As filed with the Securities and Exchange Commission on January 19, 1999
Securities Act File No. 333-69745
Investment Company Act File No. 811-09175
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No.1 [X]
Post-Effective Amendment No. [ ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No.1 [X]
(check appropriate box or boxes)
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ABC TrENDS TRUST
(Exact Name of Registrant as Specified in Charter)
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C/O PUGLISI & ASSOCIATES
850 Library Avenue
Suite 204
Newark, Delaware 19715
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (302) 738-6680
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Donald J. Puglisi
Puglisi & Associates
850 Library Avenue
Suite 204
Newark, Delaware 19715
(Name and Address of Agent for Service)
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Copies to:
Linda Simpson, Esq.
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
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Approximate date of proposed public offering: As soon as practicable after
the effective date of this Registration Statement.
If any securities being registered on this form will be offered on a delayed
or continuous basis in reliance on Rule 415 under the Securities Act of 1933,
as amended, other than securities offered in connection with a dividend
reinvestment plan, check the following box. [ ]
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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Proposed Maximum
Title of Securities Aggregate Offering Amount of
Being Registered Price (1) Registration Fee
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TrENDS representing shares of $10,000,000.00 $2,780.00(2)
beneficial interest
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
(2) Previously paid.
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The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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ABC TrENDS Trust
Cross Reference Sheet
<TABLE>
<CAPTION>
Item No, Form N-2 Location in Prospectus
- ---------------------------------------------------------------- -----------------------------------------------------
<S> <C>
PART A
1. Outside Front Cover......................................... Front Cover Page
2. Cover Pages; Other Offering Information..................... Front and Back Cover Pages; Underwriting
3. Fee Table and Synopsis...................................... Prospectus Summary; Fee Table
4. Financial Highlights........................................ Not Applicable
5. Plan of Distribution........................................ Front Cover Page; Prospectus Summary;
Underwriting
6. Selling Shareholders........................................ Not Applicable
7. Use of Proceeds............................................. Prospectus Summary; Use of Proceeds; Investment
Objective and Policies; Investment Restrictions
8. General Description of the Registrant....................... Front Cover Page; Prospectus Summary; The Trust;
Investment Objective and Policies; Investment
Restrictions; Description of the TrENDS; Risk
Factors; Net Asset Value; Dividends and Other
Distributions; Certain Tax Considerations
9. Management.................................................. Management Arrangements
10. Capital Stock, Long-term Debt, and Other Securities......... Prospectus Summary; Investment Restrictions;
Description of the TrENDS; Certain Tax
Considerations; Dividends and Other Distributions
11. Defaults and Arrears on Senior Securities................... Not Applicable
12. Legal Proceedings........................................... Not Applicable
13. Table of Contents of the Statement of Additional
Information............................................... Not Applicable
PART B*
14. Cover Page.................................................. Not Applicable
15. Table of Contents........................................... Not Applicable
16. General Information and History............................. Not Applicable
17. Investment Objective and Policies........................... Prospectus Summary; Investment Objective and
Policies; Investment Restrictions
18. Management.................................................. Management Arrangements
19. Control Persons and Principal Holders of Securities......... Management Arrangements
20. Investment Advisory and Other Services...................... Prospectus Summary; Management Arrangements
21. Brokerage Allocation and Other Practices.................... Investment Objective and Policies
22. Tax Status.................................................. Dividends and Other Distributions; Certain Tax
Considerations
23. Financial Statements........................................ Experts; Report of Independent Auditors; Statements
of Assets, Liabilities and Capital
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
*Pursuant to the General Instructions to Form N-2, all information required
to be set forth in Part B: Statement of Additional Information has been included
in Part A: The Prospectus.
SUBJECT TO COMPLETION -JANUARY 19, 1999
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Prospectus
, 1999
ABC TrENDS Trust
_______ Trust Enhanced Distribution Securities (TrENDS)
(Subject to exchange for common stock of ABC Company or cash)
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The Trust:
o The ABC TrENDS Trust is a newly organized, non- diversified, closed-end
management investment company.
o The assets of the Trust will consist of U.S. treasury securities that
mature each quarter through 200_ and a forward contract with a
stockholder of ABC Company relating to the common stock of ABC Company.
The forward contract may be settled on _______ by delivery of either
common stock of ABC Company or cash at the option of the stockholder.
o The investment objective of the Trust is to pay to you each quarter
$_____ per TrENDS and, on dissolution of the Trust on _______, to
distribute to you, for each TrENDS, between 0._ and 1.25 of a share of
ABC Company common stock, depending on the price of the common stock
during a period prior to dissolution of the Trust, or an equivalent
amount of cash, subject to antidilution adjustment.
o ABC Company is not affiliated with the Trust and will have no
obligations with respect to the TrENDS.
Proposed Symbol & Market for TrENDS:
o _____/_____
o Because the Trust is newly organized, the TrENDS have no history of
public trading. In addition, closed-end fund shares tend to trade at a
discount from their net asset value. This risk may be greater for you if
you anticipate selling your TrENDS soon after this public offering.
_____ Symbol for ABC Company Common Stock:
o _______
o On _______, the closing price was $_______ per share.
The Offering:
o Each TrENDS represents the right to receive quarterly distributions of
$_______ beginning on ______ and on dissolution of the Trust on _______,
between 0._ and 1.25 of a share of ABC Company common stock, depending
on the price of the common stock during a period prior to dissolution of
the Trust, or an equivalent amount of cash, subject to antidilution
adjustment.
o The number of shares of ABC Company common stock that you will receive
for each TrENDS you buy is determined by reference to a formula that
generally provides that if the average price of a share of ABC Company
common stock over a 20-day trading period is:
o less than $____, 1.25 shares.
o between $____ and $____, shares having a value of $____.
o between $____ and $____, one share.
o between $____ and $____, shares having a value of $____ plus half of
the difference between the average price per share over the 20-day
trading period and $____.
o greater than $____, shares having a value of $____.
As a result, you may suffer a loss on your investment as the value of
the shares you receive for each TrENDS may be less than the purchase
price you paid.
o The underwriter has the option to purchase an additional _____ TrENDS to
cover over-allotments.
o Closing __________
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Per TrENDS Total
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Public offering price............ $ $
Sales load....................... None None
Proceeds to Trust................ $ $
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The stockholder of ABC Company has agreed to pay a commission to the
underwriter in the amount of $___ per TrENDS from the proceeds it receives under
the forward contract.
This investment involves risks. See "Risk Factors" beginning on page 17.
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Neither the SEC nor any state securities commission has determined whether
this prospectus is truthful or complete. Nor have they made, nor will they make,
any determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
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Donaldson, Lufkin & Jenrette
TABLE OF CONTENTS
Page
----
Prospectus Summary..........................................................1
Fee Table...................................................................6
The Trust...................................................................6
Use of Proceeds.............................................................7
Investment Objective and Policies...........................................7
Investment Restrictions....................................................16
Risk Factors...............................................................17
Description of TrENDS......................................................20
Management Arrangements....................................................21
Dividends and Other Distributions..........................................24
Net Asset Value............................................................24
Certain Tax Considerations.................................................24
Underwriting...............................................................28
Legal Matters..............................................................29
Experts....................................................................29
Where You Can Find More Information........................................29
Independent Auditors' Report...............................................30
Statement of Assets, Liabilities and Capital...............................31
PROSPECTUS SUMMARY
In this prospectus we have summarized information about the
Trust, including the risks of investing in the TrENDS, that you should
consider before investing in the TrENDS. You should read and retain this
prospectus for future reference. We have filed additional information about
the Trust with the Securities and Exchange Commission. See "Where You Can
Find More Information" on page 29 of this prospectus. Unless otherwise
indicated, all information in this prospectus assumes that the underwriter
does not exercise its over-allotment option. The following summary also
assumes that on the Exchange Date described below the antidilution provisions
contained in the forward contract will not have resulted in anything other
than shares of ABC Company common stock (or the cash value thereof) being
delivered to holders of TrENDS.
The Trust
General
The ABC TrENDS Trust is a newly created Delaware business trust
and will be registered as a non-diversified closed-end management investment
company. The Trust will dissolve on or shortly after __________, 200__, which
we refer to as the "Exchange Date" because that is when the shares of ABC
Company or their cash value are expected to be delivered under the forward
contract. The Trust will dissolve earlier in the event the forward contract
is accelerated as discussed below.
Investment Objectives and Policies
The assets of the Trust will consist of U.S. treasury
securities that mature each quarter through the Exchange Date and a forward
contract with a stockholder of ABC Company relating to the common stock of ABC
Company. The investment objective of the Trust is to pay to you each quarter
$____ per TrENDS and, on the Exchange Date, to distribute to you, for each
TrENDS, between 0._ and 1.25 of a share of ABC Company common stock, depending
on the price of the common stock during a period prior to the Exchange Date,
or an equivalent amount of cash, subject to antidilution adjustments discussed
below. The number of shares you will receive per TrENDS will be determined by
the following formula:
If the average price of a share of common stock over a 20-day
trading period before the Exchange Date is:
o less than or equal to $____ per share, 1.25 shares of common stock.
Although you may receive more than one share of ABC Company common
stock, you still may suffer a loss on your investment, because the
value of the shares you receive for each TrENDS may be less than the
price you initially paid for each TrENDS.
o between $____ per share and $___ per share, shares having a value of
$___.
o between $___ per share and $___ per share, one share.
o between $___ per share and $___ per share, shares having a value of
$___ plus half of the difference between the average price per share
over the 20-day trading period and $___.
o greater than $___ per share, shares having a value of $___.
The forward contract requires the stockholder to deliver to the
Trust, on the business day before the Exchange Date, that number of shares of
ABC Company common stock required to exchange all of the TrENDS (including any
TrENDS issued as a result of the over-allotment option) on the Exchange Date
as determined pursuant to the foregoing formula. Instead of delivering
shares, the stockholder may choose to settle the forward contract by
delivering an amount of cash based on the market prices of the ABC Company
common stock over a 20-trading day period before the Exchange Date. You would
then receive a pro rata amount of such cash instead of shares of ABC Company
common stock.
The forward contract will be accelerated and the Trust assets
liquidated (except for assets received under the forward contract) and the
Trust dissolved if any of the following events occur:
ABC Company consolidates or merges into another company, conveys or
leases its property as an entirety or there is a statutory exchange of
securities of ABC Company with another entity and 75% or more of the
consideration that ABC stockholders receive consists of cash;
ABC Company liquidates or similar events occur;
the stockholder is declared bankrupt or insolvent; or
the collateral supporting the forward contract is deemed to be
insufficient.
The assets in a liquidation will include proceeds received from
the liquidation and any assets received under the forward contract less any
expenses, which will be distributed pro rata to you, and the Trust will
immediately dissolve.
Trust Assets
The assets of the Trust will consist of a series of stripped
U.S. treasury securities with face amounts and maturities that exactly
correspond to the amounts and payment dates of the quarterly distributions you
will receive on your TrENDS (approximately ____% of initial assets) and the
forward contract, or approximately ____% of initial assets.
The aggregate purchase price under the forward contract equals
$____, if the underwriter chooses not to exercise its over-allotment option.
The Trust must pay the purchase price to the stockholder on or about
____________, 1999.
The stockholder has secured its obligations under the forward
contract by pledging the maximum number of shares of ABC Company common stock
that could be delivered under the forward contract. __________ will act as
Collateral Agent in connection with such pledge.
Management Arrangements
The Trust will be internally managed and will not have an
investment adviser. Our portfolio will not be actively managed. The
day-to-day administration, to be overseen by the Trustees of the Trust, will
be carried out by _________ as Administrator. _________ will also act as
Custodian for the assets of the Trust and as Paying Agent, Registrar and
Transfer Agent for the TrENDS. The Trustees have delegated most of their
operational duties to the Administrator. _________ has no other affiliation
with the Trust, and except as described, is not engaged in any other
transaction with the Trust. For their services, each of the Collateral Agent,
Administrator, Custodian and Paying Agent, Registrar and Transfer Agent will
be paid at the closing of the offering a one-time, up-front fee by or on
behalf of the stockholder.
