PROSPECTUS SUPPLEMENT
(To Prospectus dated September 18, 1997)
Merrill Lynch Depositor, Inc.
Depositor
PUBLIC STEERS(R) SERIES 1998 HLT-1 TRUST
PUBLIC STEERS(R) TRUST CERTIFICATES, SERIES 1998 HLT-1
36,638 CLASS B TRUST CERTIFICATES DUE APRIL 15, 2007
Each Public STEERS(R) Trust Certificate, Series 1998 HLT-1 offered
hereby (collectively, the "Trust Certificates") represents a beneficial interest
in a trust (the "Trust") to be formed pursuant to the Standard Terms for Trust
Agreements (the "Standard Terms"), dated as of February 20, 1998, between
Merrill Lynch Depositor, Inc. (the "Depositor") and United States Trust Company
of New York, as trustee (in such capacity, the "Trustee") and as securities
intermediary (in such capacity, the "Securities Intermediary"), as amended and
supplemented by the Series 1998 HLT-1 Supplement (the "Series Supplement", and
together with the Standard Terms, the "Trust Agreement"), to be dated as of
October 15, 1998, between the Depositor and the Trustee and Securities
Intermediary. The Trust Certificates will be issued in two Classes, Class A and
Class B. Only the Class B Trust Certificates are being offered pursuant to this
Prospectus Supplement.
The principal assets of the Trust will be $26,751,000 principal amount
of 7.95% Senior Notes due April 15, 2007 (the "Underlying Securities") issued by
Hilton Hotels Corporation (the "Underlying Securities Issuer"), having the
characteristics described herein under "Description of the Underlying
Securities". Either prior to the Closing Date (as defined below) 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.
Prospective investors should consider the factors set forth
under "Risk Factors", beginning herein on page S-11
and in the Prospectus on page 7.
THE TRUST CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT
REPRESENT OBLIGATIONS OF OR INTERESTS IN THE DEPOSITOR OR ANY OF ITS
AFFILIATES. THE TRUST CERTIFICATES DO NOT REPRESENT A DIRECT
OBLIGATION OF THE UNDERLYING SECURITIES ISSUER
OR ANY OF ITS AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
NONE OF THE NEVADA GAMING COMMISSION, THE NEVADA STATE GAMING CONTROL
BOARD, THE NEW JERSEY CASINO CONTROL COMMISSION NOR ANY OTHER
GAMING REGULATORY AUTHORITY HAS PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS OR THE INVESTMENT MERITS OF THE SECURITIES
OFFERED HEREBY. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
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Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch & Co." or the "Underwriter") proposes to offer the Trust
Certificates from time to time for sale in negotiated transactions or otherwise
at prices determined at the time of sale. The price at which the Trust
Certificates will be sold by the Underwriter may vary with each transaction. The
Underwriter has agreed to purchase the Class B Trust Certificates for
$1,601,314.86. Proceeds to the Depositor from any sale of the Trust Certificates
will be equal to the purchase price paid therefor by the Underwriter, net of any
expenses payable by the Depositor. For further information with respect to the
plan of distribution and any discounts, commission or profits that may be deemed
underwriting discounts or commissions, see "Underwriting" herein.
The Trust Certificates are offered by the Underwriter, subject to prior
sale, when, as and if delivered to and accepted by it, and subject to approval
of certain legal matters by counsel for the Underwriter and certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Trust Certificates will be made in New York, New York on or
about October 15, 1998 (the "Closing Date") against payment therefor in
immediately available funds.
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Merrill Lynch & Co.
-------------------
The date of this Prospectus Supplement is October 9, 1998.
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The Underlying Securities Issuer is not participating in, and will not
receive any proceeds in connection with, the offering of the Trust Certificates,
and is not an affiliate of the Depositor. The Underlying Securities were
originally issued and sold as part of a public offering that commenced on April
15, 1997. The Underlying Securities were not acquired from the Underlying
Securities Issuer, and the Underlying Securities Issuer will not participate in
the offering of Trust Certificates, nor will such issuer receive any of the
proceeds from the sale of the Underlying Securities to the Depositor or from the
issuance of the Trust Certificates. The Underlying Securities will be deposited
by the Depositor into the Trust for the benefit of the holders of the Trust
Certificates (the "Trust Certificateholders").
This Prospectus Supplement sets forth certain relevant terms with
respect to the Underlying Securities, but does not provide detailed information
with respect to the Underlying Securities or the Underlying Securities Issuer.
This Prospectus Supplement relates only to the Trust Certificates offered hereby
and does not relate to the Underlying Securities. All disclosure contained
herein with respect to the Underlying Securities Issuer and the Underlying
Securities is derived from publicly available documents.
With respect to each Class B Trust Certificate, a Holder will be
entitled to receive, on each Distribution Date, commencing April 15, 1999 and
ending on the Final Scheduled Distribution Date (as defined below), a
distribution equal to 0.95% per annum multiplied by the principal amount of the
Underlying Securities (the "Class B Payments") divided by the total number of
Class B Trust Certificates. The Class A Trust Certificates will bear interest
from October 15, 1998 (the "Cut-off Date") and such holders will be entitled to
receive, on April 15 and October 15 of each year (or if such date is not a
Business Day, the next succeeding Business Day) (each, a "Distribution Date"),
commencing April 15, 1999 and ending on the Final Scheduled Distribution Date
(as defined below), the payment of interest at a rate of 7.00% per annum on the
stated amount of the Class A Trust Certificates commencing upon initial issuance
of the Trust Certificates and a distribution of the principal amount of the
Underlying Securities on April 15, 2007. The interest rates are subject to
change in the event of an Acquisition Related Rating Change as set forth in
"Description of the Underlying Securities--Interest Rate and Maturity" herein.
The last day on which distributions on the Certificates are scheduled to be made
is April 15, 2007 (the "Final Scheduled Distribution Date"). All distributions
of funds or Underlying Securities will be made on a pro rata basis to the
holders of the respective Trust Certificate Class. It is a condition to the
issuance of the Trust Certificates that the Trust Certificates have ratings
assigned by Moody's Investors Service, Inc. ("Moody's") and by Standard & Poor's
Ratings Services, a division of the McGraw-Hill Companies, Inc. ("S&P"),
equivalent to the ratings of the Underlying Securities, which, as of the date of
this Prospectus Supplement, were "Baa1" by Moody's under review for possible
downgrade and "BBB" by S&P on CreditWatch with negative implications.
Accordingly, the ratings of the Trust Certificates will also be Baa1 by Moody's
under review for possible downgrade and BBB by S&P on CreditWatch with negative
implications.
As and to the extent described herein, collections received by the
Trustee in respect of the Underlying Securities will be distributed to Trust
Certificateholders in the manner and priority described herein.
The Trust Certificates initially will be represented by certificates
registered in the name of Cede & Co. ("Cede"), as nominee of The Depository
Trust Company (the "Depositary" or "DTC"). The interests of beneficial owners of
such Trust Certificates will be represented by book entries on the records of
persons that have accounts with DTC ("Participants"). Definitive certificates
will be available for such Trust Certificates only under the limited
circumstances described herein. See "Description of the Trust
Certificates--Definitive Trust Certificates".
THE TRUST CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT WILL
CONSTITUTE A SEPARATE SERIES OF TRUST CERTIFICATES BEING OFFERED BY THE
DEPOSITOR PURSUANT TO ITS PROSPECTUS DATED SEPTEMBER 18, 1997, OF WHICH THIS
PROSPECTUS SUPPLEMENT IS A PART AND WHICH ACCOMPANIES THIS PROSPECTUS
SUPPLEMENT. THE PROSPECTUS CONTAINS IMPORTANT INFORMATION REGARDING THIS
OFFERING WHICH IS NOT CONTAINED HEREIN, AND PROSPECTIVE INVESTORS ARE URGED TO
READ THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN FULL. IN PARTICULAR,
INVESTORS SHOULD CONSIDER CAREFULLY THE FACTORS SET FORTH UNDER "RISK FACTORS"
IN THE PROSPECTUS AND IN THIS PROSPECTUS SUPPLEMENT.
S-2
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For definitions of certain terms used herein, refer to "Index of
Defined Terms", beginning on page I-1 of the Prospectus.
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PROSPECTUS SUPPLEMENT SUMMARY
The following summary of certain information does not purport to be
complete and is qualified in its entirety by reference to the detailed
information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement or, to the extent not defined herein, have the meanings assigned to
such terms in the Prospectus. See "Index of Defined Terms".
THE TRUST CERTIFICATES
SECURITIES OFFERED.......................... Public STEERS(R)Trust Certificates,
Series 1998 HLT-1 (the "Trust
Certificates"). The Trust
Certificates represent a
proportionate undivided beneficial
interest in certain distributions
to be made by the Trust, and will
be issued pursuant to the Trust
Agreement. Payments on the Trust
Certificates will be derived solely
from the Underlying Securities.
THE TRUST................................... Public STEERS(R) Series 1998 HLT-1
Trust. The Trust will be formed
pursuant to the Series Supplement,
which incorporates the Standard
Terms.
DEPOSITOR................................... Merrill Lynch Depositor, Inc., a
company incorporated in the State
of Delaware as an indirect, wholly
owned, limited-purpose subsidiary
of Merrill Lynch & Co., Inc., will
deposit the Underlying Securities
into the Trust. See "The Depositor"
in the Prospectus.
TRUSTEE..................................... United States Trust Company of New
York. The Trustee will receive
compensation as set forth in an
agreement between the Depositor and
the Trustee.
TRUST ASSETS................................ The initial assets of the Trust
will be $26,751,000 principal
amount of the 7.95% Senior Notes
due April 15, 2007 (the "Underlying
Securities") issued by the
Underlying Securities Issuer.
Either prior to the Closing Date or
from time to time, the Depositor
may, without the consent of the
Trust Certificateholders, increase
the amount of the Underlying
Securities in the Trust and issue a
corresponding amount of additional
Trust Certificates.
CLOSING DATE................................ October 15, 1998.
CUT-OFF DATE................................ October 15, 1998.
AMOUNT OF CLASS B
TRUST CERTIFICATES........................ 26,751 Certificates. 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.
S-3
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FINAL SCHEDULED
DISTRIBUTION DATE......................... April 15, 2007.
DISTRIBUTIONS
GENERAL................................ The Underlying Securities will be
the sole source of distributions on
the Trust Certificates.
All distributions of payments or
Underlying Securities will be made
on a pro rata basis to the holders
of the respective Trust Certificate
Class.
CLASS B TRUST
CERTIFICATES.......................... Each Class B Trust Certificate will
be entitled to receive, on each
Distribution Date, commencing April
15, 1999 and ending on the Final
Scheduled Distribution Date, a
distribution equal to 0.95% per
annum multiplied by the principal
amount of the Underlying Securities
(the "Class B Payments") divided by
the total number of Class B Trust
Certificates. The right of the
holders of the Class B Trust
Certificates to the payments
received on the Underlying
Securities is of equal priority
with the right of Class A Trust
Certificateholders to receive
distributions of interest. See
"Description of the Underlying
Securities". The initial holder of
the Class B Trust Certificates will
be Merrill Lynch & Co. or an
affiliate thereof. To the extent
additional Underlying Securities
are deposited into the Trust from
time to time, a corresponding
amount of additional Trust
Certificates may be issued without
the consent of the Trust
Certificateholders.
CLASS A TRUST
CERTIFICATES.......................... The Class A Trust Certificates will
be issued in an stated amount of
$26,751,000. The Class A Trust
Certificates will be entitled to
receive, on April 15 and October 15
of each year (or if such date is
not a Business Day, the next
succeeding Business Day) (each, a
"Distribution Date"), commencing
April 15, 1999 and ending on the
Final Scheduled Distribution Date,
the payment of interest at a rate
of 7.00% per annum on the stated
amount of the Class A Trust
Certificates and a distribution of
the principal amount of the
Underlying Securities on the Final
Scheduled Distribution Date. The
Class A Trust Certificates are not
being offered hereby. To the extent
additional Underlying Securities
are deposited into the Trust from
time to time, a corresponding
amount of additional Trust
Certificates may be issued without
the consent of the Trust
Certificateholders.
