PROSPECTUS SUPPLEMENT
(To Prospectus dated September 18, 1997)
Merrill Lynch Depositor, Inc.
Depositor
$21,427,000 INITIAL PRINCIPAL AMOUNT
CLASS A TRUST CERTIFICATES
$27,000,000 PRINCIPAL AMOUNT AT MATURITY
CLASS B TRUST CERTIFICATES
PUBLIC STEERS(R) SERIES 1998 H-Z3 TRUST
PUBLIC STEERS(R) TRUST CERTIFICATES, SERIES 1998 H-Z3
(Underlying Securities Will Be 7.30% Debentures Due
August 1, 2097 Issued By Harcourt General, Inc.)
Each Public STEERS(R) Trust Certificate, Series 1998 H-Z3 offered
hereby (collectively, the "Trust Certificates") represents a beneficial interest
in a trust (the "Trust") to be formed pursuant to the Standard Terms for Trust
Agreements (the "Standard Terms"), dated as of February 20, 1998, between
Merrill Lynch Depositor, Inc. (the "Depositor") and United States Trust Company
of New York, as trustee (in such capacity, the "Trustee") and as securities
intermediary (in such capacity, the "Securities Intermediary"), as amended and
supplemented by the Series 1998 H-Z3 Supplement (the "Series Supplement" and
together with the Standard Terms, the "Trust Agreement"), to be dated as of May
15, 1998, between the Depositor and the Trustee and Securities Intermediary. The
Trust Certificates will be issued in two Classes, Class A and Class B.
The principal assets of the Trust will be $27,000,000 aggregate
principal amount of 7.30% Debentures due August 1, 2097 (the "Underlying
Securities") issued by Harcourt General, Inc. (the "Underlying Securities
Issuer"), having the characteristics described herein under "Description of the
Underlying Securities".
Prospective investors should consider the factors set forth
under "Risk Factors", beginning herein on page S-11
and in the Prospectus on page 7.
THE TRUST CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT
REPRESENT OBLIGATIONS OF OR INTERESTS IN THE DEPOSITOR OR ANY OF ITS
AFFILIATES. THE TRUST CERTIFICATES DO NOT REPRESENT A DIRECT
OBLIGATION OF THE UNDERLYING SECURITIES ISSUER
OR ANY OF ITS AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------
================================================================================
Principal Trust Certificate Initial Final Scheduled
Class Amount Interest Rate Yield Distribution Date
- --------------------------------------------------------------------------------
Class A $21,427,000(1)(3) 6.91%(1) 6.91% August 1, 2018
- --------------------------------------------------------------------------------
Class B $27,000,000(3) 7.30%(2) 7.483% August 1, 2018(2)
================================================================================
S-1
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(cover page continued)
(1) The holders of the Class A Trust Certificates will be entitled to
receive, on February 1 and August 1 of each year, commencing on August
1, 1998 and ending on the Final Scheduled Distribution Date, the
interest received, if any, on the Underlying Securities which will
represent a return of principal on the Class A Trust Certificates in
accordance with the amortization schedule set forth under "Description
of the Trust Certificates--General" and the payment of interest at a
rate of 6.91% per annum on the amortized amount (the "Notional
Amount") of the Class A Trust Certificates.
(2) The holders of the Class B Trust Certificates will not be entitled to
distributions of interest. On the Final Scheduled Distribution Date,
the Class B Trust Certificates will be entitled to a distribution of
all of the Underlying Securities then held by the Trust.
(3) With respect to the Class A Trust Certificates, this amount represents
the initial aggregate principal amount. With respect to the Class B
Trust Certificates, this amount represents the aggregate principal
amount at maturity.
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch & Co." or the "Underwriter") proposes to offer the Trust
Certificates from time to time for sale in negotiated transactions or otherwise
at prices determined at the time of sale. The price at which the Trust
Certificates will be sold by the Underwriter may vary with each transaction. The
Underwriter has agreed to purchase the Class A Trust Certificates from the
Depositor at 100% of the initial principal amount thereof plus accrued interest,
if any, calculated at an annual rate of 6.91% compounded semiannually from
February 1, 1998 to the Closing Date (as defined below). The Underwriter has
agreed to purchase the Class B Trust Certificates from the Depositor at 22.103%
of the principal amount at maturity. Proceeds to the Depositor from any sale of
the Trust Certificates will be equal to the purchase price paid therefor by the
Underwriter, net of any expenses payable by the Depositor and any compensation
payable to the Underwriter. For further information with respect to the plan of
distribution and any discounts, commission or profits that may be deemed
underwriting discounts or commissions, see "Underwriting" herein.
The Trust Certificates are offered by the Underwriter, subject to prior
sale, when, as and if delivered to and accepted by it, and subject to approval
of certain legal matters by counsel for the Underwriter and certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Trust Certificates will be made in New York, New York on or
about May 15, 1998 (the "Closing Date") against payment therefor in immediately
available funds.
-------------------
Merrill Lynch & Co.
-------------------
The date of this Prospectus Supplement is May 12, 1998.
S-1
<PAGE>
(cover page continued)
The Underlying Securities Issuer is not participating in, and will not
receive any proceeds in connection with, the offering of the Trust Certificates,
and is not an affiliate of the Depositor. The Underlying Securities were
originally issued and sold as part of a public offering that commenced on August
5, 1997. The Underlying Securities were not acquired from the Underlying
Securities Issuer, and the Underlying Securities Issuer will not participate in
the offering of Trust Certificates, nor will such issuer receive any of the
proceeds from the sale of the Underlying Securities to the Depositor or from the
issuance of the Trust Certificates. The Underlying Securities will be deposited
by the Depositor into the Trust for the benefit of the holders of the Trust
Certificates (the "Trust Certificateholders").
This Prospectus Supplement sets forth certain relevant terms with
respect to the Underlying Securities, but does not provide detailed information
with respect to the Underlying Securities or the Underlying Securities Issuer.
This Prospectus Supplement relates only to the Trust Certificates offered hereby
and does not relate to the Underlying Securities. All disclosure contained
herein with respect to the Underlying Securities Issuer and the Underlying
Securities is derived from publicly available documents.
The Class A Trust Certificates will bear interest from February 1, 1998
(the "Cut-off Date") and such holders will be entitled to receive, on February 1
and August 1 of each year (or if such date is not a Business Day, the next
succeeding Business Day) (each, a "Distribution Date"), commencing August 1,
1998 and ending on the Final Scheduled Distribution Date (as defined below), the
interest received, if any, on the Underlying Securities, which will represent a
return of principal on the Class A Trust Certificates in accordance with the
amortization schedule set forth under "Description of the Trust
Certificates--General" and the payment of interest at a rate of 6.91% per annum
on the Notional Amount of the Class A Trust Certificates. The holders of the
Class A Trust Certificates will not be entitled to any allocation of principal
payments received under the Underlying Securities. The holders of the Class B
Trust Certificates will not be entitled to distributions of interest through the
Final Scheduled Distribution Date, including interest accrued on or before the
Final Scheduled Distribution Date which is unpaid as of that date. On August 1,
2018, the final date upon which the Class A Trust Certificateholders are
scheduled to receive a distribution of interest (the "Final Scheduled
Distribution Date"), the Class B Trust Certificateholders will be entitled to a
distribution of all Underlying Securities held by the Trust as of such date. All
distributions of funds (in the case of the Class A Trust Certificates) or
Underlying Securities (in the case of the Class B Trust Certificates) will be
made on a pro rata basis to the holders of the respective Trust Certificate
Class. It is a condition to the issuance of the Trust Certificates that the
Trust Certificates have ratings assigned by Moody's Investors Service, Inc.
("Moody's") and by Standard & Poor's Ratings Services, a division of the
McGraw-Hill Companies, Inc. ("S&P"), equivalent to the ratings of the Underlying
Securities, which, as of the date of this Prospectus Supplement, were "Baa1" by
Moody's and "BBB+" by S&P.
As and to the extent described herein, collections received by the
Trustee in respect of the Underlying Securities will be distributed to Trust
Certificateholders in the manner and priority described herein.
The Trust Certificates initially will be represented by certificates
registered in the name of Cede & Co. ("Cede"), as nominee of The Depository
Trust Company (the "Depositary" or "DTC"). The interests of beneficial owners of
such Trust Certificates will be represented by book entries on the records of
persons that have accounts with DTC ("Participants"). Definitive certificates
will be available for such Trust Certificates only under the limited
circumstances described herein. See "Description of the Trust
Certificates--Definitive Trust Certificates".
THE TRUST CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT WILL
CONSTITUTE A SEPARATE SERIES OF TRUST CERTIFICATES BEING OFFERED BY THE
DEPOSITOR PURSUANT TO ITS PROSPECTUS DATED SEPTEMBER 18, 1997, OF WHICH THIS
PROSPECTUS SUPPLEMENT IS A PART AND WHICH ACCOMPANIES THIS PROSPECTUS
SUPPLEMENT. THE PROSPECTUS CONTAINS IMPORTANT INFORMATION REGARDING THIS
OFFERING WHICH IS NOT CONTAINED HEREIN, AND PROSPECTIVE INVESTORS ARE URGED TO
READ THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN FULL. IN PARTICULAR,
INVESTORS SHOULD CONSIDER CAREFULLY THE FACTORS SET FORTH UNDER "RISK FACTORS"
IN THE PROSPECTUS AND IN THIS PROSPECTUS SUPPLEMENT.
For definitions of certain terms used herein, refer to "Index of
Defined Terms", beginning on page I-1 of the Prospectus.
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following summary of certain information does not purport to be
complete and is qualified in its entirety by reference to the detailed
information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement or, to the extent not defined herein, have the meanings assigned to
such terms in the Prospectus. See "Index of Defined Terms".
THE TRUST CERTIFICATES
SECURITIES OFFERED..................... Public STEERS(R)Trust Certificates,
Series 1998 H-Z3 (the "Trust
Certificates"). The Trust Certificates
will be offered in two Classes, Class A
and Class B. Each Class of Trust
Certificates represents a proportionate
undivided beneficial interest in
certain distributions to be made by the
Trust and will be issued pursuant to
the Trust Agreement. Payments on the
Trust Certificates will be derived
solely from the Underlying Securities.
THE TRUST.............................. Public STEERS(R) Series 1998 H-Z3
Trust. The Trust will be formed
pursuant to the Series Supplement,
which incorporates the Standard Terms.
DEPOSITOR.............................. Merrill Lynch Depositor, Inc., a
company incorporated in the State of
Delaware as an indirect, wholly owned,
limited-purpose subsidiary of Merrill
Lynch & Co., Inc., will deposit the
Underlying Securities into the Trust.
See "The Depositor" in the Prospectus.
TRUSTEE................................ United States Trust Company of New
York. The Trustee will receive
compensation as set forth in an
agreement between the Depositor and the
Trustee.
TRUST ASSETS........................... The initial assets of the Trust will be
$27,000,000 aggregate principal amount
of the 7.30% Debentures due August 1,
2097 (the "Underlying Securities")
issued by the Underlying Securities
Issuer. Either prior to the Closing
Date or from time to time, the
Depositor may, without the consent of
the Trust Certificateholders, increase
the amount of the Underlying Securities
in the Trust and issue a corresponding
amount of additional Trust
Certificates.
CLOSING DATE........................... May 15, 1998.
CUT-OFF DATE........................... February 1, 1998.
INITIAL PRINCIPAL
AMOUNT OF CLASS A
TRUST CERTIFICATES................... $21,427,000.
PRINCIPAL AMOUNT AT MATURITY
OF CLASS B TRUST CERTIFICATES........ $27,000,000.
FINAL SCHEDULED
DISTRIBUTION DATE.................... August 1, 2018.
S-3
<PAGE>
DISTRIBUTIONS
GENERAL.......................... The Underlying Securities will be the
sole source of distributions on the
Trust Certificates.
All distributions of payments (in the
case of the Class A Trust Certificates)
or Underlying Securities (in the case
of the Class B Trust Certificates) will
be made on a pro rata basis to the
holders of the respective Trust
Certificate Class.
CLASS A TRUST
CERTIFICATES..................... The Class A Trust Certificates will be
issued in an initial principal amount
of $21,427,000. The Class A Trust
Certificates will be entitled to
receive, on February 1 and August 1 of
each year (or if such date is not a
Business Day, the next succeeding
Business Day) (each, a "Distribution
Date"), commencing August 1, 1998 and
ending on the Final Scheduled
Distribution Date (or such earlier date
if the maturity of the Underlying
Securities is advanced as set forth
herein), the interest payment, if any,
received on the Underlying Securities,
which will represent a return of
principal on the Class A Trust
Certificates in accordance with the
amortization schedule set forth herein
under "Description of the Trust
Certificates--General" and the payment
of interest at a rate of 6.91% per
annum on the Notional Amount of the
Class A Trust Certificates. To the
extent additional Underlying Securities
are deposited into the Trust from time
to time, a corresponding amount of
additional Trust Certificates may be
issued without the consent of the Trust
Certificateholders.
CLASS B TRUST
CERTIFICATES..................... The Class B Trust Certificates will
have a principal amount at maturity of
$27,000,000 and will not be entitled to
distributions of interest prior to the
Final Scheduled Distribution Date. On
the Final Scheduled Distribution Date,
the Class B Trust Certificates will be
entitled to a distribution of all of
the Underlying Securities held by the
Trust as of such date. To the extent
additional Underlying Securities are
deposited into the Trust from time to
time, a corresponding amount of
additional Trust Certificates may be
issued without the consent of the Trust
Certificateholders.
SALE OF THE TRUST
CERTIFICATES IN THE EVENT
OF A DEFAULT ON THE
UNDERLYING SECURITIES............ In the event of a payment default on
the Underlying Securities or any other
default on the Underlying Securities
that results in an acceleration of
their maturity, or if the Underlying
Securities Issuer ceases to file
periodic reports under the Exchange Act
and is not eligible to use Form S-3 for
a primary common stock offering, the
Trustee will sell the Underlying
Securities and allocate the proceeds
from such sale between the Class A
Trust Certificates and the Class B
Trust Certificates in accordance with
the Allocation Ratio (as set forth
below). See Annex A for a calculation
of the Allocation Ratio on each
Distribution Date.
S-4
<PAGE>
As used herein, "Allocation Ratio"
means the ratio of the Class A
Allocation to the Class B Allocation.
The "Class A Allocation" means the
present value (discounted at the rate
of 6.91% per annum) of the unpaid
interest due or to become due on the
Underlying Securities on or prior to
the Final Scheduled Distribution Date.
The "Class B Allocation" means the sum
of the present values (discounted at
the rate of 7.483% per annum) of (i)
the unpaid interest due or to become
due on the Underlying Securities after
the Final Scheduled Distribution Date
and (ii) the principal amount of the
Underlying Securities (in each case
assuming that the Underlying Securities
are paid when due and are not redeemed
prior to their stated maturity).
OPTIONAL REDEMPTION.................... The Underlying Securities Issuer has
the option to redeem the Underlying
Securities, in whole or in part, at any
time. Notice of any redemption will be
mailed to the holders thereof at least
30 days but not more than 60 days
before the redemption date. In the
event of such a redemption, the
redemption price shall be as set forth
in "Description of the Underlying
Securities--Advance of Maturity Date or
Optional Redemption--Optional
Redemption". The proceeds of such
redemption will be allocated between
the Class A Trust Certificates and the
Class B Trust Certificates in
accordance with the Allocation Ratio.
ADVANCE OF MATURITY
OF THE UNDERLYING
SECURITIES FOLLOWING
A TAX EVENT.......................... Upon the occurrence of a Tax Event, the
Underlying Securities Issuer may
exercise its right to shorten the
maturity of the Underlying Securities
(see "Description of the Underlying
Securities--Advance of Maturity Date or
Optional Redemption--Tax Event"
herein). In the event that the maturity
of the Underlying Securities is
shortened as described in the preceding
sentence, then (i) if the shortened
maturity date is on or prior to the
Final Scheduled Distribution Date, the
Trustee will sell the Underlying
Securities and allocate the proceeds
from such sale between the Class A
Trust Certificates and the Class B
Trust Certificates in accordance with
the Allocation Ratio (determined based
on the shortened maturity date) or (ii)
if the shortened maturity date is after
the Final Scheduled Distribution Date,
the Trust Certificates will remain
outstanding until the Final Scheduled
Distribution Date and the Class B Trust
Certificateholders will receive a
distribution of the Underlying
Securities, as otherwise provided
herein.
RECORD DATES........................... The close of business on the January 15
or July 15, as the case may be, next
preceding each Distribution Date.
DENOMINATIONS AND
SPECIFIED CURRENCY................... The Trust Certificates will be
denominated and payable in U.S. dollars
(the "Specified Currency"). The Trust
Certificates will be issued in minimum
principal amounts of $1,000 and in
integral multiples thereof. One Trust
Certificate of each Class may be issued
S-5
<PAGE>
in an amount other than an integral
multiple of the applicable minimum
denomination.
FORM OF SECURITY....................... Book-entry Trust Certificates with The
Depository Trust Company ("DTC"),
except in certain limited
circumstances. See "Description of the
Trust Certificates--Definitive Trust
Certificates". Distributions thereon
will be settled in immediately
available (same-day) funds.
FEDERAL INCOME
TAX CONSEQUENCES..................... In the opinion of tax counsel to the
Depositor, the Trust will be classified
for United States federal income tax
purposes as a grantor trust and not as
an association (or publicly traded
partnership) taxable as a corporation.
Each Trust Certificateholder will be
subject to federal income taxation as
if it owned directly the portion of the
Underlying Securities allocable to such
Trust Certificates. Such ownership
interests will be subject to the rules
contained in Section 1286 of the
Internal Revenue Code of 1986 (the
"Code"). Accordingly, the Class A Trust
Certificates will be treated by the
Trust as representing ownership of
newly issued self-amortizing debt
obligations maturing on the Final
Scheduled Distribution Date. The
Internal Revenue Service could take the
position, however, that such debt
obligations are issued with original
issue discount ("OID"). The Class B
Trust Certificates will be treated as
representing ownership of newly issued
debt obligations issued with OID. The
statements contained in this paragraph
are based on the assumption that the
Underlying Securities constitute
indebtedness for U.S. Federal income
tax purposes. See "Federal Income Tax
Consequences".
RATINGS................................ It is a condition to the issuance of
the Trust Certificates that the Trust
Certificates have ratings assigned by
Moody's Investors Service, Inc.
("Moody's") and by Standard & Poor's
Ratings Services, a division of the
McGraw-Hill Companies, Inc. ("S&P";
Moody's and S&P each a "Rating Agency"
and, together, the "Rating Agencies"),
equivalent to the ratings of the
Underlying Securities, which, as of the
date of this Prospectus Supplement,
were "Baa1" by Moody's and "BBB+" by
S&P.
The rating of the Trust Certificates by
Moody's addresses the likelihood of the
ultimate payment of principal and
timely receipt of interest on the Trust
Certificates or any Underlying
Securities distributed in respect
thereof, as well as the extent of any
shortfall therefrom. The rating of the
Trust Certificates by S&P addresses the
likelihood of timely receipt of
interest on the Class A Trust
Certificates or any Underlying
Securities distributed in respect of
the Class B Trust Certificates. 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 the related
rating agency if, in its judgment,
circumstances (including, without
limitation, the rating of the
Underlying Securities) so warrant. In
particular, Moody's has placed on
review its ratings of the Underlying
Securities Issuer for a possible
downgrade of its rating following the
announcement that the Underlying
Securities Issuer has agreed to acquire
Mosby, Inc. from
S-6
<PAGE>
The Times Mirror Company for
approximately $415 million. A revision
or withdrawal of such rating may have
an adverse effect on the market price
of Trust Certificates. A security
rating is not a recommendation to buy,
sell or hold securities. The rating on
the Trust Certificates does not
constitute a statement regarding the
occurrence or frequency of redemption
on the Underlying Securities and the
corresponding effect on yield to
investors. See "Ratings".
ERISA CONSIDERATIONS................... If an employee benefit plan subject to
the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"),
including an individual retirement
account (an "IRA") or Keogh plan (each,
a "Plan"), acquires an equity interest
in the underlying assets of an entity
such as the Trust, certain aspects of
such investment, including the
operation of the Trust, might be
subject to the prohibited transaction
provisions under ERISA and the Code,
unless certain exemptions apply. A Plan
should consult its advisors concerning
the ability of such Plan to purchase
Trust Certificates under ERISA or the
Code. These issues are discussed more
fully below under "ERISA
Considerations".
S-7
<PAGE>
THE UNDERLYING SECURITIES
The Underlying Securities were issued under an indenture dated as of
April 23, 1992, as amended and supplemented by the supplement thereto dated as
of August 5, 1997 (the "Indenture"), between the Underlying Securities Issuer
and Bankers Trust Company (the "Underlying Securities Trustee") providing for
the issuance of debt securities (the "Debt Securities") by the Underlying
Securities Issuer, of which $150,000,000 6.70% Notes due August 1, 2007 (the
"2007 Notes"), $200,000,000 7.20% Debentures due August 1, 2027 (the "2027
Debentures") and $150,000,000 7.30% Debentures due August 1, 2097 (the "2097
Debentures") and, together with the 2007 Notes and the 2027 Debentures, the
"Securities") are a series. The Underlying Securities are a portion of the 2097
Debentures. The following summary of certain provisions of the Underlying
Securities and the Indenture does not purport to be complete and is based upon
the prospectus dated July 9, 1997 and the prospectus supplement dated July 31,
1997 (together, the "Underlying Securities Prospectus") of the Underlying
Securities Issuer, and is subject to, and is qualified in its entirety by
reference to, all provisions of the Underlying Securities and the Indenture,
including the definitions therein of certain terms.
UNDERLYING SECURITIES.................. $27,000,000 principal amount of the
7.30% Debentures due August 1, 2097 of
the Underlying Securities Issuer.
Interest on the Underlying Securities
accrues at the Underlying Securities
Interest Rate for each Underlying
Securities Accrual Period and is
payable on each Underlying Securities
Payment Date. The entire principal
amount of the Underlying Securities
will be payable to the holders thereof
on the Underlying Securities Maturity
Date.
UNDERLYING SECURITIES
ISSUER............................... The Underlying Securities Issuer is a
Delaware corporation whose principal
executive offices are located at 27
Boylston Street, Chestnut Hill,
Massachusetts 02167, and whose
telephone number is (617) 232-8200. See
"Description of the Underlying
Securities".
UNDERLYING SECURITIES
ISSUER: COMMISSION
FILING NUMBER........................ 333-30621 (for the Underlying
Securities Prospectus); 1-4925 (for
filings by the Underlying Securities
Issuer pursuant to the Securities
Exchange Act of 1934, as amended (the
"Exchange Act")).
UNDERLYING SECURITIES
RANKING.............................. According to the Underlying Securities
Prospectus, the Underlying Securities
are unsecured and senior indebtedness
of the Underlying Securities Issuer.
UNDERLYING SECURITIES
COLLATERAL........................... None.
UNDERLYING SECURITIES
ORIGINAL ISSUE DATE.................. August 5, 1997.
UNDERLYING SECURITIES
ORIGINAL AMOUNT ISSUED............... $150,000,000.
UNDERLYING SECURITIES
MATURITY DATE........................ August 1, 2097.
S-8
<PAGE>
UNDERLYING SECURITIES
AMORTIZATION......................... None.
UNDERLYING SECURITIES
INTEREST PAYMENT DATES............... February 1 and August 1.
UNDERLYING SECURITIES
INTEREST RATE........................ 7.30% per annum.
UNDERLYING SECURITIES
INTEREST ACCRUAL PERIODS............. Semiannual.
UNDERLYING SECURITIES
DENOMINATIONS AND CURRENCY........... The Underlying Securities are
denominated and payable in U.S. dollars
and are available in minimum
denominations of $1,000 and integral
multiples thereof.
UNDERLYING SECURITIES
FORM................................. Book-entry debt securities with DTC.
UNDERLYING SECURITIES
CUSIP NUMBER......................... 41163GAG6.
UNDERLYING SECURITIES
RECORD DATES......................... The close of business on the January 15
or July 15, as the case may be, next
preceding each Underlying Securities
Interest Payment Date.
UNDERLYING SECURITIES
TRUSTEE.............................. Bankers Trust Company.
UNDERLYING SECURITIES
RATINGS AS OF THE DATE
OF THIS PROSPECTUS
SUPPLEMENT........................... "Baa1" by Moody's and "BBB+" by S&P.
UNDERLYING SECURITIES
INFORMATION WITH RESPECT TO
THE UNDERLYING SECURITIES
ISSUER............................... Harcourt General, Inc. is subject to
the requirements of the Exchange Act
and in accordance therewith files
reports, proxy and information
statements and other information with
the Securities and Exchange Commission
(the "Commission"). Such reports, proxy
and information statements and other
information 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 at the following Regional
Offices of the Commission: Citicorp
Center, 500 West Madison Street, Suite
1400, Chicago, Illinois
S-9
<PAGE>
60661 and Seven World Trade Center,
Suite 1300, New York, New York 10048.
Copies of such material may also be
obtained from the Public Reference
Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission
maintains a World Wide Web site
(http://www.sec.gov) that contains
reports, proxy and information
statements and other information
regarding registrants, such as the
Underlying Securities Issuer, that
submit electronic filings to the
Commission. The Underlying Securities
Issuer's Common Stock and Series A
Cumulative Convertible Stock are listed
on the New York Stock Exchange, and
reports, proxy and information
statements and other information
concerning the Underlying Securities
Issuer may also be inspected at the
offices of the New York Stock Exchange,
Inc., 20 Broad Street, New York, New
York 10005.
Potential investors in the Trust Certificates should not rely on this
Prospectus Supplement for information with respect to the Underlying Securities
Issuer. No investigation of the Underlying Securities Issuer (including, without
limitation, no investigation as to its financial condition or creditworthiness)
or of the Underlying Securities (including, without limitation, no investigation
as to their ratings) has been made. A potential Trust Certificateholder should
obtain and evaluate the same information concerning the Underlying Securities
Issuer as one would obtain and evaluate if investing directly in the Underlying
Securities or in other securities issued by the Underlying Securities Issuer.
None of the Depositor, the Trustee, the Securities Intermediary, the
Underwriter, or any of their respective affiliates, assumes any responsibility
for the accuracy or completeness of any publicly available information of the
Underlying Securities Issuer filed with the Commission or otherwise made
publicly available or considered by a purchaser of the Trust Certificates in
making its investment decision in connection therewith.
S-10
<PAGE>
RISK FACTORS
Prospective purchasers should consider, among other things, the
following factors (as well as the factors set forth under "Risk Factors" in the
Prospectus) in connection with an investment in the Trust Certificates.
Limited Liquidity
There can be no assurance that an active public market for either Class
of Trust Certificates will develop or, if a public market develops, as to the
liquidity of the trading market for such Trust Certificates. Merrill Lynch & Co.
has advised the Depositor that it intends to make a market in the Trust
Certificates, as permitted by applicable laws and regulations, after the
issuance thereof. Merrill Lynch & Co. is not obligated, however, to make a
market in the Trust Certificates of either Class and any such market-making
activity may be discontinued at any time without notice at the sole discretion
of Merrill Lynch & Co. If an active public market for the Trust Certificates
does not develop or continue, the market prices and liquidity of the Trust
Certificates may be adversely affected.
Maturity and Yield Considerations; Reinvestment Risk--Optional Redemption
Tax Event; Default
The yield realized by a holder of a Trust Certificate depends upon
several factors, including the purchase price of the Trust Certificates, the
time of acquisition, and whether the Underlying Securities Issuer exercises its
option to redeem the Trust Certificates. Given the existence of the Underlying
Securities Issuer's option to redeem the Underlying Securities, in whole or in
part, at any time, at prices including premiums described herein, upon notice
mailed to the holders thereof at least 30 but not more than 60 days before the
redemption date, the Class A and the Class B Trust Certificateholders have no
assurance that the Underlying Securities will be held until their maturity date.
The effect of the exercise of such an option to redeem on the Class A
and the Class B Trust Certificateholders is that the interest rates at which the
proceeds received by such Trust Certificateholders as a result of the optional
redemption may be reinvested may be lower than the return that would have been
earned on the Trust Certificates through the Final Scheduled Distribution Date,
in the case of the Class A Trust Certificateholders, or over the remaining life
of the Underlying Securities, in the case of the Class B Trust
Certificateholders.
The yield realized by a holder of a Trust Certificate also depends upon
whether a Tax Event occurs. The Depositor has not formulated an opinion as to
the likelihood of a Tax Event. If a Tax Event occurs and the Underlying
Securities Issuer exercises its right to advance the maturity of the Underlying
Securities, or if the Underlying Securities are paid or sold prior to maturity
as a result of a default or because the Underlying Securities Issuer ceases to
file periodic reports under the Exchange Act and is not eligible to use Form S-3
for a primary stock offering, an investor's investment in the Trust Certificates
and the Underlying Securities will have a shorter maturity than if such right
were not exercised or if such default or discontinuance of periodic filings had
not occurred. Prevailing interest rates at the time of such early redemption may
be lower than the yield on the Trust Certificates. Therefore, an investor in the
Trust Certificates may be unable to realize a comparable yield upon reinvestment
of the funds from such early redemption.
See "Description of the Underlying Securities--Advance of Maturity
Date--Tax Event and Optional Redemption" herein.
Zero Coupon Nature of the Class B Trust Certificates
Because the Class B Trust Certificates do not receive allocations of
either interest or principal in respect of the Underlying Securities until after
the distribution thereof on the Final Scheduled Distribution Date, the changes
in market value of the Class B Trust Certificates as a result of changes in
interest rates or spreads are expected to be more than for the Underlying
Securities. Although holders of the Class B Trust Certificates will not receive
any cash flow during the term of the Trust, such holders will be treated for tax
purposes as having received income in the form of OID. See "Federal Income Tax
Consequences" herein.
S-11
<PAGE>
Limited Assets
The Trust has no significant assets other than the Underlying
Securities and the Underlying Securities are the sole assets of the Trust that
are available to make Distributions in respect of the Trust Certificates. If the
Underlying Securities are insufficient to make payments or distributions on the
Trust Certificates, no other assets will be available for payment of the
deficiency.
No Management of Underlying Securities
Except as described herein, the Trust will not dispose of any
Underlying Security, regardless of adverse events, financial or otherwise, that
may affect the value of the Underlying Securities or the Underlying Securities
Issuer. If there is a payment default on the Underlying Securities or any other
default on the Underlying Securities that results in an acceleration of their
maturity, or if the Underlying Securities Issuer ceases to file periodic reports
under the Exchange Act and is not eligible to use Form S-3 for a primary common
stock offering, the Trust will only dispose of or otherwise deal with the
Underlying Securities in the manner provided in the Trust Agreement. If such a
default or discontinuance of periodic filing event occurs, the Trust Agreement
will provide that the Trust will sell the Underlying Securities notwithstanding
market conditions at the time, and the Trustee will have no discretion to do
otherwise. Such sale may result in greater losses than might occur if the Trust
continued to hold the Underlying Securities.
Credit Risk
The Trust Certificates represent interests in obligations of a single
obligor. In particular, the Trust Certificates will be subject to all the risks
associated with a direct investment in unsecured debt obligations of the
Underlying Securities Issuer.
Payments in Respect of Trust Certificates are Unsecured
In a liquidation, holders of the Underlying Securities will be paid
only after holders of secured obligations of the Underlying Securities Issuer.
According to the Underlying Securities Prospectus, the Underlying Securities are
general unsecured obligations of the Underlying Securities Issuer, which rank on
a parity with all other unsecured senior indebtedness of the Underlying
Securities Issuer, but which are effectively subordinated to the Underlying
Securities Issuer's existing and future senior secured indebtedness to the
extent of the collateral therefor.
No Investigation of Underlying Securities
None of the Depositor, the Underwriter, the Trustee or the Securities
Intermediary will (i) make any investigation of the business condition,
financial or otherwise, of the Underlying Securities Issuer or (ii) verify any
reports or information filed by the Underlying Securities Issuer with the
Commission. Investors are encouraged to consider publicly available financial
and other information regarding the Underlying Securities Issuer. The issuance
of the Trust Certificates should not be construed as an endorsement by the
Depositor, the Underwriter, the Trustee or the Securities Intermediary of the
financial condition or business prospects of the Underlying Securities Issuer.
Ratings of the Trust Certificates Subject to Change
At the time of issuance, the Trust Certificates will have ratings
assigned by Moody's and S&P equivalent to the ratings of the Underlying
Securities, which, as of the date of this Prospectus Supplement, were "Baa1" by
Moody's and "BBB+" by S&P. Any rating issued with respect to the Trust
Certificates is not a recommendation to purchase, sell or hold a security
inasmuch as such ratings do not comment on the market price of the Trust
Certificates or their suitability for a particular investor. There can be no
assurance that the ratings will remain for any given period of time or that the
ratings will not be revised or withdrawn entirely by the related Rating Agency
if, in its judgment, circumstances (including, without limitation, the rating of
the Underlying Securities) so warrant. In particular, Moody's
S-12
<PAGE>
has placed on review its ratings of the Underlying Securities Issuer for a
possible downgrade of its rating following the announcement that the Underlying
Securities Issuer has agreed to acquire Mosby, Inc. from The Times Mirror
Company for approximately $415 million. A revision or withdrawal of such rating
may have an adverse effect on the market price of the Trust Certificates.
THE TRUST
The Trust will be formed pursuant to the Standard Terms, as amended and
supplemented by the Series Supplement. Concurrently with the execution and
delivery of the Series Supplement, the Depositor will deposit $27,000,000
aggregate principal amount of Underlying Securities into the Trust. The Trustee,
on behalf of the Trust, will accept such Underlying Securities and will deliver
the Trust Certificates to or upon the order of the Depositor.
The Underlying Securities were not purchased from the Underlying
Securities Issuer. The Underlying Securities were not acquired as part of any
distribution by or pursuant to any agreement with the Underlying Securities
Issuer. The Underlying Securities Issuer is not participating in this offering
and will not receive any of the proceeds of the sale of the Underlying
Securities to the Depositor or the issuance of the Trust Certificates.
DESCRIPTION OF THE TRUST CERTIFICATES
General
The Trust Certificates will be denominated and distributions with
respect thereto will be payable in U.S. dollars. The Class A Trust Certificates
will have an initial aggregate principal amount of $21,427,000. The Class B
Trust Certificates will have a principal amount at maturity of $27,000,000.
The holders of the Class A Trust Certificates will be entitled to
receive, on each Distribution Date, commencing August 1, 1998 and ending on, but
including, the Final Scheduled Distribution Date, the interest, if any, received
on the Underlying Securities, which will represent a return of principal on the
Class A Trust Certificates in accordance with the amortization schedule set
forth below, and the payment of interest at a rate of 6.91% per annum on the
Notional Amount of the Class A Trust Certificates. The Class A Trust
Certificates will amortize on each Distribution Date on a level yield basis. The
Class A Trust Certificates generally will not be entitled to any allocation of
any principal payments received on the Underlying Securities.
Interest on the Class A Trust Certificates will be calculated on a
360-day year of twelve 30-day months and will accrue from and including the
prior Distribution Date (or, in the case of the August 1, 1998 Distribution
Date, from and including February 1, 1998) to but excluding the current
Distribution Date (the "Collection Period").
On August 1, 2018, the holders of the Class B Trust Certificates will
be entitled to a distribution of all of the Underlying Securities held by the
Trust as of such date. On or prior to the 60th day preceding August 1, 2018, the
Trustee shall request instructions from the registered holders of the Class B
Trust Certificates regarding the account or accounts to which transfer of the
Underlying Securities should be made, and other information relevant to such
transfer.