The Offering
The TrENDS are being offered at an initial offering price of
$____ per TrENDS, which is equal to the closing price of the ABC Company
common stock on ____________, 199_, through Donaldson, Lufkin & Jenrette
Securities Corporation. Each TrENDS represents an undivided beneficial
interest in the U.S. treasury securities and forward contract the Trust holds.
We have given the underwriter an option to purchase up to an additional ______
TrENDS at the public offering price within 30 days from the date of this
Prospectus in order to cover over-allotments.
You will not pay a sales load, and the stockholder will pay the
underwriting commission from its own assets in connection with the offering.
The Securities
Quarterly Distributions
The Trust will make quarterly distributions of $____ per TrENDS
to each recordholder as of the applicable record date. You will receive the
first distribution of $____ per TrENDS on ________, 199_ if you are the
recordholder on ____________, 199_.
While ABC Company has not historically paid any dividends on
its common stock, our goal is for each TrENDS to pay quarterly distributions
at a rate of ____% of the issue price per year. ABC Company's board of
directors has complete discretion to decide whether or not to pay dividends in
the future on its common stock and the amount of those dividends. Any
decision to pay dividends will necessarily depend on ABC Company's future
earnings, financial condition, capital requirements and other factors.
Quarterly distributions on the TrENDS will consist solely of the cash received
from the U.S. Treasury securities. If the board of ABC Company does decide to
pay a dividend, your TrENDS will generally not entitle you to receive it.
Generally, you will only be entitled to the dividend if the applicable record
date occurs after you have received your ABC Company common stock in exchange
for your TrENDS.
Settlement Distributions
Unless the forward contract is accelerated before the Exchange
Date, the recordholder of a TrENDS will receive on or shortly after the
Exchange Date the number of shares of common stock as determined in accordance
with the formula described above (or, at the option of the stockholder, the
cash value thereof).
Dilution
Amounts deliverable under the forward contract and consequently
the TrENDS may be adjusted under the antidilution provisions contained in the
forward contract. Those provisions are designed to protect the stockholder
and you against the dilutive or concentrative effects on the ABC Company
common stock of certain corporate events. As a result, under certain
circumstances, instead of (or in addition to) receiving shares of ABC Company
common stock in exchange for your TrENDS, you may receive different securities
or property, possibly including cash. The antidilution protection contained
in the forward contract does not, however, cover certain dilutive events that
may lead to a decline in the value of a share of ABC Company common stock.
For example, no adjustment will be made if ABC Company issues additional
shares of its common stock for cash or in connection with acquisitions. ABC
Company is not under any obligation to consider your interests for any reason.
Your protections are only those contained in the forward contract.
Listing
We have applied to list the TrENDS on the _________.
The ABC Company
[Description]
Except to the extent the stockholder chooses to settle the
forward contract in cash, you will receive shares of ABC Company common stock.
For information about ABC Company, you should refer to the accompanying
prospectus of ABC Company. ABC Company is not affiliated with the Trust, will
not receive any of the proceeds from this offering and will have no
obligations with respect to the TrENDS. We are providing the ABC Company
prospectus to you only as a convenience. The ABC Company prospectus is not a
part of this Prospectus, and it is not incorporated by reference into this
Prospectus.
Certain Tax Considerations
The Trust will be treated as a grantor trust for United States
federal income tax purposes. You will be treated for federal income tax
purposes as the owner of your pro rata portion of the U.S. treasury securities
and the forward contract. Income (including original issue discount) realized
by the Trust that is attributable to the TrENDS owned by you will generally be
treated as your income.
The U.S. treasury securities the Trust holds will be treated
for federal income tax purposes as having "original issue discount", which
will accrue over the term of the U.S. treasury securities. We anticipate that
a substantial portion of each quarterly cash distribution to you will be
treated as a tax-free return of your costs of the U.S. treasury securities and
therefore will not be considered current income for federal income tax
purposes. However, whether you are on the cash or accrual method of tax
accounting, you must recognize currently as income original issue discount on
the U.S. treasury securities as it accrues. We expect that the portion of
each quarterly cash distribution representing a tax-free return of capital
will increase as a percentage of the total distribution during the life of the
Trust.
Under existing law, you will not recognize income, gain, or
loss upon the execution of the forward contract by the Trust and you generally
should not recognize income on the forward contract before its settlement.
Once the forward contract is settled, you will recognize taxable gain or loss
if cash is delivered, but you should not recognize gain or loss if ABC Company
common stock or other securities are delivered. Assuming this treatment is
respected, you will have a basis in the ABC Company common stock or other
securities received equal to the pro rata portion of your adjusted basis in
the forward contract allocable to such property.
The law regarding the treatment of the TrENDS for United States
federal income tax purposes is subject to some uncertainty. Although you
should not recognize taxable income with respect to your pro rata portion of
the forward contract prior to settlement of the forward contract, there are
alternative characterizations that could require you to recognize more income
than would be included under the analysis set forth above. Accordingly, you
should consult your tax advisers with respect to the tax consequences of the
purchase, ownership and disposition of the TrENDS in light of your particular
circumstances, including the tax risks associated with possible alternative
characterizations of the TrENDS. See "Certain Tax Considerations" on page 24.
Risk Factors
The Trust has adopted a fundamental policy that the forward
contract may not be disposed of during the term of the Trust. In addition,
unless the Trust is dissolved, we will not dispose of the U.S. treasury
securities before their maturity dates. As a result, we will continue to hold
the forward contract despite any significant decline in the value of the ABC
Company common stock, or adverse changes in the financial condition of the
issuer of any other security which the Trust may hold pursuant to any
antidilution adjustments.
While ABC Company has historically not paid any dividends on
its common stock, the TrENDS will provide you with a current distribution
yield. However, an investment in TrENDS offers you less of an overall
opportunity to realize any appreciation in the value of ABC Company common
stock over its current value than does a direct investment in ABC Company
common stock. This is because if the value of a share increases to a value
equal to or greater than $___ per share but below $___ per share, you are
entitled to receive only __% of this increase; if it increases to a value
above $___ per share, you are entitled to receive an amount of ABC Company
common stock with a market value equal to $___.
On the other hand, an investment in TrENDS offers you partial
protection against any depreciation in the value of the ABC Company common
stock from its current value--protection that is not offered by a direct
investment in the common stock. This is because if the value of a share of
ABC Company common stock is less than $___ on the Exchange Date, the aggregate
value of the number of shares you will receive per TrENDS will be greater than
the value of one share. Remember, however, that although you may receive more
than one share of ABC Company common stock, you may still suffer a loss on
your investment, because the value of the shares you receive for each TrENDS
may be less than the price you initially paid for each TrENDS.
The Trust is classified as a "non-diversified", closed-end,
management investment company under the Investment Company Act. Consequently,
we are not limited by the Investment Company Act in the proportion of our
assets that may be invested in the securities of a single issuer. Since the
only assets the Trust holds will be the U.S. treasury securities and the
forward contract, there is greater risk than would be the case for an
investment company with more diversified investments. In addition, shares of
closed-end management investment companies frequently trade at a discount from
their net asset value but we cannot predict how the TrENDS will trade.
The trading prices of the TrENDS in the secondary market will
be directly affected by the trading prices of the ABC Company common stock in
the secondary market. It is impossible to predict whether the price of ABC
Company common stock will rise or fall. Trading prices of ABC Company common
stock will be influenced by ABC Company's operating results and prospects and
by economic, financial and other factors and market conditions.
You will not have any rights with respect to the ABC Company
common stock, such as voting rights or rights to receive any dividends or
other distributions, until you exchange your TrENDS for ABC Company common
stock.
A bankruptcy of the stockholder could adversely affect the
timing of the exchange of the TrENDS for the ABC Company common stock and the
amount you receive.
FEE TABLE
This table will help you understand the various costs that you
will bear in the Trust, either directly or indirectly. Since the Trust will
not have any ongoing fees or expenses, you will not have any expenses. The
Underwriter will be paid a sales load of $ per TrENDS (or %) by or on
behalf of the stockholder.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load (as a percentage of offering price)(a)................ 0%
Automatic Dividend Reinvestment Plan Fees................................None
ANNUAL EXPENSES (as a percentage of net assets attributable to TrENDS)
Management Fees(b)....................................................... 0%
Other Expenses(c)........................................................ 0%
--
TOTAL ANNUAL EXPENSES(c) 0%
==
_________
(a) See the cover page of this Prospectus and "Underwriting" on page 28.
(b) See "Management Arrangements" on page 21. The Trust will be internally
managed, so it will not pay a separate investment advisory fee. _________
will act as Administrator.
(c) Organization costs in the amount of $____, costs associated with the
initial registration and offering of the TrENDS estimated to be
approximately $____, and approximately $____ of anticipated ongoing
expenses over the term of the Trust will be paid by or on behalf of the
stockholder. Any unanticipated expenses will be paid by Donaldson, Lufkin
& Jenrette Securities Corporation, which will be reimbursed by or on
behalf of the stockholder. See "Management Arrangements--Estimated
Expenses" on page 24. If these arrangements did not exist, "Other
Expenses" and "Total Annual Expenses" would be approximately ____ % of net
assets.
This table illustrates cumulative expenses (both direct and
indirect) that you will bear.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
You would pay the following expenses
on a $1,000 investment, assuming (1)
no annual expenses and (2) a 5% annual
return throughout the periods: None None None None
Our example assumes reinvestment of all dividends and other
distributions and uses a 5% annual rate of return as mandated by the SEC. You
should note that the assumption of a 5% annual return does not accurately
reflect the financial terms of the trust. Actual expenses or annual rates of
return may be different from that shown in the example.
The Trust
The ABC TrENDS Trust (the "Trust") is a newly created Delaware
business trust and will be registering as a non-diversified closed-end
management investment company under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Trust was created on December 23,
1998 pursuant to a Trust Agreement dated as of the same date (as amended and
restated as of ____________, 1999, the "Trust Agreement"). The Trust will
dissolve on or shortly after ____________, 200_. The Trust will dissolve
earlier if the forward contract (the "Contract") is accelerated as discussed
herein. The Trust will be treated as a grantor trust for United States
Federal income tax purposes. See "Certain Tax Considerations" on page 24.
Our principal office is located at 850 Library Avenue, Suite 204, Newark,
Delaware 19715 and our telephone number is (302) 738-6680.
Use of Proceeds
We will receive approximately $____ (or approximately $____ if
the Underwriter exercises its over-allotment option) from the offering of
TrENDS (the "Offering"). We will use the proceeds immediately to purchase a
series of stripped U.S. treasury securities (the "Treasury Securities") with
face amounts and maturities that exactly correspond to the quarterly
distributions to be made to you under the TrENDS. In addition, the proceeds
will also be used to pay the purchase price (the "Purchase Price") of the
Contract to the stockholder (the "Stockholder").
Investment Objective and Policies
General
The Trust will purchase and hold the Treasury Securities and
the Contract. The Treasury Securities will mature on a quarterly basis
through the Exchange Date.
We use the following terms to describe any distribution to you
shortly on or after the Exchange Date:
o "Business Day" means any day that is not a Saturday, a Sunday
or a day on which the New York Stock Exchange, _________, or banking
institutions or trust companies in The City of New York are authorized
or obligated by law or executive order to close.
o The "Closing Price" of any Reference Security depends on
where the Reference Security is quoted or listed on the Calculation Date:
(a) if the Reference Security is listed on _________, the "Closing Price"
means the closing sale price of such Reference Security on _________
on the Calculation Date;
(b) if the Reference Security is listed on _________, but there is no
closing sale price on the Calculation Date, the "Closing Price" means
the last reported sale price;
(c) if the Reference Security is not [listed for trading/quoted] on
_________, then the "Closing Price" means the closing sales price
reported in the composite transactions for the principal United States
securities exchange on which such Reference Security is listed for
trading;
(d) if the Reference Security is not listed on a United States national
or regional securities exchange, then the "Closing Price" means the
closing sale price as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System;
(e) if the closing sales price for the Reference Security is not
reported by the National Association of Securities Dealers, Inc.