DISTRIBUTION OF THE
UNDERLYING SECURITIES IN
THE EVENT OF A DEFAULT ON
THE UNDERLYING SECURITIES................. In the event of a payment default
on the Underlying Securities or any
other default on the Underlying
Securities that results in an
acceleration of their maturity, the
Trustee will distribute Underlying
S-4
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Securities to the Class A Trust
Certificateholders and the Class B
Trust Certificateholders in
accordance with the Allocation
Ratio (as set forth below). If such
a distribution would entitle any
Trust Certificateholder to receive
a principal amount of Underlying
Securities that is not an integral
multiple of the minimum
denomination of the Underlying
Securities, then such Trust
Certificateholder will not receive
any such fractional amount. The
Trustee will sell a principal
amount of Underlying Securities
equal to such fractional amount and
will distribute the proceeds
therefrom to such Trust
Certificateholder. See Annex A for
a calculation of the Allocation
Ratio on each Distribution Date.
As used herein, "Allocation Ratio"
means the ratio of the Class A
Allocation to the Class B
Allocation, as expressed in Annex
A. The "Class B Allocation" means
the sum of the present values
(discounted at the rate of 7.95%
per annum) of the unpaid payments
due or to become due in respect of
the Class B Payments of the
Underlying Securities. The "Class A
Allocation" means the present value
(discounted at the rate of 7.95%
per annum) of (i) the unpaid
interest, except for the Class B
Payments, due or to become due on
the Underlying Securities on or
prior to the Final Scheduled
Distribution Date and (ii) the
principal amount of the Underlying
Securities (in each case assuming
that the Underlying Securities are
paid when due and are not redeemed
prior to their stated maturity).
RESET OF INTEREST
RATE FOLLOWING AN
ACQUISITION RELATED
RATING CHANGE............................. Upon the occurrence of an
Acquisition Related Rating Change
(as defined below), the interest
rate payable on the Underlying
Securities shall be subject to
adjustment. In the event of an
Acquisition Related Rating Change
relating to an Acquisition Event
(as defined below), the interest
rate on the Underlying Securities
will be reset as set forth in
"Description of the Underlying
Securities--Interest Rate and
Maturity" herein. The proceeds of
such interest rate increase will be
allocated pro rata between the
Class A Trust Certificates and the
Class B Trust Certificates in
accordance with the Allocation
Ratio.
RECORD DATES................................ The close of business on the April
1 and October 1, as the case may
be, next preceding each
Distribution Date.
DENOMINATIONS AND
SPECIFIED CURRENCY........................ The Trust Certificates will be
denominated and payable in U.S.
dollars (the "Specified Currency").
The Trust Certificates will be
issued in minimum stated amounts of
$1,000 and in integral multiples
thereof. One Trust Certificate of
each Class may be issued in an
amount other than an integral
multiple of the applicable minimum
denomination.
S-5
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FORM OF SECURITY............................ Book-entry Trust Certificates with
The Depository Trust Company
("DTC"), except in certain limited
circumstances. See "Description of
the Trust Certificates--Definitive
Trust Certificates". Distributions
thereon will be settled in
immediately available (same- day)
funds.
FEDERAL INCOME
TAX CONSEQUENCES.......................... In the opinion of tax counsel to
the Trust, 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. The Trust Certificates
will constitute ownership of a
stripped debt instrument under
Section 1286 of the Internal
Revenue Code of 1986, as amended
(the "Code"). As a result, the
Trust Certificates represent
ownership of newly issued
indebtedness of the Underlying
Securities Issuer for federal
income tax purposes. Such newly
issued indebtedness will have
original issue discount in the case
of the Class B Trust Certificates.
A Class B Trust Certificateholder
will be 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
upon a compounding of interest at a
constant rate. The preceding
sentences assume that, for federal
income tax purposes, the Underlying
Securities as originally issued
constitute indebtedness. See
"Certain Federal Income Tax
Consequences" herein.
RATINGS..................................... It is a condition to the issuance
of the Trust Certificates that the
Trust Certificates have ratings
assigned by Moody's Investors
Service, Inc. ("Moody's") and by
Standard & Poor's Ratings Services,
a division of the McGraw-Hill
Companies, Inc. ("S&P"; Moody's and
S&P each a "Rating Agency" and,
together, the "Rating Agencies"),
equivalent to the ratings of the
Underlying Securities, which, as of
the date of this Prospectus
Supplement, were "Baa1" by Moody's
under review for possible downgrade
and "BBB" by S&P on CreditWatch
with negative implications.
Accordingly, the ratings of the
Trust Certificates will also be
Baa1 by Moody's under review for
possible downgrade and BBB by S&P
on CreditWatch with negative
implications.
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. There is
no assurance that any such rating
will continue for any period of
time or that it will not be revised
or withdrawn entirely by the
related rating agency if, in its
judgment, circumstances (including,
without limitation, the rating of
the Underlying Securities) so
warrant. A revision or withdrawal
of
S-6
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such rating may have an adverse
effect on the market price of Trust
Certificates. A security rating is
not a recommendation to buy, sell
or hold securities. The rating on
the Trust Certificates does not
constitute a statement regarding
the occurrence or frequency of
redemption on the Underlying
Securities and the corresponding
effect on yield to investors. See
"Ratings".
ERISA CONSIDERATIONS........................ If an employee benefit plan subject
to the Employee Retirement Income
Security Act of 1974, as amended
("ERISA"), including an individual
retirement account (an "IRA") or
Keogh plan (each, a "Plan"),
acquires an equity interest in the
underlying assets of an entity such
as the Trust, certain aspects of
such investment, including the
operation of the Trust, might be
subject to the prohibited
transaction provisions under ERISA
and the Code, unless certain
exemptions apply. A Plan should
consult its advisors concerning the
ability of such Plan to purchase
Trust Certificates under ERISA or
the Code. These issues are
discussed more fully below under
"ERISA Considerations".
S-7
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THE UNDERLYING SECURITIES
The Underlying Securities were issued under an indenture dated as of
April 15, 1997 (the "Indenture"), between the Underlying Securities Issuer and
BNY Western Trust Company (the "Underlying Securities Trustee") providing for
the issuance of debt securities (the "Senior Notes") by the Underlying
Securities Issuer, of which the $375,000,000 principal amount 7.95% Senior Notes
due April 15, 2007 (the "Indenture Securities") are a series. The Underlying
Securities are a portion of the Indenture Securities. The following summary of
certain provisions of the Underlying Securities and the Indenture does not
purport to be complete and is based upon the prospectus and the prospectus
supplement thereto, each dated April 10, 1997 (together, the "Underlying
Securities Prospectus") of the Underlying Securities Issuer, and is subject to,
and is qualified in its entirety by reference to, all provisions of the
Underlying Securities and the Indenture, including the definitions therein of
certain terms.
UNDERLYING SECURITIES....................... $375,000,000 principal amount of
the 7.95% Senior Notes due April
15, 2007 of the Underlying
Securities Issuer. The Senior Notes
represent senior, unsecured
obligations of the Underlying
Securities Issuer. Interest on the
Underlying Securities accrues at
the Underlying Securities Interest
Rate for each Underlying Securities
Accrual Period and is payable on
each Underlying Securities Payment
Date. The entire principal amount
of the Underlying Securities will
be payable to the holders thereof
on the Underlying Securities
Maturity Date.
UNDERLYING SECURITIES
ISSUER.................................... The Underlying Securities Issuer is
a Delaware corporation whose
principal executive offices are
located at 9336 Civic Center Drive,
Beverly Hills, California 90210,
and whose telephone number is (310)
278-4321. See "Description of the
Underlying Securities".
UNDERLYING SECURITIES
ISSUER: COMMISSION
FILING NUMBER............................. 333-18523 (for the Underlying
Securities Prospectus); 1-3427 (for
filings by the Underlying
Securities Issuer pursuant to the
Securities Exchange Act of 1934, as
amended (the "Exchange Act")).
UNDERLYING SECURITIES
RANKING................................... According to the Underlying
Securities Prospectus, the
Underlying Securities are senior,
unsecured obligations of the
Underlying Securities Issuer and
will rank equally with all other
senior unsecured indebtedness of
the Underlying Securities Issuer.
UNDERLYING SECURITIES
COLLATERAL................................ None.
UNDERLYING SECURITIES
ORIGINAL ISSUE DATE....................... April 15, 1997.
UNDERLYING SECURITIES
ORIGINAL AMOUNT ISSUED.................... $375,000,000.
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UNDERLYING SECURITIES
MATURITY DATE............................. April 15, 2007.
UNDERLYING SECURITIES
AMORTIZATION.............................. None.
UNDERLYING SECURITIES
INTEREST PAYMENT DATES.................... April 15 and October 15, commencing
October 15, 1997.
UNDERLYING SECURITIES
INTEREST RATE............................. 7.95% per annum.
UNDERLYING SECURITIES
INTEREST ACCRUAL PERIODS.................. Semiannual.
UNDERLYING SECURITIES
DENOMINATIONS AND CURRENCY................ The Underlying Securities are
denominated and payable in U.S.
dollars and are available in
minimum denominations of $1,000 and
integral multiples thereof.
UNDERLYING SECURITIES
FORM...................................... Book-entry debt securities with
DTC.
UNDERLYING SECURITIES
CUSIP NUMBER.............................. 432848AH2.
UNDERLYING SECURITIES
RECORD DATES.............................. The close of business on the April
1 and October 1, as the case may
be, next preceding each Underlying
Securities Interest Payment Date.
UNDERLYING SECURITIES
TRUSTEE................................... BNY Western Trust Company.
UNDERLYING SECURITIES
RATINGS AS OF THE DATE
OF THIS PROSPECTUS
SUPPLEMENT................................ "Baa1" by Moody's under review for
possible downgrade and "BBB" by S&P
on CreditWatch with negative
implications.
UNDERLYING SECURITIES
INFORMATION WITH RESPECT TO
THE UNDERLYING SECURITIES
ISSUER.................................... Hilton Hotels Corporation is
subject to the informational
requirements of the Exchange Act
and, in accordance therewith, files
reports, proxy and information
statements and other information
with the Securities and Exchange
Commission (the "Commission"). Such
reports, proxy and information
statements
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<PAGE>
and other information can be
inspected and copied at the public
reference facilities maintained by
the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 and at
the following Regional Offices of
the Commission: 7 World Trade
Center, Suite 1300, New York, New
York 10048 and Citicorp Center, 500
West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511.
Copies of such material can be
obtained from the Public Reference
Section of the Commission at 450
Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. In
addition, the Commission maintains
a Web site that contains reports,
proxy and information statements
and other information regarding
registrants that file
electronically, such as the
Underlying Securities Issuer. The
address of the Commission's Web
site is http://www.sec.gov. Such
reports, proxy and information
statements and other information of
or concerning the Underlying
Securities Issuer also can be
inspected and copied at the offices
of the New York Stock Exchange,
Inc., 20 Broad Street, New York,
New York 10005.
Potential investors in the Trust Certificates should not rely on this
Prospectus Supplement for information with respect to the Underlying Securities
Issuer. No investigation of the Underlying Securities Issuer (including, without
limitation, no investigation as to its financial condition or creditworthiness)
or of the Underlying Securities (including, without limitation, no investigation
as to their ratings) has been made. A potential Trust Certificateholder should
obtain and evaluate the same information concerning the Underlying Securities
Issuer as one would obtain and evaluate if investing directly in the Underlying
Securities or in other securities issued by the Underlying Securities Issuer.
None of the Depositor, the Trustee, the Securities Intermediary, the
Underwriter, or any of their respective affiliates, assumes any responsibility
for the accuracy or completeness of any publicly available information of the
Underlying Securities Issuer filed with the Commission or otherwise made
publicly available or considered by a purchaser of the Trust Certificates in
making its investment decision in connection therewith.
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RISK FACTORS
Prospective purchasers should consider, among other things, the
following factors (as well as the factors set forth under "Risk Factors" in the
Prospectus) in connection with an investment in the Trust Certificates.
