PROSPECTUS SUPPLEMENT
- ---------------------
(To Prospectus dated September 9, 1999)
Merrill Lynch Depositor, Inc.
Depositor
1,000,000 TRUST CERTIFICATES
($25 STATED AMOUNT)
PUBLIC STEERS(R) SERIES 1999 REN-C1 TRUST
PUBLIC STEERS(R) 8.54% TRUST CERTIFICATES, SERIES 1999 REN-C1
(Underlying Securities Will Be 8.54% Series B Capital Securities
Issued By RenaissanceRe Capital Trust
And Guaranteed To The Extent Set Forth Herein By
RenaissanceRe Holdings Ltd.)
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The Trust:
o Public STEERS(R) Trust Series 1999 REN-C1 Trust will be a trust formed under
the laws of the State of New York.
o The trust will issue Public STEERS(R) Trust Certificates, Series 1999 REN-C1
(representing undivided beneficial
interests in the trust) to the depositor. The depositor has agreed to sell
the trust certificates to Merrill Lynch, Pierce, Fenner & Smith
Incorporated, the underwriter. The underwriter proposes to offer the trust
certificates directly to the public at the offering price set forth below.
o The underwriter will initially offer the trust certificates to the public in
minimum lots of 120 trust certificates and subsequent increments of 40 trust
certificates.
The Underlying Securities:
o The principal assets of the trust will be the underlying securities
consisting of 25,000 8.54% Series B Capital Securities (liquidation value
$1,000 per Series B Capital Security) issued by RenaissanceRe Capital Trust.
o The underlying securities are guaranteed by RenaissanceRe Holdings Ltd. to
the extent described under "Description of the Underlying Securities".
o The underlying securities were originally issued pursuant to an exchange
offer that commenced on or about July 31, 1997.
o The underlying securities will be deposited by Merrill Lynch Depositor, Inc.,
as depositor, into the trust for your benefit.
Distributions:
o You will be entitled to receive, on March 1 and September 1 of each year,
beginning on March 1, 2000, the distributions received, if any, on the
underlying securities. The distributions will accrue at a rate of 8.54% per
year on the stated amount of the trust certificates commencing upon initial
issuance of the trust certificates. You will also be entitled to receive a
distribution of the stated amount of your trust certificates on March 1,
2027.
o Distributions on the trust certificates may be delayed up to 10 consecutive
semiannual periods as a result of deferred payments on the underlying
securities. Deferred distributions will themselves accrue interest at an
annual rate of 8.54%.
Investing in the trust certificates involves certain risks which are
described in the "Risk Factors" section beginning on page S-8 of this prospectus
supplement.
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.
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<TABLE>
<CAPTION>
Per Trust Certificate(2) Total
------------------------ -----
<S> <C> <C>
Public offering price(1)...................................... $ $
Underwriter's discount to be paid by the depositor............ $ $
Proceeds, before expenses, to the trust....................... $ $
</TABLE>
(1) Plus accumulated distributions from , 1999, if settlement
occurs after that date.
(2) 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.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus to which it relates is
truthful or complete. Any representation to the contrary is a criminal offense.
The trust certificates will be ready for delivery in book-entry form only
through The Depository Trust Company on or about , 1999.
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Merrill Lynch & Co.
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The date of this prospectus supplement is November 5, 1999.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
Page
----
Summary Information Q&A....................................................S-3
Risk Factors...............................................................S-8
The Trust.................................................................S-14
Description of the Trust Certificates.....................................S-14
The Depositor.............................................................S-17
Description of the Trust Agreement........................................S-17
Description of the Underlying Securities..................................S-21
Federal Income Tax Consequences...........................................S-34
ERISA Considerations......................................................S-37
Underwriting..............................................................S-38
Validity of the Trust Certificates........................................S-38
Ratings...................................................................S-38
Prospectus
Prospectus Supplement........................................................2
Available Information........................................................2
Incorporation of Certain Documents by
Reference.................................................................2
Reports to Certificateholders................................................3
Prospectus Summary...........................................................4
Risk Factors.................................................................7
The Depositor...............................................................14
Use of Proceeds.............................................................14
Formation of the Trust......................................................14
Maturity and Yield Considerations...........................................15
Description of the Certificates.............................................16
Description of the Trust Agreement..........................................30
Description of Deposited Assets.............................................42
Currency Risks..............................................................51
Year 2000 Compliance........................................................52
Federal Income Tax Consequences.............................................53
ERISA Considerations........................................................57
Underwriting................................................................59
Legal Matters...............................................................60
Index of Defined Terms.....................................................I-1
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You should rely only on the information contained in this prospectus
supplement and the accompanying prospectus. The depositor has not, and the
underwriter has not, authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent information,
you should not rely on it. The depositor is not, and the underwriter is not,
making an offer to sell these securities in any jurisdiction where the offer or
sale is not permitted. You should not assume that the information appearing in
this prospectus supplement and the accompanying prospectus is accurate as of any
date other than the respective dates of such documents. Our business, financial
condition, results of operations and prospects may have changed since such
dates.
S-2
<PAGE>
SUMMARY INFORMATION Q&A
The following information supplements, and should be read together
with, the information contained in other parts of this prospectus supplement and
in the accompanying prospectus. This summary highlights selected information
from this prospectus supplement and the accompanying prospectus to help you
understand the trust certificates. You should carefully read this prospectus
supplement and the accompanying prospectus to understand fully the terms of the
trust certificates, as well as the tax and other considerations that are
important to you in making a decision about whether to invest in the trust
certificates. You should pay special attention to the "Risk Factors" section
beginning on page S-8 of this prospectus supplement to determine whether an
investment in the trust certificates is appropriate for you.
For your convenience, the depositor makes reference to specific page
numbers in this prospectus supplement and the accompanying prospectus for more
detailed information on some of the terms and concepts used throughout this
prospectus supplement.
What Are the Trust Certificates?
Each trust certificate represents a proportionate, undivided beneficial
interest in certain distributions to be made by the trust. Each trust
certificate will entitle the holder to receive semiannual cash distributions as
described in this prospectus supplement. The underwriters are offering 1,000,000
8.54% Public STEERS(R) Trusts, Series 1999 REN-C1 trust certificates, with a
stated amount of $25 per trust certificate. The trust certificates will be
issued pursuant to the Standard Terms for Trust Agreements, dated as of February
20, 1998, between Merrill Lynch Depositor, Inc. and United States Trust Company,
as trustee and securities intermediary, as amended and supplemented by the
Series 1999 REN-C1 Supplement, between Merrill Lynch Depositor, Inc., as
depositor, and the trustee and securities intermediary, to be dated the date set
forth in the supplement to this prospectus supplement (collectively, the "trust
agreement"). The trust certificates will consist of a single class. All payments
on the trust certificates will come from the underlying securities.
Who Is the Trust?
Public STEERS(R) Series 1999 REN-C1 will be a trust formed under the
laws of the State of New York. The trust will sell its trust certificates to the
public. The trust will be formed pursuant to the Standard Terms Agreement, as
amended and supplemented by the Series Supplement described above. United States
Trust Company of New York is the trustee under the trust agreement. The trustee
will receive compensation as set forth in an agreement between the depositor and
the trustee.
Who Is the Depositor?
Merrill Lynch Depositor, Inc., incorporated in the State of Delaware as
an indirect, wholly owned, limited-purpose subsidiary of Merrill Lynch & Co.,
Inc., is the depositor and will deposit the underlying securities into the
trust. See "The Depositor" on page 14 in the prospectus. The depositor is an
affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, the underwriter
of this offering. An affiliate of the depositor also serves as the calculation
agent for the underlying securities, which is discussed in the "Description of
Underlying Securities" on page S-21.
What Are the Important Dates to Remember?
Delivery of the trust certificates will be made on the closing date, as
set forth in the supplement to this prospectus supplement. This prospectus
supplement describes the underlying securities held by the trust as of the
cut-off date, as set forth in the supplement to this prospectus supplement.
S-3
<PAGE>
What Are the Trust's Assets?
The initial assets of the trust will be the underlying securities
consisting of 25,000 8.54% Series B Capital Securities (liquidation amount
$1,000 per Series B Capital Security) issued by RenaissanceRe Capital Trust, a
Delaware statutory business trust, and guaranteed to the extent set forth under
"Description of the Underlying Securities--Description of Guarantee" on page
S-29 by RenaissanceRe Holdings Ltd., a company organized under the laws of
Bermuda. The underlying securities held by the trust will represent 25% of the
total issuance of the 8.54% Series B Capital Securities. The underlying
securities represent undivided beneficial interests in the underlying securities
issuer's assets and were issued pursuant to the amended and restated declaration
of trust, dated March 7, 1997, executed by the underlying securities guarantor,
as sponsor, and the trustees of the underlying securities issuer (the
"Declaration"). Pursuant to a registration statement filed on Form S-4 (No.
333-30729), the underlying securities were originally issued in connection with
an exchange offer that commenced on or about July 31, 1997 in the form of
book-entry securities deposited with The Depository Trust Company, New York, New
York ("DTC"). The underlying securities have a CUSIP number of 759936AC1.
The underlying securities do not have a fixed maturity date, but will
be redeemed on March 1, 2027, the maturity date of the 8.54% Junior Subordinated
Deferrable Interest Debentures, Series B due March 1, 2027 (the "junior
subordinated debentures"). The entire liquidation amount of the underlying
securities will be payable to the trust on March 1, 2027. 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 initial assets of the trust
and issue a corresponding amount of additional trust certificates.
When Will You Receive Semiannual Distributions?
If you purchase the trust certificates, you are entitled to receive
cash distributions at an annual rate of 8.54% of the liquidation amount of $25
per trust certificate. Distributions will accumulate from the date the trust
issues the trust certificates and will be paid semiannually in arrears on March
1 and September 1 of each year, beginning on March 1, 2000 and ending on March
1, 2027, unless the final scheduled distribution date is advanced.
When Can Payment of Your Distributions Be Deferred?
RenaissanceRe Holdings Ltd., as a guarantor of the underlying
securities, can, on one or more occasions, defer interest payments on the junior
subordinated debentures for up to 10 consecutive semiannual periods unless an
event of default under the junior subordinated debentures has occurred or if the
junior subordinated debentures are redeemed. A deferral cannot extend beyond the
maturity date of the junior subordinated debentures (which is March 1, 2027).
If the underlying securities guarantor does defer interest payments on
the junior subordinated debentures, the underlying securities issuer will defer
payments on the underlying securities. If the underlying securities issuer
defers payments on the underlying securities, the trust will also defer payment
of distributions on the trust certificates. During this deferral period,
distributions will continue to accrue on the trust certificates at an annual
rate of 8.54% of the liquidation amount of $25 per trust certificate. Also, the
deferred distributions will themselves accrue interest at an annual rate of
8.54%. Once the underlying securities guarantor makes all interest payments on
the junior subordinated debentures, with accrued interest, it can again postpone
interest payments on the junior subordinated debentures if no event of default
under the junior subordinated debentures has occurred and is continuing.
Should the underlying securities guarantor exercise its right to defer
payments of interest on the junior subordinated debentures, you will be required
to accrue interest income for United States federal income tax purposes before
you receive cash distributions. See "Federal Income Tax Consequences" on page
S-34 and "Risk Factors--If the underlying securities guarantor exercises the
option to defer interest payments on the junior subordinated debentures, the
trust may face adverse tax consequences" on page S-11.
S-4
<PAGE>
When Can the Trust Redeem the Trust Certificates?
The trust certificates will be redeemed in accordance with the
redemption of the underlying securities. The trust will redeem all of the
outstanding trust certificates when the underlying junior subordinated
debentures are paid at maturity on March 1, 2027 (the "stated maturity date").
The underlying securities guarantor may redeem all of the junior subordinated
debentures before March 1, 2007 if certain changes in tax or investment company
law occur (each of which is a "Special Event" and each of which is more fully
described on page S-28) at the applicable redemption price. In addition, the
underlying securities guarantor may redeem some or all of the junior
subordinated debentures on or after March 1, 2007 at the applicable redemption
price. See "Description of the Underlying Securities" on page S-21.
What is RenaissanceRe Holdings Ltd.'s Guarantee of the Underlying Securities?
RenaissanceRe Holdings Ltd., as underlying securities guarantor, fully
and unconditionally guarantees all payments under the underlying securities to
the extent RenaissanceRe Capital Trust does not pay them. If the underlying
securities guarantor does not make a payment on the junior subordinated
debentures, the trust will not have sufficient funds to make payments on the
trust certificates. The underlying securities guarantor's obligations under the
guarantee are junior to its obligations to make payments on all of its other
liabilities, except as discussed elsewhere in this prospectus supplement. See
"Description of the Underlying Securities--Description of Guarantee" on page
S-29.
What Happens If There Is a Payment Default on the Underlying Securities?
If (i) a payment default on the Underlying Securities or (ii) an
acceleration of the maturity of the junior subordinated debentures held by the
underlying securities issuer occurs, United States Trust Company, as trustee,
will sell the underlying securities and allocate the proceeds from the sale of
the underlying securities to the holders of the trust certificates on a pro rata
basis.
In What Form Will the Trust Certificates Be Issued?
Except in limited circumstances, the trust certificates will be
represented by one or more global securities that will be deposited with and
registered in the name of DTC or its nominee. This means that you will not
receive a certificate for your trust certificates. The trust certificates will
be ready for delivery through DTC on or about the date set forth in the
supplement to this prospectus supplement. The trust certificates will have the
CUSIP number set forth in the supplement to this prospectus supplement.
How Will the Trust Be Treated for Income Tax Purposes?
The trust will be classified for U.S. federal income tax purposes as a
grantor trust and not as an association (or publicly traded partnership) taxable
as a corporation. See "Federal Income Tax Consequences" on page S-34.
Will the Trust Certificates Be Listed on a Stock Exchange?
The trust intends to apply to have the trust certificates listed on the
New York Stock Exchange (the "NYSE") under the symbol "RNS". If approved for
listing, trading is expected to commence within 30 days after the trust
certificates are first issued. You should be aware that the listing of the trust
certificates will not necessarily ensure that a liquid trading market will be
available for the trust certificates.
S-5
<PAGE>
Will the Trust Certificates Be Rated?
It is a condition to the issuance of the trust certificates that the
trust certificates have ratings assigned by Moody's Investors Service, Inc. or
by Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc. (each, a "rating agency" and collectively, the "rating agencies"),
equivalent to the ratings of the underlying securities, which, as of the date of
this prospectus supplement were rated "baa3" 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 trust certificates or any underlying securities distributed in respect of
the trust certificates. The depositor cannot assure you 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. 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 of the underlying securities and the corresponding
effect on yield to investors.
Can an Employee Benefit Plan Purchase the Trust Certificates?
An employee benefit plan subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and an individual retirement account
(each, a "plan") is permitted to purchase trust certificates. However each plan
should take into consideration certain potential issues under ERISA and, by
purchasing a trust certificate, will be deemed to represent that the purchase
and holding of the trust certificate will not result in a non-exempt prohibited
transaction under ERISA.
Where Can You Find More Information About the Underlying Securities?
The underlying securities guarantor is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which means that it files periodic reports, including reports on Forms
10-K and 10-Q, and other information with the Securities and Exchange
Commission. You can read and copy these reports and other information at the
public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, NW, Washington, D.C. 20549, as well as the regional offices at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and
Seven World Trade Center, New York, New York 10048. You may obtain copies of
this material for a fee by writing to the SEC's Public Reference Section of the
SEC at 450 Fifth Street, NW, Washington, D.C. 20549. You may obtain information
about the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. You can also access this information electronically by means of
the SEC's website on the Internet at http://www.sec.gov.which contains reports,
proxy and information statements and other information that the underlying
securities guarantor has filed electronically with the SEC. In addition, you may
inspect reports and other information concerning the underlying securities
guarantor at the offices of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005.
The underlying securities guarantor and the underlying securities
issuer filed with the SEC a registration statement on Form S-4 (the
"registration statement", which term shall include all amendments, exhibits,
annexes and schedules thereto) pursuant to the Securities Act of 1933, as
amended (the "Act"), with respect to the junior subordinated debentures. The
underlying securities 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 SEC. For further information with respect
to the underlying securities guarantor, the underlying securities issuer and the
junior subordinated debentures, you should refer to the registration statement
and its exhibits. Statements contained in this prospectus supplement as to the
contents of any contract or other document are not necessarily complete, and in
each
S-6
<PAGE>
instance reference is made to the copy of such contract or document filed as an
exhibit to the underlying securities guarantor's registration statement, each
such statement being qualified in all respects by such reference.
No separate financial statements of the underlying securities issuer
have been included or incorporated by reference to the underlying securities
prospectus. The underlying securities guarantor does not consider such financial
statements material to holders of the underlying securities because the
underlying securities issuer (a) was a newly formed special purpose entity, (b)
has no independent operations, (c) is not engaged in and does not propose to
engage in any activity other than holding as trust assets the junior
subordinated debentures issued by the underlying securities guarantor, and (d)
the obligations of the underlying securities issuer under the underlying
securities are fully and unconditionally guaranteed by the underlying securities
guarantor to the extent that the underlying securities issuer has funds
available to meet such obligations.
You should not rely on this prospectus supplement for information with
respect to the underlying securities issuer. 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, the
underlying securities issuer or the underlying securities guarantor. 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, the underlying securities
guarantor, and the underlying securities is derived from publicly available
documents.
No investigation with respect to the underlying securities issuer or
the underlying securities guarantor (including, without limitation, no
investigation as to their respective financial condition or creditworthiness) or
of the underlying securities or the junior subordinated debentures has been
made. You should obtain and evaluate the same information concerning the
underlying securities issuer and the underlying securities guarantor as you
would obtain and evaluate if you were investing directly in the underlying
securities or the junior subordinated debentures or in other securities issued
by the underlying securities issuer or the underlying securities guarantor. None
of the depositor, the trustee, the underwriter, or any of their affiliates,
assumes any responsibility for the accuracy or completeness of any publicly
available information of the underlying securities issuer or the underlying
securities guarantor filed with the SEC or otherwise made publicly available or
considered by you in making your investment decision in connection therewith.
