As filed with the Securities and Exchange Commission on October 10, 1997
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington , D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------------
MORGAN STANLEY ABS
CAPITAL II INC.
(Sponsor of the Trusts described herein)
(Exact name of Registrant as specified in its charter)
Delaware Not Yet Available
(State or Other Jurisdiction of
Incorporation or Organization) (I.R.S. Employer Identification No.)
1585 Broadway
New York, New York 10036
(212) 761-2063
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
Craig S. Phillips
President
Morgan Stanley ABS Capital II Inc.
1585 Broadway
New York, New York 10036
(212) 761-1817
(Name, Address, Including Zip Code, and Telephone Number, Including Area
Code, of Agent For Service)
Copies to:
Sharon A. Knight, Esq. Gregory Walker, Esq.
Brown & Wood LLP Morgan Stanley & Co. Incorporated
One World Trade Center 1585 Broadway
New York, New York 10048 New York, New York 10036
(212) 839-5594 (212) 761-6745
-------------------------------------
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement as
determined by market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. / /
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. /x/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
----------------
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Securities Amount to Be Proposed Maximum Offering Proposed Maximum Aggregate Amount of
to Be Registered Registered(1) Price Per Unit (2) Offering Price(2) Registration Fee
<S> <C> <C> <C> <C>
Asset Backed Securities $1,000,000 100% $1,000,000 $304
</TABLE>
(1) The Registration Statement relates to the initial offering from time to
time of the Asset Backed Notes and Asset Backed Certificates and to any
resales thereof in market making transactions by an underwriter to the
extent required.
(2) Estimated pursuant to Rule 457 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 THAT SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
INTRODUCTORY NOTE
This Registration Statement contains a form of Prospectus Supplement
relating to the offering by various Trusts of series of Asset Backed Notes
and/or Asset Backed Certificates. The form of Prospectus Supplement relates
only to the securities described therein and is a form that may be used,
among others, by the registrant to offer Asset Backed Notes and/or Asset
Backed Certificates under this Registration Statement. A Prospectus
Supplement may contain any of the features referred to in the Prospectus.
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 Supplement shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale of
these securities in any jurisdiction in which such offer, solicitation or
sale would be unlawful prior to the registration or qualification under the
securities laws of any such jurisdiction.
Subject to completion dated October 10, 1997
PROSPECTUS SUPPLEMENT
(To Prospectus dated ______________ ___, 199__)
(____________________________ TRUST 199_-_)
($__________ ___% Fixed Rate Asset Backed Amortizing Notes, Class A
$____________ Floating Rate Asset Backed Amortizing Certificates, Class B
_____________ Trust 199_-_ (the "Issuer" or the "Trust") will be
formed pursuant to a trust agreement between Morgan Stanley ABS Capital II
I n c . a s d e p o s i t o r ( t h e " D e p o s i t o r " ) a n d
_______________________________________, Trustee, as amended and restated as
of ________, 199_-_ (as so amended and restated, the "Trust Agreement"). The
Issuer will issue the $__________ Fixed Rate Asset Backed Amortizing Notes,
Class A (the "Notes") and $_______________ Floating Rate Asset Backed
Amortizing Certificates, Class B (the "Certificates" and, together with the
Notes, the "Securities"). The Notes will be issued pursuant to an indenture,
(the "Indenture"), among the Issuer, ________________, as indenture trustee
(the "Indenture Trustee") (and _________________ as swap counterparty (the
"Swap Counterparty")). The Certificates will be issued pursuant to the Trust
Agreement and will represent undivided interests in the Issuer. The net
proceeds of the offering of the Notes and Certificates will be applied by the
Issuer to the purchase of $_____________ aggregate principal amount of
____________________________ Certificates, Series 199_-_ (the "Underlying
Securities") issued by ________________ Trust (the "Underlying Trust").
The Notes will bear interest at a rate equal to _____% per annum,
payable on the ___th day of each _______ or, if such day is not a Business
Day,the next succeeding Business Day (each a "Payment Date"), commencing on
______, 199_. Interest at a rate equal to (state formula) (calculated as
described herein) plus ____% will be distributed on the Certificates on each
Payment Date commencing on ______, 199_. The Notes will mature and principal
will be distributed on the Certificates on __________, ____ to the extent not
prepaid prior thereto. Distributions of principal and interest on the
Certificates will be subordinated in priority to payments due on the Notes,
as described herein.
The principal of the Notes and of the Certificates will be subject to
prepayment as described herein, in whole or in part, on each Payment Date,
commencing __________, ____, in the case of the Notes, and commencing
__________, ____ in the case of the Certificates, on the basis of (state
formula or index for determining principal prepayments). Variations in the
rate of payment of principal of the Securities may be significant. The
Securities are also subject to mandatory prepayment under other circumstances
as described herein. See "MANDATORY PREPAYMENT OF THE NOTES AND THE
CERTIFICATES" herein.
(The Issuer will enter into the Swap Agreement with the Swap
Counterparty pursuant to which the Issuer will agree to exchange the interest
payments received with respect to the Underlying Securities and certain
eligible investments for payments from the Swap Counterparty in an amount
equal to the interest due on the Securities.) (If the principal prepayments
are not based on principal distributions on Underlying Securities, state how
Swap Agreement or other Enhancement will provide funds for such prepayments.)
THE ISSUER IS NOT A SUBSIDIARY OR AFFILIATE OF OR OTHERWISE RELATED TO
THE UNDERLYING TRUST OR ANY OF ITS AFFILIATES. THE UNDERLYING TRUST AND ITS
AFFILIATES ARE NOT INVOLVED IN THE OFFERING OF THE SECURITIES OR IN THE
PREPARATION OF THIS PROSPECTUS SUPPLEMENT. THE UNDERLYING TRUST AND ITS
AFFILIATES WILL NOT RECEIVE ANY OF THE PROCEEDS OF THE OFFERING OF THE
SECURITIES, AND THE UNDERLYING TRUST AND ITS AFFILIATES ARE NOT RESPONSIBLE
FOR, NOR HAVE THEY PARTICIPATED IN THE DETERMINATION OF THE TIMING OF, PRICES
FOR OR QUANTITIES OF THE SECURITIES.
There is currently no market for the Securities offered hereby and there
can be no assurance that such a market will develop or if it does develop
that it will continue. See "RISK FACTORS" herein.
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE NOTES, SEE "RISK FACTORS" ON PAGE S-13 HEREIN.
The Securities offered hereby constitute part of a separate Series
of Asset Backed Notes and Asset Backed Certificates being offered by Morgan
ABS Capital II Inc. from time to time pursuant to its Prospectus dated
_______________ __, 199__. This Prospectus Supplement does not contain
complete information about the offering of the Securities. Additional
information is contained in the Prospectus and investors are urged to read
both this Prospectus Supplement and the Prospectus in full as well as any
prospectus relating to the Underlying Securities. Sales of the Securities may
not be consummated unless the purchaser has received both this Prospectus
Supplement and the Prospectus.
THE NOTES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES REPRESENT BENEFICIAL
INTERESTS IN, THE TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR INTERESTS
IN MORGAN STANLEY ABS CAPITAL II INC., THE UNDERWRITER, THE UNDERLYING TRUST,
THE UNDERLYING TRANSFEROR OR ANY OF THEIR
RESPECTIVE AFFILIATES. NONE OF THE NOTES, THE CERTIFICATES OR THE
UNDERLYING SECURITIES ARE INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR ANY
OTHER PERSON.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Securities offered hereby will be purchased by Morgan Stanley &
Co. Incorporated (the "Underwriter") from the Depositor and will be offered
by the Underwriter from time to time to the public in negotiated transactions
or otherwise at varying prices to be determined at the time of sale. The
aggregate proceeds to the Depositor from the sale of the Securities are
expected to be $ __________________ before deducting expenses payable by the
Depositor of $______________.
The Notes and the Certificates are offered by the Underwriter subject to
prior sale, when, as, and if accepted by the Underwriter and subject to the
Underwriter's right to reject orders in whole or in part and to approval of
certain legal matters by its counsel. It is expected that the Notes and
Certificates will be delivered in book-entry form through the facilities of
The Depository Trust Company and, in the case of the Notes, Cedel Bank,
soci t anonyme, and the Euroclear System, in each case against payment
therefor in immediately available funds on or about ____________, 199_.
MORGAN STANLEY DEAN WITTER
___________ ____, 199__
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT
THE OFFERING OF THE NOTES AND THE CERTIFICATES. ADDITIONAL INFORMATION IS
CONTAINED IN THE PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE NOTES OR
THE CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED
BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. TO THE EXTENT ANY
STATEMENTS IN THIS PROSPECTUS SUPPLEMENT CONFLICT WITH STATEMENTS IN THE
PROSPECTUS, THE STATEMENTS IN THIS PROSPECTUS SUPPLEMENT SHALL CONTROL.
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES OFFERED BY THIS PROSPECTUS
SUPPLEMENT, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. THIS IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE
NOTES OR THE CERTIFICATES. SUCH TRANSACTIONS MAY INCLUDE STABILIZING AND THE
PURCHASE OF NOTES OR CERTIFICATES TO COVER SYNDICATE SHORT POSITIONS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING" HEREIN.
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Notes or Definitive Certificates are issued,
monthly and annual unaudited reports containing information concerning the
Securities will be prepared by the Administrator and sent on behalf of the
Trust only to Cede & Co. ("Cede"), as nominee of The Depository Trust Company
("DTC") and registered holder of the Notes and Certificates. See "CERTAIN
INFORMATION REGARDING THE SECURITIES - Book-Entry Registration" and "--
Reports to Securityholders" in the accompanying Prospectus (the
"Prospectus"). Such reports will not constitute financial statements
prepared in accordance with generally accepted accounting principles. The
Depositor, as originator of the Trust, will file with the Securities and
Exchange Commission (the "Commission") such periodic reports as are required
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the rules and regulations of the Commission thereunder.
_________________________
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE DEPOSITOR OR BY THE UNDERWRITER. THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY TO ANYONE IN
ANY JURISDICTION IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS SUPPLEMENT OR PROSPECTUS.
_________________________
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
Reports to Securityholders . . . . . . . . . . . . . . . . . . . . . . . S-2
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-13
The Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
Description of The Notes . . . . . . . . . . . . . . . . . . . . . . . S-15
Description of The Certificates . . . . . . . . . . . . . . . . . . . . S-17
Mandatory Prepayment of The Notes and The Certificates . . . . . . . . S-20
Priority of Payments . . . . . . . . . . . . . . . . . . . . . . . . . S-22
The Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23
The Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . S-27
(The Swap Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . S-28)
The Calculation Agent . . . . . . . . . . . . . . . . . . . . . . . . . S-31
The Administration Agreement . . . . . . . . . . . . . . . . . . . . . S-32
The Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . S-32
The Owner Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . S-32
The Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-32
Weighted Average Life of The Notes and Certificates
and Maturity Considerations . . . . . . . . . . . . . . . . . . . . S-32
The Underlying Securities . . . . . . . . . . . . . . . . . . . . . . . S-33
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-34
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . S-34
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . . . . . S-34
Legal Investment Considerations . . . . . . . . . . . . . . . . . . . . S-37
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-38
Rating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-38
Index of Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . S-39
PROSPECTUS
PAGE
----
Prospectus Supplement . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents by Reference . . . . . . . . . . . . . . 2
Reports to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Summary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Description of The Notes . . . . . . . . . . . . . . . . . . . . . . . . 11
Description of The Certificates . . . . . . . . . . . . . . . . . . . . . 14
Certain Information Regarding The Securities . . . . . . . . . . . . . . 15
Trust Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
The Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
The Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Certain Federal Income Tax Considerations . . . . . . . . . . . . . . . . 27
State Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . 42
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Index of Principal Terms . . . . . . . . . . . . . . . . . . . . . . . . 44
Global Clearance, Settlement and Tax Documentation Procedures . . . . . . I-1
SUMMARY
The following summary of certain pertinent information is qualified in
its entirety by reference to the detailed information appearing elsewhere in
this Prospectus Supplement and in the accompanying Prospectus and in the
prospectus and prospectus supplement for each Underlying Security. Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Defined Terms" or, to the
extent not defined herein, have the meanings assigned to such terms in the
Prospectus.
Securities Offered $_________ Fixed Rate Asset Backed Amortizing
Notes, Class A (the "Notes") and $________
Floating Rate Asset Backed Amortizing
Certificates, Class B (the "Certificates" and,
together with the Notes, the "Securities").
Distributions of principal and interest on the
Certificates will be subordinated in priority
to payments due on the Notes, as described
herein.
The Issuer _________ Trust 199_-_ (the "Issuer" or the
"Trust"), a Delaware business trust to be
established pursuant to the Trust Agreement (as
defined herein). Initially, the assets of the
Issuer will consist of the Underlying
Securities (as defined herein). (In addition,
the Issuer will enter into the Swap Agreement
(as defined herein)). The Issuer will not have
any assets other than the Underlying
Securities, the Issuer's rights in the
Collection Account (as defined herein), (the
Issuer's rights under the Swap Agreement) and
all proceeds of the foregoing.
The Issuer is not an affiliate of or otherwise
related to _____ (the "Underlying Transferor")
or the Underlying Trust (as defined herein).
The Underlying Transferor and the Underlying
Trust are not involved in the offering of the
Securities or the preparation of this
Prospectus Supplement. The Underlying
Transferor and the Underlying Trust will not
receive any of the proceeds of the offering of
the Securities, and the Underlying Transferor
and the Underlying Trust are not responsible
for, nor have they participated in the
determination of prices for or quantities of
the Securities.
Underlying Securities _________ Certificates, Series 199_-_ (the
"Underlying Securities") issued by ____________
Trust (the "Underlying Trust") as described
herein, with an aggregate principal balance
equal to $___________ as of _________ __, 199_
(the "Closing Date"). See "THE UNDERLYING
SECURITIES" herein.
Depositor Morgan Stanley ABS Capital II Inc., an
affiliate of the Underwriter.
Description of the Notes The Notes will be issued pursuant to an
indenture dated as of __________, 199_ among
the Issuer, _____________________ in its
capacity as indenture trustee (the "Indenture
Trustee") (and ____________ (the "Swap
Counterparty")) in a principal amount equal to
$______.
Security for the
Notes The Assets (as defined herein) will be pledged
to the Indenture Trustee as security for the
Issuer's obligations under the Notes (and under
the Swap Agreement; provided that the pledge of
the Issuer's rights under the Swap Agreement
will secure the Notes only. Payment of any
amounts owed by the Issuer to the Swap
Counterparty under the Swap Agreement will be
senior in priority of payment to the payment of
interest and principal due on the Notes.)
Interest Payments
on the Notes Interest will accrue on the unpaid principal
amount of the Notes at a rate per annum equal
to ___% (or state floating rate formula),
calculated on the basis of a (360-day year
consisting of twelve 30-day months). Interest
will accrue with respect to each Payment Date
during the __________ period beginning on the
__th day of __________ (or on the Closing Date
in the case of the first Payment Date) and
ending on the __th day of __________ (each, a
"Note Interest Accrual Period").
Interest will be payable to Noteholders in
arrears on each Payment Date. "Payment Date"
means the __th day of each __________ or, if
such day is not a Business Day, the next
succeeding Business Day, commencing on
_________ __, 199_. A failure to pay interest
due on the Notes on any Payment Date, which
failure continues for five Business Days,
constitutes an Event of Default (as defined
herein) under the Indenture, provided that if
interest on the Notes is deferred in accordance
with the provisions described herein under
"DESCRIPTION OF THE NOTES--Interest Deferral,"
such deferred interest will not be considered
to be "due" until the Payment Date following
the date when the related deferred interest on
the Underlying Securities is received by the
Issuer.
Under certain circumstances described herein
under "DESCRIPTION OF THE NOTES -- Interest
Deferral," interest on the Notes may be
deferred. Noteholders will not be entitled to
any additional payment in respect of any such
delay.
Principal Payments
on the Notes The portion, if any, of the principal of the
Notes that has not been prepaid as described
under "Mandatory Prepayment of the Notes and
the Certificates" will be due on the __________
Payment Date (the "Scheduled Final Payment
Date"). However, if an Event of Default occurs
under the Indenture (other than an Event of
Default that constitutes a Swap Early
Termination (as defined herein)), the Indenture
Trustee may and, at the written request of the
holders of a majority of the principal of the
Notes, will declare the Notes immediately due
and payable, (subject to the prior written
consent of the Swap Counterparty under certain
circumstances. If a Swap Early Termination
occurs, the entire unpaid principal amount of
the Notes will become immediately due and
payable automatically.)
Mandatory Prepayment
of the Notes The principal of the Notes will be subject to
prepayment as described herein, in whole or in
part, on each ___________, commencing on
______________, on the basis of (state formula
or index for determining amount of principal
prepayments). Variations in the rate of
prepayment of the Notes may be significant.
See "MANDATORY PREPAYMENT OF THE NOTES AND THE
CERTIFICATES -- Prepayment" herein.
(In addition, the Notes will be subject to the
Mandatory Clean-up Call, the Underlying
Securities Default Call and the Extraordinary
Expense Call. See "MANDATORY PREPAYMENT OF THE
NOTES AND THE CERTIFICATES -- Mandatory
Clean-up Call," "-- Underlying Securities
Default Call," and "-- Extraordinary Expense
Call" herein.)
Record Date
for the Notes Payments on the Notes will be made to the
Noteholders in whose name the Notes were
registered at the close of business on the last
Business Day of the month prior to the month in
which such payment occurs, or, with respect to
the first Payment Date, the Closing Date (the
"Record Date").
Denominations
of the Notes The Notes, calculated on the
basis of (the actual number of days in each
Certificate Interest Accrual Period (as defined
herein) divided by 360). "Certificate Interest
Accrual Period" means, with respect to any
Payment Date, the period from and including the
preceding Payment Date (in the case of the
first Payment Date, from and including _______
__, 199_) to but excluding such current Payment
Date. Except as otherwise provided herein,
interest will be distributed on the
Certificates in arrears on each Payment Date.
No interest will be paid on overdue interest.
Under certain ciree "Definitive Notes and
Certificates."
Description of
the Certificates The Certificates will be issued pursuant to a
trust agreement dated as of _________ (_),
199_, as amended and restated as of __________
__, 199_ (the "Trust Agreement"), between the
Depositor and _____________ in its capacity as
owner trustee (the "Trustee") in a principal
amount equal to $________. The Certificates
will represent undivided interests in the
Issuer as described herein.
Interest Distributions
on the Certificates Interest will accrue on the unpaid principal
amount of the Certificates at a rate per annum
equal to (state formula), calculated on the
basis of (the actual number of days in each
Certificate Interest Accrual Period (as defined
herein) divided by 360). "Certificate Interest
Accrual Period" means, with respect to any
Payment Date, the period from and including the
preceding Payment Date (in the case of the
first Payment Date, from and including _______
__, 199_) to but excluding such current Payment
Date. Except as otherwise provided herein,
interest will be distributed on the
Certificates in arrears on each Payment Date.
No interest will be paid on overdue interest.
Under certain circumstances described under
"Description of the Certificates -- Interest
Deferral," interest on the Certificates may be
deferred. Certificateholders will not be
entitled to any additional payment in respect
of any such delay.
Principal Distributions
on the Certificates To the extent described herein, the portion, if
any, of the principal of the Certificates that
has not been prepaid as described under
"Mandatory Prepayment of the Notes and the
Certificates" will be distributed on the
Certificates on the Scheduled Final Payment
Date. If the principal of the Notes has become
immediately due and payable in accordance with
the Indenture upon the occurrence of an Event
of Default, the principal of the Certificates
will be distributed out of the net proceeds
realized from the liquidation of the Underlying
Securities and other Assets, if any, to the
extent available after the payment of all other
obligations of the Issuer in accordance with
the Priority of Payments (as defined herein)
(including any termination payment, if any,
owed under the Swap Agreement, all principal
and interest due on the Notes and all interest
due on the Certificates).
Mandatory
Prepayment of
the Certificates The principal of the Certificates will be
subject to prepayment as described herein, in
whole or in part, on each __________________,
commencing on _____________ (the "Initial
Certificate Prepayment Date"), on the basis of
(state formula or index for determining amount
of principal prepayments). Variations in the
rate of prepayment of the Certificates may be
significant. See "MANDATORY PREPAYMENT OF THE
NOTES AND THE CERTIFICATES" herein.
(In addition, the Certificates will be subject
to the Mandatory Clean-up Call, the Underlying
Securities Default Call and the Extraordinary
Expense Call. See "MANDATORY PREPAYMENT OF THE
NOTES AND THE CERTIFICATES -- Mandatory
Clean-up Call," "-- Underlying Securities
Default Call," and "-- Extraordinary Expense
Call" herein.)
Subordination of
the Certificates Distribution of interest and principal on the
Certificates will be subordinated in priority
of payment to the payment of expenses of the
Issuer, (to amounts owed by the Issuer to the
Swap Counterparty) and to the payment of
interest and principal due on the Notes.
Record Date for
the Certificates Payments on the Certificates will be made to
the Certificateholders in whose name the
Certificates were registered at the close of
business on the Record Date.
Denominations of
the Certificates The Certificates will be issued in minimum
denominations of $1,000 and integral multiples
of $1,000 in excess thereof.
Form, Registration
and Transfer of
the Certificates The Certificates will be represented by one or
more permanent global Certificates (the "Global
Certificates") in fully registered form without
coupons registered in the name of a nominee of
DTC. See "DESCRIPTION OF THE CERTIFICATES --
Form, Denomination and Registration" herein.
Except in the limited circumstances described
herein, Certificates in certificated form will
not be issued in exchange for beneficial
interests in the Global Certificate. See
"Definitive Notes and Certificates."
Transfers of interests in the Global
Certificates are subject to certain
restrictions. See "Transfer Restrictions."
Limited Assets of
the Issuer The Notes are debt obligations of the Issuer
and the Certificates represent interests in the
Issuer only. The Notes and Certificates are
payable solely from proceeds of the Assets
owned by the Issuer. None of the Depositor,
(the Swap Counterparty,) the Trustee, the
Indenture Trustee, the Certificateholders or
any of their affiliates or any other person or
entity will be obligated to make payments on
the Notes or the Certificates. Consequently,
the holders of the Notes and Certificates must
rely solely on collections in respect of the
Assets for payments on the Notes and
distributions on the Certificates. If
collections in respect of the Assets net of any
amounts owed by the Issuer (to the Swap
Counterparty under the Swap Agreement) and to
the Indenture Trustee and the Trustee are
insufficient to make all payments and
distributions due in respect of the Notes and
the Certificates, there will be no other assets
of the Issuer available for payment of any
shortfall and, following realization of the
Assets, any obligation of the Issuer to pay
such shortfall will be extinguished. Any such
shortfall will be borne first by the
Certificateholders and then by the Noteholders.
(Due to the limited nature of the Assets of the
Issuer, should Extraordinary Expenses (as
defined herein) arise in excess of the
Counterparty Expense Limit (as defined herein),
the Issuer will not be able to pay such
expenses. Accordingly, the Noteholders and the
Certificateholders will be notified if
Extraordinary Expenses arise in excess of the
Counterparty Expense Limit less $__________.
In such case, unless the holders of Notes
evidencing 100% of the outstanding principal of
the Notes provide the Indenture Trustee with
written direction not to prepay the Notes, the
Notes and the Certificates will become subject
to mandatory prepayment as described under
"Mandatory Prepayment of the Notes and the
Certificates -- Extraordinary Expense
Call." In such event, (the Swap Agreement will
be terminated) and the Assets of the Issuer
available for payment of the Notes and the
Certificates will be limited as described in
the preceding paragraph.)
Calculation Agent _____________ will serve as calculation agent
(the "Calculation Agent") for the Issuer under
the Indenture and the Trust Agreement (and in
connection with the Swap Agreement.) See "THE
CALCULATION AGENT" herein.
(Swap Agreement Under the Swap Agreement, the Issuer will pay
to the Swap Counterparty amounts equal to the
payments of interest scheduled to be received
on the Underlying Securities in accordance with
the terms thereof net of certain expenses and
the Swap Counterparty will pay to the Issuer
amounts equal to the interest payable on the
Notes and the Certificates, provided that if
the Underlying Trust fails to make any payment
on the Underlying Securities to the Issuer,
with the result that the Issuer is unable to
make any payment due to be made by it to the
Swap Counterparty under the Swap Agreement, the
Swap Counterparty's corresponding payment
obligations under the Swap Agreement will be
proportionately reduced in accordance with the
terms of the Swap Agreement. The Swap
Agreement provides that payments thereunder are
to be reduced in the event that any amount of
interest on the Underlying Securities is
deferred under the terms thereof, and increased
in the event that such deferred interest is
subsequently paid.
(If principal prepayments are not based on
principal distributions on Underlying
Securities, state how Swap Agreement or other
Enhancement will provide funds for such
principal prepayments.)
If a Swap Early Termination (as defined herein)
occurs, the principal of the Notes will be
declared or become immediately due and payable
and the Indenture Trustee will be obligated to
liquidate the Underlying Securities as
described under "THE INDENTURE -- Liquidation
of Underlying Securities and Eligible
Investments" herein. In such event, the
principal of the Certificates will be
distributed out of the net proceeds realized
from the liquidation of the Underlying
Securities, Eligible Investments and other
Assets, if any, only to the extent available
after the payment of all other obligations of
the Issuer. In the event that the net proceeds
of the liquidation of the Assets are not
sufficient to make all payments due in respect
of the Notes and Certificates and to pay the
Issuer's other obligations, if any, in respect
of the termination of the Swap Agreement, then
such amounts will be applied in accordance with
the Priority of Payments (as defined herein)
and the claims of the Swap Counterparty in
respect of such net proceeds will rank higher
in priority than the claims of the Noteholders
and the Certificateholders. See "THE SWAP
AGREEMENT" herein).
Certain Income Tax
Consequences In the opinion of Brown & Wood LLP ("Federal
Tax Counsel"), for U.S. federal income tax
purposes, the Issuer will not be an association
or publicly traded partnership taxable as a
corporation, the Notes will be treated as debt
and the Certificates will be treated as
interests in a partnership to the extent they
are held by more than one person. To the
extent that the Certificates are held by one
person, the Issuer will be disregarded and the
holder of the Certificates will be treated as
directly owning the Issuer's assets for U.S.
federal income tax purposes. An opinion of
counsel is not binding on the Internal Revenue
Service (the "IRS") and it is possible the IRS
could disagree. Each Noteholder and
Certificateholder, by the acceptance of a Note
or Certificate, will agree to treat the Notes
as indebtedness for federal, state and local
income and franchise tax purposes. Each
Certificateholder for federal, state and local
tax purposes by acceptance of a Certificate
will agree to treat the Certificates as
interests in a partnership, or if all the
Certificates are held by one person, the
Certificateholder will agree to treat itself as
owning the Issuer's assets. See "Income Tax
Considerations" and "State Tax Considerations"
herein.
ERISA Generally, employee benefit plans that are
subject to the requirements of the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the
Internal Revenue Code of 1986, as amended (the
"Code"), are permitted to purchase instruments
like the Notes that are debt under applicable
state law and have no "substantial equity
features" without reference to the prohibited
transaction requirements of ERISA and the Code
if the obligor is not a party in interest with
respect to such plan. The Issuer expects that
the Notes will be classified as indebtedness
without substantial equity features for ERISA
purposes. Any plan fiduciary considering
whether to purchase the Notes on behalf of a
plan should consult with its counsel regarding
the applicability of the provisions of ERISA
and the Code and the availability of any
exemptions with respect to the purchase and
holding of the Notes.
Under current law the purchase and holding of
the Certificates by or on behalf of any
employee benefit plan subject to the fiduciary
responsibility provisions of ERISA or Section
4975 of the Code may result in a "prohibited
transaction" within the meaning of ERISA and/or
the Code. Consequently, Certificates may not
be transferred to a proposed transferee that is
a plan subject to ERISA or that is described in
Section 4975(e)(1) of the Code, or a person
acting on behalf of any such plan or using the
assets of such plan. See "ERISA
CONSIDERATIONS" herein.
Rating It is a condition to the issuance of the Notes
that they be rated "___" by ____________ and
"___" by _______ (each, a Rating Agency). It
is a condition to the issuance of the
Certificates that they be rated "____" by
______ and "____" by ___. The ratings of the
Notes and the Certificates by the Rating
Agencies address the likelihood of the full and
timely payment of principal and interest on the
Notes and Certificates, respectively. There is
no assurance that any such rating will continue
for any period of time or that it will not be
revised or withdrawn entirely by such Rating
Agency if, in its judgment, circumstances
((including, without limitation, the rating of
the Swap Counterparty)) so warrant. A revision
or withdrawal of such rating may have an
adverse effect on the market price of the Notes
and Certificates. A security rating is not a
recommendation to buy, sell or hold securities.
RISK FACTORS
An investment in the Securities involves certain risks. Prospective
investors should carefully consider the following factors, in addition to the
factors set forth under "Risk Factors" in the Prospectus and the matters set
forth elsewhere in this Prospectus Supplement, prior to investing in the
Securities.
Limited Liquidity. There is currently no secondary market for the
Securities. While the Underwriter intends to make a market in the Notes and
the Certificates upon their issuance, it is under no obligation to do so.
There can be no assurance that any secondary market for any of the Securities
will develop, or, if a secondary market does develop, that it will provide
the holders of such Securities with liquidity of investment or that it will
continue for the life of such Securities.
Limited Assets of the Issuer. The Notes are obligations of the Issuer
only and the Certificates represent interests in the Issuer only and the
Notes and Certificates are payable solely from proceeds of the Assets owned
by the Issuer. None of the Depositor, (the Swap Counterparty,) the
Certificateholders, the Underwriter or any of their affiliates or any other
person or entity will be obligated to make payments on the Notes, the
Certificates or the Underlying Securities. Consequently, the holders of the
Notes and Certificates must rely solely on collections in respect of the
Assets for payments on the Notes and distributions on the Certificates. If
collections in respect of the Assets net of any amounts owed by the Issuer
(to the Swap Counterparty,) the Indenture Trustee and the Owner Trustee are
insufficient to make all payments and distributions due in respect of the
Notes and the Certificates, there will be no other assets of the Issuer
available for payment of any shortfall and, following realization of the
Assets, any obligation of the Issuer to pay such shortfall will be
extinguished. Any such shortfall will be borne first by the
Certificateholders and secondly by the Noteholders.
(Due to the limited nature of the Assets of the Issuer, should
Extraordinary Expenses (as defined herein) arise in excess of the
Counterparty Expense Limit, the Issuer will not be able to pay such expenses.
Accordingly, the Noteholders and the Certificateholders will be notified if
Extraordinary Expenses arise in excess of the Counterparty Expense Limit less
$______. In such case, unless the holders of Notes evidencing 100% of the
outstanding principal of the Notes provide the Indenture Trustee with written
direction not to prepay the Notes, the Notes and the Certificates will become
subject to mandatory prepayment as described under "Mandatory Prepayment of
the Notes and the Certificates -- Extraordinary Expense Call." In such
event, the Swap Agreement will be terminated and the Assets of the Issuer
available for payment of the Notes and the Certificates will be limited as
described in the preceding paragraph.)
(The Swap Agreement. The purchase of Securities involves risks
associated with the Swap Agreement and the Swap Counterparty. If the Swap
Counterparty fails to make payments due to the Issuer under the Swap
Agreement, (or if the Swap Counterparty reduces its payments as described
under "THE SWAP AGREEMENT -- Taxation" herein,) the Issuer will be unable to
meet its obligations in respect of the Notes and Certificates. The Swap
Agreement may be terminated in accordance with its terms upon the occurrence
of a Swap Default or Termination Event (each as defined herein).
Upon any such early termination of the Swap Agreement, the Issuer or the
Swap Counterparty may be liable to make a termination payment to the other
(regardless, if applicable, of which of such parties may have caused such
termination). The amount of any such termination payment will be based on
the market value of the Swap Agreement computed on the basis of market
quotations of the cost of entering into swap transactions with the same terms
and conditions that would have the effect of preserving the respective full
payment obligations of the parties, in accordance with the procedures set
forth in the Swap Agreement; (state whether there are circumstances where no
termination payment will be payable). Any such termination payment could, if
interest rates have changed significantly, be substantial.
