As filed with the Securities and Exchange Commission on August 30, 1999
Securities Act File No. 333-o
Investment Company Act File No. 811-09563
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
Registration Statement under the Securities Act of 1933 |X|
Pre-Effective Amendment No. |_|
Post-Effective Amendment No. |_|
and/or
Registration Statement under the Investment Company Act of 1940 |X|
Amendment No. |_|
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PSS PEPS TRUST
(Exact Name of Registrant as Specified in Charter)
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C/O PUGLISI & ASSOCIATES
850 Library Avenue
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
Newark, Delaware 19715
(Name and Address of Agent for Service)
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Copies to:
Paul S. Schreiber
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
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Approximate date of proposed public offering: As soon as practicable after the
effective date of this Registration Statement.
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<PAGE>
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
<TABLE>
<CAPTION>
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Proposed
Proposed Maximum
Maximum Aggregate
Title of Securities Amount Being Offering Price Per Offering Amount of
Being Registered Registered PEPS (1) Price (1) Registration Fee
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<S> <C> <C> <C> <C>
PEPS representing shares 1,000,000 PEPS $10.00 $10,000,000 $2,780.00
of beneficial interest
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<FN>
(1) Estimated solely for the purpose of calculating the registration fee.
</FN>
</TABLE>
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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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<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
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PROSPECTUS (Subject to Completion)
Dated August o, 1999 [LOGO]
PSS PEPS(SM)
PSS PEPS Trust
$ o Premium Exchangeable Participating Shares - PEPS(SM)
(Subject to Exchange for Common Stock of o Company)
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We are offering Premium Exchangeable Participating Shares (PEPS) of PSS PEPS
Trust. We are a newly created Delaware business trust formed to purchase and
hold U.S. Treasury securities and a prepaid forward purchase contract with o
(the "Seller"), one of the stockholders of o Company, for the purchase of o
Company common stock. The PEPS are securities that represent all of the
beneficial interest in PSS PEPS Trust.
We will make payments of $o per PEPS on o, o, o and o of each year, beginning on
o, until o, from funds we receive in respect of the U.S. Treasury securities
that we hold.
The prepaid forward purchase contract that we hold will provide that the Seller
will deliver to us on o between 0.o of a share and one share of common stock of
o Company per PEPS. The number of shares delivered per PEPS will depend on the
average of the closing prices of the o Company common stock on the 20 trading
days immediately prior to o, as follows (subject to adjustments as described in
this prospectus). If the average closing price is:
o greater than $o, we will receive 0.o of a share per PEPS.
o greater than $o but less than or equal to $o, we will receive
shares worth $o, valued at the average closing price, per PEPS.
o less than or equal to $o, we will receive one share per PEPS.
Following the delivery of the shares of the o Company common stock to us, our
trust will dissolve and, after satisfaction of liabilities to creditors of the
trust as provided by applicable law, we will deliver those shares to you in
exchange for your PEPS. The forward purchase contract may be accelerated, and
our trust may dissolve, if there is a default under, or insufficient collateral
securing, the forward purchase contract. In such an event, you would receive
shares of o Company common stock or cash as described in this prospectus.
The PEPS do not guarantee any return of your initial investment. The value of
the o Company common stock that you receive in exchange for your PEPS may be
less than the price that you paid for the PEPS, in which case you will suffer a
loss on your investment.
The o Company common stock is listed on the New York Stock Exchange under the
symbol "o". On August o, 1999, the closing price of the o Company common stock
on the New York Stock Exchange was $o per share.
<PAGE>
The PEPS have no history of public trading. Closed-end fund shares frequently
trade at a discount from the net asset value of the fund. This characteristic of
investments in closed-end investment companies is a risk separate and distinct
from the risk that the fund's net asset value will decrease. This risk may be
greater for you if you anticipate selling your PEPS soon after this public
offering.
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We will apply to the Nasdaq National Market to list the PEPS for trading under
the symbol "o."
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Investing in the PEPS involves risks. See "Risk Factors" beginning on page o.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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PRICE $o PEPS
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Sales Proceeds to
Price to Public Load Trust
Per PEPS............... $o $o $o
Total.................. $o $o $o
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We have granted the underwriters the right to purchase up to an additional o
PEPS to cover over-allotments. Morgan Stanley & Co. Incorporated expects to
deliver the PEPS to purchasers on o.
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MORGAN STANLEY DEAN WITTER
September o , 1999
<PAGE>
TABLE OF CONTENTS
Page
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Prospectus Summary.............................................................1
Fee Table......................................................................5
The Trust......................................................................6
Use of Proceeds................................................................6
Investment Objective and Policies..............................................6
Investment Restrictions.......................................................16
Risk Factors..................................................................17
Description of the PEPS.......................................................20
Management Arrangements.......................................................22
Dividends and Distributions...................................................24
Net Asset Value...............................................................25
Certain Tax Considerations....................................................25
Underwriters..................................................................27
Legal Matters.................................................................29
Experts .....................................................................29
Where You Can Find More Information...........................................29
Independent Auditors' Report.................................................F-1
Statement of Assets, Liabilities and Capital.................................F-2
In this prospectus, "PSS PEPS Trust," the "Trust", "we," "us" and "our"
each refers to PSS PEPS Trust.
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You should rely only on the information contained in this prospectus.
We have not authorized anyone to provide you with information different from
that contained in this prospectus. We are offering to sell, and seeking offers
to buy, PEPS only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any sale
of the PEPS. ------------
Until o, all dealers that buy, sell or trade PEPS, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before deciding to invest in the PEPS. We urge you to read this entire
prospectus carefully, including the "Risk Factors" section. Except as otherwise
noted, all information in this prospectus assumes no exercise of the
underwriters' over-allotment option. The following summary assumes that on the
Exchange Date described below the antidilution provisions contained in the
forward purchase contract will not have been triggered.
We use certain defined terms in this document for ease of reading and
to avoid repetition. You should be aware that capitalized terms used in this
document will have the meanings given to them in this document.
The Trust and the PEPS
We are a newly created Delaware business trust and will be registered
as a non-diversified closed-end management investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act"). The
term of our trust will expire on or shortly after o, which we refer to as the
"Exchange Date" because that is the date on which your PEPS will be exchanged
for o Company common stock. Our trust may be dissolved earlier than the Exchange
Date if there is a default under, or insufficient collateral securing, our
forward purchase contract with the Seller. We will be treated as a grantor trust
for U.S. federal income tax purposes. See "The Trust" and "Investment Objective
and Policies."
Each PEPS represents an undivided beneficial interest in the U.S.
Treasury securities and the forward purchase contract that we hold. See
"Description of the PEPS."
The Offering
We are offering o PEPS at an initial offering price of $o per PEPS,
which is equal to the closing price of the o Company common stock on the New
York Stock Exchange on August o , 1999, through the underwriters named in the
"Underwriters" section of this prospectus. We have given the underwriters an
option to purchase up to an additional o PEPS from us at the public offering
price within 30 days of the date of this prospectus in order to cover
over-allotments. See "Underwriters."
You will not pay a sales load, and the Seller will pay the underwriting
commission from its own assets in connection with the offering. See "Fee Table."
Quarterly Distributions
We will make quarterly distributions of $o per PEPS on each o, o, o and
o or on the next business day if the distribution date is not a business day, if
you are the holder of record as of each o, o, o and o respectively. You will
receive the first distribution of $o per PEPS on o if you are the holder of
record on o. See "Dividends and Distributions."
Trust Assets
Our assets will consist of a series of zero-coupon 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 PEPS through o comprising approximately o% of our initial assets, and a
forward purchase contract with the Seller, one of the stockholders of o Company,
for the purchase of o Company common stock, comprising approximately o% of our
initial assets. See "Investment Objective and Policies."
The purchase price under the forward purchase contract is $o, or $o if
the Underwriters exercise their over-allotment option in full. We will pay the
purchase price to the Seller on or about September o, 1999, which is the
expected closing date for the offering of the PEPS. See "Investment Objective
and Policies."
1
<PAGE>
Investment Objective and Policies
Our investment objective is to pay to you the quarterly distribution of
$o per PEPS and to deliver to you on or shortly after the Exchange Date the
shares of o Company common stock that we receive under the forward purchase
contract in an amount between 0.o of a share and one share per PEPS. The number
of shares of o Company common stock that you will receive per PEPS will be
determined as follows. If the average of the closing prices of the o Company
common stock on the 20 trading days immediately prior to o, which is the second
scheduled trading day prior to the Exchange Date, is:
o greater than $o, which represents a o% increase over the closing
price at the time of this offering, you will receive 0.o of a
share of o Company common stock per PEPS.
o greater than $o but less than or equal to $o, you will receive
shares of o Company common stock worth $o, valued at the average
closing price, per PEPS.
o less than or equal to $o, you will receive one share of o Company
common stock per PEPS.
The PEPS do not guarantee any return of your initial investment. The
value of the o Company common stock that you receive in exchange for your PEPS
may be less than the price that you paid for the PEPS, in which case you will
suffer a loss on your investment.
The forward purchase contract requires the Seller to deliver to us on
the business day before the Exchange Date the number of shares of o Company
common stock required to exchange all of the PEPS (including any PEPS issued as
a result of the over-allotment option) on the Exchange Date.
The Seller has secured its obligations under the forward purchase
contract by pledging to The Bank of New York, our Collateral Agent, the maximum
number of shares of o Company common stock that may be delivered under the
forward purchase contract.
The amounts determined under the formula described above are subject to
adjustment under the antidilution provisions contained in the forward purchase
contract to protect you against some but not all of the dilutive events that
could affect the o Company common stock, which may also result in your receiving
securities or property other than o Company common stock instead of or in
addition to shares of o Company common stock. In any event, the value
(calculated as described in this prospectus) of the securities or other property
you receive will be as determined under this formula. You will receive cash for
any fractional shares or other interests to which you may be entitled. See
"Investment Objective and Policies."
Acceleration of Forward Purchase Contract and Dissolution of Trust
The forward purchase contract may be accelerated to a date prior to o
if:
o the Seller is declared bankrupt or insolvent or otherwise
defaults under the forward purchase contract; or
o the collateral supporting the forward purchase contract is
insufficient.
