<PAGE>
As filed with the Securities and Exchange Commission on September 14, 2000
Registration No. 333-36616
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
PRE-EFFECTIVE AMENDMENT NO. 4 TO
REGISTRATION STATEMENT
ON FORM S-3 UNDER
THE SECURITIES ACT OF 1933
________________
NATIONAL FINANCIAL SECURITIES CORPORATION
(Registrant)
(Exact name of registrant as specified in its charter)
Delaware Applied For
(State of Incorporation) (I.R.S. Employer I.D. No.)
909 East Main Street, 7/th/ Floor
c/o BB&T Capital Markets
Richmond, Virginia 23219
(804) 649-3952
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
________________
WILLIAM E. HARDY Copy to:
909 East Main Street, 7th Floor EDWARD L. DOUMA, ESQ.
c/o BB&T Capital Markets NICOLE C. DANIEL, ESQ.
Richmond, Virginia 23219 Hunton & Williams
(804) 649-3952 Riverfront Plaza, East Tower
(804) 649-0990 (telecopy) 951 East Byrd Street
(Name, address, including zip Richmond, Virginia 23219-4074
code and telephone (804) 788-8200
number, including area code, of (804) 788-8218 (telecopy)
agent for service)
_________________
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
__________________
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
========================================================================================================================
Proposed Proposed
Maximum Maximum
Title of Securities Amount to be Offering Price Aggregate Amount of
Being Registered Registered(1)(2) Per Unit(1)(2) Offering Price(1)(2) Registration Fee(3)
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Certificates $50,000,000 100% $50,000,000 $13,200
========================================================================================================================
</TABLE>
(1) Estimated solely for calculating the registration fee pursuant to Rule
457(a).
(2) Also registered are secondary market sales of trust certificates that
may be effected by BB&T Capital Markets (a subsidiary of Scott &
Stringfellow), an affiliate of the Registrant.
(3) $13,200 was previously paid with the initial filing on May 9, 2000.
________________
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 the 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.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in the prospectus supplement is not complete and may be +
+ changed. The depositer may not sell these securities unless we deliver a +
+ final prospectus supplement and prospectus to you. This prospectus +
+ supplement and the accompanying prospectus is not an offer to sell these +
+ securities and it is not soliciting an offer to buy these securities in any +
+ state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Prospectus supplement to prospectus dated September __, 2000
NATIONAL FINANCIAL SECURITIES CORPORATION
Depositor
FINANCIAL INCOME SECURITIES TRUST ____ 2000-___
Issuer
$[_______________________]
$25.00 per Trust Certificate
[Callable on or after _____]
relating to
[Name of Underlying Securities]
_____________________________ The Trust--
| Consider carefully the | . will own [name of underlying
| risk factors beginning | security] issued by [obligor]
| on page 4 in the | and all future payments of
| prospectus and page S-5 | interest and a single payment
| of this prospectus | of principal due on the
| supplement. | security, as described in this
| | prospectus supplement; and
| The certificates will |
| represent obligations | . will issue a single class of
| of the trust only and | trust certificates, which will
| will not represent | represent interests in the
| interests in or | trust and will be paid only
| obligations of any | from trust assets.
| other party. Neither |
| the certificates nor | The Certificates--
| the underlying | . will represent your right to
| securities are deposits | receive [semi-annual] interest
| or other obligations | payments on the principal
| of a bank, nor are they | amount of your trust
| insured by the FDIC or | certificate at an interest
| any other government | rate of ___% per annum; and
| agency and are not |
| guaranteed by any person. | . will also represent your right
| | to receive your pro rata amount
| This prospectus supplement | of a single payment of
| may be used to offer and | principal of $______ due on
| sell the trust certificates | __________as described in this
| only if accompanied by the | prospectus supplement.
| prospectus. |
|_____________________________|
The Offering--
Per Trust
Certificate Total
----------- -----
. Public Price.................................. $_____ $______
. Underwriting Discount......................... $_____ $______
. Proceeds to Trust............................. $_____ $______
Neither the Securities and Exchange Commission nor any state securities
commission has approved these trust certificates or determined that this
Prospectus Supplement is accurate or complete. Any representation to the
contrary is a criminal offense.
[NAME OF UNDERWRITER]
The date of this prospectus supplement is_________ __, 20__.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
Prospectus Supplement
<S> <C>
Information About the Trust Certificates........................... iii
Summary............................................................ S-1
Risk Factors....................................................... S-5
The Trust Certificates............................................. S-5
General...................................................... S-6
DTC Book Entry Only System................................... S-7
Distributions................................................ S-7
Termination of the Trust..................................... S-8
Default on Underlying Securities............................. S-10
Description of Trust Agreement..................................... S-11
General...................................................... S-11
Establishment of the Trust................................... S-11
The Trustee.................................................. S-11
Duties of the Trustee........................................ S-11
Indemnification.............................................. S-12
Resignation and Removal of the Trustee....................... S-12
[Financial Guaranty Insurance Policy]........................ S-12
Office for Registration of Transfer and Exchange............. S-12
Law Governing the Trust...................................... S-13
Underwriting....................................................... S-13
Legal Matters...................................................... S-14
Ratings............................................................ S-14
Material Federal Income Tax Consequences........................... S-15
ERISA Considerations............................................... S-16
General...................................................... S-16
Ineligible Purchasers........................................ S-18
Review By Plan Fiduciaries................................... S-18
Description of Underlying Securities............................... A-1
General...................................................... A-1
Available Information........................................ A-1
Terms Of Underlying Securities............................... A-1
Prospectus
Prospectus......................................................... iii
Prospectus Summary................................................. 1
Risk Factors....................................................... 4
Description of Trust Agreement..................................... 6
General..................................................... 6
Establishment of the Trust.................................. 6
Accounts.................................................... 6
Distributions............................................... 6
Financial Guaranty Insurance Policy......................... 7
Amendment................................................... 7
Termination of Trust Agreement.............................. 8
List of Certificateholders.................................. 8
The Trustee................................................. 8
Duties of the Trustee....................................... 8
Reports to Certificateholders............................... 9
Securityholder Communications............................... 10
Voting Rights............................................... 10
Indemnification of the Trustee.............................. 11
Resignation and Removal of the Trustee...................... 11
Office For Registration of Transfer and Exchange............ 12
Law Governing the Trust..................................... 12
The Underlying Securities.......................................... 12
The Obligors....................................................... 13
Suspension of Exchange Act
Reporting by Obligor........................................ 13
Use of Proceeds.................................................... 14
The Depositor...................................................... 14
The Trust Certificates............................................. 14
General..................................................... 14
Distributions of Interest and Principal Amount.............. 15
Book-Entry Registration..................................... 15
Definitive Certificates..................................... 17
Defaults and Remedies....................................... 18
Issuance and Delivery....................................... 19
Material Federal Income Tax Consequences........................... 19
Classification of The Trust................................. 20
Taxation of Certificateholders.............................. 20
Additional Tax Considerations............................... 24
State And Other Tax Considerations.......................... 26
ERISA Considerations............................................... 27
General.............................................. 27
Plan Assets.......................................... 28
Prohibited Transactions.............................. 29
Ineligible Purchasers................................ 31
Plan of Distribution............................................... 32
Legal Opinions..................................................... 32
Available Information.............................................. 32
Incorporation of Certain Documents By Reference.................... 33
Reports to Certificateholders...................................... 33
</TABLE>
ii
<PAGE>
Information About the Trust Certificates
We provide information to you about the trust certificates in two separate
documents that progressively provide more detail: first, the accompanying
prospectus, which provides general information, and second this prospectus
supplement, which describes the specific terms of your series of trust
certificates, and which enhances the disclosure found in the prospectus. You are
urged to read both the prospectus and this prospectus supplement, including
Appendix A, in full to obtain material information concerning the trust
certificates.
We include cross-references in this prospectus supplement and the
prospectus to captions in these materials where you can find further related
discussions. The Table of Contents in this prospectus supplement and the
prospectus identify the pages where these sections are located.
The depositor has filed with the Securities and Exchange Commission a
registration statement of which this prospectus supplement and the accompanying
prospectus form a part under the Securities Act of 1933, as amended, with
respect to the trust certificates. This prospectus supplement and the
accompanying prospectus do not contain all of the information contained in the
registration statement. For further information regarding the documents referred
to in this prospectus supplement and the prospectus, you should refer to the
registration statement and the exhibits. The registration statement and the
exhibits to the registration statement can be inspected and copied at prescribed
rates at the public reference facilities maintained by the SEC at its Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549 (information
on the operation of the Public Reference Room may be obtained by calling the SEC
at 1-800-SEC-0330), and at its Regional Offices located at: Chicago Regional
Office, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661; and
New York Regional Office, Seven World Trade Center, New York, New York 10048.
Copies of these materials can also be obtained electronically through the SEC's
Internet Web Site, http://www.sec.gov.
You should rely only on the information contained in this prospectus
supplement or the prospectus. Neither the depositor nor the underwriter has
authorized any other person to provide you with different information. Neither
the depositor nor the underwriter is making an offer to sell these securities in
any jurisdiction where the offer or sale is not permitted.
The issuer will not list the trust certificates on any national securities
trading exchange.
iii
<PAGE>
Summary
This summary highlights information from this prospectus supplement. It
does not contain all of the information you need to consider in making your
investment decision. To understand all of the terms of the offering of the trust
certificates, you should read carefully this prospectus supplement, including
Appendix A, and the accompanying prospectus in full.
Establishment of the Trust
National Financial Securities Corporation, the depositor, is establishing the
trust, which is named Financial Income Securities Trust ____ 2000-_ . [address
and telephone number of depositor.] The assets of the trust will consist of
$________ _.__% due _____ underlying securities issued by _____________________,
the obligor, and payments of principal and interest made by the obligor on the
underlying securities as discussed in more detail under "The Trust
Certificates--General."
Trustee And Trust Agreement
[Name of trustee] will act as trustee pursuant to a series trust agreement. You
may inspect the trust agreement at the office of the trustee at [address and
telephone number].
Offered Securities
The trust will issue the Financial Income Securities Trust certificates,
[callable on or after ____________,] in a single class. As a holder of trust
certificates, you will have the right to receive from the trust semi-annual
payments of interest on the principal amount of your trust certificates accruing
from _____ __, 2000 at a rate of _.__% per annum on each distribution date. The
distribution dates will be ______ __ and ______ __, commencing on _______ __,
2000, until the principal amount of your trust certificates is paid in full as
described below. In addition, you will have the right to receive the pro rata
share for your trust certificates of a single payment of principal of
$___,000,000. You will be expected to receive your pro rata share of the
principal payment on the business day following ________ __, 20__, which is the
stated maturity date, or on an earlier date on which the trust redeems your
trust certificates as described in "The Trust Certificates--Termination of the
Trust" in this prospectus supplement.
Underlying Securities
[Name of obligor] _.__% underlying securities due 20__.
See "Appendix A" in this prospectus supplement for the material terms of the
underlying securities.
This prospectus supplement, including Appendix A, provides you with all the
material information regarding the underlying securities. However, this
prospectus supplement does not provide you with all the information which may be
contained in the issuer's filings with respect to the underlying securities or
the obligor, any risk factors relating to the underlying security or issuer, or
any legal, financial or other rights or obligations arising under or related to
the underlying securities.
See "The Obligors" in the prospectus and "Appendix A--Description of Underlying
Securities--Available Information" in this prospectus supplement.
S-1
<PAGE>
Denominations
Each trust certificate will have a principal amount of $25.
Registration, Clearance And Settlement
Your trust certificates will be registered in the name of Cede & Co., as the
nominee of The Depository Trust Company. You will not receive a physical
certificate representing your interest, except in limited circumstances
described in the accompanying prospectus when trust certificates in fully
registered, certificated form are issued.
See "The Trust Certificates--Definitive Certificates" in the prospectus.
Ratings
It is a condition to issuance that the trust certificates have ratings assigned
by ______________ [and _______________] of at least [Baa3][BBB-]. A securities
rating is not a recommendation to buy, sell or hold securities, does not address
the possibility that you may experience a lower yield in the event of an early
termination, and may be subject to revision or withdrawal at any time by the
assigning rating agency. While the ratings of your trust certificates are
separate and distinct from the ratings on the underlying securities, we expect
that the separate ratings given to your trust certificates will at all times
match the ratings of the underlying securities. The rating of your trust
certificates generally is based on the credit quality of the underlying
securities, and will represent only an assessment of the likelihood of receipt
by you of principal and interest payments. As of the date of this prospectus
supplement, the underlying securities were rated "__" by ______ and "__" by
_____.
See "Ratings" in this prospectus supplement and "Prospectus Summary--Rating of
the Certificates" in the prospectus.
[Credit Enhancement
A financial guaranty insurance policy from ___________________ will irrevocably
and unconditionally guaranty to the trustee timely payment of interest and
ultimate payment of principal on your trust certificates. This policy may not be
canceled for any reason. The financial guaranty insurance does not guaranty any
particular redemption date, nor does it provide funds to redeem your trust
certificates.
See "Description of Trust Agreement--Financial Guaranty Insurance Policy" in
this prospectus supplement and the prospectus.]
Termination of The Trust
The trust is terminable at the option of the depositor in whole, but not in
part,
. [on or after [_], and]
. after the failure of the obligor to make the required Exchange Act reports
after the distribution of physical certificates as described in the
prospectus under the heading "The Obligors--Suspension of Exchange Act
Reporting by Obligor."
The trust will also be terminated upon the redemption of the underlying
securities by the obligor.
The obligor may redeem the underlying securities on or after ________ __, 20__,
in whole or in part from time to time at the percentage redemption prices stated
on page A-2 of Appendix A. A portion of the
S-2
<PAGE>
proceeds of a redemption will be allocated pro rata among the
certificateholders. The redemption prices per trust certificate are set forth
under "The Trust Certificates--Termination of the Trust" in this prospectus
supplement.
The amount, if any, by which the redemption price paid on the underlying
securities exceeds their principal amount is the redemption premium. If the
obligor pays a redemption premium on the underlying securities, you will receive
the pro rata amount of a portion of the redemption premium corresponding to the
principal amount of your trust certificates.
See "The Trust Certificates--Termination of the Trust" in this prospectus
supplement.
The obligor, however, is not required to redeem the underlying securities.
Therefore, there can be no assurance that the trust will repurchase your trust
certificates prior to the stated maturity date. Should the trust redeem your
trust certificates prior to the stated maturity date, the trustee will notify
you by mail at least 15 days before the redemption date.
Material Federal Income Tax Consequences
In Hunton & Williams' opinion under the existing law:
. The trust will be a grantor trust and not a partnership or an association
taxable as a corporation.
. The trust will not be subject to federal income tax.
. Your trust certificates will represent undivided beneficial ownership
interests in the underlying securities.
. You will be required to include in your gross income your pro rata share of
your interest on any income received or accrued on the underlying
securities, whether or not cash is actually distributed to you.
See "Material Federal Income Tax Consequences" in this prospectus supplement and
in the prospectus for additional information concerning the application of
federal income tax laws.
ERISA Considerations
[The trust certificates are eligible for purchase by ] [The trust certificates
are not eligible for purchase by either ] an "employee benefit plan" subject to
the Employee Retirement Income Security Act of 1974, as amended, or a "plan"
subject to Section 4975 of the Internal Revenue Code of 1986. [Any employee
benefit plan or plan contemplating the purchase of trust certificates should
consider consultation with its counsel before making a purchase. The fiduciary
of an employee benefit plan or plan and its legal advisors should consider
whether the trust certificates will satisfy all of the requirements of the
"publicly-offered securities exception" and the possible application of other
"prohibited transaction exemptions."]
See "ERISA Considerations" in this prospectus supplement and in the prospectus.
Risk Factors
There are risks involved in your investment in the trust certificates. These
risks include, but are not limited to, the fact that your only source of payment
is the underlying securities and the absence of an established
S-3
<PAGE>
trading market for your trust certificates. You should carefully review each of
the risk factors outlined in this prospectus supplement and the prospectus.