S-13
<PAGE>
AMORTIZATION SCHEDULE--CLASS A TRUST CERTIFICATES
<TABLE>
<CAPTION>
PRINCIPAL TOTAL INTEREST OUTSTANDING
INTEREST PAYABLE ON AMORTIZATION PLUS PRINCIPAL PRINCIPAL ON
CLOSING DATE OR DISTRIBUTION ON DISTRIBUTION PAYABLE ON CLOSING DATE OR
DISTRIBUTION DATE DATE DATE DISTRIBUTION DATE DISTRIBUTION DATE*
- ----------------- ------------------- --------------- ----------------- ------------------
<S> <C> <C> <C> <C>
May 15, 1998 ....... $21,427,000.00
August 1, 1998 ..... $740,302.85 $245,000.00 $985,302.85 21,182,000.00
February 1, 1999 ... 731,838.10 253,000.00 984,838.10 20,929,000.00
August 1, 1999 ..... 723,096.95 262,000.00 985,096.95 20,667,000.00
February 1, 2000 .... 714,044.85 271,000.00 985,044.85 20,396,000.00
August 1, 2000 ...... 704,681.80 280,000.00 984,681.80 20,116,000.00
February 1, 2001 .... 695,007.80 290,000.00 985,007.80 19,826,000.00
August 1, 2001 ...... 684,988.30 300,000.00 984,988.30 19,526,000.00
February 1, 2002 .... 674,623.30 310,000.00 984,623.30 19,216,000.00
August 1, 2002 ...... 663,912.80 321,000.00 984,912.80 18,895,000.00
February 1, 2003 .... 652,822.25 332,000.00 984,822.25 18,563,000.00
August 1, 2003 ...... 641,351.65 344,000.00 985,351.65 18,219,000.00
February 1, 2004 .... 629,466.45 355,000.00 984,466.45 17,864,000.00
August 1, 2004 ...... 617,201.20 368,000.00 985,201.20 17,496,000.00
February 1, 2005 .... 604,486.80 381,000.00 985,486.80 17,115,000.00
August 1, 2005 ...... 591,323.25 394,000.00 985,323.25 16,721,000.00
February 1, 2006 .... 577,710.55 407,000.00 984,710.55 16,314,000.00
August 1, 2006 ...... 563,648.77 421,000.00 984,648.77 15,893,000.00
February 1, 2007 .... 549,103.15 436,000.00 985,103.15 15,457,000.00
August 1, 2007 ...... 534,039.35 451,000.00 985,039.35 15,006,000.00
February 1, 2008 .... 518,457.30 467,000.00 985,457.30 14,539,000.00
August 1, 2008 ...... 502,322.45 483,000.00 985,322.45 14,056,000.00
February 1, 2009 .... 485,634.80 499,000.00 984,634.80 13,557,000.00
August 1, 2009 ...... 468,394.35 517,000.00 985,394.35 13,040,000.00
February 1, 2010 .... 450,532.00 534,000.00 984,532.00 12,506,000.00
August 1, 2010....... 432,082.30 553,000.00 985,082.30 11,953,000.00
February 1, 2011 .... 412,976.15 572,000.00 984,976.15 11,381,000.00
August 1, 2011 ...... 393,213.55 592,000.00 985,213.55 10,789,000.00
February 1, 2012 .... 372,759.95 612,000.00 984,759.95 10,177,000.00
August 1, 2012 ...... 351,615.35 633,000.00 984,615.35 9,544,000.00
February 1, 2013 .... 329,745.50 655,000.00 984,745.50 8,889,000.00
August 1, 2013 ...... 307,114.95 678,000.00 985,114.95 8,211,000.00
February 1, 2014 .... 283,690.05 701,000.00 984,690.05 7,510,000.00
August 1, 2014 ...... 259,470.50 726,000.00 985,470.50 6,784,000.00
February 1, 2015 .... 234,387.20 751,000.00 985,387.20 6,033,000.00
August 1, 2015 ...... 208,440.15 777,000.00 985,440.15 5,256,000.00
February 1, 2016 .... 181,594.80 803,000.00 984,594.80 4,453,000.00
August 1, 2016 ...... 153,851.15 831,000.00 984,851.15 3,622,000.00
February 1, 2017..... 125,140.10 860,000.00 985,140.10 2,762,000.00
August 1, 2017 ...... 95,427.10 890,000.00 985,427.10 1,872,000.00
February 1, 2018..... 64,677.60 920,000.00 984,677.60 952,000.00
August 1, 2018....... 32,891.60 952,000.00 984,891.60 --
<FN>
- ---------------
* Principal amount on Closing Date or at close of business on the Distribution Date.
</FN>
</TABLE>
The Trust Certificates will be delivered in registered form. The Trust
Certificates will be issued, maintained and transferred on the book-entry
records of DTC and its Participants in minimum principal amounts of $1,000 and
integral multiples thereof. One Trust Certificate of each Class may be issued in
an amount other than an integral multiple of the applicable minimum
denomination. Each Class of Trust Certificates initially will be represented by
one or more
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<PAGE>
global certificates registered in the name of the nominee of DTC (together with
any successor clearing agency selected by the Depositor, the "Clearing Agency")
except as provided below. The Depositor has been informed by DTC that DTC's
nominee will be Cede. No holder of any such Trust Certificate will be entitled
to receive a certificate representing such person's interest, except as set
forth below under "--Definitive Trust Certificates". Unless and until Definitive
Trust Certificates are issued under the limited circumstances described herein,
all references to actions by Trust Certificateholders with respect to any such
Trust Certificates shall refer to actions taken by DTC upon instructions from
its Participants. See "--Definitive Trust Certificates" below and "Description
of Trust Certificates--Global Securities" in the Prospectus.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC will take action permitted to be taken by a Trust
Certificateholder under the Trust Agreement only at the direction of one or more
Participants to whose DTC account such Trust Certificates are credited.
Additionally, DTC will take such actions with respect to specified Voting Rights
only at the direction and on behalf of Participants whose holdings of such
certificates evidence such specified Voting Rights. DTC may take conflicting
actions with respect to Voting Rights, to the extent that Participants whose
holdings of Trust Certificates evidence such Voting Rights authorize divergent
action.
Definitive Trust Certificates
Definitive Trust Certificates will be issued to Trust
Certificateholders or their nominees, respectively, rather than to DTC or its
nominee, only if (i) the Depositor advises the Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as Clearing
Agency with respect to the Trust Certificates and the Depositor is unable to
locate a qualified successor or (ii) the Depositor, at its option, elects to
terminate the book-entry system through DTC.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee is required to notify all Participants of the
availability through DTC of Definitive Trust Certificates. Upon surrender by DTC
of the definitive certificates representing the Trust Certificates and receipt
of instructions for re-registration, the Trustee will reissue such Trust
Certificates as Definitive Trust Certificates issued in the respective principal
amounts owned by the individual owners of such Trust Certificates, and
thereafter the Trustee will recognize the holders of such Definitive Trust
Certificates as Trust Certificateholders under the Trust Agreement.
Collections and Distributions
Collections on the Underlying Securities that are received by the
Trustee for a Collection Period pursuant to the collection procedures described
herein and in the Prospectus and deposited from time to time into the Trust
Certificate Account will be applied by the Trustee on each applicable
Distribution Date to the following distributions in the following order of
priority, solely to the extent of Available Funds (as defined below) on such
Distribution Date:
(a) first, to the Trustee, reimbursement for any approved
Extraordinary Expenses incurred by the Trustee in accordance with
Section 6(b) of the Series Supplement and approved by not less than
100% of the Trust Certificateholders;
(b) second, to the holders of the Class A Trust Certificates,
interest at the rate of 6.91% per annum on the Notional Amount of the
Class A Trust Certificates and principal distributable on such Class A
Trust Certificates on such Distribution Date, commencing on August 1,
1998 and ending on the Final Scheduled Distribution Date;
(c) third, to the holders of the Class A Trust Certificates,
if available, any additional payments owed and paid by the Underlying
Securities Issuer as a result of a delay in the receipt by the Trustee
of any interest payment on the Underlying Securities;
S-15
<PAGE>
(d) fourth, to the holders of the Class B Trust Certificates,
on the Final Scheduled Distribution Date only, a distribution of all
Underlying Securities held by the Trust as of such date;
(e) fifth, to the Trustee, the Ordinary Expenses (as defined
in the Trust Agreement); and
(f) sixth, to the extent there are Available Funds in the
Certificate Account, to any creditors of the Trust in satisfaction of
liabilities thereto.
"Available Funds" for any Distribution Date means the sum of all
amounts received on or with respect to the Underlying Securities during the
preceding Collection Period. In order to reimburse the Trustee for Extraordinary
Expenses, however, not less than 100% of the Trust Certificateholders may elect
to sell a portion of the Underlying Securities such that the proceeds of such
sale would be sufficient to reimburse the Trustee for such Extraordinary
Expenses.
If the Trustee has not received payment on the Underlying Securities on
or prior to a Distribution Date, such distribution will be made upon receipt of
payment on the Underlying Securities. No additional amounts will accrue on the
Trust Certificates or be owed to Trust Certificateholders as a result of any
such delay; provided, however, that any additional interest owed and paid by the
Underlying Securities Issuer as a result of such delay shall be paid to the
Class A Trust Certificateholders. In the event of a payment default on the
Underlying Securities, approved Extraordinary Expenses (see "Description of the
Trust Agreement--The Trustee" herein) of the Trustee may be reimbursed to the
Trustee out of Available Funds before any distributions to Trust
Certificateholders are made.
All amounts received on or with respect to the Underlying Securities,
which are not distributed to Trust Certificateholders on the date of receipt,
shall be invested by the Trustee in Eligible Investments. Income on such
investments will constitute property of the Trust. "Eligible Investments" means,
with respect to the Trust Certificates, those investments consistent with the
Trust's status as a grantor trust under the Code and acceptable to the Rating
Agencies as being consistent with the rating of such Trust Certificates, as
specified in the Trust Agreement. Generally, Eligible Investments must be
limited to obligations or securities that mature not later than the Business Day
prior to the next succeeding Distribution Date.
There can be no assurance that collections received from the Underlying
Securities over a specified period will be sufficient to make all required
distributions to the Trust Certificateholders. To the extent Available Funds are
insufficient to make any such distributions due to Trust Certificateholders, any
shortfall will be carried over and will be distributable on the next
Distribution Date (if any) on which sufficient funds exist to pay such
shortfalls. The Depositor will pay the Ordinary Expenses of the Trustee.
Exchange of Trust Certificates
Merrill Lynch & Co. or any of its affiliates, other than the Depositor,
may if it holds Class B Trust Certificates of a certain principal amount at
maturity and Class A Trust Certificates representing a like outstanding
principal amount, notify the Trustee, not less than 30 (or such shorter period
acceptable to the Trustee) but not more than 45 days prior to a given
Distribution Date, that it intends to tender such Trust Certificates to the
Trustee on such Distribution Date; provided that such distribution will not be
made if either (i) it would cause the Trust or Depositor to fail to satisfy the
applicable requirements for exemption under Rule 3a-7 under the Investment
Company Act of 1940 or (ii) such distribution would affect the characterization
of the Trust as a "grantor trust" under the Code. See "Description of the Trust
Certificates--Optional Exchange" in the Prospectus. Upon such tender, the
Trustee will deliver to such Trust Certificateholder Underlying Securities
having a principal amount equal to the principal amount at maturity of the Class
B Trust Certificates being tendered.
S-16
<PAGE>
Default on Underlying Securities; Discontinuance of Periodic Reports by
Underlying Securities Issuer
If there is a payment default on the Underlying Securities or any other
default on the Underlying Securities that results in an acceleration of their
maturity, or if the Underlying Securities Issuer ceases to file periodic reports
under the Exchange Act and is not eligible to use Form S-3 for a primary common
stock offering, the Trustee will sell the Underlying Securities and allocate the
proceeds from such sale between the Class A Trust Certificates and the Class B
Trust Certificates in accordance with the Allocation Ratio.
Distributions upon Optional Redemption or Advance of Maturity
If there is an optional redemption in respect of the Underlying
Securities (see "Description of the Underlying Securities--Advance of Maturity
Date or Optional Redemption" herein), the proceeds of such redemption will be
allocated between the Class A Trust Certificates and the Class B Trust
Certificates in accordance with the Allocation Ratio. If there is an advance of
maturity of the Underlying Securities upon the occurrence of a Tax Event (see
"Description of the Underlying Securities--Advance of Maturity Date or Optional
Redemption" herein), then (i) if the shortened maturity date is on or prior to
the Final Scheduled Distribution Date, the Underlying Securities will be sold
and the proceeds from such sale will be allocated between the Class A Trust
Certificates and the Class B Trust Certificates in accordance with the
Allocation Ratio (determined based on the shortened maturity date) or (ii) if
the shortened maturity date is after the Final Scheduled Distribution Date, the
Trust Certificates will remain outstanding until the Final Scheduled
Distribution Date and the Class B Trust Certificateholders will receive a
distribution of the Underlying Securities, as otherwise provided herein.
THE DEPOSITOR
The Depositor, a Delaware corporation, is an indirect, wholly owned,
limited-purpose subsidiary of Merrill Lynch & Co., Inc. The Depositor has not
guaranteed and is not otherwise obligated with respect to the Trust
Certificates.
The principal office of the Depositor is located at c/o Merrill Lynch &
Co., World Financial Center, New York, New York 10281 (Telephone: (212)
449-1000). See "The Depositor" in the Prospectus.
DESCRIPTION OF THE TRUST AGREEMENT
General
The Trust Certificates will be issued pursuant to the Trust Agreement,
a form of the Standard Terms of which is filed as an exhibit to the Registration
Statement. A Current Report on Form 8-K relating to the Trust Certificates
containing a copy of the Series Supplement as executed will be filed by the
Depositor with the Commission following the issuance and sale of the Trust
Certificates. The Trust created under the Trust Agreement will consist of (i)
the Deposited Assets and (ii) all payments on or collections in respect of the
Deposited Assets due after the Cut-off Date. Reference is made to the Prospectus
for important information in addition to that set forth herein regarding the
Trust, the terms and conditions of the Trust Agreement and the Trust
Certificates. The following summaries of certain provisions of the Trust
Agreement do not purport to be complete and are subject to the detailed
provisions contained therein, to which reference is hereby made for a full
description of such provisions, including the definition of certain terms used
herein.
The discussions in the Prospectus under "Description of the Trust
Agreement--Advances in Respect of Delinquencies", "--Certain Matters Regarding
the Trustee, the Administrative Agent, and the Depositor" (to the extent the
discussion relates to the Administrative Agent), "--Administrative Agent
Termination Events; Rights upon
S-17
<PAGE>
Administrative Agent Termination Event", and "--Evidence as to Compliance" are
not applicable to the Trust Certificates.
The Trustee
United States Trust Company of New York will act as the Trustee for the
Trust Certificates and the Trust pursuant to the Trust Agreement. The Trustee's
offices are located at 114 West 47th Street, New York, New York 10036 and its
telephone number is (212) 852-1623.
The Trust Agreement will provide that the Trustee may not take any
action that, in the Trustee's opinion, would or might cause it to incur
Extraordinary Expenses, unless (i) the Trustee is satisfied that it will have
adequate security or indemnity in respect of such costs, expenses and
liabilities, (ii) the Trustee has been instructed to do so by Trust
Certificateholders representing not less than the Required Percentage-Remedies
(as defined below) of the aggregate principal amount of outstanding Trust
Certificates, and (iii) the Trust Certificateholders have agreed that such costs
will be paid by the Trustee (x) from the Trust (in the case of an affirmative
vote of 100% of the Trust Certificateholders) or (y) out of the Trustee's own
funds (in which case the Trustee can receive reimbursement from the Trust
Certificateholders voting in favor of such proposal). Extraordinary Expenses
that may be reimbursed to the Trustee from the Trust may be reimbursed out of
Available Funds on any Distribution Date before any distributions to Trust
Certificateholders on such Distribution Date are made.
Events of Default
An event of default with respect to the Trust Certificates under the
Trust Agreement (an "Event of Default") will consist of (i) a default in the
payment of any interest on any Underlying Security after the same becomes due
and payable (subject to any applicable grace period); (ii) a default in the
payment of the principal of or any installment of principal of any Underlying
Security when the same becomes due and payable; and (iii) any other event
specified as an event of default in the Indenture.
The Trust Agreement will provide that, within 30 days after the
occurrence of an Event of Default in respect of the Trust Certificates, the
Trustee will give notice to the Trust Certificateholders, transmitted by mail,
of all such uncured or unwaived Events of Default known to it. However, except
in the case of an Event of Default relating to the payment of principal or
interest on any of the Underlying Securities, the Trustee will be protected in
withholding such notice if in good faith it determines that the withholding of
such notice is in the interest of the Trust Certificateholders.
No Trust Certificateholder will have the right to institute any
proceeding with respect to the Trust Agreement, unless (i) such Trust
Certificateholder previously has given to the Trustee written notice of a
continuing breach, (ii) Trust Certificateholders evidencing not less than the
Required Percentage-Remedies of the aggregate Voting Rights have requested in
writing that the Trustee institute such proceeding in its own name as Trustee,
(iii) such Trust Certificateholder or Trust Certificateholders have offered the
Trustee reasonable indemnity, (iv) the Trustee has for 15 days failed to
institute such proceeding and (v) no direction inconsistent with such written
request has been given to the Trustee during such 15-day period by Trust
Certificateholders evidencing not less than the Required Percentage-Remedies of
the aggregate Voting Rights. "Required Percentage-Remedies" shall mean 66 2/3%
of the Voting Rights.
Voting Rights
At all times, 100% of all Voting Rights will be allocated between the
Class A Trust Certificates and the Class B Trust Certificates in accordance with
the Allocation Ratio. Within each such Class, Voting Rights shall be allocated
among Trust Certificateholders in proportion to the then outstanding principal
amounts, or principal amounts at maturity, as the case may be, of their
respective Trust Certificates. The "Required Percentage-Amendment" of Voting
Rights necessary to consent to such modification or amendment shall be 66 2/3%.
Notwithstanding the foregoing, in addition to the other restrictions on
modification and amendment, the Trustee will not enter into any amendment or
modification
S-18
<PAGE>
of the Trust Agreement that would adversely affect in any material respect the
interests of the holders of a Class of Trust Certificates without the consent of
the holders of 66 2/3% of such Class of Trust Certificates; provided, however,
that no such amendment or modification will be permitted which would alter the
status of the Trust as a grantor trust under the Code. See "Description of the
Trust Agreement--Modification and Waiver" in the Prospectus.
Voting of Underlying Securities; Modification of Indenture
The Trustee, as holder of the Underlying Securities, has the right to
vote and give consents and waivers in respect of such Underlying Securities as
permitted by DTC and except as otherwise limited by the Trust Agreement. If the
Trustee receives a request from DTC, the Underlying Securities Trustee or the
Underlying Securities Issuer for its consent to any amendment, modification or
waiver of the Underlying Securities, the Indenture or any other document
thereunder or relating thereto, or receives any other solicitation for any
action with respect to the Underlying Securities, the Trustee promptly shall
notify each Trust Certificateholder of record as of such date and the Ratings
Agencies of such proposed amendment, modification, waiver or solicitation. The
Trustee shall request instructions from the Trust Certificateholders as to
whether or not to consent to or vote to accept such amendment, modification,
waiver or solicitation. The Trustee shall consent or vote, or refrain from
consenting or voting, in the same proportion (based on the relative outstanding
principal balances of the Trust Certificates) as the Trust Certificates of the
Trust were actually voted or not voted by the Trust Certificateholders thereof
as of a date determined by the Trustee prior to the date on which such consent
or vote is required, after weighing the votes of the Class A Trust
Certificateholders and the votes of the Class B Trust Certificateholders
according to the Allocation Ratio; provided, however, that, notwithstanding
anything to the contrary, the Trustee shall at no time vote or consent to any
matter (i) unless such vote or consent would not (based on an Opinion of
Counsel) alter the status of the Trust as a grantor trust under the Code, (ii)
that would alter the timing or amount of any payment on the Underlying
Securities, including, without limitation, any demand to accelerate the
Underlying Securities, except in the event of an Underlying Security event of
default or an event which with the passage of time would become an Underlying
Security event of default and with the unanimous consent of all outstanding
Class A and Class B Trust Certificateholders, or (iii) that would result in the
exchange or substitution of any of the outstanding Underlying Securities
pursuant to a plan for the refunding or refinancing of such Underlying
Securities, except in the event of a default under the Indenture and only with
the consent of Trust Certificateholders representing 66 2/3% of the outstanding
Class A and Class B Trust Certificates and provided that the Trustee has
received the Opinion of Counsel described in (i) above. The Trustee shall have
no liability for any failure to act resulting from Trust Certificateholders'
late return of, or failure to return, directions requested by the Trustee from
the Trust Certificateholders.
If an event of default under the Indenture occurs and is continuing and
if directed by all of the outstanding Class A and Class B Trust
Certificateholders, the Trustee shall vote the Underlying Securities in favor of
directing, or take such other action as may be appropriate to direct, the
Underlying Securities Trustee to declare the unpaid principal amount of the
Underlying Securities and any accrued and unpaid interest thereon to be due and
payable. In connection with a vote concerning whether to declare the
acceleration of the Underlying Securities, the interests of the Trust
Certificateholders may differ from each other and from those of other holders of
outstanding 2097 Debentures issued by the Underlying Securities Issuer.
Termination of the Trust
The Trust shall terminate upon the earliest to occur of (i) the sale of
the Underlying Securities held by the Trust after a payment default on or an
acceleration or other early payment of such Underlying Securities, and the
distribution in full of all amounts due to the Class A and Class B Trust
Certificateholders, (ii) the exchange of all outstanding Class A and Class B
Trust Certificates for Underlying Securities pursuant to one or more Optional
Exchanges and (iii) the distribution in full of all amounts due to Class A and
Class B Trust Certificateholders on the Final Scheduled Distribution Date. See
"Description of the Trust Agreement--Termination" in the Prospectus.
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<PAGE>
DESCRIPTION OF THE UNDERLYING SECURITIES
General
The Underlying Securities represent the sole assets of the Trust that
are available to make distributions in respect of the Trust Certificates. The
aggregate principal amount of the Underlying Securities is $27,000,000. The
primary economic terms of the Underlying Securities are described in "Prospectus
Supplement Summary--The Underlying Securities" herein. Unless specified
otherwise, all section references in this "Description of the Underlying
Securities" are to sections in the Indenture.
This Prospectus Supplement sets forth certain relevant terms with
respect to the Underlying Securities, but does not provide detailed information
with respect to the Underlying Securities or the Underlying Securities Issuer.
This Prospectus Supplement relates only to the Trust Certificates offered hereby
and does not relate to the Underlying Securities. All disclosure contained
herein with respect to the Underlying Securities Issuer and the Underlying
Securities is derived from publicly available documents.
The Underlying Securities Issuer is not participating in, and will not
receive any proceeds in connection with, the offering of the Trust Certificates.
The Underlying Securities were purchased in the secondary market and will be
deposited into the Trust. The Underlying Securities were not acquired either
from the Underlying Securities Issuer or pursuant to any distribution by or
agreement with the Underlying Securities Issuer.
The Underlying Securities convert into cash in a finite time period and
the Underlying Securities Issuer is: (a) subject to the periodic reporting
requirements of the Exchange Act and (b) eligible to use a Registration
Statement on Form S-3 for a primary offering.
According to the Underlying Securities Issuer's publicly available
documents, its principal executive offices are located at 27 Boylston Street,
Chestnut Hill, Massachusetts 02167 and its telephone number is (617) 232-8200.
The Underlying Securities Issuer is subject to the requirements of the Exchange
Act and in accordance therewith files reports, proxy and information statements
and other information with the Commission. Such reports, proxy and information
statements and other information 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 at the following Regional Offices of the Commission:
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission maintains a World Wide Web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants, such as the Underlying Securities Issuer, that submit
electronic filings to the Commission. The Underlying Securities Issuer's Common
Stock and Series A Cumulative Convertible Stock are listed on the New York Stock
Exchange, and reports, proxy and information statements and other information
concerning the Underlying Securities Issuer may also be inspected at the offices
of the New York Stock Exchange Inc., 20 Broad Street, New York, New York 10005.
Although the Depositor has no reason to believe the information
concerning the Underlying Securities or the Underlying Securities Issuer
contained in the Underlying Securities Prospectus is not reliable, the Depositor
has not participated in the preparation of such documents, or made any due
diligence inquiry with respect to the information provided therein. There can be
no assurance that events affecting the Underlying Securities or the Underlying
Securities Issuer have not occurred or have not yet been publicly disclosed
which would affect the accuracy or completeness of the publicly available
documents described above.
THE TRUST WILL HAVE NO ASSETS OTHER THAN UNDERLYING SECURITIES FROM
WHICH TO MAKE DISTRIBUTIONS OF AMOUNTS DUE IN RESPECT OF THE TRUST CERTIFICATES.
CONSEQUENTLY, THE ABILITY OF TRUST CERTIFICATEHOLDERS TO RECEIVE DISTRIBUTIONS
IN
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<PAGE>
RESPECT OF THE TRUST CERTIFICATES WILL DEPEND ENTIRELY ON THE TRUST'S RECEIPT OF
PAYMENTS ON THE UNDERLYING SECURITIES. PROSPECTIVE PURCHASERS OF THE TRUST
CERTIFICATES SHOULD CONSIDER CAREFULLY THE FINANCIAL CONDITION OF THE UNDERLYING
SECURITIES ISSUER AND ITS ABILITY TO MAKE PAYMENTS IN RESPECT OF SUCH UNDERLYING
SECURITIES. THIS PROSPECTUS SUPPLEMENT RELATES ONLY TO THE TRUST CERTIFICATES
BEING OFFERED HEREBY AND DOES NOT RELATE TO THE UNDERLYING SECURITIES OR THE
UNDERLYING SECURITIES ISSUER. ALL INFORMATION CONTAINED IN THIS PROSPECTUS
SUPPLEMENT REGARDING THE UNDERLYING SECURITIES ISSUER AND THE UNDERLYING
SECURITIES IS DERIVED FROM PUBLICLY AVAILABLE DOCUMENTS. NONE OF THE DEPOSITOR,
THE UNDERWRITER, THE SECURITIES INTERMEDIARY OR THE TRUSTEE PARTICIPATED IN THE
PREPARATION OF SUCH DOCUMENTS OR TAKES ANY RESPONSIBILITY FOR THE ACCURACY OR
COMPLETENESS OF THE INFORMATION PROVIDED THEREIN.
Underlying Securities Indenture
The Underlying Securities were issued under the Indenture, which
provided for the issuance of Debt Securities, of which the Securities,
consisting of the 2007 Notes, the 2027 Debentures and the 2097 Debentures, are a
series. The Underlying Securities are approximately 18% of the issue of 2097
Debentures, which issue totaled $150,000,000. The following summaries of certain
provisions of the 2097 Debentures, the Securities, the Debt Securities and the
Indenture do not purport to be complete and are based upon the Underlying
Securities Prospectus relating to the 2097 Debentures, the Securities and the
Debt Securities and are subject to, and are qualified in their entirety by
reference to, all provisions of the 2097 Debentures, the Securities, the Debt
Securities and the Indenture, including the definitions therein of certain
terms. Wherever particular sections or defined terms of the Indenture are
referred to, it is intended that such sections or defined terms shall be
incorporated herein by reference. Investors should refer to the Indenture itself
for all terms governing the Underlying Securities.
Reference is made to the Prospectus Supplement of the Underlying
Securities for the terms of the Underlying Securities not set forth herein.
Principal, premium, if any, and interest will be payable, and the Underlying
Securities will be transferable, in the manner described in the Underlying
Securities Prospectus. The Underlying Securities constitute unsecured senior
indebtedness of the Underlying Securities Issuer.
Federal income tax consequences applicable to the Underlying Securities
are described in the Underlying Securities Prospectus.
Mergers and Sales of Assets by the Underlying Securities Issuer
The Underlying Securities Issuer may not consolidate with or merge into
any other Person or convey, transfer or lease all or substantially all of its
assets to any other Person, unless, among other things, (i) the resulting,
surviving or transferee Person (if other than the Underlying Securities Issuer)
shall be a corporation, partnership or trust organized and validly existing
under the laws of the United States or any State thereof or the District of
Columbia and shall expressly assume the Underlying Securities Issuer's
obligations under the Debt Securities and the Indenture, and (ii) the Underlying
Securities Issuer or such successor Person shall not immediately thereafter be
in default under the Indenture. Upon the assumption of the Underlying Securities
Issuer's obligations by such a Person in such circumstances, subject to certain
exceptions, the Underlying Securities Issuer shall be discharged from all its
obligations under the Debt Securities and the Indenture (Section 801).
Other than the restrictions on liens and sale and leaseback
transactions set forth in the Indenture and described below under "Description
of the Underlying Securities--Certain Covenants", the Indenture and the Debt
Securities do not contain any covenants or other provisions designed to afford
holders of Debt Securities protection in the event of a highly leveraged
transaction involving the Underlying Securities Issuer or any of its
subsidiaries.
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<PAGE>
Amendment and Waiver
Other than amendments not adverse to holders of Debt Securities,
amendments of the Indenture or the Debt Securities may be made only with the
consent of the holders of a majority in principal amount of the series of Debt
Securities affected (acting as one class). Waivers of compliance with any
provision of the Indenture or the Debt Securities with respect to any series of
Debt Securities may be made only with the consent of the holders of a majority
in principal amount of the Debt Securities of that series. The consent of all
holders of affected Debt Securities will be required to (a) change the stated
maturity thereof, (b) reduce the principal amount thereof, (c) reduce the rate,
or manner of calculating the same, or change the time or place of payment of
interest thereon, or (d) impair the right to institute suit for the payment of
principal thereof or interest thereon (Section 902). The holders of a majority
in aggregate principal amount of Debt Securities affected may waive any past
default under the applicable Indenture and its consequences, except a default
(1) in the payment of the principal of or interest on such Debt Securities, or
(2) in respect of a provision which cannot be waived or amended without the
consent of all holders of Debt Securities affected (Sections 513 and 902).
Certain Covenants
Unless otherwise provided in the Debt Securities, the Underlying
Securities Issuer shall not create or assume any lien on any Principal Property
(described below) of the Underlying Securities Issuer or any Restricted
Subsidiary (described below) or shares of capital stock or indebtedness of any
Subsidiary (other than any Subsidiary of The Neiman Marcus Group, Inc. ("NMG"),
until such time as NMG shall become a Restricted Subsidiary), or permit any
Restricted Subsidiary to do so, without securing the Debt Securities of any
series having the benefit of the covenant equally and ratably with such debt for
so long as such debt shall be so secured, subject to certain exceptions
specified in the Indenture. The exceptions are: (a) with respect to any series
of Debt Securities, any lien existing on the date of issuance of the series; (b)
liens existing on property owned or leased by, or shares of capital stock or
indebtedness of, an entity at the time it becomes a Restricted Subsidiary; (c)
liens existing on property at the time of the acquisition or lease thereof by
the Underlying Securities Issuer or a Restricted Subsidiary; (d) liens on
property of a corporation existing at the time such corporation is merged or
consolidated with the Underlying Securities Issuer or a Restricted Subsidiary or
at the time of a sale, lease or other disposition of the properties of a
corporation as an entirety or substantially as an entirety to the Underlying
Securities Issuer or a Restricted Subsidiary; (e) certain liens incurred on
property or assets to finance the purchase price of capital stock, property or
assets; (f) certain liens incurred on property or assets to finance the
construction, alteration or improvement thereof; (g) any lien securing debt of a
Restricted Subsidiary owing to the Underlying Securities Issuer or to another
Restricted Subsidiary; (h) any lien in favor of any customer arising in respect
of performance deposits and partial, progress, advance or other payments made by
or on behalf of such customer, for goods produced or to be produced for, or
services rendered or to be rendered to, such customer in the ordinary course of
business, which lien shall not exceed the amount of such deposits or payments;
(i) mechanics', workmen's, repairmen's and similar liens arising in the ordinary
course of business; (j) liens created or resulting from any litigation or
proceedings which are being contested in good faith; liens arising out of
judgments or awards against the Underlying Securities Issuer or any Restricted
Subsidiary with respect to which the Underlying Securities Issuer or such
Restricted Subsidiary is in good faith prosecuting an appeal or proceeding for
review; or liens incurred by the Underlying Securities Issuer or any Restricted
Subsidiary for the purpose of obtaining a stay or discharge in the course of any
legal proceeding to which the Underlying Securities Issuer or such Restricted
Subsidiary is a party; (k) any lien for taxes or assessments or governmental
charges or levies not yet due or delinquent or which can thereafter be paid
without penalty or which are being contested in good faith by appropriate
proceedings; any landlord's lien on property held under lease and tenants'
rights under leases; easements and any other liens of a nature similar to those
hereinabove described in this clause (k) which do not, in the opinion of the
Underlying Securities Issuer, materially impair the use of such property in the
operation of the business of the Underlying Securities Issuer or any Restricted
Subsidiary or the value of such property for the purposes of such business; (l)
any lien which may be deemed to result from an agreement or commitment to
exchange securities of a Subsidiary for other securities of the Underlying
Securities Issuer, whether or not such securities of a Subsidiary are placed in
escrow for such purpose; (m) certain liens in favor of or required by contracts
with governmental entities; (n) any extension, renewal or replacement (or
successive extensions, renewals or
S-22
<PAGE>
replacements) in whole or in part of any lien referred to in clauses (a) through
(m), so long as the principal amount of the debt secured thereby does not exceed
the principal amount of debts so secured at the time of the extension, renewal
or replacement (with certain exceptions) and the lien is limited to all or part
of the same property subject to the lien so extended, renewed or replaced (plus
improvements on the property); and (o) any lien otherwise prohibited by such
covenant that secure indebtedness which, together with the aggregate amount of
outstanding indebtedness secured by liens otherwise prohibited by such covenant
and the value of certain sale and leaseback transactions, does not at the time
of incurrence exceed 15% of the Underlying Securities Issuer's Consolidated Net
Assets (described below) (Section 1006).
Unless otherwise provided in the Debt Securities, the Underlying
Securities Issuer shall not, and shall not permit any Restricted Subsidiary to,
enter into any sale and leaseback transaction covering any Principal Property of
the Underlying Securities Issuer or any Restricted Subsidiary unless (a) the
Underlying Securities Issuer or such Restricted Subsidiary would be entitled
under the provisions described above to incur debt equal to the value of such
sale and leaseback transaction, secured by liens on the facilities to be leased,
without equally and ratably securing the Debt Securities, (b) the Underlying
Securities Issuer, during the 180 days following the effective date of such sale
and leaseback transaction, applies an amount equal to the value of such sale and
leaseback transaction to the voluntary retirement of Funded Debt (as defined in
the Indenture), or (c) the Underlying Securities Issuer purchases Principal
Property having a fair value at least equal to the value of such sale and
leaseback transaction or cancels Debt Securities or Funded Debt in an aggregate
principal amount at least equal to the value of such sale and leaseback
transaction (Section 1007).
The Indenture defines Consolidated Net Assets as the total amount of
all assets appearing on the consolidated balance sheet of the Underlying
Securities Issuer and its Restricted Subsidiaries (calculated as described in
the Indenture), less total current liabilities other than long-term liabilities
due within one year.
The Indenture defines Restricted Subsidiary as any Subsidiary of the
Underlying Securities Issuer (which term generally includes majority-owned
direct and indirect subsidiaries) that owns or leases a Principal Property,
other than NMG and its Subsidiaries and other than a Subsidiary that is
principally engaged in the business of owning or investing in real estate (a
"Real Estate Subsidiary"), finance, credit, leasing, financial services or other
similar operations. The Indenture provides, however, that NMG and any Real
Estate Subsidiary will become a Restricted Subsidiary in the event that a
Restricted Subsidiary merges with, consolidates with or transfers substantially
all of its assets to NMG or such Real Estate Subsidiary, as the case may be, or
in the event that NMG or such Real Estate Subsidiary, as the case may be,
becomes a wholly-owned subsidiary of the Underlying Securities Issuer.