If the forward purchase contract is accelerated, our assets (except for
the forward purchase contract) will be liquidated and our trust dissolved. Upon
dissolution, our assets will include proceeds received from the liquidation and
any assets received under the forward purchase contract, less any expenses,
which will be distributed pro rata to you. See "Investment Objective and
Policies--The Contract."
2
<PAGE>
o Company
[DESCRIPTION]
You will receive shares of o Company common stock in exchange for your
PEPS on or shortly after the Exchange Date, or the date that we earlier
dissolve. For information about o Company, you should refer to the accompanying
prospectus of o Company. o Company is not affiliated with us, will not receive
any of the proceeds from this offering and has no obligations with respect to
the PEPS. We are providing the o Company prospectus to you as a prospective
purchaser of PEPS only as a convenience. The o Company prospectus is not a part
of this prospectus, and it is not incorporated by reference into this
prospectus. See "Investment Objective and Policies--o Company."
Relationship to o Company Common Stock
Owning a PEPS is not the same as owning a share of o Company common
stock. Your opportunity to benefit from any appreciation in the price of o
Company common stock by investing in PEPS is less than you would have if you
invested directly in o Company common stock, because the number of shares of o
Company common stock that you will receive in exchange for your PEPS may decline
by up to o% as the price of the o Company common stock rises.
You will receive distributions on your PEPS at a rate of o% of its
issue price per year. o Company has not historically paid any dividends on the o
Company common stock but in the future o Company might pay dividends that are
higher than your quarterly distributions. o Company's board of directors has
absolute discretion to decide whether or not to pay dividends in the future and
the amount of those dividends. Quarterly distributions on your PEPS will consist
solely of the proceeds from the U.S. Treasury securities. Even if o Company's
board of directors decide to pay a dividend, you will generally not be entitled
to receive the dividend unless the applicable record date for determining
stockholders entitled to receive dividends occurs after you have received your o
Company common stock in exchange for your PEPS. See "Investment Objective and
Policies" and "Risk Factors."
Voting Rights
You will not have the right to vote any shares of o Company common
stock unless and until they are delivered to you in exchange for your PEPS. You
will have the right to vote on certain matters that affect the trust.
See "Description of the PEPS."
The Seller has granted a limited power of attorney, effective from the
closing date of the Offering through the Exchange Date, to the Collateral Agent.
The Collateral Agent will vote the shares of common stock pursuant to
instructions given by [o Company]. If no instructions are given, the Collateral
Agent will vote the shares of common stock in a manner determined by the
Collateral Agent, in its sole discretion.
Certain U.S. Federal Income Tax Considerations
We will be treated as a grantor trust for U.S. 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 purchase
contract. Income (including original issue discount) that we realize that is
attributable to the PEPS you own will generally be treated as your income.
Since quarterly distributions on the PEPS are funded with U.S. Treasury
securities that mature on or immediately before the payment dates for such
distributions, 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, because the U.S. Treasury securities we hold
generally 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, you will be required to include such original issue discount in
income as it accrues, whether you are on the cash or accrual method of tax
accounting. We expect that the portion of each
3
<PAGE>
quarterly cash distribution representing a tax-free return of capital will
increase as a percentage of the total distribution during the term of our trust.
Under existing law, you will not recognize income, gain or loss upon
the execution of the forward purchase contract and you generally should not
recognize income on the forward purchase contract before its settlement. Upon
settlement of the forward purchase contract, you will recognize taxable gain or
loss if cash is delivered, but you should not recognize gain or loss if o
Company common stock is delivered. Assuming this treatment is respected, you
will have a basis in the o Company common stock received equal to the pro rata
portion of your adjusted basis in the forward purchase contract allocable to
that property.
The law regarding the treatment of the PEPS for U.S. 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 purchase
contract prior to the settlement of the forward purchase 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 PEPS in light of your particular
circumstances, including the tax risks associated with possible alternative
characterizations of the PEPS. See "Certain Tax Considerations."
Management Arrangements
We will be internally managed by our trustees and we will not have an
investment adviser. Our portfolio will not be actively managed. The trustees
will oversee our administration and The Bank of New York will act as
administrator to carry out the day-to-day administration of our trust. The Bank
of New York will also act as custodian for our assets, as paying agent,
registrar and transfer agent for the PEPS and as collateral agent for the
Seller's pledge of o Company common stock to us. The trustees have delegated
most of their operational duties to the administrator. The Bank of New York has
no other affiliation with us. For its services as collateral agent,
administrator, custodian and paying agent, registrar and transfer agent, the
Sellers will pay The Bank of New York at the closing of the offering of the PEPS
a one-time, up-front fee. See "Management Arrangements."
Term of the Trust
Our trust will dissolve on or shortly after the Exchange Date, or
earlier if the forward purchase contract is accelerated as described in this
prospectus. See "Acceleration of Forward Purchase Contract and Dissolution of
the Trust", "The Contract", and "Risk Factors - Your Opportunity for Gain May be
Diminished if the PEPS Expire Early."
Risk Factors
We will not actively manage our portfolio. We have adopted a
fundamental policy that we may not dispose of the forward purchase contract
during our term and that, unless we dissolve earlier than the Exchange Date, we
will not dispose of the U.S. Treasury securities before their maturity dates. We
will continue to hold the forward purchase contract despite any significant
decline in the value of the o Company common stock or adverse changes in the
financial condition of o Company.
We are 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 we hold
will be the U.S. Treasury securities and the forward purchase contract, we may
be subject to greater risk than would be the case for an investment company with
more diversified investments.
You will bear the entire risk of declines in the value of the o Company
common stock between the date of this offering and the Exchange Date. The number
of shares of o Company common stock that you will receive when you exchange your
PEPS is not fixed, but depends on the market value of the o Company common stock
shortly before the Exchange Date. If the price of the o Company common stock
decreases, then the value of the shares of o
4
<PAGE>
Company common stock that you will receive in exchange for your PEPS will be
less than what you paid to purchase PEPS and you will lose money.
An investment in PEPS offers you less of an opportunity to realize any
appreciation in the value of o Company common stock over its current value than
does a direct investment in o Company common stock. The amount you receive when
you exchange your PEPS will be greater than the issue price you paid to purchase
your PEPS only if the value of the o Company common stock has appreciated by
more than o% from the time of the offering of the PEPS. In addition, even if it
does appreciate by more than o%, you are entitled to receive only o% of this
additional appreciation.
The trading prices of the PEPS in the secondary market will be affected
by the trading prices of the o Company common stock. It is impossible to predict
whether the price of o Company common stock will rise or fall. Trading prices of
o Company common stock and the PEPS will be influenced by o Company's operating
results and future prospects and by economic, financial and other factors beyond
our control.
A bankruptcy of the Seller could adversely affect the timing of the
exchange of the PEPS for the o Company common stock and the amount you will
receive.
For a complete description of these and other risk factors that should
be considered prior to investing in the PEPS, see "Risk Factors" beginning on
page o.
Listing
We will apply to the Nasdaq National Market to list the PEPS for
trading under the symbol "o." The o Company common stock is listed on the New
York Stock Exchange under the symbol "o."
Fee Table
Regulations of the Securities and Exchange Commission ("SEC") require
the presentation of trust expenses in the following format to help you
understand the various costs you will bear in our trust, either directly or
indirectly. Because we will not have any ongoing fees or expenses, you will not
have any direct expenses. We will be internally managed, so we will not pay a
separate investment advisory fee. The Seller will pay the underwriters a sales
load of $o per PEPS (or o%). The Seller will also pay our organization costs in
the amount of $o, the costs associated with the initial registration and
offering of the PEPS estimated to be approximately $o, and approximately $o for
anticipated ongoing expenses over our term. Any unanticipated expenses will be
paid by Morgan Stanley & Co. Incorporated, which the Seller will reimburse. See
"Management Arrangements --Estimated Expenses." The only expenses that you might
be considered to bear indirectly are (i) the sales load payable by the Seller
with respect to your PEPS and (ii) our ongoing expenses, which the Seller will
pay as described below in the footnote to the table.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load (as a percentage of offering price)................. 0%
Automatic Dividend Reinvestment Plan Fees..............................None
ANNUAL EXPENSES (as a percentage of net assets)
Management Fees........................................................ 0%
Other Expenses (after payment of costs and expenses by the
Seller, as described above)*........................................... 0%
TOTAL ANNUAL EXPENSES.............................................. 0%
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* If we did not have these arrangements, our "Other Expenses" and "Total
Annual Expenses" would be approximately o% of our net assets.
5
<PAGE>
SEC regulations also require that closed-end investment companies
present an illustration of cumulative expenses (both direct and indirect) that
you would bear.
EXAMPLE 1 YEAR 3 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: $o $o
According to SEC regulations, our example assumes reinvestment of all
dividends and other distributions and uses a 5% annual rate of return, as the
SEC mandates. You should note that the assumption of a 5% annual return does not
accurately reflect the financial terms of the trust. In addition, we do not
permit the reinvestment of distributions.
THE TRUST
We are a newly created Delaware business trust and will be registering
as a non-diversified closed-end management investment company under the
Investment Company Act. We were created on August 25, 1999 pursuant to a Trust
Agreement dated as of the same date (the "Trust Agreement"). Our trust will
dissolve on or shortly after the Exchange Date, or earlier if the forward
purchase contract that we hold is accelerated as described in "The Contract",
below. We will be treated as a grantor trust for U.S. federal income tax
purposes. See "Certain Tax Considerations." 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 $o, after deducting fees and expenses (or
approximately $o if the underwriters exercise their over-allotment option in
full) from the offering of PEPS (the "Offering"). We will use the proceeds
immediately to purchase a series of zero-coupon U.S. Treasury securities (the
"Treasury Securities") with face amounts and maturities that exactly correspond
to the quarterly distributions to be made to you and to pay the purchase price
(the "Purchase Price") payable under the forward purchase contract (the
"Contract") to o the Seller.
INVESTMENT OBJECTIVE AND POLICIES
General
We will purchase and hold the Treasury Securities and the Contract. Our
investment objective is to pay to you the quarterly distribution of $o per PEPS
and to deliver to you on or shortly after the Exchange Date the Exchange Amount
of each type of Reference Property (as such terms are defined below) as
described below.