S-7
<PAGE>
RISK FACTORS
Your investment in the trust certificates will involve certain risks.
You should carefully consider the following discussion of risks, and the other
information included or incorporated by reference in this prospectus supplement
and the accompanying prospectus, before deciding whether an investment in the
trust certificates is suitable for you.
If the underlying securities are redeemed prior to their maturity date, you may
not be able to reinvest your redemption proceeds at a yield comparable to the
yield you would have received on your trust certificates
The yield you will realize on your trust certificates depends upon
several factors, including:
o the purchase price of the trust certificates,
o when you acquire your trust certificates, and
o whether the underlying securities guarantor exercises its
option to redeem the junior subordinated debentures.
The underlying securities guarantor has the option to redeem the junior
subordinated debentures on or after March 1, 2007. If the underlying securities
guarantor redeems the junior subordinated debentures, the underlying securities
held by the trust will also be redeemed. Because the underlying securities
guarantor has the right to redeem the junior subordinated debentures early, the
depositor cannot assure you that the trust will be able to hold the underlying
securities until their maturity date.
The yield you will realize on your trust certificates also depends upon
whether a Special Event (as defined on page S-28) occurs. The depositor has not
formulated an opinion as to the likelihood of a Special Event. See "Description
of the Underlying Securities--Special Event Prepayment" on page S-27. If
o a Special Event occurs and the underlying securities
guarantor exercises its right to redeem all of the junior
subordinated debentures,
o the underlying securities are paid or sold prior to
maturity as a result of a default, or
o the underlying securities guarantor ceases to file reports
under the Exchange Act,
the trust certificates and the underlying securities will have a shorter average
maturity than if the underlying securities guarantor did not exercise its
redemption right, or if no default had occurred or if the underlying securities
guarantor had continued to file reports under the Exchange Act.
If the underlying securities are redeemed, the trust will redeem the
trust certificates. Prevailing interest rates at the time of an early redemption
may be lower than the yield on your trust certificates. Therefore, you may be
unable to realize a comparable yield upon reinvestment of your funds from an
early redemption.
See "Description of the Underlying Securities--Redemption",
"Description of the Underlying Securities--Optional Prepayment" and "Description
of the Underlying Securities--Special Event Prepayment" on page S-27.
S-8
<PAGE>
An inactive public market may limit your ability to sell your trust certificates
The depositor cannot assure you that an active public market for the
trust certificates will develop or, if a public market develops, that you will
be able to sell your 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. Merrill Lynch & Co. is not
obligated, however, to make a market in any series of the trust certificates. At
its sole discretion, Merrill Lynch & Co. may discontinue its market-making
activities at any time without notice to you. If an active public market for the
trust certificates does not develop or continue, the market prices and liquidity
of your trust certificates may be adversely affected. The depositor expects to
apply for listing of the trust certificates on the NYSE.
You may not be paid if the assets of the trust are insufficient
The trust has no significant assets other than the underlying
securities. 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.
The trustee will not manage the underlying securities
Except as described below, the trust will not dispose of any underlying
securities, even if an event occurs that adversely affects the value of the
underlying securities, the underlying securities guarantor or the underlying
securities issuer. As provided in the trust agreement, the trust will dispose of
the underlying securities only if:
(1) there is a payment default on any underlying securities,
(2) there is another type of default which accelerates the
maturity of the underlying securities, or
(3) the underlying securities guarantor ceases to file
Exchange Act reports.
Under the first circumstance listed above, the trustee must sell the underlying
securities, even if adverse market conditions exist. The trustee has no
discretion to do otherwise. If adverse market conditions do exist at the time of
the trustee's sale of the underlying securities, you may incur greater losses
than if the trust continued to hold the underlying securities.
The depositor has not investigated the underlying securities
The depositor, the underwriter and the trustee have not
o investigated the business condition, financial or
otherwise, of the underlying securities issuer or the
underlying securities guarantor or
o verified any reports or information filed by the
underlying securities issuer or the underlying securities
guarantor with the SEC.
The depositor encourages you to consider publicly available information
concerning the underlying securities issuer and the underlying securities
guarantor. You should not construe the trust's issuance of the trust
certificates as an endorsement by the depositor, the underwriter or the trustee
of the financial condition or business prospects of the underlying securities
issuer or the underlying securities guarantor.
S-9
<PAGE>
The trust certificates are subject to the creditworthiness of the underlying
securities issuer and the underlying securities guarantor
The trust certificates represent interests in obligations of the
underlying securities issuer and underlying securities guarantor. In particular,
the trust certificates will be subject to all the risks associated with directly
investing in the underlying securities guarantor's unsecured subordinated debt
obligations.
The trust's right to direct action against the underlying securities guarantor
to enforce the rights of the junior subordinated debentures holders is limited
If a Declaration Event of Default (as defined on page S-22) occurs and
is continuing, then underlying securities holders, including the trust, would
rely on enforcement by the trustee of the junior subordinated debentures (the
"Indenture Trustee") of their rights as holders of the junior subordinated
debentures against the underlying securities guarantor. The holders of a
majority in liquidation amount of the underlying securities have the right to
direct the time, method and place of conducting any remedy proceeding available
to the Indenture Trustee or to direct the exercise of any trust or power
conferred upon the Indenture Trustee, including the Indenture Trustee's right to
exercise remedies available to it as a junior subordinated debentures holder. If
the Indenture Trustee fails to enforce its rights under the junior subordinated
debentures, any underlying securities holder may directly institute a legal
proceeding against the underlying securities guarantor to enforce the Indenture
Trustee's rights under the junior subordinated debentures. The underlying
securities holder does not have to first institute a legal proceeding against
the Indenture Trustee or any other person or entity. If a Declaration Event of
Default attributable to the underlying securities guarantor's failure to pay
interest or principal on the junior subordinated debentures on the date payable
has occurred and is continuing, then an underlying securities holder may also
directly institute a proceeding for enforcement of payment of the principal of
or interest on the junior subordinated debentures, having a principal amount
equal to the aggregate liquidation amount of that holder's underlying
securities, on or after the due date without first:
o directing the Indenture Trustee to enforce the terms of
the junior subordinated debentures
or
o instituting a legal proceeding against the underlying
securities guarantor to enforce the Indenture Trustee's
rights under the junior subordinated debentures.
The underlying securities guarantor would be subrogated to the rights of the
underlying securities holder to the extent of any payments made by the
underlying securities guarantor to the holder in any direct action.
Consequently, the underlying securities guarantor will be entitled to amounts
that an underlying securities holder receives in respect of any distribution
that resulted from the holder bringing a direct action to the extent the
underlying securities holder receives full payment on the unpaid distribution
from the underlying securities issuer. Except as described above, underlying
securities holders, such as the trust, will not be able to exercise directly any
remedy available to junior subordinated debentures holders or to assert directly
any other rights in respect of the junior subordinated debentures.
The underlying securities guarantor has the ability to defer distributions
payable to the trust
The underlying securities guarantor can, on one or more occasions,
defer interest payments on the junior subordinated debentures for up to 10
consecutive semiannual interest periods, but not beyond the maturity date of the
junior subordinated debentures. If the underlying securities guarantor defers
interest payments on the junior subordinated debentures, the underlying
securities issuer will defer distributions on the underlying securities. If the
underlying securities issuer defers distributions on the underlying securities,
the trust will defer distributions on the trust certificates during any deferral
period. However, distributions will themselves accrue interest compounded
semiannually. Prior to the termination of any deferral period, the underlying
securities guarantor may further extend the deferment, but the total of all
deferral periods must not exceed 10 consecutive semiannual interest periods or
extend beyond the maturity date. Upon the termination of any deferral period and
the payment of all amounts then due, the underlying securities guarantor may
commence a new deferral period, subject to the above requirements.
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Should the underlying securities guarantor exercise its right to defer
any payment of interest on the junior subordinated debentures, each underlying
securities holder will be required to accrue interest income (as OID) in respect
of the deferred stated interest allocable to its share of the underlying
securities for federal income tax purposes. As a result, the trust, as an
underlying securities holder, would have to include this amount in gross income
for United States federal income tax purposes prior to the receipt of any cash
distributions. In addition, the trust would not receive cash from the underlying
securities issuer related to this income if the trust disposes of the underlying
securities prior to the record date on which distributions of these amounts are
made. Also, because the underlying securities guarantor has the right to defer
interest payments, the market price of the underlying securities (which
represent an undivided beneficial interest in the junior subordinated
debentures) may be more volatile than other similar securities where the issuer
does not have the right to defer interest payments.
If the underlying securities guarantor exercises its option to defer interest
payments on the junior subordinated debentures, the trust may face adverse tax
consequences
If the underlying securities guarantor exercises its option to defer
payment of interest on the junior subordinated debentures, the underlying
securities may trade at a price that does not fully reflect the value of accrued
but unpaid interest of the underlying junior subordinated debentures. In the
event of a deferral, the trust, as an underlying securities holder, must include
the unpaid interest accrued on the junior subordinated debentures in income, as
ordinary income accrued but unpaid, if the trust disposes of its underlying
securities between distribution record dates for the underlying securities. The
trust would also have to add this amount to its adjusted tax basis in its pro
rata share of the underlying junior subordinated debentures deemed disposed of.
To the extent the selling price is less than the trust's adjusted tax basis
(which will include, in the form of original issue discount, or OID, all accrued
but unpaid interest), the trust will recognize a capital loss. Subject to
limited exceptions, capital losses cannot be applied to offset ordinary income
for United States federal income tax purposes.
The underlying securities guarantor's obligations under the junior subordinated
debentures and the guarantee are subordinated
The underlying securities guarantor's obligations under the junior
subordinated debentures are subordinate and junior in right of payment to the
underlying securities guarantor's Senior Indebtedness (as defined on page S-30).
This means that the underlying securities guarantor cannot make any payments of
principal (including redemption payments) or interest on the junior subordinated
debentures if it defaults on a payment on its Senior Indebtedness or the
maturity of any of its Senior Indebtedness has been accelerated because of a
default.
The underlying securities guarantor's obligations under the guarantee
rank
o subordinate and junior to all of the underlying securities
guarantor's obligations;
o equal with the most senior preferred or preference stock
previously issued or that the underlying securities
guarantor may issue;
o equal with any guarantee that the underlying securities
guarantor may offer in respect of any capital or preferred
securities issued by other trusts to be established by the
underlying securities guarantor that are similar to the
underlying securities; and
o senior to the underlying securities guarantor's common
stock.
There are no terms in the underlying securities, the junior subordinated
debentures, the guarantee or the Indenture, dated as of March 7, 1997 as amended
and supplemented from time to time, between the underlying securities guarantor
and The Bank of New York, as Indenture Trustee (the "Indenture"), that limit the
underlying securities guarantor's ability to incur additional indebtedness,
including indebtedness that ranks senior to the junior subordinated debentures
and the
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guarantee. See "Description of the Underlying Securities--Description of
Guarantee--Status of the Guarantee" on page S-30.
The trust's right to direct action against the underlying securities guarantor
for payment is limited
The guarantee of the underlying securities guarantor is qualified as an
indenture under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). The trustee of the junior subordinated debentures, in addition
to acting as indenture trustee under the Indenture, will act as indenture
trustee under the guarantee for the purposes of compliance with the provisions
of the Trust Indenture Act (the "Guarantee Trustee"). The Guarantee Trustee will
hold the guarantee for the benefit of the underlying securities holders.
Pursuant to the guarantee, the underlying securities guarantor has
guaranteed to the underlying securities holders the payment of
o any accrued and unpaid distributions that are required to
be paid on the underlying securities, to the extent the
underlying securities issuer has funds available for
payment;
o the applicable redemption price of the underlying
securities called for redemption, to the extent the
underlying securities issuer has funds available for
redemption; and
o upon a voluntary or involuntary dissolution or liquidation
of the underlying securities issuer, the lesser of
o the aggregate of the liquidation amount and all
accrued and unpaid distributions on the underlying
securities to the date of the payment, to the extent
the underlying securities issuer has funds available
for payment, and
o the amount of the underlying securities issuer's
assets remaining available for distribution to
underlying securities holders upon the underlying
security issuer's liquidation.
The holders of a majority in liquidation amount of the underlying securities
have the right to direct the time, method and place of conducting any remedy
proceeding available to the Guarantee Trustee or to direct the exercise of any
trust or power the guarantee confers upon the Guarantee Trustee. If the
Guarantee Trustee fails to enforce the guarantee, any underlying securities
holder may directly institute a legal proceeding against the underlying
securities guarantor to enforce the Guarantee Trustee's rights under the
guarantee. The underlying securities holder does not have to first institute a
legal proceeding against the underlying securities issuer, the Guarantee Trustee
or any other person or entity.
If the underlying securities guarantor were to default on its
obligation to pay amounts payable on the junior subordinated debentures, the
underlying securities issuer would lack available funds for the payment of
distributions or amounts payable on redemption of the underlying securities or
otherwise. In that event, underlying securities holders would not be able to
rely upon the guarantee for payment of these amounts. Instead, an underlying
securities holder would rely on its enforcement of its right against the
underlying securities guarantor to enforce payments on the junior subordinated
debentures. Despite any payments made to an underlying securities holder by the
underlying securities guarantor in connection with a direct action, the
underlying securities guarantor shall remain obligated to pay the principal of
(and premium, if any) and interest on the junior subordinated debentures. The
underlying securities guarantor would be subrogated to the rights of the
underlying securities holder to the extent of any payments made by the
underlying securities guarantor to the holder in any direct action. Except as
described above, underlying securities holders will not be able to exercise
directly any remedy available to junior subordinated debentures holders or to
assert directly any other rights in respect of the junior subordinated
debentures.
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The ratings of the trust certificates may change
At the time of issuance, Moody's and/or S&P will have assigned ratings
to the trust certificates equivalent to the ratings of the underlying
securities, which, as of the date of this prospectus supplement were rated
"baa3" 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. Ratings do not comment on
the market price of the trust certificates or their suitability for a particular
investor. The depositor cannot assure you that initial ratings will remain for
any given period of time or that a ratings agency would not revise or withdraw
entirely the ratings if, in its judgment, circumstances (including, without
limitation, the rating of the underlying securities) merit. A revision or
withdrawal of a rating may adversely affect the market price of the trust
certificates.
S-13
<PAGE>
THE TRUST
The trust, under which the trust certificates are issued, will be
formed pursuant to the Series Supplement, to be dated the date set forth in the
supplement to this prospectus supplement, between the depositor, the trustee and
the securities intermediary. Concurrently with the execution and delivery of the
Series Supplement, the depositor will deposit the underlying securities into the
trust. The trustee, on behalf of the trust, will accept the underlying
securities and will deliver the trust certificates to or upon an order of the
depositor.
The depositor did not purchase the underlying securities from the
underlying securities issuer 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 their distributions will
be payable in U.S. dollars. The trust certificates each have a stated amount of
$25.
Interest on the 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 (as defined on page S-24) (or, in the case of the first
interest accrual period, from and including the date set forth in the supplement
to this prospectus supplement) to but excluding the current Distribution Date.
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 stated amounts of and integral
multiples of $25. The trust certificates will each initially be represented by
one or more global certificates registered in the name of the nominee of DTC
(together with any successor clearing agency selected by the depositor), except
as provided below. DTC has informed the depositor that DTC's nominee will be
Cede. No holder of any trust certificate will be entitled to receive a
certificate representing that person's interest, except as set forth below under
"--Definitive Trust Certificates" on page S-15. Unless and until definitive
trust certificates are issued under the limited circumstances described below,
all references to actions by trust certificateholders with respect to any trust
certificates shall refer to actions taken by DTC upon instructions from its
participants. See "--Definitive Trust Certificates" below and "Description of
the Certificates--Global Securities" on page 28 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 having trust certificates credited to their DTC accounts.
Additionally, DTC will take actions with respect to specified voting rights only
at the direction and on behalf of participants whose holdings of certificates
evidence specified voting rights. DTC may take inconsistent positions in its
exercise of voting rights, to the extent that participants authorize such
divergent action.
Redemptions
Upon the redemption of the junior subordinated debentures
o in whole, but not in part, on the stated maturity date;
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<PAGE>
o in whole, but not in part, at any time prior to March 1,
2007, upon the occurrence of a Special Event (as described
more fully in "Description of the Underlying
Securities--Special Event Prepayment" on page S-27); and
o in whole or in part on or after March 1, 2007
the redemption proceeds will be distributed pro rata to the underlying
securities holders, including the trust. The trust will then distribute these
redemption proceeds pro rata to trust certificateholders. The redemption price
prior to March 1, 2007 is the greater of
o 100% of the principal amount of the junior subordinated
debentures or
o the sum, as determined by a calculation agent, of the
present values of the principal amount and premium payable
with respect to an optional redemption of junior
subordinated debentures on March 1, 2007, together with
scheduled payments of interest on the junior subordinated
debentures accruing from the prepayment date to and
including February 1, 2007 discounted to the prepayment
date on a semi-annual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Adjusted
Treasury Rate (as defined on page S-28), plus, in each
case, accrued interest to the date of prepayment.
The redemption prices on or after March 1, 2007 are equal to the following
prices, expressed in dollars plus accumulated distributions, if any, to the date
of redemption, if redeemed during the 12-month period beginning March 1:
Year Redemption Price
---- ----------------
2007....................... $26.06750
2008....................... $25.96075
2009....................... $25.85400
2010....................... $25.74725
2011....................... $25.64050
2012....................... $25.53375
2013....................... $25.42700
2014....................... $25.32025
2015....................... $25.21350
2016....................... $25.10675
2017 and thereafter........ $25.00000
Definitive Trust Certificates
Definitive trust certificates will be issued to trust
certificateholders or their nominees only if
o 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
o at the depositor's option, it elects to terminate the
book-entry system through DTC.