If a Swap Early Termination occurs, the principal of the Notes will be
declared or become immediately due and payable and the Indenture Trustee will
be obligated to liquidate the Underlying Securities and Eligible Investments,
if any, as described under "The Indenture -- Liquidation of Underlying
Securities." In any such event, the ability of the Issuer to pay principal
and interest on the Notes and Certificates will depend (a) on the price at
which the Underlying Securities and Eligible Investments, if any, are
liquidated, (b) on the amount of the termination payment (if any) which may
be due to the Swap Counterparty from the Issuer under the Swap Agreement and
(c) on the amount of the termination payment, if any, which may be due to the
Issuer from the Swap Counterparty under the Swap Agreement. In the event
that the net proceeds of the liquidation of the Assets are not sufficient to
make all payments due in respect of the Notes and Certificates and for the
Issuer to meet its obligations, if any, in respect of the termination of the
Swap Agreement, then such amounts will be applied in accordance with the
Priority of Payments and the claims of the Swap Counterparty in respect of
such net proceeds will rank higher in priority than the claims of the
Noteholders and the Certificateholders. See "PRIORITY OF PAYMENTS" herein.)
Underlying Securities. The Underlying Securities represent interests in
the Underlying Trust only and do not represent interests in or obligations of
the Underlying Transferor or any affiliate of the Underlying Transferor. (If
the Underlying Trust fails to make payments due to the Issuer under the
Underlying Securities on the due date therefor, the Swap Agreement may be
terminated. In such event, the principal of the Notes will become due and
payable immediately and the Assets of the Issuer available for payment of the
Notes and Certificates will be limited as described above under " -- Limited
Assets of the Issuer.") See "THE UNDERLYING SECURITIES" herein.
Maturity Assumptions and Early Prepayment Risk. The principal of the
Notes will be prepaid as described herein, in whole or in part, on
____________ and the principal of the Certificates will be distributed on
_____________ on the basis of (state formula or index and discuss related
maturity assumptions, yield considerations and prepayment risk factors).
Reinvestment Risk. As described herein, the rate of prepayment of the
Securities depends on a number of factors, (including the Mandatory Clean-up
Call). Accordingly, it is not possible to predict the rate at which the
Securities will be redeemed. Moreover, since prevailing interest rates are
subject to fluctuation, there can be no assurance that investors in the
Securities will be able to reinvest the payments thereon at yields equalling
or exceeding the yield on such Securities. It is possible that yields on
such reinvestments will be lower, and may be significantly lower, than the
yield on the Securities. Investors in the Securities should consider the
related reinvestment risk in light of other investments that may be available
to such investors.
Subordination of the Certificates. Distributions of principal and
interest on the Certificates will be subordinated in priority of payment to
the payment of expenses of the Issuer, to amounts owed by the Issuer to the
Swap Counterparty and to the payment of principal and interest due on the
Notes. Consequently, the Certificateholders will not receive any
distributions of principal or interest with respect to a Payment Date until
amounts owed by the Issuer to the Swap Counterparty on such Payment Date and
the full amount of principal and interest due on the Notes on such Payment
Date are paid in full. See "PRIORITY OF PAYMENTS" herein.
(Potential Conflicts of Interest. Because the Calculation Agent is (the
Swap Counterparty), potential conflicts of interest may exist between the
Calculation Agent and the holders of Notes and Certificates. The Calculation
Agent is obligated to carry out its duties and functions as Calculation Agent
in good faith and using its reasonable judgment.)
Rating of the Securities. The Notes will be rated "___" by ______ and
"___" by ___ and the Certificates will be rated "___" by Moody's and "___" by
S&P (each of ___ and ______ being hereinafter referred to as a "Rating
Agency"). A rating is not a recommendation to purchase, hold or sell
securities, inasmuch as such rating does not comment as to market price or
suitability for a particular investor. The ratings of the Securities by the
Rating Agencies address the likelihood of the full and timely payment of
principal and interest on the Securities. However, a Rating Agency does not
evaluate, and the ratings of the Securities do not address, the possibility
that investors may receive a lower yield than anticipated. There can be no
assurance that a rating will remain for any given period of time or that a
rating will not be lowered or withdrawn entirely by a Rating Agency if, in
its judgment, circumstances ((including, without limitation, the rating of
the Swap Counterparty)) in the future so warrant.
THE ISSUER
The Issuer will be a business trust formed under the laws of the State
of Delaware pursuant to the Trust Agreement for the transactions described in
this Prospectus Supplement. After its formation, the Issuer will not engage
in any activity other than (i) acquiring and holding the Underlying
Securities and the other assets of the Issuer and proceeds therefrom, (ii)
issuing the Notes and the Certificates, (iii) making payments on the Notes
and distributions on the Certificates, (iv) (entering into the Swap
Agreement) and (v) engaging in other activities that are necessary, suitable
or convenient to accomplish the foregoing or are incidental thereto or
connected therewith.
The Issuer's principal offices are in Wilmington, Delaware in care of
___________ as Trustee, at the address listed below under "The Owner
Trustee."
The Issuer is not a subsidiary or affiliate of or otherwise related to
the Bank or the Underlying Trust. The Underlying Trust and the Bank are not
involved in the offering of the Securities or the preparation of this
Prospectus Supplement. The Bank and the Underlying Trust will not receive
any of the proceeds of the offering of the Securities, and the Bank and the
Underlying Trust are not responsible for, nor have they participated in the
determination of the timing of, prices for or quantities of, the Securities.
DESCRIPTION OF THE NOTES
The Notes will be issued pursuant to the Indenture. The following
summaries describe certain terms of the Notes and the Indenture. The
summaries do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the provisions of the Indenture. See
"MANDATORY PREPAYMENT OF THE NOTES AND THE CERTIFICATES" and "PRIORITY OF
PAYMENTS" herein and "DESCRIPTION OF THE NOTES - The Indenture" in the
Prospectus for a summary of additional terms of the Indenture.
STATUS AND SECURITY
The Notes will be debt obligations of the Issuer, secured as described
below. The Notes will be senior in right of payment on each Payment Date to
the Certificates.
Under the terms of the Indenture, the Issuer will grant to the Indenture
Trustee, for the benefit of the Noteholders and the Swap Counterparty, a
security interest in certain assets of the Issuer to secure the Issuer's
obligations under the Indenture and the Notes. The assets subject to the
security interest of the Indenture will consist of (i) the Underlying
Securities, (ii) the Collection Account, (iii) (the Issuer's rights under the
Swap Agreement (for the benefit of the Noteholders only)) and (iv) all
proceeds of the foregoing (collectively, the "Assets").
Payments of interest and principal on the Notes will be made solely from
the proceeds of the Assets, in accordance with the priorities described under
"PRIORITY OF PAYMENTS" herein.
INTEREST
Interest on the principal balances of the Notes will accrue at a rate
per annum equal to ___% (or state formula), (calculated on the basis of a
360-day year consisting of twelve 30-day months) (the "Note Accrual Rate").
Interest will accrue with respect to each Payment Date during the _________
period beginning on the __th day of __________ (or on the Closing Date in the
case of the first Payment Date) and ending on the __th day of ___________
(each, an "Interest Accrual Period").
Interest will be payable to Noteholders in arrears on each Payment Date.
"Payment Date" means the __th day of each __________ or, if such day is not a
Business Day, the next succeeding Business Day, commencing on ______ __,
199_. A failure to pay interest due on the Notes on any Payment Date, which
failure continues for five Business Days, constitutes an Event of Default (as
defined herein) under the Indenture, provided that if interest on the Notes
is deferred in accordance with the provisions described under "Description of
the Notes--Interest Deferral," such deferred interest will not be considered
to be "due" until the Payment Date following the date when the related
deferred interest on the Underlying Securities is received by the Issuer. A
"Business Day" is any day other than a Saturday or Sunday or another day on
which banking institutions in New York, New York or the city in which the
corporate trust office of the Owner Trustee or the Indenture Trustee is
located are authorized or obligated by law, regulations or executive order to
be closed.
Under certain circumstances described herein under "DESCRIPTION OF THE
NOTES - Interest Deferral," interest on the Notes may be deferred.
Noteholders will not be entitled to any additional payment in respect of any
such delay.
INTEREST DEFERRAL
If any amount of interest which would otherwise be payable on the
Underlying Securities on any payment date for such Underlying Securities is
deferred under the terms and conditions thereof, interest otherwise due in
respect of the Notes on the following Payment Date will be deferred in the
same proportion as the proportion that the deferred interest on such
Underlying Securities represents of the aggregate interest otherwise due on
the payment date for the Underlying Securities next preceding such Payment
Date (as determined by the Calculation Agent (in accordance with the Swap
Agreement)). Any such deferred interest on the Notes will become payable on
the Payment Date following the date when the related deferred interest on the
Underlying Securities is received by the Issuer. Noteholders will not be
entitled to any additional payment in respect of any such delay.
PRINCIPAL
The portion, if any, of the principal of the Notes that has not been
prepaid as described under "Mandatory Prepayment of the Notes and the
Certificates" will mature on the Scheduled Final Payment Date. However, if
an Event of Default occurs under the Indenture (other than an Event of
Default that constitutes a Swap Early Termination) the Indenture Trustee may
and, at the written request of the holders of a majority of the principal of
the Notes, will declare the Notes immediately due and payable, (subject to
the prior written consent of the Swap Counterparty under certain
circumstances. If a Swap Early Termination occurs, the entire unpaid
principal amount of the Notes will become immediately due and payable
automatically.)
MANDATORY PREPAYMENT
Beginning on _______________ and on each ____________ thereafter until
the principal amount of the Notes is paid in full, the Issuer will prepay a
pro rata portion of the then outstanding principal amount of each Note (which
prepayment may range from (_____)% to (_____)% of such outstanding principal
amount) on the basis of calculations described herein under "MANDATORY
PREPAYMENT OF THE NOTES AND THE CERTIFICATES -- Prepayment." (The Notes are
also subject to the Mandatory Clean-up Call, the Underlying Securities
Default Call and the Extraordinary Expense Call (each as defined under
"MANDATORY PREPAYMENT OF THE NOTES AND THE CERTIFICATES" herein).)
PAYMENTS
Payments on the Notes will be made by the Indenture Trustee on each
Payment Date to persons in whose names the Notes are registered on the Record
Date. The final payment in retirement of a Note will be made only upon
surrender of the Note to the Indenture Trustee at the office thereof
specified in the notice to Noteholders of such final payment. Notice will be
mailed prior to the Payment Date on which the final payment of principal and
interest on a Note is expected to be made to the holder thereof.
FORM, DENOMINATION AND REGISTRATION
The Notes will be represented by one or more Global Notes. Investors
may hold their interests in the Global Note directly through DTC (in the
United States) or CEDEL or Euroclear (in Europe) if they are participants in
such systems, or indirectly through organizations which are participants in
such systems. The Global Note will be registered in the name of a nominee of
DTC.
Except in the limited circumstances described under "CERTAIN INFORMATION
REGARDING THE SECURITIES - Definitive Securities" in the Prospectus owners of
beneficial interests in Global Notes will not be entitled to receive physical
delivery of certificated Notes. The Notes are not issuable in bearer form.
The Notes will be issued in minimum denominations of $1,000 and integral
multiples of $1,000 in excess thereof.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Trust Agreement. The
following summaries describe certain terms of the Certificates and the Trust
Agreement. The summaries do not purport to be complete and are subject to,
and qualified in their entirety by reference to, the provisions of the Trust
Agreement. See "MANDATORY PREPAYMENT OF THE NOTES AND THE CERTIFICATES" and
"PRIORITY OF PAYMENT" herein and "THE TRUST AGREEMENT" in the Prospectus for
a summary of additional terms of the Trust Agreement.
INTEREST
Interest will accrue on the unpaid principal amount of the Certificates
from the Closing Date at a rate per annum equal to (state rate or formula
therefor), calculated on the basis of (the actual number of days in each
Certificate Interest Accrual Period divided by 360) (the "Certificate Accrual
Rate"). The Certificate Accrual Rate for the first Certificate Interest
Accrual Period will be (_____)% per annum. "Certificate Interest Accrual
Period" means, with respect to any Payment Date, the period from and
including the preceding Payment Date (in the case of the first Payment Date,
from and including ________ __, 199_) to but excluding such current Payment
Date. No interest will be paid on overdue interest.
Under certain circumstances described herein under "DESCRIPTION OF THE
CERTIFICATES -- Interest Deferral," interest on the Certificates may be
deferred. Certificateholders will not be entitled to any additional payment
in respect of any such delay.
Interest on the principal balance of the Certificates will be
distributed __________ in arrears on each Payment Date to the extent funds
are available for such distribution in accordance with the priority described
under "Priority of Payments."
INTEREST DEFERRAL
If any amount of interest which would otherwise be payable on the
Underlying Securities on any payment date for such Underlying Securities is
deferred under the terms and conditions thereof, interest otherwise due in
respect of the Certificates on the following Payment Date will be deferred in
the same proportion as the proportion that the deferred interest on such
Underlying Securities represents of the aggregate interest otherwise due on
the payment date for the Underlying Securities next preceding such Payment
Date (as determined by the Calculation Agent (in accordance with the Swap
Agreement)). Any such deferred interest on the Certificates will become
payable on the Payment Date following the date when the related deferred
interest on the Underlying Securities is received by the Issuer.
Certificateholders will not be entitled to any additional payment in respect
of any such delay.
PRINCIPAL
To the extent funds are available for such distribution in accordance
with the priority described under "Priority of Payments," the portion, if
any, of the principal of the Certificates that has not been prepaid as
described under "Mandatory Prepayment of the Notes and the Certificates" will
be distributed on the Certificates on the Scheduled Final Payment Date. If
the Notes have been declared immediately due and payable in accordance with
the Indenture upon the occurrence of an Event of Default, the principal of
the Certificates will be distributed out of the net proceeds realized from
the liquidation of the Underlying Securities and other Assets, if any, to the
extent available after the payment of all other obligations of the Issuer in
accordance with the Priority of Payments (including (any termination payment,
if any, owed under the Swap Agreement), all principal and interest due on the
Notes and all interest due on the Certificates).
MANDATORY PREPAYMENT
Beginning on each _____________ thereafter until the principal amount of
the Certificates is paid in full, the Issuer will distribute a pro rata
portion of the then outstanding principal amount of each Certificate (which
prepayment may range from (____)% to (_____)% of such outstanding principal
amount) on the basis of calculations described herein under "MANDATORY
PREPAYMENT OF THE NOTES AND THE CERTIFICATES" to the extent funds are
available for such distribution in accordance with the priority described
under "Priority of Payments." (The Certificates are also subject to the
Mandatory Clean-up Call, the Underlying Securities Default Call and the
Extraordinary Expense Call (each as defined under "Mandatory Prepayment of
the Notes and the Certificates").)
SUBORDINATION
Distributions of principal and interest on the Certificates will be
subordinated in priority of payment to the payment of expenses of the Issuer,
to amounts owed by the Issuer to the Swap Counterparty and to the payment of
principal and interest due on the Notes. Consequently, the Certificateholders
will not receive any distributions of principal or interest with respect to a
Payment Date until (amounts owed by the Issuer to the Swap Counterparty on
such Payment Date and) the full amount of principal and interest due on the
Notes on such Payment Date are paid in full. See "PRIORITY OF PAYMENTS"
herein.
DISTRIBUTIONS
Distributions of principal and interest will be paid to the
Certificateholders pro rata in accordance with the percentage interest of the
aggregate principal amount of the Certificates represented by their
respective Certificates.
Pursuant to an administration agreement entered into between the Trust,
the Indenture Trustee, ________________________ as administrator (the
"Administrator") and the Owner Trustee (the "Administration Agreement"),
interest and principal distributions (including prepayments of principal as
described under "Mandatory Prepayment of the Notes and the Certificates") on
the Certificates will be made on behalf of the Owner Trustee by the
Administrator on the Payment Date to persons in whose names the Certificates
are registered on the Record Date. The final distribution in retirement of a
Certificate will be made only upon surrender of the Certificate to the Owner
Trustee at the office thereof specified in the notice to Certificateholders
of such final payment. Notice will be mailed prior to the Payment Date on
which the final distribution of principal and interest on a Certificate is
expected to be made to the holder thereof.
FORM, DENOMINATION AND REGISTRATION
The Certificates will be represented by one or more Global Certificates.
Investors may hold their interests in the Global Certificate directly through
DTC if they are DTC participants, or indirectly through organizations (other
than CEDEL, Euroclear or their respective nominees) which are DTC
participants. The Global Certificate will be registered in the name of a
nominee of DTC.
Except in the limited circumstances described under "Certain Information
Regarding the Securities--Definitive Securities," owners of beneficial
interests in Global Certificates will not be entitled to receive physical
delivery of certificated Certificates. The Certificates are not issuable in
bearer form.
The Certificates will be issued in minimum denominations of $1,000 and
integral multiples of $1,000 in excess thereof.
TERMINATION
All obligations of the Issuer and the Owner Trustee created by the Trust
Agreement will terminate upon the distribution to Certificateholders of all
amounts required to be distributed to them, if any, pursuant to the Trust
Agreement (and distribution to the Swap Counterparty of all amounts required
to be distributed to it pursuant to the Swap Agreement).
MANDATORY PREPAYMENT OF THE NOTES AND THE CERTIFICATES
PREPAYMENT
Beginning on ______________ and on each _____________ thereafter until
the principal amount of the Notes is paid in full, the Issuer will prepay a
pro rata portion of the then outstanding principal amount of each Note (which
prepayment may range from (______)% to (______)% of such outstanding
principal amount) on the basis of (state formula or index for determining
principal prepayments).
Calculation of Prepayment Amounts. (Describe how principal prepayments
are calculated).
(MANDATORY CLEAN-UP CALL
If the aggregate outstanding principal amount of the Notes immediately
after any Payment Date would be less than 10% of the aggregate original
principal amount of the Notes, the Issuer will prepay the entire remaining
principal amount of the Notes and the Certificates on such Payment Date at a
prepayment price equal to 100% of the outstanding principal of the Notes and
the Certificates (the "Mandatory Clean-up Call").)
(UNDERLYING SECURITIES DEFAULT CALL
If (i) there is a payment default (other than deferral of interest only,
in accordance with the terms of the Underlying Securities), in respect of the
Underlying Securities, including any payment default occurring during or at
the completion of any rapid amortization period applicable to the Underlying
Securities, or (ii) the principal amount of the Underlying Securities and
accrued interest thereon has not been repaid in full (other than by reason of
any deduction or withholding for or on account of tax) upon the final payment
in respect thereof, whether during any rapid amortization period or otherwise
(any of the events described in clauses (i) or (ii) are hereafter referred to
as an "Underlying Securities Default"), then all of the Notes and the
Certificates will be subject to mandatory prepayment (the "Underlying
Securities Default Call") on the next Payment Date that is at least ten
Business Days after the Indenture Trustee has received written notice of the
occurrence of the event giving rise to such Underlying Securities Default
Call at a prepayment price equal to the Note Early Prepayment Price, in the
case of each Note, or the Certificate Early Prepayment Price, in the case of
each Certificate.
The "Note Early Prepayment Price" in respect of each Note will equal the
lesser of:
(i) its Pro Rata Share of (A) the proceeds of the liquidation of the
Assets minus (B) the sum of (1) (any termination payment owed by the Issuer
to the Swap Counterparty under the Swap Agreement) and (2) any other unpaid
expenses incurred by the Issuer (including Trustee Expenses); and
(ii) 100% of the outstanding principal amount of such Note plus accrued
interest thereon.
The "Certificate Early Prepayment Price" in respect of each Certificate
will equal the lesser of:
(i) its Pro Rata Share of (A) the proceeds of the liquidation of the
Assets minus (B) the sum of (1) (any termination payment owed by the Issuer
to the Swap Counterparty under the Swap Agreement), (2) any other unpaid
expenses incurred by the Issuer (including Trustee Expenses) and (3) the
outstanding principal amount of the Notes plus accrued interest thereon; and
(ii) 100% of the outstanding principal amount of such Certificate plus
accrued interest thereon.
"Pro Rata Share" means (i) with respect to any Note, the percentage
obtained by dividing the outstanding principal amount of such Note by the
outstanding principal amount of all of the Notes and (ii) with respect to any
Certificate, the percentage obtained by dividing the outstanding principal
amount of such Certificate by the outstanding principal amount of all of the
Certificates.
In the event of an Underlying Securities Default Call, (the Swap
Agreement will terminate and) the Indenture Trustee will liquidate the
Underlying Securities and other Assets, if any, in compliance with the
Indenture. Upon such liquidation, there can be no assurance that the Note
Early Prepayment Price applicable to a Note will equal the outstanding
principal amount of such Note plus accrued interest thereon or that the
Certificate Early Prepayment Price applicable to a Certificate will equal the
outstanding principal amount of such Certificate plus accrued interest
thereon. See "RISK FACTORS -- Limited Assets of the Issuer" and "Priority
of Payments" herein).
(EXTRAORDINARY EXPENSE CALL
The Swap Agreement provides that the first $__________ (the
"Counterparty Expense Limit") of Extraordinary Expenses (as defined herein)
incurred by the Issuer will be deducted from the payments to be made by the
Issuer to the Swap Counterparty under the Swap Agreement and that the Swap
Counterparty will not reduce its payments under the Swap Agreement as a
result of such deduction. The Counterparty Expense Limit may be increased at
the sole discretion of the Swap Counterparty. At such time as the Issuer has
incurred Extraordinary Expenses in an aggregate amount at least equal to
$________ (or, if the Counterparty Expense Limit has been increased, in an
amount at least equal to such increased limit less $________), the Indenture
Trustee will give notice to the Noteholders and the Administrator will give
notice to the Certificateholders that such expenses have been incurred.
Unless the holders of Notes evidencing 100% of the outstanding principal of
the Notes provide the Indenture Trustee with written direction not to prepay
the Notes within 14 days of such notice, then all of the Notes and the
Certificates will be subject to mandatory prepayment (the "Extraordinary
Expense Call") on the next Payment Date that is at least ten Business Days
after the expiration of such 14 day period at a prepayment price equal to the
Note Early Prepayment Price, in the case of each Note, or the Certificate
Early Prepayment Price, in the case of each Certificate. In the event of an
Extraordinary Expense Call, the Swap Agreement will terminate and the
Indenture Trustee will liquidate the Underlying Securities and other Assets,
if any, in compliance with the Indenture. Upon such liquidation, there can
be no assurance that the Note Early Prepayment Price applicable to any Note
will equal the outstanding principal amount of such Note plus accrued
interest thereon or that the Certificate Early Prepayment Price applicable to
any Certificate will equal the outstanding principal amount of such
Certificate plus accrued interest thereon. See "RISK FACTORS -- Limited
Assets of the Issuer" herein.
The Indenture provides that the Indenture Trustee will not incur
Extraordinary Expenses that would cause the aggregate Extraordinary Expenses
to exceed the Counterparty Expense Limit unless 100% of the Noteholders
consent to provide indemnification for such Extraordinary Expenses. The
Trust Agreement provides that the Owner Trustee will not incur Extraordinary
Expenses that would cause the aggregate Extraordinary Expenses to exceed the
Counterparty Expense Limit unless 100% of the Certificateholders consent to
provide indemnification for such Extraordinary Expenses.)
NOTICE OF PREPAYMENT
Except in the case of an Underlying Securities Default Call or an
Extraordinary Expense Call, no notice of prepayment will be given to the
Noteholders or the Certificateholders.
PRIORITY OF PAYMENTS
The Indenture Trustee will apply all monies received by it under the
Indenture, including proceeds of the Underlying Securities, proceeds of
Eligible Investments, (payments made by the Swap Counterparty to the Issuer
under the Swap Agreement), amounts realized by the Indenture Trustee upon the
sale or other liquidation of Underlying Securities or Eligible Investments
and proceeds of any other property included in the Trust Estate in the
following order of priority (the "Priority of Payments"):
(i) in payment or satisfaction of any Extraordinary Expenses up to the
Counterparty Expense Limit and any Ordinary Expenses;
(ii) (to the Swap Counterparty in payment of amounts due under the Swap
Agreement);
(iii) in payment of any other Extraordinary Expenses;
(iv) to Noteholders in payment of amounts due and unpaid on the Notes
for interest, ratably, without preference or priority of any kind;
(v) to Noteholders in payment of amounts due and unpaid on the Notes
for principal, by reason of mandatory prepayment or otherwise, ratably,
without preference or priority of any kind;
(vi) to the Administrator or the Owner Trustee to be distributed to the
Holders of the Certificates as a distribution of interest then payable on the
Certificates, ratably, without preference or priority of any kind; and
(vii) to the Administrator or the Owner Trustee to be distributed to
the Holders of the Certificates as a distribution of principal then payable
on the Certificates by reason of mandatory prepayment or otherwise, ratably,
without preference or priority of any kind.
The following capitalized words and phrases will have the following
meanings in connection with the Priority of Payments:
"Eligible Investments": An investment shall be an Eligible Investment
if: (1) (A) it is an U.S. dollar denominated bond, debenture, note or other
investment or security evidencing debt which: (i) has an original maturity of
less than 364 days; and (ii) has ratings of "A-1+" from Standard & Poor's and
"P-1" from Moody's at the time of investment; or (B) it is any bond,
debenture, note or other investment or security evidencing debt not referred
to in (A) if the Indenture Trustee has been provided with a letter from
Moody's and Standard & Poor's to the effect that investment in such bond,
debenture, note or other investment or security will not adversely affect the
ratings on the Notes and the Certificates and (2) it is purchased at a price
no greater than par plus accrued interest, if any. Eligible Investments may
include, without limitation, those investments for which the Indenture
Trustee, the Owner Trustee or an affiliate thereof provides services.
"Extraordinary Expenses": (a) All costs, charges and expenses incurred
by the Issuer in connection with the issue of the Notes or Certificates or
otherwise relating to the Notes or Certificates that do not constitute
Ordinary Expenses and (b) all Trustee Expenses.
"Ordinary Expenses": (i) All costs, charges and expenses incurred by
the Issuer in connection with the issue of the Notes and Certificates that
were incurred or were reasonably quantifiable or could reasonably be
anticipated on or before __________ and (ii) all customary ongoing expenses
of the Issuer, but excluding, without limitation, (a) any expenses incurred
by the Issuer resulting from legal actions against the Issuer, the Indenture
Trustee, the Administrator or the Owner Trustee, and (b) any costs, charges
or expenses incurred by the Owner Trustee, the Indenture Trustee or the
Administrator.
"Trustee Expenses": Any fees, expenses or amounts properly incurred by
the Indenture Trustee or the Note Registrar in connection with their actions
under the terms of the Indenture, by the Owner Trustee or the Certificate
Registrar in connection with their actions under the terms of the Trust
Agreement, and by the Administrator in connection with its actions under the
terms of the Administration Agreement but excluding any fees, expenses or
amounts incurred by the Indenture Trustee, the Note Registrar, the Owner
Trustee, the Certificate Registrar or the Administrator that were incurred or
were reasonably quantifiable or could reasonably be anticipated on or before
the Closing Date.
"Trust Estate": The Assets of the Issuer pledged by the Issuer to the
Indenture Trustee to secure the Notes (and the Swap Agreement).
THE INDENTURE
The following summary describes certain terms of the Indenture. The
summary does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the provisions of the Indenture. See
"DESCRIPTION OF THE NOTES" herein for a summary of certain additional terms
of the Indenture.
COLLECTION ACCOUNT; INVESTMENT
All distributions on the Underlying Securities and Eligible Investments,
if any, (and each payment received by the Indenture Trustee under the Swap
Agreement) will be deposited in the Collection Account upon receipt. The
Indenture Trustee will hold such moneys for the benefit of holders of the
Notes and the Swap Counterparty. In the event that distributions of
principal or interest are received on the Underlying Securities prior to the
date such principal or interest distributions are needed to make interest
payments or mandatory prepayments of principal on the Notes and Certificates,
such amounts will be held by the Indenture Trustee on deposit in the
Collection Account and will be invested by the Indenture Trustee in Eligible
Investments at the direction of (the Swap Counterparty. See "THE SWAP
AGREEMENT -- Early Amortization of the Underlying Securities" herein).
COLLECTION OF DISTRIBUTIONS ON UNDERLYING SECURITIES
All distributions on the Underlying Securities and Eligible Investments,
if any, will be made directly to the Indenture Trustee. The obligation of
the Issuer to make payments on the Notes is limited to distributions on the
Underlying Securities and Eligible Investments, if any, (and payments
received pursuant to the Swap Agreement) which were actually received by it.
However, if the Indenture Trustee has not received a distribution with
respect to the Underlying Securities by the fifth Business Day after the date
on which such distribution was due and payable pursuant to the terms of such
Underlying Securities, the Indenture will require the Indenture Trustee,
subject to the following sentence, to take such actions as may be directed by
(the Swap Counterparty including taking such legal action as the Swap
Counterparty deems appropriate under the circumstances), and prosecuting any
claims in connection therewith. In the event that the Indenture Trustee
reasonably believes that there may not be sufficient funds available to
reimburse it for its projected legal fees and expenses in accordance with the
Priority of Payments, the Indenture Trustee will notify the Noteholders (and
the Swap Counterparty) that it is not obligated to pursue any such available
remedies unless adequate indemnity for its legal fees and expenses is
provided by the Noteholders (or the Swap Counterparty.)
LIEN OF INDENTURE TRUSTEE
The Indenture Trustee will have a lien ranking senior to that of the
Noteholders upon all funds held or collected as part of the Assets to secure
payment of amounts payable to the Indenture Trustee pursuant to the
Indenture.
EVENTS OF DEFAULT
With respect to the Notes, an "Event of Default" under the Indenture
will consist of: (i) a default for five Business Days or more in the payment
of any interest on any Note when the same becomes due and payable; provided
that if interest on the Notes is deferred in accordance with the provisions
described under "Description of the Notes -- Interest Deferral," such
deferred interest will not be considered "due and payable" within the meaning
of this clause (i) until the Payment Date following the date when the related
deferred interest on the Underlying Securities is received by the Issuer;
(ii) a default in the payment of the principal of or any installment of the
principal of any Note when the same becomes due and payable by reason of
mandatory prepayment or otherwise; (iii) a default in the observance or
performance of any covenant or agreement of the Issuer made in the Indenture
and the continuation of any such default for a period of 30 days after notice
thereof is given to the Issuer by the Indenture Trustee (or the Swap
Counterparty) or to the Issuer, (the Swap Counterparty) and the Indenture
Trustee by the holders of at least 25% of the outstanding principal of the
Notes; (iv) any representation or warranty made by the Issuer in the
Indenture or in any certificate delivered pursuant thereto or in connection
therewith having been incorrect in a material respect as of the time made,
and the circumstance in respect of which such representation or warranty was
incorrect not having been cured within 30 days after notice thereof is given
to the Issuer by the Indenture Trustee (or the Swap Counterparty) or to the
Issuer, (the Swap Counterparty) and the Indenture Trustee by the holders of
at least 25% of the outstanding principal of the Notes then outstanding; (v)
certain events of bankruptcy, insolvency, receivership or liquidation of the
Issuer, or (vi) (the occurrence of a Swap Early Termination).
RIGHTS UPON EVENT OF DEFAULT
If there is an Event of Default with respect to the Notes due to late
payment or nonpayment of interest due on the Notes, additional interest will
accrue on such unpaid interest at the interest rate on the Notes (to the
extent lawful) until such interest is paid. Such additional interest on
unpaid interest will be due at the time such interest is paid. If there is an
Event of Default due to late payment or nonpayment of principal on the Notes,
interest will continue to accrue on such principal at the interest rate on
the Notes until such principal is paid.
If an Event of Default ((other than an Event of Default that constitutes
a Swap Early Termination)) should occur and be continuing with respect to the
Notes, the Indenture Trustee may and, at the written request of the holders
of a majority of the principal of the Notes then outstanding, will declare
the principal of the Notes to be immediately due and payable, (subject to the
prior written consent of the Swap Counterparty under certain circumstances.)
Such declaration may, under certain circumstances, be rescinded by the
holders of a majority of the outstanding principal of the Notes then
outstanding, (subject to the prior written consent of the Swap Counterparty).