Limited Liquidity
There can be no assurance that an active public market for either Class
of Trust Certificates will develop or, if a public market develops, as to the
liquidity of the trading market for such Trust Certificates. Merrill Lynch & Co.
has advised the Depositor that it intends to make a market in the Trust
Certificates, as permitted by applicable laws and regulations, after the
issuance thereof. Merrill Lynch & Co. is not obligated, however, to make a
market in the Trust Certificates of either Class and any such market-making
activity may be discontinued at any time without notice at the sole discretion
of Merrill Lynch & Co. If an active public market for the Trust Certificates
does not develop or continue, the market prices and liquidity of the Trust
Certificates may be adversely affected. The Depositor expects to apply for
listing of the Trust Certificates on the NYSE.
The liquidity of the trading market may be adversely affected due to a
decrease in the amount of Trust Certificates outstanding after any Optional
Exchange by the Depositor. See "Description of Trust Certificates--Optional
Exchange" in the Prospectus.
Distribution of Underlying Securities
If there is a payment default on the Underlying Securities or any other
default on the Underlying Securities that results in an acceleration of their
maturity, then the Underlying Securities will be distributed to the
Certificateholders in accordance with the Allocation Ratio. In either case, 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 the Underlying Securities
may be materially and adversely affected. In addition, there can be no assurance
that the market value of the Underlying Securities will not decline from the
time of such occurrences to the time the Underlying Securities are distributed
to Trust Certificateholders.
Limited Assets
The Trust has no significant assets other than the Underlying
Securities and the Underlying Securities are the sole assets of the Trust that
are available to make Distributions in respect of the Trust Certificates. If the
Underlying Securities are insufficient to make payments or distributions on the
Trust Certificates, no other assets will be available for payment of the
deficiency.
Gaming Regulation and Licensing
The ownership and operation of casino gaming facilities are subject to
extensive governmental regulation. The Underlying Securities Issuer holds gaming
licenses or permits in each jurisdiction in which it operates gaming activities
(each, a "Gaming License" and, collectively, "Gaming Licenses"). Gaming Licenses
and related approvals, however, are deemed to be privileges under the laws of
the jurisdictions in which the Company conducts gaming activities, and no
assurances can be given that any new Gaming Licenses that may be required in the
future will be granted or that existing Gaming Licenses will not be revoked or
suspended. There can be no assurance that such a revocation or suspension would
not have a material adverse effect on the Underlying Securities Issuer's
business activities or results of operations.
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No Management of Underlying Securities
Except as described herein, the Trust will not dispose of any
Underlying Security, regardless of adverse events, financial or otherwise, that
may affect the value of the Underlying Securities or the Underlying Securities
Issuer. If there is a payment default on the Underlying Securities or any other
default on the Underlying Securities that results in an acceleration of their
maturity, the Trust will deal with the Underlying Securities only in the manner
provided in the Trust Agreement. If such a default occurs, the Trust Agreement
will provide that the Trustee will distribute Underlying Securities to the Class
A Trust Certificateholders and Class B Trust Certificateholders in accordance
with the Allocation Ratio notwithstanding market conditions at that time, and
the Trustee will have no discretion to do otherwise.
Credit Risk
The Trust Certificates represent interests in obligations of a single
obligor. In particular, the Trust Certificates will be subject to all the risks
associated with a direct investment in unsecured debt obligations of the
Underlying Securities Issuer.
Payments in Respect of Trust Certificates are Unsecured
In a liquidation, holders of the Underlying Securities will be paid
only after holders of secured obligations of the Underlying Securities Issuer.
According to the Underlying Securities Prospectus, the Underlying Securities are
general unsecured obligations of the Underlying Securities Issuer, which rank on
a parity with all other unsecured senior indebtedness of the Underlying
Securities Issuer, but which are effectively subordinated to the Underlying
Securities Issuer's existing and future senior secured indebtedness to the
extent of the collateral therefor.
No Investigation of Underlying Securities
None of the Depositor, the Underwriter, the Trustee or the Securities
Intermediary will (i) make any investigation of the business condition,
financial or otherwise, of the Underlying Securities Issuer, or (ii) verify any
reports or information filed by the Underlying Securities Issuer with the
Commission. Investors are encouraged to consider publicly available financial
and other information regarding the Underlying Securities Issuer. The issuance
of the Trust Certificates should not be construed as an endorsement by the
Depositor, the Underwriter, the Trustee or the Securities Intermediary of the
financial condition or business prospects of the Underlying Securities Issuer.
Ratings of the Trust Certificates Subject to Change
At the time of issuance, the Trust Certificates will have ratings
assigned by Moody's and S&P equivalent to the ratings of the Underlying
Securities, which, as of the date of this Prospectus Supplement, were "Baa1" by
Moody's under review for possible downgrade and "BBB" by S&P on CreditWatch with
negative implications. Accordingly, the ratings of the Trust Certificates will
also be Baa1 by Moody's under review for possible downgrade and BBB by S&P on
CreditWatch with negative implications. Any rating issued with respect to the
Trust Certificates is not a recommendation to purchase, sell or hold a security
inasmuch as such ratings do not comment on the market price of the Trust
Certificates or their suitability for a particular investor. There can be no
assurance that the ratings will remain for any given period of time or that the
ratings will not be revised or withdrawn entirely by the related Rating Agency
if, in its judgment, circumstances (including, without limitation, the rating of
the Underlying Securities) so warrant. A revision or withdrawal of such rating
may have an adverse effect on the market price of the Trust Certificates.
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THE TRUST
The Trust will be formed pursuant to the Standard Terms, as amended and
supplemented by the Series Supplement. Concurrently with the execution and
delivery of the Series Supplement, the Depositor will deposit $26,751,000
principal amount of Underlying Securities into the Trust. 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. The
Trustee, on behalf of the Trust, will accept such Underlying Securities and will
deliver the Trust Certificates to or upon the order of the Depositor.
The Underlying Securities were not purchased from the Underlying
Securities Issuer. The Underlying Securities were not acquired as part of any
distribution by or pursuant to any agreement with the Underlying Securities
Issuer. The Underlying Securities Issuer is not participating in this offering
and will not receive any of the proceeds of the sale of the Underlying
Securities to the Depositor or the issuance of the Trust Certificates.
DESCRIPTION OF THE TRUST CERTIFICATES
General
The Trust Certificates will be denominated and distributions with
respect thereto will be payable in U.S. dollars. 26,751 Class B Trust
Certificates will be issued.
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 (or, in the case of the April 15, 1999 Distribution Date, from
and including October 15, 1998) to but excluding the current Distribution Date
(the "Collection Period").
Each holder of the Class B Trust Certificates will be entitled to
receive, on each Distribution Date, commencing April 15, 1999 and ending on the
Final Scheduled Distribution Date, a distribution equal to .95% per annum
multiplied by the principal amount of the Underlying Securities (the "Class B
Payments") divided by the total number of Class B Trust Certificates. The right
of the holders of the Class B Trust Certificates to the payments received on the
Underlying Securities is of equal priority with the right of Class A Trust
Certificateholders to receive distributions of interest. The Class B Trust
Certificates generally will not be entitled to any allocation of any principal
payments received on the Underlying Securities.
The holders of the Class A Trust Certificates will be entitled to
receive, on each Distribution Date, commencing April 15, 1999 and ending on the
Final Scheduled Distribution Date, the payment of interest at a rate of 7.00%
per annum on the stated amount of the Class A Trust Certificates commencing upon
initial issuance of the Trust Certificates, and a distribution of the principal
amount of the Underlying Securities on April 15, 2007.
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 $1,000 and
integral multiples thereof. One Trust Certificate of each Class may be issued in
an amount other than an integral multiple of the applicable minimum
denomination. Each Class of Trust Certificates initially will be represented by
one or more global certificates registered in the name of the nominee of DTC
(together with any successor clearing agency selected by the Depositor, the
"Clearing Agency") except as provided below. The Depositor has been informed by
DTC that DTC's nominee will be Cede. No holder of any such Trust Certificate
will be entitled to receive a certificate representing such person's interest,
except as set forth below under "--Definitive Trust Certificates". Unless and
until Definitive Trust Certificates are issued under the limited circumstances
described herein, all references to actions by Trust Certificateholders with
respect to any such Trust Certificates shall refer to actions taken by DTC upon
instructions from its Participants. See "--Definitive Trust Certificates" below
and "Description of Trust Certificates--Global Securities" in the Prospectus.
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Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC will take action permitted to be taken by a Trust
Certificateholder under the Trust Agreement only at the direction of one or more
Participants to whose DTC account such Trust Certificates are credited.
Additionally, DTC will take such actions with respect to specified Voting Rights
only at the direction and on behalf of Participants whose holdings of such
certificates evidence such specified Voting Rights. DTC may take conflicting
actions with respect to Voting Rights, to the extent that Participants whose
holdings of Trust Certificates evidence such Voting Rights authorize divergent
action.
Definitive Trust Certificates
Definitive Trust Certificates will be issued to Trust
Certificateholders or their nominees, respectively, rather than to DTC or its
nominee, only if (i) the Depositor advises the Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as Clearing
Agency with respect to the Trust Certificates and the Depositor is unable to
locate a qualified successor or (ii) the Depositor, at its option, elects to
terminate the book-entry system through DTC.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee is required to notify all Participants of the
availability through DTC of Definitive Trust Certificates. Upon surrender by DTC
of the definitive certificates representing the Trust Certificates and receipt
of instructions for re-registration, the Trustee will reissue such Trust
Certificates as Definitive Trust Certificates issued in the respective stated
amounts owned by the individual owners of such Trust Certificates, and
thereafter the Trustee will recognize the holders of such Definitive Trust
Certificates as Trust Certificateholders under the Trust Agreement.
Collections and Distributions
Collections on the Underlying Securities that are received by the
Trustee for a Collection Period pursuant to the collection procedures described
herein and in the Prospectus and deposited from time to time into the Trust
Certificate Account will be applied by the Trustee on each applicable
Distribution Date to the following distributions in the following order of
priority, solely to the extent of Available Funds (as defined below) on such
Distribution Date:
(a) first, to the Trustee, reimbursement for any approved
Extraordinary Expenses incurred by the Trustee in accordance with
Section 6(b) of the Series Supplement and approved by not less than
100% of the Trust Certificateholders;
(b) second, pro rata to the holders of the Class A Trust
Certificates and Class B Trust Certificates, interest accrued during
the related Collection Period at the rate of 7.00% per annum on the
stated amount of the Class A Trust Certificates and 0.95% per annum
multiplied by the principal amount of the Underlying Securities (the
"Class B Payments") to holders of the Class B Trust Certificates on
such Distribution Date, commencing on April 15, 1999 and ending on the
Final Scheduled Distribution Date;
(c) third, pro rata to the holders of the Class A Trust
Certificates and Class B Trust Certificates, if available, any
additional payments owed and paid by the Underlying Securities Issuer
as a result of a delay in the receipt by the Trustee of any interest
payment on the Underlying Securities;
(d) fourth, to the holders of the Class A Trust Certificates,
on the Final Scheduled Distribution Date only, a distribution of the
principal amount of the Underlying Securities held by the Trust as of
such date;
(e) fifth, to the Trustee, the Ordinary Expenses (as defined
in the Trust Agreement); and
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(f) sixth, to the extent there are Available Funds in the
Certificate Account, to any creditors of the Trust in satisfaction of
liabilities thereto.
"Available Funds" for any Distribution Date means the sum of all
amounts received on or with respect to the Underlying Securities during the
preceding Collection Period. In order to reimburse the Trustee for Extraordinary
Expenses, however, not less than 100% of the Trust Certificateholders may elect
to sell a portion of the Underlying Securities such that the proceeds of such
sale would be sufficient to reimburse the Trustee for such Extraordinary
Expenses.
If the Trustee has not received payment on the Underlying Securities on
or prior to a Distribution Date, such distribution will be made upon receipt of
payment on the Underlying Securities. No additional amounts will accrue on the
Trust Certificates or be owed to Trust Certificateholders as a result of any
such delay; provided, however, that any additional interest owed and paid by the
Underlying Securities Issuer as a result of such delay shall be paid pro rata to
the Class A Trust Certificateholders and Class B Trust Certificateholders in
accordance with the Allocation Ratio. In the event of a payment default on the
Underlying Securities, approved Extraordinary Expenses (see "Description of the
Trust Agreement--The Trustee" herein) of the Trustee may be reimbursed to the
Trustee out of Available Funds before any distributions to Trust
Certificateholders are made.