Automated Quotation System, then the "Closing Price" means the last
quoted bid price in the over-the-counter market as reported by the
National Quotation Bureau or similar organization; and
(f) if a quoted bid price is not available, the "Closing Price" means the
market value of such Reference Security on the Calculation Date as
determined by a nationally recognized independent investment banking
firm we retain for this purpose.
o "Initial Price" means $____, which is the price of a share of
ABC Company common stock at the time of the Offering.
o "Primary Threshold Appreciation Price" means $____, which
represents a ____% increase over the Initial Price.
o "Reference Property Per TrENDS" initially means one share of
ABC Company common stock and under certain circumstances may change or be
adjusted at any time until the Business Day before the Exchange Date to
add or substitute cash, securities and/or other property. The Reference
Property you receive on or shortly after the Exchange Date therefore may
include a combination of ABC Company common stock, other securities
(including rights or warrants) of the ABC Company, cash, securities of
another company and/or other property, depending on the cause and nature
of the adjustment.
o "Reference Property Value" means the aggregate Then-Current
Value of the number or amount of each type of Reference Property Per
TrENDS on the Exchange Date.
o "Reference Security" means any security (as defined in
Section 2(1) of the Securities Act of 1933, as amended (the "Securities
Act")) which is part of the Reference Property, including the ABC Company
common stock.
o "Secondary Threshold Appreciation Price" means $____, which
represents a ____% increase over the Initial Price.
o "Then-Current Value" means, for any item of Reference
Property as of any date (the "Calculation Date"):
(a) if the item consists of cash, the amount of such cash;
(b) if the item consists of a Reference Security, an amount equal to the
average Closing Price per Reference Security unit on the 20 Trading
Days before the fifth Trading Day preceding the Calculation Date (not
including the fifth Trading Day); and
(c) if the item consists of property other than cash or Reference
Securities, the fair market value of such property as of 10:00 A.M.
New York City time on the third Business Day before the Calculation
Date. The fair market value will be determined by a nationally
recognized independent investment banking firm we retain for this
purpose.
o "Threshold Depreciation Price" means $____, which represents
a ____% decrease from the Initial Price.
o "Trading Day" means a day on which the Reference Security (A)
is not suspended from trading on any national or regional securities
exchange or association or over-the-counter market at the close of
business and (B) has traded at least once on the national or regional
securities exchange or association or over-the-counter market that is the
primary market for the trading of such Reference Security.
Our investment objective is to distribute to you $____ per
TrENDS on a quarterly basis, equal to a pro rata portion of the proceeds from
Treasury Securities as they mature each quarter, and to distribute to you per
TrENDS on or shortly after the Exchange Date, a percentage of each type of
Reference Property per TrENDS equal to the Exchange Amount. The "Exchange
Amount" is determined pursuant to the following formula:
(a) if the Reference Property Value is less than or equal to
the Threshold Depreciation Price, 125% of the number or amount of each type of
Reference Property (although you may receive more than 100% of the number or
amount of each type of Reference Property, you may still suffer a loss on your
investment, because the value of the shares you receive for each TrENDS may be
less than the price you initially paid for each TrENDS);
(b) if the Reference Property Value is greater than the
Threshold Depreciation Price but less than the Initial Price, a percentage of
the number or amount of each type of Reference Property, allocated as
proportionately as practicable, so that the aggregate Then-Current Value of
the amount paid in settlement equals the Initial Price;
(c) if the Reference Property Value is greater than or equal to
the Initial Price but less than the Primary Threshold Appreciation Price, 100%
of the number or amount of each type of Reference Property;
(d) if the Reference Property Value is greater than or equal to
the Primary Threshold Appreciation Price but less than the Secondary Threshold
Appreciation Price, a percentage of the number or amount of each type of
Reference Property, allocated as proportionately as practicable, so that the
aggregate Then-Current Value of the amount paid in settlement equals the sum
of (x) the Primary Threshold Appreciation Price and (y) one-half of the
excess, if any, of the Reference Property Value over the Primary Threshold
Appreciation Price; and
(e) if the Reference Property Value is greater than or equal to
the Secondary Threshold Appreciation Price, a percentage of the number or
amount of each type of Reference Property, allocated as proportionately as
practicable, so that the aggregate Then-Current Value of the amount paid in
settlement equals $_____.
The Stockholder will pay cash instead of fractional units or
interests of any Reference Property. See "--Fractional Interests" on page 15.
The Contract requires the Stockholder to deliver to us, on the
Business Day before the Exchange Date, that number or amount of each type of
Reference Property required to exchange all of the TrENDS (including any
TrENDS issued as a result of the Underwriter's over-allotment option) on the
Exchange Date. The Stockholder has an option to fulfill this obligation by
delivering cash instead of ABC Company common stock as Reference Property (the
"Cash Settlement Option"). If the Stockholder elects the Cash Settlement
Option, it will deliver to us, on the Business Day before the Exchange Date,
cash or a combination of cash and ABC Company common stock in an amount equal
to the aggregate Then-Current Value of the Reference Property it would have
otherwise delivered on the Exchange Date. If the Stockholder elects the Cash
Settlement Option, you will receive cash, or a combination of cash and ABC
Company common stock, on or shortly after the Exchange Date.
On or prior to the twenty-sixth Business Day before the
Exchange Date, we will notify The Depository Trust Company (the "Depositary")
and publish a notice in The Wall Street Journal or another daily newspaper of
national circulation stating the applicable percentage of the number or amount
of each type of Reference Property, including the amount of any cash, that
will be delivered with respect to your TrENDS. At the time the notice is
published, we will not have determined the Reference Property Value. If the
Stockholder elects to deliver Reference Property other than cash, you will be
responsible for the payment of any and all brokerage costs upon your sale of
the Reference Property.
Trust Assets
Our assets will consist primarily of the Treasury Securities
and the Contract. We may also make certain temporary investments. See
"--Temporary Investments" on page 15. As an illustration only, the following
table shows the number of shares of ABC Company common stock that you would
receive for each TrENDS at various Reference Property Values on the Exchange
Date. The table also assumes that there will be no antidilution adjustments
to the Reference Property so that on the Exchange Date the Reference Property
will consist of one share of ABC Company common stock. If we assume the
Initial Price to be $____, the Threshold Depreciation Price to be $____, the
Primary Threshold Appreciation Price to be $____ and the Secondary Threshold
Appreciation Price to be $____, you will receive on or shortly after the
Exchange Date the following number of shares of ABC Company common stock or
amount of cash (if the Stockholder elects the Cash Settlement Option and
delivers only cash) per TrENDS:
Number of Shares of ABC
Reference Property Value Common Stock OR Amount of Cash
- ------------------------ ------------ --------------
$ $
$ $
$ $
$ $
$ $
$ $
$ $
If you acquired TrENDS at the issue price on the issue date
from the Underwriter in this Offering, the following table contains
information regarding your quarterly distributions, the portion of each year's
distributions that will constitute a return of capital for U.S. Federal income
tax purposes and the amount of original issue discount accruing on the
Treasury Securities, assuming a yield-to-maturity accrual election, for
short-term Treasury Securities. See "Certain Tax Considerations" on page 24.
<TABLE>
<CAPTION>
Annual Gross
Annual Gross Distributions from Annual Inclusion of
Distributions from Treasury Securities per Annual Return of Original Issue Discount
Year Treasury Securities TrENDS Capital per TrENDS in Income per TrENDS
- ---- ------------------- ----------------------- ------------------ --------------------
<S> <C> <C> <C> <C>
$ $ $ $
</TABLE>
We will make quarterly distributions of $____ per TrENDS on
each __________, __________, __________ and __________ (or on the next
Business Day if such date is not a Business Day), beginning __________, 1999,
if you are the holder of record as of each __________, __________, __________,
and __________, respectively. Our quarterly distributions will consist solely
of the cash we receive from the proceeds of the Treasury Securities as they
mature. We will not be entitled to any future dividends that may be declared
on the ABC Company common stock. See "Dividends and Other Distributions" on
page 24.
Enhanced Yield; Less Potential for Equity Appreciation than ABC Company Common
Stock; Limited Depreciation Protection
You should realize that owning a TrENDS is not the same as
owning a share of ABC Company common stock. Although the TrENDS will provide
you with a current distribution yield (the ABC Company has not paid any
dividends on the ABC Company common stock), your opportunity to benefit from
appreciation in the price of ABC Company common stock by investing in TrENDS
is less than if you invested directly in ABC Company common stock because if
the Reference Property Value is greater than the Initial Threshold
Appreciation Price each TrENDS entitles you to receive only 50% of any
appreciation of the value of the Reference Property above the Initial
Threshold Appreciation Price. Moreover, if the Reference Property Value is
greater than the Secondary Threshold Appreciation Price each TrENDS entitles
you to only an amount of Reference Property with a market value equal to
$____. If the Reference Property Value is less than the Threshold
Depreciation Price then you may bear a decline in value which will be
partially offset by the increase in the number of shares of common stock you
will receive. See "Risk Factors" on page 17.
The ABC Company
[Description]
The shares of ABC Company common stock are traded on _________
under the symbol "______". The following table sets forth, for the periods
indicated, the reported high and low sale prices of the shares of ABC Company
common stock on _________ (adjusted for any stock splits or stock dividends).
Year Ended December 31, 1997:
Quarter High Low
- ----------------------------------------- ------ ------
First................................... $ $
Second..................................
Third...................................
Fourth..................................
Year Ended December 31, 1998:
Quarter High Low
- ----------------------------------------- ------ ------
First................................... $ $
Second.................................. $ $
Third...................................
Fourth..................................
Year Ended December 31, 1999:
Quarter High Low
- ----------------------------------------- ------ ------
First (through )............. $ $
As of __________, there were ______ holders of record of the
ABC Company common stock, including Cede & Co., a nominee of the Depositary.
Cede & Co. holds shares of ABC Company common stock on behalf of an
indeterminate number of beneficial owners.
The ABC Company has not historically paid any dividends on the
ABC Company common stock. ABC Company's Board of Directors has absolute
discretion to decide whether or not to pay dividends in the future. The Board
of Directors' decision regarding dividends depends upon the ABC Company's
operating results, financial condition and capital requirements, contractual
restrictions, general business conditions and any other factors the ABC
Company's Board of Directors believes to be relevant.
Even if the ABC Company's Board of Directors were to decide to
pay a dividend, you will generally not be entitled to receive such dividend
unless you have already exchanged your TrENDS for ABC Company common stock.
In addition, the applicable record date for determining stockholders entitled
to receive dividends must occur after you have received your ABC Company
common stock. See "Risk Factors" on page 17.
We are not affiliated with the ABC Company. The ABC Company
will not receive any of the proceeds from the Offering, and will not have any
obligations with respect to the TrENDS. This Prospectus relates only to the
TrENDS being offered, and does not relate to the ABC Company or the ABC
Company common stock. The ABC Company has filed a registration statement with
the SEC to register the shares of ABC Company common stock that you may
receive upon termination of the Trust. The registration statement contains a
prospectus (the "ABC Company Prospectus") that includes information relating
to the ABC Company and the ABC Company common stock[, including certain risk
factors relevant to an investment in the ABC Company Common Stock]. The ABC
Company Prospectus is attached to this Prospectus and is being delivered to
you only as a convenience. The ABC Company Prospectus is not part of this
Prospectus, and it is not incorporated by reference into this Prospectus. See
"Risk Factors--No Affiliation Between the Trust and the ABC Company" on page
19.