S-4
<PAGE>
Risk Factors
Before making an investment decision, you should carefully consider the
following risks in addition to the risks outlined in the prospectus, which we
believe describe the principal factors that make an investment in the trust
certificates speculative or risky.
You may look only to the The payments made by the obligor on the
obligor for payment underlying securities are the only source of
payment on your trust certificates. The
obligor is subject to laws permitting
bankruptcy, moratorium, reorganization or
other actions. Should the obligor experience
financial difficulties, this could result in
delays in payment, partial payment or non-
payment of your trust certificates.
See "The Trust Certificates--Default on
Underlying Securities" in this prospectus
supplement.
The absence of an established No application for listing the certificates
trading market for your has been made or is contemplated. Neither
securities may reduce their the depositor nor the underwriter are
value obligated to establish or maintain a
secondary or trading market for your
certificates. A secondary market for the
offered trust certificates may not develop
or, if it does develop, it may not provide
you with liquidity of investment or continue
while your trust certificates are
outstanding. Limited liquidity could result
in a substantial decrease in the market value
of your certificates.
See "Risk Factors--Your investment could
suffer from limited liquidity" in the
accompanying prospectus.
A downgrade of the credit rating The separate credit rating assigned to your
of the underlying securities trust certificates will equal the credit
will reduce the value of your rating assigned to the underlying
investment securities. Accordingly, any reduction in the
rating of the underlying securities is likely
to result in a reduction in the rating of
your trust certificates. Any reduction of
this nature will reduce the value of your
trust certificates, and may be caused by
circumstances beyond your control.
See "Summary--Ratings" in this prospectus
supplement.
The Trust Certificates
The following sets forth all the material terms of the trust certificates.
S-5
<PAGE>
General
The trust certificates relate to $__,000,000 aggregate principal amount of
_.__% [description of underlying securities] due 20__ of [name of obligor]. The
capital securities were initially issued in __________________ in the aggregate
principal amount of $____________. The underlying securities provide for [semi-
annual] interest payments due on ________ __ and __________ __ of each year and
for a single payment of principal of $__,000,000 payable on _________ __, 20__
(the "stated maturity date") or upon earlier redemption.
The trust certificates are issued in a single class with a principal amount
of $__,000,000. Each trust certificate evidences the right to receive periodic
interest payments on its principal amount accruing from _______ __, 2000 at a
rate of _.__% per annum on each business day following _______ __ and _______
__, commencing _______ __, 2000, until the principal amount of the trust
certificate is paid on the stated maturity date, or upon the earlier redemption
of the trust certificate. [Interest will be computed on the basis of a 360-day
year consisting of twelve 30-day months.] The trust certificates evidence
ownership in the aggregate of all of the interest payments, and of the principal
payment, due on the underlying securities. In addition, the trust certificates
are entitled to a portion of the redemption premium, if any, payable by the
obligor upon a redemption of the underlying securities by the obligor. However,
no certificateholder will have the right to directly acquire the underlying
securities. See "--Termination of the Trust" in this prospectus supplement.
[The underlying securities were transferred to the trust exclusive of the
right to receive interest on the underlying securities accrued from _______ __,
2000 until, but excluding, _______ [15], 2000. Therefore, the interest payment
that purchasers of trust certificates are scheduled to receive on the interest
payment date on ______ __, 2000 will not include the retained amount and the
retained amount will be distributed to the depositor or its designee.]
The scheduled interest and principal payments on the trust certificates are
payable solely from payments of principal and interest on the underlying
securities made by the obligor. If payments are not made on the underlying
securities, the certificateholders will not be paid and will suffer losses. You
should avail yourself of the same information concerning the obligor as you
would if you were purchasing the underlying securities. See "The Obligors" in
the prospectus and "Appendix A-Description of Underlying Securities-Available
Information" in this prospectus supplement. Appendix A is an integral part of
this prospectus supplement, and should be considered in conjunction with the
other information in this prospectus supplement. [Information with respect to
the obligor is also available at the obligor's corporate website
(http://www._______.com ).]
Under the trust agreement, the underlying securities will be held by the
trustee for the benefit of the certificateholders as book-entry credits to an
account of the trustee at DTC. The obligor is not a party to the trust
agreement. Each certificateholder, by its acceptance of a trust certificate,
agrees to be bound by the terms and conditions of the trust agreement. Copies of
the trust agreement are available upon written request from the depositor at
[address].
S-6
<PAGE>
You will not be entitled to enforce any rights directly against the obligor
concerning the underlying securities. Rather, any rights you have regarding the
underlying securities may only be enforced through the trustee.
The trust certificates will be delivered in registered form. Each trust
certificate will have a principal amount of $__. The trust certificates are
being offered initially in book entry form only through DTC, and purchasers will
not receive physical certificates representing their ownership of trust
certificates, other than as a result of a termination of the book-entry
registration in connection with termination of periodic reporting by the
underlying securities Issuer. See "The Obligors--Suspension of Exchange Act
Reporting by the Obligor" in the prospectus.
The trust certificates offered hereby are different from, and not
exchangeable for, any other series of trust certificates or any other receipt or
certificate evidencing ownership of future interest or principal payments due on
obligor obligations, and are subject to the terms and conditions of the trust
agreement.
Neither the trustee nor the depositor will be responsible for the payments
due on the trust certificates, except that the trustee will be required to apply
all payments received in respect of the underlying securities, exclusive of the
retained amount, to the trust certificates to which they relate without making
any deduction, other than any applicable tax or other governmental charge.
DTC Book Entry Only System
The depositor will deliver trust certificates to investors in book-entry
form only through the facilities of DTC, against payment in same day funds.
Delivery will be made to investors at the offices of the underwriter or to an
office specified by the investor of an entity that is a participant or indirect
participant - as defined in the prospectus. See "The Trust Certificates--Book-
Entry Registration" in the prospectus.
Distributions
Available Distribution Amount
The available distribution amount for a distribution date will include
[monthly] payments of principal and interest collected on the underlying
securities during the collection period, and unscheduled payments received with
respect to the underlying securities, including proceeds of redemptions of the
underlying securities.
Distributions
Distributions will be made on each distribution date to holders of record
on the preceding record date. Distributions on a your trust certificates will be
allocated among all trust certificates in proportion to their percentage
interests.
S-7
<PAGE>
Interest
On each distribution date, you will be entitled to receive, to the extent
of the available distribution amount, interest accrued on your trust
certificates during the related interest accrual period at the then-applicable
interest rate on the principal balance of your trust certificates. Interest
accrual period shall mean, with respect to each distribution date, the calendar
month preceding the month in which the distribution date occurs. The interest
rate for your trust certificates will be the per annum rates set forth on the
cover page of this prospectus supplement.
Principal
The principal distribution amount for any distribution date will equal the
sum of the following amounts:
. all scheduled principal payments made on the underlying securities
during the collection period, and
. the principal amount or liquidation amount of each underlying security
that was liquidated, redeemed or otherwise paid in full during the
collection period, except that any redemption amounts which exceed the
par value of the trust certificates will not be distributed to the
certificateholders and will be retained by the depositor.
For any distribution date, the principal distribution amount for your trust
certificates may not exceed its outstanding principal balance.
Priority of Distributions
On each distribution date the available distribution amount will be
distributed in the following amounts and in the following order of priority:
. [first, the interest distribution amount for that distribution, if
any, date pro rata among the trust certificates based on their
respective outstanding principal amounts;]
. [second, the principal distribution amount for that distribution date,
if any, pro rata among the trust certificates based on their
respective outstanding principal amounts; and]
. [finally, any remainder to the depositor.]
Termination of the Trust
The trust is terminable at the option of the depositor and
certificateholders will be required to redeem their trust certificates
. on or after [ ], in whole, but not in part, at [the termination
price(s) set forth below.][a termination price of $[ ]].
S-8
<PAGE>
[Termination Prices]
200[ ] $[ ]
200[ ] $[ ]
200[ ] $[ ]
. after the failure of the obligor to make the required Exchange Act
reports after the distribution of physical certificates as described
in the prospectus under the heading "The Obligors - Suspension of
Exchange Act Reporting by Obligor." Any redemption shall be at a
redemption price of $25 per trust certificate, plus accrued and unpaid
interest.
The trust certificates are also required to be redeemed upon the redemption
of the underlying securities.
The underlying securities as originally issued are redeemable at any time
on or after ______ __, 20__, in whole or in part from time to time, [on not less
than 30 nor more than 90 days' notice,] at redemption prices expressed in
percentages of the principal amount stated on page A-2 of Appendix A.
The proceeds of the redemption will be distributed to the
certificateholders pro rata. The redemption prices per trust certificate
expressed in U.S. dollars during the 12-month period beginning ________ __ of
each year are as follows:
Year Price ($)
---- ---------
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
and $__ on or after __________ __, 20__, together, in each case, with accrued
interest to the redemption date.
The amount, if any, by which the redemption price per trust certificate
exceeds $__ is referred to as the redemption premium. The redemption price will
not be less than the outstanding principal amount plus accrued and unpaid
interest.
The holder of a trust certificate which is redeemed will receive a payment
equal to its pro rata share of the par value of the underlying securities to be
redeemed, plus a portion of the redemption premium, if any.
S-9
<PAGE>
On or after the redemption date, interest will cease to accrue on the trust
certificates or on any portion of the trust certificates called for redemption.
Subject to receipt by the trustee of actual notice of redemption from the
obligor, the principal amount of trust certificates corresponding to the
principal amount of underlying securities to be redeemed will be called for
redemption. Notice of any call will be given by the trustee to the registered
certificateholders not less than ___ days prior to the redemption date by mail
to each registered certificateholder at the registered certificateholder's last
address on the register maintained by the trustee; however, the trustee shall
not be required to give any notice of redemption prior to the third business day
after the date it receives notice of a redemption.
Default on Underlying Securities
Interest and principal payments on the underlying securities are payable
solely by the obligor. The obligor is subject to laws permitting bankruptcy,
liquidation, moratorium, reorganization or other actions which, in the event of
financial difficulties of the obligor, could result in delays in payment,
partial payment or non-payment of the trust certificates relating to an
underlying security.
If the obligor defaults on the payment of interest or principal on the
underlying security, the trustee shall promptly give notice to DTC or, for any
trust certificates which are not then held by DTC or any other depository,
directly to the registered holders. The notice will provide:
. the identity of the issue of underlying securities,
. the date and nature of any default,
. the principal amount of the interest or principal in default,
. the trust certificates affected by the default, and
. any other information which the trustee may deem appropriate.
If there is a payment default on the underlying securities, the trustee is
required to proceed against the obligor to enforce the underlying securities or
otherwise to protect the interests of the certificateholders, subject to the
receipt of indemnity in form and substance satisfactory to the trustee. Holders
of trust certificates representing a majority of the voting rights on the trust
certificates will be entitled to direct the trustee in the proceeding, subject
to the trustee's receipt of satisfactory indemnity.
If the trustee receives money or other property in respect of the
underlying securities, other than a scheduled interest payment on or with
respect to an interest payment date, as a result of a payment default on the
underlying securities, or actual notice that any moneys or other property will
be received, the trustee will promptly give notice as provided in the trust
agreement to DTC, or for any trust certificates which are not then held by DTC
or any other depository, directly to the registered holders of the trust
certificates then outstanding and unpaid. The notice
S-10
<PAGE>
will state that, not later than __ days after the receipt of the moneys or other
property, the trustee will allocate and distribute the moneys or other property
to the holders of trust certificates then outstanding and unpaid, pro rata by
principal amount. Property other than cash will be liquidated by the trustee,
and the proceeds distributed in cash, only to the extent necessary to avoid
distribution of fractional securities to certificateholders. Any amounts
received by the trustee in excess of principal and accrued unpaid interest on
the trust certificates will be distributed to the depositor. [In-kind
distribution of underlying securities to certificateholders will be deemed to
reduce the principal amount of trust certificates on a dollar for dollar basis.]
No amounts will be distributed to the depositor in respect of the underlying
securities unless and until principal and accrued interest on the trust
certificates has been paid [- or reduced by distributions in kind -] in full.
Description of Trust Agreement
The following sets forth all the material terms of the trust agreement.
General
The trust certificates will be issued pursuant to the trust agreement. The
parties to the trust agreement are the depositor and the trustee. See
"Description of Trust Agreement" in the accompanying prospectus.
Establishment of the Trust
With respect to each series of trust certificates, the depositor will
establish a trust establish a trust by depositing the trust property in the
trust, without recourse. After the issuance date with respect to each trust,
the trust will not purchase or otherwise acquire any additional securities and
will not dispose of or create any lien on its asset, other than upon termination
of the trust. The trust property will consist of the underlying securities, all
moneys due or received to the underlying securities, certain accounts and
proceeds of the accounts, in each case as described in the prospectus
supplement. The trust certificates will evidence ownership interest in the
related trust property.
The Trustee
[______________________] will serve as the trustee.
Duties of the Trustee
The trustee will make no representations as to the validity or sufficiency
of the related trust agreement, the trust certificates or any underlying
security. The trustee will be required to perform only those duties specifically
required under the trust agreement. However, upon receipt of any of the various
certificates, reports or other instruments required to be furnished to it
pursuant to the trust agreement, the trustee will be required to examine such
documents and to determine whether they conform to the requirements of the trust
agreement.
S-11
<PAGE>
Indemnification
The trustee will be entitled to indemnification, from amounts held in the
related asset proceeds account, for any loss, liability or expense incurred by
the trustee in connection with the trustee's acceptance or administration of its
trusts under the trust agreement. This indemnification will not extend to any
loss, liability or expense that constitutes a specific liability imposed on the
trustee pursuant to the trust agreement, or to any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or gross negligence on the
part of the trustee in the performance of its obligations and duties thereunder,
or by reason of its reckless disregard of such obligations or duties, or as may
arise from a breach of any representation, warranty or covenant of the trustee
made therein. The fees and normal disbursements of any trustee will be the
expense of the depositor.
Resignation and Removal of the Trustee
The trustee will be permitted at any time to resign from its obligations
and duties under the trust agreement by giving written notice to the depositor.
Upon receiving notice of resignation, the depositor[, or such other person as
may be specified], will be required to use its best efforts promptly to appoint
a successor trustee. If no successor trustee has accepted an appointment within
a specified period after the giving of such notice of resignation, the resigning
trustee may petition any court of competent jurisdiction to appoint a successor
trustee.
If at any time the trustee ceases to be eligible to continue under the
trust agreement, or if at any time the trustee becomes incapable of acting, or
if certain events of, or proceedings in respect of, bankruptcy or insolvency
occur with respect to the trustee, the depositor will be authorized to remove
the trustee and appoint a successor trustee. In addition, holders of the trust
certificates entitled to at least 51% of the voting rights for the series may at
any time, with or without cause, remove the trustee and appoint a successor
trustee.
Any resignation or removal of the trustee and appointment of a successor
trustee will not become effective until acceptance of appointment by the
successor trustee.
[Financial Guaranty Insurance Policy
Your trust certificates have the benefit of a financial guaranty insurance
policy provided by ____________________. [Add description of policy]].
Office for Registration of Transfer and Exchange
The designated office of the trustee for the registration of transfer or
exchange of trust certificates is [____________________________________]. Under
the DTC Book Entry Only System, transfers and exchange of certificates will be
accomplished as described under "The Trust Certificates--DTC Book Entry Only
System" in this prospectus supplement.
Any holder presenting trust certificates for surrender or registration of
transfer or exchange may be required to pay any applicable service charge of the
trustee and a sum sufficient
S-12
<PAGE>
for reimbursement of any tax or governmental charge, to file a proof of
residence, or other matters or information, to execute the certificates and to
make representations and warranties and assurances, including a signature
guaranty, as the trustee may reasonably deem necessary or proper. The trustee
may withhold the delivery or delay the surrender of a registration of transfer
or exchange of any trust certificates until the payment is made and proof or
other information is filed, the certificates are executed or the representations
and warranties are made.