All amounts received on or with respect to the Underlying Securities,
which are not distributed to Trust Certificateholders on the date of receipt,
shall be invested by the Trustee in Eligible Investments. Income on such
investments will constitute property of the Trust. "Eligible Investments" means,
with respect to the Trust Certificates, those investments consistent with the
Trust's status as a grantor trust under the Code and acceptable to the Rating
Agencies as being consistent with the rating of such Trust Certificates, as
specified in the Trust Agreement. Generally, Eligible Investments must be
limited to obligations or securities that mature not later than the Business Day
prior to the next succeeding Distribution Date.
There can be no assurance that collections received from the Underlying
Securities over a specified period will be sufficient to make all required
distributions to the Trust Certificateholders. To the extent Available Funds are
insufficient to make any such distributions due to Trust Certificateholders, any
shortfall will be carried over and will be distributable on the next
Distribution Date (if any) on which sufficient funds exist to pay such
shortfalls. The Depositor will pay the Ordinary Expenses of the Trustee.
Exchange of Trust Certificates
Merrill Lynch & Co. or any of its affiliates, other than the Depositor,
may, if it holds Class A Trust Certificates and a corresponding amount of Class
B Trust Certificates, notify the Trustee, not less than 30 (or such shorter
period acceptable to the Trustee) but not more than 45 days prior to a given
Distribution Date, that it intends to tender such Trust Certificates to the
Trustee on such Distribution Date; provided that such tender will not be made if
either (i) it would cause the Trust or Depositor to fail to satisfy the
applicable requirements for exemption under Rule 3a-7 under the Investment
Company Act of 1940 or (ii) such distribution would affect the characterization
of the Trust as a "grantor trust" under the Code. See "Description of the Trust
Certificates--Optional Exchange" in the Prospectus. Upon such tender, the
Trustee will deliver to such Trust Certificateholder Underlying Securities
having a principal amount equal to the stated amount of the Class A Trust
Certificates being tendered. The total amount of the Trust Assets will not be
decreased to under $5 million without the consent of the Trust
Certificateholders.
Default on Underlying Securities
If there is a payment default on the Underlying Securities or any other
default on the Underlying Securities that results in an acceleration of their
maturity, the Trustee will distribute Underlying Securities to the Class A Trust
Certificateholders and the Class B Trust Certificateholders in accordance with
the Allocation Ratio, as expressed in Annex A. The "Class A Allocation" is the
present value (discounted at the rate of 7.95% per annum) of (i) the unpaid
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interest, except for the Class B Payments, due or to become due on the
Underlying Securities on or prior to the Final Scheduled Distribution Date and
(ii) the principal amount of the Underlying Securities (in each case assuming
that the Underlying Securities are paid when due and are not redeemed prior to
their stated maturity). The "Class B Allocation" is the sum of the present
values (discounted at the rate of 7.95% per annum) of the unpaid payments due or
to become due in respect of the Class B Payments of the Underlying Securities.
If such a distribution would entitle any Trust Certificateholder to receive a
principal amount of Underlying Securities that is not an integral multiple of
the minimum denomination of the Underlying Securities, then such Trust
Certificateholder will not receive any such fractional amount. The Trustee will
sell a principal amount of Underlying Securities equal to such fractional amount
and will distribute the proceeds therefrom to such Trust Certificateholder.
Distributions upon Increase of Interest Rate Following an Acquisition Related
Rating Change
If there is increase in the Underlying Securities Interest Rate
following an Acquisition Related Rating Change (see "Description of the
Underlying Securities--Interest Rate and Maturity" herein), then the proceeds of
such interest rate increase will be allocated pro rata between the Class A Trust
Certificates and the Class B Certificates in accordance with the Allocation
Ratio.
THE DEPOSITOR
The Depositor, a Delaware corporation, is an indirect, wholly-owned,
limited-purpose subsidiary of Merrill Lynch & Co., Inc. The Depositor has not
guaranteed and is not otherwise obligated with respect to the Trust
Certificates.
The principal office of the Depositor is located at c/o Merrill Lynch &
Co., World Financial Center, New York, New York 10281 (Telephone: (212)
449-1000). See "The Depositor" in the Prospectus.
DESCRIPTION OF THE TRUST AGREEMENT
General
The Trust Certificates will be issued pursuant to the Trust Agreement,
a form of the Standard Terms of which is filed as an exhibit to the Registration
Statement. A Current Report on Form 8-K relating to the Trust Certificates
containing a copy of the Series Supplement as executed will be filed by the
Depositor with the Commission following the issuance and sale of the Trust
Certificates. The Trust created under the Trust Agreement will consist of (i)
the Deposited Assets and (ii) all payments on or collections in respect of the
Deposited Assets due after the Cut-off Date. Reference is made to the Prospectus
for important information in addition to that set forth herein regarding the
Trust, the terms and conditions of the Trust Agreement and the Trust
Certificates. The following summaries of certain provisions of the Trust
Agreement do not purport to be complete and are subject to the detailed
provisions contained therein, to which reference is hereby made for a full
description of such provisions, including the definition of certain terms used
herein.
The discussions in the Prospectus under "Description of the Trust
Agreement--Advances in Respect of Delinquencies", "--Certain Matters Regarding
the Trustee, the Administrative Agent, and the Depositor" (to the extent the
discussion relates to the Administrative Agent), "--Administrative Agent
Termination Events; Rights upon Administrative Agent Termination Event", and
"--Evidence as to Compliance" are not applicable to the Trust Certificates.
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The Trustee
United States Trust Company of New York will act as the Trustee for the
Trust Certificates and the Trust pursuant to the Trust Agreement. The Trustee's
offices are located at 114 West 47th Street, New York, New York 10036 and its
telephone number is (212) 852-1623.
The Trust Agreement will provide that the Trustee may not take any
action that, in the Trustee's opinion, would or might cause it to incur
Extraordinary Expenses, unless (i) the Trustee is satisfied that it will have
adequate security or indemnity in respect of such costs, expenses and
liabilities, (ii) the Trustee has been instructed to do so by Trust
Certificateholders representing not less than the Required Percentage-Remedies
(as defined below) of the aggregate principal amount of outstanding Trust
Certificates, and (iii) the Trust Certificateholders have agreed that such costs
will be paid by the Trustee (x) from the Trust (in the case of an affirmative
vote of 100% of the Trust Certificateholders) or (y) out of the Trustee's own
funds (in which case the Trustee can receive reimbursement from the Trust
Certificateholders voting in favor of such proposal). Extraordinary Expenses
that may be reimbursed to the Trustee from the Trust may be reimbursed out of
Available Funds on any Distribution Date before any distributions to Trust
Certificateholders on such Distribution Date are made.
Events of Default
An event of default with respect to the Trust Certificates under the
Trust Agreement (an "Event of Default") will consist of (i) a default in the
payment of any interest on any Underlying Security after the same becomes due
and payable (subject to any applicable grace period); (ii) a default in the
payment of the principal of or any installment of principal of any Underlying
Security when the same becomes due and payable; and (iii) any other event
specified as an event of default in the Indenture.
The Trust Agreement will provide that, within 30 days after the
occurrence of an Event of Default in respect of the Trust Certificates, the
Trustee will give notice to the Trust Certificateholders, transmitted by mail,
of all such uncured or unwaived Events of Default known to it. However, except
in the case of an Event of Default relating to the payment of principal or
interest on any of the Underlying Securities, the Trustee will be protected in
withholding such notice if in good faith it determines that the withholding of
such notice is in the interest of the Trust Certificateholders.
No Trust Certificateholder will have the right to institute any
proceeding with respect to the Trust Agreement, unless (i) such Trust
Certificateholder previously has given to the Trustee written notice of a
continuing breach, (ii) Trust Certificateholders evidencing not less than the
Required Percentage-Remedies of the aggregate Voting Rights have requested in
writing that the Trustee institute such proceeding in its own name as Trustee,
(iii) such Trust Certificateholder or Trust Certificateholders have offered the
Trustee reasonable indemnity, (iv) the Trustee has for 15 days failed to
institute such proceeding and (v) no direction inconsistent with such written
request has been given to the Trustee during such 15-day period by Trust
Certificateholders evidencing not less than the Required Percentage- Remedies of
the aggregate Voting Rights. "Required Percentage-Remedies" shall mean 66 2/3%
of the Voting Rights.
Voting Rights
At all times, 100% of all Voting Rights will be allocated between the
Class A Trust Certificates and the Class B Trust Certificates in accordance with
the Allocation Ratio. Within each such Class, Voting Rights shall be allocated
among Trust Certificateholders in proportion to the then outstanding principal
amounts, or principal amounts at maturity, as the case may be, of their
respective Trust Certificates. The "Required Percentage-Amendment" of Voting
Rights necessary to consent to such modification or amendment shall be 66 2/3%.
Notwithstanding the foregoing, in addition to the other restrictions on
modification and amendment, the Trustee will not enter into any amendment or
modification of the Trust Agreement that would adversely affect in any material
respect the interests of the holders of a Class of Trust Certificates without
the consent of the holders of 66 2/3% of such Class of Trust
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Certificates; provided, however, that no such amendment or modification will be
permitted which would alter the status of the Trust as a grantor trust under the
Code. See "Description of the Trust Agreement--Modification and Waiver" in the
Prospectus.
Voting of Underlying Securities; Modification of Indenture
The Trustee, as holder of the Underlying Securities, has the right to
vote and give consents and waivers in respect of such Underlying Securities as
permitted by DTC and except as otherwise limited by the Trust Agreement. If the
Trustee receives a request from DTC, the Underlying Securities Trustee or the
Underlying Securities Issuer for its consent to any amendment, modification or
waiver of the Underlying Securities, the Indenture or any other document
thereunder or relating thereto, or receives any other solicitation for any
action with respect to the Underlying Securities, the Trustee promptly shall
notify each Trust Certificateholder of record as of such date and the Ratings
Agencies of such proposed amendment, modification, waiver or solicitation. The
Trustee shall request instructions from the Trust Certificateholders as to
whether or not to consent to or vote to accept such amendment, modification,
waiver or solicitation. The Trustee shall consent or vote, or refrain from
consenting or voting, in the same proportion (based on the relative outstanding
principal balances of the Trust Certificates) as the Trust Certificates of the
Trust were actually voted or not voted by the Trust Certificateholders thereof
as of a date determined by the Trustee prior to the date on which such consent
or vote is required, after weighing the votes of the Class A Trust
Certificateholders and the votes of the Class B Trust Certificateholders
according to the Allocation Ratio; provided, however, that, notwithstanding
anything to the contrary, the Trustee shall at no time vote or consent to any
matter (i) unless such vote or consent would not (based on an Opinion of
Counsel) alter the status of the Trust as a grantor trust under the Code, (ii)
that would alter the timing or amount of any payment on the Underlying
Securities, other than any demand to accelerate the Underlying Securities,
except in the event of an Underlying Security event of default or an event that
with the passage of time would become an Underlying Security event of default
and only with the consent of Trust Certificateholders representing 100% of the
outstanding Class A and Class B Trust Certificates, (iii) that would constitute
a demand to accelerate the Underlying Securities, except in the event of an
Underlying Security event of default or an event that with the passage of time
would become an Underlying Security event of default and only with the consent
of Trust Certificateholders representing 66 2/3% of the outstanding Class A and
Class B Trust Certificates and provided that the Trustee has received the
Opinion of Counsel described in (i) above, or (iv) that would result in the
exchange or substitution of any of the outstanding Underlying Securities
pursuant to a plan for the refunding or refinancing of such Underlying
Securities, except in the event of a default under the Indenture and only with
the consent of Trust Certificateholders representing 66 2/3% of the outstanding
Class A and Class B Trust Certificates and provided that the Trustee has
received the Opinion of Counsel described in (i) above. The Trustee shall have
no liability for any failure to act resulting from Trust Certificateholders'
late return of, or failure to return, directions requested by the Trustee from
the Trust Certificateholders.