The Contract
General. The Contract requires the Stockholder to deliver to
us, on the Business Day before the Exchange Date, that number or amount of
each type of Reference Property required pursuant to the formula described
above under "Investment Objective and Policies--General". The Stockholder may
also elect the Cash Settlement Option.
Reference Property Adjustments. The amount and type of
Reference Property you receive on or shortly after the Exchange Date is
subject to adjustment under the antidilution provisions in the Contract, to
protect the Stockholder and you against the dilutive or concentrative effects
on any Reference Security of the following corporate events (each, a "Dilution
Event").
(a) If the issuer of the Reference Security (the "Issuer")
subdivides or splits the outstanding Reference Security units into a greater
number of units, then the Reference Property will be adjusted as if the
Reference Security units were held as part of the Reference Property
immediately before this Dilution Event. The adjustment will become effective
immediately after the effective date of the subdivision or split. Every
adjustment will be made successively.
(b) If the Issuer combines the outstanding units of such
Reference Security into a smaller number of units, then the Reference Property
will be adjusted as if the Reference Security units were held as part of the
Reference Property immediately before this Dilution Event. The adjustment
will become effective immediately after the effective date of the combination.
Every adjustment will be made successively.
(c) If the Issuer reclassifies Reference Security units into
units of another of the Issuer's securities, then the Reference Property will
be adjusted as if the Reference Security units were held as part of the
Reference Property immediately before this Dilution Event. The adjustment
will become effective immediately after the effective date of the
reclassification. Every adjustment will be made successively.
(d) If the Issuer grants rights or warrants to all Reference
Security holders entitling them to subscribe for or purchase any of its
securities or other property, for a period ending before the fifteenth
calendar day following the Exchange Date (other than rights to purchase
Reference Security units pursuant to a plan for the reinvestment of dividends
or interest), then the Reference Property will be adjusted to include cash.
The amount of cash will equal the fair market value of each right or warrant
on the fifth Business Day after the date the Reference Security holders
receive their rights or warrants (the "Receipt Date") multiplied by the
product of (A) the number of rights or warrants issued for each Reference
Security unit and (B) the number of Reference Security units that are part of
the Reference Property on the date rights or warrants are issued before the
issuance takes place, without any interest.
To determine such fair market value, we will select a
recognized securities dealer in The City of New York that provides the highest
net bid as of approximately 10:00 A.M. (New York City time) on the fifth
Business Day after the Receipt Date, for settlement three Business Days later,
from among three securities dealers (or less than three if three dealers are
not providing bids). The fair market value of each right or warrant on the
fifth Business Day after the Receipt Date will be the quotient of (x) the
highest net bid for the purchase by the dealer of rights or warrants divided
by (y) the Aggregate Number. The "Aggregate Number" is the number of rights
or warrants that a Reference Security holder would receive if the holder held,
on the record date for determination of stockholders entitled to receive such
rights or warrants (the "Record Date"), a number of Reference Security units
equal to the product of (1) the aggregate number of outstanding TrENDS as of
such Record Date and (2) the number of Reference Security units that are part
of the Reference Property. Each adjustment will become effective on the fifth
Business Day after the Receipt Date.
If for any reason we are unable to obtain the required bid on
the fifth Business Day after the Receipt Date, we will attempt to obtain bids
at successive intervals of three months thereafter and on the third Business
Day before the Exchange Date until we obtain the required bid or, if the
TrENDS are to be exchanged on an earlier date, until the third Business Day
before such date. From the date of issuance of such rights or warrants until
the required bid is obtained or those efforts end on the third Business Day
prior to the Exchange Date or any such earlier date, the Reference Property
will include the number of such rights or warrants issued for each Reference
Security unit multiplied by the number of Reference Security units that are
part of the Reference Property on the date of issuance of such rights or
warrants, immediately before such issuance, and such rights or warrants
constituting part of the Reference Property will be deemed for all purposes to
have a fair market value of zero.
(e) If the Issuer pays a dividend, makes a distribution to all
Reference Security holders of cash, securities or other property, issues
rights or warrants to subscribe for or purchase any of its securities or other
property (other than those referred to in clause (d) above) (each, a
"Distributed Asset"), then the Reference Property will be adjusted to include
the Distributed Asset as if the Reference Security units were held as part of
your Reference Property immediately before this Dilution Event. A Distributed
Asset does not include any cash dividend on any Reference Security consisting
of capital stock which is not an Extraordinary Cash Dividend, any payment of
interest on any Reference Security consisting of an evidence of indebtedness
and any dividend or distribution referred to in clause (a), (b), (c) or (d)
above.
An "Extraordinary Cash Dividend" means, with respect to any
Reference Security consisting of capital stock, any cash dividend on such
Reference Security that, together with all cash dividends on such Reference
Security occurring in the preceding 12-month period (or, if such Reference
Security was not outstanding at the commencement of such 12-month period,
occurring in such shorter period during which such Reference Security was
outstanding) exceeds on a per share basis 10% of the Then-Current Value of
such Reference Security on the date the dividend was declared. However, the
amount of cash dividends paid on a per share basis will be appropriately
adjusted to reflect the occurrence during such 12-month period (or such
shorter period during which such Reference Security was outstanding) of any
stock dividend or distribution of shares of capital stock of the Issuer or any
subdivision, split, combination or reclassification of shares of such
Reference Security.
If the Issuer is reorganized (a "Reorganization Event"), the
Reference Property will also be adjusted. A Reorganization Event would not
include the Dilution Event described in (e) above, but does include:
(A) any consolidation, merger or conversion of an Issuer with
or into another entity (other than a consolidation, merger, or conversion in
which the Issuer is the continuing corporation and in which the Reference
Security units outstanding before the consolidation, merger, or conversion are
not exchanged for cash, securities or other property of the Issuer or another
entity),
(B) any sale, transfer, lease or conveyance to another
corporation of the property of an Issuer as an entirety or substantially as an
entirety,
(C) any statutory exchange of securities of an Issuer with
another entity (other than in connection with a merger or acquisition) or
(D) any liquidation, dissolution, winding up or bankruptcy of
an Issuer.
If a Reorganization Event occurs, the Reference Property will
include any amount or number of any cash, securities and/or other property
owned or received for each Reference Security unit in the Reorganization Event
multiplied by the number of Reference Security units that are part of the
Reference Property before the effective date of such Reorganization Event.
If a Reorganization Event permits Reference Security holders to
elect to own or receive either Marketable Common Stock (as defined) or cash
and/or other securities or property, or a combination, for purposes of
determining the Reference Property adjustments (and for purposes of
determining whether such Reorganization Event constitutes an Acceleration
Event (as defined)), we will assume that each Reference Security holder has
elected to own or receive the maximum possible amount of Marketable Common
Stock (as defined).
Within ten Business Days after the event that requires a
Reference Property adjustment (or as soon as practicable after we become aware
of the event), we are required to provide to you written notice of the event
and a statement in reasonable detail setting forth the amount or number of
each type of Reference Property as adjusted.
We will not adjust the Reference Property for certain other
events, including the ABC Company's offerings of ABC Company common stock for
cash or in connection with acquisitions. Likewise, we will not adjust the
Reference Property for any sales of ABC Company common stock by the
Stockholder.
Reorganization Events Causing a Dissolution of the Trust. If
an Acceleration Event occurs with respect to the ABC Company, or any surviving
entity or subsequent surviving entity of the ABC Company (a "Company
Successor"), the Stockholder's obligations under the Contract will be
automatically accelerated. The Stockholder will be required to deliver to us,
on the tenth Business Day after the effective date for such Acceleration Event
(the "Early Settlement Date"), the aggregate number or amount of each type of
Reference Property that would be required to be delivered as if the Exchange
Date became the Early Settlement Date.
"Acceleration Event" means any Reorganization Event (in the
case of a Reorganization Event specified in clauses (A) through (C) only) with
respect to the ABC Company or any Company Successor in which (in the case of a
Reorganization Event specified in clauses (A) through (C) only) 75% or more of
the property received in such Reorganization Event with respect to the ABC
Company common stock (or the common stock of a Company Successor) (the "Event
Consideration") consists of cash.
The percentage of the Event Consideration consisting of cash
will be determined by comparing the amount of such cash that is part of the
Event Consideration to the aggregate Then-Current Value of the Event
Consideration, determined as of the effective date of such Reorganization
Event.
If an Acceleration Event occurs, our assets will be liquidated
(except for assets received under the Contract). Our assets will include
proceeds received from the liquidation and any assets received under the
Contract, less any of our expenses, which will be distributed pro rata to you,
and the Trust will immediately dissolve. We will sell the Treasury Securities
and distribute those proceeds along with Reference Property received under the
Contract on the Early Settlement Date, after deducting our expenses and
otherwise satisfying creditors of the Trust, if any.
Collateral Arrangements; Acceleration. We have entered into a
Security and Pledge Agreement with the Stockholder, and _________, as
collateral agent (the "Collateral Agent") to secure the Stockholder's
obligations by its pledge of a security interest in the maximum number or
amount of each type of Reference Property that it would have to deliver
(initially ________ shares of ABC Company common stock) under the Contract.
The Collateral Agent will promptly pay over to the Stockholder
any dividends, interest, principal or other payments it receives on any
collateral pledged by the Stockholder unless the Stockholder is in default or
unless such payment would cause the collateral to become insufficient. The
Stockholder will have the right to vote any pledged units of any Reference
Security for so long as such units are owned by it.
(A) If the collateral pledged does not consist of at least the
maximum number or amount of each type of Reference Property that the
Stockholder would have to deliver under the Contract or in the event of the
bankruptcy or insolvency of the Stockholder (each such event, a "Default") the
Stockholder's obligations under the Contract will automatically be
accelerated. If there is a Default, the Stockholder's option to settle the
Contract in cash will terminate and it will be required to deliver a number or
amount of each type of Reference Property, allocated as proportionately as
practicable, with an aggregate Then-Current Value as of the acceleration date
equal to the "Aggregate Acceleration Value." The Aggregate Acceleration Value
will be based on an "Acceleration Value" derived from quotations we receive
from independent dealers. Each independent dealer will quote an amount that it
would be paid if we had an agreement with such dealer that would have the
effect of preserving our rights to receive the number or amount of each type
of Reference Property that correspond to 1,000 TrENDS. We will request
quotations from four nationally recognized independent dealers on or as soon
as reasonably practicable following the acceleration date. If we receive four
quotations, the Acceleration Value will be the arithmetic mean of the two
quotations remaining after disregarding the highest and the lowest quotations.
If we receive only two or three quotations, the Acceleration Value will be the
arithmetic mean of all of the quotations. If we receive only one quotation,
the Acceleration Value will be that quotation. The Aggregate Acceleration
Value will be computed by dividing the Acceleration Value by 1,000 and
multiplying the quotient by the number of outstanding TrENDS. If no
quotations are provided, the Aggregate Acceleration Value will be the
aggregate Then-Current Value on the acceleration date of the aggregate number
or amount of each type of Reference Property that would be required to be
delivered if the Exchange Date became the acceleration date. If there is a
Default, the number or amount of each type of Reference Property delivered to
you will be based solely on the Aggregate Acceleration Value.
If there is a Default, the Collateral Agent will distribute to
us, and we will distribute to you pro rata, the Aggregate Acceleration Value
in the form of Reference Property then pledged. See "--Trust Dissolution" on
page 15.
Fractional Interests. You will not receive any fractional
Reference Security units if the Stockholder fulfills its obligations in whole
or in part by delivering Reference Property. See "--Trust
Dissolution-Fractional Interests" below.
If it is practicable, the Stockholder will deliver fractional
interests of any Reference Property other than cash or a Reference Security.