Upon the occurrence of either of these events, the trustee is required
to notify all participants of the availability through DTC of definitive trust
certificates. Upon surrender by DTC of the global certificates representing the
trust certificates and receipt of instructions for re-registration, the trustee
will reissue the trust certificates as definitive trust certificates issued in
the stated amounts owned by the individual trust certificateholders. Then, the
trustee will recognize the holders of definitive trust certificates as trust
certificateholders under the trust agreement.
S-15
<PAGE>
Listing on the New York Stock Exchange
The depositor intends to list the trust certificates on the NYSE. The
depositor cannot assure you that the trust certificates, once listed, will
continue to be eligible for trading on the NYSE.
Collections and Distributions
To the extent of available funds, the trust will make the following
distributions in the following order of priority:
o to the trust certificateholders, distributions at the rate
of 8.54% per annum on the stated amount of the trust
certificates on the final scheduled Distribution Date; and
o to the extent there are available funds in the certificate
account, to any creditors of the trust in satisfaction of
the trust's liabilities.
"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 except for eligible investments described below. Not
less than 100% of the trust certificateholders may elect to sell a portion of
the underlying securities such that the proceeds of the sale would be sufficient
to reimburse the trustee for any extraordinary expenses.
If the trustee has not received payment on the underlying securities on
or prior to a Distribution Date, the 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
delay, but any additional interest owed and paid by the underlying securities
issuer as a result of the delay will be paid to the trust certificateholders. In
the event of a payment default on the underlying securities, the trustee's
approved extraordinary expenses (see "Description of the Trust Agreement--The
Trustee" on page S-17) may be reimbursed to the trustee out of available funds
before any distributions to trust certificateholders are made.
The trustee shall invest all amounts received on or with respect to the
underlying securities which are not distributed to trust certificateholders on
the date of receipt in eligible investments. "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 the 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 Distribution Date. Income on these investments will constitute trust
property.
The depositor cannot assure you 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 the distributions due to trust
certificateholders, any shortfall will be carried over and will be distributable
on the next Distribution Date on which sufficient funds exist to pay the
shortfalls. The depositor will pay the trustee's ordinary expenses.
Default on Underlying Securities
If there is a payment default on the underlying securities, the trustee
will sell the underlying securities and distribute the proceeds from the sale of
the underlying securities to the holders of the trust certificates pro rata. If
there is an acceleration of the maturity of the underlying securities or if the
underlying securities guarantor ceases to file Exchange Act reports, the trustee
will distribute the underlying securities to the holders of the trust
certificates pro rata.
S-16
<PAGE>
THE DEPOSITOR
The depositor, Merrill Lynch Depositor, Inc., 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 under 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" on page 14 in the prospectus.
DESCRIPTION OF THE TRUST AGREEMENT
General
The trust certificates will be issued pursuant to the trust agreement,
a form of which is filed as an exhibit to the registration statement of the
depositor on Form S-3 (Registration No. 333-29015). The depositor will file with
the SEC, following the issuance and sale of the trust certificates, a Current
Report on Form 8-K relating to the trust certificates containing a copy of the
Series Supplement as executed. The trust created under the Series Supplement
will consist of
o the deposited assets and
o 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 here 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 in the agreement. You should refer to the
trust agreement for a full description of these provisions, including the
definition of certain terms used in this prospectus supplement.
The discussions in the prospectus under "Description of the Trust
Agreement--Advances in Respect of Delinquencies" on page 31, "--Certain Matters
Regarding the Trustee, Administrative Agent and the Depositor" (to the extent
the discussion relates to the Administrative Agent) on page 32,
"--Administrative Agent Termination Events; Rights upon Administrative Agent
Termination Event" on page 34 and "--Evidence as to Compliance" on page 40 are
not applicable to the trust certificates.
The Trustee
United States Trust Company of New York will be 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 trustee shall receive compensation as set forth in an agreement
between the depositor and the trust.
The trust agreement will provide that the trustee may not take any
action which, in the trustee's opinion, would or might cause it to incur
extraordinary expenses, unless
o the trustee is satisfied that it will have adequate
security or indemnity in respect of the costs, expenses
and liabilities,
o the trustee has been instructed to do so by trust
certificateholders representing at least the required
percentage-remedies (as defined below) of the aggregate
voting rights, and
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<PAGE>
o the trust certificateholders have agreed that these costs
will be paid by the trustee
o from the trust (in the case of an affirmative vote of 100%
of the trust certificateholders) or
o out of the trustee's own funds (in which case the trustee
can receive reimbursement from the trust
certificateholders voting in favor of the 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 the Distribution Date are made.
Events of Default
An event of default with respect to the trust certificates under the
trust agreement will consist of
o a default in the payment of any interest on any underlying
securities after it becomes due and payable (subject to
any applicable grace period);
o a default in the payment of the principal of or any
installment of principal of any underlying security when
it becomes due and payable; and
o any other event specified as an event of default in the
Declaration.
The trust agreement will provide that, within 10 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 uncured or unwaived events of default known to it. However, the trustee
will be protected in withholding such notice if in good faith it determines that
the withholding of the notice is in the interest of the trust
certificateholders, except for an event of default relating to the payment of
principal or interest on any of the underlying securities.
No trust certificateholder will have the right to institute any
proceeding with respect to the trust agreement, unless:
o such trust certificateholder previously has given to the
trustee written notice of a continuing breach,
o trust certificateholders evidencing at least the required
percentage-remedies of the aggregate voting rights have
requested in writing that the trustee institute a
proceeding in its own name as trustee,
o the trust certificateholder or trust certificateholders
have offered the trustee reasonable indemnity,
o the trustee has for 15 days failed to institute a
proceeding and
o no direction inconsistent with a written request has been
given to the trustee during such 15-day period by trust
certificateholders evidencing at least the required
percentage-remedies of the aggregate voting rights.
"Required percentage-remedies" shall mean 66-2/3% of the voting rights.
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<PAGE>
Voting Rights
At all times, voting rights shall be allocated among trust
certificateholders in proportion to the then outstanding stated amounts of their
respective trust certificates. The "required percentage-amendment" of voting
rights necessary to consent to a modification or amendment is 66-2/3%. Despite
the foregoing, in addition to the other restrictions on modification and
amendment, the trustee will not enter into any amendment or modification of the
trust agreement which would adversely affect in any material respect the
interests of the trust certificateholders without the consent of 100% of the
holders. No 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" on page 37 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 the 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
relating to the underlying securities or receives any other solicitation for any
action with respect to the underlying securities, the trustee shall mail a
notice of the proposed amendment, modification, waiver or solicitation to each
trust certificateholder of record as of that date. The trustee shall request
instructions from the trust certificateholders as to whether or not to consent
to or vote to accept the 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 were actually voted or not voted by the
trust certificateholders as of a date determined by the trustee prior to the
date on which the consent or vote is required. Despite anything to the contrary,
the trustee shall at no time vote or consent to any matter
o 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,
o which 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 trust certificateholders, or
o which would result in the exchange or substitution of any
of the outstanding underlying securities pursuant to a
plan for the refunding or refinancing of the underlying
securities except in the event of a default under the
Declaration and only with the consent of 100% of the trust
certificateholders.
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 offer is made by the underlying securities issuer to issue new
obligations in exchange and substitution for any of the underlying securities,
pursuant to a plan for the refunding or refinancing of the outstanding
underlying securities or any other offer is made for the underlying securities,
the trustee shall notify the trust certificateholders of the offer as promptly
as practicable. The trustee must reject any offer unless the trustee is directed
by the affirmative vote of all of the trust certificateholders to accept the
offer and the trustee has received the tax opinion described above.
If an event of default under the Declaration occurs and is continuing
and if directed by all of the outstanding 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
S-19
<PAGE>
securities and any accrued and unpaid interest to be due and payable. In
connection with a vote concerning whether to declare the acceleration of the
underlying securities, the trust certificateholder's interests may differ from
each other and from those of other holders of outstanding debt securities issued
by the underlying securities issuer.
Termination of the Trust
The trust shall terminate upon the earliest to occur of
o the payment in full or sale of the underlying securities
by the trust after a payment default on or an acceleration
of the underlying securities,
o the distribution in full of all amounts due to the trust
certificateholders and
o the final scheduled Distribution Date.
See "Description of the Trust Agreement--Termination" on page 40 in the
prospectus.
If the underlying securities issuer is terminated and liquidated and
the junior subordinated debentures are distributed pro rata to the underlying
securities holders, including the trust, the trust will not terminate. Under
those circumstances, the trust's assets would consist of junior subordinated
debentures rather than the underlying securities that the trust currently holds.
S-20
<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
primary economic terms of the underlying securities are described in "Summary
Information Q&A" on page S-3 in this prospectus supplement.
This prospectus supplement sets forth certain relevant terms with
respect to the underlying securities and the junior subordinated debentures, but
does not provide detailed information with respect thereto or with respect to
the underlying securities issuer or the underlying securities guarantor. 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, the underlying securities
guarantor and the underlying securities is derived from publicly available
documents.
The underlying securities convert into cash in a finite time period and
the underlying securities guarantor 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. The rating on the underlying
securities will allow at least one investment-grade rating of the trust
certificates by a rating agency.
The underlying securities issuer is a statutory business trust formed
under Delaware law pursuant to the Declaration and the filing of a certificate
of trust with the Delaware Secretary of State on February 25, 1997. The
underlying securities issuer exists for the exclusive purposes of (i) issuing
and selling the underlying securities, (ii) investing the proceeds from the sale
of the junior subordinated debentures and (iii) engaging in only those other
activities incidental to the previously mentioned activities. The underlying
securities issuer's business and affairs are conducted by its trustees, each
appointed by the underlying securities guarantor as holder of the underlying
securities issuer's Common Securities. The underlying securities guarantor, as
issuer of the junior subordinated debentures, pays all fees, expenses, debts and
obligations (other than the Trust Securities) related to the underlying
securities issuer and will pay, directly or indirectly, all ongoing costs,
expenses and liabilities of the underlying securities issuer. The address for
notices to the underlying securities issuer is c/o The Bank of New York, 101
Barclay Street-21W, Corporate Trust Department, New York, New York 10286, with a
copy to RenaissanceRe Holdings Ltd.
According to the underlying securities guarantor's publicly available
documents, its principal executive offices are located at Renaissance House,
8-12 East Broadway, Pembroke 4M 19 Bermuda and its telephone number is (441)
295-4513. The underlying securities guarantor is subject to the informational
requirements of the Exchange Act and files periodic reports and other
information with the SEC. You may inspect and copy these reports and other
information at the SEC's public reference facilities located at 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as at the regional offices of the
SEC located at Room 1100, 7 World Trade Center, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. You may obtain copies of these materials for a fee by
writing to the SEC's Public Reference Section at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information about the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, you may
inspect reports and other information concerning the underlying securities
guarantor at 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, the junior subordinated debentures, the
underlying securities issuer or the underlying securities guarantor contained in
the prospectus related to the underlying securities or in the underlying
securities guarantor's Exchange Act reports 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, the junior
subordinated debentures, the underlying securities issuer or the underlying
securities guarantor have not
S-21
<PAGE>
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 RESPECT OF THE TRUST CERTIFICATES WILL DEPEND ENTIRELY ON THE TRUST'S RECEIPT
OF PAYMENTS ON THE UNDERLYING SECURITIES. YOU 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. NEITHER THE DEPOSITOR, THE UNDERWRITER NOR THE TRUSTEE
PARTICIPATED IN THE PREPARATION OF SUCH DOCUMENTS OR TAKES ANY RESPONSIBILITY
FOR THE ACCURACY OR COMPLETENESS OF THE INFORMATION PROVIDED THEREIN.
You should refer to the underlying securities prospectus for definitions of
capitalized terms not defined in this section.
The Declaration
The Declaration authorizes the trustees of the underlying securities
issuer to issue on its behalf the underlying securities, which represent
undivided beneficial interests in the assets of the underlying securities
issuer. The underlying securities were issued pursuant to the terms of an
amended and restated declaration of trust, dated as of March 7, 1997, executed
by the underlying securities guarantor, as sponsor, and the trustees of the
underlying securities issuer. The underlying securities will be redeemed on
March 1, 2027, the maturity date of the junior subordinated debentures. All of
the Common Securities of the underlying securities issuer will be owned,
directly or indirectly, by the underlying securities guarantor. The Common
Securities rank pari passu, and payments will be made thereon on a pro rata
basis with the underlying securities, except that upon the occurrence and during
the continuance of a Declaration Event of Default (as defined below), the rights
of the holders of the Common Securities to receive payment of periodic
distributions and payments upon liquidation, redemption and otherwise will be
subordinated to the rights of the holders of the underlying securities.
The following summaries of certain provisions of the underlying
securities, the Guarantee, the junior subordinated debentures, the Declaration
and the Indenture contained herein do not purport to be complete and are based
upon the underlying securities prospectus dated July 31, 1997, relating to the
underlying securities and are subject to, and are qualified in their entirety by
reference to, all provisions of the underlying securities, the Guarantee, the
junior subordinated debentures, the Declaration and the Indenture, including the
definitions therein of certain terms. Wherever particular sections or defined
terms of the Declaration and 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 Declaration and the Indenture for all terms
governing the underlying securities, the Guarantee and the junior subordinated
debentures.
Declaration and Indenture Events of Default
Declaration Events of Default
An event of default under the Indenture (an "Indenture Event of
Default") constitutes an event of default under the Declaration with respect to
the underlying securities (a "Declaration Event of Default"); provided, that
pursuant to the Declaration, the underlying securities guarantor, as holder of
the Common Securities of the underlying securities issuer, will be deemed to
have waived any Declaration Event of Default with respect to the Common
Securities if all Declaration Events of Default with respect to the capital
securities have been cured, waived or otherwise eliminated.
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Until such Declaration Events of Default with respect to the underlying
securities have been so cured, waived, or otherwise eliminated, the Property
Trustee will be deemed to be acting solely on behalf of the holders of the
underlying securities and only the holders of the underlying securities will
have the right to direct the Property Trustee to act on their behalf. In the
event that any Declaration Event of Default with respect to the underlying
securities is waived by the holders of the underlying securities as provided in
the Declaration, the holders of Common Securities pursuant to the Declaration
have agreed that such waiver also constitutes a waiver of such Declaration Event
of Default with respect to the Common Securities for all purposes under the
Declaration without any further act, vote or consent of the holders of Common
Securities.
Indenture Events of Default
The holders of a majority in aggregate outstanding principal amount of
the junior subordinated debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Indenture
Trustee. The Indenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the junior subordinated debentures may declare
the principal due and payable immediately upon an Indenture Event of Default.
The holders of a majority in aggregate outstanding principal amount of the
junior subordinated debentures may annul such declaration and waive the default
if the default (other than the non-payment of the principal of the junior
subordinated debentures which has become due solely by such acceleration) has
been cured and a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration has been deposited with the
Indenture Trustee.
The holders of a majority in aggregate outstanding principal amount of
the junior subordinated debentures affected thereby may, on behalf of the
holders of all the junior subordinated debentures, waive any past default,
except a default in the payment of principal or interest (unless such default
has been cured and a sum sufficient to pay all matured installments of interest
and principal due otherwise than by acceleration has been deposited with the
Indenture Trustee) or a default in respect of a covenant or provision which
under the Indenture cannot be modified or amended without the consent of the
holder of each outstanding junior subordinated debenture.
If an Indenture Event of Default shall have occurred and be continuing
and shall be attributable to the failure of the underlying securities guarantor
to pay principal of or interest on the junior subordinated debentures on the due
date, a holder of underlying securities may institute a Direct Action. The
underlying securities guarantor may not amend the Indenture to remove the
foregoing right to bring a Direct Action without the prior written consent of
the holders of all of the underlying securities. Notwithstanding any payments
made to a holder of underlying securities by the underlying securities guarantor
in connection with a Direct Action, the underlying securities guarantor shall
remain obligated to pay the principal of or interest on the junior subordinated
debentures, and the underlying securities guarantor shall be subrogated to the
rights of the holder of such underlying securities with respect to payments on
the underlying securities to the extent of any payments made by the underlying
securities guarantor to such holder in any Direct Action.
The holders of the underlying securities will not be able to exercise
directly any remedies, other than those set forth in the preceding paragraph,
available to the holders of the junior subordinated debentures unless there
shall have been a Declaration Event of Default.
Distributions
Distributions on the underlying securities will be cumulative, will
accumulate from March 7, 1997 and will be payable semi-annually in arrears on
March 1 and September 1 of each year, commencing September 1, 1997, at the
annual rate of 8.54% of the Liquidation Amount to the holders of the underlying
securities on the relevant record dates. The record dates will be the February
15 and August 15 preceding the relevant Distribution Date (as defined below).
The amount of Distributions payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months and for any period of less than a full
calendar month on the basis of the actual number of days elapsed in the month.
In the event that any date on which Distributions are payable on the underlying
securities is not a Business Day
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(as defined below), payment of the Distribution payable on such date will be
made on the next succeeding day that is a Business Day (and without any interest
or other payment in respect to any such delay), in each case with the same force
and effect as if made on such date (each date on which Distributions are payable
in accordance with the foregoing, a "Distribution Date"). A "Business Day" shall
mean any day other than a Saturday or a Sunday, or a day on which banking
institutions in The City of New York are authorized or required by law or
executive order to close.