Law Governing the Trust
The Trust will be governed by, and construed in accordance with, the laws
of the State of New York.
Underwriting
Subject to the terms and conditions set forth in the underwriting agreement
between [__________________________] and the trust, the trust will sell the
trust certificates to the underwriter, and the underwriter has agreed to
purchase from the trust all of the trust certificates if any trust certificates
are purchased.
The trust has been advised by the underwriter that it proposes initially to
offer the trust certificates to the public at the public offering price set
forth on the cover page of this prospectus supplement, and to dealers at the
price less a concession not in excess of $.__ per trust certificate. The
underwriter may allow and the dealers may reallow a concession not in excess of
$.__. After the initial public offering, the public offering price and the
concessions may be changed.
The trust certificates are a new issue of securities with no established
trading market. The depositor has not made any application to list the trust
certificates on any trading exchange. The underwriter has told the depositor
that it presently intends to make a market in the trust certificates, but it is
not obligated to do so. Any market making by the underwriter may be discontinued
at any time at the sole discretion of the underwriter. No assurance can be given
as to whether a trading market for the trust certificates will develop or as to
the liquidity of any trading market.
The trust certificates are expected to trade flat. This means that any
accrued and unpaid interest on the trust certificates will be reflected in the
trading price and purchasers will not pay and sellers will not receive any
accrued and unpaid interest on the trust certificates not included in the
trading price.
Until the distribution of the trust certificates is completed, rules of the
SEC may limit the ability of the underwriter to bid for and purchase the trust
certificates. As an exception to these rules, the underwriter is permitted to
engage in transactions that stabilize the price of the trust certificates.
Possible transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the trust certificates.
In connection with the offering, the underwriter may make short sales of
the trust certificates and may purchase the trust certificates on the open
market to cover positions created
<PAGE>
by short sales. Short sales involve the sale by the underwriter of a greater
number of shares than they are required to purchase in the offering. A naked
short position is more likely to be created if the underwriters are concerned
that there may be a downward pressure on the price of shares in the open market
after pricing that could adversely affect investors who purchase in the
offering.
The underwriter may also impose a penalty bid on selling group members.
This means that if the underwriter purchases trust certificates in the open
market to reduce its short position or to stabilize the price of the trust
certificates, it may reclaim the amount of the selling concession from the
selling group members who sold those trust certificates as part of the offering.
Similar to other purchase transactions, the underwriters' purchases to
cover the syndicate short sales may have the effect of raising or maintaining
the market price of the trust certificates or preventing or retarding a decline
in the market price for the trust certificates. As a result, the price of the
trust certificates may be higher than the price that might otherwise exist on
the open market. The imposition of a penalty bid might also have an effect on
the price of a trust certificate to the extent that it were to discourage
resales of the trust certificates.
Neither the depositor nor the underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above might have on the price of the trust certificates. In addition,
neither the depositor nor the underwriter makes any representation that the
underwriter will engage in these transactions. These transactions, once
commenced, may be discontinued without notice.
The depositor has agreed to indemnify the underwriter against specified
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to payments that the underwriter may be required to make.
The entire net proceeds received by the trust from the sale of the trust
certificates will be used to acquire the underlying securities from the
depositor, which will use the proceeds to acquire the underlying securities from
the underwriter. Thus, neither the trust nor the depositor is expected to
receive any net cash proceeds from the sale of the trust certificates.
The expenses of the depositor in connection with the issuance of the trust
certificates are estimated to be approximately $____________. The depositor and
[the underwriter] are each subsidiaries of BB&T Corp.
Legal Matters
Legal matters relating to the offering and sale of the trust certificates
and their federal income tax aspects will be passed upon by Hunton & Williams,
Richmond, Virginia.
Ratings
It is a condition to issuance that the trust certificates have ratings
assigned by __________ [and ________________] of at least [Baa-] [BBB-]. While
the ratings of your trust
S-14
<PAGE>
certificates are separate and distinct from the ratings on the underlying
securities, we expect that the ratings will at all time match the ratings of the
underlying securities. The separate ratings given to the trust certificates will
be based primarily upon the credit rating of the related underlying securities
and the legal structure of the transaction, including the limitation that
payments in respect of the trust certificates are subject to receipt by the
trustee of payments on the underlying securities. As of the date of this
prospectus supplement, the underlying securities were rated "__" by _______ and
"__" by ____.
There is no assurance that any rating will remain in effect for any given
period of time or that it will not be revised downward or withdrawn entirely by
the rating agency, if in the judgment of the rating agency, circumstances so
warrant. Securities ratings address the likelihood that the purchasers of trust
certificates will receive all payments required under the trust agreement.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
entity. The depositor has not requested a rating of the trust certificates from
any rating agency other than ___________ [and ____________]. However, there can
be no assurance as to whether any other rating agency will rate the trust
certificates, or if one does, what rating would be assigned by that rating
agency.
Material Federal Income Tax Consequences
The following is a summary of the principal United States federal income
tax consequences of the purchase, ownership and disposition of the trust
certificates. The statements of law and legal conclusions set forth in this
summary regarding the tax consequences to the beneficial owners of the trust
certificates represent the legal opinion of Hunton & Williams, Richmond,
Virginia, counsel to the company and the trust. This summary is based upon the
Internal Revenue Code of 1986, as amended, Treasury Regulations, Internal
Revenue Service rulings and pronouncements and judicial decisions now in effect,
all of which are subject to change at any time. Hunton & Williams is of the
opinion that for federal income tax purposes, the trust will be treated as a
grantor trust under subpart E of Part I of subchapter J of the Internal Revenue
Code and not as a partnership or an association taxable as a corporation, and
that, accordingly, the trust will not be subject to federal income tax. In
Hunton & Williams' opinion, the trust certificates will represent undivided
beneficial ownership interests in the interest and principal payments on the
underlying securities. As a result, each certificateholder will be treated as
owning an undivided interest in the underlying securities. Accordingly, in
Hunton & Williams' opinion, each certificateholder will be required to include
in its gross income its pro rata share of the interest, including any original
issue discount, and any other income received or accrued on the underlying
securities, whether or not cash is actually distributed to the
certificateholder. [The trust certificates will be treated as Unstripped
Certificates for federal income tax purposes. See "Material Federal Income Tax
Consequences--Taxation of Certificateholders--Interest, Discount and Premium--
Unstripped Certificates" in the prospectus.] To the extent that the allocable
purchase price paid by a certificateholder for its interest in the underlying
securities differs from the certificateholder's interest in the underlying
securities' principal balance, the trust certificates will be treated as
acquired with amortizable
S-15
<PAGE>
premium or market discount, as appropriate. A purchaser of a trust certificate
with market discount generally will be required to treat any gain on the sale,
redemption or other disposition of all or part of the trust certificate as
ordinary income to the extent of accrued, but not previously taxable, market
discount. A certificateholder who acquires a trust certificate with market
discount may be required to defer some interest deductions attributable to any
indebtedness incurred or continued to purchase or carry the trust certificate. A
purchaser of trust certificates at a premium over the stated principal amount of
the purchaser's pro rata share of the underlying securities, plus accrued
interest, generally may elect to amortize the premium under a constant yield
method as an offset to interest income on the underlying securities.
ERISA Considerations
General
As more fully described in the accompanying prospectus, Section 406 of
ERISA and Section 4975 of the Internal Revenue Code prohibit employee benefit
plans, as defined in and subject to ERISA, and plans, as defined in and subject
to Section 4975 of the Internal Revenue Code, from engaging in transactions
involving plan assets with persons that are parties in interest under ERISA or
disqualified persons under the Internal Revenue Code with respect to the plan.
A violation of these prohibited transaction rules may generate excise tax and
other liabilities under ERISA and the Internal Revenue Code for these persons.
For example, a prohibited transaction would arise, unless an exemption were
applicable, if the underwriter were a party in interest or disqualified person
with respect to a plan that acquired trust certificates from the underwriter.
Accordingly, trust certificates may not be purchased from an underwriter with
plan assets of a plan if the underwriter is a party in interest or a
disqualified person with respect to the plan, unless one of the prohibited
transaction class exemptions described below or another exemption is available.
Moreover, additional prohibited transactions could arise if the assets of
the trust were deemed to constitute plan assets of any plan that owned trust
certificates. The Department of Labor has issued a final regulation, the "DOL
Regulation", concerning the definition of what constitutes the plan assets of a
plan. Under the DOL Regulation the assets and properties of certain
corporations, partnerships and other entities in which a plan acquires an equity
interest could be deemed to be plan assets of each plan unless one of the
exceptions under the DOL Regulation is applicable.
The DOL Regulation contains an exception, the publicly-offered securities
exception, that provides generally that if a plan acquires an equity interest
in another entity and that equity interest constitutes a publicly-offered
security, then the assets of the entity are not deemed to be plan assets of the
plan as a result of the acquisition. A publicly-offered security is a security
that is freely transferable, part of a class of securities that is owned by 100
or more investors independent of the issuer and of one another and either is
part of a class of securities registered under Section 12(b) or Section 12(g) of
the Exchange Act or sold to the plans as part of an offering of securities to
the public pursuant to an effective registration statement under the Securities
Act, and the class of securities of which the security is a part is registered
under the
S-16
<PAGE>
Exchange Act within 120 days, or later as may be allowed by the SEC, after the
end of the fiscal year of the issuer during which the offering of the securities
to the public occurred.
It is anticipated that the trust certificates will meet the criteria of the
publicly-offered securities exception. First, the trust certificates are being
sold as part of a public offering under an effective registration statement
under the Securities Act, and will be timely registered under the Exchange Act.
Second, it appears that the trust certificates are freely transferable because
the minimum investment is not more than $25, and the trust certificates
generally may be transferred or exchanged upon payment of a service charge of
the trustee and a sum sufficient for reimbursement of tax or governmental
charges and the making of representations and warranties. As described in the
accompanying prospectus, the DOL Regulation provides that if a security is part
of an offering in which the minimum investment is $10,000 or less, then a
requirement that reasonable transfer or administrative fees be paid, or that
advance written notice, including representations as to compliance with the
requirements of the DOL Regulation or the entity's governing instruments, be
provided to the entity that issued the security, will not prevent a finding that
the security is freely transferable. Third, the underwriter expects, although
no assurance can be given, that at the conclusion of the offering, the trust
certificates will be owned by at least 100 investors who are independent of the
trust and each other. Therefore, it is anticipated that the underlying assets
of the trust should not be deemed to constitute plan assets of any plan which
purchases trust certificates by reason of such purchase.
If the trust certificates fail to meet the criteria of the publicly-offered
securities exception so that the trust's assets are deemed to be plan assets of
plans that are owners of trust certificates, transactions involving the trust
and parties in interest or disqualified persons with respect to the plans might
be prohibited under Section 406 of ERISA and Section 4975 of the Internal
Revenue Code unless a prohibited transaction exemption is applicable. There are
several class exemptions issued by the DOL that might apply in this event,
including:
. DOL Prohibited Transaction Class Exemption 84-14, Class Exemption for
Certain Transactions Determined by a Qualified Professional Asset
Manager,
. 90-1, Class Exemption for Transactions Involving Insurance Company
Pooled Separate Accounts
. 91-38, Class Exemption for Certain Transactions Involving Bank
Collective Investment Funds,
. 95-60, Class Exemption for Transactions Involving Insurance Company
General Accounts, and
. 96-23, Class Exemption for Certain Transactions Determined by an In-
house Asset Manager.
There is no assurance that these exemptions, even if all of the conditions
specified therein are satisfied, will apply to all transactions involving the
trust's assets.
S-17
<PAGE>
Ineligible Purchasers
Regardless of whether the publicly-offered security exception or the class
exemptions described above apply, trust certificates generally may not be
purchased with plan assets of a plan if the underwriter, the depositor, the
obligor, the trustee or any of their respective affiliates either:
. has investment discretion with respect to the investment of the plan's
assets;
. has authority or responsibility to give or regularly gives investment
advice with respect to the plan assets for a fee and under an agreement
or understanding that the advice will serve as a primary basis for
investment decisions with respect to the plan assets and that the advice
will be based on the particular need of the plan; or
. is an employer maintaining or contributing to the plan.
Review By Plan Fiduciaries
Due to the complexity of these rules and the penalties imposed upon persons
involved in prohibited transactions, it is especially important that any plan
fiduciary who proposes to cause a plan to purchase trust certificates should
consider consultation with its own counsel with respect to the potential
consequences under ERISA and the Internal Revenue Code of the plan's acquisition
and ownership of trust certificates. Assets of a plan should not be invested in
the trust certificates unless it is clear that the assets of the trust will not
be plan assets of the plan or unless it is clear that a prohibited transaction
class exemption will apply and exempt all potential prohibited transactions.
S-18
<PAGE>
APPENDIX A
Description of Underlying Securities
General
This Appendix A is an integral part of the prospectus supplement and should
be considered in conjunction with the information in both the prospectus
supplement and the prospectus. This Appendix A contains all of the material
information regarding the terms of the underlying securities.
Available Information
The obligor is subject to the information requirements of the Exchange Act
and files reports and other required information with the SEC. The reports,
proxy and information statements and other information filed by the obligor with
the SEC can be inspected and copied at prescribed rates at the public reference
facilities maintained by the SEC at its Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at its Regional Offices located at:
Chicago Regional Office, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 6066; and New York Regional Office, Seven World Trade Center, New York,
New York 10048. Copies of these materials can also be obtained electronically
through the SEC's Internet Web Site, http://www.sec.gov. [Information about the
obligor is also available at the obligor's website, http://www._______.com.]
Terms Of Underlying Securities
Obligor:
Underlying Securities:
Dated:
Stated Maturity Date:
Original Par Value Amount Issued:
CUSIP Number:
Stated Interest Rate: ___%
Interest Payment Dates:
A-1
<PAGE>
Redemption of Underlying Securities:
A-1
YEAR PRICE (%)
---- ---------
[2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
and 100% on or after ______________,
together, in each case, with accrued
interest to the redemption date.]
Mode of Payment of Underlying Securities: By credit to the account of the
holder at DTC
Par Value Amount of Underlying Securities $______________
Deposited Under Trust Agreement:
The underlying securities will be held by the trustee for the benefit of
the certificateholders, as book-entry credits to an account of the trustee at
DTC.
A-2
<PAGE>
Prospectus
National Financial Securities Corporation
Depositor
Financial Income Securities Trust Certificates
Issuable in Series
------------------------------------------------------------------------------
Consider carefully the risk factors in the prospectus supplement.
Your trust certificates will represent obligations of your trust only and will
not represent interests in or obligations of National Financial Securities
Corporation or any of its affiliates. Unless expressly provided in the
accompanying prospectus supplement, your securities are not insured or
guaranteed by any person.
These securities are not deposits or other obligations of a bank and are not
insured by the FDIC or any other government agency.
This prospectus may be used to offer and sell any series of securities only if
accompanied by the prospectus supplement for that series.
-------------------------------------------------------------------------------
Your trust certificates
. will evidence an ownership interest in or be secured by the property of your
trust and will be paid only from your trust's assets,
. will be rated in one of the four highest rating categories by at least one
nationally recognized rating organization, and
. will be issued as part of a designated series.
Your trust will include
. bonds, notes, debentures, trust preferred securities, capital securities, or
other similar debt obligations issued by a single obligor identified in the
prospectus supplement,
. which were originally issued under an effective registration statement under
the Securities Act, and
. whose issuer is a reporting company under the Exchange Act.
Investors
. will receive interest and principal payments from collections on their
trust's assets but have no entitlement to payments from other assets of
National Financial Securities Corporation.
Neither the SEC nor any state securities commission has approved these
securities or determined that this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
September ___, 2000
<PAGE>
Important Notice About Information Presented in this
Prospectus and the Accompanying Prospectus Supplement
We provide information to you about your investment in two separate
documents that progressively provide more detail: this prospectus, which
provides general information, some of which may not apply to your series of
securities and the accompanying prospectus supplement, which will describe the
specific terms of your series of securities, including:
. the timing of interest and principal payments,
. information about the specific assets of your trust,
. the ratings for each class, and
. the method for selling your securities.