(If a Swap Early Termination occurs, the entire unpaid principal amount of
the Notes will become immediately due and payable automatically.)
If an Event of Default has occurred and is continuing (other than a Swap
Early Termination), the Indenture Trustee may institute proceedings to
collect amounts due or foreclose on property of the Issuer, exercise remedies
as a secured party, sell the Underlying Securities or elect to have the Trust
maintain possession of the Underlying Securities and continue to apply
collections on the Underlying Securities; (provided, however, that if the
Swap Counterparty has given instructions to the Indenture Trustee with
respect to such proceedings, remedies or actions, and no Swap Default as to
which the Swap Counterparty is the defaulting party or Termination Event as
to which the Swap Counterparty is the sole Affected Party (as defined in the
Swap Agreement) shall have occurred, the Indenture Trustee will follow such
instructions). If an Event of Default due to (a Swap Early Termination
occurs or) an Underlying Securities Default Call or an Extraordinary Expense
Call occurs, the Indenture Trustee is required to liquidate the Underlying
Securities in compliance with the Indenture.
The Indenture Trustee will be under no obligation to exercise any of the
rights or powers under the Indenture at the request or direction of any of
the holders of the Notes (or the Swap Counterparty), if the Indenture Trustee
reasonably believes it will not be adequately indemnified against the costs,
expenses and liabilities which might be incurred by it in complying with such
request. Subject to certain limitations contained in the Indenture, (if a
Swap Default as to which the Swap Counterparty is the defaulting party or a
Termination Event as to which the Swap Counterparty is the sole Affected
Party shall have occurred), the holders of a majority of the outstanding
principal of the Notes will have the right to direct the time, method and
place of conducting any proceeding or any remedy available to the Indenture
Trustee. (With the prior written consent of the Swap Counterparty,) the
holders of a majority of the principal of the Notes then outstanding may, in
certain cases, waive any default with respect thereto, except (i) a default
in the payment of principal or interest, (ii) a default in respect of a
covenant or provision of the Indenture that cannot be modified without the
waiver or consent of all of the holders of the outstanding principal of the
Notes (or (iii) the occurrence of a Swap Early Termination.)
No holder of a Note will have the right to institute any proceeding with
respect to the Indenture, unless (i) such holder previously has given the
Indenture Trustee written notice of a continuing Event of Default, (ii) the
holders of not less than 25% of the outstanding principal of the Notes have
made written request to the Indenture Trustee to institute such proceeding in
its own name as Indenture Trustee, (iii) such holder or holders have offered
the Indenture Trustee reasonable indemnity satisfactory to the Indenture
Trustee, (iv) the Indenture Trustee has for 60 days failed to institute such
proceeding and (v) no direction inconsistent with such written request has
been given to the Indenture Trustee during the 60-day period by the holders
of a majority of the outstanding principal of the Notes.
In addition, the Indenture Trustee and the Noteholders, by accepting
the Notes, will covenant that they will not at any time institute against
the Issuer or the Depositor any bankruptcy, reorganization or other
proceeding under any federal or state bankruptcy or similar law in
connection with the Notes, [the Swap Agreement], the Indenture, the Trust
Agreement or any related agreement.
With respect to the Issuer neither the Indenture Trustee nor the Owner
Trustee in their capacities as trustees, nor any holder of a Certificate
representing an ownership interest in the Issuer nor any of their respective
owners, beneficiaries, agents, officers, directors, employees, affiliates,
successors or assigns will, in the absence of an express agreement to the
contrary, be personally liable for the payment of the principal of or
interest on the Notes or for the agreements of the Issuer contained in the
Indenture.
LIQUIDATION OF UNDERLYING SECURITIES
On or prior to the 5th Business Day prior to any date set for prepayment
of the Notes and Certificates in the case of an Underlying Securities Default
Call or an Extraordinary Expense Call and as soon as is practicable in the
case of any acceleration of the principal of the Notes, the Indenture Trustee
will liquidate the Underlying Securities and Eligible Investments, if any, in
compliance with the Sale Procedures. The settlement of the liquidation will
occur no earlier than the second and no later than the first Business Day
prior to the date set for prepayment [or the Early Termination Date of the
Swap Agreement, as applicable]. "Sale Procedures" means that the Indenture
Trustee on behalf of the Issuer will (i) sell the Underlying Securities and
Eligible Investments (other than Eligible Investments described in clause
(ii) below), to the highest bidder of not less than the solicited bidders
for such Underlying holder's option by exercising such option no earlier than
the second and no later than the first Business Day prior to the date set for
prepayment [or the Early Termination Date of the Swap Agreement, as
applicable]. The bidders may include the Depositor [or the Swap Counter-
party] or affiliates thereof, provided however, that neither the Depositor
[nor the Swap Counterparty], nor any of their affiliates are obligated to
bid, and which bidders need not be limited to recognized broker dealers. No
assurance can be given as to whether the Indenture Trustee will be successful
in soliciting bids to purchase the Underlying Securities and Eligible Invest-
ments, if any.
The Issuer may not engage in any activity other than as specified
under "The Issuer" herein. The Issuer will not incur, assume or
guarantee any indebtedness other than indebtedness incurred pursuant to the
Trust Agreement and the Indenture.
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture will be discharged with respect to the collateral
securing the Notes upon the delivery to the Indenture Trustee for
cancellation of all the Notes or, with certain limitations, upon deposit
with the Indenture Trustee of funds sufficient for the payment in full
of the Notes, (and any amounts due to the Swap Counterparty).
VOTING RIGHTS
At all times, the voting rights of Noteholders under the Indenture
will be allocated among the Notes pro rata in accordance with their
outstanding principal balances.
CERTAIN MATTERS REGARDING THE INDENTURE TRUSTEE AND THE DEPOSITOR
Neither the Depositor, the Indenture Trustee nor any director,
officer or employee of the Depositor or the Indenture Trustee will be
under any liability to the Trust or the Noteholders for any action
taken or for refraining from the taking of any action in good faith
pursuant to the Indenture or for errors in judgment; provided, however,
that none of the Indenture Trustee, the Depositor and any director,
officer or employee thereof will be protected against any liability
which would otherwise be imposed by reason of willful misconduct, bad
faith or negligence in the performance of duties or by reason of reckless
disregard of obligations and duties under the Indenture. The Indenture
Trustee and/or its affiliates may receive compensation in connection with
the Indenture Trustee's investment of Assets in certain Eligible Investments
as provided in the Indenture.
All persons into which the Indenture Trustee may be merged or with
which it may be consolidated or any person resulting from such
merger or consolidation will be the successor of the Indenture
Trustee under the Indenture.
THE TRUST AGREEMENT
The following summary describes certain terms of the Trust
Agreement. The summary does not purport to be complete and is subject to,
and qualified in its entirety by reference to, the provisions of the Trust
Agreement. See "DESCRIPTION OF THE CERTIFICATES" herein and "THE TRUST
AGREEMENT" in the Prospectus for a summary of certain additional terms of
the Trust Agreement.
COLLECTION OF DISTRIBUTIONS ON UNDERLYING SECURITIES
The Underlying Securities will be assets of the Trust. All
distributions thereon will be made directly to the Indenture Trustee.
Pursuant to the Administration Agreement, distributions on the
Certificates will be made to Certificateholders by the Administrator
acting on behalf of the Owner Trustee.
EXERCISE OF REMEDIES
The Trust Agreement provides that until all the Notes have been paid
in full, the Indenture Trustee will take all actions to collect
any distributions due on the Underlying Securities or to exercise
remedies pursuant to the Indenture, subject to certain conditions set
forth in the Indenture.
The Owner Trustee and the Certificateholders, by accepting
the Certificates, will covenant that they will not at any time institute
against the Issuer or the Depositor any bankruptcy, reorganization
or other proceeding under any federal or state bankruptcy or similar law in
connection with the Certificates, (the Swap Agreement), the
Indenture, the Trust Agreement or any related agreement.
VOTING INTERESTS
As of any date, the aggregate outstanding principal balance of
all Certificates will constitute the voting interest of the Issuer (the
"Voting Interests"), except that, for purposes of determining Voting
Interests, Certificates owned by the Issuer or its affiliates and the
Depositor will be disregarded and deemed not to be outstanding, and except
that, in determining whether the Owner Trustee is protected in relying
upon any such request, demand, authorization, direction, notice,
consent or waiver, only Certificates that the Owner Trustee knows
to be so owned will be so disregarded. Certificates so owned that have
been pledged in good faith may be regarded as outstanding if the pledgee
establishes to the satisfaction of the Owner Trustee the pledgor's right
so to act with respect to such Certificates and that the pledgee is not
the Issuer or its affiliates.
CERTAIN MATTERS REGARDING THE OWNER TRUSTEE AND THE DEPOSITOR
Neither the Depositor, the Owner Trustee nor any director, officer
or employee of the Depositor or the Owner Trustee will be under any
liability to the Trust or the Certificateholders for any action taken or
for refraining from the taking of any action in good faith pursuant to the
Trust Agreement or for errors in judgment; provided, however, that none of
the Owner Trustee, the Depositor and any director, officer or employee
thereof will be protected against any liability which would otherwise be
imposed by reason of willful misconduct, bad faith or negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties under the Trust Agreement.
All persons into which the Owner Trustee may be merged or with which
it may be consolidated or any person resulting from such merger or
consolidation will be the successor of the Owner Trustee under the Trust
Agreement.
With respect to the Issuer neither the Indenture Trustee nor the
Owner Trustee in their capacities as trustees nor any of their respective
owners, beneficiaries, agents, officers, directors, employees, affiliates,
successors or assigns will, in the absence of an express agreement to the
contrary, be personally liable for the payment of the principal of or
interest on the Certificates or for the agreements of the Issuer
contained in the Trust Agreement.
(THE SWAP AGREEMENT
The following summary describes certain terms of the Swap
Agreement. The summary does not purport to be complete and is subject to,
and qualified in its entirety by reference to, the provisions of the Swap
Agreement.
PAYMENTS UNDER THE SWAP AGREEMENT
On the Closing Date the Issuer will enter into a 1992
International Swaps and Derivatives Association, Inc. ("ISDA") Master
Agreement (Multi Currency-Cross Border) (such agreement, the "1992 Master
Agreement") with the Swap Counterparty, as modified to reflect the
transactions described below and certain terms of the Notes and the
Certificates (the 1992 Master Agreement, as so modified, the "Swap
Agreement"). The Swap Agreement will incorporate certain relevant standard
definitions published by ISDA.
Under the Swap Agreement, the Issuer will pay to the Swap
Counterparty amounts equal to the payments of interest scheduled to be
received on the Underlying Securities and Eligible Investments in
accordance with the terms thereof net of Ordinary Expenses and
Extraordinary Expenses up to the Counterparty Expense Limit and the Swap
Counterparty will pay to the Issuer amounts equal to the interest payable
on the Notes and the Certificates, provided that if the Underlying
Trust fails to make any payment on the Underlying Securities to the
Issuer, with the result that the Issuer is unable to make any payment
due to be made by it to the Swap Counterparty under the Swap Agreement,
the Swap Counterparty will not be obligated to make its corresponding
payment to the Issuer under the Swap Agreement. The Swap Agreement
provides that payments thereunder are to be reduced in the event that any
amount of interest on the Underlying Securities is deferred under the
terms thereof, and increased in the event that such deferred interest is
subsequently paid.
(If principal prepayments are not based on principal distributions
on Underlying Securities, state how Swap Agreement or other Enhancement
will provide funds for such principal distributions.)
Unless the Swap Agreement is terminated early as described under
"-- Early Termination of Swap Agreement," the Swap Agreement will
terminate on the earlier of (i) the Scheduled Final Payment Date and
(ii) the date on which the principal of all of the Notes and the
Certificates is prepaid as described under "Mandatory Prepayment of the
Notes and the Certificates -- Monthly Prepayment" or as described under
"Mandatory Prepayment of the Notes and the Certificates -- Mandatory
Clean-up Call."
PRINCIPAL PAYMENTS ON THE UNDERLYING SECURITIES
(In the event that principal of the Underlying Securities is received
by the Issuer prior to the Scheduled Final Payment Date, whether during
any applicable rapid amortization period or otherwise, such payments in
respect of principal of the Underlying Securities will be deposited by the
Indenture Trustee (such amounts, the "Reinvested Collateral") in the
Collection Account and invested in Eligible Investments. In such
event, (i) all interest amounts received by the Issuer in respect of (a)
the Underlying Securities and (b) the Reinvested Collateral
(including interest on Eligible Investments) will be paid by the
Issuer to the Swap Counterparty under the Swap Agreement and (ii) the Swap
Counterparty's payment obligations under the Swap Agreement (which
correspond to the Issuer's interest payment obligations in respect of the
Notes and Certificates) will continue without amendment (subject to
adjustment in the event of any deferral of interest on the Underlying
Securities (as referred to above) or the imposition of withholding tax (as
referred to below)). Reinvested Collateral will be invested in
Eligible Investments as directed by the Swap Counterparty.)
(In the event that an Underlying Securities Default shall occur,
the Notes and Certificates will be subject to the Underlying Securities
Default Call as described herein under "MANDATORY PREPAYMENT OF THE NOTES
AND THE CERTIFICATES -- Underlying Securities Default Call" and the Swap
Agreement will be terminated. See "--Early Termination of Swap Agreement"
below.)
MODIFICATION AND AMENDMENT OF SWAP AGREEMENT
The Trust Agreement and the Indenture will contain provisions
permitting the Owner Trustee to enter into any amendment of the Swap
Agreement requested by the Swap Counterparty to cure any ambiguity
in, or to correct or supplement any provision of, such Swap
Agreement, subject to certain limitations described in the Trust
Agreement.
CONDITIONS PRECEDENT
The respective obligations of the Swap Counterparty and the Issuer
to pay certain amounts due under the Swap Agreement will be subject to
the following conditions precedent: (i) no Swap Default (as defined below
under "-- Defaults Under Swap Agreement") or event that with the giving of
notice or lapse of time or both would become a Swap Default shall have
occurred and be continuing and (ii) no Early Termination Date (as defined
below under "-- Early Termination of Swap Agreement") has occurred or
been effectively designated.
DEFAULTS UNDER SWAP AGREEMENT
"Events of Default" under the Swap Agreement (each, a "Swap
Default") are limited to: (i) the failure of the Issuer (or the Swap
Counterparty), to pay any amount when due under the Swap Agreement after
giving effect to the applicable grace period, if any; (ii) the
occurrence of certain events of insolvency or bankruptcy of the Issuer
or the Swap Counterparty or the provider of the related Swap
Guarantee, and (iii) certain other standard events of default under the
1992 Master Agreement including "Breach of Agreement" (not applicable
to the Issuer), "Credit Support Default" (not applicable to the Issuer),
"Misrepresentation" (not applicable to the Issuer) and "Merger without
Assumption", as described in Sections 5(a)(ii), 5(a)(iii), 5(a)(iv)
and 5(a)(viii) of the 1992 Master Agreement.
TERMINATION EVENTS
"Termination Events" under the Swap Agreement consist of the
following: (i) receipt of notice by the Indenture Trustee of the occurrence
of an event that gives rise to an Underlying Securities Default Call; (ii)
the failure of the Noteholders to provide the Indenture Trustee with
written direction not to prepay the Notes within 14 days of the Indenture
Trustee giving notice to the Noteholders and the Certificateholders that
the Issuer has incurred Extraordinary Expenses in an aggregate amount
equal to the Counterparty Expense Limit less $__________; (iii) the
acceleration of the principal of the Notes under the Indenture; and (iv)
certain standard termination events under the 1992 Master Agreement
including "Illegality" and "Tax Event Upon Merger", as described in
Sections 5(b)(i) and 5(b)(iii) of the 1992 Master Agreement.
EARLY TERMINATION OF SWAP AGREEMENT
Upon the occurrence of any Swap Default under the Swap Agreement,
the non-defaulting party will have the right to designate an Early
Termination Date (as defined in the Swap Agreement) upon the occurrence
and continuance of such Swap Default. With respect to Termination
Events, an Early Termination Date may be designated by one of the
parties (as specified in each case in the Swap Agreement) and will occur
only upon notice and, in certain cases, after any Affected Party has
used reasonable efforts to transfer its rights and obligations under
such Swap Agreement to a related entity within a limited period after
notice has been given of the Termination Event, all as set forth in the
Swap Agreement. Upon the occurrence of (i) any Swap Default arising from
any action taken, or failure to act, by the Swap Counterparty, or (ii) a
Termination Event with respect to which the Swap Counterparty is the sole
Affected Party, the Indenture Trustee may by notice to the Swap
Counterparty designate an Early Termination Date with respect to the Swap
Agreement. If a Termination Event occurs as a result of (i) the
acceleration of the principal of the Notes under the Indenture, (ii)
the occurrence of an Underlying Securities Default Call or (iii) the
occurrence of an Extraordinary Expense Call, the Swap Agreement will be
terminated. The occurrence of an Early Termination Date under the
Swap Agreement will constitute a "Swap Early Termination."
Upon any Swap Early Termination of the Swap Agreement, the Issuer or
the Swap Counterparty may be liable to make a termination payment to the
other (regardless, if applicable, of which of such parties may have
caused such termination). Such termination payment will be calculated on
the basis that the Issuer is the Affected Party (as defined in the Swap
Agreement), subject to certain exceptions, and will take into account any
deferral in respect of interest, as referred to above. The amount of any
such termination payment will be based on the market value of the Swap
Agreement computed on the basis of market quotations of the cost of
entering into swap transactions with the same terms and conditions that
would have the effect of preserving the respective full payment
obligations of the parties, in accordance with the procedures set forth
in the Swap Agreement; (state whether there are circumstances where
no termination payment will be payable). Any such termination payment
could, if interest rates have changed significantly, be substantial.
In addition, in certain events of insolvency or bankruptcy pertaining
to the Swap Counterparty, which would result in the early termination of
the Swap Agreement, the Swap Counterparty shall not be entitled to a
termination payment.
If a Swap Early Termination occurs, the principal of the Notes will
be declared or become immediately due and payable and the Indenture Trustee
will be obligated to liquidate the Underlying Securities and Eligible
Investments, if any, as described under "The Indenture -- Liquidation
of Underlying Securities." In any such event, the ability of the Issuer
to pay principal and interest on the Notes and Certificates will depend
(a) on the price at which the Underlying Securities and Eligible
Investments, if any, are liquidated, (b) on the amount of the
termination payment, if any, which may be due to the Swap Counterparty
from the Issuer under the Swap Agreement and (c) on the amount of the
termination payment, if any, which may be due to the Issuer from the Swap
Counterparty under the Swap Agreement. In the event that the net proceeds
of the liquidation of the Assets are not sufficient to make all payments
due in respect of the Notes and Certificates and for the Issuer to meet
its obligations, if any, in respect of the termination of the Swap
Agreement, then such amounts will be applied in accordance with the
Priority of Payments and the claims of the Swap Counterparty in respect
of such net proceeds will rank higher in priority than the claims of
the Noteholders and the Certificateholders. See "PRIORITY OF PAYMENTS"
herein.
TAXATION
Neither the Issuer nor the Swap Counterparty is obligated under the
Swap Agreement to gross up if withholding taxes are imposed on payments made
under the Swap Agreement.
In the event that any withholding tax is imposed on payments due to
the Issuer on the Underlying Securities or payments by the Issuer under the
Swap Agreement, the Swap Counterparty will be entitled to deduct amounts
in the same proportion (as calculated in accordance with the Swap
Agreement) from subsequent payments due from it. In the event that the
Swap Counterparty is required to withhold amounts from payments by the Swap
Counterparty under the Swap Agreement, the payment obligations of the
Swap Counterparty will be reduced by such amounts and the payment
obligations of the Issuer under the Swap Agreement will remain the same.
In either event, the Issuer will be unable to meet its obligations in
respect of the Notes and Certificates.
ASSIGNMENT
Except as provided below, neither the Issuer nor the Swap
Counterparty is permitted to assign, novate or transfer as a whole or in
part any of its rights, obligations or interests under the Swap Agreement.
(Describe swap assignment provisions.)
THE SWAP COUNTERPARTY
(Describe Swap Counterparty)
The description of the Swap Counterparty set out above has been
provided by the Swap Counterparty; the Swap Counterparty has not,
however, been involved in the preparation of and does not accept
responsibility for, this Prospectus Supplement or the Prospectus as a whole.)
THE CALCULATION AGENT
___________________ will serve as Calculation Agent for the Issuer
under the Indenture and the Trust Agreement (and in connection with
the Swap Agreement).
THE ADMINISTRATION AGREEMENT
The Indenture Trustee, in its capacity as Administrator, will enter
into the Administration Agreement with the Trust and the Owner Trustee
pursuant to which the Administrator will agree, to the extent
provided in such Administration Agreement, to (enforce the Swap Agreement
at the direction of the Owner Trustee, (provide notices and perform
other administrative obligations required by the Indenture and the Trust
Agreement.
THE INDENTURE TRUSTEE
___________________ is the Indenture Trustee under the Indenture.
The mailing address of the Indenture Trustee is
______________________, Attention: ________________________
_____________________.
THE OWNER TRUSTEE
_________________________ is the Owner Trustee under the
Trust Agreement. The mailing address of the Owner
Trustee is _______________________, Attention:
_______________________ _____________________.
THE DEPOSITOR
The principal executive offices of Morgan Stanley ABS Capital II
Inc. (the "Depositor") are located at 1585 Broadway, New York, New York
10036 (Telephone: (212) 761-_______). Neither the Depositor, nor any
affiliate thereof, has guaranteed or is otherwise obligated with
respect to the Securities.
WEIGHTED AVERAGE LIFE OF THE NOTES AND CERTIFICATES
AND MATURITY CONSIDERATIONS
Weighted average life refers to the average length of time, weighted
by principal, that will elapse from the date of delivery of a security to
the date each dollar of principal is repaid to the investor.
The weighted average life of the Notes and Certificates will
be influenced by, among other factors, the Mandatory Clean-up Call.
(Discuss prepayment factors applicable to relevant index or formula). The
effect of the foregoing factors on the Notes and Certificates may vary at
different times during the lives of the Notes and Certificates.
Accordingly, no assurance can be given as to the weighted average lives
of the Notes or Certificates.
The Scheduled Final Payment Date for the Notes and Certificates is
the date not later than which the principal amount of the Notes and
Certificates is required to be fully paid. (As described above, the actual
final payment of the Notes and Certificates may occur earlier, and
could occur significantly earlier, than the Scheduled Final Payment Date.
However, there can be no assurance that the final payment of principal
of the Notes and Certificates will occur prior to the Scheduled Final
Payment Date.)
In addition, as described above, if the aggregate outstanding
principal amount of the Notes immediately after any Payment Date, would be
less than 10% of the aggregate original principal amount of the Notes, the
Issuer will prepay the entire remaining principal amount of the Notes and
Certificates on such Payment Date.
THE UNDERLYING SECURITIES
The Depositor will acquire the Underlying Securities for deposit
into the Trust from ___________________________. At the time of issuance
of the Securities, the Depositor will cause the beneficial interest
in the Underlying Securities, which will be held in book-entry form
through the facilities of DTC, to be delivered to the Indenture
Trustee's participant account at DTC.
The table below sets forth certain of the characteristics of
the Underlying Securities. The table does not purport to be complete
and is subject to, and qualified in its entirety by reference to, the
prospectuses pursuant to which the Underlying Securities were offered and
sold.
(Issuer:)
(Principal Amount
Purchased by Depositor) .
(Percentage of Total
Underlying Securities Purchased by
the Depositor) . . . . .
(Transferor and Servicer) .
(Trustee) . . . . . . . . .
(Designation) . . . . . . .
(Initial Certificate
Amount) . . . . . . . . .
(Series Termination Date) .
(Certificate Rate) . . . . . . . . . . . . . . . . . .
(Principal Payment
Period) . . . . . . . . .
(Subordinated Amount) . . .
(Optional Repurchase
Percentage) . . . . . . .
(Ratings) . . . . . . . . .
__________________________________
Publicly Available Information. Certain information relating to
the Underlying Securities filed by or on behalf of _____________________
with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W.
Washington, D.C. 20549, and at the following regional offices of the
Commission: New York Regional Office, Suite 1300, 7 World Trade Center, New
York, New York 10048; and Chicago Regional Office, Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661. Copies of such material can
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington D.C. 20549, at prescribed rates. In addition, the
Commission maintains a Website that contains certain information regarding
the Underlying Securities. The address of the Commission's Website is
http://www.sec.gov.
UNDERLYING SECURITIES EARLY AMORTIZATION EVENT
An "Underlying Securities Early Amortization Event" will occur if,
at any time, a (Rapid Amortization Period) (as defined in the
applicable Underlying Agreements) commences with respect to any of
the Underlying Securities. A (Rapid Amortization Period) will commence if
one or more of the following (pay-out events) occurs with respect to the
Underlying Securities ((and, in certain cases, with the election of
the trustee under the Underlying Securities, or of holders of
Underlying Securities representing 50% or more of the investor interest in
the affected series)):
(Describe Events)
USE OF PROCEEDS
The net proceeds from the sale of the Securities will be applied by
the Depositor on the Closing Date towards the purchase price of the
Underlying Securities, the payment of expenses related to such sale and
other corporate purposes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Brown & Wood LLP, counsel for the Trust, for
U.S. federal income tax purposes, the Notes will be characterized as debt,
and the Trust will not be characterized as an association (or a
publicly traded partnership) taxable as a corporation. Each Noteholder, by
the acceptance of a Note, will agree to treat the Notes as
indebtedness and each Certificateholder, by the acceptance of a
Certificate, will agree to treat the Trust as a partnership in which the
Certificateholders are partners for federal tax purposes. Alternative
characterizations of the Trust and the Certificates are possible, but
would not generally result in materially adverse tax consequences to
the Certificateholders. The taxable income allocated to a
Certificateholder that is a tax-exempt entity will constitute "unrelated
business taxable income" generally to such a holder under the code.
The Notes may be issued with original issue discount ("OID"). The
prepayment assumption to be used for calculating the accrual of OID
and market discount and amortization of bond premium will be ( ).
For additional information regarding U.S. federal income tax
consequences, see "FEDERAL INCOME TAX CONSEQUENCES" in the Prospectus.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), imposes certain restrictions on employee benefit plans
subject to ERISA ("Plans") and on persons who are parties in interest or
disqualified persons ("parties in interest") with respect to such Plans.
Certain employee benefit plans, such as governmental plans and church
plans (if no election has been made under section 410(d) of the Code),
are not subject to the restrictions of ERISA, and assets of such plans
may be invested in the Securities without regard to the ERISA
considerations described below, subject to other applicable federal
and state law. However, any such governmental or church plan which is
qualified under section 401(a) of the Code and exempt from taxation under
section 501(a) of the Code is subject to the prohibited transaction rules
set forth in section 503 of the Code. Any Plan fiduciary which proposes
to cause a Plan to acquire any of the Securities should consult
with its counsel with respect to the potential consequences under
ERISA, and the Code, of the Plan's acquisition and ownership of the
Securities.
Investments by Plans are also subject to ERISA's general
fiduciary requirements, including the requirement of investment
prudence and diversification and the requirement that a Plan's
investments be made in accordance with the documents governing the Plan.
As discussed under "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" in
the Prospectus, a Plan would likely realize unrelated business taxable
income if it purchases Certificates since the underlying assets of the
Trust are debt financed assets. Thus, the Certificates are not being
offered to Plans. In view of this restriction, the discussion below is
limited to the ERISA considerations resulting from the purchase and
ownership of Notes.
PROHIBITED TRANSACTIONS
GENERAL
Section 406 of ERISA prohibits parties in interest with respect to
a Plan from engaging in certain transactions (including loans) involving a
Plan and its assets unless a statutory or administrative exemption applies
to the transaction. Section 4975 of the Code imposes certain excise taxes
(or, in some cases, a civil penalty may be assessed pursuant to section
502(i) of ERISA) on parties in interest which engage in non-exempt
prohibited transactions.
PLAN ASSETS REGULATION
The United States Department of Labor ("DOL") has issued
final regulations concerning the definition of what constitutes the
assets of a Plan for purposes of ERISA and the prohibited transaction
provisions of the Code (the "Plan Assets Regulation"). The Plan Assets
Regulation describes the circumstances under which the assets of an entity
in which a Plan invests will be considered to be "plan assets" such
that any person who exercises control over such assets would be subject
to ERISA's fiduciary standards. Under the Plan Assets Regulation,
generally when a Plan invests in another entity, the Plan's assets do
not include, solely by reason of such investment, any of the
underlying assets of the entity. However, the Plan Assets Regulation
provides that, if a Plan acquires an "equity interest" in an entity that
is neither a "publicly-offered security" (as defined therein) nor a
security issued by an investment company registered under the
Investment Company Act of 1940, the assets of the entity will be treated
as assets of the Plan investor unless certain exceptions apply. If the
Notes were deemed to be equity interests and no statutory,
regulatory or administrative exemption applies, the Trust could be
considered to hold plan assets by reason of a Plan's investment in the
Notes. Such plan assets would include an undivided interest in any assets
held by the Trust. In such an event, the Indenture Trustee and other
persons, in providing services with respect to the Trust's assets, may be
parties in interest with respect to such Plans, subject to the fiduciary
responsibility provisions of Title I of ERISA, including the prohibited
transaction provisions of Section 406 of ERISA, and Section 4975 of the
Code with respect to transactions involving the Trust's assets.
Under the Plan Assets Regulation, the term "equity interest" is
defined as any interest in an entity other than an instrument that is
treated as indebtedness under "applicable local law" and which has no
"substantial equity features." Although the Plan Assets Regulation is
silent with respect to the question of which law constitutes "applicable
local law" for this purpose, DOL has stated that these determinations
should be made under the state law governing interpretation of the
instrument in question. In the preamble to the Plan Assets Regulation,
DOL declined to provide a precise definition of what features are equity
features or the circumstances under which such features would be
considered "substantial," noting that the question of whether a plan's
interest has substantial equity features is an inherently factual one,
but that in making a determination it would be appropriate to take
into account whether the equity features are such that a Plan's investment
would be a practical vehicle for the indirect provision of investment
management services.
The Issuer believes that the Notes will be classified as
indebtedness without substantial equity features for ERISA purposes. This
belief is based upon the terms of the Notes, the opinion of Federal Tax
Counsel that the Notes will be classified as debt instruments for federal
income tax purposes and the ratings which are expected to be assigned to
the Notes. However, if the Notes are deemed to be equity interests in the
Trust and no statutory, regulatory or administrative exemption applies, the
Trust could be considered to hold plan assets by reason of a Plan's
investment in the Notes.
REVIEW BY PLAN FIDUCIARIES
Any Plan fiduciary considering whether to purchase any Notes on
behalf of a Plan should consult with its counsel regarding the applicability
of the fiduciary responsibility and prohibited transaction provisions of
ERISA and the Code to such investment. Among other things, before
purchasing any Notes, a fiduciary of a Plan should make its own
determination as to whether the Trust, as obligor on the Notes, is, or
may become, a party in interest with respect to the Plan, the availability
of the exemptive relief provided in the Plan Assets Regulations and the
availability of any other prohibited transaction exemptions. In
addition, prior to purchasing any Notes, a fiduciary of a Plan should
make its own determination as to whether the Swap Counterparty, by virtue
of being characterized as the issuer of the Notes for federal income tax
purposes, is, or may become, a party in interest with respect to the
Plan. Such other exemptions may include DOL Prohibited Transaction
Exemption 84-14 (Class Exemption for Plan Asset Transactions Determined
by Independent Qualified Professional Asset Managers), 80-51 and 91-38
(Class Exemption for Certain Transactions Involving Underlying
Transferor Collective Investment Funds) and 90-1 (Class Exemption for
Certain Transactions Involving Insurance Company Pooled Separate Accounts).
There is no assurance that these or other exemptions, even if all of the
conditions specified therein are satisfied, will apply to all of the
transactions involving the Trust's assets.