So long as no Indenture Event of Default shall have occurred and be
continuing, the underlying securities guarantor will have the right under the
Indenture to defer the payment of interest on the junior subordinated debentures
at any time or from time to time for a period not exceeding 10 consecutive
semi-annual periods with respect to each Extension Period, provided that (i) no
Extension Period may extend beyond the Stated Maturity Date, (ii) any Extension
Period will terminate as to all junior subordinated debentures upon an
acceleration thereof (subject to reinstatement, upon cure or waiver as provided
in the Indenture) and (iii) any Extension Period will terminate as to any junior
subordinated debenture to be redeemed on the applicable Redemption Date. See
"--Declaration and Indenture Events of Default--Indenture Events of Default" on
page S-23. Upon any such election, semi-annual Distributions on the underlying
securities will be deferred by the underlying securities issuer during any such
Extension Period. Distributions to which holders of the underlying securities
are entitled during any such Extension Period will accumulate additional
Distributions thereon at the rate per annum of 8.54% thereof, compounded
semi-annually from the relevant Distribution Date. The term "Distributions" as
used herein shall include any such additional Distributions.
Prior to the termination of any such Extension Period, the underlying
securities guarantor may further extend such Extension Period, provided that
such extension does not cause such Extension Period to exceed 10 consecutive
semi-annual periods or to extend beyond the Stated Maturity Date. Upon the
termination of any such Extension Period and the payment of all amounts then
due, and subject to the limitations set forth herein, the underlying securities
guarantor may elect to begin a new Extension Period. The underlying securities
guarantor must give the Property Trustee, the Administrative Trustees and the
Debenture Trustee notice of its election of any such Extension Period at least
five Business Days prior to the earlier of (i) the date the Distributions on the
underlying securities would have been payable except for the election to begin
such Extension Period or (ii) the date the Administrative Trustees are required
to give notice to any securities exchange or to holders of such underlying
securities of the record date or the date such Distributions are payable but in
any event not less than five Business Days prior to such record date. The
Property Trustee will give notice of the underlying securities guarantor's
election to commence or continue an Extension Period. Except as described
herein, there is no limitation on the number of times that the underlying
securities guarantor may elect to begin an Extension Period.
During any such Extension Period, the underlying securities guarantor
may not (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect to, any of the
underlying securities guarantor's capital stock, (ii) make any payment of
principal of or premium, if any, or interest on or repay, repurchase or redeem
any debt securities of the underlying securities guarantor (including Other
Debentures) that rank pari passu with or junior in right of payment to the
junior subordinated debentures or (iii) make any guarantee payments with respect
to any guarantee by the underlying securities guarantor of the debt securities
of any subsidiary of the underlying securities guarantor (including all Other
Guarantees) if such guarantee ranks pari passu with or junior in right of
payment to the junior subordinated debentures (other than (a) dividends or
distributions in shares of, or options, warrants or rights to subscribe for or
purchase common shares of the underlying securities guarantor, (b) any
declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (c)
payments under the Guarantee, (d) the purchase of fractional shares resulting
from a reclassification of the underlying securities guarantor's capital stock,
(e) the exchange or conversion of any class or series of the underlying
securities guarantor's (or any subsidiary's) capital stock for another class or
series of the underlying securities guarantor's (or any subsidiary's) capital
stock or of any class or series of the underlying securities guarantor's (or any
subsidiary's) indebtedness, (f) the purchase of fractional interests in shares
of the underlying securities guarantor's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged, and (g) purchases, redemptions or other acquisitions of
shares of capital stock of the underlying securities guarantor or any subsidiary
under any employment agreement or benefit plan for the benefit of the underlying
securities guarantor's directors,
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officers, or employees, or any dividend reinvestment or director, officer or
employee stock purchase plan of the underlying securities guarantor).
Although the underlying securities guarantor has the right in the
future to exercise its option to defer payments of interest on the junior
subordinated debentures after their issuance, the underlying securities
guarantor has no current intention to do so.
The revenue of the underlying securities issuer available for
distribution to holders of the underlying securities will be limited to payments
under the junior subordinated debentures held by the underlying securities
issuer. If the underlying securities guarantor does not make interest payments
on the junior subordinated debentures, the Property Trustee will not have funds
available to pay Distributions on the underlying securities. The payment of
Distributions (if and to the extent the underlying securities issuer has funds
on hand legally available for the payment of such Distributions) is guaranteed
by the underlying securities guarantor on a limited basis as set forth herein
under "Description of Underlying Securities--Description of Guarantee" on page
S-29.
Voting Rights; Amendment of the Declaration
Except as provided below and under "--Mergers, Consolidations,
Amalgamations or Replacements of the Underlying Securities Issuer" and
"--Description of Guarantee--Amendments and Assignment" and as otherwise
required by law and the Declaration, the holders of the underlying securities
have no voting rights.
The Declaration may be amended from time to time by the underlying
securities guarantor, the Property Trustee and the Administrative Trustees,
without the consent of the holders of the Trust Securities (i) to cure any
ambiguity, correct or supplement any provisions in the Declaration that may be
inconsistent with any other provision, or to make any other provisions with
respect to matters or questions arising under the Declaration, which shall not
be inconsistent with the other provisions of the Declaration, or (ii) to modify,
eliminate or add to any provisions of the Declaration to such extent as shall be
necessary to ensure that the underlying securities issuer will be classified for
United States federal income tax purposes as a grantor trust at all times that
any Trust Securities are outstanding or to ensure that the underlying securities
issuer will not be required to register as an "investment company" under the
Investment Company Act; provided, however, that in the case of clause (i), such
action shall not adversely affect in any material respect the interests of the
holders of the Trust Securities, and any amendments of the Declaration shall
become effective when notice thereof is sent to the holders of the Trust
Securities. The Declaration may be amended by the Trustees and the underlying
securities guarantor (i) with the consent of holders representing a majority
(based upon Liquidation Amount) of the outstanding Trust Securities, and (ii)
upon receipt by the Trustees of an opinion of counsel to the effect that such
amendment or the exercise of any power granted to the Trustees in accordance
with such amendment will not affect the underlying securities issuer's status as
a grantor trust for United States federal income tax purposes or the underlying
securities issuer's exemption from status as an "investment company" under the
Investment Company Act, provided that, without the consent of each holder of
Trust Securities, the Declaration may not be amended to (i) change the amount or
timing of any Distribution on the Trust Securities or otherwise adversely affect
the amount of any Distribution required to be made in respect of the Trust
Securities as of a specified date or (ii) restrict the right of a holder of
Trust Securities to institute suit for the enforcement of any such payment on or
after such date.
Mergers, Consolidations, Amalgamations or Replacements of the Underlying
Securities Issuer
The underlying securities issuer may not merge or convert with or into,
consolidate, amalgamate, or be replaced by, or convey, transfer or lease its
properties and assets as an entirety or substantially as an entirety to any
corporation or other Person, except as described below. The underlying
securities issuer may, at the request of the underlying securities guarantor, as
Sponsor, with the consent of the Administrative Trustees but without the consent
of the holders of the underlying securities, merge with or into, consolidate,
amalgamate, or be replaced by or convey, transfer or lease its properties and
assets as an entirety or substantially as an entirety to a trust organized as
such under the laws of any State; provided, that
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(i) such successor entity either (a) expressly assumes all of
the obligations of the underlying securities issuer with respect to the
underlying securities or (b) substitutes for the underlying securities
other securities having substantially the same terms as the underlying
securities (the "Successor Securities") so long as the Successor
Securities rank in priority the same as the underlying securities with
respect to distributions and payments upon liquidation, redemption and
otherwise,
(ii) the underlying securities guarantor expressly appoints a
trustee of such successor entity possessing the same powers and duties
as the Property Trustee with respect to the junior subordinated
debentures,
(iii) the Successor Securities are listed, or any Successor
Securities will be listed upon notification of issuance, on any
national securities exchange or other organization on which the
underlying securities are then listed, if any,
(iv) such merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not cause the
underlying securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating
organization,
(v) such merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect
the rights, preferences and privileges of the holders of the underlying
securities (including any Successor Securities) in any material
respect,
(vi) such successor entity has a purpose substantially
identical to that of the underlying securities issuer,
(vii) prior to such merger, conversion, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the
underlying securities guarantor has received an opinion from
independent counsel to the underlying securities issuer experienced in
such matters to the effect that (a) such merger, conversion,
consolidation, amalgamation, replacement, conveyance, transfer or lease
does not adversely affect the rights, preferences and privileges of the
holders of the underlying securities (including any Successor
Securities) in any material respect (other than with respect to any
dilution of the holder's interest in the new entity), and (b) following
such merger, conversion, consolidation, amalgamation, replacement,
conveyance, transfer or lease, neither the underlying securities issuer
nor such successor entity will be required to register as an investment
company under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and
(viii) the underlying securities guarantor or any permitted
successor or assignee owns all of the Common Securities of such
successor entity and guarantees the obligations of such successor
entity under the Successor Securities at least to the extent provided
by the Guarantee.
Notwithstanding the foregoing, the underlying securities issuer shall not,
except with the consent of holders of 100% in Liquidation Amount of the Trust
Securities, consolidate, amalgamate, merge with or into, or be replaced by or
convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger, replacement, conveyance, transfer or lease
would cause the underlying securities issuer or the successor entity not to be
classified as a grantor trust or other entity exempt from taxation for United
States federal income tax purposes.
S-26
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Redemption
Upon the repayment on the Stated Maturity Date or prepayment prior to
the Stated Maturity Date of the junior subordinated debentures, the proceeds
from such repayment or prepayment shall be applied by the Property Trustee to
redeem a Like Amount (as defined below) of the Trust Securities, upon not less
than 30 nor more than 60 days' notice of a date of redemption (the "Redemption
Date"), at the applicable Redemption Price, which shall be equal to (i) in the
case of the repayment of the junior subordinated debentures on the Stated
Maturity Date, the Maturity Redemption Price (equal to the principal of, and
accrued interest on, the junior subordinated debentures), (ii) in the case of
the optional prepayment of the junior subordinated debentures prior to March 1,
2007 upon the occurrence and continuation of a Special Event, the Special Event
Redemption Price (equal to the Special Event Prepayment Price in respect of the
junior subordinated debentures) and (iii) in the case of the optional prepayment
of the junior subordinated debentures on or after March 1, 2007, the Optional
Redemption Price (equal to the Optional Prepayment Price in respect of the
junior subordinated debentures). See "--Optional Prepayment" and "--Special
Event Prepayment" below.
"Like Amount" means (i) with respect to a redemption of the Trust
Securities, Trust Securities having a Liquidation Amount equal to the principal
amount of junior subordinated debentures to be paid in accordance with their
terms and (ii) with respect to a distribution of junior subordinated debentures
upon the liquidation of the underlying securities issuer, junior subordinated
debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the holder to whom such junior subordinated debentures are
distributed
Optional Prepayment
The junior subordinated debentures will be prepayable, in whole or in
part, at the option of the underlying securities guarantor on or after March 1,
2007, at a prepayment price (the "Optional Prepayment Price") equal to the
percentage of the outstanding principal amount of the junior subordinated
debentures specified below, plus, in each case, accrued interest thereon to the
date of prepayment if redeemed during the 12-month period beginning March 1 of
the years indicated below:
Year Percentage
---- ----------
2007....................... 104.270%
2008....................... 103.843
2009....................... 103.416
2010....................... 102.989
2011....................... 102.562
2012....................... 102.135
2013....................... 101.708
2014....................... 101.281
2015....................... 100.854
2016....................... 100.427
2017 and thereafter........ 100.000
Special Event Prepayment
If a Special Event shall occur and be continuing, the underlying
securities guarantor may, at its option, prepay the junior subordinated
debentures in whole (but not in part) at any time within 90 days of the
occurrence of such Special Event, at a prepayment price (the "Special Event
Prepayment Price") equal to the greater of (i) 100% of the principal amount of
such junior subordinated debentures or (ii) the sum, as determined by a
Calculation Agent, of the present values of the principal amount and premium
payable with respect to an optional redemption of junior subordinated debentures
on March 1, 2007, together with scheduled payments of interest on the junior
subordinated debentures accruing from the prepayment date to and including
February 1, 2007 discounted to the prepayment date on
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a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months)
at the Adjusted Treasury Rate, plus, in each case, accrued interest thereon to
the date of prepayment.
A "Special Event" means a Tax Event (as defined below) or an Investment
Company Event (as defined below), as the case may be.
"Investment Company Event" means that the underlying securities
guarantor shall have received an opinion of counsel experienced in practice
under the Investment Company Act to the effect that, as a result of the
occurrence of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in Investment Company Act Law"), there
is more than an insubstantial risk that the trust is or will be considered an
"investment company" which is required to be registered under the Investment
Company Act, when such Change in Investment Company Act Law becomes effective on
or after the Issue Date.
A "Tax Event" means the receipt by the underlying securities guarantor
and the underlying securities issuer of an opinion of counsel experienced in
such matters to the effect that, as a result of (a) any amendment to, or change
(including any announced proposed change) in, the laws or any regulations
thereunder of the United States or any political subdivision or taxing authority
thereof or therein, or (b) any amendment to or change in an interpretation or
application of such laws or regulations by any legislative body, court,
governmental agency or regulatory agency (including the enactment of any
legislation, the publication of any judicial decision or regulatory
determination or the issuance by the Internal Revenue Service of a revenue
ruling, revenue procedure, notice or announcement (which notice or announcement
is published in the Internal Revenue Bulletin), on or after March 7, 1997),
there is more than an insubstantial risk that (i) interest payable to the
underlying securities issuer on the junior subordinated debentures would not be
deductible by the underlying securities guarantor for United States federal
income tax purposes or (ii) the underlying securities issuer will be subject to
more than a de minimis amount of other taxes, duties or other governmental
charges.
"Adjusted Treasury Rate" means, with respect to any prepayment date,
the rate per annum equal to (i) the yield, under the heading which represents
the average for the immediately prior week, appearing in the most recently
published statistical release designated "H.15(519)" or any successor
publication which is published weekly by the Federal Reserve and which
established yields on actively traded United States Treasury securities adjusted
to constant maturity under the caption "Treasury Constant Maturities", for the
maturity date corresponding to the Initial Optional Prepayment Date (if no
maturity date is within three months before or after the Initial Optional
Prepayment Date, yields for the two published maturities most closely
corresponding to the Initial Optional Prepayment Date shall be interpolated and
the Adjusted Treasury Rate shall be interpolated or extrapolated from such
yields on a straight-line basis, rounding to the nearest month) or (ii) if such
release (or any successor release) is not published during the week preceding
the calculation date or does not contain such yields, the rate per annum equal
to the semi-annual bond 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 prepayment date plus .50% in all other cases.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Calculation Agent as having a maturity date corresponding to the
Initial Optional Prepayment Date that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities with a maturity date corresponding to the
Initial Optional Prepayment Date. If no United States Treasury security has a
maturity date which is within three months before or after the Initial Optional
Prepayment Date, the two most closely corresponding United States Treasury
securities shall be used as the Comparable Treasury Issue, and the calculation
of the Adjusted Treasury Rate pursuant to clause (ii) of the definition thereof
shall be interpolated or extrapolated on a straight-line basis, rounding to the
nearest month.
"Calculation Agent" means the Reference Treasury Dealer appointed by
the underlying securities guarantor. "Reference Treasury Dealer" means: (i)
Merrill Lynch Government Securities, Inc. and its respective successors;
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provided, however, that if the foregoing shall cease to be a primary U.S.
Government securities dealer in The City of New York (a "Primary Treasury
Dealer"), the underlying securities guarantor shall substitute therefor another
Primary Treasury Dealer; and (ii) any other Primary Treasury Dealer selected by
the underlying securities guarantor.
"Comparable Treasury Price" means, with respect to any prepayment date,
(i) 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 prepayment 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 (ii) if such release (or any successor release) is not
published or does not contain such prices on such Business Day, (A) the average
of the Reference Treasury Dealer Quotations for such prepayment date, after
excluding the highest and lowest such Reference Treasury Dealer Quotations, or
(B) if the Debenture Trustee obtains fewer than three 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 prepayment date, the average, as determined by
the Debenture 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 Debenture Trustee by such Reference Treasury Dealer at 5:00 p.m.,
New York City time, on the third Business Day preceding such prepayment date.
Description of Guarantee
The Guarantee is qualified as an indenture under the Trust Indenture
Act. The Bank of New York will act as indenture trustee under the Guarantee. The
terms of the Guarantee are those set forth in the Guarantee and those made part
of the Guarantee by the Trust Indenture Act. The summary does not purport to be
complete and is subject in all respects to the provisions of, and is qualified
in its entirety by reference to, the Guarantee and the Trust Indenture Act. The
Guarantee is held by the Guarantee Trustee for the benefit of the holders of the
underlying securities.
General
The underlying securities guarantor irrevocably agrees to pay in full
on a subordinated basis, to the extent set forth herein, the Guarantee Payments
(as defined below) to the holders of the underlying securities, as and when due,
regardless of any defense, right of set-off or counterclaim that the underlying
securities issuer may have or assert other than the defense of payment. The
following payments with respect to the underlying securities, to the extent not
paid by or on behalf of the underlying securities issuer (the "Guarantee
Payments"), are subject to the Guarantee: (i) any accumulated and unpaid
Distributions required to be paid on the underlying securities, to the extent
that the underlying securities issuer has funds on hand legally available
therefor at such time, (ii) the applicable Redemption Price with respect to
underlying securities called for redemption, to the extent that the underlying
securities issuer has funds on hand legally available therefor at such time, and
(iii) upon a voluntary or involuntary termination and liquidation of the
underlying securities issuer, the lesser of (a) the aggregate of the liquidation
amount and all accumulated and unpaid distributions on the underlying securities
to the date of payment to the extent the underlying securities issuer has funds
on hand legally available therefor and (b) the amount of assets of the
underlying securities issuer remaining available for distribution to holders of
underlying securities. The underlying securities guarantor's obligation to make
a Guarantee Payment may be satisfied by direct payment of the required amounts
by the underlying securities guarantor to the holders of the underlying
securities or by causing the underlying securities issuer to pay such amounts to
such holders.
