, New York
10020 and at the offices of , the Registrant's Administrator,
Custodian, paying agent, transfer agent and registrar. All other
records so required to be maintained are maintained at the
offices of the Registrant, c/o Lazard Freres & Co. LLC, 30
Rockefeller Plaza, New York, New York 10020.
Item 32. Management Services
Not applicable.
Item 33. Undertakings
(a) The Registrant hereby undertakes to suspend the
offering of the shares covered hereby until it amends its
prospectus contained herein if (1) subsequent to the effective
date of this Registration Statement, its net asset value per
share declines more than 10 percent from its net asset value per
share as of the effective date of this Registration Statement or
(2) the net asset value per share increases to an amount greater
than its net proceeds as stated in the prospectus contained
herein.
(b) The Registrant hereby undertakes that (i) for the
purpose of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant under
Rule 497(h) under the Securities Act shall be deemed to be part
of this Registration Statement as of the time it was declared
effective; (ii) for the purpose of determining any liability
under the Securities Act, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering thereof.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant has duly
caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 7th day of February, 1997.
ELMS TRUST
By: /s/ Donald A. Wagner
------------------------------
Donald A. Wagner, Trustee
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the
following person, in the capacities and on the date indicated.
Name Title Date
---- ----- ----
/s/ Donald A. Wagner Principal Executive Officer, February 7, 1997
- -------------------- Principal Financial Officer,
Donald A. Wagner Principal Accounting Officer
and Trustee
<PAGE>
Exhibit Index
Exhibit Name of Exhibit
- ------- ---------------
(a)(1) Declaration of Trust dated as
of February 6, 1997/**/
(a)(2) Certificate of Trust/**/
(b) Not applicable
(c) Not applicable
(d)(1) Form of specimen certificate of ELMS/*/
(d)(2) Portions of the Declaration of Trust
defining the rights of Holders of
ELMS/*/
(e) Not applicable
(f) Not applicable
(g) Not applicable
(h) Form of Underwriting Agreement/*/
(i) Not applicable
(j) Form of Custodian Agreement/*/
(k)(1) Form of Administration Agreement/*/
(k)(2) Form of Paying Agent Agreement/*/
(k)(3) Form of Purchase Contract/*/
(l) Opinion and Consent of Counsel to the
Trust/*/
(m) Not applicable
(n)(1) Tax Opinion of Counsel to the Trust
(Consent contained in Exhibit 2.1)/*/
(n)(2) Consent of Independent Public Accountants/*/
(o) Not applicable
(p) Form of Subscription Agreement/*/
(q) Not applicable
(r) Not applicable
/*/ To be filed by amendment.
/**/ Filed herewith.
<PAGE>
EXHIBIT (a)(1)
DECLARATION OF TRUST OF ELMS TRUST
Declaration of Trust, dated as of February 6, 1997,
between James L. Kempner, as sponsor (the "Sponsor") , and
Donald A. Wagner, as trustee (the "Trustee"). The Sponsor and
the Trustee hereby agree as follows:
1. The trust created hereby shall be known as "ELMS
Trust," in which name the Trustee, or the Sponsor to the extent
provided herein, may conduct the business of the Trust, make and
execute contracts, and sue and be sued.
2. The Sponsor hereby assigns, transfers, conveys and
sets over to the Trustee the sum of $1. The Trustee hereby
acknowledges receipt of such amount in trust from the Sponsor,
which amount shall constitute the initial trust estate. The
Trustee hereby declares that it will hold the trust estate in
trust for the Sponsor. It is the intention of the parties hereto
that the Trust created hereby constitute a business trust under
Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. Section
3801 et seq. and that this document constitute the governing
instrument of the Trust. The Trustee is hereby authorized and
directed to execute and file a certificate of trust with the
Delaware Secretary of State in the form attached hereto or in
such form as the Trustee may approve.
3. The Sponsor and the Trustee will enter into an
amended and restated Declaration of Trust, satisfactory to each
such party, to provide for the contemplated operation of the
Trust created hereby. Prior to the execution and delivery of
such amended and restated Declaration of Trust, the Trustee shall
not have any duty or obligation hereunder or with respect to the
trust estate, except as otherwise required by applicable law or
as may be necessary to obtain prior to such execution and
delivery any licenses, consents or approvals required by
applicable law or otherwise.
4. This Declaration of Trust may be executed in one
or more counterparts.
5. The Trustee may resign upon thirty days prior
notice to the Sponsor.
IN WITNESS WHEREOF, the parties hereto have caused this
Declaration of Trust to be duly executed as of the date first
above written.
SPONSOR
/s/ James L. Kempner
-------------------------------
James L. Kempner
as Sponsor
TRUSTEE
/s/ Donald A. Wagner
--------------------------------
Donald A. Wagner
as Trustee
EXHIBIT (a)(2)
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE CERTIFICATE OF BUSINESS TRUST REGISTRATION OF "ELMS
TRUST", FILED IN THIS OFFICE ON THE SIXTH DAY OF FEBRUARY,
A.D. 1997, AT 4:30 O'CLOCK P.M.
[Seal]
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2715649 8100 Authentication: 8321057
971041405 Date: 02-07-97
CERTIFICATE OF TRUST OF ELMS TRUST
This Certificate of Trust of ELMS Trust (the "Trust"),
dated February 6, 1997, is being duly executed and filed by
Donald A. Wagner, as trustee, to form a business trust under
the Delaware Business Trust Act (12 Del. C. Section 3801, et
seq).
1. Name. The name of the business trust formed
hereby is ELMS Trust.
2. Registered Office; Registered Agent. The business
address of the registered office of the Trust in the State of
Delaware is 1209 Orange Street, Wilmington, Delaware 19801. The
name of the Trust's registered agent at such address is The
Corporation Trust Company.
3. Effective Date. This Certificate of Trust shall
be effective upon the date and time of filing.
4. The trust is to be registered under the Investment
Company Act of 1940, as amended, prior to the issuance of
beneficial interests in the Trust.
IN WITNESS WHEREOF, the undersigned, being the sole
trustee of the Trust, has executed this Certificate of Trust as
of the date first above written.
/s/ Donald A. Wagner
----------------------------------
Donald A. Wagner,
as Sole Trustee