Any purchaser that is an insurance company should consider the
effects of the 1993 United States Supreme Court decision in John Hancock
Mutual Life Insurance Co. v. Harris Trust and Savings Underlying
Transferor, 114 S. Ct. 517 (1993), on its purchase of Class A1 Notes or
Class A2 Certificates for its general account. In John Hancock, the
Supreme Court ruled that assets held in an insurance company's general
account may be deemed to be "plan assets" for ERISA purposes under
certain circumstances. In response to that decision, the DOL has issued
Prohibited Transaction Exemption 95-60 (Class Exemption for Certain
Transactions Involving Insurance Company Pooled General Accounts) which,
subject to certain conditions, provides relief from the prohibited
transaction rules that under John Hancock might otherwise be applicable
to assets held in an insurance company's general account. Any such
prospective purchaser should consult with its counsel as to the
applicability of this decision and exemption to its purchase of the Notes.
LEGAL INVESTMENT CONSIDERATIONS
The appropriate characterization of the Securities under various
legal investment restrictions, and thus the ability of investors subject
to these restrictions to purchase Securities, may be subject to
significant interpretive uncertainties. All investors whose investment
authority is subject to legal restrictions should consult their own
legal advisors to determine whether, and to what extent, the Securities
will constitute legal investments for them.
The Depositor makes no representation as to the proper
characterization of the Securities for legal investment or financial
institution regulatory purposes, or as to the ability of particular
investors to purchase Securities under applicable legal investment
restrictions. The uncertainties described above (and any unfavorable
future determinations concerning legal investment or financial institution
regulatory characteristics of the Securities) may adversely affect the
liquidity of the Securities.
UNDERWRITING
Subject to the terms and conditions set forth in the
Underwriting Agreement, the Depositor has agreed to sell to Morgan
Stanley & Co. Incorporated) (the "Underwriter"), and the Underwriter has
agreed to purchase from the Depositor, the Securities. The Underwriter is
obligated to purchase all the Securities offered hereby if any are purchased.
Distribution of the Securities will be made by the Underwriter from
time to time in negotiated transactions or otherwise at varying prices
to be determined at the time of sale. Proceeds to the Depositor are
expected to be $ _____________________ from the sale of the Securities,
before deducting expenses payable by the Depositor of $_________________.
In connection with the purchase and sale of the Securities, the
Underwriter may be deemed to have received compensation from the
Depositor in the form of underwriting discounts, concessions or
commissions.
Until the distribution of the Securities is completed, rules of
the Commission may limit the ability of the Underwriter to bid for and
purchase the Securities. As an exception to these rules, the Underwriter is
permitted to engage in certain transactions that stabilize the price of the
Securities. Such transactions consist of bids or purchases for the purpose
of pegging, fixing or maintaining the price of the Securities.
If the Underwriter creates a short position in the Securities
in connection with the offering, i.e., if it sells more Securities than are
set forth on the cover page of this Prospectus Supplement, the
Underwriter may reduce that short position by purchasing Securities in the
open market.
In general, purchases of a security for the purpose of stabilization
or to reduce a short position could cause the price of the security to be
higher than it might be in the absence of such purchases.
Neither the Depositor nor the Underwriter makes any representation
or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the prices of the
Securities. In addition, neither the Depositor nor any Underwriter makes
any representation that the Underwriter will engage in such
transactions or that such transactions, once commenced, will not be
discontinued without notice.
The Underwriting Agreement provides that the Depositor will
indemnify the Underwriter against certain liabilities, including
liabilities under the Securities Act or contribute payments the Underwriter
may be required to make in respect thereof.
LEGAL MATTERS
Certain legal matters with respect to the Notes and the
Certificates will be passed upon for the Depositor by Brown & Wood LLP, New
York, New York and for the Underwriter by Brown & Wood LLP, New York, New
York.
RATING
It is a condition to issuance of the Securities that the Notes be
rated "___" by (__________________ and "___" by _______________ and
that the Certificates be rated "___" by (________________ and
"___" by (_____________).
A securities rating addresses the likelihood of the receipt
by Securityholders of distributions on the Underlying Securities. The
rating takes into consideration the characteristics of the Underlying
Securities and the structural, legal and tax aspects associated with
the Securities (including, without limitation, the rating of the Swap
Counterparty). The ratings on the Securities do not, however,
constitute statements regarding the possibility that Securityholders might
realize a lower than anticipated yield.
A securities rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or withdrawal at any time
by the assigning rating organization. Each securities rating should be
evaluated independently of similar ratings on different securities.
INDEX OF DEFINED TERMS
1992 Master Agreement . . . . . . . . . . . . . . . . . . . . . . . . . S-28
Administration Agreement . . . . . . . . . . . . . . . . . . . . . . . S-19
Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-16
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-16
CABS Early Amortization Event . . . . . . . . . . . . . . . . . . . . . S-34
Calculation Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Certificate Accrual Rate . . . . . . . . . . . . . . . . . . . . . . . S-18
Certificate Interest Accrual Period . . . . . . . . . . . . . . . S-8, S-18
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-5
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-34
Counterparty Expense Limit . . . . . . . . . . . . . . . . . . . . . . S-21
Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-1, S-32
DOL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-35
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-7
Eligible Investments . . . . . . . . . . . . . . . . . . . . . . . . . S-22
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11, S-35
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . S-24
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Extraordinary Expense Call . . . . . . . . . . . . . . . . . . . . . . S-21
Extraordinary Expenses . . . . . . . . . . . . . . . . . . . . . . . . S-23
Federal Tax Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
Global Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Global Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-5
Initial Certificate Prepayment Date . . . . . . . . . . . . . . . . . . S-8
Interest Accrual Period . . . . . . . . . . . . . . . . . . . . . . . . S-16
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
ISDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-28
Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-5
Mandatory Clean-up Call . . . . . . . . . . . . . . . . . . . . . . . . S-20
Note Accrual Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . S-16
Note Interest Accrual Period . . . . . . . . . . . . . . . . . . . . . . S-6
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-5
OID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-34
Ordinary Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23
parties in interest . . . . . . . . . . . . . . . . . . . . . . . . . . S-35
Payment Date . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-6, S-16
Plan Assets Regulation . . . . . . . . . . . . . . . . . . . . . . . . S-35
Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-35
Priority of Payments . . . . . . . . . . . . . . . . . . . . . . . . . S-22
Pro Rata Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Rating Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Reinvested Collateral . . . . . . . . . . . . . . . . . . . . . . . . . S-29
Sale Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-26
Scheduled Final Payment Date . . . . . . . . . . . . . . . . . . . . . . S-6
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-5
Swap Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-28
Swap Counterparty . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-5
Swap Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-30
Swap Early Termination. . . . . . . . . . . . . . . . . . . . . . . . . S-30
Termination Events . . . . . . . . . . . . . . . . . . . . . . . . . . S-30
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-5
Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-7
Trust Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Trustee Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23
Underlying Securities . . . . . . . . . . . . . . . . . . . . . . . S-1, S-5
Underlying Securities Default . . . . . . . . . . . . . . . . . . . . . S-20
Underlying Securities Default Call . . . . . . . . . . . . . . . . . . S-20
Underlying Securities Early Amortization Event . . . . . . . . . . . . S-34
Underlying Transferor . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Underlying Trust . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-5
Underwriter . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-37
Voting Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . S-27
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This Prospectus shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there by any
sale of these securities in any jurisdiction in which such offer,
solicitation or sale would be unlawful prior to the registration or
qualification under the securities laws of any such jurisdiction.
Subject to Completion dated October 10, 1997
PROSPECTUS
- ----------
MORGAN STANLEY ABS CAPITAL II INC.
Asset Backed Notes
Asset Backed Certificates
(Issuable in Series)
------------------
Morgan Stanley ABS Capital II Inc. (the "Depositor") may offer from
time to time under this Prospectus and related Prospectus Supplements the
Asset Backed Notes (the "Notes") and the Asset Backed Certificates
(the "Certificates" and, together with the Notes, the "Securities")
described herein, which may be sold from time to time in one or more
series (each, a "Series"), in amounts, at prices and on terms to be
determined at the time of sale and to be set forth in a supplement to this
Prospectus (a "Prospectus Supplement").
As specified in the related Prospectus Supplement, the Certificates of
a series will evidence an interest in a trust (a "Trust") formed pursuant
to a Trust Agreement, as described herein. The Notes of a series will be
issued and secured pursuant to an Indenture between the Trust and the
Indenture Trustee specified in the related Prospectus Supplement (the
"Indenture Trustee") and will represent indebtedness of the related Trust.
The property of each Trust will include assets composed of (a) credit
card securities ("Underlying Securities"), (b) all monies due thereunder
net, if and as provided in the related Prospectus Supplement, of certain
expenses, and (c) certain funds, Enhancement (as defined herein) and other
assets as described herein and in the related Prospectus Supplement.
Each Series of Securities will be issued in one or more classes (each,
a "Class"), which may include subclasses. Interest on and principal of
the Securities of a Series will be payable on each Payment Date specified
in the related Prospectus Supplement, at the times, at the rates, in the
amounts and in the order of priority set forth in the related
Prospectus Supplement. Securities may be sold for U.S. dollars or for
one or more foreign or composite currencies and the principal of and any
interest on Securities may be payable in U.S. dollars or one or more foreign
or composite currencies.
If a Series includes multiple Classes, such Classes may vary
with respect to the amount, percentage and timing of distributions of
principal, interest or both and one or more Classes may be subordinated to
other Classes with respect to distributions of principal, interest or
both as described herein and in the related Prospectus Supplement. A
Series may include one or more classes of Notes and/or one or more Classes
of Certificates. A Series may include one or more Classes entitled to
distributions of principal with disproportionate, nominal or no interest
distributions, or to interest distributions with disproportionate,
nominal or no distributions in respect of principal. Each Series of
Securities may be subject to termination under the circumstances described
herein and in the related Prospectus Supplement. The related Prospectus
Supplement will specify which Class or Classes of Notes, if any, and
which Class or Classes of Certificates, if any, of a Series are being
offered thereby.
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED
BY PROSPECTIVE PURCHASERS OF THE SECURITIES, SEE "RISK FACTORS" ON PAGE 8
HEREIN AND IN THE PROSPECTUS SUPPLEMENT.
NOTES OF A SERIES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES OF A SERIES
EVIDENCE BENEFICIAL INTERESTS IN, THE RELATED TRUST ONLY AND ARE NOT
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR BY THE DEPOSITOR, ANY ISSUER OF
UNDERLYING SECURITIES, THE TRUSTEE, THE ADMINISTRATOR OR BY ANY OF THEIR
RESPECTIVE AFFILIATES OR, UNLESS OTHER WISE SPECIFIED IN THE RELATED
PROSPECTUS SUPPLEMENT, BY ANY OTHER PERSON OR ENTITY. THE DEPOSITOR'S ONLY
OBLIGATIONS WITH RESPECT TO ANY SERIES OF SECURITIES WILL BE PURSUANT TO
CERTAIN REPRESENTATIONS AND WARRANTIES SET FORTH IN
THE RELATED TRUST AGREEMENT, AS DESCRIBED HEREIN
OR IN THE RELATED PROSPECTUS SUPPLEMENT.
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 OR ANY PROSPECTUS
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Retain this Prospectus for future reference. This Prospectus may not
be used to consummate sales of Securities unless accompanied by the
related Prospectus Supplement.
MORGAN STANLEY DEAN WITTER
_______ __, 199_
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Securities to be
offered hereunder will, among other things, set forth with respect to such
Series of Securities: (i) the aggregate principal amount, if any,
interest rate, if any, and authorized denominations of each Class of
such Securities; (ii) certain information concerning the Underlying
Securities; (iii) the terms of any Enhancement (as defined herein);
(iv) information concerning any other assets in the related Trust, including
any Enhancement; (v) the expected date or dates on which the principal amount,
if any, of each Class of Securities will be paid to holders of such
Securities; (vi) the extent to which any Class within a Series is
subordinated to any other Class of such Series; and (vii) additional
information with respect to the plan of distribution of such Securities.
To the extent that the terms of this Prospectus conflict or are otherwise
inconsistent with the terms of any related Prospectus Supplement, the
terms of such related Prospectus Supplement shall govern.
AVAILABLE INFORMATION
The Depositor, as originator of each Trust, has filed with
the Securities and Exchange Commission (the "Commission") a
Registration Statement (together with all amendments and exhibits
thereto, referred to herein as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect
to the Notes and Certificates offered pursuant to this Prospectus. For
further information, reference is made to the Registration Statement which
may be inspected and copied at the public reference facilities maintained
by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and
its Regional Offices located as follows: Chicago Regional Office, Citicorp
Center, 500 West Madison Street,Suite 1400, Chicago, Illinois 60661; and New
York Regional Office, 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can also be obtained from the Public
Reference Section of the Commission, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, the
Commission maintains a Web site at http://www.sec.gov containing
reports, proxy statements and other information regarding
registrants, including the Depositor, that file electronically with
the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed with respect to each Trust pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of
1934, as amended, subsequent to the date of the related Prospectus
Supplement and prior to the termination of any offering of Securities of
such Trust shall be deemed to be incorporated by reference into such
Prospectus Supplement and this Prospectus. Any statement contained in
a document incorporated or deemed to be incorporated by reference in any
Prospectus Supplement or in this Prospectus shall be deemed to be modified
or superseded for purposes of such Prospectus Supplement and this
Prospectus to the extent that a statement contained in any Prospectus
Supplement or in this Prospectus modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute part of any Prospectus Supplement.
The Depositor will provide without charge to each person to whom a
copy of this Prospectus is deliverd, on the written or oral request of any
such person, a copy of any or all of the documents incorporated
herein by reference, except the exhibits to such documents (unless such
exhibits are specifically incorporated by reference in such documents).
Written requests for such copies should be directed to Morgan Stanley ABS
Capital II Inc., 1585 Broadway, New York, New York 10036. Telephone
requests for such copies should be directed to Morgan Stanley ABS Capital II
Inc. at (212) 761-1817.
REPORTS TO HOLDERS
Periodic and annual reports concerning the Trust for a Series
of Securities are required under the Trust Agreement or Indenture to
be forwarded to the record holders of such Securities. The holder of
record of each Class of Securities is expected to be Cede & Co. ("Cede"), as
nominee of The Depository Trust Company. See "THE TRUST AGREEMENT--Reports
to Holders" herein.
TABLE OF CONTENTS
Page
----
Prospectus Supplement . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents by Reference . . . . . . . . . . . . . 2
Reports to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Summary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Description of The Notes . . . . . . . . . . . . . . . . . . . . . . . . 9
Description of The Certificates . . . . . . . . . . . . . . . . . . . . . 14
Certain Information Regarding The Securities . . . . . . . . . . . . . . 15
Trust Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
The Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
The Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Certain Federal Income Tax Considerations . . . . . . . . . . . . . . . . 27
State Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . 42
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Index of Principal Terms . . . . . . . . . . . . . . . . . . . . . . . . 45
Global Clearance, Settlement and Tax Documentation Procedures . . . . . . I-1
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to
the detailed information appearing elsewhere in this Prospectus and by
reference to the information with respect to each Series contained in
the related Prospectus Supplement to be prepared and delivered in
connection with the offering of the Securities of such Series. Certain
capitalized terms used in this summary are defined elsewhere in this
Prospectus on the pages indicated in the "Index of Principal Terms".
ISSUER With respect to each Series of Securities, the trust
(the "Trust" or the "Issuer") to be formed pursuant
to a trust agreement (each, as amended and
supplemented from time to time, a "Trust Agreement")
between the Depositor and the Trustee.
TRUSTEE With respect to each Series of Securities, the
Trustee specified in the related Prospectus
Supplement.
INDENTURE TRUSTEE With respect to any applicable Series of Notes, the
Indenture Trustee specified in the related
Prospectus Supplement.
THE CERTIFICATES A Series may include one or more classes of
Certificates and may or may not include any Notes.
The related Prospectus Supplement will specify which
Class or Classes, if any, of the Certificates are
being offered thereby.
Unless otherwise specified in the related Prospectus
Supplement, each Class of Certificates will have a
stated Certificate Balance specified in the related
Prospectus Supplement (the "Certificate Balance")
and will accrue interest on such Certificate Balance
at a specified rate (with respect to each Class of
Certificates, the "Pass-Through Rate"). Each Class
of Certificates may have a different Pass-Through
Rate, which may be a fixed, variable or adjustable
Pass-Through Rate, or any combination of the
foregoing. The related Prospectus Supplement will
specify the Pass-Through Rate for each Class of
Certificates or the method for determining the Pass-
Through Rate.
With respect to a Series that includes two or more
Classes of Certificates, each Class may differ as to
timing and priority of distributions, seniority,
allocations of losses, Enhancement, if any, Pass-
Through Rate or amount of distributions in respect
of principal or interest, or distributions in
respect of principal or interest in respect of any
such Class or Classes may or may not be made upon
the occurrence of specified events or on the basis
of collections from designated portions of the
Underlying Securities. In addition, a Series may
include one or more Classes of Certificates entitled
to (i) distributions in respect of principal with
disproportionate, nominal or no interest
distributions or (ii) interest distributions with
disproportionate, nominal or no distributions in
respect of principal.
If a Series of Securities includes Classes of Notes,
distributions in respect of the Certificates may be
subordinated in priority of payment to payments on
the Notes to the extent specified in the related
Prospectus Supplement.
THE NOTES Each Series of Securities may include one or more
Classes of Notes, which will be issued pursuant to
an Indenture between the Trust and the Indenture
Trustee (each, as amended and supplemented from time
to time, an "Indenture"). The terms of any Notes
will be set forth in the Prospectus Supplement
relating to such Notes.
Unless otherwise specified in the related Prospectus
Supplement, each Class of Notes will have a stated
principal amount and will bear interest at a
specified rate or rates (with respect to each Class
of Notes, the "Interest Rate"). Each Class of Notes
may have a different Interest Rate, which may be
fixed, variable or an adjustable Interest Rate, or
any combination of the foregoing. The related
Prospectus Supplement will specify the Interest
Rate, if any, for each Class of Notes, and the
method for determining the Interest Rate.
With respect to a Series that includes two or more
Classes of Notes, each Class may differ as to the
timing and priority of payments, seniority,
allocations of losses, Enhancement, if any, Interest
Rate or amount of payments of principal or interest,
or payments of principal or interest in respect of
any such Class or Classes may or may not be made
upon the occurrence of specified events or on the
basis of collections from designated portions of the
Underlying Securities. In addition, a Series may
include one or more Classes of Notes entitled to
(i) principal payments with disproportionate,
nominal or no interest payments or (ii) interest
payments with disproportionate, nominal or no
principal payments.
DEPOSITOR Morgan Stanley ABS Capital II Inc. None of the
Depositor, the administrator named in the Prospectus
Supplement (the "Administrator"), the Trustee or any
underwriter, nor any affiliate of the foregoing,
will guarantee, or will otherwise be obligated with
respect to, the Securities of any Series. See
"THE DEPOSITOR."
PRINCIPAL PAYMENTS All payments of principal of a Series of Securities
will be made in an aggregate amount determined as
set forth in the related Prospectus Supplement and
will be paid at the times and will be allocated
among the Classes of such Series in the order and
amounts as specified in the related Prospectus
Supplement.
OPTIONAL TERMINATION One or more Classes of Securities of any Series may
be repurchased or repaid in whole, but not in part,
at the Depositor's option or at the option of such
other entity named in the related Prospectus
Supplement, at such time and under the circumstances
specified in such Prospectus Supplement, at the
redemption price set forth therein. If so specified
in the related Prospectus Supplement for a Series of
Securities, the Depositor or such other entity that
is specified in the related Prospectus Supplement
may, at its option, cause an early termination of
the related Trust by repurchasing or liquidating all
of the Assets remaining in the Trust on or after a
specified date, or on or after such time as the
aggregate principal balance of the Securities of the
Series or the Underlying Securities of such Series,
as specified in the related Prospectus Supplement,
is less than the amount or percentage specified in
the related Prospectus Supplement. See "CERTAIN
INFORMATION REGARDING THE SECURITIES -- Optional
Purchase or Termination."
In addition, the Prospectus Supplement may provide
other circumstances under which holders of
Securities of a Series could be fully paid
significantly earlier than would otherwise be the
case if payments or distributions were solely based
on the distributions on the related Underlying
Securities.
TRUST ASSETS
A. UNDERLYING
SECURITIES The assets (the "Assets") of a Trust will include
credit card securities ("Underlying Securities")
that evidence an interest in a trust or other entity
that contains a pool of receivables (the "Credit
Card Receivables") generated from time to time in
consumer revolving credit card accounts (the
"Accounts") and collections thereon allocated to
such Underlying Securities.
The related Prospectus Supplement for a Series will
specify (in certain cases, on an approximate basis
and, in certain cases, by reference to the
Underlying Securities Prospectus (as defined
herein)), to the extent relevant and to the extent
such information is reasonably available to the
Depositor and the Depositor reasonably believes such
information to be reliable, (i) the aggregate
approximate principal amount and type of any
Underlying Securities to be included in the Trust
for such Series; (ii) the expected maturity and the
final maturity of the Underlying Securities; (iii)
the interest rate for the Underlying Securities;
(iv) the issuer or issuers of the Underlying
Securities (each, an "Underlying Issuer" or
"Underlying Trust"), the servicer or servicers of
the Underlying Securities (the "Underlying
Servicer") and the trustee or trustees of the
Underlying Securities (the "Underlying Securities
Trustee"); and (v) any early amortization events
applicable to the Underlying Securities. See "THE
TRUST ASSETS" herein.
B. COLLECTION,
PRE-FUNDING AND
OTHER TRUST
ACCOUNTS Unless otherwise provided in the related Prospectus
Supplement, all payments on or with respect to the
Assets for a Series will be remitted directly to an
account (the "Collection Account") to be established
for such Series with the Trustee, or the
Administrator in the name of the Trustee. Unless
otherwise provided in the related Prospectus
Supplement, the Trustee shall be required to apply a
portion of the amount in the Collection Account to
the payment, if and as provided in the related
Prospectus Supplement, of certain amounts payable to
the Administrator and any other person specified in
the related Prospectus Supplement, and then to apply
remaining amounts in the Collection Account to (i)
the payment of principal of and interest on the
Securities of such Series on the next Payment Date
and (ii) any other purpose specified in such
Prospectus Supplement, in each case to the extent
specified in such Prospectus Supplement. After
applying the funds in the Collection Account as
described above, any funds remaining in the
Collection Account may be paid over to the
Administrator, the Depositor, any provider of
Enhancement with respect to such Series (an
"Enhancer") or any other person entitled thereto in
the manner and at the times established in the
related Prospectus Supplement. Various other
accounts may be created under the terms of the
documents related to a specific Series.
In addition, a Prospectus Supplement may provide
that the assets of a Trust will include a Pre-
Funding Account (the "Pre-Funding Account"). To the
extent provided in the related Prospectus
Supplement, the Depositor will be obligated (subject
only to the availability thereof) to deposit, and
the related Trust will be obligated to purchase
(subject to the satisfaction of certain conditions
described in the applicable Trust Agreement),
additional Underlying Securities (the "Subsequent
Underlying Securities") from time to time (as
frequently as daily) during the funding period
specified in the related Prospectus Supplement
having an aggregate principal balance approximately
equal to the amount on deposit in the Pre-Funding
Account (the "Pre-Funded Amount") on the related
Closing Date.
C. CREDIT, CASH FLOW
OR OTHER ENHANCEMENT
OR DERIVATIVE
ARRANGEMENTS If and to the extent specified in the related
Prospectus Supplement, credit, cash flow or other
enhancement or derivative arrangements with respect
to a Trust or any Class or Classes of Securities
may include any one or more of the following:
subordination of one or more other Classes of
Securities, a Reserve Account, over-credit or
liquidity facilities, surety bonds, guaranteed
investment contracts, swaps (including without
limitation interest rate and currency swaps),
exchange agreements, interest rate protection
agreements, repurchase obligations, put and/or call
options, yield supplement agreements or accounts,
other agreements with respect to third party
payments or other support, cash deposits or such
other derivative or other arrangements as may be
described in the related Prospectus Supplement or
any combination of the foregoing. Unless otherwise
specified in the related Prospectus Supplement,
any form of credit enhancement, cash flow
enhancement or other arrangements will have
certain limitations and exclusions from coverage
thereunder, which will be described in the related
Prospectus Supplement. Any of such arrangements
or devices are referred to herein as
"Enhancements."
TAX STATUS Unless the Prospectus Supplement specifies that the
related Trust will be treated as a grantor trust
and, except as otherwise provided in such Prospectus
Supplement, upon the issuance of the related Series
of Securities, Brown & Wood LLP ("Federal Tax
Counsel") will deliver an opinion to the effect that
for U.S. federal income tax purposes (i) any Notes
of such Series will be characterized as debt and
(ii) such Trust will not be characterized as an
association (or a publicly traded partnership)
taxable as a corporation. In respect of any such
Series, each Noteholder, by the acceptance of a Note
of such Series, will agree to treat such Note as
indebtedness, and each Certificateholder, by the
acceptance of a Certificate of such Series, will
agree to treat such Trust as (i) to the extent there
is more than one Certificateholder, a partnership in
which such Certificateholder is a partner for
federal income tax purposes or (ii) to the extent
there is a single Certificateholder as an entity
disregarded for U.S. federal income tax purposes
such that the Certificateholder is treated as owning
the Trust's assets directly. Alternative
characterizations of such a Trust and such
Certificates are possible, but would not result in
materially adverse tax consequences to
Certificateholders.
If the Prospectus Supplement specifies that the
related Trust will be treated as a grantor trust and
except as otherwise provided in such Prospectus
Supplement, upon the issuance of the related Series
of Certificates, Federal Tax Counsel will deliver an
opinion to the effect that such Trust will be
treated as a grantor trust for federal income tax
purposes and will not be subject to federal income
tax.
See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" and
"CERTAIN STATE TAX CONSEQUENCES" for additional
information concerning the application of federal
and state tax laws.
ERISA CONSIDERATIONS Subject to the considerations discussed under "ERISA
CONSIDERATIONS" herein and in the related Prospectus
Supplement, and unless otherwise specified therein,
any Notes of a Series will be eligible for purchase
by employee benefit plans.
Unless otherwise specified in the related Prospectus
Supplement, the Certificates may not be acquired by
any employee benefit plan subject to the Employee
Retirement Income Security Act of 1974, as amended
("ERISA"), or by any individual retirement account.
See "ERISA CONSIDERATIONS" herein and in the related
Prospectus Supplement.
RISK FACTORS
RISK FACTORS RELATING TO THE SECURITIES
Limited Liquidity. There can be no assurance that a secondary
market for the Securities of any Series will develop or, if it does
develop, that such market will provide Securityholders with liquidity of
investment or that it will continue for the life of the Securities of
such Series. The underwriters presently expect to make a secondary
market in the Securities, but have no obligation to do so.
Limited Nature of Rating. Any rating assigned to a Class of
Securities by a Rating Agency will reflect such Rating Agency's assessment
solely of the likelihood that the holders of such Class of Securities
will receive the payments of interest and/or principal required to be
made under the Trust Agreement or Indenture and will be based primarily on
the value of the Assets in the Trust and the availability of any
Enhancement with respect to such Class of Securities. The rating will
not be a recommendation to purchase, hold or sell such Class of Securities,
and such rating will not comment as to the marketability of such
Securities, any market price or suitability for a particular investor.
There is no assurance that any rating will remain for any given period of
time or that any rating will not be lowered or withdrawn entirely by a
Rating Agency if in such Rating Agency's judgment circumstances so warrant.
Book-Entry Certificates. Issuance of the Securities in book-entry
form may reduce the liquidity of such Securities in the secondary trading
market since investors may be unwilling to purchase Securities for which
they cannot obtain physical certificates. See "CERTAIN INFORMATION
REGARDING THE SECURITIES -- Book-Entry Registration" herein.
Because transactions in the Securities can be effected only through
The Depository Trust Company ("DTC"), Cedel Bank, societe anonyme
("CEDEL"), the Euroclear System ("Euroclear"), participating
organizations and indirect participants, the ability of a beneficial
owner of a Security (a "Security Owner") to pledge a security to persons
or entities that do not participate in the DTC, CEDEL or Euroclear
system, or otherwise to take actions in respect of such Securities,
may be limited due to lack of a physical certificate representing
the Certificates. See "CERTAIN INFORMATION REGARDING THE SECURITIES
- -- Book-Entry Registration" herein.
Security Owners may experience some delay in their receipt
of distributions of interest and principal on the Securities because
such distributions will be forwarded by the Trustee or the Indenture
Trustee to DTC and DTC will credit such distributions to the
accounts of its Participants (as defined herein), which will thereafter
credit them to the accounts of Security Owners either directly or
indirectly through indirect participants. See "CERTAIN INFORMATION
REGARDING THE SECURITIES -- Book- Entry Registration" herein.
RISK FACTORS RELATING TO UNDERLYING SECURITIES
Each Prospectus Supplement will specify the Underlying Securities
that will be or are expected to be included in the Assets of the related
Trust. Each issue of Underlying Securities will have been registered
under the Securities Act. Such Prospectus Supplement will refer to the
prospectus or prospectus supplement (together, the "Underlying Securities
Prospectus") for each issue of such Underlying Securities for a
description of the terms of such Underlying Securities, the related
Credit Card Receivables and the originator and Underlying Servicer of
the Credit Card Receivables. Such Underlying Securities Prospectus will
describe, among other things,
(i) the risk of the interruption or reduction of distributions
on the related Underlying Securities in the event of the
insolvency or receivership of the originator or transferor of
the Credit Card Receivables to the Underlying Trustee,
(ii) the risk that the failure to comply with state or
Federal consumer protection laws to which the Credit Card
Receivables are subject could adversely affect the Servicer's
ability to collect payments on the Credit Card Receivables, which
would adversely affect the funds available to make payments on such
Underlying Securities and therefore adversely affect the ability of the
Trust to make payments on the related Securities,
(iii) legal actions and proposed legislation that could
have the effect of reducing the annual percentage rate payable on
credit card receivables or other fees payable in respect of credit card
receivables,
(iv) the risk that a decline in the amount of Credit
Card Receivables originated in respect of the Underlying Securities may
cause such Underlying Securities to begin to amortize prior to their
stated maturity date and thus, depending upon the structure of the
related Securities, affect the maturity of such Securities,
(v) (a) the basis risk that the finance charge rates borne by
the related Credit Card Receivables may not be based on the same index
upon which the Underlying Securities are based or (b) the basis risk
that the Underlying Securities are fixed rate securities and the
finance charge rates on the Credit Card Receivables move to rates
that are lower than the sum of such fixed rates and the servicing
fee rate in respect of such Underlying Securities, with the result in
each case that there are insufficient finance charges from the Credit
Card Receivables to pay the amount of interest due on such Underlying
Securities, and
(vi) the ability of the Underlying Servicer to change the terms
of the Credit Card Receivables and the risk that such changes could
result in the early amortization of the Underlying Securities,
which could adversely affect the related Securities.
DESCRIPTION OF THE NOTES
GENERAL
With respect to each Trust that issues Notes, one or more Classes
of Notes of the related Series will be issued pursuant to the terms of
an Indenture, a form of which has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. The following
summary does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Notes
and the Indenture.
Unless otherwise specified in the related Prospectus Supplement,
each Class of Notes will initially be represented by one or more Notes, in
each case registered in the name of the nominee of DTC (together
with any successor depository selected by the Trust, the "Depository")
except as set forth below. Unless otherwise specified in the
related Prospectus Supplement, the Notes will be available for purchase
in denominations of $1,000 and integral multiples thereof in book-entry
form only. The Depositor has been informed by DTC that DTC's nominee
will be Cede, unless another nominee is specified in the related Prospectus
Supplement. Accordingly, such nominee is expected to be the holder of
record of the Notes of each Class. Unless and until Definitive Notes are
issued under the limited circumstances described herein or in the related
Prospectus Supplement, no Noteholder will be entitled to receive a
physical certificate representing a Note. All references herein and in
the related Prospectus Supplement to actions by Noteholders refer to
actions taken by DTC upon instructions from its participating
organizations (the "Participants") and all references herein and in the
related Prospectus Supplement to payments, notices, reports and statements
to Noteholders refer to payments, notices, reports and statements to DTC or
its nominee, as the registered holder of the Notes, for payments to
Noteholders in accordance with DTC's procedures with respect thereto.
See "CERTAIN INFORMATION REGARDING THE SECURITIES -- Book-Entry
Registration" and "-- Definitive Securities."