The Guarantee ranks subordinate and junior in right of payment to all
Senior Indebtedness to the extent provided therein. See "--Status of Guarantee"
on page S-30. Because the underlying securities guarantor is a holding company,
the right of the underlying securities guarantor to participate in any
distribution of assets of any subsidiary upon such subsidiary's liquidation or
reorganization or otherwise, is subject to the prior claims of creditors of that
subsidiary, except to the extent the underlying securities guarantor may itself
be recognized as a creditor of that subsidiary. Accordingly, the underlying
securities guarantor's obligations under the Guarantee are effectively
subordinated to all existing and future liabilities of the underlying securities
guarantor's subsidiaries, and claimants
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should look only to the assets of the underlying securities guarantor for
payments thereunder. The Guarantee does not limit the incurrence or issuance of
other secured or unsecured debt of the underlying securities guarantor,
including Senior Indebtedness, whether under the Indenture or any other
indenture that the underlying securities guarantor may enter into in the future
or otherwise. The underlying securities guarantor expects from time to time to
incur additional indebtedness constituting Senior Indebtedness.
The term "Senior Indebtedness" shall mean, with respect to the
underlying securities guarantor, (i) the principal, premium, if any, and
interest in respect of (A) indebtedness of the underlying securities guarantor
for money borrowed, and (B) indebtedness evidenced by securities, notes,
debentures, bonds or other similar instruments issued by the underlying
securities guarantor, (ii) all capital lease obligations of the underlying
securities guarantor, (iii) all obligations of the underlying securities
guarantor issued or assumed as the deferred purchase price of property, all
conditional sale obligations of the underlying securities guarantor and all
obligations of the underlying securities guarantor under any conditional sale or
title retention agreement (but excluding trade accounts payable arising in the
ordinary course of business), (iv) all obligations of the underlying securities
guarantor for the reimbursement on any letter of credit, banker's acceptance,
security purchase facility or similar credit transaction, (v) all obligations of
the type referred to in clauses (i) through (iv) above of other persons for the
payment of which the underlying securities guarantor is responsible or liable as
obligor, guarantor or otherwise, and (vi) all obligations of the type referred
to in clauses (i) through (v) above of other persons secured by any lien on any
property or asset of the underlying securities guarantor (whether or not such
obligation is assumed by the underlying securities guarantor), except for (1)
any such indebtedness that is by its terms expressly subordinated to or ranks
pari passu with the junior subordinated debentures, and (2) all debt securities
or guarantees in respect of those debt securities, issued to any other trust, or
a trustee of such trust, partnership or other entity affiliated with the
underlying securities guarantor that is a financing vehicle of the underlying
securities guarantor (a "financing entity") in connection with the issuance by
such financing entity of equity securities or other securities guaranteed by the
underlying securities guarantor pursuant to an instrument that ranks pari passu
with or junior in right of payment to the Guarantee. Such Senior Indebtedness
shall continue to be Senior Indebtedness and be entitled to the benefits of the
subordination provisions relating to the junior subordinated debentures
irrespective of any amendment, modification or waiver of any term of such Senior
Indebtedness.
The underlying securities guarantor does, through the Guarantee, the
Declaration, the junior subordinated debentures and the Indenture, taken
together, fully, irrevocably and unconditionally guarantee all of the underlying
securities issuer's obligations under the underlying securities. No single
document standing alone or operating in conjunction with fewer than all of the
other documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the underlying securities issuer's obligations under
the underlying securities.
Status of Guarantee
The Guarantee constitutes an unsecured obligation of the underlying
securities guarantor and ranks subordinate and junior in right of payment to all
Senior Indebtedness in the same manner as junior subordinated debentures. The
Guarantee ranks pari passu with all Other Guarantees issued by the underlying
securities guarantor.
"Other Guarantees" shall mean all other guarantees (if any) issued by
the underlying securities guarantor with respect to the underlying securities
(if any) to be issued by other trusts that are established by the underlying
securities guarantor and are similar to the underlying securities issuer. These
guarantees would constitute an unsecured obligation of the underlying securities
guarantor and would rank subordinate and junior in right of payment to all
Senior Indebtedness to the extent and in the manner set forth in the Guarantee.
The Guarantee constitutes a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the underlying securities guarantor to enforce its rights under the Guarantee
without first instituting a legal proceeding against any other person or
entity). The Guarantee is held for the benefit of the holders of the underlying
securities. The Guarantee will not be discharged except by payment of the
Guarantee Payments in full to the extent not paid by the underlying securities
issuer or upon distribution to the holders of the
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underlying securities of the junior subordinated debentures. The Guarantee does
not place a limitation on the amount of additional Senior Indebtedness that may
be incurred by the underlying securities guarantor. The underlying securities
guarantor expects from time to time to incur additional indebtedness
constituting Senior Indebtedness.
Amendments and Assignment
Except with respect to any changes that do not materially adversely
affect the rights of holders of the underlying securities (in which case no vote
will be required), the Guarantee may not be amended without the prior approval
of the holders of a majority of the Liquidation Amount of such outstanding
underlying securities. All guarantees and agreements contained in the Guarantee
shall bind the successors, assigns, receivers, trustees and representatives of
the underlying securities guarantor and shall inure to the benefit of the
holders of the underlying securities then outstanding.
Events of Default
An event of default under the Guarantee will occur upon the failure of
the underlying securities guarantor to perform any of its payment or other
obligations thereunder. The holders of a majority in Liquidation Amount of the
underlying securities will have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Guarantee Trustee
in respect of the Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee.
Any holder of the underlying securities may institute a legal
proceeding directly against the underlying securities guarantor to enforce its
rights under the Guarantee without first instituting a legal proceeding against
the underlying securities issuer, the Guarantee Trustee or any other person or
entity.
The underlying securities guarantor, as guarantor, is required to file
annually with the Guarantee Trustee a certificate as to whether or not the
underlying securities guarantor is in compliance with all the conditions and
covenants applicable to it under the Guarantee.
Information Concerning the Guarantee Trustee
The Guarantee Trustee, other than during the continuance of a default
by the underlying securities guarantor in performance of the Guarantee, will
undertake to perform only such duties as are specifically set forth in the
Guarantee and, during the continuance of such a default, must exercise the same
degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to this provision, the Guarantee
Trustee will be under no obligation to exercise any of the powers vested in it
by the Guarantee at the request of any holder of the underlying securities
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred thereby.
Termination of the Guarantee
The Guarantee will terminate and be of no further force and effect upon
full payment of the applicable Redemption Price of the underlying securities,
upon full payment of the Liquidation Amount payable upon liquidation of the
underlying securities issuer or upon distribution of junior subordinated
debentures to the holders of the underlying securities. The Guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any holder of the underlying securities must restore payment of any sums
paid under the underlying securities or the Guarantee.
Governing Law
The Guarantee will be governed by and construed in accordance with the
laws of the State of New York.
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Form, Denomination, Book-Entry Procedures and Transfer
The underlying securities are represented by one or more underlying
securities certificates in registered, global form (collectively, the "Global
Underlying Securities"). The Global Underlying Securities were deposited upon
issuance with the Property Trustee as custodian for DTC, in New York, New York,
and registered in the name of DTC or its nominee, in each case for credit to an
account of a direct or indirect participant in DTC as described below.
Except as set forth below, the Global Underlying Securities may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee, and such transfer shall be effective only when
reflected in the securities register maintained on behalf of the trust.
Beneficial interests in the Global Underlying Securities may not be exchanged
for underlying securities in certificated form except in the limited
circumstances described below.
DTC has advised the underlying securities issuer and the underlying
securities guarantor that DTC is a limited purpose trust company created to hold
securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its Participants. The Participants include securities brokers and
dealers (including the Initial Purchasers), banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (collectively, the "Indirect Participants").
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interest and transfer of ownership interest of each actual purchaser
of each security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants.
DTC has also advised the underlying securities issuer and the
underlying securities guarantor that, pursuant to procedures established by it,
(i) upon deposit of the Global Underlying Securities, DTC will credit the
accounts of Participants with portions of the Liquidation Amount of the Global
Underlying Securities and (ii) ownership of such interests in the Global
Underlying Securities will be shown on, and the transfer of ownership thereof
will be effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with respect
to other owners of beneficial interests in the Global Underlying Securities).
Except as described below, owners of beneficial interests in the Global
Underlying Securities will not have Underlying Securities registered in their
name, will not receive physical delivery of underlying securities in
certificated form and will not be considered the registered owners or holders
thereof under the Declaration for any purpose.
Payments in respect of the Global Capital Security registered in the
name of DTC or its nominee will be payable by the Property Trustee to DTC in its
capacity as the registered holder under the Declaration. Under the terms of the
Declaration, the Property Trustee will treat the persons in whose names the
underlying securities, including the Global Underlying Securities, are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither the Property
Trustee nor any agent thereof has or will have any responsibility or liability
for (i) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
interests in the Global Underlying Securities, or for maintaining, supervising
or reviewing any of DTC's records or any Participant's or Indirect Participant's
records relating to the beneficial interests in the Global Underlying Securities
or (ii) any other matter relating to the actions and practices of DTC or any of
its Participants or Indirect Participants. DTC has advised the underlying
securities issuer and the underlying securities guarantor that its current
practice, upon receipt of any payment in respect of securities such as the
underlying securities, is to credit the accounts of the relevant Participants
with the payment on the payment date, in amounts proportionate to their
respective holdings in Liquidation Amount of beneficial interests in the
relevant security as shown on the records of DTC unless DTC has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the beneficial owners of
underlying securities will be governed by standing instructions and customary
practices and will be the responsibility of the Participants or the
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Indirect Participants and will not be the responsibility of DTC, the Property
Trustee, the underlying securities issuer or the underlying securities
guarantor. Neither the underlying securities issuer nor the underlying
securities guarantor nor the Property Trustee will be liable for any delay by
DTC or any of its Participants in identifying the beneficial owners of the
underlying securities, and the underlying securities issuer, the underlying
securities guarantor and the Property Trustee may conclusively rely on and will
be protected in relying on instructions from DTC or its nominee for all
purposes.
Beneficial interests in the Global Underlying Securities will trade in
DTC's Same-Day Funds Settlement System and secondary market trading activity in
such interests will therefore settle in immediately available funds, subject in
all cases to the rules and procedures of DTC and its participants.
DTC has advised the underlying securities issuer and the underlying
securities guarantor that it will take any action permitted to be taken by a
holder of underlying securities only at the direction of one or more
Participants to whose account with DTC interests in the Global Underlying
Securities are credited and only in respect of such portion of the Liquidation
Amount of the Underlying Securities as to which such Participant or Participants
has or have given such direction. However, if there is a Declaration Event of
Default, DTC reserves the right to exchange the Global Underlying Securities for
underlying securities in certificated form and to distribute such underlying
securities to its Participants.
Management of DTC is aware that some computer applications, systems,
and the like for processing data that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems". DTC has informed its Participants and other members of the financial
community that it has developed and is implementing a program so that its
applications and systems, as the same relate to the timely payment of
distributions (including principal and income payments) to securityholders,
book-entry deliveries, and settlement of trades within DTC, continue to function
appropriately. This program includes a technical assessment and a remediation
plan, each of which DTC has indicated is complete. Additionally, DTC's plan
includes a testing phase, which DTC has stated is comprised of certain tests
which have been successfully completed and other tests which will continue
throughout the remainder of 1999.
However, DTC's ability to perform properly its services is also
dependent upon other parties, including but not limited to issuers and their
agents, as well as third-party vendors from whom DTC licenses software and
hardware, and third-party vendors upon whom DTC relies for information or the
provision of services, including telecommunication and electrical utility
service providers, among others. DTC has informed its Participants and other
members of the financial community that it is contacting, and will continue to
contact, third-party vendors from whom DTC acquires services to:
o impress upon them the importance of such services being Year 2000
compliant; and
o determine the extent of their efforts for Year 2000 remediation
(and, as appropriate, testing) of their services. In addition, DTC
is in the process of developing such contingency plans as it deems
appropriate.
According to DTC, the foregoing information with respect to DTC has
been provided for informational purposes only and is not intended to serve as a
representation, warranty, or contract modification of any kind.
The information in this section concerning DTC and its book-entry
system has been obtained from sources that the underlying securities issuer and
the underlying securities guarantor believe to be reliable, but neither the
underlying securities issuer nor the underlying securities guarantor takes
responsibility for the accuracy thereof.
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FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material federal income
tax consequences of the purchase, ownership and disposition of the trust
certificates by an initial holder of the trust certificates. This section
supersedes the discussion contained in the prospectus under "Federal Income Tax
Consequences" on page 53.
This summary is based on laws, regulations, rulings and decisions
currently in effect, all of which are subject to change, possibly on a
retroactive basis. This 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 Internal
Revenue Code of 1986, as amended (the "Code"), and 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 which would modify the treatment described
below. Accordingly, the ultimate federal income tax treatment of the trust
certificates 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, 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 (i) owned directly the portion of the
underlying securities allocable to such trust certificates, and (ii) paid
directly its share of reasonable expenses paid by the trust.
Income of Trust Certificateholders
In General
Assuming that the underlying securities represent direct ownership of
the junior subordinated debentures (as defined in the prospectus for the
underlying securities) for federal income tax purposes, the trust certificates
will represent direct ownership of the junior subordinated debentures for
federal income tax purposes. Each trust certificateholder will be required to
report on its federal income tax return its pro rata share of the income from
the junior subordinated debentures. Assuming the junior subordinated debentures
constitute indebtedness for federal income tax purposes (the "Debt
Instruments"), the trust certificateholder's income will include interest income
from the Debt Instruments (with an allowance for deductions as described below)
in accordance with the trust certificateholder's method of accounting. Interest
received by a trust certificateholder that is a U.S. Person will be treated as
foreign source income, which may be relevant in calculating that
certificateholder's foreign tax credit limitation.
"U.S. 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), or 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 of the administration of the trust and one or more U.S.
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 U.S.
Persons prior to such date, that elect to continue to be treated as U.S.
Persons, also will be U.S. Persons.
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Original Issue Discount
The excess of the "stated redemption price" of the Debt Instruments
(equal to the sum of all payments on the Debt Instruments other than "qualified
stated interest") over their issue price (the price at which a substantial
portion of the Debt Instruments was first sold to the public) will be original
issue discount if such excess equals or exceeds a de minimis amount. Qualified
stated interest is defined as interest that is unconditionally payable in cash
or property at least annually. Holders of instruments issued with original issue
discount are required to include such 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 instrument as originally issued).
If the likelihood that the underlying securities guarantor would
exercise its option to defer interest payments was considered remote at the time
the Debt Instruments were issued, the interest paid with respect to the Debt
Instruments would be considered qualified stated interest (and, therefore, not
included in the stated redemption price). If the likelihood that the underlying
securities guarantor would exercise its option to defer interest payments was
not considered remote at the time the Debt Instruments were issued, the stated
interest payments would not be considered qualified stated interest and the Debt
Instruments would be considered to have been issued with original issue
discount. Based on its belief that this likelihood was remote, the underlying
securities guarantor treated the interest payments on the Debt Instruments as
qualified stated interest. Based on that belief and the issue price of the Debt
Instruments, the underlying securities guarantor intended to treat the Debt
Instruments as not issued with original issue discount.
If the underlying securities guarantor were to exercise its option to
defer any interest payments, the Debt Instruments would at that time be treated
as issued with original issue discount, and all stated interest on the Debt
Instruments would thereafter be treated as original issue discount so long as
the Debt Instruments remained outstanding. In such event, all of a trust
certificateholder's taxable interest income with respect to the Debt Instruments
would be accounted for as original issue discount on an economic accrual basis
regardless of such holder's method of tax accounting, and actual distributions
of stated interest would not be reported as taxable income. Consequently, a
trust certificateholder would be required to include in income original issue
discount even though the underlying securities guarantor would not make any
actual payments during the period of interest payment deferral.
Market Discount
The Debt Instruments are expected to be issued at a "market discount",
defined as the excess of the principal amount over the purchase price paid by
the trust certificateholder or, if the Debt Instruments were issued with
original issue discount, the excess of the adjusted issue price over the
purchase price (market discount is considered to be de minimis if it is less
than one-quarter of one percent of such Debt Instruments' stated redemption
price multiplied by the number of complete years to maturity after the trust
certificateholder acquired the Debt Instruments, but it is unlikely that the
Debt Instruments will qualify for this exception). A trust certificateholder
that purchases the Debt Instruments at a market discount will be required
(unless such market discount is less than a de minimis amount) to treat any
principal payments on, or any gain realized upon the disposition or retirement
of, the Debt Instruments as interest income to the extent of the market discount
that accrued while such trust certificateholder held such Debt Instruments,
unless the trust certificateholder elects to include such market discount in
income on a current basis. If Debt Instruments with more than a de minimis
amount of market discount are 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 trust
certificateholder as if such trust certificateholder had sold the Debt
Instruments at their then fair market value. A trust certificateholder 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.
Accrual Method Election
A trust certificateholder is permitted to elect to include in gross
income its entire return on the Debt Instruments (i.e., the excess of all
remaining payments to be received on the Debt Instruments over the amount paid
for the Debt
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Instruments by such trust certificateholder) based on the compounding of
interest at a constant rate. Such an election for Debt Instruments with market
discount will result in a deemed election for all of the trust
certificateholder's debt instruments with market discount and may be revoked
only with permission of the IRS.