If an event of default under the Indenture occurs and is continuing and
if directed by the outstanding Class A and Class B Trust Certificateholders as
described above, the Trustee shall vote the Underlying Securities in favor of
directing, or take such other action as may be appropriate to direct, the
Underlying Securities Trustee to declare the unpaid principal amount of the
Underlying Securities and any accrued and unpaid interest thereon to be due and
payable. In connection with a vote concerning whether to demand the acceleration
of the Underlying Securities, the interests of the Trust Certificateholders may
differ from each other and from those of other holders of outstanding Indenture
Securities issued by the Underlying Securities Issuer.
Termination of the Trust
The Trust shall terminate upon the earliest to occur of (i) the
distribution in full of all amounts due to the Class A and Class B
Certificateholders after a payment default on the Underlying Securities, (ii)
the exchange of all outstanding Class A and Class B Trust Certificates for
Underlying Securities pursuant to one or more Optional Exchanges and (iii) the
distribution in full of all amounts due to Class A and Class B Trust
Certificateholders on the Final Scheduled Distribution Date. See "Description of
the Trust Agreement--Termination" in the Prospectus.
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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
principal amount of the Underlying Securities is $26,751,000. 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.
The primary economic terms of the Underlying Securities are described in
"Prospectus Supplement Summary--The Underlying Securities" herein. Unless
specified otherwise, all section references in this "Description of the
Underlying Securities" are to sections in the Indenture.
This Prospectus Supplement sets forth certain relevant terms with
respect to the Underlying Securities, but does not provide detailed information
with respect to the Underlying Securities or the Underlying Securities Issuer.
This Prospectus Supplement relates only to the Trust Certificates offered hereby
and does not relate to the Underlying Securities. All disclosure contained
herein with respect to the Underlying Securities Issuer and the Underlying
Securities is derived from publicly available documents.
The Underlying Securities Issuer is not participating in, and will not
receive any proceeds in connection with, the offering of the Trust Certificates.
The Underlying Securities were purchased in the secondary market and will be
deposited into the Trust. The Underlying Securities were not acquired either
from the Underlying Securities Issuer or pursuant to any distribution by or
agreement with the Underlying Securities Issuer.
The Underlying Securities convert into cash in a finite time period and
the Underlying Securities Issuer is: (a) subject to the periodic reporting
requirements of the Exchange Act and (b) eligible to use a Registration
Statement on Form S-3 for a primary offering.
According to the Underlying Securities Issuer's publicly available
documents, its principal executive offices are located at 9336 Civic Center
Drive, Beverly Hills, California 90210 and its telephone number is (310)
278-4321. The Underlying Securities Issuer is subject to the informational
requirements of the Exchange Act and, in accordance therewith, files reports,
proxy and information statements and other information with the Commission. Such
reports, proxy and information statements and other information can be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 and at the following Regional
Offices of the Commission: 7 World Trade Center, Suite 1300, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. In addition, the Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically, such as the Underlying
Securities Issuer. The address of the Commission's Web site is
http://www.sec.gov. Such reports, proxy and information statements and other
information of or concerning the Underlying Securities Issuer also can be
inspected and copied at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005.
Although the Depositor has no reason to believe the information
concerning the Underlying Securities or the Underlying Securities Issuer
contained in the Underlying Securities Prospectus is not reliable, the Depositor
has not participated in the preparation of such documents, or made any due
diligence inquiry with respect to the information provided therein. There can be
no assurance that events affecting the Underlying Securities or the Underlying
Securities Issuer have not occurred or have not yet been publicly disclosed
which would affect the accuracy or completeness of the publicly available
documents described above.
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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. PROSPECTIVE PURCHASERS OF THE TRUST
CERTIFICATES SHOULD CONSIDER CAREFULLY THE FINANCIAL CONDITION OF THE UNDERLYING
SECURITIES ISSUER AND ITS ABILITY TO MAKE PAYMENTS IN RESPECT OF SUCH UNDERLYING
SECURITIES. THIS PROSPECTUS SUPPLEMENT RELATES ONLY TO THE TRUST CERTIFICATES
BEING OFFERED HEREBY AND DOES NOT RELATE TO THE UNDERLYING SECURITIES OR THE
UNDERLYING SECURITIES ISSUER. ALL INFORMATION CONTAINED IN THIS PROSPECTUS
SUPPLEMENT REGARDING THE UNDERLYING SECURITIES ISSUER AND THE UNDERLYING
SECURITIES IS DERIVED FROM PUBLICLY AVAILABLE DOCUMENTS. NONE OF THE DEPOSITOR,
THE UNDERWRITER, THE SECURITIES INTERMEDIARY OR THE TRUSTEE PARTICIPATED IN THE
PREPARATION OF SUCH DOCUMENTS OR TAKES ANY RESPONSIBILITY FOR THE ACCURACY OR
COMPLETENESS OF THE INFORMATION PROVIDED THEREIN.
Underlying Securities Indenture
The Underlying Securities were issued under the Indenture, which
provided for the issuance of Indenture Securities, of which the Underlying
Securities are a series. The Underlying Securities are approximately 7.1% of the
issue of Indenture Securities, which issue totaled $375,000,000. The following
summaries of certain provisions of the Indenture Securities, the Underlying
Securities and the Indenture do not purport to be complete and are based upon
the Underlying Securities Prospectus relating to the Indenture Securities and
the Underlying Securities and are subject to, and are qualified in their
entirety by reference to, all provisions of the Indenture Securities, the
Underlying Securities and the Indenture, including the definitions therein of
certain terms. Wherever particular sections or defined terms of the Indenture
are referred to, it is intended that such sections or defined terms shall be
incorporated herein by reference. Investors should refer to the Indenture itself
for all terms governing the Underlying Securities.
Reference is made to the Underlying Securities Prospectus for the terms
of the Underlying Securities not set forth herein. Principal, premium, if any,
and interest will be payable, and the Underlying Securities will be
transferable, in the manner described in the Underlying Securities Prospectus.
The Underlying Securities constitute unsecured senior indebtedness of the
Underlying Securities Issuer.
Federal income tax consequences applicable to the Underlying Securities
are described in the Underlying Securities Prospectus.
The Underlying Securities will be issued only in fully registered
book-entry form without coupons in denominations of $1,000 and integral
multiples thereof, except under the limited circumstances described below under
"--Book-Entry, Delivery and Form".
Reference is made to the section entitled "Description of Debt
Securities" in the Underlying Securities Prospectus and "--Additional Covenants
of the Company" below for a description of the covenants applicable to the
Underlying Securities. Compliance with such covenants generally may not be
waived by the Underlying Securities Trustee unless the holders of at least a
majority in principal amount of all outstanding Underlying Securities consent to
such waiver; provided, however, that the Underlying Securities Issuer need not
comply with such covenants in the event it elects to comply with the defeasance
or covenant defeasance provisions of the Underlying Securities Indenture
described under "Description of Debt Securities--Defeasance of Debt Securities
or Certain Covenants in Certain Circumstances" in the accompanying Underlying
Securities Prospectus. The Underlying Securities Issuer and the Underlying
Securities Trustee may amend the terms of the covenants set forth below under
"--Additional Covenants of the Company" with the written consent of the holders
of not less than a majority in principal amount of the outstanding Underlying
Securities.
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Except as described under "Description of Debt Securities--Merger,
Consolidation or Sale of Assets" in the Underlying Securities Prospectus,
"--Interest Rate and Maturity" or "--Additional Covenants of the Company" below,
the Underlying Securities Indenture does not contain any other provisions that
would afford holders of the Underlying Securities protection in the event of (i)
a highly leveraged or similar transaction involving the Underlying Securities
Issuer, (ii) a change of control, or (iii) a reorganization, restructuring,
merger or similar transaction involving the Underlying Securities Issuer that
may adversely affect the holders of the Underlying Securities. In addition,
subject to the limitations set forth under "Description of Debt
Securities--Merger, Consolidation or Sale of Assets" in the Underlying
Securities Prospectus, the Underlying Securities Issuer may, in the future,
enter into certain transactions such as the sale of all or substantially all of
its assets or the merger or consolidation of the Underlying Securities Issuer
with another entity that would increase the amount of the Underlying Securities
Issuer's indebtedness or substantially reduce or eliminate the Underlying
Securities Issuer's assets, which may have an adverse effect on the Underlying
Securities Issuer's ability to service its indebtedness, including the
Underlying Securities.
Interest Rate and Maturity
The Underlying Securities Issuer's current senior unsecured debt rating
by (i) Moody's of Baa1 is under review for possible downgrade and (ii) S&P of
BBB is on CreditWatch with negative implications.
The interest rate payable on the Underlying Securities shall be subject
to adjustment in the event of an Acquisition Related Rating Change. The "Initial
Interest Rate" means 7.95% per annum. The Underlying Securities shall bear
interest at the Initial Interest Rate from the date of issuance of the
Underlying Securities to but excluding the calendar day, if any, on which the
first Acquisition Related Rating Change occurs. Each calendar day on which an
Acquisition Related Rating Change occurs is a "Reset Date." Beginning with each
Reset Date, if any (unless such Reset Date occurs between a record date and an
Interest Payment Date (as defined herein) in which case beginning on such
Interest Payment Date), the Underlying Securities shall bear interest at the
rate per annum equal to the Adjusted Coupon as set forth in the table below (if
only one rating is available) or the average of the Moody's and S&P Adjusted
Coupons (if both ratings are available) shown in the table below, according to
the applicable ratings of Moody's and S&P in effect at the close of business on
that Reset Date; provided, however, that if either such rating is B1 or below by
Moody's or B+ or below by S&P, independent of the other rating, then the
Underlying Securities shall bear interest at a rate per annum equal to 10.10%,
subject to change on the next Reset Date, if any. In the event (i) there has
been an Acquisition Related Rating Change relating to an Acquisition Event, and
(ii) either (a) the consummation of such Acquisition Event has not occurred and
as a result the Underlying Securities Issuer's senior unsecured debt rating is
increased by either S&P or Moody's, or (b) within 365 days following the
consummation of such Acquisition Event the Underlying Securities Issuer's senior
unsecured debt rating is changed by either S&P or Moody's, then the interest
rate on the Underlying Securities will be reset based on the methodology set
forth above (with such change in rating taking the place of an Acquisition
Related Rating Change in such methodology).
Rating Category
- ---------------------------------------------------------
Adjusted
Moody's S&P Coupon
- ------------------------ --------------------- -----------------
Baa3 or above BBB- or above 7.95%
Ba1 BB+ 8.60%
Ba2 BB 8.95%
Ba3 BB- 9.35%
B1 or below B+ or below 10.10%
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When any change in the interest rate on the Underlying Securities
occurs during any interest payment period, the amount of interest to be paid
with respect to such period shall be calculated at a rate per annum equal to the
weighted average of the interest rate in effect immediately prior to such change
and the Adjusted Coupon or Initial Interest Rate, as applicable, in effect
during such interest payment period, calculated by multiplying each such rate by
the number of days such rate is in effect during each month of such interest
payment period, determining the sum of such products and dividing such sum by
the number of days in such interest payment period. All calculations pursuant to
the preceding sentence and of interest on the Underlying Securities will be
computed on the basis of a year of twelve 30-day months, and all such changes
shall be announced promptly by the Underlying Securities Issuer in a written
press release detailing the days during which any such interest rate has been
(and assuming no further change in interest rate prior to the next applicable
record date, will be) in effect during such interest payment period and the
amount of the interest payment due on the next Interest Payment Date (as defined
herein) (assuming no further change in interest rate prior to the next
applicable record date).
In the event the Underlying Securities Issuer elects to defease the
Underlying Securities pursuant to the defeasance provisions of the Indenture as
described in the accompanying Underlying Securities Prospectus under "Defeasance
of Debt Securities or Certain Covenants in Certain Circumstances," the interest
rate in effect for the Underlying Securities on the date of the irrevocable
deposit of the money and/or U.S. Government Obligations as trust funds in trust
for the benefit of the holders of the Underlying Securities shall be the rate
used by the Underlying Securities Issuer in calculating the requisite interest
and principal payments necessary to defease the Underlying Securities (the
"Defeasance Coupon"). The Adjusted Coupon and the Defeasance Coupon shall not
thereafter be affected by any change in rating.