You should rely only on the information provided in this prospectus and the
accompanying prospectus supplement, including the information incorporated by
reference. We have not authorized anyone to provide you with different
information. Your securities are not offered in any state where the offer is not
permitted.
We have included cross-references in this prospectus and in the
accompanying prospectus supplement to captions in these materials where you can
find further related discussions. The table of contents included in the
accompanying prospectus supplement provides the pages on which these captions
are located.
ii
<PAGE>
Table Of Contents
Prospectus
<TABLE>
<CAPTION>
Page
----
<S> <C>
Important Notice............................................................ ii
Prospectus Summary.......................................................... 1
Risk Factors................................................................ 4
Description of Trust Agreement.............................................. 6
General.................................................................. 6
Establishment of the Trust............................................... 6
Accounts................................................................. 6
Distributions............................................................ 6
Financial Guaranty Insurance Policy...................................... 7
Amendment................................................................ 7
Termination of Trust Agreement........................................... 8
List of Certificateholders............................................... 8
The Trustee.............................................................. 8
Duties of the Trustee.................................................... 8
Reports to Certificateholders............................................ 9
Securityholder Communications............................................ 10
Voting Rights............................................................ 10
Indemnification of the Trustee........................................... 11
Resignation and Removal of the Trustee................................... 11
Office for Registration of Transfer and Exchange......................... 12
Law Governing the Trust.................................................. 12
The Underlying Securities................................................... 12
The Obligors................................................................ 13
Suspension of Exchange Act Reporting by Obligor.......................... 13
Use of Proceeds............................................................. 14
The Depositor............................................................... 14
The Trust Certificates...................................................... 14
General.................................................................. 14
Distributions of Interest and Principal Amount........................... 15
Book-Entry Registration.................................................. 15
Definitive Certificates.................................................. 17
Defaults and Remedies.................................................... 18
Issuance and Delivery.................................................... 19
Material Federal Income Tax Consequences.................................... 20
Classification of the Trust.............................................. 20
Taxation of Certificateholders........................................... 21
Additional Tax Considerations............................................ 25
State and Other Tax Considerations....................................... 27
ERISA Considerations........................................................ 28
General.................................................................. 28
Plan Assets.............................................................. 29
Prohibited Transactions.................................................. 30
Ineligible Purchasers.................................................... 32
Plan of Distribution........................................................ 33
Legal Opinions.............................................................. 33
Available Information....................................................... 34
Incorporation of Certain Documents by Reference............................. 34
Reports to Certificateholders............................................... 34
</TABLE>
iii
<PAGE>
Prospectus Summary
This Prospectus Summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this prospectus and by reference to
the information with respect to the trust certificates contained in the related
prospectus supplement to be prepared and delivered in connection with the
offering of trust certificates. Capitalized terms used in this prospectus
summary are defined elsewhere in this prospectus and in the related prospectus
supplement.
Issuer
With respect to each series of trust certificates, the issuer is the trust
formed by National Financial Securities Corporation and the trustee named in the
prospectus supplement pursuant to a trust agreement. Each trust will be
established for the primary purpose of issuing trust certificates and using the
proceeds to acquire the securities described in the prospectus supplement for
that series.
Depositor
National Financial Securities Corporation, a Delaware corporation.
Trustee
The trustee specified in the prospectus supplement.
The Certificates
Each series of trust certificates will include one or more classes of trust
certificates issued under a trust agreement between the depositor and the
trustee.
The trust certificates will be available for purchase in minimum denominations
of $25 and integral multiples of $25, and will be available in book-entry form
or in the form of definitive certificates, as specified in the prospectus
supplement. Certificateholders of a series of trust certificates initially
issued in book-entry form will be able to receive definitive certificates only
in the limited circumstances described in this prospectus.
See "The Trust Certificates--Definitive Certificates" in this prospectus.
Each class of trust certificates will have a stated principal amount and will
accrue interest on its principal amount as described in the prospectus
supplement.
The Trust Property
The property of each trust will include securities in the form of debt or debt-
like obligations, including bonds, notes, debentures, trust preferred securities
or capital securities issued by a single obligor. Trust preferred securities
and capital securities represent pass-through ownership in debt obligations.
The underlying securities will be identified in the prospectus supplement and
will be securities registered on a registration statement under the Securities
Act of 1933, as amended. The issuer also will be a reporting company under
Section 12 or Section 15(d) of the Exchange Act at the time the underlying
securities are deposited in the trust.
The underlying securities will have originally been issued in a transaction
registered under the Securities Act. The securities will be acquired by the
depositor from one of its affiliates or another party, which acquired the
underlying securities in the secondary market. This purchase will not have been
from the issuer of the underlying securities or any of its
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affiliates, or as part of the initial distribution. The trust, in turn, will
acquire the underlying securities from the depositor. After the date of issuance
by each trust of its trust certificates, the trust will not purchase or
otherwise acquire any additional securities and will not dispose of or create
any lien on its assets, other than upon termination of the trust.
Payments
Subject to timely receipt of payments on the underlying securities, payments for
your trust certificates will be paid or distributed in the manner described in
the prospectus supplement.
Credit Enhancement
The applicable prospectus supplement will specify whether your series of trust
certificates will include a financial guaranty insurance policy. A financial
guaranty insurance policy will irrevocably and unconditionally guarantee to the
trustee timely payment of interest and ultimate payment of principal on your
trust certificates. This policy may not be canceled for any reason. The
financial guaranty insurance does not guaranty any particular redemption date,
nor does it provide funds to redeem your trust certificates.
See "Description of Trust Agreement--Financial Guaranty Insurance Policy" in
this prospectus.
Material Federal Income Tax Consequences
Hunton & Williams, as counsel to the depositor, is of the opinion that:
. for federal income tax purposes the trust will be a grantor trust and not a
partnership or an association taxable as a corporation,
. as a grantor trust, the trust will not be subject to federal income tax;
however, you will be treated as owning an undivided interest in the assets
of the grantor trust, and
. you will be required to include in your gross income your pro rata share
of any income received or accrued with respect to the underlying
securities held by the trust, whether or not cash is actually distributed
to you.
See "Material Federal Income Tax Consequences" in the prospectus supplement and
in this prospectus.
ERISA Considerations
The applicable prospectus supplement will specify whether the securities will be
eligible for purchase by employee benefit plans. If you are a fiduciary of any
employee benefit plan subject to the fiduciary responsibility provisions of the
Employee Retirement Income Security Act of 1974, as amended, you should consider
consultation with your own legal advisors to determine whether the purchase and
holding of securities could give rise to a transaction prohibited or otherwise
impermissible under ERISA or the Internal Revenue Code.
See "ERISA Considerations" in this prospectus and in the prospectus supplement.
Rating of the Certificates
It is a condition to the issuance of each series of trust certificates that they
be rated investment grade, that is, in one of the four highest rating categories
- without taking into account any subcategories - by at least one nationally
recognized statistical rating organization. The ratings applicable to the trust
certificates of each series will be as set forth in the prospectus supplement.
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A security rating should be evaluated independently of similar ratings of
different types of securities. A rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. There can be no assurance that a rating will not
be lowered or withdrawn by a rating organization if circumstances so warrant.
Risk Factors
There are risks involved in your investment in the trust certificates. You
should carefully review each of the risk factors outlined in the prospectus
supplement and this prospectus.
See "Risk Factors" in the prospectus supplement and this prospectus.
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Risk Factors
Before making an investment decision, you should carefully consider the
following risks and the risks described under "Risk Factors" in the prospectus
supplement for the applicable series of trust certificates. We believe these
sections describe the principal factors that make an investment in the series
speculative or risky. In particular, distributions on your trust certificates
will depend on payments received on the underlying securities. Therefore you
should carefully consider these risk factors.
You may only look The trust certificates will not represent a
towards the underlying recourse obligation of or interest in the
securities for payment depositor or any of its affiliates. The trust
certificates for each series will not be
insured or guaranteed by any government
agency or instrumentality, the depositor, any
person affiliated with the depositor or the
underlying securities issuer or any other
person. The obligations, if any, of the
depositor with respect to the trust
certificates of any series will only be
pursuant to limited representations and
warranties. Accordingly, the
certificateholders' receipt of distributions
in respect of the trust certificates will
depend entirely on the performance of and the
trust's receipt of payments with respect to
the deposited assets. If these do not perform
well you may suffer a loss.
The ratings assigned to Payments on the underlying securities for a
your securities will series will be dependent upon receipt of
merely reflect the ratings payment from the underlying securities
of the underlying issuer. Because of this, it is expected that
securities the ratings on a series will be directly
related to the credit of the related
underlying securities issuer and the ratings
assigned to the related underlying
securities. It should, therefore, be expected
that any reduction in the ratings assigned to
the underlying securities or the underlying
securities issuer will adversely affect the
ratings on the related series. If this
occurs, the market value of your securities
is likely to be reduced.
Your investment yield If an optional redemption results in your
may be lower than trust certificates being prepaid prior to the
anticipated if the expected legal final maturity, you may not be
underlying securities are able to reinvest your funds at the same yield
redeemed early as the yield on the trust certificates. We
cannot predict whether or not an optional
redemption will occur and the reinvestment
risks resulting from an early redemption will
be borne entirely by you and the other
holders of trust certificates.
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Your investment could There will be no market for any series of
suffer from limited trust certificates prior to the issuance
liquidity thereof, and there can be no assurance that a
secondary market will develop or, if it does
develop, that it will provide
certificateholders with liquidity of
investment or will continue for the life of
the trust certificates.
Beneficial owners may experience some delay
in their receipt of distributions of interest
on and principal of the trust certificates
because distributions will be forwarded by
the trustee to the depository and the
depository will be required to credit the
distributions to the accounts of the related
financial intermediary which thereafter will
be required to credit them to the accounts of
beneficial owners either directly or
indirectly through indirect participants. See
"The Trust Certificates--Book-Entry
Registration" in this prospectus.
Credit ratings do not At the time of issue, the trust certificates
attempt to address all of any given series will be rated in one of
risks the investment grade categories recognized by
one or more rating agencies. The rating of
any series is based primarily on the related
underlying securities. The rating is not a
recommendation to purchase, hold or sell
securities, inasmuch as the rating does not
comment as to market price or suitability for
a particular investor. There can be no
assurance that the rating will remain for any
given period of time or that the rating will
not be lowered or withdrawn entirely by the
rating agency if in its judgment
circumstances in the future so warrant.
Credit enhancement may Credit enhancement is intended to reduce the
not cover all losses on effect on your trust certificates of
your trust certificates delinquent payments or losses on the
underlying trust assets. Regardless of the
form of credit enhancement, the amount of
coverage will be limited in amount and in
most cases will be subject to periodic
reduction in accordance with a schedule or
formula. Furthermore, credit support may
provide only very limited coverage as to a
variety of types of losses or risks, and may
provide no coverage as to other types of
losses or risks. In the event losses exceed
the amount of coverage provided by any credit
enhancement or losses of any type not covered
by credit enhancement, these losses will be
borne by the holder of the trust
certificates.
In addition, the prospectus supplement for each series will set forth
information regarding additional risk factors, if any, applicable to that
series.
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Description of Trust Agreement
General
The trust certificates of each series will be issued pursuant to a trust
agreement. In general, the parties to a trust agreement will include the
depositor and the trustee.
A form of a trust agreement has been filed as an exhibit to the
registration statement of which this prospectus is a part. However, the
provisions of each trust agreement will vary depending upon the nature of the
trust certificates to be issued thereunder and the nature of the related trust.
The following summaries describe material provisions that may appear in a trust
agreement under which trust certificates that evidence interests in underlying
securities will be issued. The summaries do not purport to be complete and are
subject to the provisions in the related prospectus supplement. The prospectus
supplement and the base prospectus, together, will describe all material terms
of the applicable trust agreement. As used herein with respect to any series,
the term "trust certificate" refers to all of the trust certificates of that
series, whether or not offered hereby and by the related prospectus supplement,
unless the context otherwise requires. The depositor will provide a copy of the
trust agreement (without exhibits) that relates to any trust certificate without
charge upon written request of a holder of a trust certificate addressed to
National Financial Securities Corporation, 909 East Main Street, 7th Floor,
Richmond, Virginia 23219, Attention: Secretary.
Establishment of the Trust
With respect to each series of trust certificates, the depositor will
establish a trust by depositing the trust property in the trust, without
recourse. After the issuance date with respect to each trust, the trust will
not purchase or otherwise acquire any additional securities and will not dispose
of or create any lien on its asset, other than upon termination of the trust.
The trust property will consist of the underlying securities, all moneys due or
received to the underlying securities, certain accounts and proceeds of the
accounts, in each case as described in the prospectus supplement. The trust
certificates will evidence ownership interest in the related trust property.
Accounts
There will be established and maintained for each trust one or more
accounts, in the name of the trustee on behalf of the certificateholders, into
which all payments made on or with respect to the related underlying securities
will be deposited.
Distributions
Beginning on the payment date specified in the prospectus supplement,
distributions of principal and interest on each series of trust certificates
will be made by the trustee to the certificateholders. The timing, calculation,
allocation, order, source and priorities of and requirements for all payments to
each class of certificateholders will be described in the prospectus supplement.
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Financial Guaranty Insurance Policy
If specified in the accompanying prospectus supplement, your series of
trust certificates may have the benefit of one or more financial guaranty
insurance policies provided by one or more insurers. Financial guaranty
insurance may guaranty timely distributions of interest and full distributions
of principal on the basis of a schedule of principal distributions set forth in
or determined in the manner specified in the accompanying prospectus supplement.
A copy of the financial guaranty insurance policy for your securities, if any,
will be filed with the SEC as an exhibit to a Current Report on Form 8-K within
15 days of the issuance of your trust certificates.
Amendment
Each trust agreement may be amended, without the consent of any of the
related certificateholders,
. to cure any ambiguity,
. to correct a defective provision therein or to correct, modify or
supplement any provision therein that may be inconsistent with any
other provision therein,
. to add any other provisions with respect to matters or questions
arising under the trust agreement that are not inconsistent with the
provisions thereof,
. to comply with any requirements imposed by the Internal Revenue Code
or to accommodate changes in the Internal Revenue Code, or
. for any other purpose; provided that any amendment, other than an
amendment for the purpose to comply with the Internal Revenue Code,
may not, as evidenced by an opinion of counsel to such effect
satisfactory to the trustee or confirmation from the applicable rating
agencies that any such proposed amendment will not have an adverse
affect on the existing ratings of the related trust certificates,
adversely affect in any material respect the interests of any such
holder.
Each trust agreement may also be amended for any purpose by the parties,
with the consent of certificateholders entitled to at least 51%, or other
percentage specified in the related prospectus supplement, of the voting rights
for the related series; provided, however, that no such amendment may:
. reduce in any manner the amount of, or delay the timing of, payments
received or advanced on deposited assets that are required to be
distributed in respect of any trust certificate without the consent of
the holder of such trust certificate;
. adversely affect in any material respect the interests of any holder
of the trust certificates, in a manner other than as described in the
first clause above, without the consent of all holders; or
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. modify the provisions of the trust agreement described in this
paragraph without the consent of the holders of all trust certificates
of the related series.
The trustee and the depositor may amend the trust agreement, however no
amendment may defer or alter the maturity of a trust certificate or may
adversely affects your rights to the payment of interest, principal or premium,
or otherwise materially prejudice any of your rights.