The Indenture defines Principal Property as all land, buildings,
machinery and equipment, and leasehold interests and improvements in respect of
the foregoing, that are located in the United States of America and that would
be reflected on the consolidated balance sheet of a Person; provided that such
term shall not include any property which the Board of Directors of the
Underlying Securities Issuer by resolution determines not to be of material
importance to the total business conducted by the Underlying Securities Issuer
and its Subsidiaries as an entirety.
According to the Underlying Securities Prospectus, there are no other
restrictive covenants contained in the Indenture.
Debt Securities Events of Default
Events of default (the "Debt Securities Events of Default") with
respect to any series of Debt Securities under the Indenture include: (a)
default in the payment of any principal of, or any premium on, such series; (b)
default in the payment of any installment of interest on such series and
continuance of such default for a period of 30 days; (c) default in the
performance of any other covenant in the Indenture or in the Debt Securities and
continuance of such default for a period of 90 days after receipt by the
Underlying Securities Issuer of notice of such default from the Underlying
Securities Trustee or by the Underlying Securities Issuer and the Underlying
Securities Trustee from the holders of at
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<PAGE>
least 25% in principal amount of Debt Securities of such series; (d) a default
under any bond, debenture, note or other evidence of indebtedness for money
borrowed by the Underlying Securities Issuer or any Restricted Subsidiary (other
than the Debt Securities), or under any mortgage, indenture or instrument under
which there may be secured or evidenced any indebtedness for money borrowed by
the Underlying Securities Issuer or any Restricted Subsidiary (other than the
Debt Securities), whether such indebtedness now exists or shall hereafter be
created, which default shall have resulted in indebtedness in excess of
$15,000,000 becoming due and payable prior to the date on which it would
otherwise have become due and payable, without such indebtedness having been
discharged or such acceleration having been rescinded or annulled within 30 days
after the date on which written notice thereof is given to the Underlying
Securities Issuer by the Underlying Securities Trustee or to the Underlying
Securities Issuer and the Underlying Securities Trustee by Holders of at least
25% in principal amount of the Securities then outstanding; or (e) certain
events of bankruptcy, insolvency or reorganization in respect of the Underlying
Securities Issuer (Section 501). The Underlying Securities Trustee may withhold
notice to the holders of a series of Debt Securities of any default (except in
the payment of principal of, premium on or interest on such series of Debt
Securities) if it considers such withholding to be in the interest of Holders of
the Debt Securities (Section 602). Not all Debt Securities Events of Default
with respect to a particular series of Debt Securities issued under the
Indenture necessarily constitute Debt Securities Events of Default with respect
to any other series of Debt Securities.
On the occurrence of a Debt Securities Event of Default with respect to
a series of Debt Securities, the Underlying Securities Trustee or the holders of
at least 25% in principal amount of Debt Securities of such series then
outstanding may declare the principal (or in the case of Debt Securities sold at
an original issue discount, the amount specified in the terms thereof) and
accrued interest thereon to be due and payable immediately (Section 502).
Within 120 days after the end of each fiscal year, an officer of the
Underlying Securities Issuer must inform the Underlying Securities Trustee
whether such officer knows of any default, describing any such default and the
status thereof (Section 1004). Subject to provisions relating to its duties in
case of default, the Underlying Securities Trustee is under no obligation to
exercise any of its rights or powers under the Indenture at the direction of any
holders of Debt Securities unless the Underlying Securities Trustee shall have
received a satisfactory indemnity (Section 601).
Defeasance
The Indenture provides that the Underlying Securities Issuer, at the
Underlying Securities Issuer's option, (a) will be discharged from all
obligations in respect of the Debt Securities of a series (except for certain
obligations to register the transfer or exchange of Debt Securities, replace
stolen, lost or destroyed Debt Securities, maintain paying agencies and hold
moneys for payment in trust), or (b) need not comply with the provisions of one
or more of Sections 501(5), 1006 and 1007 of the Indenture (relating to
cross-acceleration, the incurrence of liens and sale and leaseback transactions,
respectively), in each case if the Underlying Securities Issuer irrevocably
deposits in trust with the Underlying Securities Trustee money or obligations of
or guaranteed by the United States of America which through the payment of
interest thereon and principal thereof in accordance with their terms will
provide money, in an amount sufficient to pay all the principal of (including
any mandatory sinking fund payments) and interest on the Debt Securities of such
series on the dates such payments are due in accordance with the terms of such
Debt Securities. To exercise either option, the Underlying Securities Issuer is
required to deliver to the Underlying Securities Trustee an opinion of counsel
to the effect that the deposit and related defeasance would not cause the
holders of the Debt Securities of such series to recognize income, gain or loss
for Federal income tax purposes. To exercise the option described in clause (a)
above, such opinion must be based on a ruling of the Internal Revenue Service, a
regulation of the Treasury Department or a provision of the Internal Revenue
Code (Section 403).
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<PAGE>
Advance of Maturity Date or Optional Redemption
Tax Event
The Underlying Securities Issuer intends to deduct interest paid on the
2097 Debentures for United States federal income tax purposes. However, the
Clinton Administration's budget proposal for Fiscal Year 1998, released on
February 6, 1997, contained a series of proposed tax law changes that, among
other things, would prohibit an issuer from deducting interest payments on debt
instruments with a maturity of more than 40 years, with such changes to be
effective for instruments issued on or after the date of first Congressional
committee action. However, tax law changes proposed by the Clinton
Administration on June 30, 1997 did not contain similar provisions. In addition,
bills reported out of and passed by the U.S. House of Representatives and the
U.S. Senate have not contained similar provisions. There can be no assurance
that the reconciliation bill or other legislation enacted in the future will not
contain similar provisions that would affect the Underlying Securities Issuer's
ability to deduct interest paid on the 2097 Debentures or that any such
legislation would not have a retroactive effective date.
Upon the occurrence of a Tax Event (as defined below), the Underlying
Securities Issuer, without the consent of the holders of the 2097 Debentures,
will have the right to shorten the maturity of the 2097 Debentures to the extent
required, in the opinion of a nationally recognized independent tax counsel,
such that, after the shortening of the maturity, interest paid on the 2097
Debentures will be deductible for United States federal income tax purposes.
There can be no assurance that the Underlying Securities Issuer would not
exercise its right to shorten the maturity of the 2097 Debentures upon the
occurrence of a Tax Event.
In the event that the Underlying Securities Issuer elects to exercise
its right to shorten the maturity of the 2097 Debentures on the occurrence of a
Tax Event, the Underlying Securities Issuer will mail a notice of shortened
maturity to each holder of the 2097 Debentures by first-class mail not less than
30 or more than 60 days after the occurrence of such Tax Event, stating the new
maturity date of the 2097 Debentures. Such notice shall be effective immediately
upon mailing.
The Underlying Securities Issuer believes that the 2097 Debentures
should constitute indebtedness for United States federal income tax purposes
under current law, and, in that case, an exercise of its right to shorten the
maturity of the 2097 Debentures would not be a taxable event to holders.
Prospective investors should be aware, however, that the Underlying Securities
Issuer's exercise of its right to shorten the maturity of the 2097 Debentures
would be a taxable event to holders if the 2097 Debentures are treated as equity
for purposes of United States federal income taxation before the maturity is
shortened, assuming that the 2097 Debentures of shortened maturity are treated
as debt for such purposes.
"Tax Event" means that the Underlying Securities Issuer shall have
received an opinion of a nationally recognized independent tax counsel to the
effect that at any time on or after the date of the issuance of the 2097
Debentures, as a result of (a) any amendment to, clarification of, or change
(including any announced prospective amendment, clarification or change) in any
law, or any regulation thereunder, of the United States, (b) any judicial
decision, official administrative pronouncement, ruling, regulatory procedure,
regulation, notice or announcement, including any notice or announcement of
intent to adopt or promulgate any ruling, regulatory procedure or regulation
(any of the foregoing, an "Administrative or Judicial Action"), or (c) any
amendment to, clarification of or change in any official position or the
interpretation of any Administrative or Judicial Action or any law or regulation
of the United States that differs from the theretofore generally accepted
position or interpretation, in each case, on or after, the date of the issuance
of the 2097 Debentures, there is a more than insubstantial risk that interest
paid by the Underlying Securities Issuer on the 2097 Debentures is not, or will
not be, deductible, in whole or in part, by the Underlying Securities Issuer for
purposes of United States federal income tax.
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Optional Redemption
The 2097 Debentures will be redeemable, as a whole or in part, at the
option of the Underlying Securities Issuer at any time, at a redemption price
equal to the greater of (a) 100% of the principal amount of the 2097 Debentures
to be redeemed and (b) the sum of the present values of the Remaining Scheduled
Payments (as hereinafter defined) thereon discounted to the redemption date on a
semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at
the Treasury Rate plus 25 basis points, plus in any case accrued interest on the
principal amount being redeemed to the date of redemption.
In addition, if a Tax Event occurs and in the opinion of nationally
recognized independent tax counsel there would, notwithstanding any shortening
of the maturity of the 2097 Debentures, be more than an insubstantial risk that
interest paid by the Underlying Securities Issuer on the 2097 Debentures is not,
or will not be, deductible, in whole or in part, by the Underlying Securities
Issuer for United States federal income tax purposes, the Underlying Securities
Issuer will have the right, within 90 days following the occurrence of such Tax
Event, to redeem the 2097 Debentures in whole (but not in part), on not less
than 30 or more than 60 days' notice mailed to holders thereof, at a redemption
price equal to the greater of (i) 100% of the principal amount of the 2097
Debentures and (ii) the sum of the present values of the Remaining Scheduled
Payments thereon discounted to the redemption date on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Treasury
Rate plus 45 basis points, together, in either case with accrued interest on the
principal amount being redeemed to the date of redemption.
"Treasury Rate" means, with respect to any redemption date, the rate
per annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the 2097 Debentures to be redeemed that would be utilized,
at the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of such 2097 Debentures. "Independent Investment Banker" means
one of the Reference Treasury Dealers appointed by the Underlying Securities
Trustee after consultation with the Underlying Securities Issuer.
"Comparable Treasury Price" means, with respect to any redemption date,
(a) the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (b) if such release (or any successor release) is not
published or does not contain such prices on such business day, (i) the average
of the Reference Treasury Dealer Quotations for such redemption date, after
excluding the highest and lowest such Reference Treasury Dealer Quotations, or
(ii) if the Underlying Securities Trustee obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such Quotations. "Reference
Treasury Dealer Quotations" means, with respect to each Reference Treasury
Dealer and any redemption date, the average, as determined by the Underlying
Securities Trustee, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted in
writing to the Underlying Securities Trustee by such Reference Treasury Dealer
at 5:00 p.m. New York time on the third business day preceding such redemption
date.
"Reference Treasury Dealer" means each of Salomon Brothers Inc,
Goldman, Sachs & Co. and J.P. Morgan Securities Inc. and their respective
successors; provided, however, that if any of the foregoing shall cease to be a
primary U.S. Government securities dealer in New York City (a "Primary Treasury
Dealer"), the Underlying Securities Issuer shall substitute therefor another
Primary Treasury Dealer.
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<PAGE>
"Remaining Scheduled Payments" means, with respect to any Security, the
remaining scheduled payments of the principal thereof to be redeemed and
interest thereon that would be due after the related redemption date but for
such redemption; provided, however, that, if such redemption date is not an
interest payment date with respect to such 2097 Debentures, the amount of the
next succeeding scheduled interest payment thereon will be reduced by the amount
of interest accrued thereon to such redemption date.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each holder of 2097 Debentures to be
redeemed.
Unless the Underlying Securities Issuer defaults in payment of the
redemption price, on and after the applicable redemption date, interest will
cease to accrue on the 2097 Debentures or portions thereof called for
redemption.
Information Concerning the Underlying Securities Trustee
The Underlying Securities Issuer may have banking relationships in the
ordinary course of business with the Underlying Securities Trustee.
Book-Entry System
The Securities are represented by Global Securities deposited with DTC
and registered in the name of a nominee of DTC. Except as set forth below, the
Securities are available for purchase in denominations of $1,000 and integral
multiples thereof in book-entry form only. The term "Depository" refers to DTC
or any successor depository.
DTC has advised the Underlying Securities Issuer and Salomon Brothers
Inc, Goldman Sachs & Co. and J.P. Morgan Securities Inc. (collectively, the
"Underlying Securities Underwriters") as follows: 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 and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934. DTC was
created to hold securities of persons who have accounts with DTC
("participants") and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic
book-entry changes in accounts of the participants, thereby eliminating the need
for physical movement of securities certificates. DTC's participants include
securities brokers and dealers (including the Underlying Securities
Underwriters), banks, trust companies, clearing corporations and certain other
organizations, some of which (and/or their representatives) own DTC. Access to
DTC's book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Upon the issuance by the Underlying Securities Issuer of Securities
represented by the Global Securities, the Depository or its nominee credited, on
its book-entry registration and transfer system, the respective principal
amounts of the Securities represented by such Global Securities to the accounts
of participants. The accounts to be credited was designated by the Underlying
Securities Underwriters. Ownership of beneficial interests in Securities
represented by the Global Securities is limited to participants or persons that
hold interest through participants. Ownership of such beneficial interests in
Securities is shown on, and the transfer of that ownership is and will be
effected only through, records maintained by the Depository (with respect to
interests of participants in the Depository), or by participants in the
Depository or persons that may hold interests through such participants (with
respect to persons other than participants in the Depository). The laws of some
states require that certain purchasers of securities take physical delivery of
such securities in definitive form. Such limits and such laws may impair the
ability to transfer beneficial interests in Securities represented by Global
Securities.
So long as the Depository for a Global Security, or its nominee, is the
registered owner of such Global Security, the Depository or its nominee, as the
case may be, will be considered the sole owner or holder of the Securities
represented by such Global Security for all purposes under the Indenture. Unless
the Underlying Securities Issuer elects
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to issue individual Securities in definitive form in exchange for Global
Securities, as described in the third succeeding paragraph, owners of beneficial
interests in Global Securities will not be entitled to have the Securities
represented by such Global Securities registered in their names, will not
receive or be entitled to receive physical delivery of Securities in definitive
form and will not be considered the owners or holders thereof under the
Indenture. Unless and until the Global Securities are exchanged in whole or in
part for individual certificates evidencing the Securities represented thereby,
such Global Securities may not be transferred except as a whole (i) by the
Depository for such Global Securities to a nominee of such Depository, (ii) by a
nominee of such Depository to such Depository or another nominee of such
Depository or (iii) by the Depository or any nominee of such Depository to a
successor Depository or any nominee of such successor Depository.
Payments of principal of and interest on the Securities represented by
Global Securities registered in the name of the Depository or its nominee will
be made by the Underlying Securities Issuer through the Paying Agent (as defined
in the Indenture) to the Depository or its nominee, as the case may be, as the
registered owner of such Global Securities.
The Underlying Securities Issuer has been advised that the Depository
or its nominee, upon receipt of any payment of principal or interest in respect
of the Securities represented by Global Securities, will credit immediately the
accounts of the related participants with payment in amounts proportionate to
their respective beneficial interest in the Securities represented by the Global
Securities as shown on the records of the Depository. The Underlying Securities
Issuer expects that payments by participants to owners of beneficial interests
in the Securities represented by the Global Securities will be governed by
standing customer instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name". Such payments will be the responsibility of such participants.
If the Depository is at any time unwilling or unable to continue as
Depository and a successor depository is not appointed by the Underlying
Securities Issuer within 90 days, the Underlying Securities Issuer will issue
individual Securities in definitive form in exchange for the Global Securities.
In addition, the Underlying Securities Issuer may at any time and in its sole
discretion determine not to have the Securities represented by Global
Securities, and, in such event, will issue individual 2007 Notes, 2027
Debentures or 2097 Debentures, as the case may be, in definitive form in
exchange for the Global Securities. Notwithstanding the foregoing sentence, the
Underlying Securities Issuer has no present intention to issue individual 2007
Notes, 2027 Debentures or 2097 Debentures in definitive form and, except as
described in the first sentence of this paragraph, does not currently anticipate
that any circumstances will arise under which it would do so. In either
instance, the Underlying Securities Issuer will issue 2007 Notes, 2027
Debentures or 2097 Debentures in definitive form equal in aggregate principal
amount to the Global Securities, in such names and in such principal amounts as
the Depository shall request. 2007 Notes, 2027 Debentures or 2097 Debentures so
issued in definitive form will be issued in dominations of $1,000 and integral
multiples thereof and will be issued in registered form only, without coupons.
Neither the Underlying Securities Issuer, the Trustee, any Paying Agent
(as defined in the Indenture) nor the registrar for the Securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Securities
represented by such Global Securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
FEDERAL INCOME TAX CONSEQUENCES
General
The following is a general discussion of certain of the material
Federal income tax consequences of the purchase, ownership and disposition of
the Trust Certificates by an initial holder of Trust Certificates. This section
supersedes the discussion contained in the Prospectus under "Federal Income Tax
Consequences".
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This summary is based upon laws, regulations, rulings and decisions
currently in effect, all of which are subject to change, possibly on a
retroactive basis. The discussion does not deal with all Federal tax
consequences applicable to all categories of investors, some of which may be
subject to special rules. In addition, this summary is generally limited to
investors who will hold the Trust Certificates as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the Code,
and who do not hold their Trust Certificates as part of a "straddle", a "hedge"
or a "conversion transaction". Furthermore, no authority exists concerning the
tax treatment of some aspects of the Trust Certificates, and there can be no
assurance that the Treasury Department will not issue regulations under Section
1286 of the Code which would modify the treatment described below. Accordingly,
the manner in which Trust Certificates are ultimately treated under the Code may
differ substantially from that described below. Investors should consult their
own tax advisors to determine the Federal, state, local and other tax
consequences of the purchase, ownership and disposition of the Trust
Certificates.
Tax Status of Trust
In the opinion of Shearman & Sterling, special federal income tax
counsel to the Depositor, assuming that the Underlying Securities constitute
indebtedness for federal income tax purposes, the Trust will be classified as a
grantor trust and not as an association (or publicly traded partnership) taxable
as a corporation under the Code. Accordingly, each Trust Certificateholder will
be subject to federal income taxation as if it owned directly the portion of the
Underlying Securities allocable to such Trust Certificates and as if it paid
directly its share of reasonable expenses paid by the Trust.
Income of Trust Certificateholders
In General. Assuming that the Underlying Securities constitute
indebtedness for Federal income tax purposes, the Trust Certificates represent
ownership of newly issued debt instruments under Section 1286 of the Code. The
Class B Trust Certificates will be treated as an interest in a newly issued debt
instrument issued with OID.
The Trust intends to take the position that the Class A Trust
Certificates represent interests in a newly issued self-amortizing debt
instrument having a principal amount generally equal to the purchase price of
the Class A Trust Certificates and maturing on the Final Scheduled Distribution
Date. Under this approach, payments made on the Class A Trust Certificates on
each Distribution Date will partially represent a return of principal and
partially represent interest, as calculated based upon the Trust Certificate's
yield to maturity. Trust Certificateholders that report income under the cash
method of accounting would include in income upon receipt that portion of the
payment representing interest. The Internal Revenue Service could take the
position, however, that the Class A Trust Certificates represent a newly issued
debt issued with OID.
In the case of a Trust Certificate that represents ownership of a debt
instrument issued with OID, the amount of the OID is equal to the excess of: (i)
the stated redemption price (generally all payments made with respect to the
Underlying Securities on that Trust Certificate); over (ii) the purchase price
of the Trust Certificate (less accrued interest). The holder of such a Trust
Certificate, whether using the cash or accrual method of accounting, generally
will be required to include OID in income in advance of the receipt of some or
all of the related cash payments. The amount of OID allocable to any accrual
period is an amount equal to the product of the instrument's adjusted issued
price at the beginning of the accrual period and its yield to maturity
(determined on the basis of compounding at the close of each accrual period).
The adjusted issue price at the beginning of any accrual period is equal to the
purchase price, increased by the accrual OID for each prior accrual period and
reduced by the amount of any cash payments.
Modification or Exchange of Underlying Securities. Depending upon the
circumstances, it is possible that a modification of the terms of the Underlying
Securities, including advancing their maturity date following a Tax Event, or a
substitution of other assets for the Underlying Securities following a default
on the Underlying Securities or following a Tax Event, would be a taxable event
to Trust Certificateholders on which they would recognize gain or loss.
Moreover, if the Underlying Securities Issuer deposits cash or U.S. Government
Obligations in order to discharge its
S-29
<PAGE>
liabilities relating to the Underlying Securities, such deposits are likely to
constitute a taxable event to Trust Certificateholders.
Deductibility of Trust's Fees and Expenses
In computing its Federal income tax liability, a Trust
Certificateholder will be entitled to deduct, consistent with its method of
accounting, its share of reasonable administrative fees, trustee fees and other
fees paid or incurred by the Trust as provided in Section 162 or 212 of the
Code. If a Trust Certificateholder is an individual, estate or trust, the
deduction for his share of fees will be a miscellaneous itemized deduction that
may be disallowed in whole or in part.
Purchase and Sale of a Trust Certificate
A Trust Certificateholder's tax basis in a Trust Certificate generally
will equal the cost of such Trust Certificate (A) increased by any amounts of
OID and (B) reduced by any payments of "principal", in the case of a Trust
Certificate representing ownership of a debt instrument issued without OID, or
reduced by any payments included in the stated redemption price, in the case of
a Trust Certificate representing ownership of a debt instrument issued with OID.
If a Trust Certificate or Underlying Security is sold, gain or loss
will be recognized equal to the difference between the proceeds of sale
allocable to the Trust Certificateholder and the Trust Certificateholder's
adjusted basis in its Trust Certificate. Any gain or loss will be a capital gain
or loss if the Trust Certificate was held as a capital asset.
Distributions on Class B Trust Certificates
The distribution of the Underlying Securities to the Class B Trust
Certificateholders on the Final Scheduled Distribution Date should not
constitute a taxable transaction to the recipients. Similarly, a redemption by
the Trust of Trust Certificates in exchange for the Underlying Securities upon
the tender by a Trust Certificateholder of Class B Trust Certificates of a
certain principal amount and Class A Trust Certificates representing a like
percentage of the outstanding principal amount thereof should not constitute a
taxable transaction to the Trust Certificateholder.
Backup Withholding
Payments made on the Trust Certificates and proceeds from the sale of
the Trust Certificates will not be subject to a "backup" withholding tax of 31%
unless, in general, the Trust Certificateholder fails to comply with certain
reporting procedures and is not an exempt recipient under applicable provisions
of the Code.
Foreign Trust Certificateholders
Interest (including OID) paid to Trust Certificateholders that are not
United States Persons ("Foreign Trust Certificateholders") and that do not hold
their Trust Certificates in connection with a United States trade or business
generally will not be subject to income or withholding tax, provided that such
Foreign Trust Certificateholder fulfills certain certification requirements.
Under such requirements, the holder must certify, under penalties of perjury,
that it is not a United States Person and provide its name and address.
A "United States Person" means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in or
under the laws of the United States or any State (other than a partnership that
is not treated as a U.S. Person under any applicable Treasury regulations), an
estate whose income is subject to United States federal income tax regardless of
its source, or 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 Persons 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 prior to such date, that elect to continue to
be treated as United States Persons, also will be United States Persons.
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Information Reporting
The Trustee will furnish or make available, within a reasonable time
after the end of each calendar year, to each Trust Certificateholder, such
information as the Trustee deems necessary or desirable to assist Trust
Certificateholders in preparing their federal income tax returns, or to enable
Trust Certificateholders to make such information available to beneficial owners
or other financial intermediaries for which such Trust Certificateholders hold
such Trust Certificates as nominees.
New Withholding Regulations
The Treasury Department has issued new regulations which make certain
modifications to the withholding, backup withholding and information reporting
rules. The new regulations generally are effective for payments made after
December 31, 1999. Investors should consult their tax advisors regarding such
regulations.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain requirements on (a) an employee benefit
plan (as defined in Section 3(3) of ERISA), (b) a plan described in Section
4975(e)(1) of the Code or (c) any entity whose underlying assets include Plan
Assets by reason of any such plan's investment in the entity (each, a "Plan").
In accordance with ERISA's general fiduciary standards, before
investing in a Trust Certificate, a Plan fiduciary should determine whether such
an investment is permitted under the governing Plan instruments and appropriate
for the Plan in view of its overall investment policy and the composition and
diversification of its portfolio. Other provisions of ERISA and the Code
prohibit certain transactions involving the assets of a Plan and persons who
have certain specified relationships to the Plan ("Parties in Interest" within
the meaning of ERISA or "Disqualified Persons" within the meaning of the Code).
Thus, a Plan fiduciary considering an investment in Trust Certificates should
also consider whether such an investment might constitute or give rise to a
non-exempt prohibited transaction under ERISA or the Code.
Under a "look-through rule" set forth in Section 2510.3-101 of the
United States Department of Labor regulations, a Plan's assets may include an
interest in the underlying assets of an entity (such as a trust) for certain
purposes under ERISA if the Plan acquires an equity interest in such entity.
Thus, unless an exception to the look-through rule applies, an investment in
Trust Certificates by a Plan might result in the assets of the Trust being
deemed to constitute Plan Assets, which in turn might mean that certain aspects
of such investment, including the operation of the Trust, might be subject to
the prohibited transaction provisions under ERISA and the Code.
If the assets of the Trust were deemed to be Plan Assets, transactions
involving the Depositor, Underwriter, Trustee, Underlying Securities Trustee and
the Underlying Securities Issuer might constitute prohibited transactions with
respect to a Plan holding a Trust Certificate unless (i) one or more prohibited
transaction exemptions ("PTEs") applies or (ii) in the case of the Underlying
Securities Issuer, it is not a Disqualified Person or party in interest with
respect to such Plan. Plans maintained or contributed to by the Depositor,
Underwriter, Trustee, Underlying Securities Trustee and the Underlying
Securities Issuer, or any of their affiliates, should not acquire or hold any
Trust Certificate.
If the Trust is deemed to hold Plan Assets, the Underlying Securities
would appear to be an indirect loan between the Underlying Securities Issuer and
any Plan owning Trust Certificates; however, such loan, by itself, would not
constitute a prohibited transaction unless the Underlying Securities Issuer is a
party in interest or Disqualified Person with respect to such Plan.
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<PAGE>
The Underwriter is a broker-dealer registered under the Exchange Act,
and customarily purchases and sells securities for its own account in the
ordinary course of its business as a broker-dealer. Accordingly, the sale of
Trust Certificates by the Underwriter to Plans may be exempt under PTE 75-1 if
the following conditions are satisfied: (i) the Underwriter is not a fiduciary
with respect to the Plan and is a party in interest or Disqualified Person
solely by reason of Section 3(14)(B) of ERISA or Section 4975(e)(2)(B) of the
Code or a relationship to a person described in such Sections, (ii) the
transaction is at least as favorable to the Plan as an arm's-length transaction
with an unrelated party and is not a prohibited transaction within the meaning
of Section 503(b) of the Code, and (iii) the Plan maintains for at least six
years such records as are necessary to determine whether the conditions of PTE
75-1 have been met.
The custodial and other services rendered by the Trustee, and
Underlying Securities Trustee might be exempt pursuant to Section 408(b)(2) of
ERISA and Section 4975(d)(2) of the Code, which exempt services necessary for
the establishment or operation of a Plan under a reasonable contract or
arrangement and for which no more than reasonable compensation is paid. An
arrangement would not be treated as reasonable unless it can be terminated upon
reasonably short notice under the circumstances without penalty. The Trustee may
be terminated upon 60 days' prior notice and the approval of Trust
Certificateholders owning more than 66 2/3% of the aggregate beneficial interest
of Trust Certificates. The Depositor believes the compensation of the Trustee
and is reasonable under the circumstances. The statutory exemption for services
noted above does not provide exemptive relief from prohibited transactions
described in Section 406(b) of ERISA or Section 4975(c)(1)(E) or (F) of the
Code. In that regard, a fiduciary with respect to a Plan should consider whether
a sale of the Underlying Securities to Merrill Lynch & Co. or its affiliates
might constitute a non-exempt prohibited transaction, notwithstanding the sale
procedure to accept the highest bid submitted and the certification of the
highest bid and identity of bidders to the Trustee. The Trustee shall, prior to
any sale of Underlying Securities to Merrill Lynch & Co. or any of its
affiliates, certify that any such purchaser submitted the highest of at least
three bids and shall identify the other bidders.
Other prohibited transaction exemptions could apply to the acquisition
and holding of Trust Certificates by Plans, and the operation of the Trust,
including, but not limited to: PTE 84-14 (an exemption for certain transaction
determined by an independent qualified professional asset manager), PTE 91-38
(an exemption for certain transactions involving bank collective investment
funds), PTE 90-1 (an exemption for certain transactions involving insurance
company pooled separate accounts) or PTE 95-60 (an exemption for certain
transactions involving insurance company general accounts).
By acquiring and holding a Trust Certificate, a Plan shall be deemed to
have represented and warranted to the Depositor, Trustee, and Underwriter that
such acquisition and holding of a Trust Certificate does not involve a
non-exempt prohibited transaction with respect to such Plan, including with
respect to the activities of the Trust.
UNDERWRITING
Subject to the terms and conditions set forth in the Purchase
Agreement, dated as of February 20, 1998 (the "Standard Purchase Agreement"), as
amended and supplemented by the Terms Agreement, dated as of May 12, 1998 (the
"Terms Agreement", and, together with the Standard Purchase Agreement, the
"Purchase Agreement"), the Depositor has agreed to sell to Merrill Lynch & Co.,
and Merrill Lynch & Co. has agreed to purchase, all of the Trust Certificates.
The Depositor has been advised by the Underwriter that the Underwriter
proposes to offer the Trust Certificates from time to time in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. The Underwriter may effect such transactions by selling Trust Certificates
to or through dealers and such dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Underwriter and any
purchasers of Trust Certificates for whom they may act as agents. The
Underwriter and any dealers that participate with the Underwriter in the
distribution of Trust Certificates may be deemed to be underwriters, and any
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profit on the resale of Trust Certificates by them may be deemed to be
underwriting discounts, or commissions under the Securities Act of 1933, as
amended (the "Securities Act").
The Underwriter has from time to time provided investment banking and
other financial services to the Underlying Securities Issuer and expects in the
future to provide such services, for which it has received and will receive
customary fees and commissions.
The Purchase Agreement provides that the Depositor will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Securities Act, or will contribute to payments the Underwriter may be required
to make in respect thereof.
VALIDITY OF THE TRUST CERTIFICATES
The validity of the Trust Certificates will be passed upon for the
Depositor and the Underwriter by Shearman & Sterling, New York, New York.
RATINGS
It is a condition to the issuance of the Trust Certificates that the
Trust Certificates have ratings assigned by Moody's and by S&P, equivalent to
the ratings of the Underlying Securities, which, as of the date of this
Prospectus Supplement, were "Baa1" by Moody's and "BBB+" by S&P. Moody's has
placed on review its ratings of the Underlying Securities Issuer for a possible
downgrade of its rating following the announcement that the Underlying
Securities Issuer has agreed to acquire Mosby, Inc. from The Times Mirror
Company for approximately $415 million.
The rating of the Trust Certificates by Moody's addresses the
likelihood of the ultimate payment of principal of and interest on the Trust
Certificates or any Underlying Securities distributed in respect thereof, as
well as the extent of any shortfall. The rating of the Trust Certificates by S&P
addresses the likelihood of timely receipt of interest and principal
distributions on the Class A Trust Certificates or any Underlying Securities
distributed in respect of the Class B Trust Certificates. The ratings are based
primarily on the credit quality of the Underlying Securities. The rating on the
Trust Certificates does not, however, constitute a statement regarding the
occurrence or frequency of redemptions or prepayments on, or extensions of the
maturity of, the Underlying Securities, and the corresponding effect on yield to
investors.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning Rating Agency. Each security rating should be evaluated independently
of similar ratings on different securities.
The Depositor has not requested a rating on the Trust Certificates by
any rating agency other than Moody's and S&P. However, there can be no assurance
as to whether any other rating agency will rate the Trust Certificates, or, if
it does, what rating would be assigned by any such other rating agency. A rating
on the Trust Certificates by another rating agency, if assigned at all, may be
lower than the ratings assigned to the Trust Certificates by Moody's and S&P.
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ANNEX A
ALLOCATION RATIOS CALCULATED ON
DISTRIBUTION DATES
Class A Trust Class B Trust
Distribution Date Certificates Certificates Total
- ----------------- ------------ ------------ -----
May 15, 1998............ 78.56% 21.44% 100.00%
August 1, 1998.......... 77.76 22.24 100.00
February 1, 1999........ 76.56 23.44 100.00
August 1, 1999.......... 75.67 24.33 100.00
February 1, 2000........ 74.74 25.26 100.00
August 1, 2000.......... 73.77 26.23 100.00
February 1, 2001........ 72.76 27.24 100.00
August 1, 2001.......... 71.72 28.28 100.00
February 1, 2002........ 70.64 29.36 100.00
August 1, 2002.......... 69.52 30.48 100.00
February 1, 2003........ 68.35 31.65 100.00
August 1, 2003.......... 67.14 32.86 100.00
February 1, 2004........ 65.88 34.12 100.00
August 1, 2004.......... 64.58 35.42 100.00
February 1, 2005........ 63.22 36.78 100.00
August 1, 2005.......... 61.82 38.18 100.00
February 1, 2006........ 60.36 39.64 100.00
August 1, 2006.......... 58.84 41.16 100.00
February 1, 2007........ 57.27 42.73 100.00
August 1, 2007.......... 55.64 44.36 100.00
February 1, 2008........ 53.95 46.05 100.00
August 1, 2008.......... 52.19 47.81 100.00
February 1, 2009........ 50.37 49.63 100.00
August 1, 2009.......... 48.48 51.52 100.00
February 1, 2010........ 46.52 53.48 100.00
August 1, 2010.......... 44.49 55.51 100.00
February 1, 2011........ 42.39 57.61 100.00
August 1, 2011.......... 40.20 59.80 100.00
February 1, 2012........ 37.94 62.06 100.00
August 1, 2012.......... 35.59 64.41 100.00
February 1, 2013........ 33.16 66.84 100.00
August 1, 2013.......... 30.64 69.36 100.00
February 1, 2014........ 28.03 71.97 100.00
August 1, 2014.......... 25.32 74.68 100.00
February 1, 2015........ 22.52 77.48 100.00
August 1, 2015.......... 19.62 80.38 100.00
February 1, 2016........ 16.62 83.38 100.00
August 1, 2016.......... 13.52 86.48 100.00
February 1, 2017........ 10.31 89.69 100.00
August 1, 2017.......... 6.98 93.02 100.00
February 1, 2018........ 3.55 96.45 100.00
August 1, 2018.......... 0.00 100.00 100.00
A-1
<PAGE>
PROSPECTUS
PUBLIC STEERS(R) TRUST CERTIFICATES
(ISSUABLE IN SERIES)
Merrill Lynch Depositor, Inc.