If such delivery is not practicable, you will receive cash equal to the
Then-Current Value of such fractional interest as of the Exchange Date.
Description of Stockholder. The Stockholder is _________.
Specific information about the Stockholder's holdings of ABC Company common
stock is included or incorporated by reference in the accompanying ABC Company
Prospectus.
Purchase Price. The Purchase Price under the Contract equals
$____, if the Underwriter does not exercise its over-allotment option. We
must pay the purchase price to the Stockholder on or about __________, 1999.
We will value the Contract at fair value as determined in good
faith at the Trustees' direction (if necessary, through consultation with
accountants, bankers and other specialists). See "Net Asset Value" on page 24.
The Treasury Securities
We will purchase and hold a series of Treasury Securities with
face amounts and maturities that exactly correspond to the amounts and payment
dates of the quarterly distributions you will receive on your TrENDS. Up to
____% of our total assets may be invested in these Treasury Securities. If
the Contract is accelerated as described under "--Reorganization Events
Causing a Dissolution of the Trust," or "--Collateral Arrangements;
Acceleration," then we will liquidate the applicable number of Treasury
Securities and distribute the proceeds to you pro rata, together with other
amounts distributed upon acceleration.
Temporary Investments
For cash management purposes, we may invest the proceeds of the
Treasury Securities and any other cash we hold in short-term obligations of
the U.S. Government maturing no later than the Business Day before the next
distribution date.
Trust Dissolution
We will dissolve on or shortly after the Exchange Date, except
we may dissolve earlier under certain limited circumstances already described.
We have adopted as a fundamental policy that we will not dispose of the
Contract during the term of the Trust, though under certain circumstances the
Contract may be accelerated prior to the Exchange Date. If the Contract is
accelerated, our assets will be liquidated (other than assets received under
the Contract), our assets (including the proceeds of such liquidation and any
assets received under the Contract less any of our expenses) will be
distributed pro rata to you, and the Trust will immediately dissolve. See
"--The Contract--Reorganization Events Causing a Dissolution of the Trust,"
and "--Collateral Arrangements; Acceleration."
Fractional Interests. You will not receive any fractional
Reference Security units, or fractional interests of any Reference Property
other than cash or a Reference Security. Instead, all fractional units or
interests will be aggregated and liquidated and you will receive a pro rata
portion of the proceeds from such liquidation (less any brokerage or related
expenses).
Investment Restrictions
The Trust has adopted the following fundamental policies. We
will not:
o dispose of the Contract during the term of the Trust;
o dispose of the Treasury Securities before their maturity dates, other
than if we dissolve earlier than the Exchange Date if an Acceleration
Event or a Default occurs;
o purchase any securities or instruments other than the Treasury
Securities, Contract and any Reference Security received under the
Contract and, for cash management purposes, short-term obligations of
the U.S. Government;
o issue any senior securities or instruments other then the TrENDS;
o write put or call options;
o borrow money except as permitted by the Investment Company Act;
o underwrite securities of other issuers;
o purchase or sell real estate, real estate mortgage loans, commodities
or commodities contracts; or
o make loans.
We will also invest at least 65% of our portfolio in the
Contract. The Contract will represent approximately ___% of our initial
assets.
We cannot change these fundamental policies without the vote of
100% of the outstanding TrENDS. Unless expressly designated as fundamental,
all other policies of the Trust may be changed by the board of Trustees
without your approval.
Because of the foregoing policies, our investments will be
concentrated initially in the _________ industry, which is the industry in
which the ABC Company currently operates. However, to the extent that the ABC
Company diversifies its operations into one or more other industries, or the
Reference Property includes a Reference Security of an Issuer that operates in
another industry, our investments will be less concentrated in the _________
industry. See "Risk Factors--Our Portfolio is Not Diversified" on page 18.
Risk Factors
You should carefully consider the following factors and other
information in this Prospectus and the accompanying ABC Company Prospectus
before deciding to invest in the TrENDS. As described in more detail below,
the trading price of the TrENDS may vary considerably before the Exchange Date
due to, among other things, fluctuations in the price of the ABC Company
common stock or other Reference Securities and other events that are difficult
to predict and beyond our control.
We Will Not Actively Manage our Portfolio
The Trust will not have an investment advisor to manage the
portfolio like a typical closed-end investment company. Instead, the Trust
will be internally managed by the Trustees. Our fundamental policy is to not
dispose of the Contract before the Trust's term expires. Similarly, unless the
Trust dissolves earlier than the Exchange Date, if an Acceleration Event or
Default occurs, the Trust will not dispose of the Treasury Securities before
their maturity dates. As a result, the Trust will continue to hold the
Contract, even if there is a significant decline in the value of the ABC
Company common stock (or any other Reference Property) or an adverse change in
the financial condition of the ABC Company (or any other Issuer).
TrENDS May be Difficult to Resell
There may be little or no secondary market for the TrENDS. The
TrENDS are a relatively new type of security and there currently is no
secondary market for them. [We have applied to the _________ to list/quote the
TrENDS on such exchange/quotation system, but] we do not know whether active
trading in the TrENDS will develop and continue even if they are so
listed/quoted. If there is a secondary market for the TrENDS, it may not
provide significant liquidity.
TrENDS May Trade at a Discount to Net Asset Value
The Trust is a newly organized closed-end investment company
with no previous operating history. The Trust's net asset value may decrease.
In addition, shares of closed-end investment companies frequently trade at a
discount from their net asset value. It is impossible to predict whether the
TrENDS will trade at, below or above our net asset value. Since the TrENDS
are not redeemable, if you wish to dispose of them soon after they are issued,
you must bear the risk that if they do trade at a discount at the time you
sell them, you would realize a loss on your investment in TrENDS, regardless
of our performance.
The Number of Shares You Receive Will Not be Adjusted for Certain Potentially
Dilutive Events
The ABC Company (and any other Issuer) is free to issue
additional shares during the term of the TrENDS. Similarly, any stockholder of
the ABC Company could decide to sell its shares at any time. Although the
amount of Reference Property you receive will be adjusted to protect you from
certain types of dilutive events, it will not be adjusted if the ABC Company
offers ABC Company common stock for cash or as consideration to make an
acquisition or if a stockholder sells shares. Any such issuances or sales
could lead to declines in the value of ABC Company common stock and, if no
adjustment is made to the TrENDS, in the value of your TrENDS. Neither the
ABC Company nor any stockholder (including the Stockholder) has any obligation
to consider your interests for any reason.
Your Opportunity for Gain May be Diminished if the TrENDS Expire Early
The term of the Trust (which is scheduled to expire on or
shortly after the Exchange Date), may be accelerated and the Trust's assets
liquidated (except for assets received under the Contract) if: the ABC Company
consolidates or merges into another company, conveys or leases its property as
an entirety or there is a statutory exchange of securities of ABC Company with
another entity and 75% or more of the consideration that ABC Company
stockholders receive consists of cash; the ABC Company liquidates or similar
events occur; the Stockholder is declared bankrupt or insolvent; or the
collateral supporting the Contract is deemed to be insufficient. On
acceleration, the proceeds and assets you will receive could be substantially
less that what you would have received if the Trust's term were to have
expired on the Exchange Date.
Our Portfolio is Not Diversified
The Trust's assets will consist almost entirely of the Contract
and the Treasury Securities. As a result, we may be subject to greater risk
than would be the case for an investment company with more diversified
investments.
You Bear Most of the Risk of Any Loss in the Value of ABC Company Common Stock
The terms of the TrENDS are similar to the terms of ordinary
equity securities in that the aggregate value of the ABC Company common stock,
cash or other Reference Property that you will receive on or shortly after the
Exchange Date is not fixed, but is based on the price of the ABC Company
common stock (or other Reference Property Value). See "Investment Objective
and Policies--General" on page 7 and "--The Contract" on page 11. An
investment in TrENDS offers you partial protection against any depreciation in
the value of the ABC Company common stock from its current value. This is
because if the value of a share of ABC Company common stock is less than $___
on the Exchange Date, the aggregate value of the number of shares you will
receive per TrENDS will be greater than the value of one share. However,
although you may receive more than one share of common stock, you may still
suffer a loss on your investment, because the value of the shares you receive
for each TrENDS may be less than the price you initially paid for each TrENDS.
Trading Prices of the TrENDS May Be Influenced by Many Unpredictable Factors
Many factors, a number of which are beyond our control, will
influence the value of the TrENDS. We expect that the market value of the ABC
Company common stock will affect the value of the TrENDS more than any other
factor. The trading price of the ABC Company common stock may fluctuate
significantly and experience significant volatility. Factors that may affect
the trading prices of the ABC Company common stock and the TrENDS include:
o whether ABC Company makes a profit and what its future prospects are;
o economic, financial and political events that affect capital markets
generally;
o sales of substantial amounts of ABC Company common stock after this
Offering (which could occur, among other reasons, in connection with
hedging or arbitrage of investors' positions in TrENDS) or the
perception that such sales could occur;
o interest and yield rates in the capital markets; and
o the time remaining until the Exchange Date.
The capital markets in general have experienced extreme
volatility that often has been unrelated to the operating performance of
particular companies. These broad market and industry fluctuations may cause
declines in the value of ABC Company common stock and the TrENDS regardless of
the actual operating performance or creditworthiness of the ABC Company.
TrENDS Give You Less Opportunity for Equity Appreciation than ABC Company
Common Stock
Owning a TrENDS is economically different from owning a share
of ABC Company common stock. An investment in TrENDS offers you less of an
overall opportunity to realize any appreciation in the value of ABC Company
common stock over its current value than does a direct investment in ABC
Company common stock. This is because if the value of a share increases to a
value equal to or greater than $___ per share but below $___ per share, you
are entitled to receive only __% of this increase; if it increases to a value
above $___ per share, you are entitled to receive an amount of ABC Company
common stock with a market value equal to $___.
You Bear Some Market Risk if the Stockholder Elects Cash Settlement
If the Stockholder decides to exercise its Cash Settlement
Option, the amount of cash the Trust will receive in place of any Reference
Security will be based on the average of the Closing Prices of that Reference
Security for the 20 Trading Day period ending immediately before the second
Trading Day prior to the Exchange Date. The price of the ABC Company common
stock (and any other Reference Security that you may receive as a result of
dilution adjustments) will be subject to market fluctuations during that
period. The amount of cash you receive on the Exchange Date may be less than
the value of the ABC Company common stock (or other Reference Securities) that
you would have received on the Exchange Date had the Stockholder not exercised
its Cash Settlement Option. For example, if the Stockholder elects cash
settlement during a period when the value of the ABC Company common stock is
continuously rising, the average of the Closing Prices of such stock over the
20 Trading Day averaging period may be lower than the value of the stock on
the Exchange Date. See "Investment Objective and Policies--The Contract" on
page 11.
You Will Have No Shareholder Rights With Respect to Reference Security or
Contractual Rights With Respect to the Contract
If you invest in the TrENDS, you will have no rights with
respect to any Reference Security, including voting rights or rights to
receive any dividends or other distributions on such Reference Security. You
will have such rights with respect to the Reference Securities that you
receive in exchange for your TrENDS only if the applicable record date for
determining stockholders entitled to those rights occurs after you have
received your Reference Security.
The Stockholder is not responsible for determining the amount
you will receive for your TrENDS on or shortly after the Exchange Date. The
Contract is a commercial transaction and does not create any rights in any
third party and is not for the benefit of any third party, including you.
No Affiliation Between the Trust and the ABC Company
We are not affiliated with the ABC Company. We have no
knowledge that any of the events described under "The Contract--Reference
Property Adjustments" on page 12 are currently being considered by the ABC
Company unless those events have been publicly disclosed, and we also have no
knowledge of any event that would have a material adverse effect on the ABC
Company or on the price of the ABC Company common stock. However, we have no
ability to control such events and such events are difficult to predict.