PRINCIPAL AND INTEREST ON THE NOTES
The timing and priority of payment, seniority, allocations of
losses, Interest Rate, if any, and amount of or method of determining
payments of principal and interest on each Class of Notes of a given
Series will be described in the related Prospectus Supplement. The right
of holders of any Class of Notes to receive payments of principal and
interest may be senior or subordinate to the rights of holders of any other
Class or Classes of Notes of such Series, as described in the related
Prospectus Supplement. Unless otherwise provided in the related Prospectus
Supplement, payments of interest on the Notes of such Series will be made
prior to payments of principal thereon. To the extent provided in the
related Prospectus Supplement, a Series may include one or more Classes
of Notes entitled to (i) principal payments with disproportionate,
nominal or no interest payments or (ii) interest payments with
disproportionate, nominal or no principal payments. Each Class of
Notes may have a different Interest Rate, which may be a fixed, variable
or adjustable Interest Rate (and which may be zero for certain Classes of
Notes), or any combination of the foregoing. A Class of Notes may accrue
interest and such interest may be added to the principal balance
thereof, rather than paid to the related Noteholders, until a
specified event occurs or until such Class of Notes is retired. The
related Prospectus Supplement will specify the Interest Rate, if any, for
each Class of Notes of a given Series or the method for determining such
Interest Rate. One or more Classes of Notes of a Series may be redeemable
in whole or in part under the circumstances specified in the related
Prospectus Supplement, including at the end of the Funding Period (if any)
or as a result of the Underlying Servicer's exercising its option to
purchase the related Credit Card Receivables.
To the extent specified in any Prospectus Supplement, one or
more Classes of Notes of a Series may have fixed principal payment
schedules, as set forth in such Prospectus Supplement; Noteholders of such
Notes would be entitled to receive as payments of principal on any
Payment Date the applicable amounts set forth on such schedule with respect
to such Notes, in the manner and to the extent set forth in the related
Prospectus Supplement.
Unless otherwise specified in the related Prospectus
Supplement, payments to Noteholders of all Classes within a Series in
respect of interest will have the same priority. Under certain
circumstances, the amount available for such payments could be less than
the amount of interest payable on the Notes on any of the dates
specified for payments in the related Prospectus Supplement (each, a
"Payment Date"), in which case each Class of Noteholders will receive its
ratable share (based upon the aggregate amount of interest due to such
Class of Noteholders) of the aggregate amount available to be
distributed in respect of interest on the Notes of such Series.
In the case of a Series of Notes which includes two or more Classes
of Notes, the sequential order and priority of payment in respect of
principal and interest, and any schedule or formula or other provisions
applicable to the determination thereof, of each such Class will be
set forth in the related Prospectus Supplement. Payments in respect of
principal and interest of any Class of Notes will be made on a pro
rata basis among all the Noteholders of such Class. A Series with
Notes may provide for a period during which collections of principal in
respect of the Underlying Securities are not applied to payments of
principal of such Notes, or may provide for a liquidity facility or other
arrangement that permits one or more classes of Notes to be paid in
planned amounts or formula amounts on scheduled Payment Dates.
THE INDENTURE
Modification of Indenture. With respect to each Trust that has
issued Notes pursuant to an Indenture, the Trust and the Indenture Trustee
may, with the consent of the holders of a majority of the outstanding
Notes of the related Series, execute a supplemental indenture to add
provisions to, change in any manner or eliminate any provisions of, the
related Indenture, or modify (except as provided below) in any manner the
rights of the related Noteholders.
Unless otherwise specified in the related Prospectus Supplement
with respect to a Series of Notes, in the absence of the consent of the
holder of each such outstanding Note affected thereby, no supplemental
indenture will: (i) change the due date of any installment of principal of
or interest on any such Note or reduce the principal amount thereof, the
interest rate specified thereon or the redemption price with respect
thereto or change any place of payment where or the coin or currency in
which any such Note or any interest thereon is payable; (ii) impair the
right to institute suit for the enforcement of certain provisions of
the related Indenture regarding payment; (iii) reduce the percentage of the
aggregate amount of the outstanding Notes of such Series, the consent of the
holders of which is required for any such supplemental indenture or the
consent of the holders of which is required for any waiver of compliance
with certain provisions of the related Indenture or of certain defaults
thereunder and their consequences as provided for in such Indenture; (iv)
modify or alter the provisions of the related Indenture regarding the
voting of Notes held by the applicable Trust, any other obligor on such
Notes, the Depositor or an affiliate of any of them; (v) reduce the
percentage of the aggregate outstanding amount of such Notes, the consent
of the holders of which is required to direct the related Indenture
Trustee to sell or liquidate the Underlying Securities if the proceeds
of such sale would be insufficient to pay the principal amount and
accrued but unpaid interest on the outstanding Notes of such Series;
(vi) decrease the percentage of the aggregate principal amount of such
Notes required to amend the sections of the related Indenture which specify
the applicable percentage of aggregate principal amount of the Notes of
such Series necessary to amend such Indenture or certain other related
agreements; or (vii) permit the creation of any lien ranking prior to or
on a parity with the lien of the related Indenture with respect to any of
the collateral for such Notes or, except as otherwise permitted or
contemplated in such Indenture, terminate the lien of such Indenture on
any such collateral or deprive the holder of any such Note of the security
afforded by the lien of such Indenture.
Unless otherwise specified in the Prospectus Supplement, the
Indenture for each Series of Notes may be amended by the Trust and the
Indenture Trustee with respect to such Series, without notice to or
consent of the Noteholders (i) to cure any ambiguity or mistake, (ii)
to correct any defective provisions or to correct or supplement any
provision therein which may be inconsistent with any other provision
therein, (iii) to add to the duties of the Depositor or Administrator,
(iv) to add any other provisions with respect to matters or questions
arising under such Indenture or related Enhancement, (v) to add or amend
any provisions of such Indenture as required by a Rating Agency in order to
maintain or improve the rating of any of the Securities, or (vi) to
comply with any requirements imposed by the Code; provided that any
such amendment pursuant to clause (iv) above will not adversely affect
in any material respect the interests of any Securityholders of such Series,
as evidenced by an opinion of counsel. Any such amendment except
pursuant to clause (vi) of the preceding sentence shall be deemed not to
adversely affect in any material respect the interests of any Noteholder
if the Indenture Trustee receives written confirmation from each
Rating Agency rating the related Securities that such amendment will not
cause such Rating Agency to reduce the then current rating thereof.
Events of Default; Rights upon Event of Default. With respect to
the Notes of a given Series, unless otherwise specified in the related
Prospectus Supplement, "Events of Default" under the related Indenture will
consist of: (i) a default for five days or more (or such longer period
specified in the related Prospectus Supplement) in the payment of any
interest due on any such Note; (ii) a default in the payment of the
principal of or any installment of the principal of any such Note when the
same becomes due and payable; (iii) a default in the observance or
performance of any covenant or agreement of the applicable Trust made in
the related Indenture and the continuation of any such default for a
period of 30 days after notice thereof is given to such Trust by the
applicable Indenture Trustee or to such Trust and such Indenture Trustee by
the holders of at least 25% in principal amount of such Notes then
outstanding; (iv) any representation or warranty made by such Trust in
the related Indenture or in any certificate delivered pursuant thereto
or in connection therewith having been incorrect in a material respect as
of the time made, and such breach not having been cured within 30 (or such
longer period specified in the related Prospectus Supplement) days
after notice thereof is given to such Trust by the applicable Indenture
Trustee or to such Trust and such Indenture Trustee by the holders of at
least 25% in principal amount of such Notes then outstanding; or (v)
certain events of bankruptcy, insolvency, receivership or liquidation of
the applicable Trust.
Unless otherwise specified in the related Prospectus Supplement,
an Event of Default should occur and be continuing with respect to the
Notes of any Series, the related Indenture Trustee or holders of a
majority in principal amount of such Notes then outstanding may declare the
principal of such Notes to be immediately due and payable. Unless
otherwise specified in the related Prospectus Supplement, such
declaration may, under certain circumstances, be rescinded by the
holders of a majority in principal amount of such Notes then outstanding.
If the Notes of any Series are due and payable following an Event
of Default with respect thereto, the related Indenture Trustee may
institute proceedings to collect amounts due or foreclose on Trust
property, exercise remedies as a secured party, sell the related Underlying
Securities or elect to have the applicable Trust maintain possession
of such Underlying Securities and continue to apply collections on such
Underlying Securities as if there had been no declaration of acceleration,
subject to the rights of an Enhancement provider, if any, to direct
remedies, as specified in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, however, such
Indenture Trustee is prohibited from selling the related Underlying
Securities following an Event of Default, other than a default in the
payment of any principal of or a default for five days or more in the
payment of any interest on any Note of such Series, unless (i) the
holders of all such outstanding Notes consent to such sale, (ii) the
proceeds of such sale are sufficient to pay in full the principal of and
the accrued interest on such outstanding Notes at the date of such sale
or (iii) such Indenture Trustee determines that the proceeds of the
Underlying Securities would not be sufficient on an ongoing basis to make
all payments on such Notes as such payments would have become due if such
obligations had not been declared due and payable, and such Indenture
Trustee obtains the consent of the holders of 66 2/3% of the aggregate
outstanding principal amount of such Notes.
Subject to the provisions of the applicable Indenture relating to
the duties of the related Indenture Trustee, if an Event of Default occurs
and is continuing with respect to a Series of Notes, such Indenture Trustee
will be under no obligation to exercise any of the rights or powers
under such Indenture at the request or direction of any of the holders of
such Notes, if such Indenture Trustee reasonably believes it will not
be adequately indemnified against the costs, expenses and liabilities
which might be incurred by it in complying with such request. Subject to
the provisions for indemnification and certain limitations contained in the
related Indenture, the holders of a majority in principal amount of the
outstanding Notes of a given Series will have the right to direct the
time, method and place of conducting any proceeding or any remedy
available to the applicable Indenture Trustee, and the holders of a majority
in principal amount of such Notes then outstanding may, in certain cases,
waive any default with respect thereto, except a default in the payment
of principal or interest or a default in respect of a covenant or
provision of such Indenture that cannot be modified without the waiver or
consent of all the holders of such outstanding Notes.
Unless otherwise specified in the related Prospectus Supplement,
no holder of a Note of any Series will have the right to institute
any proceeding with respect to the related Indenture, unless (i) such
holder previously has given to the Indenture Trustee written notice of a
continuing Event of Default, (ii) the holders of not less than 25% in
principal amount of the outstanding Notes of such Series have made
written request to such Indenture Trustee to institute such proceeding in
its own name as Indenture Trustee, (iii) such holder or holders have
offered such Indenture Trustee reasonable indemnity, (iv) such Indenture
Trustee has for 60 days failed to institute such proceeding and (v) no
direction inconsistent with such written request has been given to such
Indenture Trustee during such 60-day period by the holders of a majority in
principal amount of such outstanding Notes.
In addition, each Indenture Trustee and the related Noteholders,
by accepting the related Notes, will covenant that they will not at any
time institute against the applicable Trust any bankruptcy,
reorganization or other proceeding under any federal or state bankruptcy or
similar law.
With respect to any Trust, neither the related Indenture Trustee nor
the related Trustee in its individual capacity, nor any holder of a
Certificate representing an ownership interest in such Trust nor any of
their respective owners, beneficiaries, agents, officers, directors,
employees, affiliates, successors or assigns will, in the absence of an
express agreement to the contrary, be personally liable for the
payment of the principal of or interest on the related Notes or for the
agreements of such Trust contained in the applicable Indenture.
Certain Covenants. Each Indenture will provide that the related
Trust may not consolidate with or merge into any other entity, unless
(i) the entity formed by or surviving such consolidation or merger is
organized under the laws of the United States, any state or the
District of Columbia, (ii) such entity expressly assumes such Trust's
obligation to make due and punctual payments upon the Notes of the related
Series and the performance or observance of every agreement and covenant of
such Trust under the Indenture, (iii) no Event of Default shall have
occurred and be continuing immediately after such merger or consolidation,
(iv) such Trust has been advised that the rating of the Notes or the
Certificates of such Series then in effect would not be reduced or
withdrawn by the Rating Agencies as a result of such merger or consolidation
and (v) such Trust has received an opinion of counsel to the effect that
such consolidation or merger would have no material adverse tax
consequence to the Trust or to any related Noteholder or Certificateholder.
Each Trust will not, among other things, (i) except as
expressly permitted by the applicable Indenture, the applicable Trust
Agreement or certain related documents with respect to such Trust
(collectively, the "Related Documents"), sell, transfer, exchange or
otherwise dispose of any of the assets of such Trust, (ii) claim any credit
on or make any deduction from the principal and interest payable in
respect of the Notes of the related Series (other than amounts withheld
under the Code or applicable state law) or assert any claim against any
present or former holder of such Notes because of the payment of
taxes levied or assessed upon such Trust, (iii) dissolve or liquidate
in whole or in part, (iv) permit the validity or effectiveness of the
related Indenture to be impaired or permit any person to be released from
any covenants or obligations with respect to such Notes under such
Indenture except as may be expressly permitted thereby or (v) permit
any lien, charge, excise, claim, security interest, mortgage or other
encumbrance to be created on or extend to or otherwise arise upon or
burden the assets of such Trust or any part thereof, or any interest
therein or the proceeds thereof.
No Trust may engage in any activity other than as specified under
the section of the related Prospectus Supplement entitled "The Trust." No
Trust will incur, assume or guarantee any indebtedness other than
indebtedness incurred pursuant to the related Notes and the related
Indenture or otherwise in accordance with the Related Documents.
Annual Compliance Statement. Each Trust will be required to
file annually with the related Indenture Trustee a written statement as
to the fulfillment of its obligations under the Indenture.
Indenture Trustee's Annual Report. The Indenture Trustee for each
Trust will be required to mail each year to all related Noteholders a brief
report relating to its eligibility and qualification to continue as
Indenture Trustee under the related Indenture, any amounts advanced by it
under the Indenture, the amount, interest rate and maturity date
of certain indebtedness owing by such Trust to the applicable Indenture
Trustee in its individual capacity, the property and funds physically held
by such Indenture Trustee as such and any action taken by it that
materially affects the related Notes and that has not been previously
reported.
Satisfaction and Discharge of Indenture. An Indenture will
be discharged with respect to the collateral securing the related Notes upon
the delivery to the related Indenture Trustee for cancellation of all such
Notes or, with certain limitations, upon deposit with such Indenture
Trustee of funds sufficient for the payment in full of all such Notes.
THE INDENTURE TRUSTEE
The Indenture Trustee for a Series of Notes will be specified in
the related Prospectus Supplement. The Indenture Trustee for any
Series may resign at any time, in which event the Issuer will be obligated
to appoint a successor trustee for such Series. The Issuer may also
remove any such Indenture Trustee if such Indenture Trustee ceases to be
eligible to continue as such under the related Indenture or if such
Indenture Trustee becomes insolvent. In such circumstances, the Issuer
will be obligated to appoint a successor trustee for the applicable
Series of Notes. Any resignation or removal of the Indenture Trustee and
appointment of a successor trustee for any Series of Notes will not
become effective until acceptance of the appointment by the successor
trustee for such Series.
DESCRIPTION OF THE CERTIFICATES
GENERAL
With respect to each Trust, one or more Classes of Certificates of
the related Series will be issued pursuant to the terms of a Trust
Agreement, a form of which has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. The
following summary does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all the provisions of
the Certificates and the Trust Agreement.
Unless otherwise specified in the related Prospectus Supplement
and except for the Certificates, if any, of a given Series purchased by
the Depositor, each Class of Certificates will initially be represented by
one or more Certificates registered in the name of the Depository, except
as set forth below. Unless otherwise specified in the related Prospectus
Supplement and except for the Certificates, if any, of a given Series
purchased by the Depositor, the Certificates will be available for
purchase in minimum denominations of $1,000 and integral multiples of
$1,000 in excess thereof in book-entry form only. The Depositor has been
informed by DTC that DTC's nominee will be Cede, unless another nominee
is specified in the related Prospectus Supplement. Accordingly, such
nominee is expected to be the holder of record of the Certificates of any
Series that are not purchased by the Depositor. Unless and until
Definitive Certificates are issued under the limited circumstances
described herein or in the related Prospectus Supplement, no
Certificateholder (other than the Depositor) will be entitled to receive a
physical certificate representing a Certificate. All references herein
and in the related Prospectus Supplement to actions by
Certificateholders refer to actions taken by DTC upon instructions from
the Participants and all references herein and in the related
Prospectus Supplement to distributions, notices, reports and
statements to Certificateholders refer to distributions, notices, reports
and statements to DTC or its nominee, as the case may be, as the
registered holder of the Certificates, for distribution to
Certificateholders in accordance with DTC's procedures with respect
thereto. See "CERTAIN INFORMATION REGARDING THE SECURITIES --
Book-Entry Registration" and "-- Definitive Securities." Any Certificates
of a given Series owned by the Depositor or its affiliates will be entitled
to equal and proportionate benefits under the applicable Trust Agreement,
except that such Certificates will be deemed not to be outstanding for the
purpose of determining whether the requisite percentage of
Certificateholders have given any request, demand, authorization,
direction, notice, consent or other action under the Related Documents
(other than the commencement by the related Trust of a voluntary proceeding
in bankruptcy.
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
The timing and priority of distributions, seniority, allocations
of losses, Pass-Through Rate and amount of or method of
determining distributions with respect to principal and interest of
each Class of Certificates will be described in the related
Prospectus Supplement. Distributions of interest on such Certificates
will be made on the dates specified in the related Prospectus Supplement
(each, a "Payment Date") and will be made prior to distributions with
respect to principal of such Certificates. To the extent provided in the
related Prospectus Supplement, a Series may include one or more
Classes of Certificates entitled to (i) distributions in respect of
principal with disproportionate, nominal or no interest distributions
or (ii) interest distributions with disproportionate, nominal or
no distributions in respect of principal. Each Class of Certificates may
have a different Pass-Through Rate, which may be a fixed, variable or
adjustable Pass-Through Rate (and which may be zero for certain Classes
of Certificates) or any combination of the foregoing. A Class of
Certificates may accrue interest and such interest may be added to the
principal balance thereof, rather than paid to the related
Certificateholders, until a specific event occurs or until such Class
of Certificates is retired. The related Prospectus Supplement will specify
the Pass-Through Rate for each Class of Certificates of a Series or the
method for determining such Pass-Through Rate. Unless otherwise provided
in the related Prospectus Supplement, distributions in respect of the
Certificates of a given Series that includes Notes may be subordinate
to payments in respect of the Notes of such Series as more fully
described in the related Prospectus Supplement. Distributions in respect
of interest on and principal of any Class of Certificates will be made on a
pro rata basis among all the Certificateholders of such Class.
In the case of a Series of Certificates which includes two or
more Classes of Certificates, the timing, sequential order, priority of
payment or amount of distributions in respect of interest and
principal, and any schedule or formula or other provisions applicable
to the determination thereof, of each such Class shall be as set forth
in the related Prospectus Supplement. A Series of Certificates may provide
for a period during which collections of principal in respect of the
Underlying Securities are not applied to payments of principal of such
Certificates, or may provide for a liquidity facility or other arrangement
that permits one or more classes of Certificates to be paid in planned
amounts or formula amounts on scheduled Payment Dates.
CERTAIN INFORMATION REGARDING THE SECURITIES
OPTIONAL PURCHASE OR TERMINATION
The Depositor or any other entity named in the Prospectus
Supplement may, at its option, purchase or repay a Class of Securities of
any Series, on any date under the circumstances, if any, specified in
the Prospectus Supplement relating to such Series. Alternatively, if so
specified in the related Prospectus Supplement for a Series of Securities,
the Depositor, the Administrator, or another entity designated in the
related Prospectus Supplement may, at its option, cause an early
termination of a Trust by repurchasing or liquidating all of the Assets
from such Trust on or after a date specified in the related Prospectus
Supplement, or on or after such time as the aggregate outstanding principal
amount of the Securities or Underlying Securities or other Assets, as
specified in the related Prospectus Supplement, is less than the
amount or percentage specified in the related Prospectus Supplement.
Notice of such purchase or termination must be given by the Depositor or
the Trustee prior to the related date. The purchase, redemption or
repurchase price will be set forth in the related Prospectus Supplement.
In addition, the related Prospectus Supplement may provide
other circumstances under which holders of Securities of a Series could
be fully paid significantly earlier than would otherwise be the case if
payments or distributions were solely based on the distributions on
the related Underlying Securities.
OPTIONAL EXCHANGE
If specified in the applicable Prospectus Supplement, a holder
may exchange Securities of a given Series for a pro rata portion of the
Assets. The terms upon which a holder may exchange its Securities for a
pro rata portion of the Assets will be specified in the related Prospectus
Supplement.
BOOK-ENTRY REGISTRATION
If so specified in the related Prospectus Supplement,
Securityholders may hold their Securities through DTC (in the United
States) or, solely in the case of (i) Certificates issued by a Trust that
is a grantor trust and (ii) Notes, CEDEL or Euroclear (in Europe) if they
are participants in such systems, or indirectly through organizations which
are participants in such systems.
Cede, as nominee for DTC, will hold one or more global
Securities. Unless and until Definitive Securities are issued under
the limited circumstances described in the related Prospectus Supplement,
all references herein or in such Prospectus Supplement to actions by
Securityholders shall refer to actions taken by DTC upon instructions
from its participating organizations (the "Participants") and all
references herein to distributions, notices, reports and statements to
Securityholders shall refer to distributions, notices, reports and
statements to DTC or Cede, as the registered holder of the Securities, as
the case may be, for distribution to Securityholders in accordance with DTC
procedures.
CEDEL and Euroclear will hold omnibus positions on behalf of
their participants through customers' securities accounts in
CEDEL's and Euroclear's names on the books of their respective depositaries
which in turn will hold such positions in customers' securities
accounts in the Depositaries' names on the books of DTC. Citibank,
N.A. will act as depositary for CEDEL and Morgan Guaranty Trust Company
of New York will act as depositary for Euroclear (in such capacities, the
"Depositaries").
Transfers between DTC participants will occur in the ordinary way
in accordance with DTC rules. Transfers between CEDEL Participants and
Euroclear Participants will occur in the ordinary way in accordance
with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or
indirectly through DTC, on the one hand, and directly or indirectly
through CEDEL or Euroclear participants, on the other, will be effected in
DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by its Depositary; however, such
cross-market transactions will require delivery of instructions to the
relevant European international clearing system by the counterparty in
such system in accordance with its rules and procedures and within its
established deadlines (European time). The relevant European international
clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depositary to take action to
effect final settlement on its behalf by delivering or receiving
securities in DTC, and making or receiving payment in accordance with
normal procedures for same-day funds settlement applicable to DTC.
CEDEL Participants and Euroclear Participants may not deliver
instructions directly to the Depositaries.
Because of time-zone differences, credits of securities received
in CEDEL or Euroclear as a result of a transaction with a DTC participant
will be made during subsequent securities settlement processing and
dated the business day following the DTC settlement date. Such
credits or any transactions in such securities settled during such
processing will be reported to the relevant Euroclear or CEDEL participant
on such business day. Cash received in CEDEL or Euroclear as a result of
sales of securities by or through a CEDEL Participant or a Euroclear
Participant to a DTC participant will be received with value on the DTC
settlement date but will be available in the relevant CEDEL or Euroclear
cash account only as of the business day following settlement in DTC. For
additional information regarding clearance and settlement procedures for
the Securities, see Annex I hereto and for information with respect to
tax documentation procedures relating to the Securities, see Annex I
hereto and "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS -- Taxation of Debt
Securities -- Foreign Investors" and " -- Tax Status as a Grantor Trust --
Foreign Investors."
DTC 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 (the "UCC"), and a "clearing agency" registered pursuant
to the provisions of Section 17A of the Exchange Act. DTC was created to
hold securities for its Participants and facilitate the clearance and
settlement of securities transactions between Participants through
electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates.
Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other
organizations (including the underwriters). Indirect access to the DTC
system also is available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodian relationship
with a Participant, either directly or indirectly (the
"Indirect Participants").
Securityholders that are not Participants or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, Securities may do so only through Participants and
Indirect Participants. In addition, Securityholders will receive all
distributions of principal of and interest on the Securities from the
Trustee or the Indenture Trustee, as paying agent, or its successor in
such capacity (the "Paying Agent"), through the Participants who in turn
will receive them from DTC. Under a book-entry format, Securityholders may
experience some delay in their receipt of payments, since such payments
will be forwarded by the Paying Agent to Cede, as nominee for DTC. DTC
will forward such payments to its Participants which thereafter will
forward them to Indirect Participants or Securityholders. It is
anticipated that the only "Securityholder" for a Series may be Cede, as
nominee of DTC. Securityholders would not then be recognized by the
Trustee or Indenture Trustee as Securityholders, as such term is used in
the Trust Agreement or the Indenture, and Securityholders would only be
permitted to exercise the rights of Securityholders indirectly through the
Participants who in turn will exercise the rights of
Securityholders through DTC.
Under the rules, regulations and procedures creating and affecting
DTC and its operations, DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the Securities
and is required to receive and transmit distributions of principal of and
interest on the Securities. Participants and Indirect Participants
with which Securityholders have accounts with respect to the Securities
similarly are required to make book-entry transfers and receive and
transmit such payments on behalf of their respective Securityholders.
Accordingly, although Securityholders will not possess the Securities,
Securityholders will receive payments and will be able to transfer their
interests.
Because DTC can only act on behalf of Participants, who in turn act
on behalf of Indirect Participants and certain banks, the ability
of a Securityholder to pledge Securities to persons or entities that
do not participate in the DTC system, or otherwise take actions in respect
of such Securities, may be limited due to the lack of a physical
certificate for such Securities.
DTC will take any action permitted to be taken by a Securityholder
under the Trust Agreement or the Indenture only at the direction of one
or more Participants to whose account with DTC the Securities are
credited. Additionally, DTC will take such actions with respect to
specified percentages of the Securityholders' interests only at the
direction of and on behalf of Participants whose holdings include
undivided interests that satisfy such specified percentages. DTC may
take conflicting actions with respect to other undivided interests to
the extent that such actions are taken on behalf of Participants whose
holdings include such undivided interests.
Cedel Bank, societe anonyme ("CEDEL"), is incorporated under the laws
of Luxembourg as a professional depositary. CEDEL holds securities for
its participating organizations ("CEDEL Participants") and facilitates
the clearance and settlement of securities transactions between
CEDEL Participants through electronic book-entry changes in accounts
of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of
28 currencies, including United States dollars. CEDEL provides to its
Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. CEDEL interfaces with
domestic markets in several countries. As a professional depositary,
CEDEL is subject to regulation by the Luxembourg Monetary Institute. Cedel
Participants are recognized financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations and may
include the underwriters. Indirect access to CEDEL is also available to
others, such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a CEDEL Participant,
either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
its participants ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating both
the need for physical movement of certificates and the risk resulting
from transfers of securities and cash that are not simultaneous.
The Euroclear System has subsequently been extended to clear and
settle transactions between Euroclear Participants and counterparties both
in CEDEL and in many domestic securities markets. Transactions may be
settled in any of 32 settlement currencies, including United States dollars.
In addition to safekeeping (custody) and securities clearance and
settlement, the Euroclear System includes securities lending and borrowing
and money transfer services. The Euroclear System is operated by the
Brussels, Belgium, office of Morgan Guaranty Trust Company of New York (the
"Euroclear Operator"), under contract with Euroclear Clearance System S.C.,
a Belgian cooperative corporation that establishes policy on behalf of
Euroclear Participants. The Euroclear Operator is the Belgian branch of
a New York banking corporation which is a member bank of the Federal
Reserve System. As such, it is regulated and examined by the Board of
Governors of the Federal Reserve System and the New York State Banking
Department, as well as the Belgian Banking Commission.
All operations are conducted by the Euroclear Operator and all
Euroclear securities clearance accounts and cash accounts are accounts
with the Euroclear Operator. They are governed by the Terms and
Conditions Governing Use of Euroclear and the related Operating
Procedures of the Euroclear System, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions
govern all transfers of securities and cash, both within the System and
receipts and withdrawals of securities and cash. All securities in the
Euroclear System are held on a fungible basis without attribution of
specific certificates to specific securities clearance accounts.
Euroclear Participants include banks (including central
banks), securities brokers and dealers and other professional
financial intermediaries and may include the underwriters. Indirect
access to the Euroclear System is also available to other firms that
clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly. The Euroclear Operator acts
under the Terms and Conditions only on behalf of Euroclear Participants,
and has no record of or relationship with persons holding through Euroclear
Participants.
Distributions with respect to Securities held through CEDEL or
Euroclear will be credited to the cash accounts of CEDEL Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions
will be subject to tax reporting in accordance with relevant United
States tax laws and regulations. See "CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS." The CEDEL or the Euroclear Operator, as the case may
be, will take any other action permitted to be taken by a Securityholder
under the Trust Agreement or the Indenture on behalf of a CEDEL
Participant or Euroclear Participant only in accordance with its
relevant rules and procedures and subject to its Depositary's ability
to effect such actions on its behalf through DTC.
Although DTC, CEDEL and Euroclear have agreed to the
foregoing procedures in order to facilitate transfers of Securities among
participants of DTC, CEDEL and Euroclear, they are under no obligation
to perform or continue to perform such procedures and such procedures may
be discontinued at any time.
DEFINITIVE SECURITIES
The Securities of any Series will be issued in fully
registered, certificated form to Securityholders or their
respective nominees ("Definitive Securities"), rather than to DTC or its
nominee only if (i) the Administrator advises the Trustee in writing that
DTC is no longer willing or able to discharge properly its responsibilities
as depository with respect to the Securities, and the Trustee or the
Depositor are unable to locate a qualified successor, (ii) the
Administrator, at its option, elects to terminate the book-entry
system through DTC or (iii) after the occurrence of an Administrator
Default, Securityholders of the related Series evidencing not less than
50% of the aggregate unpaid principal amount of the Securities advise the
Trustee and DTC through Participants in writing that the
continuation of a book-entry system through DTC (or a successor thereto)
is no longer in the best interests of the Securityholders.
Upon the occurrence of any of the events described in the
immediately preceding paragraph, DTC is expected to notify all
Participants of the availability through DTC of Definitive Securities.
Upon surrender by DTC of the definitive certificates representing the
Securities, and instructions for re-registration, the Trustee will issue
such Securities in the form of Definitive Securities, and thereafter the
Trustee will recognize the holders of such Definitive Securities as
Securityholders, under the Trust Agreement and the Indenture, as applicable
("Holders").
If Definitive Securities are issued, distribution of principal
and interest on the Definitive Securities will be made by the Paying Agent
or the Trustee or the Indenture Trustee, as applicable, directly to the
Holders in whose names the Definitive Securities were registered on the
related Record Date in accordance with the procedures set forth herein
and in the Trust Agreement and the Indenture, as applicable.
Distributions will be made by check mailed to the address of each Holder
as it appears on the register maintained by the Trustee or the Indenture
Trustee, as applicable, except that the final payment on any Definitive
Security will be made only upon presentation and surrender of such
Definitive Security on the date for such final payment at such office or
agency as is specified in the notice of final distribution to Holders. The
Trustee will provide such notice to Holders not later than the fifth day of
the month of the final distribution.
Definitive Securities will be transferable and exchangeable at
the offices of the Transfer Agent and Registrar. No service charge
will be imposed for any registration of transfer or exchange, but the
Transfer Agent and Registrar may require payment of a sum sufficient to
cover any tax or other governmental charge imposed in connection therewith.
TRUST ASSETS
GENERAL
The Trust for each Series of Securities will be composed of
certain assets delivered, assigned and transferred to the Trustee by the
Depositor, in each case consisting, unless otherwise specified in the
related Prospectus Supplement, of (i) the Underlying Securities, (ii) any
Enhancement, and (iii) the amount, if any, initially deposited in the
Collection Account or the Pre- Funding Account, if any, for a Series as
specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
the Underlying Securities for a Series will be purchased by the
Depositor in secondary market transactions and not from the issuer of
such Underlying Securities.