DEPOSITOR
The Public STEERS(R) Trust Certificates (the "Trust Certificates")
offered hereby and by supplements (each, a "Prospectus Supplement") to this
Prospectus will be offered from time to time in one or more series (each, a
"Series") and in one or more classes within each such Series (each, a "Class"),
denominated in U.S. dollars or in one or more other currencies or composite
currencies. Trust Certificates of each respective Series will be offered in
amounts, at prices and on terms to be determined at the time of sale as
described in the Prospectus Supplement accompanying this Prospectus. Each Series
of Trust Certificates will represent in the aggregate the entire beneficial
ownership interest in a publicly traded debt, or other eligible, security or a
pool of such securities (the "Underlying Securities"), together with certain
other assets, if applicable, described herein or in the applicable Prospectus
Supplement (such assets, together with the Underlying Securities, the "Deposited
Assets, to be deposited in a trust (the "Trust") for the benefit of holders of
Trust Certificates of such Series ("Trust Certificateholders") by Merrill Lynch
Depositor, Inc., a Delaware corporation that is an indirect, wholly owned,
limited-purpose subsidiary of Merrill Lynch & Co., Inc. (the "Depositor),
pursuant to the Standard Terms for Trust Agreements (the "Standard Terms") and a
supplement thereto (the "Series Supplement") with respect to a Series
(collectively, the "Trust Agreement") between the Depositor and the trustee (the
"Trustee") named in the applicable Prospectus Supplement. If so specified in the
applicable Prospectus Supplement, the Trust for a Series of Trust Certificates
may also include, or the Trust Certificateholders of such Trust Certificates may
have the benefit of, any combination of insurance policies, letters of credit,
Reserve Accounts (as defined below) and other types of rights or assets designed
to support or ensure the servicing and distribution of amounts due in respect of
the Deposited Assets (collectively, "Credit Support"). The Underlying Securities
will represent debt securities issued by the Government of the United States of
America ("Government Securities") or senior or subordinated publicly-traded debt
obligations of one or more corporations, general or limited partnerships,
preferred securities of trusts organized by such issuers to issue certain
trust-originated preferred securities, in each case organized under the laws of
the United States of America or any state thereof (each, an "Underlying
Securities Issuer"). As a condition to the deposit into a Trust of Underlying
Securities (other than Government Securities) constituting 10% or more of the
total Underlying Securities with respect to the related Series of Trust
Certificates ("Concentrated Underlying Securities"), as of the date of the
issuance of such Series, the issuer of such Underlying Securities will be
subject to the periodic reporting requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith will file
reports and other information with the Securities and Exchange Commission (the
"Commission"). See "Description of Deposited Assets--Underlying Securities
Issuer". Except for Government Securities, the Underlying Securities will be
purchased in the secondary market; they will not be acquired from the issuer
thereof. No such issuer will participate in the offering of the Trust
Certificates, nor will such issuer receive any of the proceeds from the sale of
the Underlying Securities to the Depositor or from the issuance of the Trust
Certificates. See "Description Deposited Assets--General". Except as otherwise
provided herein and in the applicable Prospectus Supplement, the Depositor's
only obligations with respect to each Series of Trust Certificates will be to
assign and deliver the Deposited Assets and certain related documents to the
applicable Trustee and, in certain cases, to arrange for Credit Support, if any.
An administrative agent (the "Administrative Agent"), if any is named in the
applicable Prospectus Supplement with respect to a Series of Trust Certificates,
may assume certain contractual administrative obligations of the Trustee, to the
extent provided in the applicable Prospectus Supplement, including certain cash
advances in the event of payment delinquencies on the Deposited Assets. See
"Description of the Trust Agreement--Advances in Respect of Delinquencies". The
Trust Certificates of each Series will not represent an obligation of or
interest in the Depositor or Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("Merrill Lynch & Co.") or any of their affiliates. Neither
the Trust Certificates nor the Deposited Assets will be guaranteed or insured by
the Depositor or Merrill Lynch & Co. or their affiliates.
Application will be made to list certain Series of Trust Certificates
on the New York Stock Exchange ("NYSE"). At the time of issue, each Series of
Trust Certificates offered hereby will be rated in one of the investment grade
categories recognized by one or more nationally recognized rating agencies.
There can be no assurance that an active public market for any Series of Trust
Certificates will develop or, if a public market develops, as to the liquidity
of the trading market for such Trust Certificates. Unless otherwise specified in
the applicable Prospectus Supplement, each Series of Trust Certificates
initially will be represented by one or more global securities (each, a "Global
Security") registered in the name of Cede & Co. ("Cede"), as nominee of The
Depository Trust Company (the "Depositary" or "DTC"). The interests of
beneficial owners of such Trust Certificates will be represented by book entries
on the records of participating members of DTC. Definitive certificates in
registered form without coupons will be available only under the limited
circumstances described herein under the heading "Description of the Trust
Certificates--Global Securities".
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH
HEREIN
UNDER "RISK FACTORS", BEGINNING ON PAGE 7.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------
The Trust Certificates may be offered and sold to or through
underwriters, dealers or agents or directly to purchasers, as more fully
described under "Plan of Distribution" and in the applicable Prospectus
Supplement. This Prospectus may not be used to consummate sales of Trust
Certificates offered hereby unless accompanied by a Prospectus Supplement.
------------------
MERRILL LYNCH & CO.
------------------
The date of this Prospectus is September 18, 1997.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Trust Certificates to
be offered hereby will set forth with respect to such Series: (a) the specific
designation and aggregate principal amount thereof; (b) the currency or
currencies in which the principal, premium, if any, and any interest are
distributable (the "Specified Currency"), (c) a description of the material
terms of the Deposited Assets, including the Underlying Securities, and Credit
Support, if any; (d) the number of Classes and, with respect to each such Class,
its designation, aggregate principal amount or, if applicable, Notional Amount
(as defined below), and the minimum denomination of the Trust Certificates; (e)
the relative rights and priorities of each Series or Class (including the type,
characteristics and specifications of the Deposited Assets and Credit Support,
if any, for such Series or Class); (f) the identity of each issuer of the
Underlying Securities and each obligor with respect to any of the other
Deposited Assets; (g) the name of the Trustee and the Administrative Agent, if
any; (h) the Trust Certificate Rate (as defined below) or the applicable method
of calculation thereof; (i) the date of distribution (each, a "Distribution
Date") of any interest, premium (if any) and/or principal; (j) the date of
issue; (k) the final scheduled Distribution Date (the "Final Scheduled
Distribution Date"), if applicable; (l) the offering price or prices; (m)
remedies upon the occurrence of a payment default on the Underlying Securities;
(n) applicable Required Percentages and Voting Rights (as defined below) with
regard to certain actions by the Depositor or the Trustee under the Trust
Agreement or with regard to the applicable Trust; and (o) any other material
terms of the Trust Certificates (including terms relating to the rights of the
Trust or any third party to redeem or purchase such Trust Certificates prior to
the Final Scheduled Distribution Date). See "Description of the Trust
Certificates--General" for a listing of other terms that may be specified in the
applicable Prospectus Supplement.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-3 (together with all
amendments and exhibits, the "Registration Statement") under the Securities Act
of 1933, as amended (the "Securities Act"), relating to the Trust Certificates.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is hereby made to the Registration Statement. The Depositor will be subject to
the periodic reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith will file reports and
other information with the Commission. Such reports and other information
concerning the Depositor may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the Commission:
New York Regional Office, Room 1100, 7 World Trade Center, New York, New York
10048 and Chicago Regional Office, Suite 1400, Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and copies of
such material can be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549, at prescribed rates. Such material may also
be accessed electronically by means of the Commission's home page on the
Internet at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Depositor pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Trust Certificates shall be
deemed to be incorporated by reference in this Prospectus. Such documents may
include, without limitation, Annual Reports on Form 10-K and Current Reports on
Form 8-K. Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified
2
<PAGE>
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus. The Depositor will provide without charge
to each person to whom a copy of this Prospectus is delivered, on the written or
oral request of any such person, a copy of any or all of the documents
incorporated herein by reference, except the exhibits to such documents (unless
such exhibits are specifically incorporated by reference in such documents).
Written requests for such copies should be directed to Merrill Lynch Depositor,
Inc., c/o World Financial Center, New York, New York 10281, Attention:
Secretary. Telephone requests for such copies should be directed to Merrill
Lynch Depositor, Inc. at 212-449-1000.
REPORTS TO TRUST CERTIFICATEHOLDERS
Except as otherwise specified in the applicable Prospectus Supplement,
unless and until definitive Trust Certificates (as defined below) are issued,
unaudited reports containing information concerning the related Trust will be
prepared annually by the related Trustee and sent on behalf of the related Trust
only to Cede, as nominee of DTC and registered holder of the Trust Certificates.
If Definitive Trust Certificates are issued, such reports will be prepared by
the related Trustee and sent on behalf of the related Trust directly to the
Trust Certificateholders in accordance with the Trust Agreement. See
"Description of the Trust Certificates--Global Securities" and "Description of
the Trust Agreement--Reports to Trust Certificateholders; Notices". Such reports
will not constitute financial statements prepared in accordance with generally
accepted accounting principles. The Depositor, on behalf of each Trust, will
cause to be filed with the Commission such periodic reports as are required
under the Exchange Act. The Depositor does not intend to send any financial
reports to Trust Certificateholders.
References herein to "U.S. dollars", "US$", "dollar" or "$" are to the
lawful currency of the United States.
For definitions of certain terms used herein, refer to "Index of
Defined Terms", beginning on page I-1.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified
in its entirety by reference to the detailed information appearing elsewhere in
this Prospectus. Certain capitalized terms used herein are defined elsewhere in
this Prospectus. See "Index to Defined Terms".
SECURITIES OFFERED.......................... STEERS(R)Trust Certificates, to be
offered from time to time in one
or more Series and in one or more
Classes within each such Series,
will be denominated in U.S.
dollars or in one or more other
currencies or composite
currencies. Trust Certificates of
each respective Series will be
offered in amounts, at prices and
on terms to be determined at the
time of sale as described in the
applicable Prospectus Supplement.
For a description of the kinds of
terms which will be set forth in
the applicable Prospectus
Supplement, see "Description of
the Trust Certificates--General".
DEPOSITED
ASSETS.................................. Each Series of Trust Certificates
will represent in the aggregate
the entire beneficial ownership
interest in the Underlying
Securities, together with certain
other assets, if applicable. Such
other assets may include cash,
cash equivalents, guarantees,
letters of credit, financial
insurance, interest rate,
currency, equity, commodity and
credit-linked swaps, caps, floors,
collars and options, forward
contracts, structured securities
and other instruments and
transactions that credit enhance,
hedge or otherwise support the
Underlying Securities designed to
assure the servicing or timely
distribution of payments to
holders of the Trust Certificates.
Such assets will be described in
the applicable Prospectus
Supplement See "Description of
Deposited Assets".
UNDERLYING SECURITIES....................... The Underlying Securities will
represent debt securities issued
by the Government of the United
States of America or senior or
subordinated publicly-traded debt
obligations of one or more
corporations, general or limited
partnerships, or preferred
securities of trusts organized by
such issuers to issue certain
trust-originated preferred
securities, in each case organized
under the laws of the United
States of America or any state
thereof. As a condition to the
deposit into a Trust of Underlying
Securities (other than Government
Securities) constituting 10% or
more of the total Underlying
Securities with respect to the
related Series of Certificates
("Concentrated Underlying
Securities"), as of the date of
the issuance of such Series, the
issuer of such Underlying
Securities will be subject to the
periodic reporting requirements of
the Exchange Act, and in
accordance therewith will file
reports and other information with
the Commission. See "Description
of Deposited Assets--Underlying
Securities Issuer". Except for
Government Securities, the
Underlying Securities will be
purchased in the secondary market;
they will not be acquired from the
issuer thereof. No such issuer
will participate in the offering
of the Certificates, nor will such
issuer receive any of the proceeds
from the sale of the Underlying
Securities to the Depositor or
4
<PAGE>
from the issuance of the
Certificates. See "Description
Deposited Assets--General".
CREDIT SUPPORT.............................. If so specified in the applicable
Prospectus Supplement, the Trust
for a Series of Trust Certificates
may also include, or the
Certificateholders of such Series
may have the benefit of, any
combination of insurance policies,
letters of credit, Reserve
Accounts, and other types of
rights or assets designated to
support or ensure the servicing
and distribution of amounts due in
respect of the Deposited Assets.
See "Description of the Deposited
Assets--Credit Support".
THE DEPOSITOR............................... The Depositor, a Delaware
corporation, is an indirect,
wholly owned, limited-purpose
subsidiary of Merrill Lynch & Co.,
Inc. The principal office of the
Depositor is c/o Merrill Lynch &
Co., Inc., World Financial Center,
New York, New York 10281. The
Certificate of Incorporation of
the Depositor provides that the
Depositor may conduct any lawful
activities necessary or incidental
to serving as depositor of one or
more trusts that may issue and
sell Certificates.
THE TRUST................................... The Depositor will assign and
deliver the Deposited Assets for
each Series of Trust Certificates
to the Trustee named in the
applicable Prospectus Supplement,
in its capacity as Trustee, for
the benefit of the Trust
Certificateholders of such Series.
See "Description of the Trust
Agreement--Assignment of Deposited
Assets". The Trustee named in the
applicable Prospectus Supplement
will administer the Deposited
Assets pursuant to the Trust
Agreement and will receive the
Trustee Fee.
FEDERAL INCOME TAX
CONSEQUENCES.............................. The arrangement pursuant to which
the Trust Certificates will be
created and sold and the
Underlying Securities will be
administered will be treated as a
grantor trust under subpart E,
part I of subchapter J of the
Code. Each Trust Certificateholder
will be treated as the owner of a
pro rata undivided interest in the
ordinary income and corpus of the
Underlying Securities in the
grantor trust. See "Federal Income
Tax Consequences".
ERISA CONSIDERATIONS........................ An employee benefit plan subject
to the Employee Retirement Income
Security Act of 1974, as amended
("ERISA"), an individual
retirement account, or an entity
whose underlying assets include
plan assets by reason of a plan's
investment in the entity (each, a
"Plan") may purchase Trust
Certificates provided that either
(a) the offering has been
structured so that participation
by "benefit plan investors" is not
"significant" or so that there are
at least 100 independent
purchasers of the class of Trust
Certificates being offered, or (b)
the Plan can represent that its
purchase of Trust Certificates
would not be prohibited under
ERISA or the Internal Revenue Code
of 1986, as amended (the "Code").
See "ERISA Considerations".
RATINGS ................................... At the time of issuance, the
Certificates of a Series (or Class
of such Series) will be rated in
one of the investment grade
categories by one or more
nationally recognized Rating
5
<PAGE>
Agencies. Any rating issued with
respect to a Certificate is not a
recommendation to purchase, sell
or hold a Certificate and there
can be no assurance that the
ratings will remain for any given
period of time or that any rating
will not be revised or withdrawn
by the related Rating Agency. See
"Risk Factors--Ratings of the
Certificates Subject to Change".
LISTING ................................... Application may be made to list
certain Series of Trust
Certificates on the New York Stock
Exchange.
FORM OF SECURITY............................ Unless otherwise specified in the
applicable Prospectus Supplement,
each Series of Trust Certificates
will be initially represented by
one or more Global Securities
registered in the name of Cede as
nominee of the DTC. The interests
of beneficial owners of Trust
Certificates will be represented
by book entries of participating
members of DTC. Definitive
certificates in registered form
without coupons will be available
only under the limited
circumstances described under the
heading "Description of the Trust
Certificates--Global Securities".
6
<PAGE>
RISK FACTORS
In connection with an investment in the Trust Certificates of any
Series, prospective purchasers should consider, among other things, (1) the risk
factors set forth below and (2) any additional risk factors set forth in the
applicable Prospectus Supplement.
Limited Liquidity
There can be no assurance that an active public market for any Series
(or Class within such Series) of Trust Certificates will develop or, if a public
market develops, as to the liquidity of the trading market for such Trust
Certificates. Merrill Lynch & Co. has advised the Depositor that it intends to
make a market in the Trust Certificates, as permitted by applicable laws and
regulations, after the issuance thereof. Merrill Lynch & Co. is not obligated,
however, to make a market in the Trust Certificates of any Series or Class
within such Series and any such market-making activity may be discontinued at
any time without notice at the sole discretion of Merrill Lynch & Co. If an
active public market for the Trust Certificates does not develop or continue,
the market prices and liquidity of the Trust Certificates may be adversely
affected.
Limited Recourse
The Trust Certificates will not represent a recourse obligation of or
interest in the Depositor, any Administrative Agent, Merrill Lynch & Co., the
Underlying Securities Issuer or any of their affiliates. Trust Certificates will
not be insured or guaranteed by the Depositor, Merrill Lynch & Co. or any of
their affiliates. The obligations, if any, of the Depositor with respect to the
Trust Certificates of any Series will only be pursuant to certain limited
representations and warranties with respect to an Underlying Security or other
Deposited Assets, and recourse with respect to the satisfaction of any such
obligations will be limited to any recourse for a breach of a corresponding
representation or warranty that the Depositor may have against the seller of
such Underlying Security or other Deposited Assets to the Depositor. The
Depositor does not have, and is not expected in the future to have, any assets
with which to satisfy any claims arising from a breach of any representation or
warranty.
Limited Assets
The only material assets expected to be in a Trust are Underlying
Securities and any other Deposited Assets corresponding to the related Series
(or Class within such Series) of Trust Certificates being offered. The Trust
Certificates do not represent obligations of the Depositor, any Administrative
Agent, Merrill Lynch & Co. or any of their affiliates and, unless otherwise
specified in the applicable Prospectus Supplement, are not insured or guaranteed
by the Depositor, any Administrative Agent or Merrill Lynch & Co. Accordingly,
Trust Certificateholders' receipt of distributions in respect of the Trust
Certificates will depend entirely on the performance of and the Trust's receipt
of payments with respect to the Deposited Assets.
Reinvestment Risk; Reduction in Yield to Maturity: Redemption, Repayment or
Call Right
Several factors affect the timing of distributions on any Series (or
Class within such Series) of Trust Certificates. In particular, provisions in an
Underlying Securities indenture for optional or mandatory redemption or
repayment prior to stated maturity, if exercised, will reduce the weighted
average life of such Underlying Securities and the related Series (or Class
within such Series) of Trust Certificates. A variety of tax, accounting,
economic, and other factors will influence whether an Underlying Securities
Issuer exercises any right of redemption in respect of its securities. All else
remaining equal, if prevailing interest rates are below the interest rates on
the related Underlying Securities, the likelihood of redemption would be
expected to increase. There can be no assurance that any Underlying Security
redeemable at the option of the Underlying Security Issuer will remain
outstanding until its stated maturity. In addition, the effective yield to
holders of the Trust Certificates of any Series (and Class within such Series)
may be
7
<PAGE>
affected by certain terms of the Deposited Assets or the manner and
priorities of allocations of collections with respect to such Deposited Assets
between Classes of a given Series. The applicable Prospectus Supplement will
discuss any calls, puts or other redemption options, and certain other terms
applicable to such Underlying Securities and any other Deposited Assets.
If an Underlying Securities Issuer becomes subject to a bankruptcy or
similar insolvency proceeding, the timing and amount of payments with respect to
the principal of, premium on, if any, and any interest to be distributed in
respect of such Trust Certificates may be materially and adversely affected.
Several factors influence the performance of issuers that are corporations or
other business entities; these factors may affect an Underlying Securities
Issuer's ability to satisfy its obligations with respect to the Underlying
Securities, including the Underlying Securities Issuer's operating and financial
condition, its capital structure and other economic, geographic, legal and
social factors.
Certain Series of Trust Certificates may be subject to a Call Right (as
defined below) by Merrill Lynch & Co., the Depositor or others, as specified in
the applicable Supplement. See "Description of the Trust Certificates--Call
Right". There is no assurance that an investment in the Trust Certificates of a
Callable Series (as defined below) may be held to maturity. In particular, if a
Call Right is exercised by the holder thereof, the investment represented by the
Trust Certificates will have a shorter maturity than if such right were not
exercised. The likelihood that Call Right will be exercised increases as
interest rates generally prevailing in the market for debt securities fall
relative to those in effect on the Original Issue Date (as defined below). Any
such reduction in interest rates would increase the value of the Underlying
Securities, making the exercise of a Call Right more likely. Given a reduction
in interest rates, the interest rates at which proceeds received by Trust
Certificateholders from the exercise of a Call Right may be reinvested may be
lower than the return that would have been earned over the remaining life of the
Trust Certificates if those Trust Certificates had not been called.
The extent to which the yield to maturity of such Trust Certificates
may vary from the anticipated yield due to the rate and timing of payments on
the Deposited Assets will also depend upon the degree to which they are
purchased at a discount or premium and the degree to which the timing of
payments thereon is sensitive to the rate and timing of payments on the
Deposited Assets.
To the extent that the Trust Certificate Rate for a Series is based on
variable or adjustable interest rates, variations in the interest rates
applicable to, and the corresponding payments in respect of, such Trust
Certificates, will affect the yield to maturity of such Series. There may be
disproportionate principal payments (whether resulting from differences in
amortization schedules, payments due on scheduled maturity or upon early
redemption) on Trust Certificates backed by a pool of Underlying Securities
having interest rates higher or lower than the then applicable Trust Certificate
Rate, which may adversely affect the yield on such Series of Trust Certificates.
The applicable Prospectus Supplement for a Series of Trust Certificates
will set forth additional information regarding yield and maturity
considerations applicable to such Series and the related Deposited Assets,
including the related Underlying Securities.
Currency Risk: Exchange Rates and Exchange Controls
An investment in a Trust Certificate having a Specified Currency other
than U.S. dollars entails significant risks that are not associated with a
similar investment in a U.S. dollar-denominated security. Such risks include,
without limitation, the possibility of significant changes in rates of exchange
between the U.S. dollar and such Specified Currency and the possibility of the
imposition or modification of foreign exchange controls with respect to such
Specified Currency. Such risks generally depend on factors over which the
Depositor has no control, such as economic and political events and the supply
of and demand for the relevant currencies. In recent years, rates of exchange
between the U.S. dollar and certain currencies have been highly volatile, and
such volatility may be expected in the future. Past fluctuations in any
particular exchange rate do not necessarily indicate, however, fluctuations in
the rate that may occur
8
<PAGE>
during the term of any Trust Certificate. Depreciation of the Specified Currency
for a Trust Certificate against the U.S. dollar would decrease the effective
yield of such Trust Certificate below its Trust Certificate Rate and, in certain
circumstances, could result in a loss to the investor on a U.S. dollar basis.
Governments have from time to time imposed, and may in the future
impose, exchange controls that could affect exchange rates and the availability
of a Specified Currency for making distributions in respect of Trust
Certificates denominated in such currency. There can be no assurance that
exchange controls will not restrict or prohibit distributions of principal,
premium or interest in any Specified Currency. Even if there are no actual
exchange controls, it is possible that, on a Distribution Date with respect to
any particular Trust Certificate, the currency in which amounts then due to be
distributed in respect of such Trust Certificate would not be available.
PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN FINANCIAL
AND LEGAL
ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN TRUST
CERTIFICATES
DENOMINATED IN A CURRENCY OTHER THAN U.S. DOLLARS. SUCH TRUST
CERTIFICATES ARE
NOT AN APPROPRIATE INVESTMENT FOR PERSONS WHO ARE
UNSOPHISTICATED WITH RESPECT
TO FOREIGN CURRENCY TRANSACTIONS.
Derivatives
A Trust may include various derivative instruments, including interest
rate, currency, securities, commodity and credit swaps, caps, floors, collars
and options and structured securities having embedded derivatives (such as
structured notes). Swaps involve the exchange with another party of their
respective commitments to pay or receive amounts computed by reference to
specified fixed or floating interest rates, currency rates, securities prices,
yields or returns (including baskets of securities or securities indices) or
commodity prices and a notional principal amount (i.e., the reference amount
with respect to which such obligations are determined, although no actual
exchange of principal occurs except for currency swaps); for example, an
exchange of floating rate payments for fixed rate payments. Interim payments are
generally netted, with the difference being paid by one party to the other. The
purchase of a cap entitles the purchaser, to the extent that a specified rate,
price, yield or return exceeds a predetermined level, to receive payments
computed by reference to a specified fixed or floating rate, price, yield or
return and a notional principal amount from the party selling such cap. The
purchase of a floor entitles the purchaser, to the extent that a specified rate,
price, yield or return declines below a predetermined level, to receive payments
computed by reference to a specified fixed or floating rate, price, yield or
return and a notional principal amount from the party selling such floor.
Options function in a manner similar to caps and floors, and exist on various
underlying securities, such as bonds, equities, currencies and commodities.
Options can also be structured as securities such as warrants or can be embedded
in securities such as certain commodity or equity-linked bonds with option-like
characteristics. Forward contracts involve the purchase and sale of a specified
security, commodity, currency or other financial instrument at a specified price
and date in the future, and may be settled by physical delivery or cash payment.
Credit derivatives involve swap and option contracts designed to assume or lay
off credit risk on loans, debt securities or other assets, or in relation to a
particular reference entity or country, in return for either swap payments or
payment of premium. Credit derivatives may also be embedded in other instruments
such as notes or warrants. Credit derivatives give one party to a transaction
the right to dispose of or acquire an asset (or group of assets), or the right
to receive or make a payment from the other party, upon the occurrence of
specified credit events.
Fluctuations in securities, currency and commodity rates, prices,
yields and returns may have a significant effect on the yield to maturity of
derivatives or the levels of support that derivatives can provide to a Trust. In
addition, derivatives may be limited to covering only certain risks. Continued
payments on derivatives may be affected by the financial condition of the
counterparties thereto (or, in come instances, the guarantor thereunder). There
can be no assurance that counterparties will be able to perform their
obligations. Failure by a counterparty (or the related guarantor, if any) to
make required payments may
9
<PAGE>
result in the delay or failure to make payments on the related securities and
risks. In addition, the notional amounts on which payments are made may vary
under certain circumstances and may not bear any correlation to principal
amounts of the related securities. The terms and risks of the relevant
derivatives will be described in the related Prospectus Supplement. Further, the
relevant Prospectus Supplement will identify the material terms, the material
risks and the counterparty for any derivative instrument in a Trust which is the
result of an agreement with such counterparty to the extent that such agreement
is material.
Information Concerning Underlying Securities Issuers; Risk of Loss if Public
Information Not Available
A prospective purchaser of Trust Certificates should obtain and
evaluate the same information concerning each Underlying Securities Issuer as it
would obtain and evaluate if it were investing directly in the Underlying
Securities or in other securities issued by the Underlying Securities Issuer.
The publicly-available information concerning an Underlying Securities Issuer is
important in considering whether to invest in or sell Trust Certificates. To the
extent such information ceases to be available, an investor's ability to make an
informed decision to purchase or sell Trust Certificates could be impeded. None
of the Depositor, the Trustee, Merrill Lynch & Co. or any of their affiliates
assumes any responsibility for the continued availability, accuracy or
completeness of any information concerning any Underlying Securities Issuer
(including, without limitation, investigation as to its financial condition or
creditworthiness) or concerning the Underlying Securities (whether or not such
information is filed with the Commission) or otherwise considered by a purchaser
of the Trust Certificates in making its investment decision in connection
therewith; provided that the foregoing shall not apply to any information
concerning the Underlying Securities and any Underlying Securities Issuer that
is expressly set forth in this Prospectus or an applicable Prospectus
Supplement. The issuance of Trust Certificates of any Series should not be
construed as an endorsement by the Depositor, Merrill Lynch & Co. or the Trustee
of the financial condition or business prospects of any Underlying Securities
Issuer.
If an issuer of Concentrated Underlying Securities ceases to file
periodic reports under the Exchange Act, then the Trustee of the relevant Trust
will exercise one of the following remedies: (i) sell all of such Concentrated
Underlying Securities and distribute the proceeds from such sale to the Trust
Certificateholders in accordance with the Allocation Ratio (as defined below)
(any such sale will result in a loss to the Trust Certificateholders of the
relevant Series if the sale price is less than the purchase price for such
Concentrated Underlying Securities), (ii) distribute such Concentrated
Underlying Securities in kind to the Trust Certificateholders in accordance with
the Allocation Ratio, (iii) elect either (i) or (ii) based upon a majority of
votes cast by the affected Trust Certificateholders, or (iv) in the case of an
Underlying Securities Issuer who is eligible to use Form S-3 for a primary
common stock offering, take no action. The choice of remedies will be set forth
for a given Series in the Prospectus Supplement, and the Trustee, Depositor and
Trust Certificateholders will have no discretion in this respect.
Ratings of the Trust Certificates Subject to Change
At the time of issuance, the Trust Certificates of a Series (or each
Class of such Series) will be rated in one of the investment grade categories by
one or more nationally recognized rating agencies (each, a "Rating Agency"). The
Rating Agencies may rate a Series or Class of Trust Certificates on the basis of
several factors, including the related Deposited Assets, any Credit Support and
the relative priorities of the Trust Certificateholders of such Series or Class
to receive collections from, and to assert claims against, the Trust with
respect to such Deposited Assets and any Credit Support. The Rating Agencies are
solely responsible for selecting the criteria for rating the Trust Certificates.
Any rating issued with respect to the Trust Certificates is not a
recommendation to purchase, sell or hold a security; such ratings do not comment
on the market price of the Trust Certificates or their suitability for a
particular investor. There can be no assurance that the ratings will remain for
any given period of time or that any rating will not be revised or withdrawn
entirely by the related Rating Agency if,
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in its judgment, circumstances (including, without limitation, the rating of the
Underlying Securities) so warrant. A revision or withdrawal of such rating may
have an adverse effect on the market price of the Trust Certificates.
Global Securities Limit Direct Voting; Pledge of Trust Certificates
Unless otherwise specified in the applicable Prospectus Supplement, the
Trust Certificates of each Series will initially be represented by one or more
Global Securities deposited with, or on behalf of, a Depositary (as defined
below) and will not be issued as individual definitive Trust Certificates to the
purchasers of such Trust Certificates. Consequently, unless and until such
individual definitive Trust Certificates of a particular Series are issued, such
purchasers will not be recognized as Trust Certificateholders under the Trust
Agreement. Until such time, such purchasers will only be able to exercise the
rights of Trust Certificateholders indirectly through the Depositary and its
respective Participants (as defined below) and, as a result, the ability of any
such purchaser to pledge that Trust Certificate to persons or entities that do
not participate in the Depositary's system, or otherwise to act with respect to
such Trust Certificate, may be limited. See "Description of the Trust
Certificates--Global Securities" and any further description contained in the
applicable Prospectus Supplement.
Limitation on Remedies Due to Passive Nature of the Trust
The remedies available to a Trustee of a relevant Trust are
predetermined and therefore an investor in the Trust Certificates has less
discretion over the exercise of remedies than if such investor directly invested
in the Underlying Securities. Each Trust will generally hold the related
Deposited Assets to maturity and not dispose of them, regardless of adverse
events, financial or otherwise, which may affect any Underlying Securities
Issuer or the value of the Deposited Assets. Except as indicated below, a holder
will not be able to dispose of or take other actions with respect to any
Deposited Assets. Under certain circumstances described in the applicable
Prospectus Supplement, the Trustee will (or will at the direction of a specified
percentage of Trust Certificateholders of the relevant Series) dispose of, or
take certain other actions in respect of, the Deposited Assets. In certain
limited circumstances, such as a mandatory redemption of Underlying Securities
or the exercise by a third party of the right to purchase Underlying Securities
(as described below under "Description of Deposited Assets--Principal Terms of
Underlying Securities"), the Trustee may dispose of the Deposited Assets prior
to maturity. The applicable Prospectus Supplement will describe the particular
circumstances, if any, under which a Deposited Asset may be disposed of prior to
maturity.
Amendment of Trust Agreement Without Unanimous Consent
The Trust Agreement may be amended or otherwise modified with the
consent of a percentage of Trust Certificateholders specified in the Prospectus
Supplement (which percentage will not be less than a majority). Any such
amendment or other modification could have a material adverse effect on those
Trust Certificateholders of the relevant Series that do not consent to such
amendment or other modification. However, the Trust Agreement will provide that
any amendment or other modification that would reduce the amount of, or defer
the date of, distributions to Trust Certificateholders of a Series (or Class
within such Series) may become effective only with the consent of each affected
Trust Certificateholder of that Series (or Class within such Series) and that,
if so specified in the applicable Prospectus Supplement, any such amendment or
other modification that would result in the reduction or withdrawal of the then
current rating assigned to the Trust Certificates of a Series (or Class within
such Series) by a Rating Agency would require the consent of a specified higher
percentage of Trust Certificateholders of that Series (or Class within such
Series).
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General Unavailability Of Optional Exchange
Although the Prospectus Supplement for a Series of Trust Certificates
may designate such Series as an Exchangeable Series (as defined below) and may
provide that a Trust Certificateholder may exchange Trust Certificates of the
Exchangeable Series for a pro rata portion of Deposited Assets of the related
Trust, any such Optional Exchange Right will be exercisable only to the extent
that the exercise of such right does not affect the Trust's ability to be exempt
under Rule 3a-7 under the Investment Company Act of 1940, as amended, and all
applicable rules, regulations and interpretations thereunder, and would not
affect the characterization of the Trust as a "grantor trust" under the Code.
See "Description of the Trust Certificates--Optional Exchange". Accordingly, the
Optional Exchange Right described in this Prospectus under the heading
"Description of the Trust Certificates--Optional Exchange" and further described
in the relevant Prospectus Supplement will be available only to the Depositor
and Merrill Lynch & Co. and their respective affiliates and designees. Other
Trust Certificateholders will generally not be able to exchange their Trust
Certificates of an Exchangeable Series for a pro rata portion of the Deposited
Assets of the related Trust. In addition, the exercise of an Optional Exchange
Right will decrease the aggregate amount of Trust Certificates of the applicable
Exchangeable Series outstanding.
------------------
The Prospectus Supplement for each Series of Trust Certificates will
set forth information regarding additional risk factors, if any, applicable to
such Series (and each Class within such Series).
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THE DEPOSITOR
The Depositor, a Delaware corporation, is an indirect, wholly owned,
limited-purpose subsidiary of Merrill Lynch & Co., Inc. The principal office of
the Depositor is c/o Merrill Lynch & Co., Inc., World Financial Center, New
York, New York 10281. The Certificate of Incorporation of the Depositor provides
that the Depositor may conduct any lawful activities necessary or incidental to
serving as depositor of one or more trusts that may issue and sell Trust
Certificates.
USE OF PROCEEDS
If the related Deposited Assets are to be purchased by the Depositor,
the net proceeds to be received from the sale of each Series of Trust
Certificates (whether or not offered hereby) for such purchase. In addition, the
Depositor will use such net proceeds to arrange certain Credit Support, if any,
including, if specified in the applicable Prospectus Supplement, required
deposits into any Reserve Account or the applicable Trust Certificate Account
(as defined below) for the benefit of the Trust Certificateholders of such
Series or Class. The remaining net proceeds, if any, will be used by the
Depositor for purposes related to the deposit of Deposited Assets into one or
more Trusts and the preparation, distribution and filing by the Depositor of
periodic reports and other information, including, but not limited to, the fees
and expenses of the Depositor incurred in connection with the ongoing activities
of the Trust(s).
FORMATION OF THE TRUST
The Depositor will assign and deliver the Deposited Assets for each
Series of Trust Certificates to the Trustee named in the applicable Prospectus
Supplement, in its capacity as Trustee, for the benefit of the Trust
Certificateholders of such Series. See "Description of the Trust
Agreement--Assignment of Deposited Assets". The Trustee named in the applicable
Prospectus Supplement will administer the Deposited Assets pursuant to the Trust
Agreement and will receive a fee for such services (the "Trustee Fee"). The
Trustee or an Administrative Agent, if applicable, will either cause the
assignment of the Deposited Assets to be recorded on the books and records of
The Depository Trust Company or will obtain an opinion of counsel that no
recordation is required to obtain a first priority perfected security interest
in such Deposited Assets.
The Depositor's assignment of the Deposited Assets to the Trustee will
be without recourse to the Depositor (except as to certain limited
representations and warranties, if any).
The applicable Prospectus Supplement will set forth the property of
each Trust, which may consist of (i) such Deposited Assets, or interests
therein, exclusive of any interest in such assets (the "Retained Interest")
retained or acquired by the Depositor, or any previous owner thereof or any
other person or entity, as from time to time are specified in the Trust
Agreement; (ii) such assets as from time to time are identified as deposited in
the related Trust Certificate Account; (iii) rights under the agreement or
agreements pursuant to which the Trustee has acquired such Deposited Assets;
(iv) those elements of Credit Support, if any, provided with respect to any
Series (or Class within such Series) within such Series that are specified as
being part of the related Trust in the applicable Prospectus Supplement, as
described therein and under "Description of Deposited Assets--Credit Support";
and (v) any cash or other property received upon the sale, exchange, collection
or other disposition of any of the foregoing.