The ABC Company has no obligations with respect to the TrENDS,
including any obligation to consider our needs or your needs for any reason.
The ABC Company will not receive any of the proceeds from this Offering. The
ABC Company is not responsible for and has not participated in determining the
amount you will receive for your TrENDS on or shortly after the Exchange Date.
The ABC Company is not involved with the administration or trading of the
TrENDS and has no obligations with respect to the amount you receive on or
shortly after the Exchange Date.
You Bear Some Risk if the Stockholder Becomes Bankrupt
We believe that the Contract constitute a "securities contract"
for purposes of Title 11 of the United States Code (the "Bankruptcy Code"),
and, therefore, we believe that if the Stockholder becomes bankrupt, the
Contract will not be subject to the automatic stay provisions of the
Bankruptcy Code. If, however, the Contract was found not to constitute a
"securities contract" for this purpose, the Contract could become subject to
the automatic stay provisions of the Bankruptcy Code or otherwise affected by
the bankruptcy proceedings. This could adversely affect the timing of the
exchange and the amount of stock or other property that you receive in
exchange for your TrENDS.
Uncertain Tax Treatment
The law regarding the treatment of the TrENDS for United States
federal income tax purposes is subject to some uncertainty. Although you
should not recognize taxable income with respect to your pro rata portion of
the Contract prior to settlement of the Contract, there are alternative
characterizations that could require you to include more income than would be
included under the analysis set forth under "Certain Tax Considerations."
Accordingly, you should consult your tax advisers with respect to the tax
consequences of the purchase, ownership and disposition of the TrENDS in light
of your particular circumstances, including the tax risks associated with
possible alternative characterizations of the TrENDS. See "Certain Tax
Considerations" on page 24.
Description of TrENDS
Each TrENDS represents an undivided beneficial interest in the
assets of the Trust, and a total of _________ TrENDS will be issued in the
Offering, assuming the Underwriter does not exercise its over-allotment
option. You are entitled to share pro rata in our remaining assets available
for distribution if we liquidate. TrENDS have no preemptive, redemption or
conversion rights. The TrENDS, when issued and outstanding, will be fully
paid and nonassessable undivided beneficial interests in our assets.
You are entitled to one vote for each TrENDS you hold on all
matters to be voted on by the holders. You cannot cumulate your votes in the
election of Trustees. The Trust Agreement provides that any investment
company or group of affiliated investment companies that hold TrENDS in excess
of the limitations described under "Underwriting--Investment Restrictions"
will vote such TrENDS in proportion to the votes of all other holders. We
intend to hold annual meetings as required by the rules of _________. You
have the right, upon the declaration in writing or vote of more than
two-thirds of the outstanding TrENDS, to remove a Trustee. The Trustees will
call a meeting for holders to vote on the removal of a Trustee upon the
written request of the record holders of 10% of the TrENDS, or to vote on
other matters upon the written request of the record holders of 51% of the
TrENDS (unless substantially the same matter was voted on during the preceding
12 months).
Book-entry System
The TrENDS will be issued in the form of one or more global
securities (the "Global Securities") deposited with the Depositary and
registered in the name of the Depositary's nominee.
The Depositary is a limited-purpose trust company organized
under the laws of the State of New York, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code and a "clearing agency" registered pursuant to Section 17A of
the Exchange Act. The Depositary was created to hold securities for people
who have accounts with them ("participants") and to facilitate the clearance
and settlement of securities transactions among its participants through
electronic book-entry changes in the participants' accounts. This book-entry
system eliminated the need to physically move certificates. Such participants
include securities brokers and dealers, banks, trust companies and clearing
corporations. Indirect access to the Depositary's book-entry system is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly.
After a Global Security is issued, the Depositary or its
nominee will credit the TrENDS represented by such Global Security to its
participants' accounts. The Underwriter will designate the accounts to be
credited. Only participants or persons that hold interests through
participants may beneficially own the Global Securities. If you are a
participant, the Depositary or its nominee will maintain the records that show
your beneficial ownership in the Global Securities and effect any transfer of
those beneficial ownership interests among participants. If you hold through
a participant, the participant will maintain the records that show your
beneficial ownership in the Global Securities and effect any transfer of those
beneficial interest within such participant. The laws of some jurisdictions
may require that certain purchasers of securities take physical delivery of
such securities in definitive form. Such limits and such laws may impair the
ability to transfer beneficial interests in a Global Security.
So long as the Depositary or its nominee for a Global Security
is the registered owner of such Global Security, such Depositary or its
nominee will be considered the sole owner or holder of the TrENDS. Generally,
you will not be entitled to have the TrENDS registered in your name and will
not receive or be entitled to receive physical delivery of the TrENDS in
definitive form and will not be considered the owner or holder of the TrENDS.
Since the Depositary or its nominee is the registered owner or
the holder of the Global Security, we will pay the quarterly distributions,
any Reference Property or any other consideration in connection with the
TrENDS to the Depositary or its nominee. We expect that the Depositary or its
nominee, when it receives such payment, will immediately credit its
participants' account with amounts proportionate to their respective
beneficial interests in the Global Security, according to its records. We
also expect that payments by participants to persons who hold through such
participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name", and will be the
responsibility of such participants. None of the Trust, any Trustee, the
Administrator, the Paying Agent, Registrar and Transfer Agent or the Custodian
for the TrENDS will have any responsibility or liability for any aspect of the
records relating to beneficial ownership interests in a Global Security, or
payments made on account of such interests or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
A Global Security may not be transferred except as a whole by
the Depositary to a nominee or a successor of the Depositary. If the
Depositary is at any time unwilling or unable to continue as depositary and we
do not appoint a successor depositary within ninety days, we will issue TrENDS
in definitive registered form in exchange for the Global Security. In
addition, we may at any time at our sole discretion decide not to have any
TrENDS represented by one or more Global Securities, in which case we will
issue TrENDS in definitive form in exchange for all of the Global Securities.
Further, we may specify that an owner of a beneficial interest in a Global
Security may, on acceptable terms to us and the Depositary, receive TrENDS in
definitive form. In any such instance, an owner of a beneficial interest in a
Global Security will be entitled to receive TrENDS in definitive form
registered in its name equal in number to its proportionate interest in such
Global Security.
Management Arrangements
General
Our board of Trustees consists of three individuals. None of
the Trustees is an "interested person" of the Trust as defined in the
Investment Company Act. The Trustees are responsible for the overall
supervision of our operations and perform the various duties imposed on the
trustees of management investment companies by the Investment Company Act.
The name of each Trustee, his position and his principal
occupation during the past five years are set forth below:
<TABLE>
<S> <C> <C>
Principal Occupation During
Name, Age and Address Title Past Five Years
- --------------------- ----- ----------------------------
Donald J. Puglisi, 51......................... Managing Trustee Professor of Finance
Department of Finance University of Delaware
University of Delaware
Newark, DE 19716
William R. Latham, I, 52...................... Trustee Professor of Economics
Department of Economics University of Delaware
University of Delaware
Newark, DE 19716
James B. O'Neill, 57.......................... Trustee Professor of Economics
Center for Economic Education University of Delaware
& Entrepreneurship
University of Delaware
Newark, DE 19716
</TABLE>
Compensation of Trustees
Each unaffiliated Trustee will be paid a one-time, up-front fee
of $ by or on behalf of the Stockholder in respect of his annual
fee and anticipated out-of-pocket expenses. The Managing Trustee will also
receive an additional up-front fee of $ for serving in that
capacity. We will not compensate a Trustee in any manner, including any
pension or retirement benefits. The Trustees do not receive any compensation
for serving as a trustee or director of any other affiliated investment
company.
Portfolio Management and Administration
The Trust will be internally managed and will not have an
investment adviser. The Trust's portfolio will not be actively managed. The
Trustees will authorize the purchase of the Contract and the Treasury
Securities as directed by the Trust Agreement. We have as a fundamental
policy that the Contract may not be disposed of during the term of the Trust
and that, unless we dissolve earlier than the Exchange Date, we will not
dispose of the Treasury Securities before their maturity dates.
All expenses we incur in our operations will be paid by or on
behalf of the Stockholder, including, among other things, accounting and
auditing fees, expenses for legal services, taxes, costs of printing and
mailing stock certificates, shareholder reports and proxies, listing fees, if
any, the Administrator, Custodian and Paying Agent, Registrar and Transfer
Agent's fees, expenses of registering the TrENDS under Federal and state
securities laws, the Trustees' fees and expenses, and litigation and other
extraordinary or non-recurring expenses. See "--Estimated Expenses" on page
24.
Administrator
The Trust's day-to-day affairs will be managed by _________, as
trust administrator pursuant to an Administration Agreement (the
"Administrator"). Under the Administration Agreement, the Trustees have
delegated most of their operational duties to the Administrator. These
include the duties to: (a) receive invoices for and pay all of our expenses;
(b) with the approval of the Trustees, engage legal and other professional
advisors (other than our independent public accountants); (c) instruct the
Paying Agent to pay any distributions on the TrENDS; (d) prepare and mail,
file or publish all of our notices, proxies, reports, tax returns and other
communications and documents, and keep all of our books and records; (e) at
the direction of the Trustees, institute and prosecute legal and other
appropriate proceedings to enforce our rights and remedies; and (f) make all
necessary arrangements with respect to meetings of Trustees and any meetings
of holders. The Administrator will not, however, select our independent
public accountants or sell or otherwise dispose of our assets (except in
connection with an acceleration of the Contract as described under "Investment
Objective and Policies--The Contract--Reorganization Events Causing a
Dissolution of the Trust," and "--Collateral Arrangements; Acceleration" or
the settlement of the Contract on the Business Day before the Exchange Date).
The Administration Agreement may be terminated by us or the
Administrator with 60 days prior written notice, but the agreement may not be
terminated until a successor Administrator has been chosen and has accepted
the Administrator's duties.
Except for its roles as our Administrator, Custodian and Paying
Agent, Registrar and Transfer Agent, and except for its role as Collateral
Agent under the Security and Pledge Agreement, _________ has no other
affiliation with us, and is not engaged in any other transactions with us.
The address of the Administrator is ___________________________.
Custodian
Our custodian (the "Custodian") is _________ pursuant to a
custodian agreement (the "Custodian Agreement"). If we terminate the
Custodian Agreement or the Custodian resigns, we must engage a new Custodian
to carry out the duties of the Custodian. Under the Custodian Agreement, all
net cash we receive will be invested by the Custodian in short-term U.S.
Government securities maturing on or shortly before the next quarterly
distribution date. The Custodian will also act as collateral agent (the
"Collateral Agent") under the Security and Pledge Agreement and will hold a
perfected security interest in the pledged Reference Property and U.S.
Government obligations or other pledged assets.
The address of the Custodian is __________________.
Paying Agent
The Paying Agent, Registrar and Transfer Agent (the "Paying
Agent") for the TrENDS is _________ pursuant to a paying agent agreement (the
"Paying Agent Agreement"). If we terminate the Paying Agent Agreement or the
Paying Agent resigns, we will use our best efforts to engage a new Paying
Agent to carry out the duties of the Paying Agent.
The address of the Paying Agent is __________________.
Indemnification
We will indemnify each Trustee, the Administrator, the Paying
Agent and the Custodian with respect to any claim, liability, loss or expense
(including the costs and expenses of the defense against any claim or
liability) that they may incur in acting in such capacity, except in the case
of willful misfeasance, bad faith, gross negligence or reckless disregard of
their respective duties or where applicable law prohibits such
indemnification. Donaldson, Lufkin & Jenrette Securities Corporation has
agreed to reimburse us for any amounts we pay as indemnification to any
Trustee, the Administrator, the Paying Agent or the Custodian. Donaldson,
Lufkin & Jenrette Securities Corporation will in turn be reimbursed by or on
behalf of the Stockholder.