Interest on the Underlying Securities shall be payable semiannually in
arrears on April 15 and October 15 of each year, commencing on October 15, 1997
(each, an "Interest Payment Date"), to the person in whose name a Senior Note
(or any predecessor Note) is registered at the close of business on April 1 or
October 1, as the case may be, next preceding such Interest Payment Date.
The Underlying Securities will mature on April 15, 2007. The Underlying
Securities are not subject to any redemption or sinking fund provisions.
Additional Covenants of the Underlying Securities Issuer
Reference is made to the section entitled "Description of Debt
Securities" in the accompanying Underlying Securities Prospectus for a
description of certain covenants applicable to the Underlying Securities. In
addition to the foregoing, the following covenants of the Underlying Securities
Issuer will apply to the Underlying Securities for the benefit of the holders of
the Underlying Securities:
Limitation on Liens. Other than as set forth below under "--Exempted
Liens and Sale and Lease-Back Transactions," neither the Underlying Securities
Issuer nor any Restricted Subsidiary will create, assume or suffer to exist any
Lien (i) upon any Principal Property, (ii) upon any shares of capital stock of
any Restricted Subsidiary owned by the Underlying Securities Issuer or any
Restricted Subsidiary or (iii) securing Debt of any Restricted Subsidiary,
without equally and ratably securing the Underlying Securities with (or prior
to) the Debt secured by such Lien, for so long as such Debt shall be so secured,
provided, however, that this limitation will not apply to (a) Liens existing on
the date of issuance of the Underlying Securities; (b) Liens existing (i) on
property at the time of acquisition thereof by the Underlying Securities Issuer
or a Restricted Subsidiary (whether such property is acquired through a merger,
a consolidation or otherwise), or (ii) on property or securing Debt of, or an
equity interest in, any corporation, partnership or other entity at the time
such corporation, partnership or other entity becomes a Restricted Subsidiary;
(c) Liens to secure Debt with respect to all or any part of the acquisition cost
or the cost of construction or improvement of property, provided such Debt is
incurred and related Liens are created within 24 months of the acquisition,
completion of construction or improvement or commencement of full operation,
whichever is later, and such Debt does not exceed the aggregate amount of the
acquisition cost and/or the construction cost thereof; (d) Liens
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on shares of capital stock or property of a Restricted Subsidiary to secure Debt
with respect to all or part of the acquisition cost of such Restricted
Subsidiary, provided that such Debt is incurred and related Liens are created
within 24 months of the acquisition of such Restricted Subsidiary and such Debt
does not exceed the acquisition cost of such Restricted Subsidiary; (e) Liens to
secure Debt incurred to construct additions to, or to make Capital Improvements
to, properties of the Underlying Securities Issuer or any Restricted Subsidiary,
provided such Debt is incurred and related Liens are created within 24 months of
completion of construction or Capital Improvements and such indebtedness does
not exceed the cost of such construction or Capital Improvements; (f) Liens in
favor of the Underlying Securities Issuer or another Restricted Subsidiary; (g)
Liens to secure Debt on which interest payments are exempt from Federal income
tax under Section 103 of the Internal Revenue Code of 1986, as amended; (h)
Liens on the capital stock, partnership or other equity interests of the
Underlying Securities Issuer or any Restricted Subsidiary in any Joint Venture
or any Restricted Subsidiary which owns an equity interest in such Joint Venture
to secure Debt, provided the amount of such Debt is contributed and/or advanced
solely to such Joint Venture; (i) any extension, renewal or replacement, in
whole or in part, of any Liens referred to in the foregoing clauses (a) through
(h) or of any Debt secured thereby, including premium, if any, provided that the
aggregate principal amount secured does not exceed (x) the greater of (i) the
principal amount secured thereby at the time of such extension, renewal or
replacement, or, as the case may be, repayment or extinguishment and (ii) 80% of
the fair market value (in the opinion of the Underlying Securities Issuer's
board of directors) of the properties subject to such extension, renewal or
replacement plus (y) any reasonable fees and expenses associated with such
extension, renewal or replacement, and provided further that in the case of a
replacement thereof, such Debt is incurred and related Liens are created within
24 months of the repayment or extinguishment of the Debt or Liens referred to in
the foregoing clauses (a) through (h); (j) purchase money liens on personal
property; (k) Liens to secure payment of workers' compensation or insurance
premiums, or relating to tenders, bids or contracts (except contracts for the
payment of money); (l) Liens in connection with tax assessments or other
governmental charges, or as security required by law or governmental regulation
as a condition to the transaction of any business or the exercise of any
privilege or right; (m) mechanic's, materialman's, carrier's or other like
Liens, arising in the ordinary course of business; and (n) Liens in favor of any
domestic or foreign government or governmental body in connection with
contractual or statutory obligations.
Limitation on Sale and Lease-Back Transactions. Other than as provided
below under "--Exempted Liens and Sale and Lease-Back Transactions," neither the
Underlying Securities Issuer nor any Restricted Subsidiary will enter into any
arrangement with any lessor (other than the Underlying Securities Issuer or a
Restricted Subsidiary), providing for the lease to the Underlying Securities
Issuer or a Restricted Subsidiary for a period of more than three years
(including renewals at the option of the lessee) of any Principal Property that
has been or is to be sold or transferred by the Underlying Securities Issuer or
such Restricted Subsidiary to such lessor or to any other Person, and for which
funds have been or are to be advanced by such lessor or other Person on the
security of the leased property ("Sale and Lease-Back Transaction"), unless
either (a) the Underlying Securities Issuer or such Restricted Subsidiary would
be entitled, pursuant to the provisions described in clauses (a) through (n)
under "--Limitation on Liens" above, to create, assume or suffer to exist a Lien
on the property to be leased without equally and ratably securing the Underlying
Securities, or (b) an amount equal to (i) the greater of the net cash proceeds
of such sale or the fair market value of such property (in the opinion of the
Underlying Securities Issuer's board of directors) less (ii) the fair market
value (in the opinion of the Underlying Securities Issuer's board of directors)
of any noncash proceeds of the sale of such property (provided such noncash
proceeds constitute "Principal Property," acquired on the date the property sold
in the Sale and Lease-Back Transaction was acquired by the Underlying Securities
Issuer or any of its Restricted Subsidiaries), is applied within 180 days to the
retirement or other discharge of the Underlying Securities or Debt ranking on a
parity with the Underlying Securities.
Exempted Liens and Sale and Lease-Back Transactions. Notwithstanding
the restrictions set forth in "--Limitation on Liens" and "--Limitation on Sale
and Lease-Back Transactions," the Underlying Securities Issuer or any Restricted
Subsidiary may create, assume or suffer to exist Liens or enter into Sale and
Lease-Back Transactions not otherwise permitted as described above, provided
that at the time of such event, and after giving effect thereto, the sum of
outstanding Debt secured by such Liens (not including Liens permitted under
"--Limitation on Liens" above) plus all Attributable Debt in respect of such
Sale and Lease-Back Transactions entered into (not including Sale
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and Lease-Back
Transactions permitted under "Limitation on Sale and Lease-Back Transactions"),
measured, in each case, at the time any such Lien is incurred or any such Sale
and Lease-Back Transaction is entered into, by the Underlying Securities Issuer
and Restricted Subsidiaries does not exceed 15% of Consolidated Net Tangible
Assets.
Compliance with Gaming Laws
Each holder of a Senior Note, by accepting any Senior Note, shall be
deemed to have agreed to be bound by the requirements imposed on holders of debt
securities of the Underlying Securities Issuer by the gaming authority of any
jurisdiction of which the Underlying Securities Issuer or any of its
subsidiaries conducts or proposes to conduct gaming activities. For a
description of the regulatory requirements applicable to the Underlying
Securities Issuer, see "Regulation and Licensing" and "Additional
Information--Regulation and Licensing" in the Underlying Securities Issuer's
public information.
Certain Definitions
The following definitions apply to this section only:
"Acquisition Event" means a transaction or series of transactions that
constitute related steps that are part of a single transaction, with respect to
which a Public Notice has been given at any time on or before April 15, 2000,
the aggregate consideration of which exceeds $1,000,000,000, and which involves
a merger or consolidation, whether direct or indirect, of any Person, with or
into the Underlying Securities Issuer or of the Underlying Securities Issuer
with or into any Person, or any sale, transfer or other conveyance, whether
direct or indirect, of any assets of any Person to the Underlying Securities
Issuer or of substantially all of the assets of the Underlying Securities Issuer
to any Person.
"Acquisition Related Rating Change" means the occurrence on or within
90 days after the date of a Public Notice (which period shall be extended so
long as the rating of the Underlying Securities Issuer's senior unsecured debt
is (i) under review by Moody's, other than for possible upgrade or (ii) on
CreditWatch by S&P, other than with positive implications) of a decrease in the
rating of the Underlying Securities Issuer's senior unsecured debt by Moody's or
S&P attributable in whole or in part, directly or indirectly, to an Acquisition
Event.
"Attributable Debt" with respect to any Sale and Lease-Back Transaction
that is subject to the restrictions described under "--Limitation on Sale and
Lease-Back Transactions" means the present value of the minimum rental payments
called for during the term of the lease (including any period for which such
lease has been extended), determined in accordance with generally accepted
accounting principles, discounted at a rate that, at the inception of the lease,
the lessee would have incurred to borrow over a similar term the funds necessary
to purchase the leased assets.
"Capital Improvements" means additions to properties or renovations or
refurbishing of properties which are designed to substantially upgrade such
properties or significantly modernize the operation thereof.
"Debt" means Underlying Securities, bonds, debentures or other similar
evidences of Debt for borrowed money or any guarantee of any of the foregoing.
"Joint Venture" means any partnership, corporation or other entity, in
which up to and including 50% of the partnership interests, outstanding voting
stock or other equity interest is owned, directly or indirectly, by the
Underlying Securities Issuer and/or one or more Subsidiaries.
"Lien" means any mortgage, pledge, lien, encumbrance or other security
interest to secure payment of Debt.
"Moody's" means Moody's Investors Service, Inc.
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"Principal Property" means any real estate or other physical facility
or depreciable asset, the net book value of which on the date of determination
exceeds the greater of $25 million or 2% of Consolidated Net Tangible Assets of
the Underlying Securities Issuer.
"Public Notice" means a written press release, governmental filing, or
statement of a representative of the Underlying Securities Issuer reported in
the media announcing that the Underlying Securities Issuer has engaged, will
engage, intends or seeks to engage in an Acquisition Event.
"Restricted Subsidiary" means any Subsidiary of the Underlying
Securities Issuer organized and existing under the laws of the United States of
America and the principal business of which is carried on within the United
States of America (x) which owns, or is a lessee pursuant to a capital lease of,
any Principal Property or (y) in which the investment of the Underlying
Securities Issuer and all its Subsidiaries exceeds 5% of Consolidated Net
Tangible Assets as of the date of such determination other than, in the case of
either clause (x) or (y), (i) each Subsidiary whose business primarily consists
of finance, banking, credit, leasing, insurance, financial services or other
similar operations, or any combination thereof, (ii) each Subsidiary formed or
acquired after the date hereof for the purpose of developing new assets or
acquiring the business or assets of another Person and which does not acquire
any part of the business or assets of the Underlying Securities Issuer or any
Restricted Subsidiary and (iii) Subsidiaries whose principal business is
conducting the Underlying Securities Issuer's timeshare businesses.
"S&P" means Standard & Poor's Corporation.
"Subsidiary" means any corporation of which at least a majority of the
outstanding stock having by the terms thereof ordinary voting power to elect a
majority of the directors of such corporation is, at the time, directly or
indirectly, owned by the Underlying Securities Issuer or by one or more
Subsidiaries thereof, or by the Underlying Securities Issuer and one or more
Subsidiaries.