Our assets will consist primarily of the Treasury Securities and the
Contract. We may also make temporary investments. See "-- Temporary
Investments." We have adopted a fundamental policy to invest at least 65% of our
portfolio in the Contract. The Contract will comprise approximately o% of our
initial assets. We have also adopted a fundamental policy that the Contract may
not be disposed of during our term and that, unless we dissolve earlier than the
Exchange Date, we will not dispose of the Treasury Securities before their
maturity dates. We cannot change these fundamental policies without the vote of
100% of the outstanding PEPS.
6
<PAGE>
The Contract
General. The Contract requires the Seller to deliver to us, on the
Business Day (as defined below) before the Exchange Date, that number or amount
of each type of Reference Property equal to the Exchange Amount determined in
the manner described below.
We use the following terms to describe the Contract and the exchange
provisions of the PEPS:
o "o Company Common Stock" means the common stock, par value o per
share, of o Company.
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 date of
determination, as follows:
(a) if the Reference Security is listed on the New York Stock
Exchange, the "Closing Price" means the closing sale price
of the Reference Security on the New York Stock Exchange on
that date;
(b) if the Reference Security is listed on the New York Stock
Exchange, but there is no closing sale price on that date,
the "Closing Price" means the last reported sale price on
that date;
(c) if the Reference Security is not listed on the New York
Stock Exchange, then the "Closing Price" means the closing
sales price on that date reported in the composite
transactions for the principal U.S. securities exchange on
which the Reference Security is listed for trading;
(d) if the Reference Security is not listed on a U.S. national
or regional securities exchange, then the "Closing Price"
means the closing sale price as reported by the National
Market System of the New York Stock Exchange on that date;
(e) if the closing sales price for the Reference Security is not
reported by the National Market System of the New York Stock
Exchange, then the "Closing Price" means the last quoted bid
price in the over-the-counter market on that date as
reported by the National Quotation Bureau; and
(f) if a quoted bid price is not available, the "Closing Price"
means the market value of the Reference Security on that
date as determined by a nationally recognized independent
investment banking firm we retain for this purpose.
o "Exchange Date" means o.
o "Initial Price" means $o, which is the Closing Price per share of
the o Company Common Stock on the date we price the offering of
PEPS for sale to the public.
o "Reference Property" initially means o Company Common Stock and,
under the circumstances described under "-- Reference Property
Adjustments," 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. "Reference Property per PEPS"
means the number or amount of each type of Reference
7
<PAGE>
Property relating to one PEPS, which is initially one share of o
Company Common Stock, subject to adjustment in the manner
described under "-- Reference Property Adjustments." The
Reference Property that we are entitled to receive under the
Contract, and therefore that you will receive on or shortly after
any Exchange Date in exchange for your PEPS, may include a
combination of o Company Common Stock, other securities
(including rights or warrants) of o Company, cash, securities of
another company and/or other property, depending on the cause and
nature of the change or adjustment.
o "Reference Property Value per PEPS" means the aggregate
Then-Current Value of the Reference Property per PEPS on the
Exchange Date.
o "Reference Security" means any security (as defined in Section
2(1) of the Securities Act) that is part of the Reference
Property, including the o Company Common Stock.
o "Securities Act" means the Securities Act of 1933, as amended.
o "Then-Current Value" means, for any item of Reference Property as
of any date:
(a) if the item consists of cash, the amount of cash;
(b) if the item consists of a Reference Security, the average
Closing Price per unit of the Reference Security on the 20
Trading Days immediately prior to, but not including, the
second Trading Day preceding that date; and
(c) if the item consists of property other than cash or
Reference Securities, the fair market value of that property
as of 10:00 A.M., New York City time, on the third Business
Day preceding that date. The fair market value will be
determined by a nationally recognized independent investment
banking firm we retain for this purpose.
o "Trading Day" means, in relation to any Reference Security, 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 that Reference Security.
o "Threshold Appreciation Price" means $o, which represents a o%
appreciation over the Initial Price.
The "Exchange Amount" will be determined as follows:
(i) if the Reference Property Value per PEPS is greater than
the Threshold Appreciation Price, then we (and therefore you) will
receive in respect of each PEPS o% of the Reference Property per PEPS,
(ii) if the Reference Property Value per PEPS is greater than
the Initial Price, but less than or equal to the Threshold Appreciation
Price, then we (and therefore you) will receive in respect of each PEPS
a percentage of the Reference Property per PEPS, allocated as
proportionately as practicable, so that the aggregate Then-Current
Value of your distribution on the Exchange Date equals $o per PEPS, and
(iii) if the Reference Property Value per PEPS is less than or
equal to the Initial Price, then we (and therefore you) will receive in
respect of each PEPS 100% of the Reference Property per PEPS.
8
<PAGE>
You will receive cash instead of fractional units or interests of any
Reference Property. See "-- Fractional Interests Under the Contract" and "--
Fractional Interests Upon Dissolution."
The Contract requires the Seller 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 PEPS (including any PEPS issued as a
result of the over-allotment option) on 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") (if the PEPS are
then held in book-entry form) and publish a notice in The Wall Street Journal or
another daily newspaper of national circulation stating the date on which you
will receive Reference Property in exchange for your PEPS. At the time the
notice is published, we will not have determined the Reference Property Value
per PEPS.
As an illustration only, the following table shows the number of shares
of o Company Common Stock that you would receive for each PEPS at various
Reference Property Values per PEPS. The table assumes that there will be no
adjustments to the Reference Property so that on the Exchange Date the Reference
Property per PEPS will consist of one share of o Company Common Stock. There can
be no assurance that the Reference Property Value per PEPS will be within the
range set forth below. Given the Initial Price of $o and the Threshold
Appreciation Price of $o, you would receive on or shortly after the Exchange
Date the following number of shares of o Company Common Stock per PEPS:
Number of Shares of o
Reference Property Value per PEPS Company Common Stock
--------------------------------- --------------------
$
$
$
$
$
$
$
The foregoing table illustrates potential outcomes on the Exchange Date
with respect to your investment in PEPS. If the Reference Property Value per
PEPS is greater than $o (the Threshold Appreciation Price), you will receive in
exchange for each PEPS o% of the Reference Property per PEPS, resulting in your
receiving onlyo % of the appreciation in value of the Reference Property above
$o. If the Reference Property Value per PEPS is greater than $o (the Initial
Price) but less than or equal to $o (the Threshold Appreciation Price), you will
receive in exchange for each PEPS only Reference Property with an aggregate
Then-Current Value equal to $o, resulting in your receiving none of the
appreciation in value of the Reference Property. If the Reference Property Value
per PEPS is less than or equal to $o (the Initial Price), you will receive in
exchange for each PEPS 100% of the Reference Property per PEPS, regardless of
the value of the Reference Property, resulting in your realizing the entire loss
on the decline in value of the Reference Property.
Reference Property Adjustments. The amount and type of Reference
Property that we are entitled to receive under the Contract, and therefore that
you will receive on or shortly after the Exchange Date, is subject to adjustment
under the antidilution provisions in the Contract, which are designed to protect
the Seller and you against the dilutive or concentrative effects on any
Reference Security of the following corporate events (each, a "Dilution Event").
9
<PAGE>
(i) If the issuer of any Reference Security (the "Issuer")
subdivides or splits the outstanding units of the Reference Security
into a greater number of units, combines the outstanding units of the
Reference Security into a smaller number of units or reclassifies the
outstanding units of the Reference Security into units of another of
the Issuer's securities, then the Reference Property per PEPS will be
adjusted to include the number of units of the Reference Security or
other security of the Issuer that a holder of the Reference Security
would have been entitled to receive as a result of the Dilution Event
had the holder held, immediately prior to such Dilution Event, the
number of units of the Reference Security that were then part of the
Reference Property per PEPS. Every adjustment of the type described in
this paragraph (i) will be made successively.
(ii) If the Issuer grants rights or warrants to all holders of
any Reference Security 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 per
PEPS will be adjusted to include cash as follows. The amount of cash
will equal the fair market value of each right or warrant on the fifth
Business Day after the date the holders of the Reference Security
receive their rights or warrants (the "Receipt Date") multiplied by the
product of (A) the number of rights or warrants issued for each unit of
the Reference Security and (B) the number of units of the Reference
Security that are part of the Reference Property per PEPS immediately
before the issuance takes place, without any interest. To determine
this fair market value, we will select the bid of the 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 the bids of three such dealers (or less than three if
three such dealers are not providing bids) for the purchase by that
dealer of the number (the "Aggregate Number") of rights or warrants
that a holder of the Reference Security would have received if the
holder held, on the record date for determination of holders entitled
to receive the rights or warrants (the "Record Date"), a number of
units of the Reference Security equal to the product of (1) the
aggregate number of outstanding PEPS as of the Record Date and (2) the
number of units of the Reference Security that were part of the
Reference Property per PEPS on the Record Date. The fair market value
of each right or warrant will be the quotient of (x) such highest net
bid divided by (y) the Aggregate Number. Each adjustment of the type
described in this paragraph (ii) 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 PEPS are to be
exchanged on an earlier date, until the third Business Day before that
date. From the date of issuance of 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 per PEPS will include the number of those rights or warrants
issued for each unit of the Reference Security multiplied by the number
of units of the Reference Security that are part of the Reference
Property per PEPS immediately before the issuance of those rights or
warrants, and those rights or warrants constituting part of the
Reference Property per PEPS will be deemed for all purposes to have a
fair market value of zero.
(iii) If the Issuer pays a dividend, makes a distribution to all
holders of any Reference Security 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 (ii) above) (each, a "Distributed Asset"), then the Reference
Property per PEPS will be adjusted to include the number and amount of
each type of Distributed Asset received for each unit of the Reference
Security multiplied by the number of units of the Reference Security
that are part of the Reference Property per PEPS immediately before
the dividend, distribution or issuance. However, no adjustment of the
type described in this paragraph (iii) shall be made for (a) any cash
dividend on any Reference Security consisting of capital stock, which
dividend is not an Extraordinary Cash Dividend (as defined below), (b)
any payment of interest on any
10
<PAGE>
Reference Security consisting of an evidence of indebtedness and (c)
any dividend or distribution referred to in clause (i) or (ii) above.
An "Extraordinary Cash Dividend" means, with respect to any Reference
Security consisting of capital stock, any cash dividend on the Reference
Security that, together with all cash dividends on the Reference Security
occurring in the preceding 12-month period (or, if the Reference Security was
not outstanding at the commencement of that 12-month period, occurring in the
shorter period during which the Reference Security was outstanding) exceeds on a
per share basis 10% of the Then-Current Value of the 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
that 12-month period (or the shorter period during which the Reference Security
was outstanding) of any Dilution Event with respect to such Reference Security.