Estimated Expenses
At the closing of the Offering, each of the Administrator, the
Custodian, the Collateral Agent and the Paying Agent will be paid a one-time,
up-front amount in respect of its fee by or on behalf of the Stockholder and,
in the case of the Administrator, our anticipated ongoing expenses over the
term of the Trust. Our anticipated expenses include, among other things,
expenses for legal and independent accountants' services, costs of printing
proxies, TrENDS certificates and stockholder reports and stock exchange fees.
Our organization costs in the amount of $____ and estimated costs in
connection with the initial registration and public offering of the TrENDS in
the amount of approximately $____ will be paid by the Stockholder.
The amount payable to the Administrator for our anticipated
ongoing expenses was determined based on estimates made in good faith on the
basis of information currently available to us, including estimates furnished
by our agents. Any unanticipated expenses will be paid by Donaldson, Lufkin &
Jenrette Securities Corporation. Donaldson, Lufkin & Jenrette Securities
Corporation will in turn be reimbursed by or on behalf of the Stockholder.
Dividends and Other Distributions
We will make quarterly distributions from the proceeds of the
Treasury Securities. You will receive the first distribution of $____ per
TrENDS, in respect of the period from __________, 199_ until __________, 199_,
on __________, 199_ if you are the holder of record on __________, 199_.
After that, we will make quarterly distributions of $____ per TrENDS on each
__________, __________, ___________ and __________ (or on the next Business
Day if such date is not a Business Day) if you are the holder of record as of
each __________, __________, __________ and __________, respectively.
Net Asset Value
We will calculate the net asset value of the TrENDS on a
quarterly basis by dividing the value of our net assets (the value of our
assets less our liabilities) by the total number of TrENDS outstanding. Our
net asset value will be published semi-annually as part of our semi-annual
report to you and at such other times as the Trustees may determine. The
Treasury Securities will be valued at the mean between the last current bid
and asked prices or, if quotations are not available, as we determine in good
faith under the direction of the Trustees. Short-term investments having a
maturity of 60 days or less are valued at cost with accrued interest or
discount earned included in interest receivable. The Contract will be valued
at the mean of the bid prices we receive from at least three independent
broker-dealer firms who are in the business of making bids on financial
instruments similar to the Contract and with comparable terms.
Certain Tax Considerations
The following discussion sets forth the opinion of Davis Polk &
Wardwell, special tax counsel to the Trust ("Counsel"), as to certain of the
material United States federal income tax consequences that may be relevant to
the ownership of a TrENDS. This general discussion addresses only initial
holders (the "Holders") who purchase the TrENDS at the public offering price
and who hold the TrENDS as capital assets within the meaning of Section 1221
of the Internal Revenue Code of 1986, as amended (the "Code"). The discussion
set forth below does not address all of the tax consequences that may be
relevant to a Holder in light of its particular circumstances or to Holders
subject to special treatment under federal income tax laws (e.g., certain
financial institutions, tax-exempt organizations, dealers in options or
securities, traders in securities that elect to mark-to-market or persons who
hold a TrENDS as a part of a hedging transaction or straddle or as part of a
"conversion transaction" or a "synthetic security" or other integrated
transaction). It also does not discuss the tax consequences of the ownership
of the ABC Company common stock. [Prospective purchasers of TrENDS are urged
to review the discussion under "Taxation" in the accompanying ABC Company
Prospectus concerning the federal tax consequences of an investment in the ABC
Company Common Stock, which is based upon the opinion of __________________,
counsel to the ABC Company.]
The summary set forth below is based on the Code,
administrative pronouncements, judicial decisions and existing and proposed
Treasury Regulations, changes to any of which subsequent to the date of this
Prospectus may affect the tax consequences described herein. No ruling has
been requested from the Internal Revenue Service ("IRS") with respect to the
TrENDS and Counsel has advised that, because of the lack of statutory,
judicial or administrative authority on point, there are uncertainties
regarding the United States federal income tax consequences of an investment
in the TrENDS. Accordingly, prospective purchasers are urged to consult their
tax advisors regarding the United States federal income tax consequences of an
investment in the TrENDS and with respect to any tax consequences arising
under the laws of any state, local or foreign taxing jurisdiction.
As used herein, the term "United States Holder" means a Holder
that is, for United States federal income tax purposes, (i) a citizen or
resident of the United States, (ii) a corporation created or organized in or
under the laws of the United States or of any political subdivision thereof or
(iii) an estate or trust the income of which is subject to United States
federal income taxation regardless of its source. The term "Non-U.S. Holder"
means (i) a nonresident alien individual, (ii) a foreign corporation or (iii)
a nonresident alien fiduciary of a foreign estate or trust.
Tax Status of the Trust
The Trust will be treated as a grantor trust for federal income
tax purposes, and income received by the Trust will be treated as income of
the Holders in the manner set forth below.
Tax Consequences to United States Holders
Tax Basis of the Treasury Securities and the Contract. Each
Holder will be considered the owner of its pro rata portion of the Treasury
Securities and the Contract in the Trust under the grantor trust rules of
Sections 671-679 of the Code. The cost to the Holder of its TrENDS will be
allocated among the Holder's pro rata portion of the Treasury Securities and the
Contract (in proportion to the fair market values thereof on the date on which
the Holder acquires its TrENDS) in order to determine the Holder's tax bases. It
is currently anticipated that __% and __% of the net proceeds of the offering
will be used by the Trust to purchase the Treasury Securities and as payment
under the Contract, respectively.
Recognition of Original Issue Discount on the Treasury
Securities. The Treasury Securities in the Trust will consist of stripped
Treasury Securities. A Holder will be required to treat its pro rata portion
of each Treasury Security in the Trust as a bond that was originally issued on
the date the Holder purchased its TrENDS at an original issue discount equal
to the excess of the Holder's pro rata portion of the amounts payable on such
Treasury Security over the Holder's tax basis therefor. The Holder (whether
on the cash or accrual method of tax accounting) is required to include
original issue discount (other than original issue discount on short-term
Treasury Securities, as defined herein) in income for federal income tax
purposes as it accrues, in accordance with a constant yield method. The
return on any short-term Treasury Security (i.e., any Treasury Security with a
maturity of one year or less from the date it is purchased) held by the Trust
will also be required to be included in income by the Holders as it is
accrued. Unless a Holder elects to accrue the return on a short-term Treasury
Security according to a constant yield method, such original issue discount
will be accrued on a straight-line basis. The Holder's tax basis in a
Treasury Security will be increased by the amount of any original issue
discount included in income by the Holder with respect to such Treasury
Security.
Treatment of the Contract. Each Holder will be treated as
having entered into a pro rata portion of the Contract and, at the Exchange
Date, as having received a pro rata portion of the Reference Property
delivered to the Trust. A Holder will not recognize income, gain or loss upon
entry into the Contract. A Holder should not recognize income with respect to
the Contract prior to its settlement, except as noted below.
Sale or Exchange of TrENDS Prior to Settlement. Prior to the
Exchange Date, upon the sale or exchange of a TrENDS, a Holder will recognize
taxable gain or loss equal to the difference between the amount realized on the
sale or exchange and such Holder's adjusted tax basis in the TrENDS. Any such
gain or loss should generally be long-term capital gain or loss, as the case
may be, if at such time the TrENDS has been held for more than one year.
Settlement at the Exchange Date. On settlement of the TrENDS
at the Exchange Date, a Holder should not recognize any gain or loss with
respect to any Reference Property other than cash received with respect to the
Contract. Assuming such treatment is respected, the Holder will have an
adjusted tax basis in such Reference Property equal to the pro rata portion of
the Holder's adjusted tax basis in the Contract allocable to such Reference
Property. The allocation of adjusted tax basis in the Contract between cash
received, if any, and other Reference Property received should be based on the
relative fair market value, as of settlement, of the cash and the other
Reference Property. The Holder's holding period for any Reference Property
received upon settlement will start on the day after the Exchange Date.
With respect to any cash received from the Stockholder on the
Exchange Date, a Holder will recognize gain or loss, as the case may be, to
the extent that the Holder's portion of such cash differs from the pro rata
portion of the Holder's adjusted tax basis in the Contract allocable to the
cash received. The character of this gain or loss generally should be capital
rather than ordinary (and long-term if the Holder has held the TrENDS for more
than one year).
Settlement Prior to the Exchange Date. On settlement of the
TrENDS prior to the Exchange Date in connection with an Acceleration Event,
the Holder will recognize capital gain or loss with respect to the Holder's
share of the Treasury Securities sold, to the extent the cash received differs
from the Holder's adjusted tax basis in the Treasury Securities. The tax
treatment of the portion of the TrENDS reflecting the Contract should be as
described above in "--Tax Consequences to United States Holders--Settlement at
the Exchange Date."
Possible Alternative Tax Treatments of an Investment in the
TrENDS. It is possible that the IRS would seek to impose tax consequences on
Holders different from those described above. The IRS could contend, for
example, that Holders should include imputed interest income over the term of
the Contract. Also the IRS could argue that settlement of the Contract is a
taxable event and that gain realized on settlement, sale or exchange of a
TrENDS should be treated as interest income rather than capital gain. In
addition, the IRS could contend that partial settlement should be viewed as a
taxable modification of all of the TrENDS. Although Counsel is of the opinion
that such suggestions should not prevail, the IRS or the courts may find
otherwise.
Tax Consequences to Non-U.S. Holders
Subject to the discussion below concerning backup withholding
and income that is effectively connected with a trade or business of a
Non-U.S. Holder in the United States, under present United States federal
income tax law:
(a) distributions received by Non-U.S. Holders with respect to
TrENDS will not be subject to United States federal withholding tax provided
that, in the case of amounts treated as original issue discount or interest,
the statement requirement set forth in Section 871(h) or Section 881(c) of the
Code has been fulfilled with respect to the beneficial owner, as discussed
below; and
(b) any gain realized by a Non-U.S. Holder on the sale of its
TrENDS or on settlement of all or a portion of the TrENDS will not be subject
to U.S. federal income tax provided that, in the case of a Non-U.S. Holder who
is a non-resident alien individual, such Holder is not present in the United
States for 183 days or more during the taxable year of the sale.
Sections 871(h) and 881(c) of the Code require that, in order
to obtain the portfolio interest exemption from withholding tax described in
paragraph (a) above, either the beneficial owner of the TrENDS, or a securities
clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"Financial Institution") and that is holding the TrENDS on behalf of such
beneficial owner, file a statement with the Trust to the effect that the
beneficial owner of the TrENDS is not a United States Holder. Under temporary
and final United States Treasury Regulations, such requirement will be
fulfilled if the beneficial owner of TrENDS certifies on IRS Form W-8 (or a
successor form), under penalties of perjury, that it is not a United States
Holder and provides its name and address, and any Financial Institution
holding the TrENDS on behalf of the beneficial owner files a statement with
the Trust to the effect that it has received such a statement from the Holder
(and furnishes the Trust with a copy thereof).
If any interest (including any original issue discount) or gain
realized by a Non-U.S. Holder is effectively connected with the Holder's trade
or business in the United States, such interest or gain will be subject to
regular U.S. federal income tax in the same manner as if the Non-U.S. Holder
were a U.S. Holder. See -- "Tax Consequences to United States Holders" on
page 25. In lieu of the certificate described in the preceding paragraph,
such a Non-United States Holder will be required to provide to the Trust a
properly executed IRS Form 4224 (or a successor form) in order to claim an
exemption from withholding tax. In addition, if such Non-U.S. Holder is a
foreign corporation, such interest or gain may be included in the earnings and
profits of such Holder in determining such Holder's U.S. branch profits tax
liability.
Backup Withholding and Information Reporting
A Holder of a TrENDS may be subject to information reporting
and to backup withholding at a rate of 31 percent of the amounts paid to the
Holder, unless such Holder provides proof of an applicable exemption or a
correct taxpayer identification number, and otherwise complies with applicable
requirements of the backup withholding rules. The amounts withheld under the
backup withholding rules are not an additional tax and may be refunded, or
credited against the Holder's United States federal income tax liability,
provided the required information is furnished to the IRS.