Book-Entry, Delivery and Form
Except as set forth below, the Underlying Securities will initially be
issued in the form of one or more registered Underlying Securities in global
form (the "Global Underlying Securities"). Each Global Underlying Security will
be deposited on the date of the closing of the sale of the Underlying Securities
(the "Underlying Securities Closing Date") with, or on behalf of, The Depository
Trust Company (the "Depositary") and registered in the name of Cede & Co., as
nominee of the Depositary.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, 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
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock Exchange,
Inc., the American Stock Exchange, Inc. and the National Association of
Securities Dealers, Inc. Access to the DTC system is also available to others
such as securities brokers and dealers, banks and trust companies that clear
through or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the Securities and Exchange Commission.
The Underlying Securities Issuer expects that pursuant to procedures
established by the Depositary (i) upon deposit of the Global Underlying
Securities, the Depositary will credit the accounts of Participants designated
by the
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Underwriters with an interest in the applicable Global Underlying
Securities and (ii) ownership of the Underlying Securities evidenced by the
Global Underlying Securities will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to the interests of Participants), the Participants and the
Indirect Participants. The laws of some states require that certain persons take
physical delivery in definitive form of securities that they own and that
security interests in negotiable instruments can only be perfected by delivery
of certificates representing the instruments. Consequently, the ability to
transfer Underlying Securities evidenced by the Global Underlying Securities
will be limited to such extent.
So long as the Depositary or its nominee is the registered owner of a
Senior Note, the Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the Underlying Securities represented by
the Global Underlying Securities for all purposes under the Indenture. Except as
provided below, owners of beneficial interests in a Global Underlying Security
will not be entitled to have Underlying Securities represented by such Global
Underlying Security registered in their names, will not receive or be entitled
to receive physical delivery of Underlying Securities in certificated form
("Certificated Underlying Securities"), and will not be considered the owners or
holders thereof under the Indenture for any purpose, including with respect to
the giving of any directions, instructions or approvals to the Underlying
Securities Trustee thereunder. As a result, the ability of a person having a
beneficial interest in Underlying Securities represented by a Global Underlying
Security to pledge such interest to persons or entities that do not participate
in the Depositary's system, or to otherwise take actions with respect to such
interest, may be affected by the lack of a physical certificate evidencing such
interest.
Neither the Underlying Securities Issuer nor the Underlying Securities
Trustee will have any responsibility or liability for any aspect of the records
relating to or payments made on account of Underlying Securities by the
Depositary, or for maintaining, supervising or reviewing any records of the
Depositary relating to such Underlying Securities.
Payments with respect to the principal of, premium, if any, and
interest on, any Senior Note represented by a Global Underlying Security
registered in the name of the Depositary or its nominee on the applicable record
date will be payable by the Underlying Securities Trustee to, or at the
direction of, the Depositary or its nominee in its capacity as the registered
holder of the Global Underlying Security representing such Underlying Securities
under the Indenture. Under the terms of the Indenture, the Underlying Securities
Issuer and the Underlying Securities Trustee may 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 Underlying
Securities Issuer nor the Underlying Securities Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial owners
of Underlying Securities (including principal, premium, if any, or interest), or
to immediately credit the accounts of the relevant Participants with such
payment, in amounts proportionate to their respective holdings in principal
amount of beneficial interests in the Global Underlying Security as shown on the
records of the Depositary. Payments by the Participants and the Indirect
Participants to the beneficial owners of Underlying Securities will be governed
by standing instructions and customary practice and will be the responsibility
of the Participants or the Indirect Participants.
Certificated Underlying Securities
If (i) the Underlying Securities Issuer notifies the Underlying
Securities Trustee in writing that the Depositary is no longer willing or able
to act as a depositary and the Underlying Securities Issuer is unable to locate
a qualified successor within 90 days or (ii) the Underlying Securities Issuer,
at its option, notifies the Underlying Securities Trustee in writing that it
elects to cause the issuance of Underlying Securities in certificated form under
the Indenture, then, upon surrender by the Depositary of the applicable Global
Underlying Securities, Certificated Underlying Securities will be issued to each
person that the Depositary identifies as the beneficial owner of the Underlying
Securities represented by such Global Underlying Securities. In addition,
subject to the conditions set forth in the Indenture, any person having a
beneficial interest in a Global Underlying Security may, upon request to the
Underlying Securities Trustee, exchange such beneficial interest for Underlying
Securities in the form of Certificated
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Underlying Securities. Upon any such issuance, the Underlying Securities Trustee
is required to register such Certificated Underlying Securities in the name of
such person or persons (or the nominee of any thereof), and cause the same to be
delivered thereto.
Neither the Underlying Securities Issuer nor the Underlying Securities
Trustee shall be liable for any delay by the Depositary or any Participant or
Indirect Participant in identifying the beneficial owners of the Underlying
Securities, and the Underlying Securities Issuer and the Underlying Securities
Trustee may conclusively rely on, and shall be protected in relying on,
instructions from the Depositary for all purposes (including with respect to the
registration and delivery, and the respective principal amounts, of the
Underlying Securities to be issued).
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the
Underlying Securities Issuer believes to be reliable. The Underlying Securities
Issuer will have no responsibility for the performance by the Depositary or its
Participants of their respective obligations as described hereunder or under the
rules and procedures governing their respective operations.
Same-Day Funds Settlement and Payment
Settlement for the Underlying Securities will be made by the
Underwriters (as defined herein) in immediately available funds. Payments in
respect of the Underlying Securities represented by the Global Underlying
Securities (including principal, premium, if any, and interest) will be made in
immediately available funds to the accounts specified by the Depositary. With
respect to Underlying Securities represented by Certificated Underlying
Securities, the Underlying Securities Issuer will make all payments of
principal, premium, if any, and interest, by mailing a check to the registered
address of each holder of such Underlying Securities. The Underlying Securities
will trade in the Depositary's Same-Day Funds Settlement System until maturity,
or until the Underlying Securities are issued in certificated form, and
secondary market trading activity in the Underlying Securities will therefore be
required by the Depositary to settle in immediately available funds. No
assurance can be given as to the effect, if any, of settlement in immediately
available funds on trading activity in the Underlying Securities.
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 Class B Trust
Certificates by an initial holder of the Class B Trust Certificates. This
section supersedes the discussion contained in the Prospectus under "Federal
Income Tax Consequences".
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 Class B Trust Certificates as capital assets
(generally, property held for investment) within the meaning of Section 1221 of
the Code, and do not hold their Class B 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 Class B 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 Class B Trust
Certificates may differ substantially from that described below. Investors
should consult their own advisors to determine the federal, state, local and
other tax consequences of the purchase, ownership and disposition of the Class B
Trust Certificates.
Tax Status of Trust
In the opinion of Shearman & Sterling, special federal income tax
counsel to the Depositor, the Trust will
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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. This paragraph and the remainder of this discussion assume that, for
federal income tax purposes, the Underlying Securities as originally issued
constitute indebtedness.
Income of Class B Trust Certificateholders
In General
The Trust Certificates will constitute ownership of a stripped debt
instrument under Section 1286 of the Code. As a result, the Trust Certificates
represent ownership of newly issued indebtedness of the Underlying Securities
Issuer for federal income tax purposes. The newly issued indebtedness
represented by a Class B Trust Certificate is referred to herein as the "Debt
Instrument".
Original Issue Discount
The Debt Instrument will be issued with original issue discount. As
provided in the Code, and in the Treasury regulations dealing with original
issue discount (the "OID Regulations"), the excess of the "stated redemption
price" (defined as the sum of all payments made with respect to the Debt
Instrument) of the Debt Instrument over its "issue price" (defined as the price
at which the Debt Instrument is sold) will be original issue discount.
A Class B Trust Certificateholder will be 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 Debt Instrument as originally
issued). The OID Regulations permit a Class B Trust Certificateholder 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 interest occurs on the first or last day of the accrual period.
Disposition of the Debt Instrument
Upon the sale, exchange or other disposition of a Class B Trust
Certificate, a Class B Trust Certificateholder will recognize gain or loss equal
to the difference, if any, between the amount realized on the disposition and
the Class B Trust Certificateholder's tax basis in the Debt Instrument. A Class
B Trust Certificateholder's tax basis for determining gain or loss on the
disposition or retirement of a Debt Instrument will be the cost of such Debt
Instrument to such Class B Trust Certificateholder increased by the amount of
any original issue 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 Instrument were held as a capital asset.
It is possible that a modification of the terms of the Underlying
Securities, including the deferral of payments of interest, or a substitution of
other assets for the Underlying Securities following a default on the Underlying
Securities or in other circumstances, would be a taxable event to Class B Trust
Certificateholders on which they would recognize gain or loss.
Acquisition Related Rating Change
In the event of an Acquisition Related Rating Change in the Underlying
Securities, the Debt Instrument will be treated as retired for an amount equal
to the Class B Trust Certificateholder's tax basis in the Debt Instrument and
reissued for the same amount on the date of the Acquisition Related Rating
Change.
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<PAGE>
Possible Alternative Characterization
As a result of the provision in the Underlying Securities relating to
an Acquisition Related Rating Change, the Internal Revenue Service or a court
could determine that the Debt Instrument is subject to the rules relating to
contingent payment debt instruments. Moreover, even if the Debt Instrument were
not subject to the rules regarding contingent payment debt instruments at its
original issuance, it could become subject to such rules upon a deemed
reissuance described in the preceding paragraph. Under the rules relating to
contingent payment debt instruments, a Class B Trust Certificateholder would be
required to accrue income with respect to the Debt Instrument based on a
projected payment schedule that reflects the "comparable yield" of the
Underlying Securities Issuer, making adjustments for actual payments that differ
from projected payments. Investors should consult their tax advisors regarding
the potential application of the rules relating to contingent payment debt
instruments.
Distributions of Underlying Securities to Class B Trust
Certificateholders in Event of Default
In the event that the Underlying Securities are distributed to the
Class B Trust Certificateholders in accordance with the Allocation Ratio as a
result of a payment default on the Underlying Securities or under any other
circumstances, the Class B Trust Certificateholders may recognize taxable gain
or loss with respect to such distribution.
Deductibility of Trust's Fees and Expenses
In computing its federal income tax liability, a Class B 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 Class B 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
Interest paid to Class B Trust Certificateholders that are not U.S.
Persons ("Foreign Trust Certificateholders") generally will qualify for the
portfolio interest exemption and will not be subject to the 30% withholding tax
on interest paid with respect to the Debt Instrument, provided that such Foreign
Trust Certificateholder does not hold its Trust Certificate in connection with
the conduct of a U.S. trade or business and fulfills certain certification
requirements and, in addition, (i) the Foreign Trust Certificateholder does not
actually or constructively own 10 percent or more of the total combined voting
power of all classes of stock of the Underlying Securities Issuer entitled to
vote, (ii) the Foreign Trust Certificateholder is not a controlled foreign
corporation that is related to the Underlying Securities Issuer through stock
ownership and (iii) the Foreign Trust Certificateholder is not a bank receiving
interest described in Section 881(c)(3)(A) of the Code.
"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.
Backup Withholding
Payments made on the Debt Instrument and proceeds from the sale of the
Debt Instrument will not be subject
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<PAGE>
to a "backup" withholding tax of 31% unless, in general, the Class B 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, 1999. Investors should consult their tax advisors regarding such
regulations.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain requirements on (a) an employee benefit
plan (as defined in Section 3(3) of ERISA), (b) a plan described in Section
4975(e)(1) of the Code or (c) any entity whose underlying assets include Plan
Assets by reason of any such plan's investment in the entity (each, a "Plan").
In accordance with ERISA's general fiduciary standards, before
investing in a Trust Certificate, a Plan fiduciary should determine whether such
an investment is permitted under the governing Plan instruments and appropriate
for the Plan in view of its overall investment policy and the composition and
diversification of its portfolio. Other provisions of ERISA and the Code
prohibit certain transactions involving the assets of a Plan and persons who
have certain specified relationships to the Plan ("Parties in Interest" within
the meaning of ERISA or "Disqualified Persons" within the meaning of the Code).
Thus, a Plan fiduciary considering an investment in Trust Certificates should
also consider whether such an investment might constitute or give rise to a
non-exempt prohibited transaction under ERISA or the Code.