The following is a brief description of the Underlying
Securities expected to be included in the Trusts and the Credit Card
Receivables expected to support the Underlying Securities. Specific
information regarding the Underlying Securities will be provided in
the related Prospectus Supplement and, to the extent not contained
in the related Prospectus Supplement, in a report on Form 8-K to be
filed with the Commission after the initial issuance of such Securities.
In certain cases, such information will be provided by reference to the
related Underlying Securities Prospectus. A copy of the Trust Agreement
with respect to each Series, or the Indenture with respect to each
Series of Notes, will be attached to the Form 8-K and will be
available for inspection at the corporate trust office of the
Trustee or the Indenture Trustee, as applicable, specified in the
related Prospectus Supplement.
UNDERLYING SECURITIES
General. The Underlying Securities for a Series will consist
of certificates evidencing an undivided interest in, or notes or loans
secured by, Credit Card Receivables generated in Accounts. Such
certificates, notes or loans will have previously been offered and
distributed to the public pursuant to an effective registration statement
under the Securities Act or are being registered under the Securities Act
in connection with the offering of a Series of Securities. Underlying
Securities will have been issued pursuant to a pooling and servicing
agreement, a master pooling and servicing agreement, a sale and servicing
agreement, a trust agreement, an indenture or a similar agreement (the
"Underlying Agreement"). The seller/servicer of the underlying Credit Card
Receivables (the "Underlying Servicer") will have entered into the
Underlying Agreement with the trustee under such Underlying Agreement (the
"Underlying Trustee"). Credit Card Receivables underlying an Underlying
Security will be serviced by the Underlying Servicer directly or by one
or more sub-servicers who may be subject to the supervision of the
Underlying Servicer.
All purchases of Underlying Securities for a Series by the Depositor
or the Depositor will be made in secondary market transactions, not from
the issuer of such Underlying Securities or any affiliate thereof.
The transferor of Credit Card Receivables to an Underlying Trust (the
"Underlying Transferor") will be a financial institution, corporation, or
other entity engaged generally in the business of issuing credit or
charge cards; any store or merchandiser that issues credit or charge
cards; or a limited purpose or other entity organized for the purpose
of, among other things, establishing trusts and acquiring and selling
receivables to such trusts, and selling beneficial interests in such trusts;
or any other entity specified in the related Prospectus Supplement or
Underlying Securities Prospectus. If so specified in the related Prospectus
Supplement, the Underlying Transferor may be an affiliate of the
Depositor. The obligations of the Underlying Transferor with respect
to the Underlying Securities will generally be limited to certain
representations and warranties with respect to the assets conveyed by it to
the related Underlying Trust. Unless otherwise specified in the related
Prospectus Supplement, the Underlying Transferor will not have guaranteed
any of the assets conveyed to the related Underlying Trust or any of the
Underlying Securities.
Distributions of principal and interest will be made on the
Underlying Securities on the dates specified in the related Underlying
Prospectus Supplement. The Underlying Securities may be entitled to
receive nominal or no principal distributions or nominal or no
interest distributions. Principal and interest distributions will be
made on the Underlying Securities by the related Underlying Trustee or
the entity specified for such purpose in the Underlying Securities
Prospectus. The Underlying Transferor or the Underlying Servicer may have
the right to repurchase assets underlying the Underlying Securities after a
certain date or under other circumstances specified in the related
Underlying Prospectus Supplement.
Enhancement Relating to Underlying Securities. Enhancement in the
form of reserve funds, subordination of other securities issued
under the Underlying Agreement, guarantees, letters of credit, cash
collateral accounts, insurance policies, swap agreements or other types
of credit, cash flow or other enhancement or derivative arrangements may
be provided with respect to the Credit Card Receivables underlying
the Underlying Securities or with respect to the Underlying Securities
themselves.
Additional Publicly Available Information. The Prospectus
Supplement for a Series will refer to the publicly available information in
respect of the related Underlying Securities and the method by which
such information may be obtained. In general, information relating
to the Underlying Securities filed by or on behalf of the Underlying
Trust with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street,
N.W. Washington, D.C. 20549, and at the following regional offices of the
Commission: New York Regional Office, Suite 1300, 7 World Trade
Center, New York, New York 10048; and Chicago Regional Office, Citicorp
Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W. Washington D.C. 20549, at
prescribed rates. In addition, the Commission maintains a Website that
contains certain information regarding the Underlying Securities.
The address of the Commission's Website is http://www.sec.gov.
The related Prospectus Supplement for a Series will specify (in
certain cases, by reference to the Underlying Securities Prospectus), to
the extent relevant and to the extent such information is reasonably
available to the Depositor and the Depositor reasonably believes such
information to be reliable, (i) the aggregate approximate principal
amount and type of the Underlying Securities to be included in the related
Trust; (ii) the expected and final maturity of the Underlying Securities;
(iii) the interest rate of the Underlying Securities; (iv) the Underlying
Transferor, the Underlying Servicer and the Underlying Trustee for such
Underlying Securities; and (v) any early amortization events applicable to
the Underlying Securities.
If information of the nature described above representing the
Underlying Securities is not known to the Depositor at the time the
Securities are initially offered, approximate or more general
information of the nature described above will be provided in the related
Prospectus Supplement and the additional information, if available, will be
set forth in a Current Report on Form 8-K to be available to investors
on the date of issuance of the related Series and to be filed with the
Commission within 15 days of the initial issuance of such Securities.
THE CREDIT CARD RECEIVABLES UNDERLYING THE UNDERLYING SECURITIES
General. The primary assets underlying the Underlying Securities for
a Series will consist, in whole or in part, of consumer, corporate,
revolving credit card, charge card or debit card receivables (collectively,
the "Credit Card Receivables") generated from time to time in the
ordinary course of business in a portfolio of consumer, corporate,
revolving credit card, charge card or debit card accounts (collectively, the
"Accounts"). The Accounts may consist of the initial Accounts sold to the
Underlying Trust, as well as any additional Accounts added from time to
time, but will not include any Removed Accounts (as defined herein).
The transferor to the Underlying Trust may have the right (subject
to certain limitations and conditions), but will not have any
obligation, to remove the Credit Card Receivables in certain Accounts
from the Trust ("Removed Accounts"). The Underlying Transferor may be
able to include in the related Underlying Trust, participations
representing undivided interests in a pool of assets primarily consisting of
revolving credit card accounts or other revolving credit accounts owned by
the Underlying Transferor or any affiliate thereof and collections thereon
("Participations").
Credit Card Accounts and Credit Card Receivables. The Credit
Card Receivables will generally consist of periodic finance charges,
annual membership fees, cash advance fees and late charges on amounts
charged for merchandise and services and certain other fees designated by
the Underlying Transferor ("Finance Charge Receivables") and all
amounts charged by cardholders for merchandise and services, amounts
advanced to cardholders as cash advances and all other fees billed to
cardholders on the Accounts ("Principal Receivables"). In addition,
certain Interchange (as defined herein) attributed to cardholder charges
for merchandise and services in the Accounts may be treated as Finance
Charge Receivables. Recoveries of charged-off Finance Charge
Receivables will generally be treated as collections of Finance
Charge Receivables and recoveries of charged-off Principal Receivables
will be applied against charge-offs of Principal Receivables. From
time to time, subject to certain conditions, certain of the amounts
described above which are included in Principal Receivables may be
treated as Finance Charge Receivables. The amount of Credit Card
Receivables in an Underlying Trust will fluctuate from day to day as
new Credit Card Receivables are generated or new Accounts are added
to the Underlying Trust and as existing Credit Card Receivables are
collected, charged-off as uncollectible or otherwise adjusted.
"Interchange" consists of certain fees received by a credit card-issuing
bank from the VISA and MasterCard International associations as partial
compensation for taking credit risk, absorbing fraud losses and funding
receivables for a limited period prior to initial billing. Under the VISA
and MasterCard International systems, a portion of the Interchange in
connection with cardholder charges for merchandise and services is
passed from banks which clear the transactions for merchants to credit
card-issuing banks. VISA and MasterCard International may from time to
time change the amount of Interchange reimbursed to banks issuing their
credit cards.
Charge Card Receivables and Credit Card Receivables. Charge
card receivables consist of amounts charged on designated charge card
Accounts for merchandise and services, and all annual membership fees and
certain other administrative fees billed to the designated Accounts.
Charge card receivables originated under charge card Accounts are
not subject to a monthly finance charge.
There are distinctions between the credit card Accounts and the
charge card Accounts. The credit card Accounts offer revolving credit
plans to their customers. Charge card Accounts generally have no
pre-set spending limit and are designed for use as a convenient method
of payment for the purchase of merchandise and services. Charge card
Accounts generally cannot be used as a means of financing such
purchases. Accordingly, the full balance of a month's purchases is
billed to cardmembers and is due upon receipt of the billing statement.
By contrast, revolving credit plans allow customers to make a minimum
monthly payment and to borrow the remaining outstanding balance from the
credit issuer up to a predetermined limit. As a result of these payment
requirement differences, the charge card Accounts have a high monthly
payment rate and balances which turn over rapidly relative to their
charge volume when compared to credit card Accounts.
Another distinction between charge card Accounts and credit
card Accounts is that charge card Account balances are generally not
subject to monthly finance charges. As described above, the full
Account balance is billed monthly and is due upon receipt of the billing
statement. Cardmembers do not have the option of using their charge card
Accounts to extend payment and to pay a finance charge on the remaining
outstanding balance. Credit card Accounts, by contrast, do allow
customers to pay a specified minimum portion of an outstanding amount
and to finance the balance at a finance charge rate determined by the
credit card issuer. Because charge card Account balances are not
assessed finance charges, for the purpose of providing yield to the
related Underlying Trust a portion of collections on charge card
receivables in Accounts received in any due period equal to the product
of collections and a discount factor will generally be treated as finance
charge collections. Each related Underlying Securities Prospectus, where
applicable, will describe the discount for a specific portfolio of
charge card Accounts.
ADDITIONAL INFORMATION RELATING TO CREDIT CARD RECEIVABLES
The Underlying Securities Prospectus for the Underlying Securities in
a Trust will provide information with respect to the Credit Card Receivables
in the related Underlying Trust as of the date specified in such
Underlying Securities Prospectus, including, among other things, (i)
the aggregate principal balance of such Credit Card Receivables;
(ii) underwriting criteria; (iii) the loss and delinquency experience
for the portfolio of Credit Card Receivables; (iv) the composition of
the portfolio by account balance; and (v) the geographic distribution of
Accounts and Credit Card Receivables.
COLLECTION ACCOUNTS
A separate Collection Account will be established by the Trustee,
the Indenture Trustee or the Administrator, in the name of the Trustee or
the Indenture Trust, for each Series of Securities for receipt of all
amounts received on or with respect to the Underlying Securities
and, unless otherwise specified in the related Prospectus Supplement,
net investment income earned thereon. The Trustee or the Indenture
Trustee will invest the funds in the Collection Account in Eligible
Investments. Eligible Investments include, among other investments,
obligations of the United States and certain agencies thereof, federal
funds, certificates of deposit, commercial paper, demand and time deposits
and banker's acceptances, certain repurchase agreements of United States
government securities and certain guaranteed investment contracts, in
each case, acceptable to the Rating Agency.
From time to time, various accounts, including Pre-Funding Accounts,
may be created under the terms of the documents related to a specific Series.
CREDIT, CASH FLOW OR OTHER ENHANCEMENT OR DERIVATIVE ARRANGEMENTS
The amounts and types of credit, cash flow or other enhancement
or derivative arrangements and the provider thereof, if applicable, with
respect to each Class of Securities of a Series, if any, will be set
forth in the related Prospectus Supplement. If and to the extent provided
in the related Prospectus Supplement, credit, cash flow or other
enhancement or exchange arrangements may be in the form of subordination
of one or more classes of Securities of a Series, Reserve Accounts,
overcollateralization, letters of credit, credit or liquidity facilities,
surety bonds, guaranteed investment contracts, swaps (including without
limitation interest rate swaps and currency swaps), exchange
agreements, interest rate protection agreements, repurchase obligations,
put and/or call options, yield supplement agreements or accounts, other
agreements with respect to third party payments or other support, cash
deposits or such other derivative or other arrangements as may be described
in the related Prospectus Supplement or any combination of the foregoing.
If specified in the applicable Prospectus Supplement, credit or cash
flow enhancement or any such other arrangement for a class of Securities may
cover one or more other classes of Securities of the same series, and
credit or cash flow enhancement or any such other arrangement for a
series of Securities may cover one or more other series of Securities.
THE TRUST AGREEMENT
The following summaries describe certain provisions of the
Trust Agreement. The summaries do not purport to be complete and are
subject to, and qualified in their entirety by reference to, the provisions
of the Trust Agreements. Where particular provisions or terms used
in the Trust Agreements are referred to, such provisions or terms are as
specified in the Trust Agreements. A form of the Trust Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus
is a part.
ASSIGNMENT OF UNDERLYING SECURITIES
The Depositor will cause Underlying Securities to be registered in
the name of the Trustee or the Indenture Trustee (or its
nominee or correspondent), as applicable. Unless otherwise specified in
the related Prospectus Supplement, the Trustee and the Indenture Trustee
will not be in possession of or be assignee of record of any
underlying assets for an Underlying Security. See "TRUST ASSETS --
Underlying Securities" herein. Each Underlying Security will be
identified in a schedule appearing as an exhibit to the related Trust
Agreement (the "Collateral Schedule"), which will specify the outstanding
principal balance as of the Cut-off Date and the annual pass-through rate
or interest rate and maturity date for each Underlying Security
conveyed to the related Trust. In the Trust Agreement, the Depositor
will represent and warrant to the Trustee regarding the Underlying
Securities: (i) that the information contained in the Collateral Schedule
is true and correct in all material respects; (ii) that, immediately prior
to the conveyance of the Underlying Securities, the Depositor had good
title thereto, and was the sole owner thereof; and (iii) that there is
no existing lien, charge, security interest or other encumbrance on
such Underlying Securities. (To the extent specified in the related
Prospectus Supplement, a portion of the proceeds from the sale of a Series
of Securities may be applied to the deposit of the Pre-Funded Amount into
the Pre-Funding Account. The related Prospectus Supplement for a given
Trust will specify whether, and the terms, conditions and manner
under which, Subsequent Underlying Securities will be sold by the
Depositor to the applicable Trust from time to time during the Funding
Period on each date specified as a transfer date in the related
Prospectus Supplement (each, a "Subsequent Transfer Date").)
REPORTS TO HOLDERS
The Trustee or the Indenture Trustee will prepare and forward to
each Securityholder on each Payment Date, or as soon thereafter as is
practicable, a statement setting forth, to the extent applicable to any
Series, among other things:
(1) with respect to a Series, the amount of any
distribution allocable to interest;
(2) with respect to a Series the amount of any
distribution allocable to principal;
(3) the amount of compensation paid to the Administrator
with respect to such Payment Date;
(4) the aggregate outstanding principal balance of the
Underlying Securities, after giving effect to distributions allocated
to principal and reported under (ii) above;
(5) the aggregate outstanding principal amount of each Class
of Securities of such Series after giving effect to distributions
allocated to principal reported under (ii) above;
(6) in the case of Securities that have a variable interest
rate, the rate applicable to the distribution being made;
(7) if applicable, the amount of any shortfall (i.e.,
the difference between the aggregate amounts of principal and interest
which Securityholders would have received if there were sufficient
eligible funds in the Collection Account and the amounts actually
distributed);
(8) the amount of any withdrawal from any applicable
Reserve Account included in amounts actually distributed to
Securityholders and the remaining balance of such Reserve Account, if
any, on such Payment Date, after giving effect to distributions made on
such date;
(9) for each such date during the Funding Period (if any),
the remaining Pre-Funded Amount;
(10) for the first such date that is on or immediately
following the end of the Funding Period (if any), the amount of any
remaining Pre- Funded Amount that has not been used to fund the
purchase of Subsequent Underlying Securities and that is being passed
through as payments on the Securities of the related Series; and
(11) such other information as is specified in the related
Trust Agreement.
In addition, within a reasonable period of time after the end of
each calendar year the Trustee, unless otherwise specified in the
related Prospectus Supplement, will furnish to each holder of record at
any time during such calendar year: (a) the aggregate of amounts reported
pursuant to (i) and (ii) above for such calendar year and (b) such
information specified in the Trust Agreement to enable holders to
prepare their tax returns including, without limitation, the amount of
original issue discount accrued on the Securities, if applicable.
Information in the Payment Date reports and the annual reports provided
to the holders will not have been examined and reported upon by an
independent public accountant.
THE TRUSTEE
The identity of the commercial bank, savings and loan association
or trust company named as the Trustee for each Series of Certificates
will be set forth in the related Prospectus Supplement. The entity
serving as Trustee may have normal banking relationships with the
Depositor or the Administrator. In addition, for the purpose of
meeting the legal requirements of certain local jurisdictions, the
Trustee will have the power to appoint co-Trustees or separate trustees or
all or any part of the Trust relating to a Series of Certificates. The
Trustee may also appoint agents to perform any of the responsibilities of
the Trustee, which agents shall have any or all of the rights, powers,
duties and obligations of the Trustee conferred on them by such
appointment; provided that the Trustee shall continue to be responsible
for its duties and obligations under the Trust Agreement.
DUTIES OF THE TRUSTEE
The Trustee makes no representations as to the validity or
sufficiency of the Trust Agreement, the Securities or related documents.
If no Event of Default (as defined in the related Trust Agreement) has
occurred, the Trustee is required to perform only those duties
specifically required of it under the Trust Agreement. Upon receipt of
the various certificates, statements, reports or other instruments
required to be furnished to it, the Trustee is required to examine them to
determine whether they are in the form required by the related Trust
Agreement; however, the Trustee will not be responsible for the accuracy or
content of any such documents furnished by it or the Securityholders to
the Administrator under the Trust Agreement.
The Trustee may be held liable for its own negligent action or
failure to act, or for its own misconduct. The Trustee is not required to
expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties under a Trust
Agreement, or in the exercise of any of its rights or powers, if it has
reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably
assured to it.
RESIGNATION OF TRUSTEE
The Trustee may, upon written notice to the Depositor, resign at
any time, in which event the Depositor will be obligated to use its best
efforts to appoint a successor Trustee. If no successor Trustee has been
appointed and has accepted the appointment within 30 days after giving
such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for appointment of a successor Trustee.
The Trustee may also be removed at any time (i) by the Depositor, if
the Trustee ceases to be eligible to continue as such under the Trust
Agreement, (ii) if the Trustee becomes insolvent or (iii) by the holders
of Certificates evidencing more than 50% of the aggregate voting rights of
the Certificates in the Trust upon 30 days' advance written notice to the
Trustee and to the Depositor. Any resignation or removal of the Trustee
and appointment of a successor Trustee will not become effective until
acceptance of the appointment by the successor Trustee.
AMENDMENT OF THE TRUST AGREEMENT
Unless otherwise specified in the Prospectus Supplement, the
Trust Agreement for each Series of Certificates may be amended by the
Depositor, the Administrator, and the Trustee with respect to such
Series, without notice to or consent of the Certificateholders (i) to
cure any ambiguity or mistake, (ii) to correct any defective provisions or
to correct or supplement any provision therein which may be inconsistent
with any other provision therein, (iii) to add to the duties of the
Depositor or Administrator, (iv) to add any other provisions with respect
to matters or questions arising under such Trust Agreement or related
Enhancement, (v) to add or amend any provisions of such Trust Agreement as
required by a Rating Agency in order to maintain or improve the rating of
any of the Securities, or (vi) to comply with any requirements imposed by
the Code; provided that any such amendment pursuant to clause (iv) above
will not adversely affect in any material respect the interests of any
Securityholders of such Series, as evidenced by an opinion of counsel. Any
such amendment except pursuant to clause (vi) of the preceding sentence
shall be deemed not to adversely affect in any material respect the
interests of any Certificateholder if the Trustee receives written
confirmation from each Rating Agency rating the related Securities that
such amendment will not cause such Rating Agency to reduce the then
current rating thereof. The Trust Agreement for each Series may also be
amended by the Trustee, the Administrator and the Depositor with
respect to such Series with the consent of the holders possessing not
less than 66 2/3% of the aggregate outstanding principal amount
of the Certificates of each Class of such Series affected thereby, for
the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of such Trust Agreement or modifying in
any manner the rights of Certificateholders of such Series; provided,
however, that no such amendment may (a) reduce the amount or delay the
timing of payments on any Certificate without the consent of the holder
of such Certificate; or (b) reduce the aforesaid percentage of aggregate
outstanding principal amount of Certificates of each Class, the holders of
which are required to consent to any such amendment without the consent
of the holders of 100% of the aggregate outstanding principal amount of
each Class of Certificates affected thereby.
VOTING RIGHTS
The related Prospectus Supplement will set forth the method
of determining allocation of voting rights with respect to a Series, if
other than set forth herein.
LIST OF CERTIFICATEHOLDERS
Upon written request of three or more Certificateholders of record of
a Series for purposes of communicating with other Certificateholders
with respect to their rights under the Trust Agreement or under the
Certificates for such Series, which request is accompanied by a copy of the
communication which such Certificateholders propose to transmit, the
Trustee will afford such Certificateholders access during business hours
to the most recent list of Certificateholders of that Series held by the
Trustee.
No Trust Agreement will provide for the holding of any annual or
other meeting of Certificateholders.
TERMINATION
The obligations created by the Trust Agreement for a Series
will terminate upon the distribution to Certificateholders of all
amounts distributable to them pursuant to such Trust Agreement after the
earlier of (i) the final payment or other liquidation of the last
Underlying Security remaining in the Trust for such Series or (ii) the
repurchase as described in the Prospectus Supplement by the Depositor or
any other entity named in the Prospectus Supplement from the Trustee for
such Series of all Underlying Securities and other property at that time
subject to the Trust Agreement. If specified in the related Prospectus
Supplement, the Trust Agreement for each Series will permit, but does not
require, the Depositor or any other entity named in the Prospectus
Supplement to repurchase from the Trust for such Series all remaining
Underlying Securities on or after a specified date, or on or after such time
as the aggregate principal balance of the Securities of the Series or the
Underlying Securities of such Series, as specified in the related
Prospectus Supplement, is less than the amount or percentage specified
in the related Prospectus Supplement. In no event, however, will the trust
created by the Trust Agreement continue beyond the expiration of 21 years
from the death of the last survivor of certain persons identified
therein. For each Series, the Administrator or the Trustee, as
applicable, will give written notice of termination of the Trust
Agreement to each Certificateholder, and the final distribution will
be made only upon surrender and cancellation of the Certificates at
an office or agency specified in the notice of termination. If so
provided in the related Prospectus Supplement for a Series, the
Depositor or another entity may effect an optional termination of the
Trust under the circumstances described in such related Prospectus
Supplement. See "CERTAIN INFORMATION REGARDING THE SECURITIES -- Optional
Purchase or Termination" herein.
THE DEPOSITOR
Morgan Stanley ABS Capital II Inc. (the "Depositor") was incorporated
in the State of Delaware on May 5, 1997 and is a wholly-owned subsidiary of
Morgan Stanley, Dean Witter, Discover & Co. The Depositor maintains its
principal office at 1585 Broadway, New York, New York 10036. Its telephone
number is (212) 761-1817.
The Depositor will have no ongoing servicing obligations
or responsibilities with respect to any Credit Card Receivables or
Underlying Securities. The Depositor does not have and does not expect
to have any significant assets.
As specified in the related Prospectus Supplement, the
Administrator with respect to any Series of Certificates and/or Notes may
be an affiliate of the Depositor. The Depositor anticipates that it will
acquire Underlying Securities in the open market or in privately negotiated
transactions. Such acquisition may be made through or from one or
more affiliates of the Depositor.
Neither the Depositor, the underwriters nor any of their
respective affiliates will insure or guarantee the Underlying
Securities or the Certificates and/or Notes of any Series.
USE OF PROCEEDS
The Depositor will apply all or substantially all of the net
proceeds from the sale of each Series of Securities offered hereby and by
the related Prospectus Supplement for one or more of the following
purposes: (i) to purchase the related Assets, (ii) to repay
indebtedness which has been incurred to obtain funds to acquire such
Assets, (iii) to establish a Pre- Funding Account for such Series, (iv)
to establish any Reserve Account described in the related Prospectus
Supplement, and (v) to pay costs of structuring and issuing such
Securities, including the costs of obtaining any Enhancement.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Set forth below is a discussion of certain material U.S. federal
income tax consequences of the purchase, ownership and disposition
of the Securities. This discussion does not purport to deal with all
aspects of U.S. federal income taxation that may be relevant to
holders of the Securities in light of their personal investment
circumstances, nor to certain types of holders subject to special
treatment under the U.S. federal income tax laws (for example, banks, life
insurance companies and tax-exempt organizations any dealers in
Securities). As specified in each Prospectus Supplement, the Trust will
be provided with an opinion of Brown & Wood LLP ("Federal Tax Counsel")
regarding certain federal income tax matters discussed below. An
opinion of Federal Tax Counsel, however, is not binding on the Internal
Revenue Service (the "IRS") or the courts. No ruling on any of the issues
discussed below will be sought from the IRS. Taxpayers and preparers of
tax returns (including those filed by any partnership or other issuer)
should be aware that under applicable Treasury Regulations a provider of
advice on specific issues of law is not considered an income tax return
preparer unless the advice is (i) given with respect to events that
have occurred at the time the advice is rendered and is not given with
respect to the consequences of contemplated actions, and (ii) is directly
relevant to the determination of an entry on a tax return. Prospective
investors are advised to consult their own tax advisors with regard to
the U.S. federal income tax consequences of holding and disposing of the
Securities, as well as the tax consequences arising under the laws of any
state, foreign country or other jurisdiction. This discussion is based
upon present provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), the regulations promulgated thereunder, and judicial or
ruling authority, all of which are subject to change, which change may be
retroactive.
The Securities of a Series may be classified for U.S. federal income
tax purposes as (i) indebtedness, (ii) an ownership interest in some or
all of the assets included in the Trust for a Series or (iii) otherwise
specified in the Prospectus Supplement for such Series.
As used herein, the term United States person means a beneficial
owner of a Security that is for U.S. federal income tax purposes (i) a
citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in or under the laws of
the United States or of any political subdivision thereof (other than a
partnership that is not treated as a United States person under any
applicable Treasury regulations), (iii) an estate whose income is subject
to United States federal income tax regardless of its source, or (iv) a
trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States fiduciaries have the authority to control all substantial
decisions of the trust. Notwithstanding the preceding sentence,to
the extent provided in Treasury regulations, certain trusts in existence
on August 20, 1996, and treated as United States persons under the Code and
applicable Treasury Regulations prior to such date, that elect to
continue to be treated as United States persons also will be a United
States person. As used herein, the term "non-United States person"
means a beneficial owner of a Security that is not a United States person.
TREATMENT OF THE NOTES AS INDEBTEDNESS
The Depositor will agree, and the Noteholders will agree by
their purchase of Notes, to treat the Notes as debt for U.S. federal
income tax purposes. If so specified in the Prospectus Supplement for a
Series, Federal Tax Counsel will advise the Trust that the Notes of a
Series will be classified as debt for federal income tax purposes. The
discussion below assumes this characterization of the Notes is correct.
If, contrary to the opinion of Federal Tax Counsel, the IRS successfully
asserted that one or more of the Notes did not represent debt for
U.S. federal income tax purposes, the Notes might be treated as equity
interests in the Trust. If so treated, the Trust might be taxable as a
corporation or, alternatively, as a publicly traded partnership.
Interest Income to Noteholders. Assuming the Notes are debt
obligations for U.S. federal income tax purposes, interest thereon will
be taxable as ordinary income for U.S. federal income tax purposes
when received by Noteholders utilizing the cash basis method of accounting
and when accrued by Noteholders utilizing the accrual method of accounting.
Interest received on the Notes may also constitute "investment income"
for purposes of certain limitations of the Code concerning the
deductibility of investment interest expense. In addition, a Noteholder
who buys a Security for less than its principal amount (assuming the Note
is issued without OID) will be subject to the "market discount" rules of the
Code, and a Noteholder who buys a Note for more than its principal amount
will be subject to the premium amortization rules of the Code. See "--
Original Issue Discount" below for a description of the U.S. federal income
tax consequences if the Notes are issued with OID.
The Trustee will be required to report annually to the IRS, and to
each Noteholder of record, the amount of interest paid (and OID accrued,
if any) on the Notes (and the amount of interest withheld for U.S.
federal income taxes, if any) for each calendar year, except as to exempt
holders. See "-- Backup Withholding" herein.
The Code currently provides for a top marginal tax rate applicable
to ordinary income of individuals of 39.6%.
Original Issue Discount. The following summary is a general
discussion of the U.S. federal income tax consequences to Noteholders who
are United States persons owning Notes issued with original issue discount
("OID Notes" and "OID", respectively). It is based upon income tax
regulations (the "OID Regulations") under Code Sections 1271 through 1273
and 1275.
In general, the OID with respect to any OID Note will equal
the difference between the principal amount of the Note and its issue
price (defined as the initial offering price to the public at which
price a substantial amount of the OID Notes have been sold), if such
excess is 0.25% or more of the OID Note's principal amount multiplied
by the number of complete years to its maturity (the "de minimis
amount"). Even if such excess is less than the de minimis amount, if
a failure to pay interest currently on the Notes is not a default it
is possible that all stated interest could be treated as principal for
this purpose (and for purposes of the computations described below) with
the result that the Notes could be viewed as OID Notes. Holders of OID
Notes must include OID in income for U.S. federal income tax purposes as
it accrues under a method that takes account of the compounding of
interest, in advance of receipt of the related cash payments.
In general, each Noteholder of an OID Note, whether such Noteholder
uses the cash or accrual method of accounting for tax purposes, will be
required to include in ordinary gross income the sum of the "daily portions"
of OID on the Note for each day during the taxable year that the
Noteholder owns the Note. The daily portion of OID on an OID Note is
determined by allocating to each day in any "accrual period" a ratable
portion of the original issue discount allocable to that accrual period.
In the case of an initial Noteholder, the amount of original issue
discount on an OID Note allocable to each accrual period is determined by
(i) multiplying the "adjusted issue price" (as defined below) of the Note
by a fraction, the numerator of which is the annual yield to maturity of
such Note and the denominator of which is the number of accrual periods
in a year, and (ii) subtracting from the product the amount of
interest paid during that accrual period. The "adjusted issue price"
of an OID Note at the beginning of any accrual period will be the sum of
its issue price and the amount of OID allocable to all prior accrual
periods, minus the amount of all payments (other than payments of qualified
stated interest) previously made with respect to the OID Note. As a result
of such "constant yield" method of including OID income, the amounts so
includible in income are lower in the early years and greater in the later
years than the amounts that would be includible on a straightline basis.
Under the Code, OID is calculated and accrued using prepayment
assumptions where payments on a debt instrument may be accelerated by
reason of prepayments (or to the extent provided in regulations, by reason
of other events). Moreover, the legislative history to the provisions
provides that the same prepayment assumptions used to price a debt
instrument to be used to calculate OID, as well as to accrue market
discount and amortize premium. Here the OID Notes will not technically fit
within the provisions of the Code that require the use of a prepayment
assumption because they are paid according to the sale of credit card
receivables. Nevertheless, an OID Note's rate of prepayment may be
based upon the paydown of certain Base Mortgage Loans. In such a case,
the rate of prepayment of the Base Mortgage Loans will be used in pricing
the Notes. Accordingly, if the Issuer uses a prepayment assumption, such
prepayment assumption will be specified in the relevant Prospectus
Supplement.
In the event that a Noteholder purchases an OID Note at an
"acquisition premium," i.e., at a price in excess of the issue price, plus
the OID accrued prior to acquisition and minus any principal payments made
with respect to the OID Note prior to acquisition, the amount includible
in income in each taxable year as OID will be reduced by that portion of
the premium properly allocable to such year. Moreover, a Noteholder who
purchases an OID Note at a price less than the price described in the
preceding sentence will be subject to the market discount rules of the
Code.
A Noteholder's tax basis in an OID Note generally will be
the Noteholder's cost increased by any OID included in income (and
market discount, if any, if the Noteholder has elected to include
accrued market discount in income on a current basis) and decreased by
the amount of any principal payment received with respect to the OID Note.