MATURITY AND YIELD CONSIDERATIONS
Each Prospectus Supplement will, to the extent applicable, contain
information with respect to the types and maturities of the related Underlying
Securities and the terms, if any, upon which such Underlying Securities may be
subject to early redemption or repayment. Provisions for optional or mandatory
redemption or repayment prior to stated maturity, if exercised, will reduce the
weighted average life of Underlying Securities and the related Series (or Class
within such Series) of Trust
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Certificates. A variety of tax, accounting, economic, and other factors will
influence whether an Underlying Securities Issuer exercises any right of
redemption in respect of its securities. All else remaining equal, if prevailing
interest rates are below the interest rates on the related Underlying
Securities, the likelihood of redemption would be expected to increase. There
can be no assurance that any Underlying Security redeemable at the option of the
Underlying Security Issuer will remain outstanding until its stated maturity.
In addition, the effective yield to holders of the Trust Certificates
of any Series (and Class within such Series) may be affected by certain terms of
the Deposited Assets or the manner and priorities of allocations of collections
with respect to such Deposited Assets between Classes of a given Series.
As specified in the applicable Prospectus Supplement, each of the
Underlying Securities may be subject to acceleration upon the occurrence of
certain events of default under the terms of the Underlying Securities. The
maturity and yield on the Trust Certificates will be affected by any early
repayment of the Underlying Securities as a result of the acceleration of the
Underlying Securities by or on behalf of the holders thereof. See "Description
of Deposited Assets--Underlying Securities Indenture". If an Underlying
Securities Issuer becomes subject to a bankruptcy proceeding, the timing and
amount of payments with respect to the principal of, the premium on, if any, and
the interest to be distributed in respect of the Trust Certificates may be
materially and adversely affected. Several factors influence the performance of
issuers that are corporations or other business entities; these factors may
affect an Underlying Securities Issuer's ability to satisfy its obligations
under the Underlying Securities, including the company's operating and financial
condition, leverage, and economic, geographic, legal and social factors.
The extent to which the yield to maturity of such Trust Certificates
may vary from the anticipated yield due to the rate and timing of payments on
the Deposited Assets will depend upon the degree to which they are purchased at
a discount or premium and the degree to which the timing of payments thereon is
sensitive to the rate and timing of payments on the Deposited Assets.
The yield to maturity of any Series (or Class) of Trust Certificates
will also be affected by variations in the interest rates applicable to, and the
corresponding payments in respect of, such Trust Certificates, to the extent
that the Trust Certificate Rate, if any, for such Series (or Class) is based on
variable or adjustable interest rates. With respect to any Series of Trust
Certificates representing an interest in a pool of debt, or other eligible,
securities, disproportionate principal payments (whether resulting from
differences in amortization schedules, payments due on scheduled maturity or
upon early redemption) on the related Underlying Securities having interest
rates higher or lower than the then applicable Trust Certificate Rates, if any,
applicable to such Trust Certificates may affect the yield thereon.
The Prospectus Supplement for each Series of Trust Certificates will
set forth additional information regarding yield and maturity considerations
applicable to such Series (and each Class within such Series) and the related
Deposited Assets, including the applicable Underlying Securities.
DESCRIPTION OF THE TRUST CERTIFICATES
Each Series (or, if more than one Class exists, the Classes within such
Series) of Trust Certificates will be issued pursuant to the Standard Terms and
a supplement thereto (the "Series Supplement") between the Depositor and the
Trustee named in the applicable Prospectus Supplement; a form of which Trust
Agreement is attached as an exhibit to the Registration Statement. The
provisions of the Trust Agreement may vary depending upon the terms of both the
Trust Certificates to be issued thereunder and the Deposited Assets, the Credit
Support, if any, and related Trust. The following summaries describe material
provisions of the Trust Agreement which may be applicable to each Series of
Trust Certificates. The applicable Prospectus Supplement for a Series of Trust
Certificates will describe any material provision of the Trust Agreement that is
not described herein or the description of which is materially different from
the description herein. The following summaries do not purport to be complete
and are subject to the detailed provisions of the form of Trust Agreement to
which reference is hereby made for a full description
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of such provisions, including the definition of certain terms used, and for
other information regarding the Trust Certificates. Wherever particular defined
terms of the Trust Agreement are referred to, such defined terms are
incorporated herein by reference as part of the statement made, and the
statement is qualified in its entirety by such reference. As used herein with
respect to any Series, the term "Trust Certificate" refers to all the Trust
Certificates of that Series (and each Class within such Series), whether or not
offered hereby and by the applicable Prospectus Supplement, unless the context
otherwise requires.
A copy of the Series Supplement relating to each Series of Trust
Certificates issued from time to time will be filed by the Depositor as an
exhibit to a Current Report on Form 8-K, which will be filed with the Commission
following the issuance of such Series.
General
There is no limit on the amount of Trust Certificates that may be
issued under the Trust Agreement, and the Trust Agreement will provide that
Trust Certificates of the applicable Series may be issued in multiple Classes.
The Series (or Classes within such Series) of Trust Certificates to be issued
under the Trust Agreement will represent the entire beneficial ownership
interest in the Trust for such Series created pursuant to the Trust Agreement
and each such Class will be allocated certain relative priorities to receive
specified collections from, and a certain percentage ownership interest of the
assets deposited in, such Trust, all as identified and described in the
applicable Prospectus Supplement. See "Description of Deposited
Assets--Collections". Reference is made to the applicable Prospectus Supplement
for a description of the following terms of the Series of Trust Certificates in
respect of which this Prospectus and such Prospectus Supplement are being
delivered:
(i) the title of such Trust Certificates;
(ii) the Series of such Trust Certificates and, if
applicable, the number and designation of Classes of
such Series;
(iii) material information concerning the type,
characteristics and specifications of the Deposited
Assets being deposited into the related Trust by the
Depositor (including, with respect to any Underlying
Security which at the time of such deposit represents
a significant portion of all such Deposited Assets
and any related Credit Support, if any, information
concerning the material terms of each such Underlying
Security, the identity of the issuer thereof and
where publicly available information regarding such
issuer may be obtained);
(iv) the dates on which, or periods during which, such
Series of Trust Certificates may be issued (each, an
"Original Issue Date") and the offering price
thereof;
(v) the limit, if any, upon the aggregate principal
amount or Notional Amount, as applicable, of each
Class thereof;
(vi) if applicable, the relative rights and priorities of
each such Class (including the method for allocating
collections from and defaults or losses on the
Deposited Assets to the Trust Certificateholders of
each such Class);
(vii) whether the Trust Certificates of such Series are
Fixed Rate Trust Certificates or Floating Rate Trust
Certificates (each, as defined below) and the
applicable interest rate (the "Trust Certificate
Rate"), or the method of calculation thereof
applicable to such Series, if variable (a "Floating
Trust Certificate Rate"); the date or dates from
which such interest will accrue; the applicable
Distribution Dates on which interest, principal and
premium, in each case as applicable, on such Series
or Class will be distributable and the related Record
Dates (as defined below), if any;
(viii) the circumstances and conditions under which any of
the Depositor, Merrill Lynch & Co. or the Trustee, or
their respective designees, may exercise an Optional
Exchange Right (to the extent
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that the exercise of such right does not affect the
Trust's ability to be exempt under Rule 3a-7 under
the Investment Company Act of 1940, as amended, and
all applicable rules, regulations and interpretations
thereunder and for treatment of the Trust as a
"grantor trust" under the Code) and the periods
within which or the dates on which, and the terms and
conditions upon which any such Optional Exchange may
be exercised, in whole or in part;
(ix) the option, if any, of any specified third party
(which may include one or more of the Depositor,
Merrill Lynch & Co. or their affiliates) to purchase
Trust Certificates held by a Trust Certificateholder
and the periods within which or the dates on which,
and the terms and conditions upon which any such
option may be exercised, in whole or in part;
(x) the rating of each Series or each Class within such
Series offered hereby;
(xi) the denominations in which such Series or each Class
within such Series will be issuable;
(xii) whether the Trust Certificates of any Class within a
given Series are to be entitled to (1) principal
distributions, with disproportionate, nominal or no
interest distributions, or (2) interest
distributions, with disproportionate, nominal or no
principal distributions ("Strip Trust Certificates"),
and the applicable terms thereof;
(xiii) the identity of the Depositary (as defined below), if
other than the Depository Trust Company, for such
Trust Certificates;
(xiv) the Specified Currency applicable to the Trust
Certificates of such Series or Class for purposes of
denominations and distributions on such Series or
each Class within such Series and the circumstances
and conditions, if any, when such Specified Currency
may be changed, at the election of the Depositor or a
Trust Certificateholder, and the currency or
currencies in which any principal of or any premium
or any interest on such Series or Class are to be
distributed pursuant to such election;
(xv) all applicable Required Percentages and Voting Rights
relating to the manner and percentage of votes of
Trust Certificateholders of such Series and each
Class within such Series required with respect to
certain actions by the Depositor or the Trustee under
the Trust Agreement or with respect to the applicable
Trust;
(xvi) remedies upon the occurrence of a payment default on
the Underlying Securities on an acceleration of the
Underlying Securities; and
(xvii) all other material terms of such Series or Class
within such Series of Trust Certificates.
The United States Federal income tax consequences and ERISA
consequences relating to any Series or any Class within such Series of Trust
Certificates will be described in the applicable Prospectus Supplement. In
addition, any special considerations, the specific terms and other information
with respect to the issuance of any Series or Class within such Series of Trust
Certificates on which the principal of and any premium and interest are
distributable in a Specified Currency other than U.S. dollars will be described
in the applicable Prospectus Supplement. The U.S. dollar equivalent of the
public offering price or purchase price of a Trust Certificate having a
Specified Currency other than U.S. dollars will be determined on the basis of
the noon buying rate in New York City for cable transfers in foreign currencies
as certified for customs purposes by the Federal Reserve Bank of New York for
such Specified Currency on the applicable issue date. As specified in the
applicable Prospectus Supplement, such determination will be made by the
Depositor, the Trustee, the Administrative Agent, if any, or an agent thereof as
exchange rate agent for each Series of Trust Certificates. If a noon buying rate
is not published for a Specified Currency, the applicable Prospectus Supplement
will set forth another source for all exchange rate calculations.
Transfers of beneficial ownership interests in any Global Security will
be effected in accordance with the normal procedures of The Depository Trust
Company or any other specified Depositary. If Definitive
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Trust Certificates are issued in the limited circumstances described herein,
they may be transferred or exchanged for like Trust Certificates of the same
Series at the corporate trust office or agency of the applicable Trustee in the
City and State of New York, subject to the limitations set forth in the Trust
Agreement, without the payment of any service charge, other than any tax or
governmental charge payable in connection therewith.
Distributions
Distributions allocable to principal, premium (if any) and interest on
the Trust Certificates of each Series (and each Class within such Series) will
be made by or on behalf of the Trustee on each Distribution Date as specified in
the applicable Prospectus Supplement, and the amount of each distribution will
be determined as of the close of business on the date specified in the
applicable Prospectus Supplement (the "Record Date").
Except as provided in the succeeding paragraph, distributions with
respect to Trust Certificates will be made at the corporate trust office or
agency of the Trustee specified in the applicable Prospectus Supplement in The
City of New York; provided that any such amounts distributable on the Final
Scheduled Distribution Date of a Trust Certificate will be distributed only upon
surrender of such Trust Certificate at the applicable location set forth above.
Distributions on Trust Certificates will be made, except as provided
below, by check mailed to the Trust Certificateholders listed on the relevant
Record Date in the ownership register maintained for that purpose under the
Trust Agreement (which, in the case of Global Securities, will be a nominee of
the Depositary). A Trust Certificateholder of $10,000,000 or more in aggregate
principal amount of Trust Certificates of a given Series, and any holder of a
Global Security, shall be entitled to receive such distributions by wire
transfer of immediately available funds, but only if appropriate wire transfer
instructions have been received in writing by the Trustee for such Series not
later than 10 calendar days prior to the applicable Distribution Date.
"Business Day" with respect to any Trust Certificate means any day
other than (i) a Saturday, a Sunday or a legal holiday or a day on which banking
institutions or trust companies in the City of New York are authorized or
obligated by law, regulation or executive order to close or (ii) a business day,
as such term is used in the indenture for the Underlying Securities (the
"Indenture").
Interest on the Trust Certificates
Each Class of Trust Certificates (other than certain Classes of Strip
Trust Certificates) of a given Series may have a different Trust Certificate
Rate, which may be a fixed or floating Trust Certificate Rate, as described
below. In the case of Strip Trust Certificates with a nominal or no Trust
Certificate Principal Balance, such distributions of interest will be in an
amount described in the applicable Prospectus Supplement. For purposes hereof,
"Notional Amount" means the notional principal amount specified in the
applicable Prospectus Supplement on which interest on Strip Trust Certificates
with a nominal or no Trust Certificate Principal Balance will be made on each
Distribution Date. Reference to the Notional Amount of a Class of Strip Trust
Certificates herein or in a Prospectus Supplement does not indicate that such
Trust Certificates represent the right to receive any distribution in respect of
principal in such amount, but rather the term "Notional Amount" is used solely
as a basis for calculating the amount of required distributions and determining
certain relative Voting Rights, all as specified in the applicable Prospectus
Supplement. The Trust Certificate Rate will be described in the applicable
Prospectus Supplement and will be based upon the rate of interest received on
the Underlying Securities, Credit Support, if any, and any payments payable in
respect of the Retained Interest (if any). The Trust Certificate Rate may be
either a fixed rate or a floating rate.
Fixed Rate Trust Certificates. Each Series of Trust Certificates with a
fixed Trust Certificate Rate ("Fixed Rate Trust Certificates") will bear
interest, on the outstanding Trust Certificate Principal Balance,
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from its Original Issue Date, or from the last date to which interest has been
paid, at the fixed Trust Certificate Rate stated on the face thereof and in the
applicable Prospectus Supplement until the principal amount thereof is
distributed or made available for repayment (or, in the case of Fixed Rate Trust
Certificates with a nominal or no principal amount, until the Notional Amount
thereof is reduced to zero), except that, if so specified in the applicable
Prospectus Supplement, the Trust Certificate Rate for such Series or any such
Class or Classes may be subject to adjustment from time to time in response to
designated changes in the rating assigned to such Trust Certificates by one or
more Rating Agencies, in accordance with a schedule or otherwise, all as
described in such Prospectus Supplement. Unless otherwise set forth in the
applicable Prospectus Supplement, interest on each Series or Class of Fixed Rate
Trust Certificates will be distributable in arrears on each Distribution Date
specified in such Prospectus Supplement. Each such distribution of interest
shall include interest accrued through the day specified in the applicable
Prospectus Supplement. Unless otherwise specified in the applicable Prospectus
Supplement, interest on Fixed Rate Trust Certificates will be computed on the
basis of a 360-day year of twelve 30-day months.
Floating Rate Trust Certificates. Each Series of Trust Certificates
with a variable Trust Certificate Rate ("Floating Rate Trust Certificates") will
bear interest, on the outstanding Trust Certificate Principal Balance, from its
Original Issue Date to but excluding the first Interest Reset Date (as defined
below) for such Series at the Initial Trust Certificate Rate set forth on the
face thereof and in the applicable Prospectus Supplement. Thereafter, the Trust
Certificate Rate on such Series for each Interest Reset Period (as defined
below) will be determined by reference to an interest rate basis (the "Base
Rate"), plus or minus the Spread, if any, or multiplied by the Spread
Multiplier, if any. The Base Rate for any Series of Trust Certificates will, as
described in greater detail below, be a fluctuating rate of interest that is
publicly available and is established by reference to quotations provided by
third parties of the interest rate from time to time prevailing on loans or
other extensions of credit in a specified credit market. The "Spread" is the
number of basis points (one basis point equals one one-hundredth of a percentage
point) that may be specified in the applicable Prospectus Supplement as being
applicable to such Series, and the "Spread Multiplier" is the percentage that
may be specified in the applicable Prospectus Supplement as being applicable to
such Series, except that if so specified in the applicable Prospectus
Supplement, the Spread or Spread Multiplier on such Series of Floating Rate
Trust Certificates may be subject to adjustment from time to time in response to
designated changes in the rating assigned to such Trust Certificates by one or
more Rating Agencies, in accordance with a schedule or otherwise, all as
described in such Prospectus Supplement. The applicable Prospectus Supplement,
unless otherwise specified therein, will designate one of the following Base
Rates as applicable to a Floating Rate Trust Certificate: (i) the CD Rate ("CD
Rate Trust Certificate"), (ii) the Commercial Paper Rate ("Commercial Paper Rate
Trust Certificate"), (iii) the Federal Funds Rate ("Federal Funds Rate Trust
Certificate"), (iv) LIBOR ("LIBOR Trust Certificate"), (v) the Prime Rate
("Prime Rate Trust Certificate"), (vi) the Treasury Rate ("Treasury Rate Trust
Certificate") or (vii) another Base Rate, as set forth in the applicable
Prospectus Supplement. The "Index Maturity" for any Series of Floating Rate
Trust Certificates is the period of maturity of the instrument or obligation
from which the Base Rate is calculated. "H.15(519)" means the publication
entitled "Statistical Release H.15(519), Selected Interest Rates", or any
successor publication of the Board of Governors of the Federal Reserve System.
"Composite Quotations" means the daily statistical release entitled "Composite
3:30 p.m. Quotations for U.S. Government Securities", or any successor
publication, published by the Federal Reserve Bank of New York. Interest will be
payable only from cash received by the Trustee from the Deposited Assets or
other assets deposited in the Trust and available for application to such
payment, notwithstanding the accrual of interest on the Trust Certificate
Principal Balance at a higher rate.
As specified in the applicable Prospectus Supplement, Floating Rate
Trust Certificates of a given Series may also have either or both of the
following (in each case expressed as a rate per annum on a simple interest
basis): (i) a maximum limitation, or ceiling, on the rate at which interest may
accrue during any interest accrual period specified in the applicable Prospectus
Supplement ("Maximum Trust Certificate Rate") and (ii) a minimum limitation, or
floor, on the rate at which interest may accrue during any
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such interest accrual period ("Minimum Trust Certificate Rate"). In addition to
any Maximum Trust Certificate Rate that may be applicable to any Series of
Floating Rate Trust Certificates, the Trust Certificate Rate applicable to any
Series of Floating Rate Trust Certificates will in no event be higher than the
maximum rate permitted by applicable New York and United States federal law.
Under applicable New York and United States federal law as of the date of this
Prospectus, the maximum rate of interest, with certain exceptions, is 25% per
annum on a simple interest basis.
The Depositor will appoint, and enter into agreements with, agents
(each, a "Calculation Agent") to calculate Floating Trust Certificate Rates on
each Series of Floating Rate Trust Certificates. The applicable Prospectus
Supplement will set forth the identity of the Calculation Agent for each Series
of Floating Rate Trust Certificates. All determinations of interest by the
Calculation Agent shall, if made on a commercially reasonable
basis and in good faith, be conclusive for all purposes and binding on the
holders of Floating Rate Trust Certificates of a given Series.
The Floating Trust Certificate Rate will be reset daily, weekly,
monthly, quarterly, semiannually or annually (such period being the "Interest
Reset Period", and the first day of each Interest Reset Period being an
"Interest Reset Date"), as specified in the applicable Prospectus Supplement.
Interest Reset Dates with respect to each Series will be specified in the
applicable Prospectus Supplement; provided that unless otherwise specified in
such Prospectus Supplement, the Trust Certificate Rate in effect for the 10 days
immediately prior to the Final Scheduled Distribution Date will be that in
effect on the tenth day preceding such Final Scheduled Distribution Date. If an
Interest Reset Date for any Series of Floating Rate Trust Certificates would
otherwise be a day that is not a Business Day, such Interest Reset Date will
occur on the next Business Day, except that, in the case of a LIBOR Trust
Certificate, if such Business Day would fall in the next calendar month, such
Interest Reset Date will be the immediately preceding Business Day.
Unless otherwise specified in the applicable Prospectus Supplement,
interest payable in respect of Floating Rate Trust Certificates shall be the
accrued interest from and including the Original Issue Date of such Series or
the last Interest Reset Date to which interest has accrued and been distributed,
as the case may be, to but excluding the immediately following Distribution
Date. With respect to a Floating Rate Trust Certificate, accrued interest shall
be calculated by multiplying the Trust Certificate Principal Balance of such
Trust Certificate by an accrued interest factor. Such accrued interest factor
will be computed by adding the interest factors calculated for each day in the
period for which accrued interest is being calculated. Unless otherwise
specified in the applicable Prospectus Supplement, the interest factor
(expressed as a decimal calculated to seven decimal places without rounding) for
each such day is computed by dividing the Trust Certificate Rate in effect on
such day by 360, in the case of LIBOR Trust Certificates, Commercial Paper Rate
Trust Certificates, Federal Funds Rate Trust Certificates, Prime Rate Trust
Certificates and CD Rate Trust Certificates or by the actual number of days in
the year, in the case of Treasury Rate Trust Certificates. For purposes of
making the foregoing calculation, the variable Trust Certificate Rate in effect
on any Interest Reset Date will be the applicable rate as reset on such date.
Unless otherwise specified in the applicable Prospectus Supplement, all
percentages resulting from any calculation of the Trust Certificate Rate on a
Floating Rate Trust Certificate will be rounded, if necessary, to the nearest
1/100,000 of 1% (.0000001), with five one-millionths of a percentage point
rounded upward, and all currency amounts used in or resulting from such
calculation on Floating Rate Trust Certificates will be rounded to the nearest
one-hundredth of a unit (with .005 of a unit being rounded upward).
Interest on any Series of Floating Rate Trust Certificates will be
distributable on the Distribution Dates and for the interest accrual periods as
and to the extent set forth in the applicable Prospectus Supplement.
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The "Calculation Date", where applicable, pertaining to a Record Date
will be the earlier of (i) the tenth calendar day after such Record Date or, if
any such day is not a Business Day, the next succeeding Business Day or (ii) the
Business Day preceding the applicable Distribution Date.
Upon the request of the holder of any Floating Rate Trust Certificate
of a given Series, the Calculation Agent for such Series will provide the Trust
Certificate Rate then in effect and, if determined, the Trust Certificate Rate
that will become effective on the next Interest Reset Date with respect to such
Floating Rate Trust Certificate.
CD Rate Trust Certificates. CD Rate Trust Certificates will bear
interest at the interest rates (calculated with reference to the CD Rate and the
Spread and/or the Spread Multiplier, if any) specified in the applicable
Prospectus Supplement.
The "CD Rate" means, with respect to any Record Date, the rate on such
date for negotiable certificates of deposit having the applicable Index
Maturity, as published by the Board of Governors of the Federal Reserve System
in H.15(519) under the heading "CDs (Secondary Market)". If such rate is not
published by 9:00 a.m., New York City time, on the Calculation Date pertaining
to such Record Date, the CD Rate will be the rate on such Record Date for
negotiable certificates of deposit of the applicable Index Maturity, as
published by the Federal Reserve Bank of New York in Composite Quotations, under
the heading "Trust Certificates of Deposit". If such rate is not published in
Composite Quotations by 3:00 p.m., New York City time, on the Calculation Date
pertaining to such Record Date, then the CD Rate for such Record Date will be
calculated by the Calculation Agent and will be the arithmetic mean of the
secondary market offered rates as of 10:00 a.m., New York City time, on such
Record Date, of three leading nonbank dealers in negotiable U.S. dollar
certificates of deposit in The City of New York, selected by the Calculation
Agent after consultation with the Depositor, for negotiable certificates of
deposit of major United States money center banks of the highest credit standing
(in the market for negotiable certificates of deposit) with a remaining maturity
closest to the applicable Index Maturity in a denomination of $5,000,000;
provided that, if the dealers selected as aforesaid by the Calculation Agent are
not quoting such rates, the interest rate for the period commencing on the
Interest Reset Date following such Record Date will be the interest rate borne
by such CD Rate Trust Certificates on such Record Date.
CD Rate Trust Certificates, like other Trust Certificates, are not
deposit obligations of a bank and are not insured by the Federal Deposit
Insurance Corporation.
Commercial Paper Rate Trust Certificates. Commercial Paper Rate Trust
Certificates will bear interest at the interest rates (calculated with reference
to the Commercial Paper Rate and the Spread and/or the Spread Multiplier, if
any) specified in the applicable Prospectus Supplement.
The "Commercial Paper Rate" means, with respect to any Record Date, the
Money Market Yield (as defined below) on such date of the rate for commercial
paper having the applicable Index Maturity, as published in H.15(519) under the
heading "Commercial Paper". If such rate is not published prior to 9:00 a.m.,
New York City time, on the Calculation Date pertaining to such Record Date, the
Commercial Paper Rate will be the Money Market Yield on such Record Date of the
rate for commercial paper of the applicable Index Maturity, as published by the
Federal Reserve Bank of New York in Composite Quotations under the heading
"Commercial Paper". If such rate is not published in Composite Quotations by
3:00 p.m., New York City time, on the Calculation Date pertaining to such Record
Date, then the Commercial Paper Rate for such Record Date will be calculated by
the Calculation Agent and will be the Money Market Yield of the arithmetic mean
of the offered rates as of 11:00 a.m., New York City time, on such Record Date
of three leading dealers of commercial paper in The City of New York, selected
by the Calculation Agent after consultation with the Depositor, for commercial
paper of the applicable Index Maturity, placed for industrial issuers whose bond
rating (as determined by a nationally recognized rating agency) is "AA" or the
equivalent; provided that, if the dealers selected as aforesaid by the
Calculation Agent are not quoting such rates, the interest rate for the period
commencing on the Interest Reset Date
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following such Record Date will be the interest rate borne by such Commercial
Paper Rate Trust Certificates on such Record Date.
"Money Market Yield" will be a yield calculated in accordance with the
following formula:
Money Market Yield = D X 360 X 100
---------------
360 - (D x M)
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the applicable period for which interest is being calculated.
Federal Funds Rate Trust Certificates. Federal Funds Rate Trust
Certificates will bear interest at the interest rates (calculated with reference
to the Federal Funds Rate and the Spread and/or the Spread Multiplier, if any)
specified in the applicable Prospectus Supplement.
The "Federal Funds Rate" means, with respect to any Record Date, the
rate on such date for federal funds, as published in H.15(519) under the heading
"Federal Funds (Effective)". If such rate is not published by 9:00 a.m., New
York City time, on the Calculation Date pertaining to such Record Date, the
Federal Funds Rate will be the rate on such Record Date, as published by the
Federal Reserve Bank of New York in Composite Quotations under the heading
"Federal Funds/Effective Rate". If such rate is not published in Composite
Quotations by 3:00 p.m., New York City time, on the Calculation Date pertaining
to such Record Date, then the Federal Funds Rate for such Record Date will be
calculated by the Calculation Agent and will be the arithmetic mean of the rates
for the last transaction in overnight federal funds arranged by three leading
brokers of federal funds transactions in The City of New York, selected by the
Calculation Agent after consultation with the Depositor, as of 9:00 a.m., New
York City time, on such Record Date; provided that, if the brokers selected as
aforesaid by the Calculation Agent are not arranging such transactions, the
interest rate for the period commencing on the Interest Reset Date following
such Record Date will be the interest rate borne by such Federal Funds Trust
Certificates on such Record Date.
LIBOR Trust Certificates. LIBOR Trust Certificates will bear interest
at the interest rates (calculated with reference to LIBOR and the Spread and/or
the Spread Multiplier, if any) specified in the applicable Prospectus
Supplement.
"LIBOR" means, with respect to any Record Date, the rate determined by
the Calculation Agent in accordance with either clause (1) or clause (2) below,
as specified in the applicable Prospectus Supplement:
(1) The rate for deposits in U.S. dollars of the Index
Maturity specified in the applicable Prospectus Supplement, commencing
on the second London Banking Day immediately following such Record
Date, that appears on the Telerate Page 3750 as of 11:00 a.m., London
time, on such Record Date ("LIBOR Telerate"). "Telerate Page 3750"
means the display designated as page "3750" on the Telerate Service (or
such other page as may replace the page 3750 on that service or such
other service or services as may be designated by the British Bankers'
Association for the purpose of displaying London interbank offered
rates for U.S. dollar deposits).
(2) The arithmetic mean of the offered rates for deposits in
U.S. dollars having the Index Maturity specified in the applicable
Prospectus Supplement, commencing on the second London Banking Day
immediately following such Record Date, that appear on the Reuters
Screen LIBO Page as of 11:00 a.m., London time, on such Record Date, if
at least two such offered rates appear on the Reuters Screen LIBO Page
("LIBOR Reuters"). "Reuters Screen LIBO Page" means the display
designated as Page "LIBO" on the Reuters Monitor Money Rate Service (or
such other page as may replace the LIBO page on that service for the
purpose of displaying London interbank offered rates of major banks).
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If neither LIBOR Telerate nor LIBOR Reuters is specified in the
applicable Prospectus Supplement, LIBOR will be determined as if LIBOR Telerate
had been specified.
If (i) in the case where paragraph (1) above applies, no rate appears
on the Telerate Page 3750 or (ii) in the case where paragraph (2) above applies,
fewer than two offered rates appear on the Reuters Screen LIBO Page, LIBOR in
respect of such Record Date will be determined by the Calculation Agent on the
basis of the rates at which deposits in U.S. dollars of the Index Maturity
specified in the applicable Prospectus Supplement are offered to prime banks in
the London interbank market at approximately 11:00 a.m., London time, on such
Record Date by four major banks ("Reference Banks") in the London interbank
market, selected by the Calculation Agent, commencing on the second London
Banking Day immediately following such Record Date in a principal amount of not
less than $1,000,000 that is representative for a single transaction in such
market at such time. The Calculation Agent will request the principal London
office of each of the Reference Banks to provide a quotation of its rate. If at
least two such quotations are provided, LIBOR for such Record Date will be the
arithmetic mean of such quotations. If fewer than two quotations are provided,
LIBOR for such Record Date will be the arithmetic mean of the rates quoted at
approximately 11:00 a.m., New York City time, on such Record Date by three major
commercial or investment banks (which may include Merrill Lynch & Co. or any of
its affiliates) in The City of New York, selected by the Calculation Agent, for
U.S. dollar loans of the applicable Index Maturity to leading European banks,
commencing on the second London Banking Day immediately following such Record
Date, in a principal amount of not less than $1,000,000 that is representative
for a single transaction in such market at such time; provided that, if the
banks selected as aforesaid by the Calculation Agent are not quoting such rates,
the interest rate for the period commencing on the Interest Reset Date following
such Record Date will be the interest rate borne by such LIBOR Notes on such
Record Date.
If any LIBOR Trust Certificate is indexed to the offered rates for
deposits in a Specified Currency other than U.S. dollars, the applicable
Prospectus Supplement will set forth the method for determining such rates.
Prime Rate Trust Certificates. Prime Rate Trust Certificates will bear
interest at the interest rates (calculated with reference to the Prime Rate and
the Spread and/or the Spread Multiplier, if any) specified in the applicable
Prospectus Supplement.
The "Prime Rate" means, with respect to any Record Date, the rate on
such date, as published in H.15(519) under the heading "Bank Prime Loan". If
such rate is not published by 9:00 a.m., New York City time, on the Calculation
Date pertaining to such Record Date, the Prime Rate will be determined by the
Calculation Agent and will be the arithmetic mean of the rates of interest
publicly announced by each bank named on the "Reuters Screen NYMF Page" as such
bank's prime rate or base lending rate as in effect for such Record Date.
"Reuters Screen NYMF Page" means the display designated as page "NYMF" on the
Reuters Monitor Money Rates Service (or such other page as may replace the NYMF
page on that service for the purpose of displaying prime rates or base lending
rates of major U.S. banks). If fewer than four but more than one such rate
appears on the Reuters Screen NYMF Page for such Record Date, the Prime Rate
will be determined by the Calculation Agent and will be the arithmetic mean of
the prime rates, quoted on the basis of the actual number of days in the year
divided by 360, as of the close of business on such Record Date by four major
money center banks in The City of New York, selected by the Calculation Agent
after consultation with the Depositor. If fewer than two such rates appear on
the Reuters Screen NYMF Page, the Prime Rate will be calculated by the
Calculation Agent and will be the arithmetic mean of the prime rates in effect
for such Record Date as furnished in The City of New York by at least three
substitute banks or trust companies organized and doing business under the laws
of the United States, or any state thereof, in each case having total equity
capital of at least $500,000,000 and subject to supervision or examination by
federal or state authority, selected by the Calculation Agent after consultation
with the Depositor; provided that, if the banks or trust companies selected as
aforesaid by the Calculation Agent are not quoting such rates, the interest rate
for the period commencing on the Interest Reset Date
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following such Record Date will be the interest rate borne by such Prime Rate
Trust Certificates on such Record Date.
Treasury Rate Trust Certificates. Treasury Rate Trust Certificates will
bear interest at the interest rates (calculated with reference to the Treasury
Rate and the Spread and/or the Spread Multiplier, if any) specified in the
applicable Prospectus Supplement.
The "Treasury Rate" means, with respect to any Record Date, the rate
for the auction held on such Record Date of treasury bills of the Index Maturity
specified in the applicable Prospectus Supplement, as published in H.15(519)
under the heading "U.S. Government Securities--Treasury bills-auction average
(investment)". If such rate is not published by 9:00 a.m., New York City time,
on the Calculation Date pertaining to such Record Date, the Prime Rate will be
the auction average rate for such Record Date (expressed as a bond equivalent,
rounded to the nearest one-hundredth of one percent, with five one-thousandths
of a percent rounded upward, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) as otherwise announced by the United
States Department of the Treasury. If the results of the auction of treasury
bills having the applicable Index Maturity are not published or reported as
provided above by 3:00 p.m., New York City time, on such Calculation Date, or if
no such auction is held on such Record Date, then the Treasury Rate will be
calculated by the Calculation Agent and will be a yield to maturity (expressed
as a bond equivalent on the basis of a year of 365 or 366 days, as applicable,
and applied on a daily basis) of the arithmetic mean of the secondary market bid
rates, as of approximately 3:30 p.m., New York City time, on such Record Date,
of three leading primary United States government securities dealers, selected
by the Calculation Agent after consultation with the Depositor, for the issue of
treasury bills with a remaining maturity closest to the applicable Index
Maturity; provided that, if the dealers selected as aforesaid by the Calculation
Agent are not quoting such rates, the interest rate for the period commencing on
the Interest Reset Date following such Record Date will be the interest rate
borne by such Treasury Rate Trust Certificates on such Record Date.
Principal of the Trust Certificates
Each Trust Certificate (other than certain Classes of Strip Trust
Certificates) will have a "Trust Certificate Principal Balance" which, at any
time, will equal the maximum amount that the holder thereof will be entitled to
receive in respect of principal out of the future cash flows on the Deposited
Assets. The applicable Prospectus Supplement will include a section entitled
"Description of the Trust Certificates--Collections and Distributions" which
will set forth the priority of distributions on each Class of Trust Certificates
in a given Series. The outstanding Trust Certificate Principal Balance of a
Trust Certificate will be reduced to the extent of distributions of principal
thereon, and, if applicable pursuant to the terms of the related Series, by the
amount of any net losses realized on any Deposited Asset ("Realized Losses")
allocated thereto. The initial aggregate Trust Certificate Principal Balance of
Trust Certificates of a Series will equal the outstanding aggregate principal
balance of the related Deposited Assets as of the applicable Cut-off Date. The
initial aggregate Trust Certificate Principal Balance of a Series will be
specified in the applicable Prospectus Supplement.
Optional Exchange
The applicable Prospectus Supplement may provide that any of the
Depositor, Merrill Lynch & Co. or the Trustee, or their respective designees,
may exchange Trust Certificates of any given Series (an "Exchangeable Series")
for a pro rata portion of the Deposited Assets (an "Optional Exchange Right").