Sale or Exchange of Trust Certificates or Retirement of Debt
Instruments
Upon the sale, exchange or other disposition of a trust certificate or
upon the retirement of Debt Instruments, a trust certificateholder will
recognize gain or loss equal to the difference, if any, between the amount
realized and the trust certificateholder's tax basis in the Debt Instruments. A
trust certificateholder's tax basis for determining gain or loss on the
disposition or retirement of the Debt Instruments will be the cost of such Debt
Instruments increased by the amount of any original issue discount and market
discount included in income and reduced by any payments included in the stated
redemption price. Any gain or loss will be capital gain or loss if the Debt
Instruments were held as capital assets. If, however, the trust
certificateholder did not elect to include the market discount in income on a
current basis, any gain realized will be treated as interest income to the
extent of the market discount that accrued while such trust certificateholder
held the Debt Instruments.
It is possible that a modification of the terms of the Debt
Instruments, including the deferral of payments of interest, or a substitution
of other assets for the Debt Instruments following a default on the Debt
Instruments or in other circumstances, would be a taxable event to trust
certificateholders on which they would recognize gain or loss.
Gain or loss recognized by a trust certificateholder that is a U.S.
Person on its sale or exchange of the Debt Instruments generally will be treated
as from sources within the United States.
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.
Foreign Trust Certificateholders
Trust certificateholders that are not U.S. Persons ("Foreign Trust
Certificateholders") generally will not be subject to federal income or
withholding tax on interest received with respect to the Debt Instruments,
provided that such Foreign Trust Certificateholder does not hold its Debt
Instruments in connection with the conduct of a U.S. trade or business.
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.
New Withholding Regulations
The Treasury Department has issued new regulations which make certain
modifications to the withholding, backup withholding and information reporting
rules. These new regulations are generally effective for payments made after
December 31, 2000. Investors should consult their tax advisors regarding such
regulations.
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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 SEC) 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).
Although either or both the exceptions described above (relating to
publicly offered securities and participation by benefit plan investors that is
not significant) may apply to a plan's investment in trust certificates, no
assurance can be provided that such will be the case. However, if the trust
certificates were deemed to be Plan Assets, certain prohibited transaction
exemptions nevertheless could apply to the acquisition and holding of the trust
certificates.
By acquiring and holding a trust certificate, a plan shall be deemed to
have represented and warranted to the depositor, the trustee and the underwriter
that such acquisition and holding of a trust certificate, including the
activities of the trust, does not involve a non-exempt prohibited transaction
with respect to such plan.
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UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, dated as of February 9, 1998, as amended and supplemented by the
terms agreement, dated as of the date set forth in the supplement to this
prospectus supplement, the depositor has agreed to sell to Merrill Lynch,
Pierce, Fenner & Smith Incorporated, and Merrill Lynch, Pierce, Fenner & Smith
Incorporated has agreed to purchase, all of the trust certificates. The
underwriter proposes to offer the trust certificates directly to the public at
the offering price set forth on the cover page of this prospectus supplement.
After the initial offering, the public offering price, concession and discount
may be changed.
The underwriter may from time to time provide investment banking and
other financial services to the underlying securities issuer, including acting
as a calculation agent, and expects in the future to provide these services, for
which it will receive customary fees and commissions.
If the size of the trust is increased, the underwriter may participate
in offerings of additional trust certificates, as contemplated on the cover of
this prospectus supplement. Additional trust certificates may be sold for cash
or delivered to cover short positions as more fully described in the
"Underwriting" section on page 59 of the prospectus.
The underwriting agreement provides that the depositor will indemnify
the underwriter against certain civil liabilities, including liabilities under
the Securities Act, or will contribute to payments the underwriter may be
required to make in respect thereof.
VALIDITY OF THE TRUST CERTIFICATES
Shearman & Sterling, New York, New York, will pass upon the validity of
the trust certificates for the depositor and for the underwriter.
RATINGS
It is a condition to the issuance of the trust certificates that the
trust certificates have ratings assigned by Moody's or by S&P, equivalent to the
ratings of the underlying securities, which, as of the date of this prospectus
supplement, were rated "baa3" by Moody's and "BBB-" by S&P.
Moody's rating of the trust certificates addresses the likelihood of
the ultimate payment of principal of and interest on the trust certificates or
any underlying securities distributed, as well as any shortfall. S&P's rating of
the trust certificates addresses the likelihood of timely receipt of interest on
the trust certificates or any underlying securities distributed in respect of
the trust certificates. The ratings address the likelihood of the receipt by
trust certificateholders of payments required under the trust agreement, and 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. You should evaluate each security rating 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, the depositor cannot
assure you as to whether any other rating agency will rate the trust
certificates, or, if it does, what rating would be assigned by any 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.
S-38
<PAGE>
PROSPECTUS
- ----------
STEERS(R) TRUST CERTIFICATE
(ISSUABLE IN SERIES)
Merrill Lynch Depositor, Inc.
DEPOSITOR
The Public STEERS(R) Trust Certificates (the "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 foreign or composite currencies, including the
European Currency Unit or any successor currency (the "ECU"). 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. Unless otherwise specified in the applicable
Prospectus Supplement, each Series of 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 Certificates of such Series
("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 with respect to a Series (the
"Series Supplement" and, together with the Standard Terms, the "Trust
Agreement") among the Depositor, the trustee (the "Trustee") and the securities
intermediary (the "Securities Intermediary") named in the applicable Prospectus
Supplement. If so specified in the applicable Prospectus Supplement, the Trust
for a Series of Certificates may also include, or the Certificateholders of such
Certificates may have the benefit of, any combination of insurance policies,
Letters of Credit (as defined below), 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 or general or limited partnerships, or preferred securities
of trusts organized by such issuers to issue certain trust-originated preferred
securities (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 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 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 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 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 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
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 respective affiliates.
Neither the Certificates nor the Deposited Assets will be guaranteed or insured
by the Depositor or Merrill Lynch & Co. or their respective affiliates.
Application will be made to list certain Series of Certificates on the New
York Stock Exchange ("NYSE"). At the time of issue, each Series of 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 Certificates will
develop or, if a public market develops, as to the liquidity of the trading
market for such Certificates. Unless otherwise specified in the applicable
Prospectus Supplement, each Series of 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 ("DTC").
The interests of beneficial owners of such 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
Certificates--Global Securities."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS
OF THE CERTIFICATES OFFERED HEREBY.
-------------------------------
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 Certificates may be offered and sold to or through underwriters, dealers
or agents or directly to purchasers, as more fully described under
"Underwriting" and in the applicable Prospectus Supplement. This Prospectus may
not be used to consummate sales of Certificates offered hereby unless
accompanied by a Prospectus Supplement.
-------------------------------
Merrill Lynch & Co.
-------------------------------
The date of this Prospectus is September 9, 1999.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of 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 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 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 Certificates
(including terms relating to the rights of the Trust or any third party to call,
redeem or purchase such Certificates or the Underlying Securities prior to the
Final Scheduled Distribution Date). See "Description of the
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 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
The following documents filed by the Depositor with the Commission are
incorporated herein by reference:
(a) the Annual Report of the Depositor on Form 10-K for the year ended
December 31, 1998;
(b) The Quarterly Reports of the Depositor on Form 10-Q for the quarters
ended March 26, 1999 and June 25, 1999; and
(c) The Current Reports of the Depositor on Form 8-K dated April 15, 1999
and June 1, 1999.
2
<PAGE>
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 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 or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus. As used herein, the
terms "Prospectus" and "herein" mean this Prospectus, including the documents
incorporated by reference, as the same may be amended, supplemented, or
otherwise modified from time to time. Statements contained in this Prospectus as
to the contents of any contract or other documents referred to herein do not
purport to be complete and are qualified in all respects by reference to all of
the provisions of such contract or other document.
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 Merrill Lynch & Co.,
Inc., 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 CERTIFICATEHOLDERS
Except as otherwise specified in the applicable Prospectus Supplement,
unless and until Definitive 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 Certificates. If
Definitive Certificates are issued, such reports will be prepared by the related
Trustee and sent on behalf of the related Trust directly to the
Certificateholders in accordance with the Trust Agreement. See "Description of
the Certificates--Global Securities" and "Description of the Trust
Agreement--Reports to 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
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........... Public 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
foreign or composite currencies, including the
ECU. 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
Certificates--General."
DEPOSITED ASSETS............. Each Series of 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
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 or general or limited partnerships,
or preferred securities of trusts organized by
such issuers to issue certain trust-originated
preferred securities. 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
4
<PAGE>
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 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
Certificates may also include, or the
Certificateholders of such Series may have the
benefit of, any combination of Letters of Credit,
Limited Guaranties, Surety Bonds, Swap
Agreements, Swap Guaranties and other types of
rights or assets intended to support or ensure
the timely or ultimate distribution of amounts
due in respect of a Series (or a Class within
such Series). 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 Certificates
to the Trustee named in the applicable Prospectus
Supplement, in its capacity as Trustee, for the
benefit of the Trustee and the 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").
FEDERAL INCOME TAX
CONSEQUENCES............... The arrangement pursuant to which the
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
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."
5
<PAGE>
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 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
Certificates being offered, or (b) the Plan can
represent that its purchase of 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 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
Certificates on the New York Stock Exchange.
FORM OF SECURITY............. Unless otherwise specified in the applicable
Prospectus Supplement, each Series of
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 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
Certificates--Global Securities."
6
<PAGE>
RISK FACTORS
In connection with an investment in the 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 Certificates will develop or, if a public market
develops, as to the liquidity of the trading market for such Certificates.
Merrill Lynch & Co. has advised the Depositor that it intends to make a market
in the 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 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
Certificates does not develop or continue, the market prices and liquidity of
the Certificates may be adversely affected.
Limited Recourse
The 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 respective affiliates. Certificates will not
be insured or guaranteed by the Depositor, Merrill Lynch & Co. or any of their
respective affiliates. The obligations, if any, of the Depositor with respect to
the 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 Certificates being offered. The Certificates do not
represent obligations of the Depositor, any Administrative Agent, Merrill Lynch
& Co. or any of their respective 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,
Certificateholders' receipt of distributions in respect of the 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 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
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
7
<PAGE>
Security Issuer will remain outstanding until its stated maturity. In addition,
the effective yield to holders of the 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. 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 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 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 Certificates--Call Right." There
is no assurance that an investment in the 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 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 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 Certificates if those
Certificates had not been called.
The extent to which the yield to maturity of such 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 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 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 Certificates backed by a
pool of Underlying Securities having interest rates higher or lower than the
then applicable Certificate Rate, which may adversely affect the yield on such
Series of Certificates.
The applicable Prospectus Supplement for a Series of 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.
8
<PAGE>
Currency Risk: Exchange Rates and Exchange Controls
An investment in a 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 Certificate. Depreciation of the
Specified Currency for a Certificate against the U.S. dollar would decrease the
effective yield of such Certificate below its 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 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
Certificate, the currency in which amounts then due to be distributed in respect
of such Certificate would not be available.
PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL
ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN CERTIFICATES
DENOMINATED IN A CURRENCY OTHER THAN U.S. DOLLARS. SUCH 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
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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 some 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 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 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 Certificates. To the extent such
information ceases to be available, an investor's ability to make an informed
decision to purchase or sell Certificates could be impeded.
The Depositor undertakes to provide information about the material terms of
the Underlying Securities in the applicable Prospectus Supplement. The Company
also undertakes to provide financial and other information regarding the
Underlying Securities Issuer, except if:
(i) The Underlying Securities are not Concentrated Underlying Securities;
or
(ii) The Underlying Securities Issuer is eligible to use Form S-3 for a
primary common stock offering and, as of the date of issuance of the
Certificates, files periodic reports; provided if the Underlying
Securities Issuer ceases to file periodic reports, then the Company
will provide such information.
In the case of (i) or (ii), none of the Depositor, the Trustee, the Securities
Intermediary, Merrill Lynch & Co. or any of their respective 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),
whether or not such information is filed with the Commission, or otherwise
considered by a purchaser of the Certificates in making its investment decision
in connection therewith; provided that the foregoing shall not apply to any
information concerning any
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Underlying Securities Issuer that is expressly set forth in this Prospectus, an
applicable Prospectus Supplement or periodic reports of a Trust or the
Depositor.
The obligation of the Depositor to provide information to the
Certificateholders regarding the Underlying Securities Issuer and the Underlying
Securities ceases upon the sale, distribution or repayment of the Underlying
Securities.
If an issuer of Concentrated Underlying Securities ceases to file periodic
reports under the Exchange Act, then: (i) the Trustee will sell all of such
Concentrated Underlying Securities and distribute the proceeds from such sale to
the Certificateholders in accordance with the Allocation Ratio (as defined
below) (any such sale will result in a loss to the Certificateholders of the
relevant Series if the sale price is less than the purchase price for such
Concentrated Underlying Securities), (ii) the Trustee will distribute such
Concentrated Underlying Securities in kind to the Certificateholders in
accordance with the Allocation Ratio, or (iii) the Depositor will provide to the
Certificateholders the financial and other information required by the
Commission. The choice of remedies will be set forth for a given Series in the
Prospectus Supplement, and the Trustee, Securities Intermediary, Depositor and
Certificateholders will have no discretion in this respect.
Ratings of the Certificates Subject to Change
At the time of issuance, the 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 Certificates on the basis of several
factors, including the related Deposited Assets, any Credit Support and the
relative priorities of the 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 Certificates.
Any rating issued with respect to the Certificates is not a recommendation
to purchase, sell or hold a security; such ratings do not comment on the market
price of the 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, 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 Certificates.
Year 2000 Risk
The Company
The Year 2000 issue results from computer programs being unable to properly
recognize a year that begins with "20" instead of "19." The Company's operations
do not rely on information technology, but, to the extent that information
technology becomes a significant element of the Company's operations, the
Company would rely on its parent, ML & Co., with respect to its information
technology. Therefore, the Company would rely on the initiatives of Merrill
Lynch & Co. with respect to Year 2000 compliance.
Merrill Lynch & Co. believes that it has identified and evaluated its
internal Year 2000 problem and that it is devoting sufficient resources to
renovating technology systems that are not already Year 2000 compliant. Merrill
Lynch & Co. has allotted nearly 10% of the current year's technology budget to
its Year 2000 compliance efforts. By the end of the third quarter of 1998, the
total amount spent by Merrill Lynch & Co. on its Year 2000 compliance
initiatives is expected to be approximately $400 million. There can be no
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assurance that the costs of Year 2000 compliance will not exceed those allocated
by Merrill Lynch & Co., nor can there be any assurance that these compliance
efforts will succeed.
The Company maintains relationships with certain third-parties, and is
undertaking to assess the Year 2000 readiness of these third-parties. To the
extent that these third-parties are adversely impacted by the Year 2000 issue,
there can be no assurance that the Company will not also be materially adversely
affected.
The Trusts
Each entity acting as Trustee on behalf of a Trust may use information
technology in the performance of its duties. The Company will consider, among
other things, the Year 2000 readiness of a potential Trustee before selecting it
as Trustee. To the extent that a Trustee is adversely impacted by the Year 2000
issue, there can be no assurance that the Certificateholders will not also be
materially adversely affected, for example with respect to distributions to
Certificateholders.
Underlying Securities Issuer
To the extent that an Underlying Securities Issuer is not Year 2000
compliant or is adversely affected by Year 2000 issues, then the prices of the
Certificates and distributions to Certificateholders may be adversely affected.
Unless otherwise provided in the applicable Prospectus Supplement, neither the
Depositor nor the Trustee intends to ascertain the Year 2000 compliance status
of any Underlying Securities Issuer.
Global Securities Limit Direct Voting; Pledge of Certificates
Unless otherwise specified in the applicable Prospectus Supplement, the
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 Certificates to the purchasers of
such Certificates. Consequently, unless and until such individual Definitive
Certificates of a particular Series are issued, such purchasers will not be
recognized as Certificateholders under the Trust Agreement. Until such time,
such purchasers will only be able to exercise the rights of 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
Certificate to persons or entities that do not participate in the Depositary's
system, or otherwise to act with respect to such Certificate, may be limited.
See "Description of the 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 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
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
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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 Prospectus Supplement may indicate that the Trust Agreement may be
amended or otherwise modified with less than unanimous consent of the
Certificateholders (in no event, however, will the percentage required for
consent be less than a majority). Any such amendment or other modification could
have a material adverse effect on those 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 Certificateholders
of a Series (or Class within such Series) may become effective only with the
consent of each affected 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 Certificates of a Series
(or Class within such Series) by a Rating Agency would require the consent of
all of the Certificateholders of that Series (or Class within such Series).
General Unavailability of Optional Exchange
Although the Prospectus Supplement for a Series of Certificates may
designate such Series as an Exchangeable Series (as defined below) and may
provide that a Certificateholder may exchange 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 (i) would 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 (ii) would not affect the
characterization of the Trust as a "grantor trust" under the Code. See
"Description of the Certificates--Optional Exchange." Accordingly, the Optional
Exchange Right described in this Prospectus under the heading "Description of
the Certificates--Optional Exchange" and further described in the relevant
Prospectus Supplement will be available only to the Depositor, Merrill Lynch &
Co., the Trustee and their respective affiliates and designees. Other
Certificateholders generally will not be able to exchange their 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 Certificates of the applicable Exchangeable
Series outstanding.
-------------------------------
The Prospectus Supplement for each Series of 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 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 Certificates
(whether or not offered hereby) will be used 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 Certificate Account (as
defined below) for the benefit of the 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 Certificates to the Trustee named in the applicable Prospectus Supplement, in
its capacity as Trustee, for the benefit of the Trustee and the
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. 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 DTC or any other depositary specified
in the applicable Prospectus Supplement (DTC or any such other depositary each a
"Depositary") 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
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.