Termination of Trust Agreement
With respect to each trust, the trust agreement will terminate one year
following the payment upon maturity - or any earlier redemption - by the
respective obligors of the entire principal amount, and any redemption premium,
of the underlying securities or, in the event of a default on the underlying
securities, one year following receipt by the holders of the trust certificates
of all amounts that they are entitled to receive as set forth in the trust
agreement. The trust may also terminate at the option of the depositor after
payment to the certificateholder of the par value of their trust certificate
plus interest as described in the prospectus supplement. Further, the trust may
also terminate if the obligor ceases to make its periodic reports as required
under the Exchange Act and the depositor is unable to provide to the
certificateholders the information contained in these reports. In this case,
the trust will terminate as soon as practicable, but not more than 6 months
after the trust certificates have been removed from DTC. See "The Obligors--
Suspension of Exchange Act Reporting by Obligor" in this prospectus. Upon
termination of the trust agreement, the depositor will be discharged from all
obligations under the trust agreement, other than with respect to expenses of
the trustee.
List of Certificateholders
Upon written request of any certificateholder of record made for purposes
of communicating with other certificateholders of the same series with respect
to their rights under the related trust agreement, the trustee or other
specified person will afford such certificateholder access, during normal
business hours, to the most recent list of certificateholders of that series
then maintained.
The Trustee
The trustee under each trust agreement will be named in the related
prospectus supplement. The commercial bank, national banking association,
banking corporation or trust company that serves as trustee may have customary
banking relationships with the depositor and its affiliates. The trustee must
comply with the Trust Indenture Act of 1939, as amended. The trustee must have
a combined capital and surplus of at least $50,000,000 and a rating of "A-2" or
better by Moody's and "A" by Standard and Poor's or an equivalent rating by
another rating agency.
Duties of the Trustee
The trustee for a series will make no representations as to the validity or
sufficiency of the related trust agreement, the trust certificates or any
underlying security. The trustee will be
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required to perform only those duties specifically required under the related
trust agreement. However, upon receipt of any of the various certificates,
reports or other instruments required to be furnished to it pursuant to the
trust agreement, the trustee will be required to examine such documents and to
determine whether they conform to the requirements of the trust agreement.
The trustee shall keep at its designated office in New York, New York a
register in which, subject to reasonable regulations, the trustee shall provide
for the registration of, and for the registration of transfers or exchanges of,
trust certificates.
The trust agreement provides that, except during the continuance of an
event of default on the underlying securities, the trustee will perform only
such duties as are specifically set forth in the trust agreement. During the
existence of a default on the underlying securities, the trustee will be
required to exercise the rights and powers vested in it by the trust agreement
and use the same degree of care and skill in its exercise as a prudent person
would exercise or use under the circumstances in the conduct of such person's
own affairs.
Reports to Certificateholders
On or before each distribution date, the trustee will prepare a statement
and deliver it by mail to each certificateholder, setting forth:
. the amount of distribution to the holders of trust certificates of the
series to be applied to reduce the certificate principal balance;
. the amount of distribution to the holders of trust certificates of the
series allocable to interest, and the pass-through rate applicable to
each series;
. the amount of the trustee fee to be paid to the trustee on
distribution date; and such other customary information as the trustee
deems necessary or desirable, or which a certificateholder reasonably
requests, to enable certificateholders to prepare their tax returns;
. the aggregate amount of outstanding advances, together with non-
recoverable advances, if any, at the close of business on the
distribution date;
. the aggregate principal balance of the underlying securities as of the
distribution date;
. the aggregate certificate principal balance of each series of trust
certificates after giving effect to the distribution to be made on the
distribution date;
. the aggregate amount of interest remaining unpaid, if any, for each
series of trust certificates, after giving effect to the distribution
made on the distribution date; and
. the aggregate amount of withdrawals, if any, from any reserve fund and
the amount, if any, available thereunder.
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For information specified in the first and second clause above, the amounts
will be expressed, with respect to any trust certificate, as a dollar amount per
$25 denomination. However, if any trust certificates do not have a certificate
principal balance, then the amounts shall be expressed as a dollar amount per
10% interest.
Within a reasonable period of time after the end of each calendar year, the
trustee will prepare and furnish a statement containing the information set
forth in the first three points above, to each person who at any time during the
calendar year was a holder that constituted a retail investor or other holder
that requests the statement, aggregated for the calendar year or portion of the
calendar year during which the person was a certificateholder. The obligation
of the trustee shall be deemed to have been satisfied to the extent that
substantially comparable information shall be provided by the trustee pursuant
to any requirements of the Internal Revenue Code as from time to time are in
force.
Securityholder Communications
Upon the receipt by the trustee of any securityholder communications from
an obligor, the trustee will transmit the communication to the beneficial owners
of the trust certificates upon receipt from the obligor of assurances that the
trust's reasonable expenses will be reimbursed by the obligor. In addition,
upon receipt by the trustee of securityholder communications from a third party
other than the obligor, the trustee will transmit the securityholder
communications only to the certificateholders upon receipt from the third party
of assurances that the trustee's reasonable expenses will be reimbursed by the
third party. In either case, if the trustee does not receive these assurances,
then the trustee, at the sole discretion of the depositor and at the expense of
the trust, will transmit or cause to be transmitted the securityholder
communications to the certificateholders.
Voting Rights
The voting rights on the trust certificates will be apportioned among the
certificateholders pro rata by principal amount. The trust agreement provides
that, in the event of any action requiring a vote of the registered holders of
any underlying securities, the trustee, upon receipt of the proxy, will notify
DTC in its capacity as the owner of record of the trust certificates of such
action. Pursuant to currently existing procedures, it is expected that DTC, in
turn, will notify its participants, including the depositor, who, in turn, will
notify the certificateholders. The certificateholders will give their proxies
to their participants. The participants will give the proxies to DTC, and DTC
will give the proxies to the trustee. Thereafter, the trustee will vote solely
in accordance with the proxies and will apportion its voting power on the basis
of the votes cast by the certificateholders. In the event that the trust
certificates have been removed from the DTC Book Entry Only System and are held
as physical certificates, the trustee, upon receipt of the underlying security
proxy, will notify the registered certificateholders directly of such action and
will vote in the same manner as noted above. In casting any votes on the
underlying securities in connection with the foregoing, the trustee will be
required to cast its vote in proportion to the voting rights on the trust
certificates held by certificateholders so directing it, notwithstanding that
the certificateholders may give contrary instructions. In no event shall the
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depositor be allowed or entitled, other than in its capacity as a safekeeper for
a certificateholder, to vote, directly or indirectly through the trustee, any
trust certificates or the underlying securities.
The trustee shall at no time vote for or consent to any action
. to the extent that such vote or consent could reasonably be expected
to alter the status of the trust as a grantor trust for federal income
tax purposes,
. prior to the filing of a bankruptcy petition by or against the
obligor, or the commencement of any other similar proceeding, if such
action would alter the timing or amount of any payment on the
underlying securities, or
. prior to the filing of a bankruptcy petition by or against the
obligor, or the commencement of any other similar proceeding, if such
action would result in the exchange or substitution of any of the
outstanding underlying securities pursuant to a plan for the refunding
or refinancing of such underlying securities.
Indemnification of the Trustee
The trustee for a series will be entitled to indemnification for any loss,
liability or expense incurred by the trustee in connection with the trustee's
acceptance or administration of its trusts under the related trust agreement.
This indemnification will not extend to any loss, liability or expense that
constitutes a specific liability imposed on the trustee pursuant to the trust
agreement, or to any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or gross negligence on the part of the trustee in the
performance of its obligations and duties thereunder, or by reason of its
reckless disregard of such obligations or duties, or as may arise from a breach
of any representation, warranty or covenant of the trustee made therein. As and
to the extent described in the related prospectus supplement, the fees and
normal disbursements of any trustee may be the expense of the depositor.
Resignation and Removal of the Trustee
The trustee for a series will be permitted at any time to resign from its
obligations and duties under the related trust agreement by giving written
notice to the depositor. Upon receiving notice of resignation, the depositor,
or another person if specified in the related prospectus supplement, will be
required to use its best efforts promptly to appoint a successor trustee. If no
successor trustee has accepted an appointment within a specified period after
the giving of such notice of resignation, the resigning trustee may petition any
court of competent jurisdiction to appoint a successor trustee.
If at any time the trustee ceases to be eligible to continue as such under
the related trust agreement, or if at any time the trustee becomes incapable of
acting, or if certain events of, or proceedings in respect of, bankruptcy or
insolvency occur with respect to the trustee, the depositor will be authorized
to remove the trustee and appoint a successor trustee. In addition, holders of
the trust certificates of any series entitled to at least 51%, or other
percentage specified
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in the related prospectus supplement, of the voting rights for such series may
at any time, with or without cause, remove the trustee and appoint a successor
trustee.
Any resignation or removal of the trustee and appointment of a successor
trustee will not become effective until acceptance of appointment by the
successor trustee.
Office for Registration of Transfer and Exchange
The designated office of the trustee for the registration of transfer or
exchange of trust certificates is identified in the prospectus supplement.
Under the Depository Trust Company Book Entry Only System, transfers and
exchange of certificates will be accomplished as described under "The Trust
Certificates--DTC Book-Entry Only System" in the prospectus supplement.
Any holder presenting trust certificates for surrender or registration of
transfer or exchange may be required to pay any applicable service charge of the
trustee and a sum sufficient for reimbursement of any tax or governmental
charge, to file a proof of residence, or other matters or information, to
execute the certificates and to make representations and warranties and
assurances, including a signature guaranty, as the trustee may reasonably deem
necessary or proper. The trustee may withhold the delivery or delay the
surrender of a registration of transfer or exchange of any trust certificates
until the payment is made and proof or other information is filed, the
certificates are executed or the representations and warranties are made.
Law Governing the Trust
The Trust will be governed by, and construed in accordance with, the laws
of the State of New York.
The Underlying Securities
The underlying securities to be purchased by each trust will be debt
securities or will represent beneficial ownership interests in debt obligations
such as bonds, notes, debentures, trust preferred securities or capital
securities. Trust preferred securities and capital securities represent pass-
through ownership in debt obligations. Each underlying security will
functionally be debt. For example, each will have a stated term, a fixed return
and some priority upon liquidation of the underlying obligor. Each debt
obligation will be issued by a single domestic trust, corporation, banking
organization, insurance company or other organization, each referred to as an
obligor, eligible to offer and sell its common stock and underlying securities
registered on a registration statement on Form S-3 promulgated under the
Securities Act of 1933, as amended. The obligor will also be a reporting
company under Section 12 or Section 15(d) of the Exchange Act at the time the
underlying securities are deposited in the trust. Underlying securities will,
by their terms, convert to cash in a finite period of time. Each of the
underlying securities will have originally been issued in a transaction
registered under the Act. The trust will purchase the underlying securities
from the depositor, who will have acquired them from an affiliate. This
affiliate of the depositor will have previously purchased the underlying
securities in the secondary market, and will not have purchased the underlying
securities from the issuer or
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any of its affiliates. The underlying securities will not have been purchased by
this affiliate as part of its initial distribution. The specific terms and
conditions of the underlying securities to be purchased by each trust will be
detailed in the prospectus supplement.
The Obligors
The obligors will be trusts, corporations or other organizations that at
the time of deposit of underlying securities into a trust are subject to the
information requirements of the Exchange Act and file reports and other
information with the SEC. In certain cases, the obligor may be a wholly-owned
subsidiary of a reporting company in which case the obligor will not file
separate reports with the SEC, and the parent company's reports will be the only
reports. The reports, proxy and information statements and other information
filed by the obligors with the SEC can be inspected and copied at the public
reference facilities maintained by the SEC at its Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549, and at its Regional Offices located
at: Chicago Regional Office, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 6066; and New York Regional Office, Seven World Trade Center, New York,
New York 10048. Copies of these materials can also be obtained electronically
through the SEC's Internet Web Site (http://www.sec.gov). If the underlying
securities are listed on the New York Stock Exchange, the material described
above and other information with respect to the obligor will also be available
for inspection at the offices of the New York Stock Exchange at 20 Broad Street,
New York, New York.
Suspension of Exchange Act Reporting by Obligor
Subsequent to the deposit of its underlying securities into a trust, an
obligor which has no class of securities listed on a national securities
exchange or held of record by 300 or more holders could elect to suspend its
Exchange Act reporting requirements. In this event, the obligor, or its parent
company in certain instances, would no longer be required to make available
under the Exchange Act the public information referred to under the caption "The
Obligors." The depositor will cause each trust to undertake to provide, in the
trust's own Exchange Act reports for as long as such reports are required to be
filed, quarterly and annual financial statements and other information of the
type required to be filed on Form 8-K under the Exchange Act with respect to any
obligor which suspends its Exchange Act reporting requirements, to the extent
such reports and information are then available to the trust.
If the financial statements are not available to the trust, then, unless
the trust has earlier suspended its own Exchange Act reporting requirements for
the trust certificates of the series, the trust certificates of the series will,
by their terms, generally be required to be removed from the DTC book-entry
system, and definitive physical certificates representing the trust certificates
of such series will be issued to the beneficial owners of the trust certificates
of the series. Furthermore, the obligor for the underlying securities will be
notified that the underlying securities are held pursuant to the trust agreement
and that the holders of the trust certificates constitute record holders of the
underlying securities. The issuance of definitive physical certificates
representing the trust certificates is intended to increase the likelihood that
there will then be more than 300 holders of record of the underlying securities,
requiring the obligor to
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resume filing Exchange Act reports, in light of Rule 12g5-1(b)(1) under the
Exchange Act, which appears to require an obligor with actual knowledge that its
underlying securities are held pursuant to a trust agreement to treat holders of
record of certificates or other evidences of interest issued by the trust as
holders of record of the underlying securities. If the obligor does not resume
filing Exchange Act reports, and the depositor is not otherwise able to obtain
this information, the trust will be terminated within 6 months after the trust
certificates have been removed from DTC.
Use of Proceeds
The entire net proceeds received by the trust from the sale of the trust
certificates will be used to acquire the underlying securities from the
depositor, which will use the proceeds to acquire the underlying securities from
one or more of its affiliates. Thus, neither the trust nor the depositor is
expected to receive any net cash proceeds from the sale of the trust
certificates.
The Depositor
The depositor, a wholly-owned subsidiary of Scott & Stringfellow, Inc., was
incorporated in the state of Delaware on May 3, 2000. The depositor is
organized for the limited purpose of acquiring securities, forming trusts,
transferring securities to the trusts, and engaging in related activities. The
assets of the depositor and its affiliates are not available to satisfy
obligations of any trust. The principal executive offices of the depositor are
located at 909 East Main Street, 7th Floor, Richmond, Virginia 23219, telephone
(804) 649-3952.
The Trust Certificates
General
With respect to each trust, the trust certificates will be issued in
accordance with the terms of a trust agreement, a form of which has been filed
as an exhibit to the Registration Statement of which this prospectus forms a
part. The terms and conditions of the trust certificates include those stated
in the trust agreement. The following summary provides all the material
information regarding the trust certificates. For further information, the
trust certificates and trust agreement should be reviewed. Where particular
provisions or terms used in the trust agreement are referred to, the actual
provisions - including definitions of terms - are incorporated by reference as
part of this summary.
Each class of trust certificates of a series of trust certificates issued
in book-entry form will initially be represented by a single trust certificate
registered in the name of DTC. The trust certificates will be available for
purchase in minimum denominations described in the prospectus supplement. The
depositor has been informed by DTC that DTC's nominee will be Cede & Co.
Accordingly, Cede & Co. is expected to be the holder of record of the trust
certificates issued in book-entry form. For trust certificates initially issued
in book-entry form, unless and until definitive certificates are issued under
the limited circumstances described herein, no certificateholder will be
entitled to receive a physical certificate representing a trust certificate.
All references herein to actions by certificateholders refer to actions taken by
DTC upon
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instructions from the participants and all references herein to distributions,
notices, reports and statements to certificateholders refer to distributions,
notices, reports and statements to DTC or Cede & Co., as the registered holder
of the trust certificates, as the case may be, for distribution to
certificateholders in accordance with DTC's procedures. See "The Trust
Certificates--Book-Entry Registration" and "--Definitive Certificates" in this
prospectus.