If any of the following events shall occur (each, a "Reorganization
Event"):
(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 units of each Reference Security of that Issuer 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,
then the Reference Property per PEPS will be adjusted to include, in lieu of the
number of units of each Reference Security of the Issuer that were part of the
Reference Property per PEPS immediately before the effective date of the
Reorganization Event, cash in an amount equal to the Then-Current Value, as of
the Exchange Date, of the amount or number of any cash, securities and/or other
property owned or received in the Reorganization Event for each unit of the
Reference Security multiplied by the number of units of the Reference Security
that were part of the Reference Property per PEPS immediately before the
effective date of the Reorganization Event. However, if any Marketable
Securities (as defined below) are received by holders of any Reference Security
in a Reorganization Event, the Seller may, at its option, elect to include those
Marketable Securities in the Reference Property per PEPS in lieu of cash. The
number of units of those Marketable Securities included in the Reference
Property per PEPS will be equal to the number owned or received in the
Reorganization Event for each unit of the Reference Security multiplied by the
number of units of the Reference Security that were part of the Reference
Property per PEPS immediately before the effective date of the Reorganization
Event, and those Marketable Securities will be included in the Reference
Property per PEPS in lieu of an amount of cash equal to the Then-Current Value,
as of the Exchange Date, of the Marketable Securities so included. "Marketable
Securities" means shares of common equity securities listed on a U.S. national
securities exchange or any foreign securities exchange or quoted on the National
Market System of the New York Stock Exchange.
If a Reorganization Event permits holders of a Reference Security to
elect to own or receive either Marketable Securities or cash and/or other
securities or property, or a combination, for purposes of determining the
Reference Property adjustments, we will assume that each holder of a Reference
Security has elected to own or receive the maximum possible amount of Marketable
Securities. You are responsible for the payment of any and all brokerage and
other transaction costs upon any sale of any Marketable Securities received by
you.
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
11
<PAGE>
statement in reasonable detail setting forth the amount or number of each type
of Reference Property per PEPS, as adjusted.
We will not adjust the Reference Property per PEPS for other events,
including any offerings by o Company of o Company Common Stock for cash or in
connection with acquisitions. Likewise, we will not adjust the Reference
Property per PEPS for any sales of o Company Common Stock by the Seller.
Collateral Arrangements; Acceleration. We have entered into a
Collateral Agreement with the Seller and The Bank of New York as collateral
agent (the "Collateral Agent"), pursuant to which the Seller will secure its
obligations under the Contract by pledging to us the maximum number or amount of
each type of Reference Property that the Seller may be required to deliver under
the Contract (initially o shares of o Company Common Stock).
The Collateral Agent will promptly pay over to the Seller any
dividends, interest, principal or other payments it receives on any collateral
pledged by the Seller, unless the Seller is in default of its obligations under
the Contract or the Collateral Agreement or unless the payment would cause the
collateral to become insufficient.
The Seller has granted a limited power of attorney, effective from the
closing date of the Offering through the Exchange Date, to the Collateral Agent.
The Collateral Agent will vote the shares of common stock pursuant to
instructions given by [o Company]. If no instructions are given, the Collateral
Agent will vote the shares of common stock in a manner determined by the
Collateral Agent, in its sole discretion.
If the Collateral Agent determines (an "Insufficiency Determination")
that the Seller has failed to pledge additional collateral that may be required
as a result of an adjustment to the Reference Property, and the failure is not
cured by 4:00 P.M., New York City time, on the third Business Day following the
day on which the Collateral Agent gives notice of the Insufficiency
Determination, then the Collateral Agent will, if practicable, sell the
[collateral pledged] and use the proceeds to purchase each type of Reference
Property in the numbers or amounts necessary to cause the collateral pledged to
meet the requirements of the Collateral Agreement. The Collateral Agent will
discontinue these sales and purchases if at any time a Collateral Event of
Default has occurred and is continuing.
A "Collateral Event of Default" means, at any time, the collateral
pledged does not consist of at least the maximum number or amount of each type
of Reference Property that the Seller may be required to deliver under the
Contract (as adjusted as a result of any Dilution Event or Reorganization
Event).
A Collateral Event of Default or the bankruptcy or insolvency of the
Seller (each, a "Default") will automatically accelerate the Seller's
obligations under the Contract. If there is a Default, the Seller 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 (as
defined below). 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 require to
be paid to enter into an agreement with us that would have the effect of
preserving our rights to receive the number or amount of each type of Reference
Property under a portion of the Contract that corresponds to 1,000 PEPS. 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 PEPS. 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
12
<PAGE>
be delivered if the Exchange Date were 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, Reference Property then pledged so that the
aggregate Then-Current Value of that Reference Property distributed equals the
Aggregate Acceleration Value. See "-- Trust Dissolution."
Fractional Interests Under the Contract. The Seller will not be
required to deliver any fractional units of any Reference Security. Instead of
any fractional unit that would otherwise be delivered to fulfill the Seller's
obligations under the Contract, we will receive an amount in cash equal to the
Then- Current Value of that fractional unit as of the Exchange Date.
To the extent it is practical to do so, the Seller will deliver
fractional interests of any Reference Property other than a Reference Security.
To the extent that it is not practical to do so, in lieu of delivering any
fractional interest that would otherwise be delivered, the Trust will receive an
amount in cash equal to the Then-Current Value of that fractional unit as of the
Exchange Date.
The Seller. Specific information about the Seller's holdings of o
Company Common Stock and other relationships with Number of Shares of o Company
is included or incorporated by reference in the accompanying o Company
Prospectus (as defined below).
Purchase Price. The Purchase Price under the Contract is equal to $o
(or $o if the underwriters exercise their over-allotment option in full). We
will pay the purchase price to the Seller on or about o and we are not required
to pay the Seller anything other than the Purchase Price. The Purchase Price was
arrived at by arm's-length negotiations between ourselves and the Seller, taking
into consideration various factors including the price, expected dividend level
and volatility of the o Company Common Stock, current interest rates, the term
of the Contract, current market conditions generally, the collateral pledged by
the Seller, the value of other similar instruments and the costs and anticipated
proceeds of the Offering.
o Company
[DESCRIPTION]
The o Company Common Stock is traded on the New York Stock Exchange
under the symbol "o." The following table sets forth, for the periods indicated,
the reported high and low last sale prices of the shares of o Company Common
Stock on the New York Stock Exchange (adjusted for any stock splits or stock
dividends).
Year Ended December 31, 1997:
Quarter High Low
- --------------------------------------- -------------------- -------------------
First.................................. $ $
Second.................................
Third..................................
Fourth.................................
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<PAGE>
Year Ended December 31, 1998:
Quarter High Low
- --------------------------------------- -------------------- -------------------
First.................................. $ $
Second................................
Third.................................
Fourth................................
Year Ended December 31, 1999:
Quarter High Low
- --------------------------------------- -------------------- -------------------
First.................................. $ $
Second................................
Third (through August o, 1999)........
As of August o, 1999, there were o holders of record of the o Company
Common Stock, including Cede & Co., a nominee of The Depository Trust Company.
Cede & Co. holds shares of o Company Common Stock on behalf of an indeterminate
number of beneficial owners.
o Company has not historically paid any dividends on the o Company
Common Stock. o Company's board of directors has absolute discretion to decide
whether or not to pay dividends in the future. We anticipate that the board of
directors' decision regarding dividends will depend upon o Company's operating
results, financial condition and capital requirements, contractual restrictions,
general business conditions and any other factors o Company's board of directors
believes to be relevant.
Even if o Company's board of directors were to decide to pay a
dividend, you would generally not be entitled to receive the dividend unless you
had already exchanged your PEPS for o Company Common Stock. In addition, the
applicable record date for determining stockholders entitled to receive the
dividend would have to occur after you had received your o Company Common Stock.
See "Risk Factors -- You Will Have No Shareholder Rights With Respect to any
Reference Securities."
We are not affiliated with o Company. o Company will not receive any of
the proceeds from the Offering, and has no obligations with respect to the PEPS.
This prospectus relates only to the PEPS being offered, and does not relate to o
Company or the o Company Common Stock. o Company has filed a registration
statement with the SEC to register the shares of o Company Common Stock that you
may receive when you exchange your PEPS. The registration statement contains a
prospectus (the "o Company Prospectus") that includes information relating to o
Company and the o Company Common Stock, including risk factors relevant to an
investment in the o Company Common Stock. The o Company Prospectus is attached
to this prospectus and is being delivered to you only as a convenience. The o
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 o Company."
Enhanced Yield; Less Potential for Equity Appreciation than o Company Common
Stock; No Depreciation Protection
Owning a PEPS is not the same as owning a share of o Company Common
Stock. The o Company Common Stock currently does not pay any dividends. However,
there can be no assurance that the yield on the PEPS will be higher than the
dividend yield on the o Company Common Stock in the future. In addition, your
opportunity to benefit from appreciation in the price of o Company Common Stock
by investing in PEPS is less than you would have if you invested directly in o
Company Common Stock, because the value of the Reference Property you receive
when you exchange your PEPS will be greater than the issue price you paid to
purchase your
14
<PAGE>
PEPS only if the Reference Property Value per PEPS is greater than the Threshold
Appreciation Price of $o. Even if the Reference Property Value per PEPS is
greater than the Threshold Appreciation Price, because each PEPS will in that
case entitle you to receive only o% of the Reference Property per PEPS, you will
receive only o% (the percentage equal to the Initial Price divided by the
Threshold Appreciation Price) of any appreciation in the value of the Reference
Property above the Threshold Appreciation Price. However, if the Reference
Property Value per PEPS is less than the Initial Price, you will bear the entire
decline in value of the Reference Property. See "Risk Factors -- PEPS Give You
Less Opportunity for Equity Appreciation than o Company Common Stock."
Additionally, because the Reference Property Value per PEPS is determined based
on a 20 Trading Day average, the value of a share of o Company Common Stock or
other Reference Property distributed in exchange for your PEPS may be more or
less than the Reference Property Value per PEPS used to determine the number or
amount of Reference Property you will receive.