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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 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 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 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 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 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 Certificates will also be
affected by variations in the interest rates applicable to, and the
corresponding payments in respect of, such Certificates, to the extent that the
Certificate Rate, if any, for such Series (or Class) is based on variable or
adjustable interest rates. With respect to any Series of 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 Certificate Rates, if any, applicable to such
Certificates may affect the yield thereon.
The Prospectus Supplement for each Series of 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.
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DESCRIPTION OF THE CERTIFICATES
Each Series (or, if more than one Class exists, the Classes within such
Series) of Certificates will be issued pursuant to the Standard Terms and the
Series Supplement among the Depositor, the Trustee and the Securities
Intermediary 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
Certificates to be issued thereunder and the Deposited Assets, the Credit
Support, if any, and the related Trust. The following summaries describe
material provisions of the Trust Agreement that may be applicable to each Series
of Certificates. The applicable Prospectus Supplement for a Series of
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 of such provisions,
including the definition of certain terms used, and for other information
regarding the 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
"Certificate" refers to all the 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 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 Certificates that may be issued under the
Trust Agreement, and the Trust Agreement will provide that Certificates of the
applicable Series may be issued in multiple Classes. The Series (or Classes
within such Series) of 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 Certificates in respect of which this Prospectus and such Prospectus
Supplement are being delivered:
(i) the title of such Certificates,
(ii) the Series of such 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),
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(iv) the dates on which, or periods during which, such Series of
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
Certificateholders of each such Class),
(vii) whether the Certificates of such Series are Fixed Rate
Certificates or Floating Rate Certificates (each, as defined
below) and the applicable interest rate (the "Certificate Rate"),
or the method of calculation thereof applicable to such Series,
if variable (a "Floating 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 affiliates and designees, may exercise an Optional
Exchange Right (to the extent that the exercise of such right (a)
would 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
(b) would not affect the 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 respective affiliates) to purchase Certificates held by a
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 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 Certificates"), and the
applicable terms thereof,
(xiii) the identity of the Depositary, if other than DTC, for such
Certificates,
(xiv) the Specified Currency applicable to the 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
Certificateholder, and the currency or currencies in which any
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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 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 Certificates.
The United States federal income tax consequences and ERISA consequences
relating to any Series or any Class within such Series of 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 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 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 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 DTC or any other specified
Depositary. If Definitive Certificates are issued in the limited circumstances
described herein, they may be transferred or exchanged for like 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
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 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 Certificate will be distributed only upon surrender of
such Certificate at the applicable location set forth above.
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Distributions on Certificates will be made, except as provided below, by
check mailed to the 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
Certificateholder of $10,000,000 or more in aggregate principal amount of
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 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 "Underlying Securities
Indenture").
Interest on the Certificates
Each Class of Certificates (other than certain Classes of Strip
Certificates) of a given Series may have a different Certificate Rate, which may
be a fixed or floating Certificate Rate, as described below. In the case of
Strip Certificates with a nominal or no 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 Certificates with a nominal or no Certificate Principal
Balance will be made on each Distribution Date. Reference to the Notional Amount
of a Class of Strip Certificates herein or in a Prospectus Supplement does not
indicate that such 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 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 Certificate Rate may be either a
fixed rate or a floating rate.
Fixed Rate Certificates. Each Series of Certificates with a fixed
Certificate Rate ("Fixed Rate Certificates") will bear interest, on the
outstanding Certificate Principal Balance, from its Original Issue Date, or from
the last date to which interest has been paid, at the fixed 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 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 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 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
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 Certificates will be computed on the basis of
a 360-day year of twelve 30-day months.
Floating Rate Certificates. Each Series of Certificates with a variable
Certificate Rate ("Floating Rate Certificates") will bear interest, on the
outstanding Certificate Principal Balance, from its Original Issue Date
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to but excluding the first Interest Reset Date (as defined below) for such
Series at the Initial Certificate Rate set forth on the face thereof and in the
applicable Prospectus Supplement.
Thereafter, the 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 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
Certificates may be subject to adjustment from time to time in response to
designated changes in the rating assigned to such 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 Certificate: (i) the CD Rate ("CD Rate
Certificate"), (ii) the Commercial Paper Rate ("Commercial Paper Rate
Certificate"), (iii) the Federal Funds Rate ("Federal Funds Rate Certificate"),
(iv) LIBOR ("LIBOR Certificate"), (v) the Prime Rate ("Prime Rate Certificate"),
(vi) the Treasury Rate ("Treasury Rate Certificate") or (vii) another Base Rate,
as set forth in the applicable Prospectus Supplement. The "Index Maturity" for
any Series of Floating Rate 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
Certificate Principal Balance at a higher rate.
As specified in the applicable Prospectus Supplement, Floating Rate
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 Certificate Rate") and (ii) a minimum limitation, or floor, on the
rate at which interest may accrue during any such interest accrual period
("Minimum Certificate Rate"). In addition to any Maximum Certificate Rate that
may be applicable to any Series of Floating Rate Certificates, the Certificate
Rate applicable to any Series of Floating Rate 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 Certificate Rates on each Series of
Floating Rate Certificates. The applicable Prospectus Supplement will set forth
the identity of the Calculation Agent for each Series of Floating Rate
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 Certificates of a given
Series.
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The Floating 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 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 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 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 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 Certificate, accrued interest shall be calculated by
multiplying the Certificate Principal Balance of such 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 Certificate Rate in effect on such day by 360, in the case of LIBOR
Certificates, Commercial Paper Rate Certificates, Federal Funds Rate
Certificates, Prime Rate Certificates and CD Rate Certificates or by the actual
number of days in the year, in the case of Treasury Rate Certificates. For
purposes of making the foregoing calculation, the variable 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 Certificate Rate on a Floating
Rate 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
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 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.
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 Certificate of a given
Series, the Calculation Agent for such Series will provide the Certificate Rate
then in effect and, if determined, the Certificate Rate that will become
effective on the next Interest Reset Date with respect to such Floating Rate
Certificate.
CD Rate Certificates. CD Rate 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.
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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
"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
Certificates on such Record Date.
CD Rate Certificates, like other Certificates, are not deposit obligations
of a bank and are not insured by the Federal Deposit Insurance Corporation.
Commercial Paper Rate Certificates. Commercial Paper Rate 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 following such Record Date will be the
interest rate borne by such Commercial Paper Rate 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)
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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 Certificates. Federal Funds Rate 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
Certificates on such Record Date.
LIBOR Certificates. LIBOR 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 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 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 Certificates. Prime Rate 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
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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 following such Record Date will be the interest rate borne by such
Prime Rate Certificates on such Record Date.
Treasury Rate Certificates. Treasury Rate 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 Certificates on such Record Date.
Principal of the Certificates
Each Certificate (other than certain Classes of Strip Certificates) will
have a "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
Certificates--Collections and Distributions" which will set forth the priority
of distributions on each Class of Certificates in a given Series. The
outstanding Certificate Principal Balance of a 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
Certificate Principal Balance of 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 Certificate Principal Balance
of a Series will be specified in the applicable Prospectus Supplement.
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Optional Exchange
The applicable Prospectus Supplement may provide that any of the Depositor,
Merrill Lynch & Co. or the Trustee, or their respective affiliates and
designees, may exchange 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 (i) would 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 (ii) 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 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 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 Certificates immediately after such
exercise. In addition, the exercise of an Optional Exchange Right will decrease
the aggregate amount of 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 Certificates of the applicable Exchangeable Series outstanding, the
availability of the Optional Exchange Right may increase liquidity for the
Certificateholders. The ability to exchange Certificates for Underlying
Securities enables the Depositor, Merrill Lynch & Co. or the Trustee, or any of
their respective affiliates or designees, to sell the Underlying Security, which
may be part of a more liquid issue than the Certificates, at a better price for
the holder than the sale of the less liquid Certificates.
Default and Remedies
If there is a payment default on or acceleration of the Underlying
Securities, then: (i) the Trustee will sell all of such Underlying Securities
and a pro rata portion of the Related Assets and distribute the proceeds from
such sale to the Certificateholders in accordance with the Allocation Ratio (any
such sale may result in a loss to the Certificateholders of the relevant Series
if the sale price is less than the purchase price for such Underlying
Securities), (ii) the Trustee will distribute such Underlying Securities and a
pro rata portion of the Related Assets in kind to the Certificateholders in
accordance with the Allocation Ratio, or (iii) the Depositor will provide to the
Certificateholders the financial and other information required by the
Commission. The choice of remedies will be set forth for a given Series in the
Prospectus Supplement, and the Trustee, Depositor and 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
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
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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
Certificates of a given Series or Class from the holders thereof (the "Call on
Certificates") or all or some of the Underlying Securities of a given Series
from the Trust (the "Call on Underlying Securities" and, together with the Call
on Certificates, the "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) the initial holder of the Call Right;
(b) whether the Certificate Principal Balance or Notional Amount of each
Certificate being purchased pursuant to the Call Right must be an
Authorized Denomination;
(c) the Call Date or Dates; and
(d) the 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
Certificateholder will be entitled to receive (in the case of a purchase of less
than all of the Certificates) payment of a pro rata share of the Call Price paid
in connection with such exercise. In addition, in conjunction with the exercise
of a Call on Underlying Securities in respect of all or a portion of the
Underlying Securities, the Certificates will be redeemed in whole, pro rata or
in accordance with the Allocation Ratio, as applicable and as specified in the
related Prospectus Supplement. A Call Right is not expected to be exercised
unless the value of the Underlying Securities exceeds the Call Price payable
upon exercise of the Call Right.
Put Right
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 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 Certificates of the Callable Series
will be redeemed as described in "Description of the Certificates--Call Right."
The Depositor will not issue a Series of 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.
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Global Securities
Unless otherwise specified in the applicable Prospectus Supplement, all
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, DTC, and
registered in the name of Cede, as nominee of DTC. Unless and until it is
exchanged in whole or in part for the individual Certificates represented
thereby (each, a "Definitive 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.
DTC has advised the Depositor 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 Exchange Act. DTC 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 DTC
("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 Merrill Lynch & Co.), 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. DTC has confirmed to the Depositor that it intends to follow such
procedures.
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 Certificates represented by such
Global Security to the accounts of its Participants. The accounts to be credited
shall be designated by the underwriters of such Certificates, or, if such
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 Certificateholder of the individual Certificates
represented by such Global Security for all purposes under the Trust Agreement
governing such Certificates. Except as set forth below, owners of beneficial
interests in a Global Security will not be entitled to have individual
Certificates represented by such Global Security registered in their names, will
not receive or be entitled to receive physical delivery of any such Certificates
and will not be considered the Certificateholders thereof under the Trust
Agreement governing such Certificates. Because the Depositary can act only on
behalf of its Participants, the ability of a holder of any Certificate to pledge
that Certificate to persons or entities that do not participate in the
Depositary's system, or to otherwise act with respect to such Certificate, may
be limited due to the lack of a physical certificate for such Certificate.
Distributions of principal of (and premium, if any) and any interest on
individual Certificates represented by a Global Security will be made to the
Depositary or its nominee, as the case may be, as the
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Certificateholder of such Global Security. None of the Depositor, the Trustee or
Securities Intermediary for such Certificates, any Paying Agent or the
Certificate Registrar for such 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 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 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 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 Certificates in exchange for the Global Security or Securities
representing such Certificates. In addition, the Depositor may at any time and
in its sole discretion determine not to have any Certificates of a given Series
represented by one or more Global Securities and, in such event, will issue
Definitive Certificates of such Series in exchange for the Global Security or
Securities representing such Certificates. Further, if the Depositor so
specifies with respect to the Certificates of a given Series, an owner of a
beneficial interest in a Global Security representing Certificates of such
Series may, on terms acceptable to the Depositor and the Depositary for such
Global Security, receive individual Definitive 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 individual Definitive
Certificates of the Series represented by such Global Security equal in
principal amount to such beneficial interest and to have such Definitive
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 Certificates being
offered thereby to the extent not set forth or different from the description
set forth above.
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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 Certificates is issued, the Depositor will cause
the Underlying Securities and the other 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
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 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 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 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 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
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
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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 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 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 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 Certificate Account out of the net proceeds recovered on any
defaulted Deposited Asset, prior to the distribution of such proceeds to
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 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 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 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 Certificateholders of the related
Series of 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 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
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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.
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
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 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 Certificate
Account for any Series, the Trustee will replace such funds in such Certificate
Account on any future Distribution Date to the extent that funds in such
Certificate Account on such Distribution Date are less than payments required to
be made to 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 Certificates of such Series,
(iii) such agreements are 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 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
Securities Intermediary, the Depositor, an affiliate of any of the foregoing, or
any third party and may have other business relationships with the Trustee, the
Securities Intermediary, the Depositor or their respective affiliates. The
applicable Prospectus Supplement will specify the
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Administrative Agent's compensation, if any, and the source, manner and priority
of payment thereof, with respect to a given Series of 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 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 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 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
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 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 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 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 Certificates of a Series.
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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 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 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
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 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 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 Certificates of a given Series, the
specified percentage of the aggregate Voting Rights of Certificates of such
Series applicable to such matter. "Voting Rights" are the portion of the
aggregate voting rights of Underlying Securities allocated to Certificateholders
of each Class within a given Series (and to the 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 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
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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 the 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 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 (a) 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, (b) the
costs and expenses of holding and making ordinary collection or payments on the
assets of the Trust and of determining and making payments of interest or
principal, (c) 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 (d) 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
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 Certificateholders
representing not less than the Required Percentage-Remedies, and (iii) the
Certificateholders, 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
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the aggregate principal amount of 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 Certificateholders who have agreed to bear
the entire amount of such costs, expenses or liabilities on a pro rata basis
among such Certificateholders.
Optional Exchange
The terms and conditions, if any, upon which 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; provided further that no 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 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 Certificate for less
than the aggregate principal amount of such Certificate as long as the aggregate
principal amount outstanding after such exchange is a multiple of the minimum
denomination of such Certificate and all other exchange requirements set forth
in the related Series Supplement are satisfied. Upon such partial exchange, such
Certificate will be canceled and a new Certificate or Certificates for the
remaining principal amount of the Certificate will be issued (which, in the case
of any Certificate issued in registered form, will be in the name of the holder
of such exchanged 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
Certificateholders, setting forth (i) such information as is contained in such
notice to owners of Underlying Securities, (ii) a statement that the
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 Certificateholders of record on the relevant record date.
Upon the written request of the applicable 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 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 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
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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 Certificate, whether upon original issuance or
subsequent transfer, exchange or replacement thereof, and without regard to
whether ownership is beneficial or otherwise, the Certificateholder agrees so
long as it is an owner of such 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 Certificates held
by such Certificateholder or (ii) to any redemption or prepayment of the
Underlying Securities underlying the Certificates held by such
Certificateholder. The Trustee will not grant any consent solicited from the
owners of the Underlying Securities underlying the 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 Certificateholder in contravention of the provisions of such
Section.
Limitations on Rights of Certificateholders
No Certificateholder of a given Series will have the right under the Trust
Agreement to institute any proceeding with respect thereto unless (i) such
Certificateholder previously has given to the Trustee written notice of a
continuing breach, (ii) 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 Certificateholder or 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 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
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 Certificates covered by the Trust Agreement, unless such
Certificateholders have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which may be incurred therein or
thereby.
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 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 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;
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(v) to provide for a successor Trustee with respect to Certificates of
one or more Series;
(vi) to provide for the issuance of a new Series of Certificates pursuant
to a Supplement;
(vii) to add or supplement any Credit Support for the benefit of any
Certificateholders (provided that if any such addition affects any
Series or Class of Certificateholders differently than any other
Series or Class of 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
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 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 also may be
modified or amended from time to time by the Depositor, the Trustee and the
Securities Intermediary, with the consent of the holders of Certificates
evidencing the Required Percentage-Amendment of the aggregate Voting Rights of
those 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 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 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 Certificate without the consent of the holders of such 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
Certificates of such Series or Class then Outstanding.
Unless otherwise specified in the applicable Prospectus Supplement, holders
of Certificates evidencing not less than the Required Percentage to waive the
Voting Rights of a given Series may, on behalf of all 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 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 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 Certificate
affected thereby.
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Reports to Certificateholders; Notices
Reports to Certificateholders. With each distribution to Certificateholders
of a Series, the Trustee will forward or cause to be forwarded to each such
Certificateholder, to the Depositor and to such other parties as may be
specified in the Trust Agreement, a statement setting forth:
(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 Certificateholders to prepare their tax returns;
(iv) the amount of the distribution on such Distribution Date to
Certificateholders of each Class of such Series allocable to
principal of and premium, if any, and interest on the Certificates
of each such Class, and the amount of aggregate unpaid interest
accrued as of such Distribution Date;
(v) in the case of Certificates bearing interest on a floating rate
basis, the respective floating rate applicable to such Certificates
on such Distribution Date, as calculated in accordance with the
method specified in such 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.
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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 Certificateholder a statement containing the information set forth in
subclause (iii) above, aggregated for such calendar year during which such
person was a 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
Certificate will be mailed to the last address of such holder set forth in the
applicable 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
Certificateholder receives such notice.
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
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 Certificates.
Copies of the annual accountants' statement, if any, and the statement of
officers of the Trustee may be obtained by 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 Certificates
If a mutilated Certificate is surrendered at the corporate trust office or
agency of the Trustee in the City or State of New York or the Depositor and the
Trustee receive satisfactory evidence that such 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 Certificate
was acquired by a bona fide purchaser.
Termination
The obligations created by the Trust Agreement for each Series of
Certificates will terminate upon the payment to Certificateholders of that
Series of all amounts held in the related 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
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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
Certificates under the Trust Agreement will be provided as set forth above under
"--Reports to Certificateholders; Notices," and the final distribution will be
made only upon surrender and cancellation of the 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 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
Supplement, a specified price as determined therein. The exercise of such right
will effect early retirement of the 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 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 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 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 respective
affiliates.