Under a "look-through rule" set forth in Section 2510.3-101 of the
United States Department of Labor regulations, a Plan's assets may include an
interest in the underlying assets of an entity (such as a trust) for certain
purposes under ERISA if the Plan acquires an equity interest in such entity.
Thus, unless an exception to the look- through rule applies, an investment in
Trust Certificates by a Plan might result in the assets of the Trust being
deemed to constitute Plan Assets, which in turn might mean that certain aspects
of such investment, including the operation of the Trust, might be subject to
the prohibited transaction provisions under ERISA and the Code.
If the assets of the Trust were deemed to be Plan Assets, transactions
involving the Depositor, Underwriter, Trustee, Underlying Securities Trustee and
the Underlying Securities Issuer might constitute prohibited transactions with
respect to a Plan holding a Trust Certificate unless (i) one or more prohibited
transaction exemptions ("PTEs") applies or (ii) in the case of the Underlying
Securities Issuer, it is not a Disqualified Person or party in interest with
respect to such Plan. Plans maintained or contributed to by the Depositor,
Underwriter, Trustee, Underlying Securities Trustee and the Underlying
Securities Issuer, or any of their affiliates, should not acquire or hold any
Trust Certificate.
If the Trust is deemed to hold Plan Assets, the Underlying Securities
would appear to be an indirect loan between the Underlying Securities Issuer and
any Plan owning Trust Certificates; however, such loan, by itself, would not
constitute a prohibited transaction unless the Underlying Securities Issuer is a
party in interest or Disqualified Person with respect to such Plan.
The Underwriter is a broker-dealer registered under the Exchange Act,
and customarily purchases and sells securities for its own account in the
ordinary course of its business as a broker-dealer. Accordingly, the sale of
Trust Certificates by the Underwriter to Plans may be exempt under PTE 75-1 if
the following conditions are satisfied: (i) the Underwriter is not a fiduciary
with respect to the Plan and is a party in interest or Disqualified Person
solely
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<PAGE>
by reason of Section 3(14)(B) of ERISA or Section 4975(e)(2)(B) of the
Code or a relationship to a person described in such Sections, (ii) the
transaction is at least as favorable to the Plan as an arm's-length transaction
with an unrelated party and is not a prohibited transaction within the meaning
of Section 503(b) of the Code, and (iii) the Plan maintains for at least six
years such records as are necessary to determine whether the conditions of PTE
75-1 have been met.
The custodial and other services rendered by the Trustee, and
Underlying Securities Trustee might be exempt pursuant to Section 408(b)(2) of
ERISA and Section 4975(d)(2) of the Code, which exempt services necessary for
the establishment or operation of a Plan under a reasonable contract or
arrangement and for which no more than reasonable compensation is paid. An
arrangement would not be treated as reasonable unless it can be terminated upon
reasonably short notice under the circumstances without penalty. The Trustee may
be terminated upon 60 days' prior notice and the approval of Trust
Certificateholders owning more than 66 2/3% of the aggregate beneficial interest
of Trust Certificates. The Depositor believes the compensation of the Trustee
and is reasonable under the circumstances. The statutory exemption for services
noted above does not provide exemptive relief from prohibited transactions
described in Section 406(b) of ERISA or Section 4975(c)(1)(E) or (F) of the
Code. In that regard, a fiduciary with respect to a Plan should consider whether
a sale of the Underlying Securities to Merrill Lynch & Co. or its affiliates
might constitute a non-exempt prohibited transaction, notwithstanding the sale
procedure to accept the highest bid submitted and the certification of the
highest bid and identity of bidders to the Trustee. The Trustee shall, prior to
any sale of Underlying Securities to Merrill Lynch & Co. or any of its
affiliates, certify that any such purchaser submitted the highest of at least
three bids and shall identify the other bidders.
Other prohibited transaction exemptions could apply to the acquisition
and holding of Trust Certificates by Plans, and the operation of the Trust,
including, but not limited to: PTE 84-14 (an exemption for certain transaction
determined by an independent qualified professional asset manager), PTE 91-38
(an exemption for certain transactions involving bank collective investment
funds), PTE 90-1 (an exemption for certain transactions involving insurance
company pooled separate accounts) or PTE 95-60 (an exemption for certain
transactions involving insurance company general accounts).
By acquiring and holding a Trust Certificate, a Plan shall be deemed to
have represented and warranted to the Depositor, Trustee, and Underwriter that
such acquisition and holding of a Trust Certificate does not involve a
non-exempt prohibited transaction with respect to such Plan, including with
respect to the activities of the Trust.
UNDERWRITING
Subject to the terms and conditions set forth in the Purchase
Agreement, dated as of February 20, 1998 (the "Standard Purchase Agreement"), as
amended and supplemented by the Terms Agreement, dated as of September 24, 1998
(the "Terms Agreement", and, together with the Standard Purchase Agreement, the
"Purchase Agreement"), the Depositor has agreed to sell or cause the Trust to
sell to Merrill Lynch & Co., and Merrill Lynch & Co. has agreed to purchase, all
of the Trust Certificates.
The Depositor has been advised by the Underwriter that the Underwriter
proposes to offer the Trust Certificates from time to time in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. The Underwriter may effect such transactions by selling Trust Certificates
to or through dealers and such dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Underwriter and any
purchasers of Trust Certificates for whom they may act as agents. The
Underwriter and any dealers that participate with the Underwriter in the
distribution of Trust Certificates may be deemed to be underwriters, and any
profit on the resale of Trust Certificates by them may be deemed to be
underwriting discounts, or commissions under the Securities Act of 1933, as
amended (the "Securities Act").
The Underwriter has from time to time provided investment banking and
other financial services to the Underlying Securities Issuer and expects in the
future to provide such services, for which it has received and will receive
customary fees and commissions.
S-31
<PAGE>
The Purchase Agreement provides that the Depositor will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Securities Act, or will contribute to payments the Underwriter may be required
to make in respect thereof.
VALIDITY OF THE TRUST CERTIFICATES
The validity of the Trust Certificates will be passed upon for the
Depositor and the Underwriter by Shearman & Sterling, New York, New York.
RATINGS
It is a condition to the issuance of the Trust Certificates that the
Trust Certificates have ratings assigned by Moody's and by S&P, equivalent to
the ratings of the Underlying Securities, which, as of the date of this
Prospectus Supplement, were "Baa1" by Moody's under review for possible
downgrade and "BBB" by S&P on CreditWatch with negative implications.
Accordingly, the ratings of the Trust Certificates will also be Baa1 by Moody's
under review for possible downgrade and BBB by S&P on CreditWatch with negative
implications.
The rating of the Trust Certificates by Moody's addresses the
likelihood of the ultimate payment of principal of and interest on the Trust
Certificates or any Underlying Securities distributed in respect thereof, as
well as the extent of any shortfall. The rating of the Trust Certificates by S&P
addresses the likelihood of timely receipt of interest and principal
distributions on the Class A Trust Certificates or any Underlying Securities
distributed in respect of the Class B Trust Certificates. The ratings are based
primarily on the credit quality of the Underlying Securities. The rating on the
Trust Certificates does not, however, constitute a statement regarding the
occurrence or frequency of redemptions or prepayments on, or extensions of the
maturity of, the Underlying Securities, and the corresponding effect on yield to
investors.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning Rating Agency. Each security rating should be evaluated independently
of similar ratings on different securities.
The Depositor has not requested a rating on the Trust Certificates by
any rating agency other than Moody's and S&P. However, there can be no assurance
as to whether any other rating agency will rate the Trust Certificates, or, if
it does, what rating would be assigned by any such other rating agency. A rating
on the Trust Certificates by another rating agency, if assigned at all, may be
lower than the ratings assigned to the Trust Certificates by Moody's and S&P.
S-32
<PAGE>
ANNEX A
ALLOCATION RATIOS CALCULATED ON
DISTRIBUTION DATES
Class A Trust Class B Trust
Distribution Date Certificates Certificates Total
- ----------------- ------------ ------------ -----
October 15, 1998........ 94.21% 5.79% 100.00%
April 15, 1999.......... 94.45 5.55 100.00
October 15, 1999........ 94.71 5.29 100.00
April 15, 2000.......... 94.97 5.03 100.00
October 15, 2000........ 95.25 4.75 100.00
April 15, 2001.......... 95.54 4.46 100.00
October 15, 2001........ 95.83 4.17 100.00
April 15, 2002.......... 96.14 3.86 100.00
October 15, 2002........ 96.46 3.54 100.00
April 15, 2003.......... 96.80 3.20 100.00
October 15, 2003........ 97.15 2.85 100.00
April 15, 2004.......... 97.51 2.49 100.00
October 15, 2004........ 97.88 2.12 100.00
April 15, 2005.......... 98.27 1.73 100.00
October 15, 2005........ 98.68 1.32 100.00
April 15, 2006.......... 99.10 0.90 100.00
October 15, 2006........ 99.54 0.46 100.00
April 15, 2007.......... 100.00 0.00 100.00
- -----------------------------
If the Allocation Ratio is required to be measured on any date between
two Distribution Dates, it shall be measured as of such date in accordance with
the calculation described in "Description of Trust Certificates--Default on
Underlying Securities".
S-33
<PAGE>
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No dealer, sales person or other person has been authorized to give any
information or make any representation not contained in this Prospectus and, if
given or made, such information or representation must not be relied upon as
having been authorized by the Depositor or Merrill Lynch & Co. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any of
the Trust Certificates offered hereby in any jurisdiction to any person to whom
it is unlawful to make such offer in such jurisdiction. Neither the delivery of
this Prospectus nor any sale hereunder shall, under any circumstances, create
any implication that the information herein is correct as of any time subsequent
to the date hereof or that there has been no change in the affairs of the
Depositor since such date.
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TABLE OF CONTENTS
Page
PROSPECTUS SUPPLEMENT
PROSPECTUS SUPPLEMENT SUMMARY................................................S-3
RISK FACTORS................................................................S-11
THE TRUST...................................................................S-13
DESCRIPTION OF THE TRUST CERTIFICATES.......................................S-13
THE DEPOSITOR...............................................................S-16
DESCRIPTION OF THE TRUST AGREEMENT..........................................S-16
DESCRIPTION OF THE UNDERLYING SECURITIES....................................S-19
FEDERAL INCOME TAX CONSEQUENCES.............................................S-27
ERISA CONSIDERATIONS........................................................S-30
UNDERWRITING................................................................S-31
VALIDITY OF THE TRUST CERTIFICATES..........................................S-32
RATINGS.....................................................................S-32
ALLOCATION RATIOS CALCULATED ON
DISTRIBUTION DATES.........................................................A-1
PROSPECTUS
PROSPECTUS SUPPLEMENT..........................................................2
AVAILABLE INFORMATION..........................................................2
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE.................................................................2
REPORTS TO TRUST CERTIFICATEHOLDERS............................................3
PROSPECTUS SUMMARY.............................................................4
RISK FACTORS...................................................................7
THE DEPOSITOR.................................................................13
USE OF PROCEEDS...............................................................13
FORMATION OF THE TRUST........................................................13
MATURITY AND YIELD CONSIDERATIONS.............................................13
DESCRIPTION OF THE TRUST CERTIFICATES.........................................14
DESCRIPTION OF DEPOSITED ASSETS...............................................28
DESCRIPTION OF THE TRUST AGREEMENT............................................36
CURRENCY RISKS................................................................47
FEDERAL INCOME TAX CONSEQUENCES...............................................47
ERISA CONSIDERATIONS..........................................................51
PLAN OF DISTRIBUTION..........................................................52
LEGAL MATTERS.................................................................53
INDEX OF DEFINED TERMS.......................................................I-1
Until November 24, 1998, all dealers effecting transactions in the offered
Trust Certificates, whether or not participating in this distribution, may be
required to deliver a Prospectus Supplement and the Prospectus to which it
relates. This requirement is in addition to the obligations of dealers to
deliver a Prospectus Supplement and Prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
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26,751
Class B Trust Certificates
PUBLIC STEERS(R)
TRUST CERTIFICATES
SERIES 1998 HLT-1
-------------------
P R O S P E C T U S
S U P P L E M E N T
-------------------
Merrill Lynch & Co.
October 9, 1998
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