The U.S. Treasury Securities
We will purchase and hold the Treasury Securities, which will have face
amounts and maturities that exactly correspond to the amounts and payment dates
of the quarterly distributions you will receive on your PEPS. Up to o% of our
total assets may be invested in these Treasury Securities. If the Contract is
accelerated as described under "The Contract -- Reorganization Events Causing a
Dissolution of the Trust" or "-- Collateral Arrangements; Acceleration," we will
liquidate the Treasury Securities and distribute the proceeds, less expenses, to
you pro rata, together with other amounts distributed upon acceleration.
If you acquired PEPS from an underwriter at the initial public offering
price on the date the PEPS were first offered for sale , 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."
<TABLE>
<CAPTION>
Annual Gross Annual Inclusion of
Annual Gross Distributions from Original Issue
Distributions from Treasury Securities Annual Return of Discount in Income
Year Treasury Securities per PEPS Capital per PEPS per PEPS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ $ $ $
</TABLE>
We will make quarterly distributions of $o per PEPS on each o, o, o and
o (or on the next Business Day if that date is not a Business Day), beginning o
if you are the holder of record as of each o, o, o and o, respectively. Our
quarterly distributions will consist solely of the cash we receive from the
proceeds of the Treasury Securities as they mature.
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
Our trust will dissolve on or shortly after the Exchange Date, or
earlier if the contract is accelerated as described above. We have adopted a
fundamental policy that we will not dispose of the Contract during our term,
though under the circumstances described above the Contract may terminate before
the Exchange Date. If a Default occurs with respect to the Seller, our assets
(except for the Contract) will be liquidated and our trust dissolved.
15
<PAGE>
Upon dissolution, our assets will include proceeds received from the liquidation
and any assets received under the Contract, less any expenses, which will be
distributed pro rata to you, and our term will immediately expire. See "--The
Contract -- Reorganization Events Causing a Dissolution of the Trust" and "--
Collateral Arrangements; Acceleration."
Fractional Interests Upon Dissolution
We will not distribute to you on the Exchange Date (or earlier if we
dissolve earlier) any fractional units of any Reference Security, or fractional
interests of any Reference Property other than a Reference Security. All
fractional units or interests to which you would otherwise be entitled on the
Exchange Date (or earlier if we dissolve earlier) will be aggregated and
liquidated and, in lieu of the fractional units or interests to which you would
otherwise have been entitled, you will receive a pro rata portion of the
proceeds from the liquidation (net of any brokerage or related expenses).
INVESTMENT RESTRICTIONS
We have adopted a fundamental policy that we will not:
o purchase any securities or instruments other than the Treasury
Securities, the 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 securities or instruments except for the PEPS;
o make short sales or purchase securities on margin;
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 and real estate mortgage loans,
commodities or commodities contracts;
o make loans;
o invest less than o% of our portfolio in the Contract;
o dispose of the Contract during our term; and
o unless we dissolve earlier than the Exchange Date if a Default
occurs, dispose of the Treasury Securities before their maturity
dates.
We cannot change these fundamental policies without the vote of 100% of
the outstanding PEPS. Unless expressly designated as fundamental, all other
policies of the Trust may be changed by our trustees without your approval.
Because of the foregoing fundamental policies, our investments will be
concentrated initially in the o industry, which is the industry in which o
Company currently operates. However, if in the future o Company diversifies its
operations into one or more other industries, or if the Reference Property
includes a Reference Security of an issuer that operates in another industry,
our investments will be less concentrated in the o industry.
See "Risk Factors -- Our Portfolio is Not Diversified."
16
<PAGE>
RISK FACTORS
You should carefully consider each of the following risks and all of
the other information set forth in this prospectus and the accompanying o
Company Prospectus before deciding to invest in the PEPS.
We Will Not Actively Manage our Portfolio
Unlike a typical closed-end investment company, we will not have an
investment advisor to manage our portfolio. Instead, we will be internally
managed by our trustees. See "Management Arrangements." We have adopted a
fundamental policy that we may not dispose of the Contract before we dissolve.
Similarly, unless a Default or a Tax Event occurs and we dissolve earlier than
the Exchange Date, we will not dispose of the Treasury Securities before their
maturity dates. As a result, we will continue to hold the Contract despite any
significant decline in the value of the o Company common stock (or any other
Reference Property) or any adverse change in the financial condition of o
Company (or any other Issuer). See "Investment Objective and Policies -- Trust
Assets."
Our Portfolio is Not Diversified
We are 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. Our 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 the Risk of Any Loss in the Value of o Company Common Stock
The PEPS are similar to ordinary equity securities in that the
aggregate value of the o Company common stock or other Reference Property that
you will receive on or shortly after the Exchange Date is not fixed, but is
based on the value of the o Company common stock (or other Reference Property),
which may be more or less than the Initial Price. See "Investment Objective and
Policies -- The Contract." If the Reference Property Value per PEPS is less than
the Initial Price, then you will receive assets with a value less than the issue
price you paid to purchase the PEPS, in which case your investment in PEPS will
result in a loss, and you will bear the entire decline in value. Accordingly,
you are assuming the risk that the market value of the o Company common stock
may decline, and that such decline may be substantial. If o Company is insolvent
or bankrupt when you receive o Company common stock, you may lose your entire
investment.
In addition, because the Then-Current Value of any Reference Security
is determined over a 20 Trading Day averaging period, the actual market price of
o Company common stock (or other Reference Security) that you receive on or
shortly after the Exchange Date may be less than the Reference Property Value
per PEPS. For example, if the value of o Company common stock is continuously
falling during the averaging period, the actual market price on the Exchange
Date of the o Company common stock that you receive may be less than the
Reference Property Value per PEPS.
PEPS Give You Less Opportunity for Equity Appreciation than o Company Common
Stock
Owning a PEPS is economically different from owning a share of o
Company common stock. An investment in PEPS offers you less opportunity to
realize any appreciation in the value of o Company common stock over its current
value than does a direct investment in o Company common stock. The amount you
receive when you exchange your PEPS will be greater than the issue price you
paid to purchase the PEPS only if the Reference Property Value per PEPS is
greater than the Threshold Appreciation Price. The Threshold Appreciation Price
of $o represents an appreciation of o% over the Initial Price. In addition, you
are entitled to receive only o% (the percentage equal to the Initial Price
divided by the Threshold Appreciation Price) of any appreciation in the
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Reference Property Value per PEPS above the Threshold Appreciation Price. See
"Investment Objective and Policies -- The Contract."
Trading Prices of the PEPS May Be Influenced by Many Unpredictable Factors
Many factors, all of which are beyond our control, will influence the
value of the PEPS. We expect that the market value of the o Company common stock
will affect the value of the PEPS more than any other factor. The trading price
of the o Company common stock may fluctuate significantly and experience
significant volatility. Factors that may affect the trading prices of the o
Company common stock and the PEPS include:
o the operating results and future prospects of o Company;
o the health of the industry in which o Company operates;
o economic, financial and political events that affect the capital
markets generally;
o sales of substantial amounts of o Company common stock after the
offering of the PEPS (which could occur, among other reasons, in
connection with hedging or arbitrage of investors' positions in
the PEPS -- see "-- The Issuance of the PEPS May Adversely Impact
the Market for the o Company Common Stock") or the perception
that these sales could occur;
o the volatility (frequency and magnitude of changes in price) of
the o Company common stock;
o the dividend rate on the o Company common stock;
o interest and yield rates in the capital markets generally; 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
the o Company common stock and the PEPS regardless of the actual operating
performance of o Company.
The Issuance of the PEPS May Adversely Impact the Market for the o Company
Common Stock
Investor's anticipation that the Seller may deliver to us under the
Contract o Company common stock representing approximately o% of the currently
outstanding shares of o Company common stock could cause the price of the o
Company common stock to be unstable or to fall. In addition, the following
events may occur as a result of the issuance of the PEPS, which events may also
adversely affect the price of the o Company common stock:
o sales of o Company common stock by investors who prefer to invest
in o Company by purchasing PEPS;
o short sales of o Company common stock by holders of PEPS who wish
to hedge their investment in o Company; or
o arbitrage trading activity between the PEPS and the o Company
common stock.
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You Bear Some Risk if the Seller Becomes Bankrupt
We believe that the Contract constitutes a "securities contract" for
purposes of Title 11 of the United States Code (the "Bankruptcy Code").
Therefore, we believe that if the Seller 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 PEPS.
You Will Have No Shareholder Rights With Respect to any Reference Security
If you invest in PEPS, you will have no rights with respect to any
Reference Security, including voting rights and rights to receive any dividends
or other distributions on the Reference Security, unless you receive the
Reference Securities in exchange for your PEPS. You will have these rights with
respect to any Reference Securities that you receive in exchange for your PEPS
only if the applicable record date for determining stockholders entitled to
those rights occurs after you have received the Reference Securities.
The Seller is not responsible for determining the amount you will
receive for your PEPS 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.
The Number of Shares You Receive Will Not be Adjusted for Potentially Dilutive
Events
o Company (or any other Issuer) is free to issue additional shares of
common stock or other securities during the term of the PEPS. Similarly, any
stockholder of o Company may decide to sell o Company common stock at any time.
Although the amount of Reference Property you receive will be adjusted to
protect you from the dilutive events specified under "Investment Objective and
Policies -- The Contract -- Reference Property Adjustments," it will not be
adjusted if o Company offers o Company common stock for cash or as consideration
to make an acquisition or if a stockholder sells shares of o Company common
stock or if o Company or anyone else makes a partial tender offer or partial
exchange offer for the o Company common stock. See "Investment Objective and
Policies -- The Contract -- Reference Property Adjustments." Any of these
issuances, sales or offers could lead to declines in the value of o Company
common stock and, because no adjustment is made to the PEPS, in the value of
your PEPS. Neither o Company nor the Seller has any obligation to consider your
interests for any reason.
Your Opportunity for Gain May be Diminished if the PEPS Expire Early
The trust is scheduled to dissolve on or shortly after the Exchange
Date, but may be dissolved earlier and our assets (except for the Contract)
liquidated if: o Company consolidates or merges into another company, o Company
liquidates or similar events occur, the Seller defaults under the Contract or
the collateral supporting the Contract is insufficient. On dissolution, the
value of the proceeds and assets you receive could be substantially less than
the value of what you would have received had our term expired on the Exchange
Date.