Distributions of Interest and Principal Amount
The timing, priority, amount, allocation and/or rate of distributions on
the trust certificates of each class of any series will be described in the
prospectus supplement. Distributions of interest and principal on the trust
certificates will be made on the dates specified in the related prospectus
supplement. Interest on the certificates will be calculated as specified in the
prospectus supplement.
Book-Entry Registration
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a clearing
corporation within the meaning of the New York UCC and a clearing agency
registered pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and to facilitate the clearance and settlement
of securities transactions between participants through electronic book-entries,
thereby eliminating the need for physical movement of certificates (the "DTC
Book-Entry Only System"). Participants include securities brokers and dealers,
banks, trust companies and clearing corporations. Indirect access to the DTC
Book-Entry Only System also is 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.
Certificateholders of book-entry trust certificates that are not
participants or indirect participants but desire to purchase, sell or otherwise
transfer ownership of, or other interests in, the trust certificates may do so
only through participants and indirect participants. In addition, the
certificateholders will receive all distributions of principal and interest
through DTC participants. DTC will forward the payments to its participants,
which thereafter will forward them to indirect participants or the
certificateholders. Except for the depositor, it is anticipated that the only
certificateholder will be Cede & Co., as nominee of DTC. Certificateholders will
not be recognized by the trustee as certificateholders as that term is used in
the trust agreement, and certificateholders will be permitted to exercise the
rights of certificateholders only indirectly through DTC and its participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers of trust
certificates among participants on whose behalf it acts with respect to the
trust certificates and to receive and transmit distributions of principal of and
interest on trust certificates. Participants and indirect participants with
which certificateholders have accounts with respect to the trust certificates
similarly are required to make book-entry transfers and receive and transmit the
payments on behalf of their respective certificateholders. Accordingly, although
certificateholders will not
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possess trust certificates, the rules provide a mechanism by which beneficial
owners will receive payments and will be able to transfer their trust
certificate interests.
The physical certificates delivered to the trustee will be registered in
the name of Cede & Co., as nominee for DTC. The owners, as purchasers of trust
certificates under the DTC Book-Entry Only System, will not receive physical
certificates representing their trust certificates. Instead, the ownership
interests of the owners will be recorded, directly or indirectly, through the
records of the respective participants and indirect participants. Transfers
among owners will be accomplished through and reflected on the records of DTC
and the participants or indirect participants of which those owners are
customers. DTC will maintain records for the payment, transfer and exchange of
trust certificates held by DTC participants on behalf of owners, but will not
make payments directly to owners or record specific transfers of trust
certificates from one owner to another.
Payments on the underlying securities that are received by the trustee from
the issuer, including payments upon redemption of the underlying securities,
will be paid to DTC as the registered holder of the related trust certificates.
DTC, under its current practices, would credit those payments to the accounts of
the participants in accordance with their respective holdings of trust
certificates as shown on DTC's records. Payments by participants and indirect
participants to owners will be governed by standing instructions and customary
practices, and will be the responsibility of the participant or indirect
participant and not of DTC or the trustee, subject to any statutory and
regulatory requirements as may be in effect from time to time.
With respect to any trust certificate, on or after each interest payment
date, if the obligor will have paid in full and the trustee will have received
the interest payment due on the interest payment date on the underlying
securities, the trustee will pay to DTC as the registered holder of the trust
certificate as of the applicable record date, in lawful money of the United
States of America, by credit of same day funds to the account of DTC, the entire
amount of the interest payment, less any taxes or governmental charges required
to be withheld from the payment by the trustee.
With respect to any trust certificate, if the obligor will have paid in
full and the trustee will have received the principal due upon maturity of the
underlying security, or if the obligor will have paid in full and the trustee
will have received the principal and redemption premium, if any, payable upon
the earlier redemption of the trust certificate, the trustee will pay to DTC as
the registered holder of the trust certificates as of the applicable record
date, in lawful money of the United States of America, by credit of same day
funds to the account of DTC, the entire amount of the principal and premium, if
any, less any taxes or governmental charges required to be withheld from the
payment by the trustee.
Amounts received by the trustee before 2:00 p.m. on any day will be
credited to DTC that same day. Amounts received by the trustee after 2:00 p.m.
will be credited to DTC on the next business day.
DTC may determine to discontinue the DTC Book Entry Only System with
respect to the trust certificates at any time by giving notice to the trustee
and the depositor and discharging its
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responsibilities. In addition, the depositor may cause the removal of DTC--or a
successor or substitute depository--if the depositor determines that removal is
in the best interests of the owners or is in the best interests of the depositor
as long as the removal will not adversely affect the owners. If DTC, or a
successor or substitute depository, is removed and the depositor, after a good
faith effort, is unable to procure the services of a successor depository, the
trustee will serve as depository of the underlying securities.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and some banks, the ability of a
certificateholder to pledge trust certificates to persons or entities that do
not participate in the DTC system, or to otherwise act with respect to the trust
certificates, may be limited due to the lack of a physical certificate for the
trust certificates.
DTC has advised the depositor that it will take any action permitted to be
taken by a certificateholder under the related trust agreement only at the
direction of one or more participants to whose accounts with DTC the trust
certificates are credited. DTC may take conflicting actions with respect to
other undivided interests to the extent that any actions are taken on behalf of
participants whose holdings include an undivided interest.
Except as required by law, the trustee will not have any liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interest of the trust certificates of any series held by Cede & Co.,
as nominee for DTC, or for maintaining, supervising or reviewing any records
relating to the beneficial ownership interests.
Definitive Certificates
Trust certificates may be issued in book-entry or in definitive certificate
form. Certificates initially issued in book-entry form will be issued in fully
registered, certificated form, referred to as the definitive certificates, to
certificateholders or respective nominees, rather than to DTC or its nominee,
only if the depositor advises the appropriate trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as depository
with respect to the trust certificates and:
. the depositor is unable to locate a qualified successor,
. the depositor, at its option, elects to terminate the book-entry system
through DTC, after the occurrence of an event of default,
. holders representing at least a majority of the voting rights relating
to the outstanding certificates advise the appropriate trustee through
DTC in writing that the continuation of a book-entry system through
DTC--or a successor--is no longer in the best interest of the holders of
the securities, or
. under the circumstances described under "The Obligor--Suspension of
Exchange Act Reporting by Obligor" in this prospectus.
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Upon the occurrence of any event described in the immediately preceding
paragraph, the trustee will be required to notify DTC of its intent to make
definitive certificates available. Upon surrender by DTC of the physical
certificates representing the securities and receipt of instructions for re-
registration, the trustee will reissue the securities as definitive certificates
to the holders.
Distributions of principal of, and interest on, the definitive certificates
will thereafter be made in accordance with the procedures set forth in the
related trust agreement directly to holders of definitive certificates in whose
names the definitive certificates were registered at the close of business on
the day before the related payment date. The distributions will be made by check
and mailed to the address of the holder as it appears on the register maintained
by the trustee. The final payment on any definitive certificate, however, will
be made only upon presentation and surrender of the definitive certificate at
the office or agency specified in the notice of final distribution to the
holders of the class.
Definitive certificates will be transferable and exchangeable at the
offices of the trustee or of a registrar named in a notice delivered to holders
of definitive certificates. No service charge will be imposed for any
registration of transfer or exchange, but the trustee may require payment of a
sum sufficient to cover any tax or other governmental charge.
Defaults and Remedies
With respect to each trust, the trust agreement will provide that if there
is an event of default, as defined in the indenture for the underlying
securities, with respect to the underlying securities and the event of default
is known to the trustee, the trustee must give notice to DTC or, if the trust
certificates are not held by DTC or any other depository, directly to the
registered holders of the trust certificates as provided in the trust agreement
and in the manner and to the extent provided in the Trust Indenture Act Section
313(c) within 90 days after such event of default occurs. The notice will set
forth the identity of the issue of underlying securities, the date and nature of
such default, the face amount of the interest or principal in default, the
identifying numbers of the class of trust certificates, or any combination, as
the case may be, evidencing the interest or principal described in the preceding
clause, if applicable, and any other information that the trustee may deem
appropriate. Except in the case of a default in the payment of principal or
interest, the trustee may withhold the notice to holders of trust certificates
if and so long as a committee of its responsible officers in good faith
determines that withholding the notice is in the interests of the holders of the
trust certificates.
With respect to each trust, the trust agreement will provide that if:
. default is made in the payment of any interest on any underlying
security when due and payable continue for the period specified in
the indenture for the underlying securities, or, if no such period
is specified, 5 days, or
. default is made in the payment of the principal of or any
installment of the principal of any underlying security when due
and payable continue for the
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period specified in the indenture for the underlying securities,
or, if no period is specified, 30 days,
in each case after receipt by the obligor of notice from the trustee or receipt
by the obligor and the trustee of notice from certificateholder representing at
least 25% of the voting rights of the trust certificates, and the obligor shall,
after demand, fail to pay the trustee the whole amount due and payable on the
underlying securities for principal and interest, then the trustee, in its own
name and as trustee of an express trust, subject to provision being made for
indemnification against costs, expenses and liabilities in a form satisfactory
to the trustee, will institute a proceeding for the collection of the sums so
due and unpaid, and will prosecute such proceeding to judgment or final decree
or settlement. The trustee will enforce the same against the obligor or other
obligor upon the underlying securities and collect in the manner provided by law
out of the property of the obligor or other obligor upon the underlying
securities, wherever situated, the moneys adjudged or decreed to be payable,
unless otherwise directed by holders of outstanding trust certificates
representing not less than a majority of the voting rights.
If the trustee receives money or other property related to the underlying
securities--other than scheduled payments--as a result of a payment default on
the underlying securities, the trustee will promptly give notice as provided in
the trust agreement to DTC, or for any trust certificates that are not then held
by DTC or any other depository, directly to the registered holders of the trust
certificates then outstanding and unpaid. The notice will state that, not later
than 30 days after the receipt of the moneys or other property, the trustee will
distribute the moneys or other property to the holders of the outstanding trust
certificates pro rata by face amount or, if there is more than one class of
trust certificates under the trust agreement, in proportion to the accreted
value of each class of outstanding trust certificates, and within each class pro
rata by face amount.
Interest and principal payments and premium, if any, on the underlying
securities, are payable solely by the related obligor.
The underlying securities may be or become subject to laws permitting
bankruptcy, moratorium, reorganization or other actions that, in the event of
financial difficulties of the obligor, could result in delays in payment or in
nonpayment of the trust certificates related to an underlying security. In such
cases, the treatment accorded certain classes of trust certificates may be less
favorable than the treatment accorded other classes of trust certificates.
Holders of trust certificates will have no recourse against the depositor
or the trustee for payment defaults on the underlying securities.
Issuance and Delivery
With respect to each trust, the trust agreement will provide that the
depositor will, by book-entry credit or otherwise, irrevocably deliver or cause
to be delivered the underlying securities to the trustee and, concurrently
therewith, the trustee will execute and deliver to the depositor, or any person
or persons as the depositor may designate by written instruction, the classes of
trust certificates identified in the trust agreement, evidencing the aggregate
amount, in
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authorized denominations, of the underlying securities so delivered to the
trustee. No trust certificate will be entitled to the benefits of the trust
agreement or be valid or obligatory for any purpose unless it shall have been
executed manually by the trustee by the signature of a duly authorized
signatory.
Material Federal Income Tax Consequences
The following is a summary of the principal United States federal income
tax consequences of the purchase, ownership and disposition of the trust
certificates. The statements of law and legal conclusions set forth in this
summary regarding the tax consequences to the beneficial owners of the trust
certificates represent the legal opinion of Hunton & Williams, Richmond,
Virginia, counsel to the company and the trust. This summary is based upon the
Internal Revenue Code of 1986, as amended, Treasury Regulations, Internal
Revenue Service rulings and pronouncements and judicial decisions now in effect,
all of which are subject to change at any time. Legislative, judicial and
administrative changes may occur, possibly with retroactive effect, affecting
the accuracy of the statements set forth herein and possibly adversely affecting
a beneficial owner of trust certificates. In addition, this opinion does not
purport to address the anticipated state income tax consequences to investors of
the purchase, ownership and disposition of the trust certificates.
This opinion does not purport to address all federal income tax matters
that may be relevant to every investment in trust certificates. This opinion
deals only with trust certificates held as capital assets (generally, property
held for investment) within the meaning of Section 1221 of the Internal Revenue
Code. This opinion does not address tax consequences that may be relevant to
particular holders subject to special treatment under federal income tax law,
such as banks and other financial institutions, life insurance companies,
dealers in securities or currencies, tax-exempt entities, taxpayers holding
trust certificates as part of a position in a "straddle" or a part of a
"hedging," "conversion" or other integrated investment transaction, or whose
"functional currency" is not the United States dollar. Except as indicated, this
summary is directed to prospective purchasers in the initial offering described
herein, and not to subsequent purchasers of trust certificates. Consequently,
purchasers of trust certificates should consider consulting their own tax
advisors concerning the tax consequences to them under federal income tax law,
as well as the tax law of any state, local or foreign jurisdiction, of the
purchase, ownership and disposition of trust certificates.
Classification of the Trust
In our opinion, after the trust certificates are issued and sold pursuant
to the trust agreement, prospectus and prospectus supplement, and while the
trust is administered in accordance with the trust agreement, the trust will be
classified as a grantor trust under subpart E, Part I of subchapter J of the
Code and not as a partnership or an association taxable as a corporation.
Accordingly, as a grantor trust, the trust will not, in our opinion, be subject
to federal income tax. As a result of this classification, each
certificateholder will be treated for federal income tax purposes as an owner of
an undivided beneficial ownership interest in all or a portion of the trust
assets, consisting primarily of the underlying securities. To the extent that
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underlying securities consist of trust preferred securities, capital securities,
or other securities representing beneficial ownership of underlying debt
obligations, those underlying debt obligations generally will be treated as the
assets of the related trust for federal income tax purposes.
Taxation of Certificateholders
Trust Assets, Income and Expense
In our opinion, each certificateholder will be treated as owning an
undivided interest in all or specified assets of the trust. As such, each
certificateholder will be required to report on its federal income tax return
its pro rata share of the entire gross income from the assets for the period
during which it owns a trust certificate, generally in accordance with the
holder's applicable method of tax accounting. Because of stripped interests,
market discount or original issue discount ("OID"), or premium, however, the
amounts includible in income on account of an investment in a trust certificate
may differ significantly from the amounts distributable thereon.
Consistent with its applicable method of tax accounting, a
certificateholder generally will be entitled to deduct its pro rata share of
fees paid or incurred by the trust. Certificateholders who are individuals,
estates or trusts will be allowed to deduct these fees, subject to various
limitations on itemized deductions. Non-corporate holders of trust certificates
should be aware that miscellaneous itemized deductions are not deductible for
purposes of the alternative minimum tax.
Interest, Discount and Premium
For purposes of the following discussion, a trust certificate representing
an undivided interest in the principal of underlying securities comprising a
trust together with all interest payable thereon is referred to as an unstripped
certificate. A trust certificate representing an undivided interest in the
principal of underlying securities comprising a trust but less than all interest
payable thereon is a stripped bond certificate, including trust certificates so
denominated in the prospectus supplement as well as those denominated as
principal certificates therein, a trust certificate representing solely an
interest in interest payable on underlying securities is a stripped coupon
certificate, including trust certificates so denominated in the prospectus
supplement as well as those denominated as coupon certificates therein, and the
trust certificates collectively are stripped certificates.
Unstripped Certificates. A purchaser of an unstripped certificate generally
will be required to report its share of the interest income on underlying
securities in accordance with the purchaser's applicable method of tax
accounting. The purchaser also generally will be required to report its share of
OID to the extent the trust certificate evidences an interest in underlying
securities issued with OID. A certificateholder required to report OID in income
must do so although no cash attributable to any discount will be received until
a later date.