The applicable Prospectus Supplement will specify the terms upon which an
Optional Exchange Right may be exercised; provided that (a) any Optional
Exchange Right shall be exercisable only to the extent that the exercise of such
right does not affect the Trust's ability to be exempt under Rule 3a-7 under the
Investment Company Act of 1940, as amended, and all applicable rules,
regulations and interpretations thereunder and would not affect the
characterization of the Trust as a "grantor trust" under the Code and (b) if the
Deposited Assets constitute a pool of Underlying Securities, any exercise of the
Optional Exchange Right
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will be effected so that, with respect to each series or issue of Underlying
Securities included in such pool (together with any related assets that credit
enhance or otherwise support that series or issue of Underlying Securities), the
proportion that the principal amount of such series or issue of Underlying
Securities (together with such related assets) bears to the aggregate principal
amount of Trust Certificates immediately prior to such exercise will be equal to
the proportion that the principal amount of such series or issue of Underlying
Securities (together with such related assets) bears to the aggregate principal
amount of Trust Certificates immediately after such exercise. In addition, the
exercise of an Optional Exchange Right will decrease the aggregate amount of
Trust Certificates of the applicable Exchangeable Series outstanding. See "Risk
Factors--General Unavailability of Optional Exchange".
While the exercise of an Optional Exchange will decrease the aggregate
amount of Trust Certificates of the applicable Exchangeable Series outstanding,
the availability of the Optional Exchange Right may increase liquidity for the
Trust Certificateholders. The ability to exchange Trust Certificates for
Underlying Securities enables the Depositor, Merrill Lynch & Co. or the Trustee,
or their respective designees, to sell the Underlying Security, which may be
part of a more liquid issue than the Trust Certificates, at a better price for
the holder than the sale of the less liquid Trust Certificates.
Default and Remedies
If there is a payment default on or acceleration of the Underlying
Securities, then the Trustee of the relevant Trust will exercise one of the
following remedies: (i) sell all of such Underlying Securities and distribute
the proceeds from such sale to the Trust Certificateholders in accordance with
the Allocation Ratio (any such sale may result in a loss to the Trust
Certificateholders of the relevant Series if the sale price is less than the
purchase price for such Underlying Securities), (ii) distribute such Underlying
Securities in kind to the Trust Certificateholders in accordance with the
Allocation Ratio, or (iii) elect either (i) or (ii) based upon a majority of
votes cast by the affected Trust Certificateholders. The choice of remedies will
be set forth for a given Series in the Prospectus Supplement, and the Trustee,
Depositor and Trust Certificateholders will have no discretion in this respect.
The "Allocation Ratio" is the allocation between Classes of a given
Series of the total expected cash flows from the Deposited Assets of that
Series. The Prospectus Supplement for any Series with more than one Class will
set forth the Allocation Ratio for that Series. In addition to default or
acceleration on Underlying Securities, the Allocation Ratio relates to voting
rights held by owners of Underlying Securities because such rights will be
allocated among the Trust Certificateholders of different Classes of a given
Series in accordance with their economic interests. Further, the Allocation
Ratio applies in the event of a sale or distribution of Underlying Securities
once an issuer of Concentrated Underlying Securities ceases to file periodic
reports under the Exchange Act, as discussed below under "Description of
Deposited Assets--Principal Terms of Underlying Securities".
Call Right
Merrill Lynch & Co. or the Depositor or, if so specified in the
relevant Prospectus Supplement, a transferee as a result of a private placement
to eligible investors, may hold the right to purchase all or some of the Trust
Certificates of a given Series or Class from the holders thereof, prior to
maturity (a "Call Right"). If one or more specified persons holds a Call Right,
the applicable Prospectus Supplement will designate such Series as a "Callable
Series". The terms upon which any such specified person or entity may exercise a
Call Right will be specified in the applicable Prospectus Supplement. Such terms
may relate to, but are not limited to, the following:
(a) a requirement that the Trust Certificate Principal
Balance of each Trust Certificate being purchased be
an integral multiple of an amount specified in the
Prospectus Supplement;
(b) specified dates during which a Call Right may be
exercised, which may include any and all times that
the Trust Certificates remain outstanding; and
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(c) the price or prices at which a Call Right may be
exercised, which may include fixed dollar amounts or
be calculated as a percentage of the principal amount
of the Trust Certificates outstanding (each, a "Call
Price").
After receiving notice of the exercise of a Call Right, the Trustee
will provide notice thereof as specified in the Standard Terms. Upon the
satisfaction of any applicable conditions to the exercise of a Call Right, each
Trust Certificateholder will be entitled to receive (in the case of a purchase
of less than all of the Trust Certificates) payment of a pro rata share of the
Call Price paid in connection with such exercise. The Call Right will not be
exercised unless the value of the Underlying Securities exceeds the Call Price
payable upon exercise of the Call Right.
Put Right
Trust Certificates may be issued with Underlying Securities that permit
the holder thereof to require the Underlying Securities Issuer to repurchase or
otherwise repay (in each case, a "Put Option") such Underlying Securities
("Puttable Underlying Securities") on or after a fixed date. In such cases, the
Trustee for such Series of Trust Certificates will exercise the Put Option on
the first date such option is available to be exercised (the "Put Date") and the
Put Date will also be the Final Scheduled Distribution Date with respect to such
Series; provided, however, if the holder of a Call Right has exercised that
right prior to the Final Scheduled Distribution Date, then the Trust
Certificates of the Callable Series will be redeemed as described in
"Description of the Trust Certificates--Call Right". The Depositor will not
issue a Series of Trust Certificates with Puttable Underlying Securities if it
would either (i) cause the Trust or Depositor to fail to satisfy the applicable
requirements for exemption under Rule 3a-7 under the Investment Company Act of
1940 or (ii) affect the characterization of the Trust as a "grantor trust" under
the Code.
Global Securities
Unless otherwise specified in the applicable Prospectus Supplement, all
Trust Certificates of a given Series will, upon issuance, be represented by one
or more Global Securities that will be deposited with, or on behalf of, the
Depositary, and registered in the name of a nominee of the Depositary. Unless
and until it is exchanged in whole or in part for the individual Trust
Certificates represented thereby (each, a "Definitive Trust Certificate"), a
Global Security may not be transferred except as a whole by the Depositary for
such Global Security to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by such
Depositary or any such nominee to a successor of such Depositary or a nominee of
such successor.
The Depository Trust Company has advised the Depositor as follows: The
Depository Trust Company is a limited-purpose trust company organized under the
laws of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. The Depository Trust Company was created to hold
securities of its Participants and to facilitate the clearance and settlement of
securities transactions among the institutions that have accounts with such
Depositary ("Participants") in such securities through electronic book-entry
changes in accounts of the Participants, thereby eliminating the need for
physical movement of securities certificates. Such Depositary's Participants
include securities brokers and dealers (including Merrill Lynch & Co.), banks,
trust companies, clearing corporations and certain other organizations, some of
which (and/or their representatives) own such Depositary. Access to such
Depositary's book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly. The Depository
Trust Company has confirmed to the Depositor that it intends to follow such
procedures.
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Upon the issuance of a Global Security, the Depositary for such Global
Security will credit, on its book-entry registration and transfer system, the
respective principal amounts of the individual Trust Certificates represented by
such Global Security to the accounts of its Participants. The accounts to be
accredited shall be designated by the underwriters of such Trust Certificates,
or, if such Trust Certificates are offered and sold directly through one or more
agents, by the Depositor or such agent or agents. Ownership of beneficial
interests in a Global Security will be limited to Participants or persons or
entities that may hold beneficial interests through Participants. Ownership of
beneficial interests in a Global Security will be shown on, and the transfer of
that ownership will be effected only through, records maintained by the
Depositary for such Global Security or by Participants or persons or entities
that hold through Participants. The laws of some states require that certain
purchasers of securities take physical delivery of such securities. Such limits
and such laws may limit the market for beneficial interests in a Global
Security.
So long as the Depositary for a Global Security, or its nominee, is the
owner of such Global Security, such Depositary or such nominee, as the case may
be, will be considered the sole Trust Certificateholder of the individual Trust
Certificates represented by such Global Security for all purposes under the
Trust Agreement governing such Trust Certificates. Except as set forth below,
owners of beneficial interests in a Global Security will not be entitled to have
individual Trust Certificates represented by such Global Security registered in
their names, will not receive or be entitled to receive physical delivery of any
such Trust Certificates and will not be considered the Trust Certificateholders
thereof under the Trust Agreement governing such Trust Certificates. Because the
Depositary can only act on behalf of its Participants, the ability of a holder
of any Trust Certificate to pledge that Trust Certificate to persons or entities
that do not participate in the Depositary's system, or to otherwise act with
respect to such Trust Certificate, may be limited due to the lack of a physical
certificate for such Trust Certificate.
Distributions of principal of (and premium, if any) and any interest on
individual Trust Certificates represented by a Global Security will be made to
the Depositary or its nominee, as the case may be, as the Trust
Certificateholder of such Global Security. None of the Depositor, the Trustee
for such Trust Certificates, any Paying Agent or the Trust Certificate Registrar
for such Trust Certificates will have responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial interests
in such Global Security or for maintaining, supervising or reviewing any records
relating to such beneficial interests.
The Depositor expects that the Depositary for Trust Certificates of a
given Series, upon receipt of any distribution of principal, premium or interest
in respect of a definitive Global Security representing any of such Trust
Certificates, will immediately credit Participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of such Global Security as shown on the records of such Depositary. The
Depositary also expects that payments by Participants to owners of beneficial
interests in such Global Security held through such Participants will be
registered in "street name" and will be the responsibility of such Participants.
If the Depositary for Trust Certificates of a given Series is at any
time unwilling or unable to continue as depository and a successor depository is
not appointed by the Depositor within 90 days, the Depositor will issue
individual Definitive Trust Certificates in exchange for the Global Security or
Securities representing such Trust Certificates. In addition, the Depositor may
at any time and in its sole discretion determine not to have any Trust
Certificates of a given Series represented by one or more Global Securities and,
in such event, will issue Definitive Trust Certificates of such Series in
exchange for the Global Security or Securities representing such Trust
Certificates. Further, if the Depositor so specifies with respect to the Trust
Certificates of a given Series, an owner of a beneficial interest in a Global
Security representing Trust Certificates of such Series may, on terms acceptable
to the Depositor and the Depositary for such Global Security, receive individual
Definitive Trust Certificates in exchange for such beneficial interest. In any
such instance, an owner of a beneficial interest in a Global Security will be
entitled to physical delivery of
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individual Definitive Trust Certificates of the Series represented by such
Global Security equal in principal amount to such beneficial interest and to
have such Definitive Trust Certificates registered in its name.
The applicable Prospectus Supplement will set forth any specific terms
of the depository arrangement with respect to any Series of Trust Certificates
being offered thereby to the extent not set forth or different from the
description set forth above.
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DESCRIPTION OF DEPOSITED ASSETS
General
Each Series of Trust Certificates (or, if more than one Class exists,
each Class within such Series) will represent in the aggregate the entire
beneficial ownership interest in the Underlying Securities (which shall be
Government Securities, senior or subordinated publicly-traded debt obligations
of one or more corporations, general or limited partnerships, preferred
securities of TOPrS(sm) trusts (as defined below) organized by such issuers, or
securities that are similar to those issued by TOPrS(sm) trusts, in each case
organized under the laws of the United States of America or any state thereof,
together with other assets. Such other assets may include cash, cash
equivalents, guarantees, letters of credit, financial insurance, interest rate,
currency, equity, commodity and credit-linked swaps, caps, floors, collars and
options, forward contracts, structured securities and other instruments and
transactions that credit enhance, hedge or otherwise support the Underlying
Securities (also described under "Risk Factors--Derivatives") designed to assure
the servicing or timely distribution of payments to holders of the Trust
Certificates. Such assets will be described in the applicable Prospectus
Supplement (such assets, together with the Underlying Securities, the "Deposited
Assets"). Underlying Securities will have been issued pursuant to an effective
registration statement filed with the Commission (or an exemption therefrom). If
the Underlying Securities represent obligations issued by one or more Underlying
Securities Issuers, such Underlying Securities will satisfy certain eligibility
criteria described below under "Underlying Securities Issuer". Except for
Government Securities, the Underlying Securities will be purchased in the
secondary market and will not be acquired from any Underlying Securities Issuer
(whether as part of any distribution by or pursuant to any agreement with such
Underlying Securities Issuer or otherwise). The Underlying Securities will
represent direct obligations of the United States Government, one or more
corporations, general or limited partnerships, preferred securities of TOPrs
Trusts organized by such issuers, or securities that are similar to TOPrS(sm),
in each case, organized under the laws of the United States or any state
thereof. No Underlying Securities Issuer will participate in the offering of the
Trust Certificates, nor will an Underlying Securities Issuer receive any of the
proceeds from the sale of Underlying Securities or from the issuance of the
Trust Certificates.
Deposited Assets for a given Series of Trust Certificates and the
related Trust will not constitute Deposited Assets for any other Series of Trust
Certificates and the related Trust, and the Trust Certificates of a given Series
will possess an equal and ratable undivided ownership interest in such Deposited
Assets. The applicable Prospectus Supplement may, however, specify that certain
assets constituting a part of the Deposited Assets relating to any given Series
may be beneficially owned solely by or deposited solely for the benefit of one
Class or a group of Classes within such Series. In such event, the other Classes
of such Series will not possess any beneficial ownership interest in those
specified assets constituting a part of the Deposited Assets.
This Prospectus relates only to the Trust Certificates offered hereby
and does not relate to the Underlying Securities. The following description of
the Underlying Securities and the Underlying Securities Issuer is intended only
to summarize material characteristics of the Underlying Securities that the
Depositor is permitted to deposit in a Trust and does not purport to be a
complete description of any prospectus relating to Underlying Securities or of
any related Indenture.
The applicable Prospectus Supplement will describe the material terms
of the Deposited Assets, including the material terms of any derivative
instruments that are included in the Deposited Assets.
Underlying Securities Issuer
The Underlying Securities Issuers will be the United States Government,
one or more corporations, general or limited partnerships, TOPrS(sm) trusts
organized by such issuers, or by issuers of preferred securities that are
similar to TOPrS(sm), in each case organized under the laws of the United States
or any state thereof. The applicable Prospectus Supplement will provide only
limited information about each
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Underlying Securities Issuer, such as its name, place of incorporation and the
address of its principal offices, unless a Trust consists of Underlying
Securities of a Concentrated Underlying Securities issuer. In that event, the
applicable Prospectus Supplement will include audited financial statements of
such Concentrated Underlying Securities issuer; provided that if such Underlying
Securities Issuer is eligible to use Form S-3 for a primary offering, then the
applicable Prospectus Supplement will only refer to the periodic reports filed
with the Commission by such Underlying Securities Issuer, which periodic reports
should be reviewed by any prospective Trust Certificateholder of the Trust
containing such Underlying Securities. See "Risk Factors--Information Concerning
Underlying Securities Issuers; Risk of Loss if Public Information not
Available".
Reports and information referred to in the preceding paragraph 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 at the
following Regional Offices of the Commission: New York Regional Office, Room
1100, 7 World Trade Center, New York, New York 10048 and Chicago Regional
Office, Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511, and copies of such material can be obtained
from the Public Reference Section of the Commission, Washington, D.C. 20549, at
prescribed rates. Such material may also be accessed electronically by means of
the Commission's home page on the Internet at http://www.sec.gov.
WITH RESPECT TO ANY UNDERLYING SECURITIES, A PROSPECTIVE
TRUST
CERTIFICATE HOLDER SHOULD OBTAIN AND EVALUATE THE SAME
INFORMATION CONCERNING
THE RELEVANT UNDERLYING SECURITIES ISSUER AS IT WOULD OBTAIN AND
EVALUATE IF IT
WERE INVESTING DIRECTLY IN THE UNDERLYING SECURITIES OR IN THE
ISSUER THEREOF.
None of the Depositor, the Trustee, Merrill Lynch & Co. or any of their
affiliates assumes any responsibility for the accuracy or completeness of any
publicly available information concerning any Underlying Securities Issuer
(including, without limitation, any investigation as to its financial condition
or creditworthiness) or concerning any Underlying Securities (whether or not
such information is filed with the Commission) or otherwise considered by a
purchaser of the Trust Certificates in making its investment decision in
connection therewith; provided that the foregoing shall not apply to any
information concerning the Underlying Securities and any Underlying Securities
Issuer that is expressly set forth in this Prospectus or an applicable
Prospectus Supplement (i.e., identifying information, information of the type
described in an applicable Prospectus Supplement under "Description of the
Underlying Securities--General" and "Description of the Underlying
Securities--Underlying Securities Indenture".
Underlying Securities Indenture
General. Except for Government Securities or unless otherwise specified
in the applicable Prospectus Supplement, each Underlying Security will have been
issued pursuant to an Indenture between the Underlying Securities Issuer and a
trustee (the "Underlying Securities Trustee"). The Indenture and the Underlying
Securities Trustee will be qualified under the Trust Indenture Act of 1939 (the
"Trust Indenture Act") and the Indenture will contain certain provisions
required by the Trust Indenture Act. Government Securities are not issued
pursuant to an indenture, are exempt from the Securities Act under Section
3(a)(2) thereof and from the Trust Indenture Act under Section 304(a)(4)
thereof.
Certain Covenants. Indentures generally contain covenants intended to
protect security holders against the occurrence or effects of certain specified
events, including restrictions limiting the issuer's, and in some cases one or
more of the issuer's subsidiaries', ability to: (i) consolidate, merge, or
transfer or lease assets; (ii) incur or suffer to exist any lien, charge or
encumbrance upon all or some specified portion of its property or assets, or to
incur, assume, guarantee or suffer to exist any indebtedness for borrowed money
if the payment of such indebtedness is secured by the grant of such a lien; or
(iii) declare or pay any cash dividends, or make any distributions on or in
respect of, or purchase, redeem, exchange or otherwise
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acquire or retire for value, any capital stock or subordinated indebtedness of
the issuer or its subsidiaries, if any. An indenture may also contain financial
covenants which, among other things, require the maintenance of certain
financial ratios or the creation or maintenance of reserves or permit certain
actions to be taken only if compliance with such covenants can be demonstrated
at the time the actions are to be taken. Subject to certain exceptions,
indentures typically may be amended or supplemented and past defaults may be
waived with the consent of the indenture trustee, the consent of the holders of
not less than a specified percentage of the outstanding securities, or both.
The Indenture for one or more Underlying Securities included in a Trust
may include some, all or none of the foregoing provisions or variations thereof,
together with additional covenants not discussed herein. There can be no
assurance that any type of Underlying Securities will be subject to any such
covenants or that any such covenants will protect the Trust as a holder of the
Underlying Securities against losses. The Prospectus Supplement used to offer
any Series of Trust Certificates will describe material covenants concerning any
Concentrated Underlying Security and, as applicable, will describe material
covenants which are common to any pool of Underlying Securities. Any material
risk factors associated with non-investment grade Underlying Securities
deposited into a Trust will be set forth in the applicable Prospectus
Supplement.
Events of Default. Indentures generally provide that any one of a
number of specified events will constitute an event of default with respect to
the securities issued thereunder. Such events of default typically include the
following or variations thereof: (i) failure by the issuer to pay an installment
of interest or principal on the securities at the time required (subject to any
specified grace period) or to redeem any of the securities when required
(subject to any specified grace period); (ii) failure by the issuer to observe
or perform any covenant, agreement or condition contained in the securities or
the indenture which failure is materially adverse to security holders and
continues for a specified period after notice thereof is given to the issuer by
the indenture trustee or the holders of not less than a specified percentage of
the outstanding securities; (iii) failure by the issuer and/or one or more of
its subsidiaries to make any required payment of principal (and premium, if any)
or interest with respect to other material outstanding debt obligations or the
acceleration by or on behalf of the holders of such securities; and (iv) certain
events of bankruptcy or insolvency with respect to the issuer and/or one or more
of its subsidiaries.
Remedies. Indentures generally provide that upon the occurrence of an
event of default, the indenture trustee may, and upon the written request of the
holders of not less than a specified percentage of the outstanding securities
the indenture trustee must, take such action as it may deem appropriate to
protect and enforce the rights of the security holders. Certain indentures
provide that the indenture trustee or a specified percentage of the holders of
the outstanding securities have the right to declare all or a portion of the
principal and accrued interest on the outstanding securities immediately due and
payable upon the occurrence of certain events of default, subject to the
issuer's right to cure, if applicable. Generally, an indenture will contain a
provision entitling the trustee thereunder to be indemnified by the security
holders prior to proceeding to exercise any right or power under such indenture
with respect to such securities at the request of such security holders. An
indenture is also likely to limit a security holder's right to institute certain
actions or proceedings to pursue any remedy under the indenture unless certain
conditions are satisfied, including obtaining the consent of the indenture
trustee, that the proceeding be brought for the ratable benefit of all holders
of the security and/or that the indenture trustee, after being requested to
institute a proceeding by the owners of at least a specified minimum percentage
of the securities, shall have refused or neglected to comply with such request
within a reasonable time.
Each Indenture may include some, all or none of the foregoing
provisions or variations thereof, together with additional events of default
and/or remedies not discussed herein. The Prospectus Supplement for any Series
of Trust Certificates will describe the events of default under the Indenture
for any Concentrated Underlying Security and the applicable remedies. The
Prospectus Supplement for any Trust consisting of a pool of Underlying
Securities will describe certain common Underlying Security events of default
with respect to such pool. There can be no assurance that any such provision
will protect the Trust,
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as a holder of the Underlying Securities, against losses. Furthermore, a Trust
Certificateholder will have no independent legal right to exercise any remedies
with respect to the Underlying Securities and will be required to rely on the
Trustee of the applicable Trust to pursue any available remedies on behalf of
the relevant Trust Certificateholders in accordance with the terms of the Trust
Agreement. If an Underlying Security Event of Default occurs and the Trustee as
a holder of the Underlying Securities is entitled to vote or take such other
action to declare the principal amount of an Underlying Security and
any accrued and unpaid interest thereon to be due and payable, the Trust
Certificateholders' objectives may differ from those of holders of other
securities of the same Series and Class as any Underlying Security in
determining whether to require the acceleration of the Underlying Securities.
See "Risk Factors--Limitation on Remedies Due to Passive Nature of the Trust".
Subordination. If specified in the applicable Prospectus Supplement,
certain of the Underlying Securities with respect to any Trust may be either
senior ("Senior Underlying Securities") or subordinated ("Subordinated
Underlying Securities") in right to payment to other existing or future
indebtedness of the Underlying Securities Issuer. With respect to Subordinated
Underlying Securities, to the extent of the subordination provisions of such
securities,and after the occurrence of certain events, security holders and
direct creditors whose claims are senior to Subordinated Underlying Securities,
if any, may be entitled to receive payment of the full amount due thereon before
the holders of any subordinated debt securities are entitled to receive payment
on account of the principal (and premium, if any) or any interest on such
securities. Consequently, the Trust as a holder of subordinated debt may suffer
a greater loss than if it held unsubordinated debt of the Underlying Securities
Issuer. There can be no assurance, however, that in the event of a bankruptcy or
similar insolvency proceeding the Trust as a holder of Senior Underlying
Securities would receive all payments in respect of such securities even if
holders of subordinated securities receive no amounts in respect of such
securities. Reference is made to the Prospectus Supplement used to offer any
Series of Trust Certificates for a description of any subordination provisions
with respect to any Concentrated Underlying Securities and the percentage of
Senior Underlying Securities and Subordinated Underlying Securities, if any, in
a Trust comprised of a pool of securities.
Secured Obligations. Certain of the Underlying Securities with respect
to any Trust may represent secured obligations of the Underlying Securities
Issuer ("Secured Underlying Securities"). Generally, unless an event of default
shall have occurred, or with respect to certain collateral or as otherwise set
forth in the indenture pursuant to which such securities were issued, an issuer
of secured obligations has the right to remain in possession and retain
exclusive control of the collateral and to collect, invest and dispose of any
income related to the collateral. The indenture pursuant to which any secured
indebtedness is issued may also contain certain provisions for release,
substitution or disposition of collateral under certain circumstances with or
without the consent of the indenture trustee or upon the direction of not less
than a specified percentage of the security holders. The indenture pursuant to
which any secured indebtedness is issued typically will also provide for the
disposition of the collateral upon the occurrence of certain events of default
with respect thereto. In the event of a default in respect of any secured
obligation, security holders may experience a delay in payments on account of
principal (and premium, if any) or any interest on such securities pending the
sale of any collateral and prior to or during such period the related collateral
may decline in value. If proceeds of the sale of collateral following an
indenture event of default are insufficient to repay all amounts due in respect
of any secured obligations, the holders of such securities (to the extent not
repaid from the proceeds of the sale of the collateral) would have only an
unsecured claim ranking pari passu with the claims of all other general
unsecured creditors.
The Indenture with respect to Secured Underlying Securities may include
some, all or none of the foregoing provisions or variations thereof. The
Prospectus Supplement used to offer any Series of Trust Certificates that
includes Concentrated Underlying Securities which are Secured Underlying
Securities will describe the material security provisions of such Underlying
Securities and the related collateral. With respect to any Trust composed of a
pool of securities, a substantial portion of which are Secured
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Underlying Securities, the applicable Prospectus Supplement will disclose
certain material information with respect to such security provisions and the
collateral.
Principal Terms of Underlying Securities
Reference is made to the applicable Prospectus Supplement for each
Series of Trust Certificates for a description of the following terms, as
applicable, of any Concentrated Underlying Security: (i) the title and series of
such Underlying Securities, and the aggregate principal amount, denomination and
form thereof; (ii) whether such securities are senior or subordinated to any
other existing or future obligations of the Underlying Securities Issuer; (iii)
whether any of the obligations are secured and the nature of any collateral;
(iv) the limit, if any, upon the aggregate principal amount of such securities;
(v) the dates on which, or the range of dates within which, the principal of
(and premium, if any, on) such securities will be payable; (vi) the rate or
rates, or the method of determination thereof, at which such Underlying
Securities will bear interest, if any ("Underlying Securities Rate");
the date or dates from which such interest will accrue; and the dates on which
such interest will be payable; (vii) the obligation, if any, of the Underlying
Securities Issuer to redeem such Underlying Securities and other securities of
the same Class or Series pursuant to any sinking fund or similar provisions, or
at the option of a holder thereof, and the periods within which or the dates on
which, the prices at which and the terms and conditions upon which such
securities may be redeemed or repurchased, in whole or in part, pursuant to such
obligation; (viii) the periods within which or the dates on which, the prices at
which and the terms and conditions upon which such securities may be redeemed,
if any, in whole or in part, at the option of the Underlying Securities Issuer;
(ix) the periods within which or the dates on which, the prices at which and the
terms and conditions upon which the holder of the Underlying Securities may
require the issuer of the Puttable Underlying Securities to repurchase or
otherwise repay such Puttable Underlying Securities; (x) whether the Underlying
Securities were issued at a price lower than the principal amount thereof; (xi)
if other than U.S. dollars, the currency in which such securities are
denominated, or in which payment of the principal of (and premium, if any) or
any interest on such Underlying Securities will be made, and the circumstances,
if any, when such currency of payment may be changed; (xii) material events of
default or restrictive covenants provided for with respect to such Underlying
Securities; (xiii) the rating thereof, if any; (xv) the principal United States
market on which the Underlying Securities are traded, if any; and (xiv) any
other material terms of such Underlying Securities.
With respect to a Trust comprised of a pool of Underlying Securities,
the applicable Prospectus Supplement will describe the composition of the
Underlying Securities pool as of the Cut-off Date, certain material events of
default or restrictive covenants common to the Underlying Securities, and, on an
aggregate, percentage or weighted average basis, as applicable, the
characteristics of the pool with respect to the terms set forth in subclauses
(ii), (iii), (v), (vi), (vii), (viii), (ix), (x) and (xi) of the preceding
paragraph and any other material terms regarding such pool of securities.
Other than publicly traded debt securities which satisfy the necessary
requirements set forth herein for Underlying Securities, the Underlying
Securities may consist of, or be similar in structure to, Trust Originated
Preferred Securities ("TOPrS(sm)") in respect of eligible corporations or
general or limited partnerships. (Trust Originated Preferred Securities and
TOPrS(sm) are service marks of Merrill Lynch & Co.)
If an issuer of Concentrated Underlying Securities ceases to file
periodic reports under the Exchange Act, the Depositor will continue to be
subject to the reporting requirements of the Exchange Act but certain
information with respect to such issuer may be unavailable. In such cases, the
Trustee of the relevant Trust will exercise one of the following remedies: (i)
sell all of such Concentrated Underlying Securities and distribute the proceeds
from such sale to the Trust Certificateholders in accordance with the Allocation
Ratio (any such sale will result in a loss to the Trust Certificateholders of
the relevant Series if the sale price is less than the purchase price for such
Concentrated Underlying Securities), (ii) distribute such Concentrated
Underlying Securities in accordance with the Allocation Ratio, or (iii) elect
either (i) or (ii) based upon a majority of votes cast by the affected Trust
Certificateholders. The applicable Prospectus
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Supplement will specify which of these two remedies must be exercised by the
Trustee, and the Trustee, the Depositor and the Trust Certificateholders will
have no discretion in this respect.
Credit Support
As specified in the applicable Prospectus Supplement for a given Series
of Trust Certificates, the Trust for any Series of Trust Certificates may
include, or the Trust Certificateholders of such Series (or any Class or group
of Classes within such Series) may have the benefit of, Credit Support for any
Class or group of Classes within such Series. Credit Support directly benefits
the relevant Trust and thereby benefits Trust Certificateholders. Such Credit
Support may be provided by any combination of the following means described
below or any other means described in the applicable Prospectus Supplement. The
applicable Prospectus Supplement will set forth whether the Trust for any Class
or Classes of Trust Certificates contains, or the Trust Certificateholders of
such Trust Certificates have the benefit of, Credit Support and, if so, the
amount, type and other relevant terms of each element of Credit Support with
respect to any such Class or Classes and certain information with respect to the
obligors of each such element, including financial information with respect to
any such obligor providing Credit Support for 20% or more of the aggregate
principal amount of such Class or Classes.
Subordination. As discussed below under "--Collections", the rights of
the Trust Certificateholders of any given Class within a Series of Trust
Certificates to receive collections from the Trust for such Series and any
Credit Support obtained for the benefit of the Trust Certificateholders of such
Series (or Classes within such Series) may be subordinated to the rights of the
Trust Certificateholders of one or more other Classes of such Series to the
extent described in the applicable Prospectus Supplement. Such subordination
accordingly provides some additional Credit Support to those Trust
Certificateholders of those other Classes. For example, if losses are realized
during a given period on the Deposited Assets relating to a Series of Trust
Certificates such that the collections received thereon are insufficient to make
all distributions on the Trust Certificates of such Series, those Realized
Losses would be allocated to the Trust Certificateholders of any Class of any
such Series that is subordinated to another Class, to the extent and in the
manner provided in the applicable Prospectus Supplement. In addition, if so
provided in the applicable Prospectus Supplement, certain amounts otherwise
payable to Trust Certificateholders of any Class that is subordinated to another
Class may be required to be deposited into a Reserve Account.
If so provided in the applicable Prospectus Supplement, the Credit
Support for any Series or Class of Trust Certificates may also include other
forms of Credit Support, described below. Any such other forms of Credit Support
that are solely for the benefit of a given Class will be limited to the extent
necessary to make required distributions to the Trust Certificateholders of such
Class or as otherwise specified in the applicable Prospectus Supplement. In
addition, if so provided in the applicable Prospectus Supplement, the obligor of
any other forms of Credit Support may be reimbursed for amounts paid pursuant to
such Credit Support out of amounts otherwise payable to one or more of the
Classes of the Trust Certificates of such Series. Further, payments to be made
in respect of any forms of Credit Support arranged for on behalf of the Trust
Certificateholders may be required to be paid prior to any distributions that
must be made to Trust Certificateholders.
Letter of Credit; Surety Bond. The Trust Certificateholders of any
Series (or Class or group of Classes of Trust Certificates within such Series)
may, if specified in the applicable Prospectus Supplement, have the benefit of a
letter or letters of credit (a "Letter of Credit") issued by a bank (a "Letter
of Credit Bank") or a surety bond or bonds (a "Surety Bond") issued by a surety
company (a "Surety"). In either case, the Trustee or such other person specified
in the applicable Prospectus Supplement will use its reasonable efforts to cause
the Letter of Credit or the Surety Bond, as the case may be, to be obtained, to
be kept in full force and effect (unless coverage thereunder has been exhausted
through payment of claims) and to pay timely the fees or premiums therefor
unless, as described in the applicable Prospectus Supplement, the payment of
such fees or premiums is otherwise provided for. The Trustee or such other
person specified in the applicable Prospectus Supplement will make or cause to
be made draws under the Letter of Credit or
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the Surety Bond, as the case may be, under the circumstances and to cover the
amounts specified in the applicable Prospectus Supplement. Any amounts otherwise
available under the Letter of Credit or the Surety Bond will be reduced to the
extent of any prior unreimbursed draws thereunder. The applicable Prospectus
Supplement will provide the manner, priority and source of funds by which any
such draws are to be repaid.
Unless otherwise specified in the applicable Prospectus Supplement, if
the Letter of Credit Bank or the Surety, as applicable, ceases to satisfy any
credit rating or other applicable requirements specified in the applicable
Prospectus Supplement, the Trustee or such other person specified in the
applicable Prospectus Supplement will use its reasonable efforts to obtain or
cause to be obtained a substitute Letter of Credit or Surety Bond, as
applicable, or other form of credit enhancement providing similar protection,
that meets such requirements and provides the same coverage to the extent
available for the same cost. There can be no assurance that any Letter of Credit
Bank or any Surety, as applicable, will continue to satisfy such requirements or
that any such substitute Letter of Credit, Surety Bond or similar credit
enhancement will be available providing equivalent coverage for the same cost.
To the extent not so available, the Credit Support otherwise provided by the
Letter of Credit or the Surety Bond (or similar credit enhancement) may be
reduced to the level otherwise available for the same cost as the original
Letter of Credit or Surety Bond.
Reserve Accounts. If so provided in the applicable Prospectus
Supplement, the Trustee or such other person specified in the Prospectus
Supplement will deposit or cause to be deposited into an account maintained with
an eligible institution (which may be the Trustee) (a "Reserve Account") any
combination of cash or permitted investments in specified amounts, which will be
applied and maintained in the manner and under the conditions specified in such
Prospectus Supplement. In the alternative or in addition to such deposit, a
Reserve Account may be funded through application of a portion of collections
received on the Deposited Assets for a given Series of Trust Certificates, in
the manner and priority specified in the applicable Prospectus Supplement.
Amounts may be distributed to Trust Certificateholders of such Class or group of
Classes within such Series, or may be used for other purposes, in the manner and
to the extent provided in the applicable Prospectus Supplement. Amounts
deposited in any Reserve Account will be invested in certain permitted
investments by, or at the direction of, the Trustee, the Depositor or such other
person as may be specified in the applicable Prospectus Supplement.