PEPS May be Difficult to Resell
There may be little or no secondary market for the PEPS. The PEPS are a
new security and there currently is no secondary market for them. We will apply
to the Nasdaq National Market to list the PEPS for trading under the symbol "o,"
but we do not know whether active trading in the PEPS will develop and continue
even if they are so listed. If there is a secondary market for the PEPS, it may
not provide significant liquidity or it may not continue for the life of the
PEPS.
The PEPS may later be delisted or trading in the PEPS on the Nasdaq
National Market may later be suspended. If the PEPS are delisted or trading
suspended, we will apply to list the PEPS on another national
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securities exchange or for quotation on another trading market. If the PEPS are
not listed or traded on any securities exchange or trading market, or if trading
is suspended, you may find it more difficult to obtain pricing information for
the PEPS, and the price and liquidity of the PEPS may be adversely affected.
The Underwriters have told us that they currently intend to make a
market in the PEPS, although they have no obligation to do so.
PEPS May Trade at a Discount to Net Asset Value
We are a newly organized closed-end investment company with no previous
operating history. Our 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 PEPS will trade at, below
or above our net asset value. Since the PEPS are not redeemable, if you wish to
dispose of them prior to the Exchange Date, 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 the PEPS regardless of our performance.
No Affiliation Between the Trust and o Company
We are not affiliated with o Company. We have no knowledge of whether
any of the events described under "The Contracts -- Reference Property
Adjustments" are currently being considered by o 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 o Company or on the price of the o
Company common stock. We have no ability to control these events and these
events are difficult to predict.
o Company has no obligations with respect to the PEPS or the Contract,
including any obligation to consider our needs or your needs for any reason. o
Company will not receive any of the proceeds from the Offering. o Company is not
responsible for and has not participated in determining the amount or type of
property you will receive for your PEPS. o Company is not involved with the
administration or trading of the PEPS.
Uncertain Tax Treatment
The law regarding the treatment of the PEPS for U.S. 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
partial or full 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 PEPS in light of
your particular circumstances, including the tax risks associated with possible
alternative characterizations of the PEPS. See "Certain Tax Considerations."
Risks Factors Relating to o Company
You should carefully consider the information in the o Company
Prospectus, including the risk factors relating to o Company beginning on page o
of the o Company Prospectus.
DESCRIPTION OF THE PEPS
Each PEPS represents a beneficial interest in our trust, and a total of
o PEPS will be issued in the Offering, assuming the underwriters do not exercise
their over-allotment option. You are entitled to share pro rata in our remaining
assets available for distribution if we dissolve and liquidate. PEPS have no
preemptive, redemption or conversion rights. The PEPS, when issued and delivered
to you against payment of the purchase price, will be fully paid and
nonassessable undivided beneficial interests in our assets.
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You are entitled to one vote for each PEPS you hold on all matters to
be voted on by holders of PEPS. You cannot cumulate your votes in the election
of trustees. We intend to hold annual meetings as required by the rules of the
Nasdaq National Market. You have the right, upon the declaration in writing or
vote of more than two-thirds of the outstanding PEPS, to remove any of our
trustees. 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 PEPS, or
to vote on other matters upon the written request of the record holders of 51%
of the PEPS (unless substantially the same matter was voted on during the
preceding 12 months).
The Seller has granted a limited power of attorney, effective from the
closing date of the Offering through the Exchange Date, to the Collateral Agent.
The Collateral Agent will vote the shares of common stock pursuant to
instructions given by [o Company]. If no instructions are given, the Collateral
Agent will vote the shares of common stock in a manner determined by the
Collateral Agent, in its sole discretion.
Book-entry System
The PEPS 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 has informed us as follows: 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 eliminates the need to physically
move certificates. These 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 PEPS represented by the Global Security to its participants'
accounts. The underwriters 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 interests within the
participant. The laws of some jurisdictions may require that purchasers of
securities take physical delivery of those securities in definitive form. These
laws may impair the ability to transfer beneficial interests in a Global
Security.
So long as the Depositary or its nominee is the registered owner of a
Global Security, the Depositary or its nominee will be considered the sole owner
or holder of the PEPS represented by that Global Security. Generally, you will
not be entitled to have PEPS registered in your name and will not receive or be
entitled to receive physical delivery of PEPS in definitive form and will not be
considered the owner or holder of the PEPS that you beneficially own.
Because the Depositary or its nominee is the registered owner or the
holder of the Global Securities, we will pay the quarterly distributions and
deliver any Reference Property or any other consideration in connection with the
PEPS to the Depositary or its nominee. We expect that the Depositary or its
nominee, when it receives a payment or delivery, will immediately credit its
participants' account with amounts proportionate to their respective beneficial
interests in the Global Securities, according to its records. We also expect
that payments by participants to persons who hold through 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
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will be the responsibility of the participants. None of us, any underwriter, any
of our trustees, the Administrator (as defined below), the Paying Agent (as
defined below) or the Custodian (as defined below) 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 beneficial
ownership interests or for maintaining, supervising or reviewing any records
relating to 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 PEPS in definitive
registered form in exchange for the Global Securities. In this event, you will
be entitled to receive PEPS in definitive form registered in your name equal in
number to your proportionate interest in the Global Securities.
MANAGEMENT ARRANGEMENTS
General
Our trustees consist of three individuals (each, a "Trustee"). None of
the Trustees is an "interested person" in us 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:
Principal Occupation
Name, Age and Address Title During Past Five Years
- ----------------------------------- -------------------- -----------------------
Donald J. Puglisi, 54.............. Managing Trustee Professor of Finance
Department of Finance University of Delaware
University of Delaware
Newark, DE 19716
William R. Latham, III, 55......... Trustee Professor of Economics
Department of Economics University of Delaware
University of Delaware
Newark, DE 19716
James B. O'Neill, 60............... Trustee Professor of Economics
Center for Economic Education University of Delaware
& Entrepreneurship
University of Delaware
Newark, DE 19716
Compensation of Trustees
Each Trustee will be paid a one-time, up-front fee of $o by the Seller.
The Managing Trustee will also receive an additional up-front fee of $o for
serving in that capacity. We will not compensate the Trustees 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.
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Portfolio Management and Administration
We will be internally managed by our three Trustees and we will not
have an investment adviser. Our 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 a fundamental policy that the
Contract may not be disposed of during our term and that, unless we dissolve
earlier than the Exchange Date due to a Default or a Tax Event, we will not
dispose of the Treasury Securities before their maturity dates.
The Seller and Morgan Stanley & Co. Incorporated will pay all expenses
we incur in our operations, including, among other things, accounting services,
expenses for legal and auditing services, taxes, costs of printing proxies,
listing fees, if any, stock certificates and shareholder reports, charges of the
Administrator, the Custodian and the Paying Agent, expenses of registering the
PEPS under federal and state securities laws, SEC fees, the Trustees' fees,
insurance, interest, brokerage costs, litigation and other extraordinary or
non-recurring expenses and mailing expenses. See "Fee Table" and "-- Estimated
Expenses."
Administrator
Our day-to-day affairs will be managed by The Bank of New York as trust
administrator (the "Administrator") pursuant to an administration agreement
dated as of August o, 1999 (the "Administration Agreement"). Under the
Administration Agreement, the Trustees have delegated most of their operational
duties to the Administrator. These include the duties to: (i) receive invoices
for and pay all of our expenses; (ii) with the approval of the Trustees, engage
legal and other professional advisors (other than our independent public
accountants); (iii) instruct the Paying Agent to pay any distributions on the
PEPS; (iv) 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; (v) at the direction of the Trustees, institute and prosecute
legal and other appropriate proceedings to enforce our rights and remedies; and
(vi) 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, Paying Agent and
registrar and transfer agent and as Collateral Agent under the Collateral
Agreement, The Bank of New York has no other affiliation with us, and is not
engaged in any other transactions with us.
The address of the Administrator is 101 Barclay Street, Floor 21W, New
York, New York 10286, Attention: Corporate Trust Administration.
Custodian
The custodian (the "Custodian") for our assets is The Bank of New York
pursuant to a custodian agreement dated as of August o, 1999 (the "Custodian
Agreement"). 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. If we terminate the
Custodian Agreement or the Custodian resigns, we must engage a new Custodian to
carry out the duties of the Custodian.
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The address of the Custodian is 101 Barclay Street, Floor 21W, New
York, New York 10286, Attention: Corporate Trust Administration.
Paying Agent
The transfer agent, registrar and paying agent (the "Paying Agent") for
the PEPS is The Bank of New York pursuant to a paying agent agreement dated as
of August o, 1999 (the "Paying Agent Agreement"). If we terminate the Paying
Agent Agreement or the Paying Agent resigns, we must engage a new transfer
agent, registrar and paying agent to carry out the duties of the Paying Agent.
The address of the Paying Agent is 101 Barclay Street, Floor 21W, New
York, New York 10286, Attention: Corporate Trust Administration.
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 that capacity, except in the case of willful misfeasance,
bad faith, gross negligence or reckless disregard of their respective duties or
where applicable law prohibits this indemnification. Morgan Stanley & Co.
Incorporated has agreed to reimburse us for any amounts we pay as
indemnification to any Trustee, the Administrator, the Paying Agent or the
Custodian. Morgan Stanley & Co. Incorporated will in turn be reimbursed by the
Seller.
Estimated Expenses
At the closing of the Offering, the Seller will pay to each of the
Administrator, the Custodian and the Paying Agent a one-time, up-front amount in
respect of its fee and, in the case of the Administrator, our anticipated
ongoing expenses over our term. Our organization costs in the amount of $o and
estimated costs in connection with the initial registration and public offering
of the PEPS in the amount of approximately $o will be paid by the Seller.
See "Fee Table."
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 Morgan Stanley & Co.
Incorporated. Morgan Stanley & Co.
Incorporated will in turn be reimbursed by the Seller.
DIVIDENDS AND DISTRIBUTIONS
We will make quarterly distributions from the proceeds of the Treasury
Securities, less any of our expenses. You will receive the first distribution of
$o per PEPS (in respect of the period from o until o) on o if you are the holder
of record on o. After that, we will make quarterly distributions of $o per PEPS
on each o, o, o and o (or on the next Business Day if that date is not a
Business Day) if you are the holder of record as of each o, o, o and o,
respectively.