Underwriting
Donaldson, Lufkin & Jenrette Securities Corporation (the
"Underwriter") has agreed, subject to the terms and conditions set forth in an
underwriting agreement (the "Underwriting Agreement") among the ABC Company,
us, the Stockholder and the Underwriter, to purchase from us __________ TrENDS
at the public offering price listed on the cover page of this Prospectus. The
Underwriter's obligation is subject to certain conditions precedent and it is
committed to take and purchase all of the TrENDS, if any are purchased.
The Underwriter has advised us that it initially proposes to
offer the TrENDS to the public on the terms listed on the cover page of this
Prospectus. You will not pay any sales charge or underwriting commission. The
Stockholder will pay from its own assets a commission to the Underwriter of
__% per TrEND or $______. The Underwriter may allow to selected dealers a
concession of not more than $____ per share. The Underwriter may also allow,
and such dealers may reallow, a concession of not more than $____ per share to
certain other dealers. After the public offering, the offering price and
other selling terms may be changed by the Underwriter. The TrENDS are offered
subject to receipt and acceptance by the Underwriter and to certain other
conditions, including the right to reject orders in whole or in part. The
Underwriter may offer the TrENDS through a selling group.
We have granted the Underwriter an over-allotment option, which
it may exercise at any time during the 30-
day period after the date of this Prospectus, to purchase up to a maximum of
________ additional TrENDS at the initial offering price. The Underwriter may
purchase such TrENDS only to cover over-allotments made in connection with the
Offering.
The Stockholder has agreed not to (i) offer, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of ABC Company common stock
or any securities convertible into or exercisable or exchangeable for ABC
Company common stock (whether such shares or any such securities are now owned
by such party or later acquired) or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, the economic
consequences of ownership of the ABC Company common stock, whether the
transaction described in clause (i) or (ii) above is to be settled by delivery
of ABC Company common stock or other securities, in cash or otherwise, for a
period of 90 days after the date of this Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. Donaldson,
Lufkin & Jenrette Securities Corporation may, in its sole discretion and at
any time without notice, release all or any portion of the securities subject
to this lock-up agreement.
The Underwriting Agreement provides that the ABC Company and
the Stockholder will indemnify the Underwriter against certain liabilities
under the Securities Act, or will contribute to payments related to
indemnification that the Underwriter may be required to make. The Underwriter
has agreed to pay any unanticipated expenses of the Trust, subject to
reimbursement by or on behalf of the Stockholder.
In connection with the Offering, the Underwriter may engage in
transactions that stabilize, maintain or otherwise affect the price of the
TrENDS or the ABC Company Common Stock. Specifically, the Underwriter may
over-allot the Offering, creating a short position in the TrENDS or the ABC
Company common stock. In addition, the Underwriter may bid for, and purchase,
the TrENDS or the ABC Company common stock in the open market to cover short
positions and may make such bids and purchases to stabilize the price of the
TrENDS or the ABC Company common stock. Any of these activities may stabilize
or maintain the market price of the TrENDS or the ABC Company common stock
above independent market levels. The Underwriter is not required to engage in
these activities and may end any of these activities at any time.
The Underwriter is offering the TrENDS, subject to prior sale,
when, as and if issued to and accepted by the Underwriter and subject to
approval of certain legal matters by counsel for the Underwriter. 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 the TrENDS will be
ready for delivery in book-entry form only through the facilities of The
Depository Trust Company of New York on or about __________, against payment
therefor in immediately available funds.
The Underwriter renders investment banking and other financial
services to the ABC Company and the Stockholder from time to time.
Investment Restrictions
The Investment Company Act limits all investment companies
(including foreign investment companies) from acquiring voting stock of an
investment company. An investment company may not acquire more than 3% of the
outstanding TrENDS, and any group of affiliated investment companies may not
acquire more than 10% of the outstanding TrENDS. Donaldson, Lufkin & Jenrette
Securities Corporation has received from the SEC relief to permit investment
companies and groups of affiliated investment companies to acquire TrENDS in
excess of these limitations.
Legal Matters
Davis Polk & Wardwell will pass upon certain legal matters for
us and for the Underwriter. Richards, Layton & Finger, P.A. Delaware will
pass upon certain matters of Delaware law.
Experts
The statement of assets, liabilities and capital included in
this Prospectus has been audited by _________, independent auditors, as stated
in their opinion which appears in this Prospectus. The statement has been
included in reliance upon the opinion given on the authority of _________ as
experts in auditing and accounting. The principal business address of
_____________ is ___________________.
Where You Can Find More Information
We filed a Registration Statement on Form N-2 to register the
TrENDS with the SEC. This Prospectus is a part of that Registration
Statement. As permitted by SEC rules, this Prospectus does not contain all
the information you can find in the Registration Statement or the exhibits to
the Registration Statement. You may read and copy any reports, statements or
other information we filed at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public from commercial document retrieval
services and at the web site maintained by the SEC at "http://www.sec.gov".
Independent Auditors' Report
To the Board of Trustees and Shareholders of ABC TrENDS Trust:
We have audited the accompanying statement of assets,
liabilities and capital of ABC TrENDS Trust as of ____________, 1998. This
financial statement is the responsibility of the Trust's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the statement of assets,
liabilities and capital is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement. An audit also includes assessing the accounting
principles used and significant estimates made by the Trust's management, as
well as evaluating the overall financial statement presentation. We believe
that our audit of the financial statement provides a reasonable basis for our
opinion.
In our opinion, the financial statement referred to above
presents fairly, in all material respects, the financial position of ABC
TrENDS Trust, at ____________, 1998 in conformity with generally accepted
accounting principles.
__________________
New York, New York
____________, 199_
Statement Of Assets, Liabilities and Capital
____________, 199_
Assets
Cash........................................................ $ _______
Total Assets................................................ $
=======
Liabilities
Total Liabilities........................................... $ 0
=======
Net Assets....................................................... $
=======
Capital
TrENDS, par value [$.10] per TrENDS; 1 TrENDS issued and $
outstanding (Note 3).............................................
=======
(1) The Trust was created as a Delaware business trust on December 23, 1998
and has had no operations other than matters relating to its organization
and registration as a non-diversified, closed-end management investment
company under the Investment Company Act. Costs incurred in connection
with the organization of the Trust and ongoing administrative expenses
will be paid by the Stockholder.
(2) Offering expenses will be payable upon completion of the Offering and also
will be paid by the Stockholder.
(3) On ____________, 1999, the Trust issued one TrENDS to Donaldson, Lufkin &
Jenrette Securities Corporation in consideration for the purchase price of
$______.
The Amended and Restated Trust Agreement provides that prior to the
Offering, the Trust will split the outstanding TrENDS on the date that the
price and underwriting discount of the TrENDS being offered to the public
is determined, but prior to the sale of the TrENDS to the Underwriter. The
one outstanding TrENDS will be split into the smallest whole number of
TrENDS that would result in the per TrENDS amount recorded as shareholders'
equity, after effecting the split, not exceeding the public offering price
per TrENDS.
================================================================================
_____, 1999
ABC TrENDS Trust
_______ Trust Enhanced Distribution Securities (TrENDS)
Subject to exchange for
common stock of
[(ABC) Logo]
or cash
PROSPECTUS
Donaldson, Lufkin & Jenrette
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as
to matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where
that would not be permitted or legal. Neither the delivery of this prospectus
nor any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of the
company have not changed since the date hereof.
================================================================================
Until __, 1999 (25 days after the date of this prospectus), all dealers that
affect transactions in these securities may be required to deliver a
prospectus. This is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter in this offering and when selling
previously unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
1. Financial Statements
Part A - Independent Auditors' Report
Statement of Assets, Liabilities and Capital at ____________, 199_
Part B - None
2. Exhibits
(a) (1) Trust Agreement**
(2) Certificate of Trust**
(3) Restated Certificate of Trust *
(4) Amended and Restated Trust Agreement *
(b) Not applicable
(c) Not applicable
(d) (1) Form of specimen certificate for TrENDS*
(2) Portions of the Amended and Restated Trust Agreement of the
Registrant defining the rights of holders of TrENDS*
(e) Not applicable
(f) Not applicable
(g) Not applicable
(h) Form of Underwriting Agreement*
(i) Not applicable
(j) Form of Custodian Agreement *
(k) (1) Form of Paying Agent Agreement*
(2) Form of Forward Contract*
(3) Form of Administration Agreement *
(4) Form of Security and Pledge Agreement*
(5) Form of Fund Expense Agreement*
(6) Form of Fund Indemnity Agreement*
(l) Form of Opinion and Consent of Richards, Layton & Finger, P.A., special
Delaware counsel to the Trust*
(m) Not applicable
(n) (1) Consent of _________, independent auditors for the Trust*
(2) Tax opinion and consent of Davis Polk & Wardwell, counsel to the
Trust*
(o) Not applicable
(p) Form of Subscription Agreement*
(q) Not applicable
(r) Financial Data Schedule*
___________
* To be filed by amendment.
** Previously filed.
Item 25. Marketing Arrangements
See Exhibit (h) to this Registration Statement.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:
SEC Registration fees $2,780
Listing fee *
Printing (other than certificates) *
Engraving and printing certificates *
Fees and expenses of qualifications under state
securities laws (including fees of counsel) *
Accounting fees and expenses *
Legal fees and expenses *
NASD fees *
Trustees' Fees *
Administrator's, Custodian's, Collateral Agent's and
Paying Agent's Fees *
Miscellaneous *
Total *
___________
* To be furnished by amendment.
Item 27. Person Controlled by or under Common Control with Registrant
The Trust will be internally managed and will not have an investment
adviser. The information in the Prospectus under the caption "Management
Arrangements" is incorporated herein by reference.
Item 28. Number of Holders of Securities
There will be one record holder of the TrENDS as of the effective date of
this Registration Statement.
Item 29. Indemnification
[Certain agreements to be specified] provide for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "1933 Act"), may be permitted to trustees, officers and
controlling persons of the Registrant, pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
Item 30. Business and Other Connections of Investment Adviser
The Trust is internally managed and does not have an investment adviser.
Item 31. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the rules
promulgated thereunder are maintained at the offices of the Registrant, c/o
Puglisi & Associates, 850 Library Avenue, Suite 204, Newark, Delaware 19716 and
its paying agent (__________________________).
Item 32. Management Services
Not applicable.
Item 33. Undertakings
(1) The Registrant hereby undertakes to suspend the offering of the
TrENDS covered hereby until it amends its prospectus contained herein if (1)
subsequent to the effective date of this Registration Statement, its net asset
value per share declines more than 10 percent from its net asset value per
share as of the effective date of the Registration Statement or (2) the net
asset value increases to an amount greater than its net proceeds as stated in
the prospectus.
(2) Not Applicable.
(3) Not Applicable.
(4) Not Applicable.
(5) If applicable, the Registrant hereby undertakes that (i) for
determining any liability under the 1933 Act, the information omitted from the
form of prospectus filed as part of this Registration Statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or Rule 497(h) under the 1933 Act shall be
deemed to be part of this Registration Statement as of the time it was
declared effective, and (ii) for the purpose of determining any liability
under the 1933 Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering thereof.
(6) Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Newark, State of Delaware, on the
19th day of January, 1999.
ABC TrENDS TRUST
By: /s/ Donald J. Puglisi
------------------------
Name: Donald J. Puglisi
Title: Trustee
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by the following
person in the capacities and on the date indicated.
Name Title Date
---- ----- ----
Principal Executive Officer, January 19, 1999
/s/ Donald J. Puglisi Principal Financial Officer,
---------------------
Principal Accounting Officer, and
Trustee