Collections
The Trust Agreement will establish procedures by which the Trustee or
such other person as may be specified in the Prospectus Supplement is obligated,
for the benefit of the Trust Certificateholders of each Series of Trust
Certificates, to administer the related Deposited Assets, including making
collections of all payments made thereon, depositing from time to time prior to
any applicable Distribution Date such collections into a segregated trust
account maintained or controlled by the applicable Trustee for the benefit of
such Series (each a "Trust Certificate Account"). An Administrative Agent, if
any is appointed, will direct the Trustee, and otherwise the Trustee will make
all determinations, as to the appropriate application of such collections and
other amounts available for distribution to the payment of any administrative or
collection expenses (such as the administrative fee) and certain Credit
Support-related ongoing fees (such as insurance premiums, letter of credit fees
or any required account deposits) and to the payment of amounts then due and
owing on the Trust Certificates of such Series (and Classes within such Series),
all in the manner and priorities described in the applicable Prospectus
Supplement. The applicable Prospectus Supplement will specify the collection
periods, if applicable, and Distribution Dates for a given Series of Trust
Certificates and the particular requirements relating to the segregation and
investment of collections received on the Deposited Assets during a given
collection period or on or by certain specified dates. There can be no assurance
that amounts received from the Deposited Assets and any Credit Support obtained
for the benefit of Trust Certificateholders for a particular Series or Class of
Trust Certificates over a specified period will be sufficient, after payment of
all prior expenses and fees for
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such period, to pay amounts then due and owing to holders of such Trust
Certificates. The applicable Prospectus Supplement will also set forth the
manner and priority by which any Realized Loss will be allocated among the
Classes of any Series of Trust Certificates, if applicable.
The relative priorities of distributions with respect to collections
from the assets of the Trust assigned to Classes of a given Series of Trust
Certificates may permanently or temporarily change over time upon the occurrence
of certain circumstances specified in the applicable Prospectus Supplement.
Moreover, the applicable Prospectus Supplement may specify that the Allocation
Ratio in respect of each Class of a given Series for purposes of payments of
certain amounts, such as principal, may be different from the Allocation Ratio
assigned to each such Class for payments of other amounts, such as interest or
premium.
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DESCRIPTION OF THE TRUST AGREEMENT
General. The following summary of material provisions of the Trust
Agreement does not purport to be complete, and such summary is qualified in its
entirety by reference to the detailed provisions of the form of Trust Agreement
filed as an exhibit to the Registration Statement. Wherever particular sections
or defined terms of the Standard Terms are referred to, such sections or defined
terms are incorporated herein by reference as part of the statement made, and
the statement is qualified in its entirety by such reference.
Assignment of Deposited Assets
At the time any Series of Trust Certificates is issued, the Depositor
will cause the Underlying Securities and the Deposited Assets specified in the
Prospectus Supplement, if any, to be assigned and delivered to the Trustee to be
deposited in the related Trust, together with all principal, premium (if any)
and interest received by or on behalf of the Depositor on or with respect to
such Underlying Securities and other Deposited Assets after the cut-off date
specified in the Prospectus Supplement (the "Cut-off Date"), other than
principal, premium (if any) and interest due on or before the Cut-off Date and
other than any Retained Interest. Concurrently with such assignment, the
Depositor will execute, and the Trustee will authenticate and deliver, the Trust
Certificates to the Depositor in exchange for the Underlying Securities and
other Deposited Assets, if any. Each Deposited Asset will be identified
in a schedule to the Trust Agreement. Such schedule will include certain summary
identifying information with respect to each Underlying Security and each other
Deposited Asset as of the Cut-off Date. Such schedule will include, to the
extent applicable, information regarding the payment terms of any Concentrated
Underlying Security, the Retained Interest, if any, with respect thereto, the
maturity or terms thereof, the rating, if any, thereof and any other material
information with respect thereto.
In addition, the Depositor will, with respect to each Deposited Asset,
deliver or cause to be delivered to the Trustee (or to the custodian hereinafter
referred to) all documents necessary to transfer ownership of such Deposited
Asset to the Trustee. The Trustee (or such custodian) will hold such documents
in trust for the benefit of the Trust Certificateholders.
The Depositor will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the Trust Agreement. Upon a breach of any such representation
of the Depositor which materially and adversely affects the interests of the
Trust Certificateholders, the Depositor will be obligated to cure the breach in
all material respects.
Collection and Other Administrative Procedures
General. With respect to any Series of Trust Certificates, the Trustee
or such other person specified in the Prospectus Supplement, directly or through
administrative agents, will establish and maintain certain accounts for the
benefit of the holders of the relevant Trust Certificates and will deposit in
such accounts all amounts received by it in respect of the Deposited Assets. The
Trustee on behalf of the Trust may direct any depository institution maintaining
such accounts to invest the funds in such accounts in one or more Eligible
Investments (as defined in the Trust Agreement) bearing interest or sold at a
discount. Any earnings with respect to such investments will be paid to, and any
losses with respect to such investments will be solely for the account of, the
Trust Certificateholders (and, if applicable, the holder of the Retained
Interest) in accordance with the Allocation Ratio. Further, the Trustee or such
other person specified in the Prospectus Supplement, will make reasonable
efforts to collect all scheduled payments under the Deposited Assets and will
follow or cause to be followed such collection procedures, if any, as it would
follow with respect to comparable financial assets that it held for its own
account, provided that such procedures are consistent with the Trust Agreement
and any related instrument governing any Credit Support and provided further
that, except as otherwise expressly set forth in the applicable Prospectus
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Supplement, it shall not be required to expend or risk its own funds or
otherwise incur personal financial liability.
Realization upon Defaulted Deposited Assets. The Trustee, as
administrator with respect to the Deposited Assets, on behalf of the Trust
Certificateholders of a given Series (or any Class or Classes within such
Series), will present claims under each applicable Credit Support instrument and
will take such reasonable steps as are necessary to receive payment or to permit
recovery thereunder with respect to defaulted Deposited Assets. As set forth
above, all collections by or on behalf of the Trustee under any Credit Support
instrument are to be deposited in the Trust Certificate Account for the related
Trust, subject to withdrawal as described above.
The Trustee will be obligated to follow or cause to be followed such
normal practices and procedures as it deems necessary or advisable to realize
upon any defaulted Deposited Asset; provided that, the Trustee will be required
to expend or risk its own funds or otherwise incur financial liability if and
only to the extent specified in the applicable Prospectus Supplement. If the
proceeds of any liquidation of the defaulted Deposited Asset are less than the
sum of (i) the outstanding principal balance of the defaulted Deposited Asset,
(ii) interest accrued but unpaid thereon at the applicable interest rate and
(iii) the aggregate amount of expenses incurred by the Trustee in connection
with such proceedings to the extent reimbursable from the assets of the Trust
under the Trust Agreement, the Trust for the applicable Series will realize a
loss in the amount of such difference. To the extent provided in the applicable
Prospectus Supplement, the Trustee will be entitled to withdraw or cause to be
withdrawn from the related Trust Certificate Account out of the net proceeds
recovered on any defaulted Deposited Asset, prior to the distribution of such
proceeds to Trust Certificateholders, amounts representing its normal
administrative compensation on the Deposited Asset, unreimbursed administrative
expenses incurred with respect to the Deposited Asset and any unreimbursed
advances of delinquent payments made with respect to the Deposited Asset.
Retained Interest
The Prospectus Supplement for a Series of Trust Certificates will
specify whether there will be any Retained Interest in the Deposited Assets,
and, if so, the owner thereof. If so provided, the Retained Interest will be
established on an asset-by-asset basis and will be specified in an exhibit to
the applicable Series Supplement. A Retained Interest in a Deposited Asset
represents a specified ownership interest therein and a right to a portion of
the payments thereon. Payments in respect of the Retained Interest will be
deducted from payments on the Deposited Assets as received and, in general, will
not be deposited in the applicable Trust Certificate Account or become a part of
the related Trust. After the Trustee deducts all applicable fees (as provided
for in the Trust Agreement) from any partial recovery on an Underlying Security,
the Trustee will allocate any such partial recovery between the holder of the
Retained Interest (if any) and the Trust Certificateholders of the applicable
Series.
Advances in Respect of Delinquencies
Unless otherwise specified in the applicable Prospectus Supplement, the
Trustee will have no obligation to make any advances with respect to collections
on the Deposited Assets or in favor of the Trust Certificateholders of the
related Series of Trust Certificates. However, to the extent provided in the
applicable Prospectus Supplement, the Trustee will advance on or before each
Distribution Date its own funds or funds held in the Trust Certificate Account
for such Series that are not part of the funds available for distribution for
such Distribution Date, in an amount equal to the aggregate of payments of
principal, premium (if any) and interest (net of related fees and any Retained
Interest) with respect to the Deposited Assets that were due during the related
Collection Period and were delinquent on the related Record Date, subject to (i)
the Trustee's good faith determination that such advances will be reimbursable
from Related Proceeds (as defined below) and (ii) such other conditions as may
be specified in the Prospectus Supplement.
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Advances are intended to maintain a regular flow of scheduled interest,
premium (if any) and principal payments to holders of the Class or Classes of
Trust Certificates entitled thereto, rather than to guarantee or insure against
losses. Unless otherwise provided in the applicable Prospectus Supplement,
advances of the Trustee's funds, if any, will be reimbursable only out of
related recoveries on the Deposited Assets (and amounts received under any form
of Credit Support) for such Series with respect to which such advances were made
(as to any Deposited Assets, "Related Proceeds"); provided, however, that any
such advance will be reimbursable from any amounts in the Trust Certificate
Accounts for such Series to the extent that the Trustee shall determine, in its
sole judgment, that such advance is not ultimately recoverable from Related
Proceeds. If advances have been made by the Trustee from excess funds in the
Trust Certificate Account for any Series, the Trustee will replace such funds in
such Trust Certificate Account on any future Distribution Date to the extent
that funds in such Trust Certificate Account on such Distribution date are less
than payments required to be made to Trust Certificateholders on such date. If
so specified in the applicable Prospectus Supplement, the obligations, if any,
of the Trustee to make advances may be secured by a cash advance reserve fund or
a surety bond. If applicable, information regarding the characteristics of, and
the identity of any obligor on, any such surety bond will be set forth in the
applicable Prospectus Supplement.
Certain Matters Regarding the Trustee, the Administrative Agent, and the
Depositor
The Trustee may enter into agreements ("Administration Agreements")
with one or more Administrative Agents in order to delegate certain of its
administrative obligations with respect to a related Series under the Trust
Agreement; provided, however, that (i) such delegation shall not release the
Trustee from the duties, obligations, responsibilities or liabilities arising
under the Trust Agreement; (ii) such Administrative Agreement shall not affect
the rating of any Class of Trust Certificates of such Series; (iii) such
agreements must be consistent with the terms of the Trust Agreement, (iv) the
Trustee will remain solely liable for all fees and expenses it may owe to such
Administrative Agent; (v) the Administrative Agent shall give representations
and warranties in such Administration Agreement which are the same in substance
as those required of the Trustee; and (vi) such Administrative Agent shall meet
the eligibility requirements of the Trustee pursuant to the Trust Agreement. An
Administrative Agent, if any, for each Series of Trust Certificates under the
Trust Agreement will be named in the applicable Prospectus Supplement. The
entity serving as Administrative Agent for any such Series may be the Trustee,
the Depositor, an affiliate of either thereof, or any third party and may have
other business relationships with the Trustee, the Depositor or their
affiliates. The applicable Prospectus Supplement will specify the Administrative
Agent's compensation, if any, and the source, manner and priority of payment
thereof, with respect to a given Series of Trust Certificates.
The Trust Agreement will provide that an Administrative Agent may
resign from its obligations and duties under the Trust Agreement with respect to
any Series of Trust Certificates only if such resignation, and the appointment
of a successor, will not result in a withdrawal or downgrading of the rating of
any Class of Trust Certificates of such Series or upon a determination that its
duties under the Trust Agreement with respect to such Series are no longer
permissible under applicable law. No such resignation will become effective
until the Trustee or a successor has assumed the Administrative Agent's
obligations and duties under the Trust Agreement with respect to such Series.
The Trust Agreement will further provide that neither such
Administrative Agent, the Depositor, the Trustee nor any director, officer,
employee, or agent of the Trustee, the Administrative Agent or the Depositor
will incur any liability to the related Trust or Trust Certificateholders for
any action taken, or for refraining from taking any action, in good faith
pursuant to the Trust Agreement or for errors in judgment; provided, however,
that none of the Trustee, the Administrative Agent, the Depositor nor any such
director, officer, employee or agent will be protected against any liability
that would otherwise be imposed by reason of willful misfeasance, bad faith or
gross negligence in the performance of duties thereunder or by reason of
reckless disregard of obligations and duties thereunder. The Trust Agreement
will further provide that
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the Trustee, an Administrative Agent, the Depositor and any director, officer,
employee or agent of any of them will be entitled to indemnification by the
related Trust and will be held harmless against any loss, liability or expense
incurred in connection with any legal action relating to the Trust Agreement or
the Trust Certificates, other than any loss, liability or expense incurred by
reason of willful misfeasance, bad faith or gross negligence in the performance
of duties thereunder or by reason of reckless disregard of obligations and
duties thereunder. In addition, the Trust Agreement will provide that the
Trustee, an Administrative Agent, and the Depositor are under no obligation to
appear in, prosecute or defend any legal action which is not incidental to their
respective responsibilities under the Trust Agreement or which in their
respective opinions may involve it in any expense or liability. Each of the
Trustee, an Administrative Agent, and the Depositor may, however, in its
discretion undertake any such action which it may deem necessary or desirable
with respect to the Trust Agreement and the rights and duties of the parties
thereto and the interests of the Trust Certificateholders thereunder. The
applicable Prospectus Supplement will describe how such legal expenses and costs
of such action and any liability resulting therefrom will be allocated.
The Trustee, Depositor, and any Administrative Agent shall have no
obligations with respect to the Underlying Securities. The Depositor is not
authorized to proceed against the Underlying Securities Issuer in the event of a
default. Except as expressly provided in the Trust Agreement, the Trustee is not
authorized to proceed against the Underlying Securities Issuer or to assert the
rights and privileges of Trust Certificateholders.
Any person into which the Trustee, the Depositor, or an Administrative
Agent may be merged or consolidated, or any person resulting from any merger of
consolidation to which the Trustee, Depositor, or an Administrative Agent is a
part, or any person succeeding to the business of the Trustee, Depositor, or an
Administrative Agent, will be the successor of the Trustee, Depositor, or such
Administrative Agent (as the case may be) under the Trust Agreement with respect
to the Trust Certificates of a Series.
Administrative Agent Termination Events; Rights upon Administrative Agent
Termination Event
"Administrative Agent Termination Events" under the Trust Agreement
with respect to any given Series of Trust Certificates will consist of the
following: (i) any failure by an Administrative Agent to remit to the Trustee
any funds in respect of collections on the Deposited Assets and Credit Support,
if any, as required under the Trust Agreement, that continues unremedied for
five days after the giving of written notice of such failure to the
Administrative Agent by the Trustee or the Depositor, or to the Administrative
Agent, the Depositor and the Trustee by the holders of such Trust Certificates
evidencing not less than 25% of the Voting Rights; (ii) any failure by an
Administrative Agent duly to observe or perform in any material respect any of
its other covenants or obligations under its agreement with the Trustee with
respect to such Series which continues unremedied for 30 days after the giving
of written notice of such failure to the Administrative Agent by the Trustee or
the Depositor, or to the Administrative Agent, the Depositor and the Trustee by
the holders of such Trust Certificates evidencing not less than 25% of the
Voting Rights; and (iii) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings and certain actions
by or on behalf of an Administrative Agent indicating its insolvency or
inability to pay its obligations. Any additional Administrative Agent
Termination Events with respect to any given Series of Trust Certificates will
be set forth in the applicable Prospectus Supplement. In addition, the
applicable Prospectus Supplement and the related Series Supplement will specify
as to each matter requiring the vote of holders of Trust Certificates of a Class
or group of Classes within a given Series, the circumstances and manner in which
the Required Percentage applicable to each such matter is calculated. "Required
Percentage" means, with respect to any matter requiring a vote of holders of
Trust Certificates of a given Series, the specified percentage of the aggregate
Voting Rights of Trust Certificates of such Series applicable to such matter.
"Voting Rights" are the portion of the aggregate voting rights of Underlying
Securities allocated to Trust Certificateholders of each Class within a given
Series (and to the
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holder of the Retained Interest) in direct proportion to the Allocation Ratio,
as set forth in the applicable Prospectus Supplement.
Upon the occurrence of an Administrative Agent Termination Event, the
Trustee may terminate the relevant Administration Agreement and the rights and
obligations of any such Administrative Agent under any Administration Agreement
in accordance with the terms and conditions of any such Administration
Agreement. In the event of a termination of any such Administration Agreement,
the Trustee shall simultaneously reassume direct responsibility for all
obligations delegated in such Administration Agreement without any act or deed
on the part of the applicable Administrative Agent, and the Trustee shall
administer directly the related Underlying Securities or shall enter into an
Administration Agreement with a successor Administrative Agent which so
qualifies under the requirements set forth above. If the Trustee is unwilling or
unable to act, it may appoint, or petition a court of competent jurisdiction for
the appointment of, an Administrative Agent which so qualifies under the
requirements set forth above. Pending such appointment, the Trustee must act in
such capacity (except that if the Trustee is prohibited by law from obligating
itself to make advances regarding delinquent Deposited Assets, then the Trustee
will not be so obligated).
Trustee Compensation and Payment of Expenses
The applicable Prospectus Supplement will specify the Trustee's
compensation, and the source, manner and priority of payment thereof, with
respect to a given Series of Trust Certificates.
The applicable Series Supplement may provide for the payment by the
Depositor of certain Prepaid Ordinary Expenses (as defined below) of the
Trustee. If the Prepaid Ordinary Expenses set forth in the Series Supplement are
greater than zero, the Trustee will be deemed to agree that the payment of such
amount constitutes full and final satisfaction of and payment for all Ordinary
Expenses. If the Prepaid Ordinary Expenses set forth in the Series Supplement
are zero, the Series Supplement may indicate that Ordinary Expenses will be paid
for by the Trust, in which case the Trustee will be paid on a periodic basis by
the Trust or the Retained Interest at the rate or amount and on the terms
provided for in the Series Supplement. The Trustee has agreed, pursuant to the
Trust Agreement, that its right to receive such payments from the Trust will
constitute full and final satisfaction of and payment for all Ordinary Expenses
and that the Trustee will have no claim on payment of Ordinary Expenses from any
other source, including the Depositor. If the Prepaid Ordinary Expenses set
forth in the Series Supplement are zero, the Series Supplement may provide that
the Depositor will pay to the Trustee from time to time a fee for its services
and expenses as trustee as set forth in the Series Supplement payable at the
times set forth therein. The Trustee will agree, pursuant to the Trust
Agreement, that its right to receive such payments from the Depositor will
constitute full and final satisfaction of and payment for all Ordinary Expenses
and that the Trustee will have no claim for payment of Ordinary Expenses from
the Trust. The Trustee has further agreed that, notwithstanding any failure by
the Depositor to make such periodic payments of Ordinary Expenses, the Trustee
will continue to perform its obligations under the Trust Agreement. The
Depositor's obligations to pay Ordinary Expenses under the Trust Agreement will
be extinguished and of no further effect upon he payment of Ordinary Expenses
due and owing on the termination of the Trust pursuant to the terms of the Trust
Agreement.
Subject to the terms of the Trust Agreement, all Extraordinary
Expenses, to the extent not paid by a third party, are obligations of the Trust,
and when due and payable will be satisfied solely by the Trust. "Extraordinary
Expenses" are any and all costs, expenses or liabilities arising out of the
establishment, existence or administration of the Trust, other than (i) Ordinary
Expenses and (ii) costs and expenses payable by a particular Trust
Certificateholder, the Trustee or the Depositor pursuant to the Trust Agreement.
"Ordinary Expenses" are defined in the Series Supplement and generally will
consist of the Trustee's ordinary expenses and overhead in connection with its
services as Trustee, including (i) the costs and expenses of preparing, sending
and receiving all reports, statements, notices, returns, filings, solicitations
of consent or instructions, or other communications required by the Trust
Agreement, (ii) the costs
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and expenses of holding and making ordinary collection or payments on the assets
of the Trust and of determining and making payments of interest or principal,
(iii) the costs and expenses of the Trust's or Trustee's counsel, accountants
and other experts for ordinary or routine consultation or advice in connection
with the establishment, administration and termination of the Trust, and (iv)
any other costs and expenses that are or reasonably should have been expected to
be incurred in the ordinary course of administration of the Trust. If and to the
extent specified in the applicable Series Supplement, in addition to amounts
payable to any Administrative Agent, the Trustee will pay from its compensation
certain expenses incurred in connection with its administration of the Deposited
Assets, including, without limitation, payment of the fees and disbursements of
the Trustee, if applicable, and independent accountants, payment of expenses
incurred in connection with distributions and reports to Trust
Certificateholders, and payment of any other expenses described in the
applicable Prospectus Supplement.
The Trustee will not take any action, including appearing in,
instituting or conducting any action or suit under the Trust Agreement or in
relation thereto which is not indemnifiable under the Trust Agreement which, in
the Trustee's opinion, would or might cause it to incur costs, expenses or
liabilities that are Extraordinary Expenses unless (i) the Trustee is satisfied
that it will have adequate security or indemnity in respect of such costs,
expenses and liabilities, (ii) the Trustee has been instructed to do so by Trust
Certificate holders representing not less than the Required Percentage-Remedies,
and (iii) the Trust Certificate holders, pursuant to the instructions given
under clause (ii) above, have agreed that such costs, expenses or liabilities
will either be (x) paid by the Trustee from the Trust, in the case of a vote of
100% of the aggregate principal amount of Trust Certificates then outstanding,
or (y) paid by the Trustee (which payment will be made out of its own funds and
not from monies on deposit in the Trust), in which case the Trustee will be
entitled to receive, upon demand, reimbursement from those Trust
Certificateholders who have agreed to bear the entire amount of such costs,
expenses or liabilities on a pro rata basis among such Trust Certificateholders.
Optional Exchange
The terms and conditions, if any, upon which Trust Certificates of any
Series may be exchanged for a pro rata portion of the Deposited Assets of the
related Trust will be specified in the related Series Supplement; provided that
any such Optional Exchange Right will be exercisable only to the extent that the
Depositor provides upon the Trustee's request an opinion of counsel that (i)
such exchange would not be inconsistent with continued satisfaction of the
applicable requirements under the Investment Company Act of 1940, as amended,
and (ii) such exchange would not affect the characterization of the Trust as a
"grantor trust" under the Code; and provided further, that no Trust Certificate
may be exchanged unless the Trustee has received at least 30 days' but not more
than 45 days' notice prior to an Optional Exchange Date (as defined in the
Supplement), as more particularly described in the Trust Agreement.
Any tender of a Trust Certificate by the holder thereof for exchange
will be irrevocable. Unless otherwise provided in the applicable Series
Supplement, the Optional Exchange Right may be exercised by the holder of a
Trust Certificate for less than the aggregate principal amount of such Trust
Certificate as long as the aggregate principal amount outstanding after such
exchange is a multiple of the minimum denomination of such Trust Certificate and
all other exchange requirements set forth in the related Series Supplement are
satisfied. Upon such partial exchange, such Trust Certificate will be cancelled
and a new Trust Certificate or Trust Certificates for the remaining principal
amount of the Trust Certificate will be issued (which, in the case of any Trust
Certificate issued in registered form, will be in the name of the holder of such
exchanged Trust Certificate).
Voting Rights with Respect to Underlying Securities
Within five Business Days after receipt of notice of any meeting of, or
other occasion for the exercise of Voting Rights or the giving of consents by,
owners of any of the Underlying Securities, the Trustee will give notice to the
Trust Certificateholders, setting forth (i) such information as is contained in
such notice
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to owners of Underlying Securities, (ii) a statement that the Trust
Certificateholders will be entitled, subject to any applicable provision of law
and any applicable provisions of such Underlying Securities, to instruct the
Trustee as to the exercise of Voting Rights, if any, pertaining to such
Underlying Securities and (iii) a statement as to the manner in which
instructions may be given to the Trustee to give a discretionary proxy to a
person designated in the notice received by the Trustee. The Trustee will give
such notice to the Trust Certificateholders of record on the relevant record
date.
Upon the written request of the applicable Trust Certificateholder,
received on or before the date established by the Trustee for such purpose, the
Trustee will endeavor, insofar as practicable and permitted under any applicable
provision of law and any applicable provision of or governing the Underlying
Securities, to vote in accordance with any nondiscretionary instruction set
forth in such written request. The Trustee will not vote except as specifically
authorized and directed in written instructions from the applicable Trust
Certificateholder entitled to give such instructions. Notwithstanding the
foregoing, if the Trustee determines (based upon advice furnished by nationally
recognized independent tax counsel, whether at the request of any Trust
Certificateholder or otherwise) that the exercise of voting rights with respect
to any Underlying Securities could result in a "sale or other disposition" of
such Underlying Securities within the meaning of Section 1001(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), the Trustee will exercise such
voting rights in a manner that would not result in any such sale or other
disposition. The Trustee will have no responsibility to make any such
determination.
By accepting delivery of a Trust Certificate, whether upon original
issuance or subsequent transfer, exchange or replacement thereof, and without
regard to whether ownership is beneficial or otherwise, the Trust
Certificateholder agrees so long as it is an owner of such Trust Certificate
that it will not grant any consent (i) to any conversion of the timing of
payment of, or the method or rate of accruing, interest on the Underlying
Securities underlying the Trust Certificates held by such Trust
Certificateholder or (ii) to any redemption or prepayment of the Underlying
Securities underlying the Trust Certificates held by such Trust
Certificateholder. The Trustee will not grant any consent solicited from the
owners of the Underlying Securities underlying the Trust Certificates with
respect to the matters set forth under this section, "Description of the Trust
Agreement--Voting Rights with Respect to Underlying Securities," nor will it
accept or take any action in respect of any consent, proxy or instructions
received from any Trust Certificateholder in contravention of the provisions of
such Section.
Limitations on Rights of Trust Certificateholders
No Trust Certificateholder of a given Series will have the right under
the Trust Agreement to institute any proceeding with respect thereto unless (i)
such Trust Certificateholder previously has given to the Trustee written notice
of a continuing breach, (ii) Trust Certificateholders evidencing not less than
the Required Percentage- Remedies of the aggregate Voting Rights have made
written request upon the Trustee to institute such proceeding in its own name as
Trustee, (iii) such Trust Certificateholder or Trust Certificateholders have
offered the Trustee reasonable indemnity, (iv) the Trustee for 15 days has
failed to institute any such proceeding and (v) no direction inconsistent with
such written request has been given to the Trustee during such 15 day period by
Trust Certificateholders evidencing not less than the Required
Percentage-Remedies of the aggregate Voting Rights. The Trustee, however, is
under no obligation to exercise any of the trusts or powers vested in it by the
Trust Agreement, to make any investigation into the facts of matters arising
under the Trust Agreement or stated in any document believed by it to be
genuine, unless requested in writing to do so by Trust Certificateholders of the
Required Percentage-Direction of Trustee (as defined in the Trust Agreement) or
to institute, conduct or defend any litigation thereunder or in relation thereto
at the request, order or direction of any of the holders of Trust Certificates
covered by the Trust Agreement, unless such Trust Certificateholders have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
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Modification and Waiver
Unless otherwise specified in the applicable Prospectus Supplement, the
Trust Agreement may be amended from time to time by the Depositor and the
Trustee without notice to or the consent of any of the Trust Certificateholders
for any of the following purposes: (i) to cure any ambiguity; (ii) to correct or
supplement any provision therein which may be inconsistent with any other
provision therein or in the Prospectus Supplement; (iii) to appoint a change in
Trustee for a Series of Trust Certificates subsequent to the Closing Date (as
defined in the applicable Supplement) for such Series; (iv) to provide for
administration of separate Trusts by more than one trustee; (v) to provide for a
successor Trustee with respect to Trust Certificates of one or more Series; (vi)
to provide for the issuance of a new Series of Trust Certificates pursuant to a
Supplement; (vii) to add or supplement any Credit Support for the benefit of any
Trust Certificateholders (provided that if any such addition affects any series
or Class of Trust Certificateholders differently than any other Series or Class
of Trust Certificateholders, then such addition will not, as evidenced by an
opinion of counsel, have a material adverse effect on the interests of any
affected Series or Class of Trust Certificateholders; (viii) to add to the
covenants, restrictions or obligations of the Depositor, the Administrative
Agent, if any, or the Trustee for the benefit of the Trust Certificateholders;
(ix) to comply with any requirements imposed by the Code; or (x) to add, change
or eliminate any other provisions with respect to matters or questions arising
under this Trust Agreement; provided, however, that in the case of any amendment
the Rating Agency Condition shall be satisfied with respect to such amendment
and that no such amendment shall cause any Trust created hereunder to fail to
qualify as a fixed investment trust (or "grantor trust") under the Code.
Without limiting the generality of the foregoing, unless otherwise
specified in the applicable Prospectus Supplement, the Trust Agreement may also
be modified or amended from time to time by the Depositor and the Trustee, with
the consent of the holders of Trust Certificates evidencing the Required
Percentage-Amendment of the aggregate Voting Rights of those Trust Certificates
that are materially adversely affected by such modification or amendment for the
purpose of adding any provision to or changing in any manner or eliminating any
provision of the Trust Agreement or of modifying in any manner the rights of
such Trust Certificateholders; provided, however, that if such modification or
amendment would materially adversely affect the rating of any Series or Class by
each Rating Agency, the Required Percentage specified in the related Series
Supplement shall include an additional specified percentage of the Trust
Certificates of such Series or Class, and provided further, that no such
amendment will (i) reduce in any manner the amount of, or delay the timing of,
payments received on Deposited Assets which are required to be distributed on
any Trust Certificate without the consent of the holders of such Trust
Certificates or (ii) reduce the percentage of aggregate Voting Rights required
to take any action specified in the Trust Agreement, without the consent of the
holders of all Trust Certificates of such Series or Class then Outstanding.
Unless otherwise specified in the applicable Prospectus Supplement,
holders of Trust Certificates evidencing not less than the Required Percentage
to waive the Voting Rights of a given Series may, on behalf of all Trust
Certificateholders of that Series, (i) waive, insofar as that Series is
concerned, compliance by the Depositor or the Trustee with certain restrictive
provisions, if any, of the Trust Agreement before the time for such compliance
and (ii) waive any past default under the Trust Agreement with respect to Trust
Certificates of that Series, except a default in the failure to distribute
amounts received as principal of (and premium, if any) or any interest on any
such Trust Certificate and except a default in respect of a covenant or
provision the modification or amendment of which would require the consent of
the holder of each outstanding Trust Certificate affected thereby.
Reports to Trust Certificateholders; Notices
Reports to Trust Certificateholders. With each distribution to Trust
Certificateholders of a Series, the Trustee will forward or cause to be
forwarded to each such Trust Certificateholder, to the Depositor and to such
other parties as may be specified in the Trust Agreement, a statement setting
forth:
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(i) the amounts received by the Trustee as of the last such
statement in respect of principal, interest and premium on the
Underlying Securities and any amounts received by the Trustee with
respect to any derivatives transaction entered into by the Trust
pursuant to the terms of the Trust Agreement;
(ii) any amounts payable by the Trust as of such date pursuant
to any derivatives transaction entered into by the Trust pursuant to
the terms of the Trust Agreement;
(iii) the amount of compensation received by the
Administrative Agent, if any, and the Trustee for the period relating
to such Distribution Date, and such other customary information as the
Administrative Agent, if any, or otherwise the Trustee deems necessary
or desirable (or that such Certificateholder reasonably requests in
writing) to enable Trust Certificateholders to prepare their tax
returns;
(iv) the amount of the distribution on such Distribution Date
to Trust Certificateholders of each Class of such Series allocable to
principal of and premium, if any, and interest on the Trust
Certificates of each such Class, and the amount of aggregate unpaid
interest accrued as of such Distribution Date;
(v) in the case of Trust Certificates bearing interest on a
floating rate basis, the respective floating rate applicable to such
Trust Certificates on such Distribution Date, as calculated in
accordance with the method specified in such Trust Certificates and the
related Series Supplement;
(vi) if the Series Supplement provides for Advances (as
defined in the Trust Agreement), the aggregate amount of Advances, if
any, included in such distribution, and the aggregate amount of
unreimbursed Advances, if any, at the close of business on such
Distribution Date;
(vii) the aggregate stated principal amount and, if
applicable, Notional Amount of the Underlying Securities related to
such Series, the current interest rate or rates thereon at the close of
business on such Distribution Date and, if such rating has changed
since the last Distribution Date, the current rating assigned thereon
by the applicable Rating Agency;
(viii) the aggregate principal amount (or Notional Amount, if
applicable) of each Class of such Series at the close of business on
such Distribution Date, separately identifying any reduction in such
aggregate principal amount (or Notional Amount) due to the allocation
of certain Realized Losses on such Distribution Date or otherwise, as
provided in the Trust Agreement;
(ix) as to any Series (or Class within such Series) for which
Credit Support has been obtained, the amount or notional amount of
coverage of each element of Credit Support (and rating, if any,
thereof) included therein as of the close of business on such
Distribution Date; and
(x) any other information appropriate for a Series, as
specified in the applicable Prospectus Supplement.
Within a reasonable period of time after the end of each calendar year,
the Trustee will furnish to each person who at any time during the calendar year
was a Trust Certificateholder a statement containing the information set forth
in subclause (iii) above, aggregated for such calendar year during which such
person was a Trust Certificateholder. Such obligation of the Trustee will be
deemed to have been satisfied to the extent that substantially comparable
information is provided by the Trustee pursuant to any requirements of the Code
as are from time to time in effect.
Notices. Any notice required to be given to a holder of a Registered
Trust Certificate will be mailed to the last address of such holder set forth in
the applicable Trust Certificate Register. Any notice so mailed within the time
period prescribed in the Trust Agreement or Series Supplement shall be
conclusively presumed to have been duly given when mailed, whether or not the
Trust Certificateholder receives such notice.
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Evidence as to Compliance
The Trust Agreement will provide that commencing on a certain date and
on or before a specified date in each year thereafter, a firm of independent
public accountants will furnish a statement to the Trustee to the effect that
such firm has examined certain documents and records relating to the
administration of the Deposited Assets during the related 12-month period (or,
in the case of the first such report, the period ending on or before the date
specified in the Prospectus Supplement, which date shall not be more than one
year after the related Original Issue Date) and that, on the basis of certain
agreed upon procedures considered appropriate under the circumstances, such firm
is of the opinion that such administration was conducted in compliance with the
terms of the Trust Agreement, except for such exceptions as such firm shall
believe to be immaterial and such other exceptions and qualifications as shall
be set forth in such report.
The Trust Agreement will also provide for delivery to the Depositor,
the Administrative Agent, if any, and the Trustee on behalf of the Trust
Certificateholders, on or before a specified date in each year, of an annual
statement signed by two officers of the Trustee to the effect that the Trustee
has fulfilled its obligations under the Trust Agreement throughout the preceding
year with respect to any Series of Trust Certificates.
Copies of the annual accountants' statement, if any, and the statement
of officers of the Trustee may be obtained by Trust Certificateholders without
charge upon written request to either the Administrative Agent or the Trustee,
as applicable, at the address set forth in the applicable Prospectus Supplement.
Replacement Trust Certificates
If a mutilated Trust Certificate is surrendered at the corporate trust
office or agency of the Trustee in the City and State of New York or the
Depositor and the Trustee receive satisfactory evidence that such Trust
Certificate has been lost, destroyed or stolen it may be replaced upon payment
by the holder of such expenses as may be incurred by the Trustee in connection
therewith and the furnishing of such security and indemnity as the Trustee and
the Depositor may require to hold each of them and any Paying Agent harmless;
provided that neither the Depositor nor the Trustee has received notice that
such Trust Certificate was acquired by a bona fide purchaser.
Termination
The obligations created by the Trust Agreement for each Series of Trust
Certificates will terminate upon the payment to Trust Certificateholders of that
Series of all amounts held in the related Trust Certificate Account and required
to be paid to them pursuant to the Trust Agreement following final payment or
other liquidation of any remaining Deposited Assets or Credit Support subject
thereto or the disposition of all property acquired upon foreclosure or
liquidation of any such Deposited Assets or Credit Support. In no event,
however, will any Trust created by the Trust Agreement continue beyond the
respective date specified in the applicable Prospectus Supplement, nor will such
Trust continue to exist if its existence would result in a violation of the
common-law Rule Against Perpetuities. Written notice of termination of the
obligations with respect to the related Series of Trust Certificates under the
Trust Agreement will be provided as set forth above under "--Reports to Trust
Certificateholders; Notices", and the final distribution will be made only upon
surrender and cancellation of the Trust Certificates at an office or agency
appointed by the Trustee which will be specified in the notice of termination.