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NET ASSET VALUE
We will calculate the net asset value of the PEPS 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 PEPS outstanding. Our net asset value will
be published semi-annually as part of our semi-annual report to you and at 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 is a summary of certain U.S. federal income
tax consequences that may be relevant to the ownership of a PEPS. This summary
is only a general discussion and addresses only initial holders that purchase
the PEPS at the public offering price appearing on the cover of this prospectus,
and that hold the PEPS as capital assets within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended (the "Code"). This summary does
not address all of the tax consequences that may be relevant to you in light of
your particular circumstances or if you are subject to special treatment under
federal income tax laws (e.g., rules which apply to certain financial
institutions, tax-exempt organizations, dealers in options or securities,
traders in securities that elect to mark-to-market, certain former citizens or
residents of the United States or persons who hold a PEPS 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 o Company common stock.
The summary set forth below is based on the Code, existing and proposed
Treasury Regulations thereunder, and judicial and administrative interpretations
thereof, changes to any of which subsequent to the date of this prospectus may
affect the tax consequences described in this prospectus. No ruling has been
requested from the Internal Revenue Service ("IRS") with respect to the PEPS and
Counsel has advised that, because of the lack of statutory, judicial or
administrative authority on point, there are uncertainties regarding the U.S.
federal income tax consequences of an investment in the PEPS. Accordingly, you
are urged to consult your tax advisors regarding the U.S. federal income tax
consequences of an investment in the PEPS and with respect to any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction.
As used in this prospectus, the term "United States Holder" means a
holder of PEPS that is, for U.S. federal income tax purposes, (i) a citizen or
individual 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 U.S. federal income taxation regardless of its source. The term "Non- U.S.
Holder" means a holder of PEPS that is, for U.S. federal income tax purposes,
(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
We will be treated as a grantor trust for federal income tax purposes.
As a result, income we receive will be treated as income of the holders in the
manner set forth below.
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Tax Consequences to United States Holders
The following section applies to you if you are a United States Holder
(as defined above).
Tax Basis of the Treasury Securities and the Contracts. You will be
considered the owner of your pro rata portion of the U.S. Treasury securities
and the Contract in the Trust. Your initial tax basis in your pro rata portion
of the U.S. Treasury securities and the Contract will be determined by
allocating your purchase price for the PEPS among the U.S. Treasury securities
and the Contract (in proportion to the relative fair market values thereof on
the date on which you acquire your PEPS). It is currently anticipated that we
will use o % and o % of the net proceeds of the Offering to purchase the
Treasury Securities and as payment under the Contract, respectively.
Recognition of Original Issue Discount on the Treasury Securities. You
will be required to treat your pro rata portion of each Treasury Security in the
trust as a bond that was originally issued on the date you purchased your PEPS
with original issue discount equal to the excess of your pro rata portion of the
amount payable on that Treasury Security over your initial tax basis therefor.
You are required (whether you are on the cash or accrual method of tax
accounting) to include original issue discount (other than original issue
discount on short-term Treasury Securities, as defined in this prospectus) in
income for federal income tax purposes as it accrues, in accordance with a
constant yield method. If you are on the accrual method of accounting for U.S.
federal income tax purposes, 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) we hold also will be required to be included in your income as
it is accrued. Unless you elect to accrue the return on a short-term Treasury
Security according to a constant yield method, the original issue discount will
be accrued on a straight-line basis. Your tax basis in a Treasury Security will
be increased by the amount of any original issue discount included in your
income with respect to that Treasury Security.
Treatment of the Contract. You will be treated as owning a pro rata
portion of the Contract and, at the Exchange Date, as receiving a pro rata
portion of the Reference Property delivered to us. You will not recognize
income, gain or loss upon entry into the Contract. You should not recognize
income with respect to the Contract prior to its settlement, except as noted
below.
Sale or Exchange of PEPS Prior to Settlement. Upon the sale or exchange
of a PEPS prior to the Exchange Date, you will recognize taxable gain or loss
equal to the difference between the amount realized on the sale or exchange and
your adjusted tax basis in the PEPS (which will be increased by the amount of
any original issue discount included in income with respect to your pro rata
portion of the U.S. Treasury securities. Any gain or loss generally should be
long-term capital gain or loss, as the case may be, if you held the PEPS for
more than one year.
Upon Settlement. On settlement of the PEPS, you should not recognize
any gain or loss with respect to any Reference Property other than cash received
with respect to the Contract. Assuming this treatment is respected, you will
have an adjusted tax basis in the Reference Property equal to the portion of
your adjusted tax basis in the Contract allocable to the Reference Property. The
allocation of adjusted tax basis in the PEPS between cash received, if any, and
other Reference Property received should be based on the relative fair market
values, as of settlement, of the cash and the other Reference Property. Your
holding period for any Reference Property received upon settlement will start on
the day after the Exchange Date.
With respect to any cash received upon settlement, you will recognize
gain or loss, as the case may be, to the extent that your portion of the cash
differs from the portion of your 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 you have held the PEPS for more
than one year).
Possible Alternative Tax Treatments of an Investment in the PEPS. It is
possible that the IRS would seek to impose tax consequences on you that are
different from those described above. The IRS could contend, for example,
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and a court might hold, that you should include imputed interest income over the
term of the Contract. The IRS could also argue that settlement of the Contract
is a taxable event and that gain realized on sale or exchange of a PEPS should
be treated as interest income rather than capital gain.
Tax Consequences to Non-U.S. Holders
Subject to the discussion below concerning backup withholding, any
distributions you receive from us and any gain you realize on the sale of your
PEPS generally will not be subject to U.S. federal income or withholding tax,
provided that the statement required by Section 871(h) or Section 881(c) of the
Code regarding your tax status has been furnished as discussed in the next
paragraph. You will, however, be subject to U.S. federal income tax on income in
respect of or gain from the sale of PEPS if such income or gain is effectively
connected with your conduct of a trade or business in the United States.
Further, gain from the sale of PEPS will be subject to U.S. federal income tax
if you are an individual present in the United States for 183 days or more in
any tax year in which you hold the PEPS and certain other conditions are met.
In order to obtain an exemption from withholding tax, either you as the
beneficial owner of the PEPS, 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 PEPS on your behalf, must file a statement with the Trust to the effect that
the beneficial owner of the PEPS is a Non-U.S. Holder. Under temporary and final
United States Treasury regulations, this requirement will be fulfilled if you
certify on IRS Form W-8 (or a successor form), under penalties of perjury, that
you are a Non-U.S. Holder and provide your name and address, and any Financial
Institution holding the PEPS on your behalf files a statement with the Trust to
the effect that it has received such a statement from you (and furnishes the
Trust with a copy of it).
Backup Withholding and Information Reporting
You may be subject to information reporting and to backup withholding
at a rate of 31% of the amounts paid to you unless you provide proof of an
applicable exemption or a correct taxpayer identification number, and otherwise
comply with the applicable requirements of the backup withholding rules. If you
are a Non-U.S. Holder and the statement regarding your tax status is furnished
as discussed above, you will not be subject to backup withholding. The amounts
withheld under the backup withholding rules are not an additional tax and may be
refunded, or credited against your U.S. federal income tax liability, if you
provide certain required information to the IRS.
UNDERWRITERS
Under the terms and subject to the conditions contained in the
underwriting agreement dated the date of this prospectus (the "Underwriting
Agreement"), the underwriters named below, for whom Morgan Stanley & Co.
Incorporated is acting as representative, have severally agreed to purchase, and
we have agreed to sell to them, severally, the respective number of PEPS set
forth opposite the names of such underwriters below:
Underwriter Number of PEPS
- --------------------------------------------------------------------------------
Morgan Stanley & Co. Incorporated............................
Total............................................... =================
The Underwriting Agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the PEPS offered by this
prospectus are subject to the approval of certain legal matters by their counsel
27
<PAGE>
and to certain other conditions. The underwriters are obligated to take and pay
for all of the PEPS offered by this prospectus, other than those covered by the
over-allotment option described below, if any such PEPS are taken.
The underwriters initially propose to offer part of the PEPS directly
to the public at the public offering price set forth on the cover page of this
prospectus and part to certain dealers at a price that represents a concession
not in excess of $o per PEPS under the public offering price. Any underwriter
may allow, and such dealers may reallow, a concession not in excess of $o per
PEPS to other underwriters or to certain other dealers. You will not pay any
sales load or underwriting commission. After the initial offering of the PEPS,
the offering price and other selling terms may from time to time be varied by
the representatives of the underwriters.
We have granted to the underwriters an option, exercisable for 30 days
from the date of this prospectus, to purchase up to an aggregate of o additional
PEPS at the public offering price set forth on the cover page of this
prospectus. The underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, made in connection with the offering of PEPS
offered by this prospectus. To the extent such option is exercised, each
underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional PEPS as the number set
forth next to such underwriter's name in the preceding table bears to the total
number of PEPS set forth next to the names of all underwriters in the preceding
table. If the underwriters exercise their over-allotment option in full, the
total price to public will be $o, the total sales load will be $o and the total
proceeds to the trust will be $o.
[Each of o Company and the Seller have agreed that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, during the period ending 90 days after the date of this
prospectus, it will not, directly or indirectly:
o offer, pledge, 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, lend, or
otherwise transfer or dispose of, directly or indirectly, any
shares of o Company common stock or any securities convertible
into or exercisable or exchangeable for o Company common stock;
or
o enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of
ownership of o Company;
whether any such transaction described above is to be settled by delivery of the
PEPS or such other securities, in cash or otherwise.
The restrictions described in the previous paragraph do not apply to:
o the sale of the PEPS to the underwriters;
o the issuance by o Company of shares of o Company common stock
upon the exercise of an option or a warrant or the conversion of
a security outstanding on the date of this prospectus of which
the underwriters have been advised in writing;
o the grant by o Company of options pursuant to existing benefit
plans of o Company, if the recipients of those options have
agreed in writing to restrictions on transfer of such options and
any shares of o Company common stock received upon the exercise
thereof to the same effect as the foregoing; or
o transactions by any person other than o Company relating to
shares of common stock or other securities acquired in open
market or other transactions after the completion of the
Offering.]
28
<PAGE>
The o Company common stock is listed on the New York Stock Exchange
under the symbol "o." We will apply to the Nasdaq National Market to list the
PEPS for trading under the symbol "o."