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DESCRIPTION OF DEPOSITED ASSETS
General
Each Series of 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
TOPrSSM trusts (as defined below) organized by such issuers, or securities that
are similar to those issued by TOPrSSM trusts, in each case organized under the
laws of the United States of America or any state thereof or under the laws of
any foreign jurisdiction, 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 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 TOPrSSM trusts organized by such issuers, or securities that are
similar to TOPrSSM, in each case, organized under the laws of the United States
or any state thereof or under the laws of any foreign jurisdiction. No
Underlying Securities Issuer will participate in the offering of the
Certificates, nor will an Underlying Securities Issuer receive any of the
proceeds from the sale of Underlying Securities or from the issuance of the
Certificates.
Deposited Assets for a given Series of Certificates and the related Trust
will not constitute Deposited Assets for any other Series of Certificates and
the related Trust, and the 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 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
Underlying Securities 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.
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Underlying Securities Issuer
The Underlying Securities Issuers will be the United States Government, one
or more corporations, general or limited partnerships, TOPrSSM trusts organized
by such issuers, or by issuers of preferred securities that are similar to
TOPrSSM, in each case organized under the laws of the United States or any state
thereof or under the laws of any foreign jurisdiction. The applicable Prospectus
Supplement will provide only limited information about each Underlying
Securities Issuer, such as its name, place of incorporation and the address of
its principal offices, unless a Trust consists of Concentrated Underlying
Securities. In that event, the applicable Prospectus Supplement will include
audited financial statements of the issuer of such Concentrated Underlying
Securities; provided that if such Underlying Securities Issuer is eligible to
use Form S-3 for a primary offering, then the applicable Prospectus Supplement
will refer only to the periodic reports filed with the Commission by such
Underlying Securities Issuer, which periodic reports should be reviewed by any
prospective 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 CERTIFICATEHOLDER
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, the Securities Intermediary, Merrill
Lynch & Co. or any of their respective 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 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 Underlying Securities Indenture between the Underlying
Securities Issuer and a trustee (the "Underlying Securities Trustee"). The
Underlying Securities Indenture and the Underlying Securities Trustee will be
qualified under the Trust Indenture Act of 1939 (the "Trust Indenture Act") and
the Underlying Securities Indenture will contain
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certain provisions required by the Trust Indenture Act. Government Securities
are not issued pursuant to an indenture and 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 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 Underlying Securities 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 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
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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 Underlying Securities 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 Certificates will describe the events of default under the Underlying
Securities 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, as a holder of the Underlying Securities,
against losses. Furthermore, a 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 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 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 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
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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 Underlying Securities 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
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
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
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 (the "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
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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
change;
(xii) material events of default or restrictive covenants provided for with
respect to such Underlying Securities;
(xiii) the rating thereof, if any;
(xiv) the principal United States market on which the Underlying Securities
are traded, if any; and
(xv) 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 ("TOPrSSM") in respect of eligible corporations or general
or limited partnerships. (Trust Originated Preferred Securities and TOPrSSM 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: (i) the Trustee will sell all
of such Concentrated Underlying Securities and distribute the proceeds from such
sale to the Certificateholders in accordance with the Allocation Ratio (any such
sale will result in a loss to the Certificateholders of the relevant Series if
the sale price is less than the purchase price for such Concentrated Underlying
Securities), (ii) the Trustee will distribute such Concentrated Underlying
Securities in accordance with the Allocation Ratio, or (iii) the Depositor will
provide to the Certificateholders the financial and other information required
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by the Commission. The applicable Prospectus Supplement will specify which of
these remedies must be exercised by the Trustee, and the Trustee, the Depositor
and the Certificateholders will have no discretion in this respect.
Credit Support
As specified in the applicable Prospectus Supplement for a given Series of
Certificates, the Trust for any Series of Certificates may include, or the
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 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
Certificates contains, or the Certificateholders of such 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
Certificateholders of any given Class within a Series of Certificates to receive
collections from the Trust for such Series and any Credit Support obtained for
the benefit of the Certificateholders of such Series (or Classes within such
Series) may be subordinated to the rights of the 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 Certificateholders of those other Classes. For example,
if losses are realized during a given period on the Deposited Assets relating to
a Series of Certificates such that the collections received thereon are
insufficient to make all distributions on the Certificates of such Series, those
Realized Losses would be allocated to the 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 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 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 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
Certificates of such Series. Further, payments to be made in respect of any
forms of Credit Support arranged for on behalf of the Certificateholders may be
required to be paid prior to any distributions that must be made to
Certificateholders.
Letter of Credit; Surety Bond. The Certificateholders of any Series (or
Class or group of Classes of Certificates within such Series) may, if specified
in the applicable Prospectus Supplement, have the benefit of a letter or letters
of credit (each, a "Letter of Credit") issued by a bank (a "Letter of Credit
Bank") or a surety bond or bonds (each, 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
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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 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 Certificates, in the manner and priority
specified in the applicable Prospectus Supplement. Amounts may be distributed to
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 Certificateholders of each Series of 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
"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 Certificates
of such Series (and Classes within such Series), all in the manner and
priorities described
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in the applicable Prospectus Supplement. The applicable Prospectus Supplement
will specify the collection periods, if applicable, and Distribution Dates for a
given Series of 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 Certificateholders for a particular Series
or Class of Certificates over a specified period will be sufficient, after
payment of all prior expenses and fees for such period, to pay amounts then due
and owing to holders of such 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 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 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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CURRENCY RISKS
An investment in a 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 Certificate. Depreciation of the
Specified Currency for a Certificate against the U.S. dollar would decrease the
effective yield of such Certificate below its 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 Certificates
denominated in such currency. At present, the Depositor has identified the
following currencies in which distributions of principal, premium and interest
on Certificates may be made: Australian dollars, Canadian dollars, Danish
kroner, Italian lire, Japanese yen, New Zealand dollars, U.S. dollars and ECU.
However, Certificates distributable in another Specified Currency may be issued
at any time, based upon investor demand for 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 Certificate, the currency in
which amounts then due to be distributed in respect of such Certificate would
not be available.
PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL
ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN CERTIFICATES
DENOMINATED IN A CURRENCY OTHER THAN U.S. DOLLARS. SUCH CERTIFICATES ARE NOT
AN APPROPRIATE INVESTMENT FOR PERSONS WHO ARE UNSOPHISTICATED WITH RESPECT
TO FOREIGN CURRENCY TRANSACTIONS.
Any Prospectus Supplement relating to 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.
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YEAR 2000 COMPLIANCE
The Company
The Company does not believe that it has a material problem resulting from
the inability of computer programs to properly recognize a year that begins with
"20" instead of "19." The Company's operations do not rely on information
technology, but, to the extent that information technology becomes a significant
element of the Company's operations, the Company would rely on its parent,
Merrill Lynch & Co., with respect to its information technology. Therefore, the
Company would rely on the initiatives of Merrill Lynch & Co. with respect to
Year 2000 compliance.
Merrill Lynch & Co. believes that it has identified and evaluated its
internal Year 2000 problem and that it is devoting sufficient resources to
renovating technology systems that are not already Year 2000 compliant. Merrill
Lynch & Co. has allotted nearly 10% of the current year's technology budget to
its Year 2000 compliance efforts. By the end of the third quarter of 1998, the
total amount spent by Merrill Lynch & Co. on its Year 2000 compliance
initiatives is expected to be approximately $400 million. There can be no
assurance that the costs of Year 2000 compliance will not exceed those allocated
by Merrill Lynch & Co., nor can there be any assurance that these compliance
efforts will succeed.
The Company maintains relationships with certain third-parties, and is
undertaking to assess the Year 2000 readiness of these third-parties. To the
extent that these third-parties are adversely impacted by the Year 2000 issue,
there can be no assurance that the Company will not also be materially adversely
affected.
The Trusts
Each entity acting as Trustee on behalf of a Trust may use information
technology in the performance of its duties. The Company will consider, among
other things, the Year 2000 readiness of a potential Trustee before selecting it
as Trustee. To the extent that a Trustee is adversely impacted by the Year 2000
issue, there can be no assurance that the Certificateholders will not also be
materially adversely affected, for example with respect to distributions to
Certificateholders.
Underlying Securities Issuer
To the extent that an Underlying Securities Issuer is not Year 2000
compliant or is adversely affected by Year 2000 issues, then the prices of the
Trust Certificates and distributions to Certificateholders may be adversely
affected. Unless otherwise provided in the applicable Prospectus Supplement,
neither the Company nor the Trustee intends to ascertain the Year 2000
compliance status of any Underlying Securities Issuer.
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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 Certificates held by 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 Certificateholder
in light of its particular circumstances or to Certificateholders subject to
special rules, such as certain financial institutions, insurance companies,
dealers or Certificateholders holding the Certificates as part of a hedging
transaction or straddle. Further, the tax consequences arising from the
ownership of any Series of 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
Certificates. In such opinion, tax counsel will opine as to the tax disclosure
regarding the 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 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
Certificateholder that is a U.S. Person and "Non-U.S. Owner" means a
Certificateholder that is not a U.S. Person.
Classification of Investment Arrangement
The arrangement pursuant to which the 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
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 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.
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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 stated 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.
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 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
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will be includible as ordinary income to the U.S. Owner as if such U.S. Owner
had sold the 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 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 Underlying Security over the amount
paid for the 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 Certificates
Upon the sale, exchange or other disposition of a Certificate, or upon the
retirement of a 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 Certificate. A U.S. Owner's tax
basis for determining gain or loss on the disposition or retirement of a
Certificate will be the cost of such 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.
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Gain or loss upon the disposition or retirement of a Certificate will be
capital gain or loss, except to the extent the gain represents accrued stated
interest, original issue or market discount on the 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 Certificate has been held for
more than one year.
Non-U.S. Owners
Interest
A Non-U.S. Owner will be subject to a 30 percent federal income and
withholding tax on interest (including original issue discount) on an Underlying
Security, unless an exemption is established.
Disposition or Retirement of 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 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 Certificate.
Information Reporting and Backup Withholding
Payments made on the Underlying Securities and proceeds from the sale of the
Certificates will not be subject to a "backup" withholding tax of 31 percent
unless, in general, the Certificateholder fails to comply with certain reporting
procedures and is not an exempt recipient under applicable provisions of the
Code.
New Withholding Regulations
The Treasury Department has issued new regulations that make certain
modifications to the withholding, backup withholding and information reporting
rules. The regulations generally are effective for payments made after December
31, 2000. Investors should consult their tax advisors regarding such
regulations.
THE FEDERAL TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A CERTIFICATEHOLDER'S
PARTICULAR SITUATION. CERTIFICATEHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF
THE 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 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 Certificates should also
consider whether such an investment might constitute or give rise to a
prohibited transaction under ERISA or the Code.
An investment in Certificates by a Plan might result in the assets of the
Trust being deemed to constitute Plan Assets, which in turn might mean that
certain aspects of such investment, including the operation of the Trust, might
be prohibited transactions under ERISA and the Code. Neither ERISA nor the Code
defines the term "Plan Assets." Under Section 2510.3-101 of the United States
Department of Labor 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 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 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 Certificates would not be
significant if immediately after the most recent acquisition of a Certificate,
whether or not from the Depositor or Merrill Lynch & Co., less than 25% of (1)
the value of such Class of Certificates and (2) the value of any other Class of
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 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
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.
57
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In other instances, however, the offering of 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 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
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 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 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 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 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 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 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 Certificates that will
result in the Trust Assets being deemed to constitute Plan Assets will provide
that, by acquiring and holding a Certificate, a Plan shall be deemed to have
represented and warranted to the Depositor, Trustee, and underwriter that such
acquisition and holding of a Certificate does not involve a non-exempt
prohibited transaction with respect to such Plan, including with respect to the
activities of the Trust.
58
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ANY PLAN OR INSURANCE COMPANY INVESTING ASSETS OF ITS GENERAL ACCOUNT
PROPOSING TO ACQUIRE CERTIFICATES SHOULD CONSULT WITH ITS COUNSEL.
UNDERWRITING
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 Certificates, which may include the names of any
underwriters, or initial purchasers, the purchase price of such Certificates and
the proceeds to the Depositor from such sale, whether the Certificates are being
offered by the applicable Prospectus Supplement in connection with trading
activities that may create a short position or are being issued to cover such
short position, 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 Certificates may be listed, and the place and time of delivery of the
Certificates to be offered thereby.
If underwriters are used in the sale, 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 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 Certificates will be subject to certain conditions precedent and the
underwriters will be obligated to purchase all such Certificates if any of such
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.
Certificates may also be sold through agents designated by the Depositor
from time to time. Any agent involved in the offer or sale of 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 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 Certificates may be
deemed to be underwriters and any discounts or commissions received by them on
the sale or resale of 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.
59
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Only 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 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 Certificates or trading
activities that create a short position. The Prospectus Supplement related to
the Certificates for which a market is being made or a short position is being
either created or covered will be delivered by such underwriters or affiliates.
The Depositor is an affiliate of Merrill Lynch & Co.
LEGAL MATTERS
The validity of the 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.
60
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INDEX OF DEFINED TERMS
Page
----
$.............................................................................3
adjusted issue price.........................................................54
Administration Agreements....................................................32
Administrative Agent..........................................................1
Administrative Agent Termination Events......................................34
Allocation Ratio.............................................................26
Base Rate....................................................................20
Business Day.................................................................19
Calculation Agent............................................................20
Calculation Date.............................................................21
Call on Certificates.........................................................27
Call on Underlying Securities................................................27
Call Right...................................................................27
Callable Series..............................................................27
CD Rate......................................................................22
CD Rate Certificate..........................................................20
Cede..........................................................................1
Certificate..................................................................16
Certificate Account..........................................................49
Certificate Principal Balance................................................25
Certificate Rate.............................................................17
Certificateholders............................................................1
Certificates..................................................................1
Class.........................................................................1
Code..................................................................6, 36, 53
Commercial Paper Rate........................................................22
Commercial Paper Rate Certificate............................................20
Commission.................................................................1, 2
Composite Quotations.........................................................20
Concentrated Underlying Securities.........................................1, 4
Credit Support................................................................1
Cut-off Date.................................................................30
Definitive Certificate.......................................................28
Depositary...................................................................14
Deposited Assets.............................................................42
Depositor.....................................................................1
Distribution Date.............................................................2
DTC...........................................................................1
ECU...........................................................................1
ERISA.....................................................................6, 57
Exchange Act...............................................................1, 2
Exchangeable Series..........................................................26
Extraordinary Expenses.......................................................35
I-1
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Federal Funds Rate...........................................................23
Federal Funds Rate Certificate...............................................20
Final Scheduled Distribution Date.............................................2
Fixed Rate Certificates......................................................19
Floating Certificate Rate....................................................17
Floating Rate Certificates...................................................19
Fully Taxable Bonds..........................................................55
Global Security...............................................................1
Government Securities.........................................................1
H.15(519)....................................................................20
Index Maturity...............................................................20
Interest Reset Date..........................................................20
Interest Reset Period........................................................20
issue price..................................................................54
Letter of Credit.............................................................48
Letter of Credit Bank........................................................48
LIBOR........................................................................23
LIBOR Certificate............................................................20
LIBOR Reuters................................................................23
LIBOR Telerate...............................................................23
market discount..............................................................54
Maximum Certificate Rate.....................................................20
Merrill Lynch & Co............................................................1
Minimum Certificate Rate.....................................................20
Money Market Yield...........................................................22
Non-U.S. Owner...............................................................53
Notional Amount..............................................................19
NYSE..........................................................................1
OID Regulations..............................................................53
OID Underlying Security......................................................54
Optional Exchange Right......................................................26
Ordinary Expenses............................................................35
Original Issue Date..........................................................17
Participants.................................................................28
Plan......................................................................6, 58
Prime Rate...................................................................24
Prime Rate Certificate.......................................................20
Prospectus....................................................................3
Prospectus Supplement.........................................................1
PTEs.........................................................................58
Put Date.....................................................................27
Put Option...................................................................27
Puttable Underlying Securities...............................................27
Rating Agency................................................................11
Realized Losses..............................................................25
Record Date..................................................................18
Reference Banks..............................................................24
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Registration Statement........................................................2
Regulation...................................................................57
Related Proceeds.............................................................32
Required Percentage..........................................................34
Reserve Account..............................................................49
Retained Interest............................................................14
Reuters Screen NYMF Page.....................................................24
Secured Underlying Securities................................................45
Securities Act................................................................2
Securities Intermediary.......................................................1
Senior Underlying Securities.................................................45
Series........................................................................1
Series Supplement.............................................................1
Specified Currency............................................................2
Spread.......................................................................20
Spread Multiplier............................................................20
Standard Terms................................................................1
stated redemption price......................................................54
Strip Certificates...........................................................17
Subordinated Underlying Securities...........................................45
Surety.......................................................................48
Surety Bond..................................................................48
Telerate Page 3750...........................................................23
TOPrSSM......................................................................47
Treasury Rate................................................................25
Treasury Rate Certificate....................................................20
Trust.........................................................................1
Trust Agreement...............................................................1
Trust Indenture Act..........................................................43
Trustee.......................................................................1
Trustee Fee...................................................................5
U.S. dollars..................................................................3
U.S. Owner...................................................................53
U.S. Person..................................................................53
Underlying Securities.........................................................1
Underlying Securities Indenture..............................................19
Underlying Securities Issuer..................................................1
Underlying Securities Rate...................................................46
Underlying Securities Trustee................................................44
US$...........................................................................3
Voting Rights................................................................34
I-3
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STEERS(R)
TRUST CERTIFICATES
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
Merrill Lynch & Co.
November 5, 1999
Until 25 days after the date of this prospectus, all dealers effecting
transactions in the offered trust certificates, whether or not participating in
the 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.