Any such purchase of Deposited Assets or Credit Support and property
acquired in respect of Deposited Assets or Credit Support evidenced by a Series
of Trust Certificates shall be made at a price approximately equal to the
aggregate fair market value of all the assets in the Trust (as determined by the
Trustee, the Administrative Agent, if any, and, if different than both such
persons, the person entitled to effect such termination), in each case taking
into account accrued interest at the applicable interest rate to the first day
of the month following such purchase or, to the extent specified in the
applicable Prospectus
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Supplement, a specified price as determined therein. The exercise of such right
will effect early retirement of the Trust Certificates of that Series, but the
right of the person entitled to effect such termination is subject to the
aggregate principal balance of the outstanding Deposited Assets or Credit
Support for such Series at the time of purchase being less than the percentage
of the aggregate principal balance of the Deposited Assets or the Credit Support
at the Cut-off Date (as defined in the Trust Agreement) for the Series specified
in the applicable Prospectus Supplement.
Duties of the Trustee
The Trustee makes no representations as to the validity or sufficiency
of the Trust Agreement, the recitals contained therein, the Trust Certificates
of any Series or any Deposited Asset or related document and is not accountable
for the use or application by the Depositor of any of the Trust Certificates or
the Deposited Assets, or the proceeds thereof. The Trustee is required to
perform only those duties specifically required under the Trust Agreement with
respect to such Series. However, upon receipt of the various certificates,
reports or other instruments required to be furnished to it, the Trustee is
required to examine such documents and to determine whether they conform to the
applicable requirements of the Trust Agreement.
The Trustee
The Trustee for any given Series of Trust Certificates under the Trust
Agreement will be named in the applicable Prospectus Supplement. The commercial
bank, national banking association or trust company serving as Trustee will be
unaffiliated with, but may have banking relationships with or provide financial
services to, the Depositor, any Administrative Agent and their affiliates.
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CURRENCY RISKS
An investment in a Trust Certificate having a Specified Currency other
than U.S. dollars entails significant risks that are not associated with a
similar investment in a U.S. dollar-denominated security. Such risks include,
without limitation, the possibility of significant changes in rates of exchange
between the U.S. dollar and such Specified Currency and the possibility of the
imposition or modification of foreign exchange controls with respect to such
Specified Currency. Such risks generally depend on factors over which the
Depositor has no control, such as economic and political events and the supply
of and demand for the relevant currencies. In recent years, rates of exchange
between the U.S. dollar and certain currencies have been highly volatile, and
such volatility may be expected in the future. Past fluctuations in any
particular exchange rate do not necessarily indicate, however, fluctuations in
the rate that may occur during the term of any Trust Certificate. Depreciation
of the Specified Currency for a Trust Certificate against the U.S. dollar would
decrease the effective yield of such Trust Certificate below its Trust
Certificate Rate and, in certain circumstances, could result in a loss to the
investor on a U.S. dollar basis.
Governments have from time to time imposed, and may in the future
impose, exchange controls that could affect exchange rates and the availability
of a Specified Currency for making distributions in respect of Trust
Certificates denominated in such currency. At present, the Depositor has
identified the following currencies in which distributions of principal, premium
and interest on Trust Certificates may be made: Australian dollars, Canadian
dollars, Danish kroner, Italian lire, Japanese yen, New Zealand dollars, U.S.
dollars and ECU. However, Trust Certificates distributable in another Specified
Currency may be issued at any time, based upon investor demand for Trust
Certificates denominated in such currencies. There can be no assurance that
exchange controls will not restrict or prohibit distributions of principal,
premium or interest in any Specified Currency. Even if there are no actual
exchange controls, it is possible that, on a Distribution Date with respect to
any particular Trust Certificate, the currency in which amounts then due to be
distributed in respect of such Trust Certificate would not be available.
PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN FINANCIAL
AND LEGAL
ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN TRUST
CERTIFICATES
DENOMINATED IN A CURRENCY OTHER THAN U.S. DOLLARS. SUCH TRUST
CERTIFICATES ARE
NOT AN APPROPRIATE INVESTMENT FOR PERSONS WHO ARE
UNSOPHISTICATED WITH RESPECT
TO FOREIGN CURRENCY TRANSACTIONS.
Any Prospectus Supplement relating to Trust Certificates having a
Specified Currency other than U.S. dollars will contain historical exchange
rates for such currency against the U.S. dollar, a description of such currency,
any exchange controls affecting such currency and any other required information
concerning such currency. Such Prospectus Supplement will also discuss risk
factors relating to any such Specified Currency.
FEDERAL INCOME TAX CONSEQUENCES
This summary is based on the Internal Revenue Code of 1986, as amended
to the date hereof (the "Code"), revenue rulings, judicial decisions and
existing and proposed Treasury regulations, including final regulations
concerning the tax treatment of debt instruments issued with original issue
discount (the "OID Regulations"), changes to any of which subsequent to the date
of the Prospectus may affect the tax consequences described herein.
This summary discusses only Trust Certificates held by Trust
Certificateholders as capital assets within the meaning of Section 1221 of the
Code. It does not discuss all of the tax consequences that may be relevant to a
Trust Certificateholder in light of its particular circumstances or to Trust
Certificateholders subject to special rules, such as certain financial
institutions, insurance companies, dealers or Trust Certificateholders holding
the Trust Certificates as part of a hedging transaction or straddle. Further,
the tax consequences arising from the ownership of any Series of Trust
Certificates with special characteristics will be set forth in the applicable
Prospectus Supplement and a legal opinion of tax counsel will be filed with the
Commission in connection with each such Series of Trust Certificates. In such
opinion, tax counsel
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will opine as to the tax disclosure regarding the Trust Certificates set forth
in this Prospectus and the applicable Prospectus Supplement.
In all cases, prospective investors are advised to consult their own
tax advisors regarding the federal tax consequences to them of holding, owning
and disposing of Trust Certificates, including the advisability of making any of
the elections described below, as well as any tax consequences arising under the
law of any state or other taxing jurisdiction.
For purposes of this discussion "U.S. Person" means an individual who,
for federal income tax purposes, is a citizen or resident of the United States
or a corporation, partnership or other entity created or organized in or under
the laws of the United States, any state thereof, or an estate that is subject
to U.S. federal income tax regardless of the source of its income, or a trust if
a court within the United States is able to exercise primary supervision of the
administration of the trust and one or more U.S. persons have the authority to
control all substantial decisions of the trust. "U.S. Owner" means a Trust
Certificateholder that is a U.S. Person and "Non-U.S. Owner" means a Trust
Certificateholder that is not a U.S. Person.
Classification of Investment Arrangement
The arrangement pursuant to which the Trust Certificates will be
created and sold and the Underlying Securities will be administered will be
treated as a grantor trust under subpart E, part I of subchapter J of the Code.
Each Trust Certificateholder will be treated as the owner of a pro rata
undivided interest in the ordinary income and corpus of the Underlying
Securities in the grantor trust.
U.S. Owners
In General
Each Trust Certificateholder will be required to report on its federal
income tax return its pro rata share of the entire income from the Underlying
Securities, including gross interest income at the interest rate on the
Underlying Securities, in accordance with its method of accounting.
Original Issue Discount
The Underlying Securities may have originally been sold at a discount
below their principal amount. As provided in the Code and the OID Regulations,
the excess of the "stated redemption price" (as defined below) of each such
Underlying Security over its "issue price" (defined as the initial offering
price to the public, excluding bond houses and brokers, at which a substantial
amount of such Underlying Securities has been sold) will be original issue
discount if such excess equals or exceeds a de minimis amount (i.e., one-quarter
of one percent of such Underlying Security's stated redemption price multiplied
by the number of complete years to its maturity). An Underlying Security having
more than a de minimis amount of original issue discount is referred to herein
as an "OID Underlying Security." A U.S. Owner of an Underlying Security with a
de minimis amount of original issue discount will include any de minimis
original issue discount in income, as capital gain, on a pro rata basis as
principal payments are made on the Underlying Security. The "stated redemption
price" of an Underlying Security is equal to the sum of all payments on the
Underlying Security other than interest based on a fixed rate (or a variable
rate, unless an applicable Prospectus Supplement otherwise states) and payable
unconditionally at least annually.
U.S. Owners are required to include original issue discount in income
as it accrues, which may be before the receipt of the cash attributable to such
income, based on a compounding of interest at a constant rate (using the yield
to maturity of the Underlying Security as originally issued). Under these rules,
U.S. Owners generally must include in income increasingly greater amounts of
original issue discount in successive accrual periods, unless payments that are
part of the state redemption price at maturity of an Underlying Security are
made before its final maturity. The OID Regulations permit U.S. Owners to use
accrual periods of any length up to one year (including daily accrual periods)
to compute accruals of original issue discount, provided each scheduled payment
of principal or interest occurs either on the first or the last day of an
accrual period.
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Acquisition Premium and Market Discount
In the event that a U.S. Owner purchases an OID Underlying Security at
an acquisition premium (i.e., at a price in excess of its "adjusted issue price"
but less than its stated redemption price), the amount includible in income in
each taxable year as original issue discount is reduced by that portion of the
excess properly allocable to such year. The adjusted issue price is defined as
the sum of the issue price of the Underlying Security and the aggregate amount
of previously accrued original issue discount, less any prior payments of
amounts included in its stated redemption price. Unless a U.S. Owner makes the
accrual method election described below, acquisition premium is allocated on a
pro rata basis to each accrual of original issue discount, so that the U.S.
Owner is allowed to reduce each accrual of original issue discount by a constant
fraction.
A U.S. Owner that purchases at a "market discount" (i.e., at a price
less than the stated redemption price or, in the case of an OID Underlying
Security, the adjusted issue price) will be required (unless such difference is
less than a de minimis amount) to treat any principal payments on, or any gain
realized upon the disposition or retirement of, the Underlying Security as
interest income to the extent of the market discount that accrued while such
U.S. Owner held such Underlying Security, unless the U.S. Owner elects to
include such market discount in income on a current basis. Market discount is
considered to be de minimis if it is less than one-quarter of one percent of
such Underlying Security's stated redemption price multiplied by the number of
complete years to maturity after the U.S. Owner acquired the Trust Certificate.
If an Underlying Security with more than a de minimis amount of market discount
is disposed of in a nontaxable transaction (other than a nonrecognition
transaction described in Section 1276(d) of the Code), accrued market discount
will be includible as ordinary income to the U.S. Owner as if such U.S. Owner
had sold the Trust Certificate at its then fair market value. A U.S. Owner that
acquired at a market discount and that does not elect to include market discount
in income on a current basis also may be required to defer the deduction for a
portion of the interest expense on any indebtedness incurred or continued to
purchase or carry the Trust Certificate until the deferred income is realized.
Premium
Except as noted below, a U.S. Owner that purchases for an amount in
excess of the principal amount, or in the case of an OID Underlying Security,
the remaining stated redemption price, will be treated as having premium with
respect to the Underlying Security in the amount of such excess. A U.S. Owner
that purchases an OID Underlying Security at a premium is not required to
include in income any original issue discount with respect to such Underlying
Security. If such a U.S. Owner makes an election under Section 171(c)(2) of the
Code to treat such premium as "amortizable bond premium," the amount of interest
that must be included in such U.S. Owner's income for such accrual period (where
such Underlying Security is not optionally redeemable prior to its maturity
date) will be reduced by the portion of the premium allocable to such period
based on the Underlying Security's yield to maturity. If such Underlying
Security may be called prior to maturity after the U.S. Owner has acquired it,
the U.S. Owner generally may not assume that the call will be exercised and must
amortize premium to the maturity date. If the Underlying Security is in fact
called, any unamortized premium may be deducted in the year of the call. If a
U.S. Owner makes the election under Section 171(c)(2), the election also shall
apply to all bonds the interest on which is not excludible from gross income
("Fully Taxable Bonds") held by the U.S. Owner at the beginning of the first
taxable year to which the election applies and to all such Fully Taxable Bonds
thereafter acquired by it, and is irrevocable without the consent of the IRS. If
such an election is not made, such a U.S. Owner must include the full amount of
each interest payment in income in accordance with its regular method of
accounting and will receive a tax benefit from the premium only in computing its
gain or loss upon the sale or other disposition or retirement of the Underlying
Security.
Accrual Method Election
Under the OID Regulations, a U.S. Owner is permitted to elect to
include in gross income its entire return on an Underlying Security (i.e., the
excess of all remaining payments to be received on the
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Underlying Security over the amount paid for the Trust Certificate by such U.S.
Owner) based on the compounding of interest at a constant rate. Such an election
for an Underlying Security with amortizable bond premium (or market discount)
will result in a deemed election for all of the U.S. Owner's debt instruments
with amortizable bond premium (or market discount) and may be revoked only with
permission of the IRS.
Disposition or Retirement of Trust Certificates
Upon the sale, exchange or other disposition of a Trust Certificate, or
upon the retirement of a Trust Certificate, a U.S. Owner will recognize gain or
loss equal to the difference, if any, between the amount realized upon the
disposition or retirement and the U.S. Owner's tax basis in the Trust
Certificate. A U.S. Owner's tax basis for determining gain or loss on the
disposition or retirement of a Trust Certificate will be the cost of such Trust
Certificate to such U.S. Owner, increased by the amount of original issue
discount and any market discount includible in such U.S. Owner's gross income
with respect to the Underlying Security, and decreased by the amount of any
payments under the Underlying Security that are part of its stated redemption
price and by the portion of any premium applied to reduce interest payments as
described above.
Gain or loss upon the disposition or retirement of a Trust Certificate
will be capital gain or loss, except to the extent the gain represents accrued
stated interest, original issue or market discount on the Trust Certificate not
previously included in gross income, to which extent such gain or loss would be
treated as ordinary income. Any capital gain or loss will be long-term capital
gain or loss if at the time of disposition or retirement the Trust Certificate
has been held for more than one year.
Non-U.S. Owners
Interest
Interest (including original issue discount) on an Underlying Security
of a Non-U.S. Owner will be subject to a 30 percent federal income and
withholding tax, unless an exemption is established.
Disposition or Retirement of Trust Certificates
A Non-U.S. Owner that does not have certain present or former
connections with the United States (e.g., holding such Non-U.S. Owner's Trust
Certificate in connection with the conduct of a trade or business within the
United States or being present in the United States for 183 days or more during
a taxable year) generally will not be subject to federal income tax, and no
withholding of such tax will be required, with respect to any gain realized upon
the disposition or retirement of a Trust Certificate.
Information Reporting and Backup Withholding
Payments made on the Underlying Securities and proceeds from the sale
of the Trust Certificates will not be subject to a "backup" withholding tax of
31 percent unless, in general, the Trust Certificateholder fails to comply with
certain reporting procedures and is not an exempt recipient under applicable
provisions of the Code.
THE FEDERAL TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A
TRUST
CERTIFICATEHOLDER'S PARTICULAR SITUATION. TRUST
CERTIFICATEHOLDERS SHOULD
CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF
THE OWNERSHIP AND DISPOSITION OF THE TRUST CERTIFICATES, INCLUDING
THE TAX
CONSEQUENCES UNDER THE TAX LAWS OF THE UNITED STATES, STATES,
LOCALITIES,
COUNTRIES OTHER THAN THE UNITED STATES AND ANY OTHER TAXING
JURISDICTIONS AND
THE POSSIBLE EFFECTS OF CHANGES IN SUCH TAX LAWS.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain requirements on (a) an employee benefit
plan (as defined in Section 3(3) of ERISA), (b) a plan described in Section
4975(e)(i) of the Code or (c) any entity whose underlying assets include Plan
Assets (as defined below) by reason of a plan's investment in the entity (each,
a "Plan").
In accordance with ERISA's general fiduciary standards, before
investing in a Trust Certificate, a Plan fiduciary should determine whether such
an investment is permitted under the governing Plan instruments and appropriate
for the Plan in view of the Plan's overall investment policy and the composition
and diversification of its portfolio. Other provisions of ERISA and the Code
prohibit certain transactions involving the assets of a Plan and persons who
have certain specified relationships to the Plan ("Parties in Interest" within
the meaning of ERISA or "Disqualified Persons" within the meaning of the Code).
Thus, a Plan fiduciary considering an investment in Trust Certificates should
also consider whether such an investment might constitute or give rise to a
prohibited transaction under ERISA or the Code.
An investment in Trust Certificates by a Plan might result in the
assets of the Trust being deemed to constitute Plan Assets, which in turn might
mean that certain aspects of such investment, including the operation of the
Trust, might be prohibited transactions under ERISA and the Code. Neither ERISA
nor the Code defines the term "Plan Assets". Under Section 2510.3-101 of the
United States Department of Labor regulations (the "Regulation"), "Plan Assets"
may include an interest in the underlying assets of an entity (such as a trust)
for certain purposes, including the prohibited transaction provisions of ERISA
and the Code, if the Plan acquires an "equity interest" in such entity. Thus, if
a Plan acquired a Trust Certificate, for certain purposes under ERISA and the
Code (including the prohibited transaction provisions) the Plan would be
considered to own its share of the underlying assets of the Trust unless (1)
such Trust Certificate is a "publicly-offered security" or (2) equity
participation by "benefit plan investors" is not "significant".
Under the Regulation, a publicly offered security is a security that is
(1) freely transferable, (2) part of a class of securities that is owned by 100
or more investors independent of the issuer and of one another at the conclusion
of the initial offering and (3) either is (A) part of a class of securities
registered under Section 12(b) or 12(g) of the Exchange Act or (B) sold to the
Plan as part of an offering of securities to the public pursuant to an effective
registration statement under the Securities Act and the class of securities of
which such security is a part is registered under the Exchange Act within 120
days (or such later time as may be allowed by the Commission) after the end of
the fiscal year of the issuer during which the offering of such securities to
the public occurred.
Participation by benefit plan investors in the Trust Certificates would
not be significant if immediately after the most recent acquisition of a Trust
Certificate, whether or not from the Depositor or Merrill Lynch & Co., less than
25% of (1) the value of such Class of Trust Certificates and (2) the value of
any other Class of Trust Certificates that is not a publicly-offered security
under the Regulation, were held by benefit plan investors, which are defined as
Plans and employee benefit plans not subject to ERISA (for example, governmental
plans).
It is anticipated that certain offerings of Trust Certificates will be
structured so that assets of the Trust will not be deemed to constitute Plan
Assets. In such cases, the relevant Prospectus Supplement will indicate either
that the Trust Certificates will be considered publicly offered securities under
the Regulation or that participation by benefit plan investors will not be
significant for purposes of the Regulation.
In other instances, however, the offering of Trust Certificates may not
be so structured. Thus, the assets of the Trust may be deemed to be Plan Assets
and transactions involving the Depositor, an underwriter, the Trustee, any
trustee with respect to Underlying Securities, any obligors with respect to
Underlying Securities or affiliates of such obligors might constitute prohibited
transactions with respect to a Plan holding a Trust Certificate unless (i) one
or more prohibited transaction exemptions ("PTEs") applies or (ii) in the case
of an issuer of Underlying Securities, it is not a Disqualified Person or party
in
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interest with respect to such Plan. Plans maintained or contributed to by the
Depositor, an underwriter, the Trustee, a trustee with respect to Underlying
Securities, any issuer of underlying securities, or any of their affiliates,
should not acquire or hold any Trust Certificate.
If the Trust is deemed to hold Plan Assets, the Underlying
Securities would appear to be an indirect loan between the issuer of the
Underlying Securities and any Plan owning Trust Certificates; however, such
loan, by itself, would not constitute prohibited transaction unless such issuer
is a party in interest or Disqualified Person with respect to such Plan.
If the underwriter with respect to an offering of Trust
Certificates is a broker-dealer registered under the Exchange Act, and
customarily purchases and sells securities for its own account in the ordinary
course of its business as a broker-dealer, sales of Trust Certificates by such
underwriter to Plans may be exempt under PTE 75-1 if the following conditions
are satisfied: (i) the underwriter is not a fiduciary with respect to the Plan
and is party in interest or Disqualified Person solely by reason of Section
3(14)(B) of ERISA or Section 4975(e)(2)(B) of the Code or a relationship to a
person described in such Sections, (ii) the transaction is at least as favorable
to the Plan as an arms-length transaction with an unrelated party and is not a
prohibited transaction within the meaning of Section 503(b) of the Code, and
(iii) the Plan maintains for at least six years such records as are necessary to
determine whether the conditions)s of PTE 75-1 have been met.
The custodial and other services tendered by the Trustee and any
trustee with respect to Underlying Securities might be exempt pursuant to
Section 408(b)(2) of ERISA and Section 4975(d)(2) of the Code, which exempt
services necessary for the establishment or operation of a Plan under a
reasonable contract or arrangement and for which no more than reasonable
compensation is paid. An arrangement would not be treated as reasonable unless
it can be terminated upon reasonably short notice under the circumstances
without penalty. The statutory exemption for services noted above does not
provide exemptive relief from prohibited transactions described in Section
406(b) of ERISA or Section 4975(c)(1)(E) or (F) of the Code.
Other prohibited transaction exemptions could apply to the
acquisition and holding of Trust Certificates by Plans, and the operation of the
Trust, including, but not limited to: PTE 84-14 (an exemption for certain
transaction determined by An independent qualified professional asset manager),
PTE 91-38 (an exemption for certain transactions involving bank collective
investment funds), PTE 90-1 (an exemption for certain transactions involving
insurance company pooled separate accounts) or PTE 95-60 (an exemption for
certain transactions involving insurance company pooled general accounts).
The Prospectus Supplement relating to any offering of Trust
Certificates that will result in the Trust Assets being deemed to constitute
Plan Assets will provide that, by acquiring and holding a Trust Certificate, a
Plan shall be deemed to have represented and warranted to the Depositor,
Trustee, and underwriter that such acquisition and holding of a Trust
Certificate does not involve a non-exempt prohibited transaction with respect to
such Plan, including with respect to the activities of the Trust.
ANY PLAN OR INSURANCE COMPANY INVESTING ASSETS OF ITS
GENERAL ACCOUNT
PROPOSING TO ACQUIRE TRUST CERTIFICATES SHOULD CONSULT WITH ITS
COUNSEL.
PLAN OF DISTRIBUTION
Trust Certificates may be offered in any of three ways: (i) through
underwriters or dealers; (ii) directly to one or more purchasers; or (iii)
through agents. The applicable Prospectus Supplement will set forth the material
terms of the offering of any Series of Trust Certificates, which may include the
names of any underwriters, or initial purchasers, the purchase price of such
Trust Certificates and the proceeds to the Depositor from such sale, any
underwriting discounts and other items constituting underwriters' compensation,
any initial public offering price, any discounts or concessions allowed or
reallowed or paid to dealers, any securities exchanges on which such Trust
Certificates may be listed, and the place and time of delivery of the Trust
Certificates to be offered thereby.
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If underwriters are used in the sale, Trust Certificates will be
acquired by the underwriters at a fixed price for their own account and may be
resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. Such Trust Certificates may be offered to the public either
through underwriting syndicates represented by managing underwriters or by
underwriters without a syndicate. Such managing underwriters or underwriters in
the United States will include Merrill Lynch & Co. The obligations of such
underwriters to purchase such Trust Certificates will be subject to certain
conditions precedent and the underwriters will be obligated to purchase all such
Trust Certificates if any of such Trust Certificates are purchased. Any initial
public offering price and any discounts or concessions allowed or reallowed or
paid to dealers may be changed from time to time.
Trust Certificates may also be sold through agents designated by the
Depositor from time to time. Any agent involved in the offer or sale of Trust
Certificates will be named, and any commissions payable by the Depositor to such
agent will be set forth, in the applicable Prospectus Supplement. Unless
otherwise indicated in the applicable Prospectus Supplement, any such agent will
act on a best-efforts basis for the period of its appointment.
If so indicated in the applicable Prospectus Supplement, the Depositor
will authorize agents, underwriters or dealers to solicit offers by certain
specified institutions to purchase Trust Certificates at the public offering
price described in such Prospectus Supplement pursuant to delayed delivery
contracts providing for payment and delivery on a future date specified in such
Prospectus Supplement. Such contracts will be subject only to those conditions
set forth in the applicable Prospectus Supplement and such Prospectus Supplement
will set forth the commissions payable for solicitation of such contracts. Any
underwriters, dealers or agents participating in the distribution of Trust
Certificates may be deemed to be underwriters and any discounts or commissions
received by them on the sale or resale of Trust Certificates may be deemed to be
underwriting discounts and commissions under the Securities Act. Agents and
underwriters may be entitled under agreements entered into with the Depositor to
indemnification by the Depositor against certain civil liabilities, including
liabilities under the Securities Act, or to contribution with respect to
payments that the agents or underwriters or their affiliates may be required to
make in respect thereof. Agents and underwriters and their affiliates may be
customers of, engage in transactions with, or perform services for, the
Depositor or its affiliates in the ordinary course of business.
Only Trust Certificates rated in one of the investment grade rating
categories by a Rating Agency will be offered hereby. Affiliates of the
underwriters may act as agents or underwriters in connection with the sale of
the Trust Certificates. Any affiliate of the underwriters so acting will be
named, and its affiliation with the underwriters described, in the applicable
Prospectus Supplement. The underwriters or their affiliates may act as
principals or agents in connection with market-making transactions relating to
the Trust Certificates. The original Prospectus Supplement related to the Trust
Certificates for which a market is being made will be delivered with respect to
the Trust Certificates for use by such underwriters or affiliates in connection
with offers and sales related to market-making transactions in the Trust
Certificates.
The Depositor is an affiliate of Merrill Lynch & Co.
LEGAL MATTERS
The validity of the Trust Certificates will be passed upon for the
Depositor and the underwriters by Shearman & Sterling, New York, New York or
other counsel identified in the applicable Prospectus Supplement.
53
<PAGE>
INDEX OF DEFINED TERMS
Page
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Adjusted Issue Price..........................................................49
Administration Agreements.....................................................38
Administrative Agent...........................................................1
Administrative Agent Termination Event........................................39
Administrative or Judicial Action...........................................S-25
Allocation Ratio.........................................................S-5, 24
Available Funds.............................................................S-16
Base Rate.....................................................................18
Business Day..................................................................17
Calculation Agent.............................................................19
Calculation Date..............................................................20
Call Price....................................................................25
Call Right....................................................................24
Callable Series...............................................................24
CD Rate.......................................................................19
CD Rate Trust Certificate.....................................................17
Cede......................................................................S-2, 1
Class..........................................................................1
Class A Allocation...........................................................S-5
Class B Allocation...........................................................S-5
Clearing Agency.........................................................S-15, 25
clearing corporation..........................................................25
Closing Date.................................................................S-1
Code..................................................................... S-6, 5
Collection Period...........................................................S-13
Commercial Paper Rate.........................................................20
Commercial Paper Rate Trust Certificate.......................................18
Commission................................................................S-9, 1
Comparable Treasury Issue...................................................S-26
Comparable Treasury Quotations..............................................S-26
Composite Quotations..........................................................18
Concentrated Underlying Securities.............................................1
Consolidated Net Assets.....................................................S-23
Credit Support.................................................................1
Cut-off Date.............................................................S-2, 36
Debt Securities..............................................................S-8
Debt Securities Events of Default...........................................S-23
Declaration....................................................................9
Definitive Trust Certificate..................................................25
Depositary................................................................S-2, 1
Deposited Assets...............................................................1
Depositor.................................................................S-1, 1
I-1
<PAGE>
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Depository..................................................................S-27
Disqualified Persons....................................................S-31, 51
Distribution Date ....................................................... S-2, 2
DTC.......................................................................S-2, 1
ERISA.....................................................................S-7, 5
Event of Default............................................................S-18
Exchangeable Series...........................................................23
Exchange Act..............................................................S-8, 1
Extraordinary Expenses........................................................40
Federal Funds Rate............................................................21
Federal Funds Rate Trust Certificate..........................................18
Final Scheduled Distribution Date.........................................S-2, 2
Fixed Rate Trust Certificates.................................................17
Floating Rate Trust Certificates..............................................18
Floating Trust Certificate Rate...............................................15
Foreign Trust Certificateholders............................................S-30
Fully Taxable Bonds...........................................................49
Global Security................................................................1
Government Securities..........................................................1
grantor trust................................................................ 11
H.15(519).....................................................................18
Indenture.................................................................S-8,17
Index Maturity................................................................18
Interest Reset Date...........................................................19
Issue Price...................................................................48
Interest Reset Period.........................................................19
IRA..........................................................................S-7
Letter of Credit..............................................................33
Letter of Credit Bank.........................................................33
LIBOR.........................................................................21
LIBOR Reuters.................................................................21
LIBOR Telerate................................................................21
LIBOR Trust Certificate.......................................................18
Market Discount...............................................................49
Maximum Trust Certificate Rate................................................18
Merrill Lynch & Co........................................................ S-1,1
Minimum Trust Certificate Rate................................................19
Money Market Yield............................................................21
Moody's......................................................................S-2
NMG.........................................................................S-22
Non-U.S. Owner................................................................48
Notional Amount...........................................................S-1,17
NYSE...........................................................................1
OID..........................................................................S-6
OID Regulations...............................................................47
I-2
<PAGE>
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OID Underlying Security.......................................................48
Optional Exchange Right.......................................................23
Ordinary Expenses.......................................................S-16, 40
Original Issue Date...........................................................15
Participants.............................................................S-2, 25
Parties in Interest.....................................................S-31, 51
Plan.................................................................... S-7, 51
Plan Assets...................................................................51
Primary Treasury Dealer.....................................................S-26
Prime Rate....................................................................22
Prime Rate Trust Certificate..................................................18
Principal Property..........................................................S-23
Prospectus Supplement..........................................................1
PTEs..........................................................................51
Purchase Agreement..........................................................S-32
Purchase Price................................................................40
Put Date......................................................................25
Put Option....................................................................25
Puttable Underlying Securities................................................25
Rating Agencies..............................................................S-6
Realized Losses...............................................................23
Real Estate Subsidiary......................................................S-23
Record Date...................................................................17
Reference Banks...............................................................22
Reference Treasury Dealer...................................................S-26
Reference Treasury Dealer Quotations........................................S-26
Registration Statement.........................................................2
Regulation....................................................................51
Related Proceeds..............................................................38
Remaining Scheduled Payments................................................S-26
Required Percentage...........................................................39
Required Percentage-Amendment...............................................S-18
Required Percentage-Remedies................................................S-18
Reserve Account...............................................................34
Restricted Subsidiary.......................................................S-23
Retained Interest.............................................................13
Reuters Screen LIBO Page......................................................21
Reuters Screen NYMF Page......................................................22
Risk Factors-Derivatives......................................................25
S&P..........................................................................S-2
Secured Underlying Securities.................................................31
Securities...................................................................S-8
Securities Act...........................................................S-33, 2
Securities Intermediary......................................................S-1
Senior Underlying Securities..................................................31
I-3
<PAGE>
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----
Series.........................................................................1
Series Supplement.........................................................S-1, 1
Specified Currency........................................................S-6, 2
Spread........................................................................18
Spread Multiplier.............................................................18
Standard Purchase Agreement.................................................S-32
Standard Terms............................................................S-1, 1
Stated Redemption Price.......................................................48
Strip Trust Certificates......................................................15
Subordinated Underlying Securities............................................31
Surety........................................................................33
Surety Bond...................................................................33
Tax Event...................................................................S-25
Telerate Page 3750............................................................21
Terms Agreement.............................................................S-32
TOPrS(sm).....................................................................32
Treasury Rate...........................................................S-26, 23
Treasury Rate Trust Certificate...............................................18
Trust.....................................................................S-1, 1
Trust Agreement...........................................................S-1, 1
Trust Certificate Account.....................................................34
Trust Certificate Principal Balance...........................................23
Trust Certificate Rate........................................................15
Trust Certificateholders..................................................S-2, 1
Trust Certificates........................................................S-1, 1
Trust Indenture Act...........................................................29
Trustee...................................................................S-1, 1
Trustee Fee...................................................................13
2007 Notes...................................................................S-8
2027 Debentures..............................................................S-8
2097 Debentures..............................................................S-8
Underlying Securities.....................................................S-1, 1
Underlying Securities Issuer..............................................S-1, 1
Underlying Securities Prospectus.............................................S-8
Underlying Securities Rate....................................................32
Underlying Securities Trustee............................................S-5, 29
Underlying Securities Underwriters..........................................S-27
Underwriter..................................................................S-1
United States Person........................................................S-30
U.S. dollars, US$, dollar or $.................................................3
U.S. Owner....................................................................48
U.S. Person...................................................................48
Voting Rights.................................................................39
I-4
<PAGE>
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No dealer, sales person or other person has been authorized to give any
information or make any representation not contained in this Prospectus and, if
given or made, such information or representation must not be relied upon as
having been authorized by the Depositor or Merrill Lynch & Co. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any of
the Trust Certificates offered hereby in any jurisdiction to any person to whom
it is unlawful to make such offer in such jurisdiction. Neither the delivery of
this Prospectus nor any sale hereunder shall, under any circumstances, create
any implication that the information herein is correct as of any time subsequent
to the date hereof or that there has been no change in the affairs of the
Depositor since such date.
------------------
TABLE OF CONTENTS
Page
----
PROSPECTUS SUPPLEMENT
PROSPECTUS SUPPLEMENT SUMMARY................................................S-3
RISK FACTORS................................................................S-11
THE TRUST...................................................................S-13
DESCRIPTION OF THE TRUST CERTIFICATES.......................................S-13
THE DEPOSITOR...............................................................S-17
DESCRIPTION OF THE TRUST AGREEMENT..........................................S-17
DESCRIPTION OF THE UNDERLYING SECURITIES....................................S-20
FEDERAL INCOME TAX CONSEQUENCES.............................................S-28
ERISA CONSIDERATIONS........................................................S-31
UNDERWRITING................................................................S-32
VALIDITY OF THE TRUST CERTIFICATES..........................................S-33
RATINGS.....................................................................S-33
ALLOCATION RATIOS CALCULATED ON
DISTRIBUTION DATES.........................................................A-1
PROSPECTUS
PROSPECTUS SUPPLEMENT..........................................................2
AVAILABLE INFORMATION..........................................................2
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE.................................................................2
REPORTS TO TRUST CERTIFICATEHOLDERS............................................3
PROSPECTUS SUMMARY.............................................................4
RISK FACTORS...................................................................7
THE DEPOSITOR.................................................................13
USE OF PROCEEDS...............................................................13
FORMATION OF THE TRUST........................................................13
MATURITY AND YIELD CONSIDERATIONS.............................................13
DESCRIPTION OF THE TRUST CERTIFICATES.........................................14
DESCRIPTION OF DEPOSITED ASSETS...............................................28
DESCRIPTION OF THE TRUST AGREEMENT............................................36
CURRENCY RISKS................................................................47
FEDERAL INCOME TAX CONSEQUENCES...............................................47
ERISA CONSIDERATIONS..........................................................51
PLAN OF DISTRIBUTION..........................................................52
LEGAL MATTERS.................................................................53
INDEX OF DEFINED TERMS.......................................................I-1
Until August 11, 1998, all dealers effecting transactions in the offered
Trust Certificates, whether or not participating in this distribution, may be
required to deliver a Prospectus Supplement and the Prospectus to which it
relates. This requirement is in addition to the obligations of dealers to
deliver a Prospectus Supplement and Prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
================================================================================
$21,427,000
Initial Principal Amount
Class A Trust Certificates
$27,000,000
Principal Amount at Maturity
Class B Trust Certificates
PUBLIC STEERS(R)
TRUST CERTIFICATES
SERIES 1998 H-Z3
----------
PROSPECTUS
SUPPLEMENT
----------
Merrill Lynch & Co.
May 12, 1998