Under the Contract, the Seller will be obligated to deliver to us on
the Business Day before the Exchange Date a number or amount of each type of
Reference Property in respect of those PEPS on the same terms as the PEPS being
offered to you.
In order to facilitate the Offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the PEPS
or the o Company common stock. Specifically, the underwriters may agree to sell,
or allot, more shares than the o PEPS we have agreed to sell to them. This
over-allotment would create a short position in the common stock for the
underwriters' account. To cover any over-allotment or to stabilize the price of
the PEPS or the o Company common stock, the underwriters may bid for, and
purchase, PEPS or shares of the o Company Common Stock in the open market.
Finally, the underwriting syndicate may reclaim selling concessions allowed to
an underwriter or a dealer for distributing the PEPS in the Offering, if the
syndicate repurchases previously distributed PEPS in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. The
underwriters have reserved the right to reclaim selling concessions in order to
encourage underwriters and dealers to distribute the PEPS for investment, rather
than for short-term profit taking. Increasing the proportion of the Offering
held for investment may reduce the supply of PEPS available for short-term
trading.
Any of these activities may stabilize or maintain the market price of
the PEPS or the o Company common stock above independent market levels. The
underwriters are not required to engage in these activities, and may end any of
these activities at any time.
o Company and the Seller have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act. The
underwriters have agreed to pay any of our unanticipated expenses.
Certain of the underwriters have in the past performed various banking
services for o Company or the Seller, for which such underwriters received
customary compensation.
LEGAL MATTERS
Shearman & Sterling, New York, New York will pass upon certain legal
matters for us and for the Underwriters. Richards, Layton & Finger, P.A.,
Wilmington, Delaware will pass upon certain matters of Delaware law. o will pass
upon certain legal matters for the Sellers.
EXPERTS
The statement of assets, liabilities and capital included in this
prospectus has been audited by o 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 o as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
We filed a Registration Statement on Form N-2 to register the PEPS 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 file 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
29
<PAGE>
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."
30
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of PSS PEPS Trust:
We have audited the accompanying statement of assets, liabilities and
capital of PSS PEPS Trust as of o. 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 PSS PEPS Trust, as
of o in conformity with generally accepted accounting principles.
o
New York, New York
o
F-1
<PAGE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
Assets
Cash............................................ $
---------------------------
Total Assets.................................... $
===========================
Liabilities
Total Liabilities............................... $ 0
===========================
Net Assets......................................... $
===========================
Capital............................................ $
===========================
__________________
* The Trust was created as a Delaware business trust on August 25, 1999
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 (directly or indirectly) by the Seller.
** Offering expenses will be payable upon completion of the Offering and
also will be paid by the Seller.
F-2
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
1. Financial Statements
Part A - Independent Auditors' Report
Statement of Assets, Liabilities and Capital as of o
Part B - None
2. Exhibits
(a) (1) Trust Agreement
(1a) Amended and Restated Trust Agreement*
(2) Certificate of Trust
(2a) Certificate of Amendment to the Certificate of Trust*
(b) Not applicable
(c) Not applicable
(d) (1) Form of specimen certificate for PEPS*
(2) Portions of the Amended and Restated Trust Agreement of
the Registrant defining the rights of holders of PEPS*
(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 Purchase Contract*
(3) Form of Administration Agreement*
(4) Form of Collateral Agreement*
(5) Form of Fund Expense Agreement*
(6) Form of Fund Indemnity Agreement*
(l) Opinion and Consent of Richards, Layton & Finger, P.A.,
special Delaware counsel to the Trust*
(m) Not applicable
(n) (1) Consent of o independent auditors for the Trust*
(2) Tax opinion and consent of o, counsel to the Trust*
(o) Not applicable
(p) Not applicable
(q) Not applicable
(r) Financial Data Schedule*
- ---------------------
* To be filed by amendment.
1
<PAGE>
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 $*
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 *
----------
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 PEPS as of the effective date of
this Registration Statement.
Item 29. Indemnification
The Fund Indemnity Agreement provides 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 (the "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
2
<PAGE>
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 registrant 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 (Puglisi
& Associates, 850 Library Avenue, Suite 204, Newark, Delaware 19716) and its
paying agent (The Bank of New York, 101 Barclay Street, Floor 21W, New York, New
York 10286, Attention: Corporate Trust Administration).
Item 32. Management Services
Not applicable.
Item 33. Undertakings
(a) The registrant hereby undertakes to suspend the offering of the
PEPS covered hereby until it amends its prospectuses 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.
(b) The registrant hereby undertakes that (i) for purpose of
determining any liability under the 1933 Act, the information omitted from the
form of prospectuses filed as part of this Registration Statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the registrant
under 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.
3
<PAGE>
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 27th
day of August, 1999.
PSS PEPS TRUST
By: /s/ Donald J. Puglisi
___________________________
Name: Donald J. Puglisi
Title: Managing Trustee
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following person in the
capacities and on the date indicated.
Name Title Date
---- ----- ----
Principal Executive Officer,
Principal Financial Officer, August 27, 1999
By: /s/ Donald J. Puglisi Principal Accounting Officer,
- --------------------------- and Trustee
4
<PAGE>
EXHIBITS TO THE
REGISTRATION STATEMENT
OF THE PSS PEPS TRUST
ON FORM N-2
5
<PAGE>
EXHIBIT (a)(1)
6
<PAGE>
TRUST AGREEMENT OF PSS PEPS TRUST
TRUST AGREEMENT, dated as of August 25, 1999 between Morgan Stanley &
Co. Incorporated, as depositor (the "Depositor"), and Donald J. Puglisi, as
trustee (the "Trustee").
The Depositor and the Trustee hereby agree as follows:
1. The Trust created hereby shall be known as "PSS PEPS Trust", in
which name the Trustee may conduct the business of the Trust, make and execute
contracts, and sue and be sued.
2. The Depositor hereby assigns, transfers, conveys and sets over to
the Trustee the sum of $1. The Trustee hereby acknowledges receipt of such
amount in trust from the Depositor, which amount shall constitute the initial
trust estate. The Trustee hereby declares that it will hold the trust estate in
trust for the Depositor. It is the intention of the parties hereto that the
Trust created hereby constitute a business trust under Chapter 38 of Title 12 of
the Delaware Code, 12 Del. C. Section 3801, et seq. and that this document
constitute the governing instrument of the Trust. The Trustee is hereby
authorized and directed to execute and file a certificate of trust with the
Delaware Secretary of State in such form as the Trustee shall approve.
3. The Depositor and the Trustee will enter into an Amended and
Restated Trust Agreement, satisfactory to each such party, to provide for the
contemplated operation of the Trust created hereby. Prior to the execution and
delivery of such Amended and Restated Trust Agreement, the Trustee shall not
have any duty or obligation hereunder or with respect to the trust estate,
except as otherwise required by applicable law or as may be necessary to obtain
prior to such execution and delivery any licenses, consents or approvals
required by applicable law or otherwise.
4. The Depositor and the Trustee hereby authorize and direct the
Trustee (i) to file with the Securities and Exchange Commission (the
"Commission") and to execute, on behalf of the Trust, (a) a Registration
Statement, including pre-effective or post-effective amendments to such
Registration Statement, relating to the registration under the Securities Act of
1933, as amended (the "1933 Act"), and the Investment Company Act of 1940 (the
"1940 Act"), of the PEPS of the Trust and (b) any preliminary prospectus or
prospectus or supplement thereto relating to the PEPS required to be filed under
the 1933 Act or the 1940 Act; (ii) to file with any national securities exchange
or automated quotation system and execute on behalf of the Trust a listing
application and all other applications, statements, certificates, agreements and
other instruments as shall be necessary or desirable to cause the PEPS to be
listed on such exchange or quotation system; and (iii) to file and execute on
behalf of the Trust such applications, reports, surety bonds, irrevocable
consents, appointments of attorney for service of process and other papers and
documents as shall be necessary or desirable to register the PEPS under the
securities or "Blue Sky" laws of such jurisdictions as the Trustee, on behalf of
the Trust, may deem necessary or desirable.
5. The number of trustees of the Trust initially shall be one and
thereafter the number of trustees of the Trust shall be such number as shall be
fixed from time to time by a written instrument signed by the Depositor which
may increase or decrease the number of trustees of the
<PAGE>
Trust. Subject to the foregoing, the Depositor is entitled to appoint or remove
without cause any trustee of the Trust at any time. Any trustee of the Trust may
resign upon thirty days' prior notice to the Depositor.
6. This Trust Agreement may be executed in one or more counterparts.
7. All laws or rules of construction of the State of Delaware, without
regard to principles of conflict of laws, shall govern the rights of the parties
hereto and the construction, validity and effect of the provisions hereof.
8. The Trust will be a registered investment company under the 1940
Act.
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed by their respective officers hereunto duly authorized, as of
the day and year first above written.
DEPOSITOR:
Morgan Stanley & Co. Incorporated
as Depositor
/s/ Jon A. Anda
-------------------------------------------
Name: Jon A. Anda
Title: Managing Director
TRUSTEE:
By: /s/ Donald J. Puglisi
-------------------------------------------
Donald J. Puglisi,
as Trustee
<PAGE>
EXHIBIT (a)(2)
7
<PAGE>
CERTIFICATE OF TRUST OF PSS PEPS TRUST
This Certificate of Trust of PSS PEPS Trust (the "Trust"), dated August
25, 1999, is being duly executed and filed by Donald J. Puglisi, as trustee, to
form a business trust under the Delaware Business Trust Act (12 Del. C. Section
3801, et seq.).
1. Name. The name of the business trust formed hereby is PSS PEPS
Trust.
2. Registered Office; Registered Agent. The business address of the
registered office of the Trust in the State of Delaware is c/o Donald J.
Puglisi, Puglisi & Associates, 850 Library Avenue, Suite 204, P.O. Box 885,
Newark, Delaware 19715. The name of the Trust's registered agent at such address
is Donald J. Puglisi.
3. Effective Date. This Certificate of Trust shall be effective upon
the date and time of filing.
4. Investment Company Act of 1940. The Trust will be a registered
investment company under the Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust as of the date first
above-written.
/s/ Donald J. Puglisi
-------------------------------------------
Donald J. Puglisi, as Sole Trustee