Gain or loss on the sale, exchange or redemption of an OID Note
generally will be long-term capital gain or loss if the OID Note has
been held for more than a year except to the extent that such gain
represents accrued market discount not previously included in the
Noteholder's income.
If an early amortization event occurs with respect to the
Underlying Securities, any early payments of principal as a result of
either such event could result in acceleration of income corresponding to
a portion of the unaccrued OID.
Contingent Payment Securities. Where the Notes have been issued
with contingent interest and, as a result, would be subject to the
contingent payment rules under the original issue discount ("OID")
provisions of the Code, a Prospectus Supplement will so provide. Under the
contingent payment debt rules, the timing of the recognition of income
(including original issue discount, market discount and premium) depends
on the issue price of the Notes and the terms of the contingencies.
Effects of Defaults and Delinquencies. Holders of Notes that
are treated as debt for U.S. federal income tax purposes will be
required to report income with respect to such Notes under an accrual
method without giving effect to delays and reductions in distributions
attributable to a default or delinquency on the Primary Assets, except
possibly to the extent that it can be established that such amounts are
uncollectible. As a result, the amount of income (including OID) reported
by a holder of such a Note in any period could significantly exceed the
amount of cash distributed to such holder in that period. The holder will
eventually be allowed a loss (or will be allowed to report a lesser
amount of income) to the extent that the aggregate amount of
distributions on the Note is reduced as a result of a Primary Asset
default. However, the timing and character of such losses or reductions
in income are uncertain and, accordingly, holders of Notes should consult
their own tax advisors on this point.
Sale or Exchange. A Noteholder's tax basis in its Note is the
price such holder pays for a Note, plus amounts of original issue or
market discount included in income and reduced by any payments received
(other than qualified stated interest payments) and any amortized premium.
Gain or loss recognized on a sale, exchange, or redemption of a Note,
measured by the difference between the amount realized and the Note's
basis as so adjusted, will generally be a capital gain or loss, assuming
that the Note is held as a capital asset.
A portion of any gain from the sale of a Note that might otherwise
be capital gain may be treated as ordinary income to the extent such Note
is held as part of a "conversion transaction" within the meaning of Code
Section 1258. A conversion transaction generally is one in which the
taxpayer has taken two or more positions in Notes or similar property
that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's
net investment in such transaction. The amount of gain realized in a
conversion transaction that may be recharacterized as ordinary income
generally will not exceed the amount of interest that would have accrued
on the taxpayer's net investment in such transaction at 120% of the
appropriate "applicable Federal rate" (which rate is computed and
published monthly by the IRS), subject to appropriate reduction (to the
extent provided in regulations to be issued) to reflect prior inclusion of
interest or other ordinary income items from the transaction.
The Taxpayer Relief Act of 1997 reduces the maximum rates on
long-term capital gains recognized on capital assets held by individuals
taxpayers for more than eighteen months as of the date of disposition to
20% (and would further reduce the maximum rates on such gains in the
year 2001 and thereafter for certain individual taxpayers who meet
specified conditions). Gain recognized by individual taxpayers on assets
held more than twelve but not more than eighteen months continue to be
taxed at a 28% rate.
Foreign Investors. If so specified in the Prospectus Supplement for
a Series, Federal Tax Counsel will give its opinion that the Notes of a
Series of Securities will properly be classified as debt for U.S. federal
income tax purposes. If the Notes are treated as debt:
(a) interest paid to a non-United States person would be
exempt from U.S. withholding taxes (including backup withholding
taxes), provided the holder complies with applicable identification
requirements (and does not actually or constructively own 10% or more
of the voting stock of the Depositor and is not a controlled foreign
corporation with respect to the Depositor). Applicable identification
requirements will be satisfied if there is delivered to a securities
clearing organization (or bank or other financial institution that
holds the Notes on behalf of the customer in the ordinary course of
its trade or business) (i) IRS Form W-8 signed under penalties of
perjury by the beneficial owner of such Notes stating that the
holder is not a United States person and providing such holder's
name and address, (ii) IRS Form 1001 signed by the beneficial owner
of such Notes or such owner's agent claiming exemption from
withholding under an applicable tax treaty, or (iii) IRS Form 4224
signed by the beneficial owner of such Notes of such owner's agent
claiming exemption from withholding of tax on income connected with
the conduct of a trade or business in the United States; provided in
any such case (x) the applicable form is delivered pursuant to
applicable procedures and is properly transmitted to the United States
entity otherwise required to withhold tax and (y) none of the entities
receiving the form has actual knowledge that the holder is a United
States person or that any certification on the form is false;
(b) a holder of a Note who is a non-United States person will
not be subject to U.S. federal income tax on gain realized on the
sale, exchange or redemption of such Note, provided that (i) such
gain is attributable to an office or other fixed place of business
maintained by the holder in the United States, (ii) in the case of a
holder that is an individual, such holder is not present in the United
States for 183 days or more during the taxable year in which
such sale, exchange or redemption occurs and (iii) in the case of
gain representing accrued interest, the conditions described in clause
(a) are satisfied; and
(c) a Note held by an individual who at the time of death is
a nonresident alien will not be subject to United States federal
estate tax as a result of such individual's death if, immediately
before his death, (i) the individual did not actually or constructively
own 10% or more of the voting stock of the Depositor and (ii) the
holding of such Note was not effectively connected with the conduct by
the decedent of a trade or business in the United States.
If the IRS were to contend successfully that a Series of Securities
are interests in a partnership (not taxable as a corporation), a Noteholder
that is a non-United States person might be required to file a U.S.
individual or corporate income tax return and pay tax on its share of
partnership income at regular U.S. rates, including, in the case of a
corporation, the branch profits tax (and would be subject to
withholding tax on its share of partnership income). If the Notes are
recharacterized as interests in an association taxable as a corporation
or a "publicly traded partnership" taxable as a corporation, to the
extent distributions on the Notes were treated as dividends, would
generally be taxed on the gross amount of such dividends (and subject to
withholding) at a rate of 30% unless such rate were reduced by an applicable
treaty.
Backup Withholding. A Noteholder may, under certain circumstances,
be subject to "backup withholding" at a rate of 31% with respect
to distributions or the proceeds of a sale of Notes to or through brokers
that represent interest or OID on the Notes. This withholding generally
applies if the holder of a Note (i) fails to furnish the Trustee with its
taxpayer identification number ("TIN"); (ii) furnishes the Trustee an
incorrect TIN; (iii) fails to report properly interest, dividends or
other "reportable payments" as defined in the Code; or (iv) under certain
circumstances, fails to provide the Trustee or such holder's securities
broker with a certified statement, signed under penalty of perjury, that
the TIN provided is its correct number and that the holder is not
subject to backup withholding. Backup withholding will not apply, however,
with respect to certain payments made to Noteholders, including
payments to certain exempt recipients (generally, holders that are
corporations, tax-exempt organizations, qualified pension and
profit-sharing trusts, individual retirement accounts, or non-United States
persons who provide certification as to their status as non-United States
persons) and to certain non-United States persons. Each nonexempt
Noteholder will be required to provide, under penalties of perjury, a
certificate on IRS Form W-9 containing such holder's name, address, federal
taxpayer identification number and a statement that such holder is
not subject to backup withholding. Should a nonexempt Noteholder fail to
provide the required certification, the Trustee will be required to
withhold (or cause to be withheld) 31% of the interest (and principal)
otherwise payable to the holder, and remit the withheld amounts to the IRS
as credit against the holder's federal income tax liability. Holders
of the Notes should consult their tax advisers as to their
qualification for exemption from backup withholding and the procedure for
obtaining the exemption.
Final Treasury Regulations issued October 6, 1997 and effective
for payments made after December 31, 1998 would alter the foregoing
rules in certain respects. In particular, the Final Regulations
provide certain presumptions under which non-United States persons
may be subject to information reporting and backup withholding in the
absence of required certification. Non-United States persons of the
Notes should consult their own tax advisors regarding the application
of information reporting and backup withholding in their particular
situations, the availability of exemption therefrom and the procedure
for obtaining such an exemption, if available.
The Trustee will report to the Noteholders and to the Administrator
for each calendar year the amount of any "reportable payments" during such
year and the amount of tax withheld, if any, with respect to payments
on the Notes. The Trustee will furnish or make available, within a
reasonable time after the end of each calendar year, to each
Noteholder or each person holding a Note on behalf of a Noteholder at any
time during such year, such information as the Trustee deems necessary or
desirable to assist Noteholders in preparing their federal income tax
returns.
TAX STATUS AS A PARTNERSHIP
General. If specified in the related Prospectus Supplement, to
the extent there is more than one Certificateholder the Trust relating to
the Series of Certificates will receive an opinion from Federal Tax
Counsel that the Trust will be classified as a partnership for U.S.
federal income tax purposes and not as an association taxable as a
corporation (assuming compliance with the Certificateholders'
representations or deemed representations, as the case may be) in
such case, the Certificateholders will agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of U.S.
federal and state income tax, franchise tax and any other tax measured in
whole or in part by income, with the assets of the partnership being the
assets held by the Trust, the partners of the partnership being the
Certificateholders and the Notes being debt of the partnership. See
"--Treatment of Trust as a Disregarded Entity" for discussion of U.S.
federal income tax consequences of all Certificates being held by one
person. It should be noted that to the extent the Trust is classified
as a partnership for U.S. federal income tax purposes Certificates should
not be held by tax-exempt entities (including pension funds). To such an
entity, income from partnership interests would be "unrelated business
taxable income." In addition, because of certain potentially
adverse consequences, to the extent the Trust is classified as a partnership
for U.S. federal income tax purposes, Certificates cannot be held by
non-U.S. persons. Accordingly, if the Trust is so classified, transfers of
Certificates to non- U.S. persons will be null and void ab initio.
Under the provisions of Subchapter K, a partnership is not considered
a separate taxable entity. Instead, partnership income is taxed directly
to the partners and each partner generally is viewed as owning a
direct undivided interest in each partnership asset. The partnership is
generally treated as an entity, however, for computing partnership income,
determining the tax consequences of transactions between a partner and the
partnership, and characterizing the gain on the sale or exchange of
a partnership interest. The following discussion is a summary of some of
the material U.S. federal income tax consequences of classifying the
Trust as a partnership. Prospective owners of Certificates should
consult their own tax advisors regarding the U.S. federal income tax
consequences discussed below, as well as any other material U.S. federal
income tax consequences that may result from applying the provisions of
Subchapter K to the ownership and transfer of a Certificate.
Partnership Taxation. As a partnership, the Trust will not be
subject to U.S. federal income tax. Rather, each Certificateholder will be
required to separately take into account such holder's allocated share
of income, gains, losses, deductions and credits of the Trust . The Trust's
income will consist primarily of proceeds from the Underlying
Securities (including appropriate adjustments for market discount, OID and
bond premium), proceeds of Eligible Investments, payments made by the Swap
Counterparty to the Trust under the Swap Agreement (if so specified in the
Prospectus Supplement), and amounts realized by the Indenture Trustee upon
the sale or other liquidation of Underlying Securities or Eligible
Investments. The Trust's deductions will consist primarily of interest
accruing with respect to the Notes, payments made to the Swap
Counterparty under the Swap Agreement, other fees, and losses or deductions
upon collection or disposition of the Underlying Securities or Eligible
Investments.
It is important to note that cash basis holders may in effect
be required to report income from the Certificates on an accrual basis
and Certificateholders may become liable for taxes on the Trust's income
even if they have not received cash from the Trust to pay such taxes. In
addition, because tax allocations and tax reporting will be done on a
uniform basis for all Certificateholders but Certificateholders may be
purchasing Certificates at different times and at different prices,
Certificateholders may be required to report on their tax returns
taxable income that is greater or less than the amount reported to them by
the Trust.
An individual taxpayer's share of expenses of the Trust (not
including interest expenses) are miscellaneous itemized deductions which are
deductible to the extent they exceed two percent of the individual's
adjusted gross income. Accordingly, such deductions might be disallowed
to the individual in whole or in part and might result in such holder being
taxed on an amount of income that exceeds the amount of cash actually
distributed to such holder over the life of the Issuer.
Computation of Income. Taxable income of the Trust will be computed
at the Trust level and then allocated pro rata to the
Certificateholders. Consequently, the method of accounting for taxable
income will be chosen by, and any elections (such as those described above
with respect to the market discount rules) will be made by, the
Trust rather than the Certificateholders. The Trust intends, to the
extent possible, to have the taxable income of the Trust computed under
the accrual method of accounting. To the extent that OID, if any, on the
Underlying Securities exceeds a de minimis amount, the Trust would have
OID income. Moreover, if the purchase price paid by the Trust for the
Underlying Securities is greater or less than the remaining principal
balance of the Underlying Securities at the time of purchase, the
Underlying Securities will have been acquired at a premium or discount, as
the case may be. If the Trust acquires the Underlying Securities
at a market discount or premium, the Trust will elect to include any such
discount in income currently as it accrues over the life of the
Underlying Securities or to offset any such premium against interest
income on the Underlying Securities. In addition, the Trust intends to
adopt a calendar-year taxable year for computing the taxable income of
the Trust. The tax year of the Trust, however, is generally determined by
reference to the tax years of the Certificateholders. As a result,
an owner of a Certificate would be required to include its pro rata share
of Trust income for a taxable year as determined by the Trust in such
Certificateholder's gross income for its taxable year in which the
taxable year of the Trust ends.
Determining the Bases of Trust Assets. The Trust will become
a partnership on the first date when the Trust Certificates are held by
more than one person. On that date, each of the Certificateholders
should be treated as having purchased a pro rata share of the assets of
the Trust (subject to the liability for the Notes) followed immediately
by a deemed contribution of such assets to the newly formed
partnership. The partnership's basis in the Trust's assets would
therefore equal the sum of the Certificateholders' bases in their
respective interests in the Trust's assets immediately prior to the deemed
contribution to the partnership. To the extent that the fair market value
of the assets deemed contributed to the partnership varied from the bases
of such assets to the partnership, the allocation of taxable income to
the Certificateholders would be adjusted in accordance with Code Section
704(c) to account for such variations.
Pursuant to final regulations issued on May 9, 1997 under Code
Section 708, a sale or exchange of 50% or more of the capital and
profits in a partnership would cause a deemed contribution of assets of
the partnership (the "old partnership") to a new partnership (the "new
partnership") in exchange for interests in the new partnership. Such
interests would be deemed distributed to the partners of the old
partnership in liquidation thereof, which would not constitute a sale or
exchange. Accordingly, under these new regulations, if the Trust were
characterized as a partnership and a sale of Certificates terminated the
partnership under Code Section 708, the purchaser's basis in its ownership
interest would not change.
Tax Treatment of Swap Agreements. If so specified in a
Prospectus Supplement, the Trust will enter into one or more Swap
Agreements. The Internal Revenue Service (the "IRS") has issued
regulations that address the timing of income and deductions with respect
to certain notional principal contracts (the "Swap Regulations"). In
general, the Swap Agreements should constitute notional principal
contracts within the meaning of the Swap Regulations. The Swap
Regulations generally require that ratable daily portion of net payments
accruing under a notional principal contract within a taxable year to be
deducted from or included in income for that year, despite actual payment or
receipt in the following taxable year. Accordingly, the
Certificateholders will be required to include in income their pro rata
share of the Trust's income or deduction attributable to a Swap
Agreement recognized in a given year even if the Certificateholder is a
cash method taxpayer. Under the terms of a Swap Agreement, a
Certificateholder could be treated as making or receiving an upfront
"nonperiodic payment" as that term is defined in the Swap Regulations.
Such a characterization could result in a recognizing income less than or
in excess of amounts actually received under the Swap Agreement
throughout the life of the Swap Agreement. In addition, under the Swap
Regulations, if a Swap Agreement is assigned by any Swap Counterparty, the
Certificateholders may be required to recognize gain or loss on such
assignment as though the Swap Agreement had been terminated and a new Swap
Agreement had been entered into. The Certificateholders will be required
to account for any Swap breakage fees paid or received pursuant to the
Swap Agreement as ordinary income or deduction unless the Swap
Agreement constitutes "personal property" under Code Section 1092(d) (i.e.,
a contract based on the same or substantially similar specified
indices constitute personal property of a type which is "actively traded"
within the meaning of Code Section 1092(d)). If the Swap Agreement
constitutes personal property under Code Section 1092(d) and the Swap
breakage fees constitute a termination payment within the meaning of
Code Section 1234A, any Swap breakage fees paid or received pursuant to
the Swap Agreement prior to the end of the term of the Swap Agreement would
constitute capital gain or loss. It is possible that one or more of the
Swap Agreements entered into by the Trust, although documented as such,
will not constitute notional principal contracts under the Swap
Regulations. In such a case, the substance of the Swap Agreement will
govern how it is treated for U.S. federal income tax purposes.
Disposition of Certificates. Generally, capital gain or loss will
be recognized on a sale of Certificates in an amount equal to the
difference between the amount realized and the seller's tax basis in the
Certificates sold. To the extent the Trust is characterized as a
partnership, a Certificateholder's tax basis in a Certificate will
generally equal the holder's cost increased by the holder's share of
the Trust's income (includible in gross income) and decreased by any
distributions received with respect to such Certificate. In addition,
both the tax basis in the Certificate and the amount realized on a sale
of a Certificate would include the holder's share of the Notes and others
liabilities of the Trust. A holder acquiring Certificates at different
prices may be required to maintain a single aggregate adjusted tax basis in
such Certificates, and, upon sale or others disposition of some of the
Certificates, allocate a pro rata portion of such aggregate tax basis to
the Certificates sold (rather than maintaining a separate tax basis in each
Certificate for purposes of computing gain or loss on a sale of that
Certificate).
Any gain on the sale of a Certificate attributable to the holder's
share of unrecognized accrued market discount on the Underlying
Securities would generally be treated as ordinary income to the holder and
could give rise to special tax reporting requirements.
If a Certificateholder is required to recognize an aggregate amount
of income (not including income attributable to disallowed itemized
deductions described above) over the life of the Certificates that exceeds
the aggregate cash distributions with respect thereto, such excess will
generally give rise to a capital loss upon the retirement of the
Certificates.
Allocations Between Transferors and Transferees. In general,
the Trust's taxable income and losses will be determined monthly and
the tax items for a particular calendar month will be apportioned
among the Certificateholders in proportion to the principal amount of
Certificates owned by them as of the close of the last day of such month.
As a result, a holder purchasing Certificates may be allocated tax items
(which will affect the tax liability and tax basis of the holder)
attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by
existing laws and regulations. If a monthly convention is not allowed
(or only applies to transfers of less than all of the partner's
interest), taxable income or losses of the Trust might be
reallocated among the Certificateholders. The Administrator is
authorized to revise the Trust's method of allocation between transferors
and transferees to conform to a method permitted by future laws,
regulations or other IRS guidance.
Code Section 754 Election. In the event that a Certificateholder
sells a Certificate at a profit (or loss), the purchasing
Certificateholder will have a higher (or lower) basis in the
Certificate than the selling Certificateholder had. The tax basis of
the Trust's assets will not be adjusted to reflect that higher (or
lower) basis unless the Trust were to file an election under Code
Section 754. In order to avoid the administrative complexities
that would be involved in keeping accurate accounting records, as
well as potentially onerous information reporting requirements, the
Trust will not make such election. As a result, Certificateholders
might be allocated a greater or lesser amount of Trust income than
would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Administrator will be required to
prepare and file a partnership information return (IRS Form 1065) signed by
the Tax Matters Partner with the IRS for each taxable year of the Issuer
and will report each Certificateholder's allocable share of items of
the Trust's income and expense to Certificateholders and the IRS on
Schedule K-1. The Tax Matters partner is the partner with the largest
profits interest in the partnership at the close of the taxable year
involved (or, where there is more than one such partner, the partner
whose name would appear first in an alphabetical listing). The
Administrator will provide the Schedule K-1 information to nominees
that fail to provide the Administrator with the information statement
described in Code Section 6031, and such nominees will be required to
forward such information to the beneficial owners of the Certificates.
Generally, Certificateholders must file returns that are consistent
with the information returns filed by the Trust or be subject to penalties
unless the Certificateholder notifies the IRS of all such
inconsistencies. In addition to signing the partnership return the
Tax Matters Partner will have certain administrative responsibilities in
the event the partnership is audited by the IRS.
Treatment of Trust as a Disregarded Entity. If specified in the
related Prospectus Supplement, to the extent there is only one
Certificateholder, the Trust will be disregarded as an entity separate
from the Certificateholder for U.S. federal income tax purposes. The
Certificateholder will be treated as owning the assets of the Trust
directly and all income, losses, deductions and credits of the Trust will
be treated as those of the Certificateholder. A cash basis
Certificateholder may in effect be required to report income from the
Certificates on an accrual basis and may become liable for taxes on Trust
income even if it has not received cash from the Trust to pay such
taxes. In addition, to the extent the Certificateholder is an
individual, expenses (not including interest expenses) are
miscellaneous itemized deductions which are deductible to the extent they
exceed two percent of the individual's gross income. Accordingly, such
deductions might be disallowed to the individual in whole or in part and
might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the
life of the Trust. See "--Computation of Income" and "--Payments under the
Swap Agreement" herein for a description of other U.S. federal income tax
consequences of owning the assets of Trust.
TAX STATUS AS A GRANTOR TRUST
General. If specified in the related Prospectus Supplement, in
the opinion of Federal Tax Counsel, the Trust relating to a
Series of Certificates will be classified for U.S. federal income tax
purposes as a grantor trust under Subpart E, Part 1 of Subchapter J of the
Code and not as an association taxable as a corporation (the Certificates
of such Series, "Pass-Through Securities"). In some Series there will be
no separation of the principal and interest payments on the
Securities. In such circumstances, a Certificateholder will be
considered to have purchased a pro rata undivided interest in the
Securities. In other cases ("Stripped Securities"), sale of the
Certificates will produce a separation in the ownership of all or a
portion of the principal payments from all or a portion of the interest
payments on the Securities.
Each Certificateholder must report on its U.S. federal income tax
return its share of the gross income derived from the Securities (not
reduced by the amount payable as fees to the Trustee and the Administrator
and similar fees (collectively, the "Servicing Fee")), at the same time and
in the same manner as such items would have been reported under the
Certificateholder's tax accounting method had it held its interest in
the Securities directly, received directly its share of the amounts
received with respect to the Securities, and paid directly its share of
the servicing fees. In the case of Pass-Through Securities other than
Stripped Securities, such income will consist of a pro rata share of all
of the income derived from all of the Securities and, in the case of
Stripped Securities, such income will consist of a pro rata share of the
income derived from each stripped bond or stripped coupon in which the
Certificateholder owns an interest. The Certificateholder will
generally be entitled to deduct servicing fees under Code Section 162 or
Code Section 212 to the extent that such servicing fees represent
"reasonable" compensation for the services rendered by the Trustee and the
Administrator (or third parties that are compensated for the
performance of services). In the case of a noncorporate holder,
however, servicing fees (to the extent not otherwise disallowed, e.g.,
because they exceed reasonable compensation) will be deductible in computing
such holder's regular tax liability only to the extent that such fees, when
added to other miscellaneous itemized deductions, exceed 2% of adjusted
gross income and may not be deductible to any extent in computing such
holder's alternative minimum tax liability. In addition, the amount
of itemized deductions otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds the applicable amount will
be reduced by the lesser of (i) 3% of the excess of adjusted gross income
over the applicable amount or (ii) 80% of the amount of itemized
deductions otherwise allowable for such taxable year.
The Code currently provides for a top marginal tax rate applicable
to ordinary income of individuals of 39.6%.
Discount or Premium on Pass-Through Securities. Discount on a
Pass- Through Security represents OID or market discount. In the
case of a Underlying Security with OID in excess of a prescribed de minimis
amount or a Stripped Security, a holder of a Certificate will be required
to report as interest income in each taxable year its share of the
amount of OID that accrues during the year.
Stripped Securities. A Stripped Security may represent a right
to receive only a portion of the interest payments on a Underlying Security
(a "Stripped Coupon"), a right to receive only principal payments
on a Underlying Security or a right to receive certain payments of both
interest and principal (a "Stripped Bond"). Pursuant to Code Section
1286, the separation of ownership of the right to receive some or all of
the interest payments on an obligation from ownership of the right to
receive some or all of the principal payments results in the creation of
"stripped bonds" with respect to principal payments and "stripped coupons"
with respect to interest payments. Code Section 1286 applies the OID
rules to stripped bonds and stripped coupons. For purposes of
computing OID, a Stripped Bond or a Stripped Coupon is treated as a
debt instrument issued on the date that such stripped interest is
purchased with an issue price equal to its purchase price or, if more
than one stripped interest is purchased, the ratable share of the purchase
price allocable to such stripped interest.
The Code, OID Regulations and judicial decisions provide no
direct guidance as to how the interest and OID rules are to apply to
Stripped Securities. Although the tax treatment of Stripped
Securities is not entirely clear, a Stripped Bond Certificate generally
should be treated as a single debt instrument issued on the day it is
purchased for purposes of calculating any OID. Generally, under Treasury
regulations (the "Section 1286 Treasury Regulations"), if the discount on
a Stripped Bond Certificate is larger than a de minimis amount (as
calculated for purposes of the OID rules of the Code) such Stripped Bond
Certificate will be considered to have been issued with OID. Based on the
preamble to the Section 1286 Treasury Regulations, it appears that stated
interest on a Stripped Bond Certificate will be treated as "qualified
stated interest" within the meaning of the Section 1286 Treasury
Regulations and such income will be so treated in the Trustee's tax
information reporting.
Under the foregoing rules, it is anticipated that Stripped
Bond Certificates will be considered to be issued with de minimis OID,
which will therefore be considered to be zero and Stripped Coupon
Certificates will be issued with OID. If Stripped Bond Certificates
are issued with OID, the rules described in this paragraph would apply.
Generally, the owner of a Stripped Security issued or acquired with OID
must include in gross income the sum of the "daily portions," as
defined below, of the OID on such Stripped Security for each day on
which it owns a Stripped Security, including the date of purchase but
excluding the date of disposition. In the case of an original Stripped
Security holder, the daily portions of OID with respect to a Stripped
Security generally would be determined as follows. A calculation will be
made of the portion of OID that accrues on the Stripped Security during
each successive monthly accrual period (or shorter period in respect of the
date of original issue or the final Distribution Date) that ends on the
earlier to occur of the day in the calendar year corresponding to each
Distribution Date or the last day of the related accrual period. This
will be done, in the case of each full monthly accrual period, by adding
(i) the present value of all remaining payments to be received on the
Stripped Security and (ii) any payments received during such accrual
period, and subtracting from that total the "adjusted issued price" of
the Stripped Security at the beginning of such accrual period. The
"adjusted issue price" of a Stripped Security at the beginning of the
first accrual period is its issue price (as determined for purposes of the
original issue discount rules of the Code) and the "adjusted issue price"
of a Stripped Security at the beginning of a subsequent accrual period
is the "adjusted issued price" at the beginning of the immediately
preceding accrual period plus the amount of OID allocable to that accrual
period and reduced by the amount of any payment made at the end of or
during that accrual period. The OID accruing during such accrual period
will then be divided by the number of days in the period to determine the
daily portion of OID for each day in the period. With respect to an
initial accrual period shorter than a full monthly accrual period, the
daily portions of OID must be determined according to an appropriate
allocation under either an exact or approximate method set forth in
proposed Treasury regulations with respect to OID, or some other
reasonable method, provided that such method is consistent with the
method used to determine the yield to maturity of the Stripped Security.
Tax Treatment of Swap Agreements. If so specified in the
Prospectus Supplement, the Trust will enter into one or more Swap
Agreements. The Internal Revenue Service (the "IRS") has issued
regulations that address the timing of income and deductions with respect
to certain notional principal contracts (the "Swap Regulations"). In
general, the Swap Agreements should constitute notional principal
contracts within the meaning of the Swap Regulations. The Swap
Regulations generally require that ratable daily portion of net payments
accruing under a notional principal contract within a taxable year to be
deducted from or included in income for that year, despite actual payment
or receipt in the following taxable year. Accordingly, the
Certificateholders will be required to include in income their pro rata
share of the Trust's income or deduction attributable to a Swap
Agreement recognized in a given year even if the Certificateholder is a
cash method taxpayer. Under the terms of a Swap Agreement, a
Certificateholder could be treated as making or receiving an upfront
"nonperiodic payment" as that term is defined in the Swap Regulations. Such
a characterization could result in a recognizing income less than or in
excess of amounts actually received under the Swap Agreement throughout
the life of the Swap Agreement. In addition, under the Swap
Regulations, if a Swap Agreement is assigned by any Swap Counterparty, the
Certificateholders may be required to recognize gain or loss on such
assignment as though the Swap Agreement had been terminated and a new Swap
Agreement had been entered into. The Certificateholders will be required
to account for any Swap breakage fees paid or received pursuant to the
Swap Agreement as ordinary income or deduction unless the Swap
Agreement constitutes "personal property" under Code Section 1092(d) (i.e.,
a contract based on the same or substantially similar specified
indices constitute personal property of a type which is "actively traded"
within the meaning of Code Section 1092(d)). If the Swap Agreement
constitutes personal property under Code Section 1092(d) and the Swap
breakage fees constitute a termination payment within the meaning of
Code Section 1234A, any Swap breakage fees paid or received pursuant to
the Swap Agreement prior to the end of the term of the Swap Agreement
would constitute capital gain or loss. It is possible that one or more of
the Swap Agreements entered into by the Trust, although documented as
such, will not constitute notional principal contracts under the Swap
Regulations. In such a case, the substance of the Swap Agreement will
govern how it is treated for U.S. federal income tax purposes.
Sale or Exchange. A Certificateholder's tax basis in its Certificate
is the price such holder pays for a Certificate, plus amounts of original
issue or market discount included in income and reduced by any payments
received (other than qualified stated interest payments) and any amortized
premium.
Gain or loss recognized on a sale, exchange, or redemption of
a Certificate, measured by the difference between the amount realized and
the Certificate's basis as so adjusted, will generally be capital gain or
loss, assuming that the Certificate is held as a capital asset. Gain or
loss from the sale of a Grantor Trust Certificate that might otherwise be
capital gain may be treated as ordinary income to the extent such
Certificate is held as part of a "conversion transaction" within the
meaning of Code Section 1258. A conversion transaction generally is one in
which the taxpayer has taken two or more positions in Certificates or
similar property that reduce or eliminate market risk, if
substantially all of the taxpayer's return is attributable to the time
value of the taxpayer's net investment in such transaction. The amount
of gain realized in a conversion transaction that may be recharacterized
as ordinary income generally will not exceed the amount of interest that
would have accrued on the taxpayer's net investment in such transaction
at 120% of the appropriate "applicable Federal rate" (which rate is
computed and published monthly by the IRS), subject to appropriate
reduction (to the extent provided in regulations to be issued) to reflect
prior inclusion of interest or other ordinary income items from the
transaction.
Foreign Investors. Under the Code, unless interest (including OID)
paid on a Certificate is considered to be "effectively connected" with a
trade or business conducted in the United States by a non-United States
person, such interest will normally qualify as portfolio interest (except
where (i) the recipient is a holder, directly or by attribution, of 10%
or more of the capital or profits interest in the issuer of the
Securities, or (ii) the recipient is a controlled foreign corporation to
which the issuer of the Securities is a related person) and will be
exempt from U.S. federal income tax. Upon receipt of appropriate
ownership statements, the issuer normally will be relieved of obligations
to withhold tax from such interest payments. These provisions supersede
the generally applicable provisions of United States law that would
otherwise require the issuer to withhold at a 30% rate (unless such rate
were reduced or eliminated by an applicable tax treaty) on, among other
things, interest and other fixed or determinable, annual or periodic
income paid to Nonresidents. Holders of Pass-Through Securities and
Stripped Securities, however, may be subject to withholding to the
extent that the Securities were originated on or before July 18, 1984.
FASIT SECURITIES
General
The FASIT provisions of the Code were enacted by the Small Business
Job Protection Act of 1996 and create a new elective statutory vehicle
for the issuance of debt securities including mortgage-backed and
asset-backed securities. Although the FASIT provisions of the Code
became effective on September 1, 1997, no Treasury regulations or other
administrative guidance have been issued with respect to those provisions.