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The amount treated as OID attributable to an underlying security generally
is equal to the excess of its stated redemption price over its issue price. The
stated redemption price of an underlying security generally is the aggregate
amount payable thereunder excluding any qualified stated interest, i.e.,
interest payable unconditionally at least annually at a single fixed or
qualifying variable rate. Interest payable on underlying securities may be
qualified stated interest. The amounts payable (including interest and
redemption premium, as applicable) with respect to a callable underlying
security are determined with reference to the call or maturity date and call
price that produces the lowest yield. The issue price of an underlying security
generally is the initial offering price at which a substantial amount of that
particular class of underlying securities was sold.
OID is includible in income on a daily basis, based on a constant yield to
maturity over the term of the related underlying security. The yield to maturity
of a callable underlying security is determined with reference to the call or
maturity date and call price that produces the lowest yield. The constant yield
compounds at the end of each accrual period, within which OID is allocated
ratably to each day. The accrual periods utilized by a purchaser must each be no
longer than one year, and must be such that each payment will occur at the
beginning or end of an accrual period. OID attributable to underlying securities
bearing a variable rate of interest will be determined by assuming that the rate
will remain constant from the date of issuance, while changes in the actual rate
will be accounted for in the period to which they relate.
OID may be reduced to the extent that an interest in an underlying security
issued with OID is acquired by a purchaser of an unstripped certificate with
acquisition premium. Acquisition premium is the excess of the underlying
security's allocable purchase price over its adjusted issue price, which in turn
is the sum of the underlying security's issue price and previous accruals of
OID. OID otherwise includible in income may be reduced in the proportion that
the acquisition premium bears to OID remaining to be accrued on the underlying
security.
To the extent that the allocable purchase price paid by a purchaser of an
unstripped certificate for its interest in a particular underlying security
exceeds the holder's interest in the underlying security's remaining principal
balance, that interest will be acquired with amortizable bond premium. The
certificateholder may elect to amortize the premium as an offset to interest
income, generally using a constant yield method of compounding over the term of
the underlying security. A callable underlying security will be treated for this
purpose as maturing with reference to the call or maturity date and amount, as
applicable, that produces the smallest premium. Any election will apply to debt
instruments held by the certificateholder during the year in which the election
is made, and to all debt instruments acquired thereafter.
A purchaser of an unstripped certificate alternatively may acquire an
interest in an underlying security at a market discount, i.e., the excess of the
underlying security's adjusted issue price, or its issue price in the case of an
underlying security issued without OID, over its allocable purchase price.
Market discount generally will accrue ratably during the period from the date of
purchase to the maturity date, unless a certificateholder elects to accrue the
market discount on the basis of a constant interest rate. If a certificateholder
acquires an interest in an underlying security having more than a de minimis
amount of market discount, the
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certificateholder generally will be required to take market discount into income
as principal payments are received, in an amount equal to the lesser of the
amount of the principal payment received or the amount of market discount that
has accrued but has not yet been included in income. In addition, a
certificateholder will be required to treat any gain on the sale or other
disposition of a trust certificate as ordinary income to the extent of the
holder's share of any previously unrecognized accrued market discount on the
underlying security. Moreover, a certificateholder may be required to defer a
portion of its otherwise deductible interest expense allocable to borrowings
related to the trust certificate until disposing of the trust certificate in a
taxable transaction. A holder may elect to include market discount in income
currently in lieu of treating gain as ordinary income and deferring interest
deductions; any election is irrevocable, and applies to all market discount
bonds acquired during and after the year of election.
Stripped Certificates. A purchaser of a stripped principal certificate or
stripped interest certificate will be treated as having purchased an interest in
the underlying stripped bonds or stripped coupons, respectively. Under the
coupon stripping rules of the Code, the purchasers generally will be subject to
the OID rules discussed above, and will be required to report their share of OID
with respect to each underlying stripped bond or stripped coupon although no
cash attributable to the discount will be received until a later date.
The amount treated as OID attributable to a stripped bond or stripped
coupon generally is equal to the excess of the stated redemption price over its
allocable purchase price. In the case of a stripped bond, the stated redemption
price generally is the aggregate amount payable thereunder; the stated
redemption price of a stripped coupon is the amount payable when due. The
purchase price allocable to a stripped bond or stripped coupon will be
determined on the basis of their respective fair market values on the date of
the trust certificate purchase.
OID is includible in income on a daily basis, based on a constant yield to
maturity over the term of the related stripped bond or stripped coupon, as
applicable. The constant yield compounds at the end of each accrual period,
within which OID is allocated ratably to each day. The accrual periods utilized
by a purchaser must each be no longer than one year, and must be such that each
payment will occur at the beginning or end of an accrual period. OID
attributable to stripped trust assets bearing a variable rate of interest will
be determined by assuming that the rate will remain constant from the date of
stripping, while changes in the actual rate will be accounted for in the period
to which they relate. In some circumstances the OID Regulations permit a
certificateholder to recognize OID under a method that differs from that used by
the trustee.
In the case of callable stripped bonds, the amounts payable - including
interest, as applicable - and the yield to maturity are determined with
reference to the call or maturity date, as applicable, that produces the lowest
yield. It is unclear, however, whether the call or maturity date producing the
lowest yield should be determined with or without regard to interest stripped
from the stripped bond. Interest payable on a stripped bond after that date
until the final maturity or actual call date should be includible in income
under the purchaser's applicable method of tax accounting.
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The Internal Revenue Service could contend that some stripped principal
certificates should be treated as having amortizable bond premium, in which case
failure to make a premium amortization election could cause a holder to
recognize income from the trust certificate more rapidly. This failure also
could cause a holder to recognize more taxable income over the holding period,
if the holder's basis in the trust certificate attributable to the premium
ultimately proved non-deductible because it resulted in capital loss. A stripped
principal certificate purchased at a price in excess of its face amount and
treated as having a stated redemption price that excluded associated interest
payments as "qualified stated interest" could be so treated, producing the
foregoing possible consequences. Prospective purchasers of the trust
certificates should consult their own tax advisors with regard to the
advisability of a premium amortization election.
Constant Yield Election. The OID Regulations permit a certificateholder to
elect to accrue all stated interest, OID, and market discount in income as
interest, based on a constant yield method. If a certificateholder made this
election for a trust certificate representing an interest in underlying
securities having market discount, the certificateholder would be deemed to have
made an election to currently include market discount in income with respect to
all debt instruments having market discount acquired by the certificateholder
during the taxable year of the election or thereafter. Similarly, a
certificateholder making this election for a trust certificate representing an
interest in underlying securities having amortizable bond premium would be
deemed to have made an election to amortize premium with respect to all debt
instruments having bond premium that the certificateholder owns or acquires.
Each of these elections would be irrevocable; holders considering any such
election should consult their own tax advisors.
Disposition and Retirement
Upon the sale, exchange or retirement of a trust certificate, a holder will
recognize taxable gain or loss in respect of its interest in each trust asset
underlying a trust certificate. These gains and losses generally will be long-
term capital gains and losses if the trust certificate has been held for more
than one year. However, some or all gain may be treated as ordinary income to
the extent of any accrued and unrecognized market discount, if a trust
certificate is held as part of a conversion transaction as defined in Internal
Revenue Code Section 1258, or if a certificateholder has made an election under
Code section 163(d)(4) to have net capital gains taxed as investment income at
ordinary income rates. Net long-term capital gains of individuals are subject to
taxation at reduced capital gains tax rates, whereas capital losses of all
taxpayers are subject to limited deductibility.
Gain or loss with respect to each underlying trust asset is equal to the
difference between the allocable amount realized and the holder's allocable
adjusted basis therein. The amount realized in respect of a disposition or
retirement of a trust certificate is allocable among the underlying trust assets
in accordance with their relative fair market values; a certificateholder
determines its basis in each asset by allocating its purchase price among those
assets on the basis of their relative fair market values as of the date of
purchase. A certificateholder's basis in its trust certificate and each
underlying trust asset generally would be increased by any OID or market
discount and decreased by any premium amortization previously taken into account
in
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determining the holder's taxable income, and further decreased by amounts paid
other than qualified stated interest.
If trust certificates identified as callable principal certificates or
callable stripped bond certificates in any applicable prospectus supplement are
retired in exchange for underlying securities, the holders of these trust
certificates should generally not recognize gain or loss with respect to their
receipt of underlying securities in exchange for their interest in the trust.
Additional Tax Considerations
Backup Withholding
Payments of interest, including OID, and principal, as well as proceeds
from disposition or retirement of trust certificates, may be subject to a backup
withholding tax at a rate of 31 percent if a recipient fails to furnish to the
payor certain identifying information. Penalties also may be imposed by the IRS
on a recipient of payments who is required to supply information, but fails to
do so in the proper manner.
Backup withholding will not apply with respect to payments made to some
exempt recipients, such as corporations and financial institutions. Holders
should consult their own tax advisors with respect to qualification for
exemption from backup withholding and the procedure for obtaining an exemption.
Any amounts deducted and withheld would be allowed as a credit against the
recipient's federal income tax.
The Treasury Department has issued regulations that make modifications to
the withholding, backup withholding and information reporting rules. Those
regulations generally attempt to unify certification requirements and modify
reliance standards. The regulations generally will be effective for payments
made after December 31, 2000, subject to transition rules. Prospective investors
are urged to consult their own tax advisors regarding the new regulations.
Tax Information Reporting
Within a reasonable time after the end of each calendar year, the trustee
will furnish each certificateholder, either DTC or other holders of definitive
trust certificates, customary information as the trustee deems necessary or
desirable to enable certificateholders to prepare their federal income tax
returns. The trustee will furnish comparable information to the IRS as and when
required by law to do so. Because the rules for accruing discount and amortizing
premium with respect to trust certificates are uncertain in various respects,
there is no assurance that the IRS will agree with information reports of the
items of income and expense. Moreover, even if otherwise accepted as accurate by
the IRS, these information reports will be based on the original issue price of
the trust certificates, and in the case of certificateholders who purchased
their trust certificates after their initial issuance or at a price different
from the original issue price, those reports will require adjustment to account
for the certificateholders' holding periods and purchase prices.
Certificateholders who hold their trust certificates through DTC participants
should consult the party from whom they receive tax reports concerning the trust
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certificates to determine whether these reports reflect the adjustments.
Certificateholders who hold definitive trust certificates should consult their
tax advisors concerning the method for making any required adjustments.
Non-United States Holders
A Non-United States holder is a beneficial owner of a trust certificate
other than a United States citizen or resident, a domestic partnership or
corporation, including entities treated as domestic partnerships or
corporations, an estate subject to U.S. income tax on income regardless of its
source or a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
trust. Interest, including OID, paid on a trust certificate to a Non-United
States holder generally will be treated as portfolio interest and, therefore
will not be subject to United States federal income tax, provided that the
holder does not actually or constructively own 10% or more of any issuer of
underlying securities, is not a controlled foreign corporation related to any
issuer, and in accordance with specified procedures, supplies the person
otherwise required to withhold with a certification to the effect that the
beneficial owner is not a United States person, citizen or resident. In some
circumstances, the requisite certification may be provided by or through a bank
or other financial institution. In addition, no withholding of federal income
tax generally will be required with respect to any gain realized by a Non-United
States holder upon the sale, exchange or retirement of a trust certificate,
except gains realized by nonresident alien individuals present in the United
States for 183 days or more during the taxable year.
Non-United States holders may be subject to income tax withholding and
estate taxation with respect to any underlying securities that were issued
before July 19, 1984. Further, a Non-United States holder engaged in a trade or
business within the United States whose income from a trust certificate is
effectively connected with that trade or business generally will be subject to
regular United States federal income tax on the income and gain in the same
manner as if it were a United States holder. In addition, if a Non-United
States holder is a foreign corporation, it may be subject to a branch profits
tax equal to 30% of its effectively connected earnings and profits for the
taxable year, subject to adjustments.
Backup withholding will not apply to payments on a trust certificate to a
Non-United States holder if the holder has certified as to its foreign status
under penalty of perjury or has otherwise established an exemption and other
requirements are met. Payments on the sale, exchange or other disposition of a
certificate to or through a foreign office of a broker generally will not be
subject to back-up withholding; payments to or through the United States office
of a broker generally will be subject to backup withholding unless the Non-
United States holder makes the certification or otherwise establishes an
exemption under the conditions previously described.
Non-United States holders may want to consult their own tax advisors
regarding the application of United States federal income tax law to their
particular situations.
26
<PAGE>
State and Other Tax Considerations
In addition to the federal income tax consequences described above,
potential investors may want to consider the state, local and foreign tax
consequences of the acquisition, ownership and disposition of trust
certificates. State, local and foreign tax law may differ substantially from
federal income tax law, and this discussion does not purport to describe any
aspect of the tax law of a state or other jurisdiction. Therefore, prospective
purchasers may want to consult their own tax advisors with respect to these
matters.
27
<PAGE>
ERISA Considerations
General
Summarized below are the material consequences under the Employee
Retirement Income Security Act of 1974, as amended, and Section 4975 of the
Internal Revenue Code of 1986, that a fiduciary of an employee benefit plan, as
defined in and subject to ERISA, or of a plan, as defined in and subject to
Section 4975 of the Code, who has investment discretion should consider before
deciding to invest the plan's assets in trust certificates (employee benefit
plans and plans are both referred to as plans, and fiduciaries with investment
discretion are referred to as plan fiduciaries). Furthermore, all potential
investors in trust certificates should read the following summary because it
describes issues that could affect the trust as a consequence of plans investing
in trust certificates. The following summary is intended only to be a summary
of issues under ERISA and Section 4975 of the Code which are likely to be raised
by an investor's own counsel.
In general, the terms employee benefit plan as defined in ERISA and plan as
defined in Section 4975 of the Code refer to any plan or account of various
types which provide retirement benefits or welfare benefits to an individual or
to an employer's employees and their beneficiaries. Plans include:
. corporate pension and profit-sharing plans,
. simplified employee pension plans,
. Keogh plans for self-employed individuals (including partners in a
partnership),
. individual retirement accounts described in Section 408 of the Code, and
. medical benefit plans.
For the purposes of the following discussion, the term plan also includes
any entity whose assets constitute assets of any plan for purposes of Title I of
ERISA or Section 4975 of the Code as discussed in the "Plan Assets" section of
this summary below, and the term plan fiduciary includes any person who is a
fiduciary with respect to any entity that is a plan.
Each plan fiduciary must give appropriate consideration to the facts and
circumstances that are relevant to an investment in trust certificates,
including the role that an investment in trust certificates plays in the plan's
investment portfolio. Each plan fiduciary, before deciding to invest in trust
certificates, must be satisfied that an investment in trust certificates is a
prudent investment for the plan, that the investments of the plan, including the
investment in trust certificates, are diversified so as to minimize the risks of
large losses and that an investment in trust certificates complies with the plan
and related trust documents.
Each plan considering acquiring trust certificates should consider
consulting its own legal and tax advisors before doing so.
28
<PAGE>
Plan Assets
When a plan invests in a trust certificate, not only does the trust
certificate become an asset of the plan, but, unless an exception applies, the
investment in a trust certificate by a plan will cause, for purposes of Title I
of ERISA and Section 4975 of the Code, the underlying securities owned by the
related trust to be treated as assets of that plan. A regulation issued under
ERISA by the United States Department of Labor contains rules for determining
when an investment by a plan in an entity (such as the trust) will cause the
underlying assets of the entity to be treated as assets of that plan for
purposes of Title I of ERISA and Section 4975 of the Code. The DOL Regulation
provides, with respect to a Plan's purchase of an equity interest, such as a
trust certificate, of an entity, that the assets of the entity will be plan
assets of the plan unless the equity interest purchased is a publicly-offered
security, referred to as the publicly-offered security exception, the investment
by all benefit plan investors is not significant, referred to as the
participation exception, or other exceptions, not relevant here, apply.