Accordingly, definitive guidance cannot be provided with respect to many
aspects of the tax treatment of FASIT Securityholders. Investors also
should note that the FASIT discussion contained herein constitutes only
a summary of the U.S. federal income tax consequences to holders of FASIT
Securities. With respect to each Series of FASIT Securities, the related
Prospectus Supplement will provide a detailed discussion regarding the
U.S. federal income tax consequences associated with the particular
transaction.
FASIT Securities will be classified as either FASIT Regular
Securities, which generally will be treated as debt for U.S. federal income
tax purposes, or FASIT Ownership Securities, which generally are not
treated as debt for such purposes, but rather as representing rights and
responsibilities with respect to the taxable income or loss of the
related Series FASIT. The Prospectus Supplement for each Series of
Securities will indicate whether one or more FASIT elections will be made
for that Series and which Securities of such Series will be designated as
Regular Securities, and which, if any, will be designated as Ownership
Securities.
Qualification as a FASIT
The Trust underlying a Series (or one or more designated pools of
assets held in the Trust) will qualify under the code as a FASIT in which
the FASIT Regular Securities and the FASIT Ownership Securities will
constitute the "regular interests" and the "ownership interests,"
respectively, if (i) a FASIT election is in effect, (ii) certain
tests concerning (A) the composition of the FASIT's assets and (B) the
nature of the Securityholders' interests in the FASIT are met on a
continuing basis, and (iii) the Trust is not a regulated investment company
as defined in Code Section 851(a).
Asset Composition
In order for a Trust (or one or more designated pools of assets held
by a Trust) to be eligible for FASIT status, substantially all of the
assets of the Trust (or the designated pool) must consist of "permitted
assets" as of the close of the third month beginning after the closing
date and at all times thereafter (the "FASIT Qualification Test").
Permitted assets include (i) cash or cash equivalents, (ii) debt
instruments with fixed terms that would qualify as regular interests if
issued by a Real Estate Mortgage Investment Conduct as defined in Code
Section 860D ("REMIC") (generally, instruments that provide for interest
at a fixed rate, a qualifying variable rate, or a qualifying
interest-only ("IO") type rate), (iii) foreclosure property, (iv)
certain hedging instruments (generally, interest and currency rate swaps and
credit enhancement contracts) that are reasonably required to guarantee or
hedge against the FASIT's risks associated with being the obligor on
FASIT interests, (v) contract rights to acquire qualifying debt
instruments or qualifying hedging instruments, (vi) FASIT regular
interest, and (vii) REMIC regular interests. Permitted assets do not
include any debt instruments issued by the holder of the FASIT's ownership
interest or by any person related to such holder.
Interests in a FASIT
In addition to the foregoing asset qualification requirements,
the interests in a FASIT also must meet certain requirements. All of
the interests in a FASIT must belong to either of the following: (i) one
or more classes of regular interests or (ii) a single class of ownership
interest that is held by a fully taxable domestic C corporation. In
the case of Series that include FASIT Ownership Securities, the ownership
interest will be represented by the FASIT Ownership Securities.
A FASIT interest generally qualifies as a regular interest if (i) it
is designated as a regular interest, (ii) it has a stated maturity no
greater than thirty years, (iii) it entitles its holder to a specified
principal amount, (iv) the issue price of the interest does not exceed
125% of its stated principal amount, (v) the yield to maturity of the
interest is less than the applicable Treasure rate published by the Service
plus 5%, and (vi) if it pays interest, such interest is payable at either
(a) a fixed rate with respect to he principal amount of the regular
interest or (b) a permissible variable rate with respect to such
principal amount. Permissible variable rates for FASIT regular interests
are the same as those for REMIC regular interests (i.e., certain
qualified floating rates and weighted average rates). Interest will
be considered to be based on a permissible variable rate if generally,
(i) such interest is unconditionally payable at least annually, (ii) the
issue price of the debt instrument does not exceed the total
noncontingent principal payments and (iii) interest is based on a
"qualified floating rate," an "objective rate," a combination of a
single fixed rate and one or more "qualified floating rate," one "qualified
inverse floating rate," or a combination of "qualified floating rates"
that do not operate in a manner that significantly accelerates or
defers interest payments on such FASIT Regular Security.
If a FASIT Security fails to meet one or more of the requirements
set out in clauses (iii), (iv), or (v) above, but otherwise meets the
above requirements, it may still qualify as a type of regular interest
known as a "High-Yield Interest." In addition, if a FASIT Security fails
to meet the requirement of clause (vi), but the interest payable on the
Security consists of a specified portion of the interest payments on
permitted assets and that portion does not vary over the life of the
Security, the Security also will qualify as a High-Yield Interest. A
High-Yield Interest may be held only by domestic C corporations that are
fully subject to corporate income tax ("Eligible Corporations"), other
FASITs, and dealers in securities who acquire such interests as
inventory, rather than for investment. In addition, holders of
High-Yield Interests are subject to limitations on offset of income
derived from such interest. See "Certain Federal Income Tax Consequences --
FASIT Securities -- Tax Treatment of FASIT Regular Securities -- Treatment
of High-Yield Interests."
Consequences of Disqualification
If a Series FASIT fails to comply with one or more of the Code's
ongoing requirements for FASIT status during any taxable year, the Code
provides that its FASIT status may be lost for that year and thereafter.
If FASIT status is lost, the treatment of the former FASIT and the interests
therein for U.S. federal income tax purposes is uncertain. The former
FASIT might be treated as a grantor trust, as a separate association
taxation as a corporation, or as a partnership. The FASIT Regular
Securities could be treated as debt instruments for federal income tax
purposes or as equity interests. Although the Code authorizes the Treasury
to issue regulations that address situations where a failure to meet
the requirements for FASIT status occurs inadvertently and in good
faith, such regulations have not yet been issued. It is possible that
disqualification relief might be accompanied by sanctions, such as the
imposition of a corporate tax on all or a portion of the FASIT's income
for the period of time in which the requirements for FASIT status are not
satisfied.
Tax Treatment of FASIT Regular Securities
General. Payments received by holders of FASIT Regular
Securities generally should be accorded the same tax treatment under
the Code as payments received on other taxable debt instruments.
Holders of FASIT Regular Securities must report income from such
Securities under an accrual method of accounting, even if they
otherwise would have used the cash receipts and disbursements method.
Except in the case of FASIT Regular Securities issued with original
issue discount or acquired with market discount or premium, interest
paid or accrued on a FASIT Regular Security generally will be treated as
ordinary income to the Securityholder and a principal payment on such
Security will be treated as a return of capital to the extent that the
Securityholder's basis is allocable to that payment. FASIT Regular
Securities issued with original issue discount or acquired with market
discount or premium generally will treat interest and principal
payments on such Securities in the same manner described for Notes.
See "Certain Federal Income Tax Consequences -- Taxation of Debt
Securities -- Original Issue Discount," above. High-Yield Securities may
be held only by Eligible Corporations, other FASITs, and certain securities
dealers. Holders of High-Yield Securities are subject to limitations on
their ability to use current losses or net operating loss carryforwards or
carrybacks to offset any income derived form those Securities.
FASIT Regular Securities held by a Thrift Institution taxed as
a "domestic building and loan association" will represent qualifying assets
for purposes of the qualification requirements set forth in Code
Section 7701(a)(19) to the same extent the REMIC Securities would be so
considered. In addition, FASIT Regular Securities held by a financial
institution to which Code Section 585 applies will be treated as evidences
of indebtedness for purposes of Code Section 582(c)(1). FASIT Securities
will not qualify as "Government securities" for either REIT or RIC
qualification purposes.
Sale, Exchange or Redemption. If a FASIT Regular Security is
sold, exchanged, redeemed or retired, the seller will recognize gain or
loss equal to the difference between the amount realized on the
sale, exchange, redemption, or retirement and the seller's adjusted
basis in the FASIT Regular Security. Such adjusted basis generally will
equal the cost of the FASIT Regular Security to the seller, increased
by any OID and market discount included in the seller's gross income
with respect to the FASIT Regular Security, and reduced (but not below
zero) by payments included in the stated redemption price at maturity
previously received by the seller and by any amortized premium. Similarly,
a holder who receives a payment that is part of the stated redemption price
at maturity of a FASIT Regular Security will recognize gain equal to the
excess, if any, of the amount of the payment over the holders' adjusted
basis in the FASIT Regular Security. A FASIT Regular Securityholder
who receives a final payment that is less than the holder's adjusted
basis in the FASIT Regular Security will generally recognize a loss.
Except as provided in the following paragraph and as a provided under
"--Market discount" above, any such gain or loss will capital gain or loss,
provided that the FASIT Regular Security is held as a "capital asset"
(generally, property held for investment) within the meaning of Code
Section 1221.
The Certificates will constitute "evidences of indebtedness" within
the meaning of Code Section 582(c)(1), so that gain or loss recognized from
the sale of a FASIT Regular Security by a bank or a thrift institution to
which such Section applies will be ordinary income or loss.
The FASIT Regular Security information reports will include a
statement of the adjusted issue price of the FASIT Regular Security at the
beginning of each accrual period. In addition, the reports will
include information necessary to compute the accrual of any market
discount that may arise upon secondary trading of FASIT Regular Securities.
Because exact computation of the accrual of market discount on a
constant yield method would require information relating to the holder's
purchase price which the FASIT may not have, it appears that the
information reports will only require information pertaining the
appropriate proportionate method of accruing market discount.
Treatment of High-Yield Interest
High-Yield Interests are subject to special rules regarding
the eligibility of holders of such interest, and the ability of such
holders to offset income derived from their FASIT Security with losses.
High-Yield Interest may be held only by Eligible Corporations, other
FASITs, and dealers in securities who acquire such interests as
inventory. If a securities dealer (other than an Eligible Corporation)
initially acquires a High-Yield Interest as inventory, but later begins to
hold it for investment, the dealer will be subject to an excise tax equal
to the income from the High-Yield Interest multiplied by the highest
corporate income tax rate. In addition, transfers of High-Yield Interest
to disqualified holders will be disregarded for federal income tax
purposes, and the transferor will continue to be treated as the holder
of the High-Yield Interest.
The holder of a High-Yield Interest may not use non-FASIT current
losses or net operating loss carryforwards or carrybacks to offset any
income derived from the High-Yield Inters, for either regular federal
income tax purposes or for alternative minimum tax purposes. In
addition, the FASIT provisions contain an anti-abuse rule that imposes
corporate income tax on income derived from a FASIT Regular Security that
is held by a pass-through entity (other than another FASIT) that issues
debt or equity securities backed by the FASIT Regular Security and that
have the same features as High- Yield Interests.
Tax Treatment of FASIT Ownership Securities
A FASIT Ownership Security represents the residual equity interest in
a FASIT. As such, the holder of a FASIT Ownership Security determines
its taxable income by taking into account all assets, liabilities, and
items of income, gain, deduction, loss, and credit of a FASIT. In
general, the character of the income to the holder of a FASIT Ownership
Interest will be the same as the character of such income to the FASIT,
except that any tax- exempt interest income taken into account by the
holder of a FASIT Ownership Interest is treated as ordinary income. In
determining that taxable income, the holder of a FASIT Ownership
Security must determine the amount of interest, original issue
discount, market discount, and premium recognized with respect to the
FASIT's assets and the FASIT Regular Securities issued by the FASIT
according to a constant yield methodology and under an accrual method of
accounting. In addition, holders of FASIT Ownership Securities are subject
to the same limitations on their ability to use losses to offset income
from their FASIT Securities as are holders of High-Yield Interest. See
"Certain Federal Income Tax Consequences -- FASIT Securities -- Tax
Treatment of FASIT Regular Securities -- Treatment of High-Yield Interest."
Rules similar to the wash sale rules applicable to REMIC
Residual Securities also will apply to FASIT Ownership Securities.
Accordingly, losses on dispositions of a FASIT Ownership Security
generally will be disallowed where, within six months before or after
the disposition, the seller of such Security acquires any other FASIT
Ownership Security that is economically comparable to a FASIT Ownership
Security. In addition, if any security that is sold or contributed to a
FASIT by the holder of the related FASIT Ownership Security was required
to be marked-to-market under Code Section 475 by such holder, then Code
Section 475 will continue to apply to such securities, except that the
amount realized under the mark-to-market rules will be the greater of the
securities' value under the marked-to-market rules or the securities'
value after applying special valuation rules contained in the FASIT
provision. Those special valuation rules generally require that the
value of debt instruments that are not traded on an established
securities market be determined by calculating the present value of the
reasonably expected payments under the instrument using a discount rate
of 120% of the applicable Federal rate, compounded semiannually.
The holder of a FASIT Ownership Security will be subject to a tax
equal to 100% of the net income derived by the FASIT from any
"prohibited transactions." Prohibited transactions include (i) the
receipt of income derived from assets that are not permitted assets, (ii)
certain dispositions of permitted assets, (iii) the receipt of any income
derived from any loan originated by a FASIT, and (iv) in certain cases,
the receipt of income representing a servicing fee or other compensation.
Any Series for which a FASIT election is made generally will be
structured in order to avoid application of the prohibited transaction
tax.
Backup Withholding
Holders of FASIT Securities will be subject to backup withholding to
the same extent holder of REMIC Securities would be subject. See
"Certain Federal Income Tax Consequences -- Taxation of Debt Securities
- -- Backup Withholding."
STATE TAX CONSIDERATIONS
In addition to the U.S. federal income tax consequences described
in "Certain Federal Income Tax Considerations," potential investors
should consider the state income tax consequences of the acquisition,
ownership and disposition of the Securities. State income tax law may
differ substantially from the corresponding federal law, and this
discussion does not purport to describe any aspect of the income tax
laws of any state. Therefore, potential investors should consult their
own tax advisors with respect to the various state tax consequences of an
investment in the Securities.
ERISA CONSIDERATIONS
Section 406 of ERISA and Code Section 4975 prohibit a
pension, profit-sharing or other employee benefit plan, as well as
individual retirement accounts and certain types of Keogh Plans (each a
"Benefit Plan"), from engaging in certain transactions with persons that
are "parties in interest" under ERISA or "disqualified persons" under the
Code with respect to such Benefit Plan. A violation of these "prohibited
transaction" rules may result in an excise tax or other penalties and
liabilities under ERISA and the Code for such persons.
Certain transactions involving a Trust might be deemed to
constitute prohibited transactions under ERISA and the Code with respect
to a Benefit Plan that purchased Notes or Certificates if assets of the
Trust were deemed to be assets of the Benefit Plan. Under a regulation
issued by the United States Department of Labor (the "Plan Assets
Regulation"), the assets of a Trust would be treated as plan assets of a
Benefit Plan for the purposes of ERISA and the Code only if the Benefit
Plan acquired an "equity interest" in the Trust and none of the exceptions
contained in the Plan Assets Regulation was applicable. An equity
interest is defined under the Plan Assets Regulation as an interest
other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. The
likely treatment in this context of Notes and Certificates of a given
series will be discussed in the related Prospectus Supplement.
Employee benefit plans that are governmental plans (as defined
in Section 3(32) of ERISA) and certain church plans (as defined in Section
3(33) of ERISA) are not subject to ERISA requirements.
A plan fiduciary considering the purchase of Securities of a
given series should consult its tax and/or legal advisors regarding
whether the assets of the related Trust would be considered plan assets,
the possibility of exemptive relief from the prohibited transaction rules
and other issues and their potential consequences.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement
or underwriting agreements with respect to the Notes, if any, and
the Certificates, if any, of a Series (collectively, the
"Underwriting Agreement"), the Depositor will agree to cause the related
Trust to sell to the underwriters named therein and in the related
Prospectus Supplement, and each of such underwriters will, severally and not
jointly, agree to purchase, the principal amount of each class of Notes and
Certificates, as the case may be, of such Series set forth therein
and in the related Prospectus Supplement.
In the Underwriting Agreement with respect to any Series of
Securities, the several underwriters will agree, subject to the terms and
conditions set forth therein, to purchase all the Notes and Certificates,
as the case may be, described therein which are offered hereby and by the
related Prospectus Supplement if any of such Notes and Certificates, as
the case may be, are purchased.
Each Prospectus Supplement will either (i) set forth the price at
which each Class of Notes and Certificates, as the case may be, being
offered thereby will be offered to the public and any concessions that may
be offered to certain dealers participating in the offering of such
Notes and Certificates or (ii) specify that the related Notes and
Certificates, as the case may be, are to be resold by the underwriters in
negotiated transactions at varying prices to be determined at the time
of such sale. After the initial public offering of any such Notes and
Certificates, such public offering prices and such concessions may be
changed.
Each Underwriting Agreement will provide that the Depositor
will indemnify the underwriters against certain civil liabilities,
including liabilities under the Securities Act, or contribute to payments
the several underwriters may be required to make in respect thereof.
Each Trust may, from time to time, invest the funds in its
Trust Accounts in Eligible Investments acquired from such underwriters or
from the Depositor.
Pursuant to each Underwriting Agreement with respect to a Series
of Securities, the closing of the sale of any Class of Securities
subject to such Underwriting Agreement will be conditioned on the closing of
the sale of all other such Classes of Securities of that Series.
LEGAL MATTERS
Unless otherwise specified in the related Prospectus Supplement,
certain legal matters in connection with the Certificates and the Notes
will be passed upon for the Depositor and for the underwriters by Brown &
Wood LLP, New York, New York.
INDEX OF PRINCIPAL TERMS
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 21
acquisition premium . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
adjusted issue price . . . . . . . . . . . . . . . . . . . . . . . . 29, 36
Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
applicable Federal rate . . . . . . . . . . . . . . . . . . . . . . . 30, 37
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Benefit Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
CEDEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 17
CEDEL Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Certificate Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Collateral Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Credit Card Receivables . . . . . . . . . . . . . . . . . . . . . . . . 5, 21
daily portions . . . . . . . . . . . . . . . . . . . . . . . . . . . 28, 36
de minimis amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Definitive Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Depositaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 26
Depository . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Eligible Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Enhancements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Enhancer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Euroclear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Euroclear Participants . . . . . . . . . . . . . . . . . . . . . . . . . 17
FASIT Qualification Test . . . . . . . . . . . . . . . . . . . . . . . . 38
Federal Tax Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 27
Finance Charge Receivables . . . . . . . . . . . . . . . . . . . . . . . 21
Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Indirect Participants . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Interchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
IO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 33
Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
market discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
new partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Non-United States person . . . . . . . . . . . . . . . . . . . . . . . . 27
nonperiodic payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Nonresidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
OID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28, 29
OID Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
OID Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
old partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 16
Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Pass-Through Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Pass-Through Securities . . . . . . . . . . . . . . . . . . . . . . . . . 35
Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 14
personal property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Plan Assets Regulation . . . . . . . . . . . . . . . . . . . . . . . . . 42
Pre-Funded Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Pre-Funding Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Principal Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . 21
prohibited transactions . . . . . . . . . . . . . . . . . . . . . . . . . 42
Prospectus Supplement . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Related Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Removed Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 1286 Treasury Regulations . . . . . . . . . . . . . . . . . . . . 36
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Security Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Securityholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Stripped Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Stripped Coupon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Stripped Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Subsequent Transfer Date . . . . . . . . . . . . . . . . . . . . . . . . 23
Subsequent Underlying Securities . . . . . . . . . . . . . . . . . . . . . 6
Swap Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . 18
TIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 4
Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
UCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Underlying Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Underlying Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Underlying Securities . . . . . . . . . . . . . . . . . . . . . . . . . 1, 5
Underlying Securities Prospectus . . . . . . . . . . . . . . . . . . . . . 8
Underlying Securities Trustee . . . . . . . . . . . . . . . . . . . . . . . 6
Underlying Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 20
Underlying Transferor . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Underlying Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Underlying Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 42
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT
AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
Securities (the "Global Securities") will be available only in book-entry
form. If so specified in the related Prospectus Supplement, investors
in the Global Securities may hold such Global Securities through The
Depository Trust Company ("DTC") (in the United States) or, solely in
the case of (i) Certificates issued by a Trust that is a grantor trust
and (ii) Notes, CEDEL or Euroclear (in Europe) if they are participants
of such systems, or indirectly through organizations which are
participants in such systems. The Global Securities will be tradeable as
home market instruments in both the European and U.S. domestic markets.
Initial settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global
Securities through CEDEL and Euroclear will be conducted in the
ordinary way in accordance with their normal rules and operating
procedures and in accordance with conventional eurobond practice (i.e.,
seven calendar day settlement).
Secondary market trading between investors holding Global
Securities through DTC will be conducted according to the rules and
procedures applicable to U.S. corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and
DTC participants holding Global Securities will be effected on a
delivery- against-payment basis through Citibank, N.A. ("Citibank") and
Morgan Guaranty Trust Company of New York ("Morgan") as the respective
depositaries of CEDEL and Euroclear and as participants in DTC.
Non-U.S. holders of Global Securities will be exempt from
U.S. withholding taxes, provided that such holders meet certain
requirements and deliver appropriate U.S. tax documents to the
securities clearing organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the
Global Securities will be represented through financial institutions acting
on their behalf as direct and indirect participants in DTC. As a result,
CEDEL and Euroclear will hold positions on behalf of their participants
through their respective depositaries, Citibank and Morgan, which in turn
will hold such positions in accounts as participants of DTC.
Investors electing to hold their Global Securities through DTC
will follow the settlement practices applicable to securities previously
issued by the Depositor. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the
settlement date.
Investors electing to hold their Global Securities through CEDEL
or Euroclear accounts will follow the settlement procedures applicable
to conventional eurobonds, except that there will be no temporary
global security and no "lock-up" or restricted period. Global Securities
will be credited to the securities custody accounts on the settlement
date against payment in same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and
seller's accounts are located to ensure that settlement can be made on
the desired value date.
Trading between DTC participants. Secondary market trading between
DTC participants will be settled using the procedures applicable to
securities previously issued by the Depositor in same-day funds.
Trading between CEDEL and/or Euroclear participants. Secondary
market trading between CEDEL participants and/or Euroclear participants
will be settled using the procedures applicable to conventional eurobonds
in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser.
When Global Securities are to be transferred from the account of a DTC
participant to the account of a CEDEL participant or a Euroclear
participant the purchaser will send instructions to CEDEL or Euroclear
through a participant at least one business day prior to settlement.
CEDEL or Euroclear will instruct Citibank or Morgan, respectively as the
case may be, to receive the Global Securities against payment. Payment
will include interest accrued on the Global Securities from and including
the last coupon payment date to and excluding the settlement date. For
transactions settling on the 31st day of the month, payment will include
interest accrued to and excluding the first day of the following month.
Payment will then be made by Citibank or Morgan to the DTC participant's
account against delivery of the Global Securities. After settlement has
been completed, the Global Securities will be credited to the respective
clearing system and by the clearing system, in accordance with its
usual procedures, to the CEDEL participant's or Euroclear
participant's account. The Global Securities credit will appear the next
day (European time) and the cash debit will be back-valued to, and the
interest on the Global Securities will accrue from, the value date (which
would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (i.e., the trade
fails), the CEDEL or Euroclear cash debit will be valued instead as of the
actual settlement date.
CEDEL participants and Euroclear participants will need to
make available to the respective clearing systems the funds necessary to
process same-day funds settlement. The most direct means of doing
so is to preposition funds for settlement, either from cash on hand or
existing lines of credit, as they would for any settlement occurring
within CEDEL or Euroclear. Under this approach, they may take on credit
exposure to CEDEL or Euroclear until the Global Securities are credited to
their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of
credit to them, participants can elect not to preposition funds and
allow that credit line to be drawn upon to finance settlement. Under
this procedure, CEDEL participants or Euroclear participants purchasing
Global Securities would incur overdraft charges for one day, assuming
they cleared the overdraft when the Global Securities were credited
to their accounts. However, interest on the Global Securities would
accrue from the value date. Therefore, in many cases the investment
income on the Global Securities earned during that one-day period may
substantially reduce or offset the amount of such overdraft charges,
although this result will depend on each participant's particular cost of
funds.
Since the settlement is taking place during New York business hours,
DTC participants can employ their usual procedures for sending Global
Securities to Citibank or Morgan for the benefit of CEDEL participants
or Euroclear participants. The sale proceeds will be available to the DTC
seller on the settlement date. Thus, to the DTC participant a
cross-market transaction will settle no differently than a trade between two
DTC participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due
to time zone differences in their favor, CEDEL and Euroclear participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through
Citibank or Morgan, to a DTC participant. The seller will send
instructions to CEDEL or Euroclear through a participant at least one
business day prior to settlement. In these cases, CEDEL or Euroclear
will instruct Citibank or Morgan, as appropriate, to deliver the bonds
to the participant's account against payment. Payment will include
interest accrued on the Global Securities from and including the last
coupon payment date to and excluding the settlement date. For transactions
selling on the 31st day of the month, payment will include interest
accrued to and excluding the first day of the following month. The
payment will then be reflected in the account of the CEDEL participant or
Euroclear participant the following day, and receipt of the cash proceeds
in the CEDEL or Euroclear participant's account would be back-valued to
the value date which would be the preceding day, when settlement
occurred in New York. Should the CEDEL or Euroclear participant have a
line of credit with its respective clearing system and elect to be in debit
in anticipation of receipt of the sale proceeds in its account, back-
valuation will extinguish any overdraft charges incurred over that
one-day period. If settlement is not completed on the intended value date
(i.e., the trade fails), receipt of the cash proceeds in the CEDEL
or Euroclear participant's account would instead be valued as of the
actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that
purchase Global Securities from DTC participants for delivery to CEDEL
participants or Euroclear participants should note that these trades would
automatically fail on the sale side unless affirmative action were
taken. At least three techniques should be readily available to eliminate
this potential problem.
(1) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the day trade is reflected in their CEDEL or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(2) borrowing the Global Securities in the U.S. from a DTC
participant no later than one day prior to settlement, which would
give the Global Securities sufficient time to be reflected in their
CEDEL or Euroclear account in order to settle the sale side of the trade; or
(3) staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC participant is
at least one day prior to the value date for the sale to the CEDEL
participant or Euroclear participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A holder of Global Securities holding securities through CEDEL
or Euroclear (or through DTC if the holder has an address outside the U.S.)
will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. persons, unless such holder takes one of the following steps
to obtain an exemption or reduced tax rate:
Exemption for non-U.S. persons (Form W-8). Non U.S. persons
that are beneficial owners can obtain a complete exemption
from the withholding tax by filing a signed Form W-8 (Certificate
of Foreign Status).
Exemption for non-U.S. persons with effectively connected
income (Form 4224). A non-U.S. person, including a non-U.S.
corporation or bank with a U.S. branch, for which the interest
income is effectively connected with its conduct of a trade or
business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (exemption from withholding of
Tax on Income Effectively Connected with the Conduct of a Trade or
Business in the United States).
Exemption or reduced rate for non-U.S.persons resident in
treaty countries (Form 1001). Non-U.S. persons that are
beneficial owners residing in a country that has a tax treaty with the
United States can obtain an exemption or reduced tax rate (depending
on the treaty terms) by filing Form 1001 (Ownership, Exemption
or Reduced Rate (Certificate)). If the treaty provides only
for a reduced rate, withholding tax will be imposed at that
rate unless the filer alternately files Form W-8, Form 1001 may
be filed by the beneficial owner or his agent.
Exemption for U.S. persons (Form W-9). U.S. persons can obtain
a complete exemption from the withholding tax by filing Form W-9
(Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Global
Security holder, or in the case of a Form 1001 or a Form 4224 filer,
his agent, files by submitting the appropriate form to the person
through whom he holds (the clearing agency, in the case of persons
holding directly on the books for the clearing agency). Form
W-8 and Form 1001 are effective for three calendar years and Form
4224 is effective for one calendar year.
This summary does not deal with all aspects of federal income
tax withholding that may be relevant to foreign holders of these
Global Securities. Investors are advised to consult their own tax
advisors for specific tax advice concerning their holding and disposing of
these Global Securities.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
Expenses in connection with the offering of the Securities
being registered herein are estimated as follows:
SEC registration fee . . . . . . . . . . . . . . . . . . . . . . . $304
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . .
Accounting fees and expenses . . . . . . . . . . . . . . . . . . .
Blue sky fees and expenses . . . . . . . . . . . . . . . . . . . .
Rating agency fees . . . . . . . . . . . . . . . . . . . . . . . .
Trustee's fees and expenses . . . . . . . . . . . . . . . . . . .
Printing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . .
----------
Total . . . . . . . . . . . . . . . . . . . . . . $
___________________
* All amounts except the SEC Registration Fee are estimates of
expenses incurred or to be incurred.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Morgan Stanley ABS Capital II Inc. (the "Registrant") has undertaken
in its articles of incorporation and bylaws to indemnify, to the maximum
extent permitted by the Delaware General Corporation Law as from time
to time amended, any currently acting or former director, officer, employee
and agent of the Registrant against any and all liabilities incurred in
connection with their services in such capacities.
ITEM 16. EXHIBITS.
* 1.1 Form of Underwriting Agreement
* 3.1 Articles of Incorporation of the Registrant
* 3.2 Bylaws of the Registrant
* 4.1 Form of Trust Agreement (including form of Certificates)
* 4.2 Form of Indenture (including form of Notes)
* 5.1 Opinion of Brown & Wood LLP with respect to legality
* 8.1 Opinion of Brown & Wood LLP with respect to certain federal income
tax matters
*10.1 Form of Administration Agreement
*23.1 Consent of Brown & Wood LLP (included in Exhibit 5.1)
*23.2 Consent of Brown & Wood LLP (included in Exhibit 8.1)
24.1 Power of Attorney (included on page II-3)
*25.1 Statement of Eligibility and Qualification of Indenture Trustee on
Form T-1
___________________
* To be filed by Amendment.
ITEM 17. UNDERTAKINGS.
(a) As to Rule 415:
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post- effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information
set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) As to documents subsequently filed that are incorporated
by reference:
The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) As to indemnification:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses 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 Act and will be governed by the final
adjudication of such issue.
(d) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, as amended, 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
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, as amended, 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
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(e) As to qualification of trust indentures:
The undersigned Registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act
under subsection (a) of Section 310 of the Trust Indenture Act in
accordance with the rules and regulations prescribed by the
Commission under Section 305(b)(2) of the Act.
(f) The undersigned Registrant hereby undertakes to file in a
current report a Form 8-K or in a post-effective amendment an opinion with
respect to any Federal tax consequences material to an investor with
regard to a specific Series to be issued pursuant to this Registration
Statement where such tax consequences have not been addressed in the
prospectus or the prospectus supplement related to such Series.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-3 and
has duly caused this Form S-3 Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
New York, the State of New York, on October 10 1997.
MORGAN STANLEY ABS CAPITAL II INC.
By: /s/ Gail P. McDonnell
-----------------------------------
Name: Gail P. McDonnell
Title: Vice President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Craig S. Phillips, Gail P.
McDonnell, David R. Warren and Ignacio J. Fanlo or any of them, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Form S-3 Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Craig S. Phillips President and Director October 10, 1997
Craig S. Phillips (Principal Executive Officer)
/s/ Eileen K. Murray Chief Financial Officer October 10, 1997
Eileen K. Murray (Principal Financial Officer and Principal Accounting
Officer)
/s/ Gail P. McDonnell Vice President October 10, 1997
Gail P. McDonnell and Director
/s/ David R. Warren Vice President October 10, 1997
David R. Warren and Director
</TABLE>
EXHIBIT INDEX
Exhibit Description Page
- ------- ----------- ----
1.1 Form of Underwriting Agreement*
3.1 Articles of Incorporation of the Registrant*
3.2 Bylaws of the Registrant*
4.1 Form of Trust Agreement(including form of Certificates)*
4.2 Form of Indenture (including form of Notes)*
5.1 Opinion of Brown & Wood LLP with respect to legality*
8.1 Opinion of Brown & Wood LLP with respect to certain
federal income tax matters*
10.1 Form of Administration Agreement*
23.1 Consent of Brown & Wood LLP (included in Exhibit 5.1)*
23.2 Consent of Brown & Wood LLP (included in Exhibit 8.1)*
24.1 Power of Attorney (included on Page II-3)
25.1 Statement of Eligibility and Qualification of Indenture Trustee
on Form T-1*
*To be filed by Amendment.