The publicly-offered security exception applies if the equity interest
purchased by the plan is a security that is freely transferable, part of a class
of securities that is widely held and either part of a class of securities
registered under Section 12(b) or 12(g) of the Exchange Act, or sold to the plan
as part of a public offering under an effective registration statement under the
Act and the class of which the security is a part is registered under the
Exchange Act within 120 days - or a later time as may be allowed by the SEC -
after the end of the fiscal year of the issuer in which the offering of the
security occurred. The DOL Regulation states that the determination of whether a
security is freely transferable is to be made based on all relevant facts and
circumstances. The DOL Regulation specifies that, in the case of a security that
is part of an offering in which the minimum investment is $10,000 or less, the
following requirements, alone or in combination, ordinarily will not affect a
finding that the security is freely transferable:
. any requirement that not less than a minimum number of shares or units
of the security be transferred or assigned by any investor, provided
that the requirement does not prevent transfer of all of the then
remaining shares or units held by an investor;
. a requirement that no transfer or assignment of the security or rights
in respect thereof be made to an ineligible or unsuitable investor;
. any restriction on, or prohibition against, any transfer or assignment
which would violate any state or federal statute, regulation, court
order, judicial decree or rule of law;
. a requirement that no transfer or assignment be made without advance
written notice being given to the entity that issued that security;
. or any requirement that reasonable transfer or administrative fees be
paid in connection with a transfer or assignment.
Under the DOL Regulation, a class of securities is widely held only if it
is of a class of securities owned by 100 or more investors independent of the
issuer and of each other, but a class of securities will not fail to be widely-
held solely because subsequent to the initial offering the
29
<PAGE>
number of independent investors falls below 100 as a result of events beyond the
control of the issuer. It is anticipated that for some series of trust
certificates, one or more classes of trust certificates in those series will
satisfy the publicly-offered security exception. The prospectus supplement for
each series of trust certificates will specify whether any or all classes of
trust certificates in that series are expected to satisfy the publicly-offered
security exception.
The participation exception applies with respect to the assets of an entity
in which a plan purchases an equity interest if, immediately after the most
recent acquisition of any interest in the entity, less than 25% of the value of
each class of equity interests in the entity is held by benefit plan investors
on that date, determined by not including the investments of persons with
discretionary authority or control over the assets of the entity, of any person
who provides investment advice for a fee - direct or indirect - with respect to
the assets and of affiliates - within the meaning of the DOL Regulation - of the
persons. For this purpose, the term benefit plan investors includes all plans
and accounts of the types described above under "--General" as employee benefit
plans or plans, whether or not subject to ERISA or Section 4975 of the Code, as
well as entities whose assets constitute plan assets due to investments made in
these entities by any plans or accounts. Generally, for any class or series of
trust certificates there is no restriction on the percentage of the value of
that class or series of trust certificates that may be owned by benefit plan
investors and, thus, usually there is no assurance that investment by benefit
plan investors will not be significant. Accordingly, it is not expected that the
participation exception will apply with respect to any series of trust
certificates.
Therefore, unless the prospectus supplement for any particular series of
trust certificates specifies that the participation exception or the publicly-
offered security exception is expected to apply to the trust certificates, it
should be assumed that the underlying securities owned by the trust to which the
trust certificates relate will be treated as plan assets of plans that invest in
the trust certificates.
In addition, it should be noted that ERISA and the Code may place
restrictions on the purchase of trust certificates by insurance companies. In
particular, insurance companies considering the purchase of trust certificates
should consult their own counsel with respect to the United States Supreme Court
decision in John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings
Bank and any subsequent legislation or other guidance that has or may become
available relating to that decision, including the retroactive and prospective
exemptive relief granted by the DOL for transactions involving insurance company
general accounts in prohibited transaction class exemption 95-60, Section 401(c)
of ERISA and regulations issued under Section 401(c) of ERISA.
Prohibited Transactions
Section 406 of ERISA prohibits parties in interest with respect to a plan
from engaging in transactions involving the plan and its assets unless a
statutory or administrative exemption applies to the transaction. For instance,
Section 406 of ERISA prohibits a party in interest with respect to a plan from
selling a trust certificate to the plan unless a statutory or administrative
exemption applies. In addition, if the underlying securities are plan assets,
Section 406 of
30
<PAGE>
ERISA will prohibit the trustee, among others, from causing the assets of the
trust to be involved, directly or indirectly, in types of transactions with
parties in interest with respect to investing plans unless a statutory or
administrative exemption applies. If the prohibited transaction restrictions of
Section 406 of ERISA are violated, ERISA generally provides for civil penalties
upon the plan fiduciary and possibly other persons. Section 4975 of the Code
generally imposes an excise tax on disqualified persons who engage, directly or
indirectly, in similar types of transactions with the assets of plans subject to
the Section and also requires rescission of the transactions.
The underwriter, the depositor, the trustee, the obligor of the underlying
securities owned by the trust to which a trust certificate relates, and other
persons and affiliates thereof might be considered or might become a party in
interest or disqualified person with respect to a plan. If so, the acquisition,
holding or disposition of an investment in trust certificates by or on behalf of
the plan could give rise to one or more prohibited transactions within the
meaning of Section 406 of ERISA or Section 4975 of the Code unless an exemption
described below or some other exemption is available. In particular, the sale by
the underwriter to such a plan of a trust certificate regardless of whether the
related underlying securities are plan assets, and the services provided by the
trustee to the trust or the loans from the trust to the issuer of the related
underlying securities if the related underlying securities are plan assets,
would appear in some circumstances to be prohibited transactions unless an
exemption applies.
There are numerous exemptions to the prohibited transaction restrictions of
Section 406 of ERISA and Section 4975 of the Code, and the applicability of any
particular exemption depends upon the circumstances. An investment in a trust
certificate may not be purchased by or on behalf of a plan unless the prospectus
supplement governing the trust certificate provides that the participation
exception or publicly-offered security exception applies to the trust
certificate or a prohibited transaction exemption, such as one of the following
Prohibited Transaction Class Exemptions ("PTCEs") applies and the conditions
thereof are satisfied:
. PTCE 84-14, which provides an exemption if the purchase is made on
behalf of the Plan by a qualified professional asset manager. In
general, a qualified professional asset manager is an investment adviser
registered under the Investment Advisers Act of 1940, a bank, as defined
in such Act or an insurance company, each of which meets certain
financial requirements.
. PTCE 90-1, which provides an exemption if the purchase is made on behalf
of an insurance company pooled separate account in which the assets of
no plan (when aggregated with the assets of any other plan maintained by
the same employer or employee organization) in the pooled separate
account exceed 10% of the total assets in the pooled separate account.
. PTCE 91-38, which provides an exemption if the purchase is made on
behalf of a bank collective investment fund in which the interest of no
plan (when aggregated with the interests of any other plan maintained by
the same employer or employee organization)
31
<PAGE>
in the collective investment fund exceeds 10% of the total assets in the
collective investment fund.
. PTCE 95-60, which provides an exemption if the purchase is made on
behalf of an insurance company general account in which the reserves and
liabilities held by no plan (when aggregated with the reserves and
liabilities of any other plan maintained by the same employer, an
affiliate thereof or the same employee organization) in the insurance
company general account exceed 10% of the total reserves and liabilities
of the general account plus surplus.
. PTCE 96-23, which provides an exemption if the purchase is made on
behalf of the plan by an in-house asset manager. In general, an in-house
asset manager is a subsidiary of a plan sponsor or of the plan sponsor's
parent corporation or a membership nonprofit corporation the majority of
whose members are officers of a plan sponsor or of the plan sponsor's
parent corporation, each of which meets certain financial requirements.
The PTCEs described above contain numerous technical requirements that must
be satisfied as a condition of reliance thereon and may not provide relief for
all transactions involving the underlying securities, even if they would
otherwise apply to a purchase of a trust certificate by a plan. Before
purchasing a trust certificate, a plan fiduciary should consult with its legal
counsel and determine whether there exists any prohibition to the acquisition
and continued ownership of the trust certificate. In particular, a plan
fiduciary should determine whether the underwriter, the obligor of the
underlying securities owned by the trust to which the trust certificate relates,
the trustee or the depositor are parties in interest with respect to the plan
and whether any prohibited transaction exemptions, such as PTCE 84-14, PTCE 90-
1, PTCE 91-38, PTCE 95-60 or PTCE 96-23, apply.
Ineligible Purchasers
Regardless of whether the participation exception, the publicly-offered
security exception or the PTCEs described above apply, a plan generally may not
purchase a trust certificate if the underwriter, the depositor, the trustee, the
obligor of the related underlying securities, or any of their respective
affiliates either:
. has investment discretion with respect to the investment of the plan
assets;
. has authority or responsibility to give or regularly gives investment
advice with respect to the plan assets for a fee and pursuant to an
agreement or understanding that such advice will serve as a primary
basis for investment decisions with respect to the plan assets and that
such advice will be based on the particular investment needs of the
plan;
. or is an employer maintaining or contributing to such plan.
By its purchase of a trust certificate, each purchaser will be deemed to
have represented and warranted that its acquisition and ownership of the trust
certificate does not and will not constitute a non-exempt prohibited transaction
under ERISA or the Code and, to the extent that
32
<PAGE>
the underlying securities constitute plan assets, the transactions involving the
underlying securities will not constitute or result in a non-exempt prohibited
transaction as a result of the purchaser's acquisition or ownership of the trust
certificates.
Each plan fiduciary should consult with attorneys and financial advisors as
to the propriety of this an investment in light of the circumstances of the
particular plan and current tax law.
Plan of Distribution
The trust certificates offered by this prospectus and the prospectus
supplement will be offered in series through one or more of the methods
described below. The prospectus supplement prepared for each series will
describe the method of offering being utilized for that series and will state
the net proceeds, if any, to the trust or the depositor from any sale.
In connection with the offering, the underwriter may make short sales of
the trust certificates and may purchase the trust certificates on the open
market to cover positions created by short sales. Short sales involve the sale
by the underwriter of a greater number of shares than they are required to
purchase in the offering.
Any trust certificates acquired by the underwriter may be acquired by the
underwriter for its own account, and may be resold from time to time in one or
more transactions, including negotiated transactions, at fixed public offering
prices or at varying prices to be determined at the time of sale or at the time
of commitment.
In connection with any sale of the trust certificates, the underwriter may
pay compensation to broker-dealers in the form of discounts, concessions or
commissions. Other underwriters and dealers participating in the distribution of
the trust certificates may be deemed to be underwriters in connection with the
trust certificates, and any discounts or commissions received by them from the
underwriter and any profit on the resale of trust certificates by them may be
deemed to be underwriting discounts and commissions under the Act.
It is anticipated that the underwriting agreement pertaining to the sale of
any series of trust certificates will provide that the obligations of the
underwriters will be subject to conditions precedent, that the underwriters will
be obligated to purchase all trust certificates if any are purchased - other
than in connection with an underwriting on a best efforts basis -, and that the
depositor will indemnify the several underwriters and the underwriters will
indemnify the depositor against certain civil liabilities, including liabilities
under the Act, or will contribute to payments required to be made in respect
thereof.
Legal Opinions
Legal matters relating to the trust certificates and the material federal
income tax matters will be passed upon for the depositor and the underwriter by
Hunton & Williams, counsel to the depositor and the underwriter.
33
<PAGE>
Available Information
National Financial Securities Corporation, as depositor of each trust, has
filed with the Securities and Exchange Commission a registration statement,
including exhibits and amendments under the Act, with respect to the trust
certificates offered by this prospectus. This prospectus, which forms a part of
the registration statement, omits certain information contained in the
registration statement as permitted by the rules and regulations of the SEC. For
further information, reference is made to the registration statement which may
be inspected and copied at the public reference facilities maintained by the SEC
at its Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549
(information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1-800-SEC-0330), and at its Regional Offices located at:
Chicago Regional Office, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661; and New York Regional Office, Seven World Trade Center, New
York, New York 10048. Copies of these materials can also be obtained
electronically through the SEC's Internet Web Site (http://www.sec.gov).
Incorporation of Certain Documents by Reference
All documents filed by a trust pursuant to Section 13(a), 13(c), 14 or
15(d) of the "Exchange Act", subsequent to the date of this prospectus shall be
deemed to be incorporated by reference into this prospectus. Any statement
contained herein or incorporated by reference herein shall be deemed to be
modified or superseded to the extent that any subsequently filed document which
is incorporated by reference herein modifies or supersedes that statement.
Reports to Certificateholders
Unless and until definitive certificates are issued, annual unaudited
reports containing information concerning the related underlying securities will
be prepared by the related trustee and sent on behalf of each trust only to Cede
& Co., as nominee of DTC and registered holder of the trust certificates. See
"The Trust Certificates--Book-Entry Registration" and "The Obligors--Reports to
Certificateholders" in this prospectus. The reports will not constitute
financial statements prepared in accordance with generally accepted accounting
principles. Each trust will file with the SEC periodic reports as are required
under the Exchange Act, and the related rules and regulations.
34
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
National Financial Securities Corporation
Financial Income Securities Trust ________
__,000,000 Trust Certificates
Principal Amount $___ per Trust Certificate
relating to
______________________ , _____% _____________________
------------------------------
Prospectus Supplement
------------------------------
[UNDERWRITER]
_______ __, 2000
Until _______ __, 20__, all dealers that effect transactions in these
trust certificates, whether or not participating in this offering, may be
required to deliver a prospectus and prospectus supplement. 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>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses in connection with
the offering of $50,000,000 of the trust certificates being registered under
this Registration Statement, other than underwriting discounts and commission:
<TABLE>
<S> <C>
SEC Registration............................................ $ 13,200
Printing and Engraving...................................... 20,000
Legal Fees and Expenses..................................... 75,000
Accounting Fees and Expenses................................ 40,000
Trustee Fees and Expenses................................... 15,000
Rating Agency Fees.......................................... 25,000
Blue Sky Fees and Expenses.................................. 20,000
Miscellaneous............................................... 11,800
TOTAL................................................. $220,000
========
</TABLE>
Item 15. Indemnification of Directors and Officers.
The Registrant is incorporated under the laws of Delaware. Section 145 of
the Delaware General Corporation Law provides that a Delaware corporation may
indemnify any persons, including officers and directors, who are, or are
threatened to be made, parties to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation, by reason of the
fact that such person was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, employee or agent of another
corporation or enterprise). The indemnity may include expenses (including
attorneys' fees) , judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, for criminal proceedings, had no reasonable cause to believe that his
conduct was illegal. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him
against the expense which such officer or director actually and reasonably
incurred.
The Certificate of Incorporation and Bylaws of the Registrant provide, in
effect, that, subject to certain limited exceptions, the Registrant will
indemnify its officers and directors to the extent permitted by the Delaware
General Corporation Law.
II-1
<PAGE>
The Registrant, either directly or through its direct or indirect parents,
maintains an insurance policy providing directors' and officers' liability
insurance for any liability its directors or officers may incur in their
capacities as such.
Under certain sales agreements entered into by the Registrant (as
purchaser) with sellers of collateral, such sellers are obligated to indemnify
the Registrant against certain expenses and liabilities.
The form of underwriting agreement filed as an exhibit hereto provides for
indemnification of the underwriter by the depositor for liability, including
legal expenses and fees, related to certain untrue statements of material fact
contained in the Registration Statement. In addition, the underwriting
agreement requires the underwriter to indemnify the depositor, each of its
directors, each officer of the depositor that has signed this registration
statement, and each controlling person of the depositor, for liability,
including legal fees and of material facts made in reliance on information
provided by the underwriter.
Item 16. Exhibits.
1.1 Underwriting Agreement Standard Provisions, together with Form of
Underwriting Agreement*
3.1 Certificate of Incorporation by National Financial Securities
Corporation*
3.2 Bylaws of National Financial Securities Corporation*
4.1 Form of Trust Agreement*
5.1 Legality Opinion of Hunton & Williams
8.1 Tax Opinion of Hunton & Williams
23.1 Consent of Hunton & Williams is contained in their opinions filed as
Exhibits 5.1 and 8.1
24.1 Power of Attorney (included on signature page)*
*previously filed
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities
II-2
<PAGE>
offered would not exceed that which was registered) and any deviation from
the low or high and of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than a 20 change in the maximum aggregate offering price set forth
in the "Calculation of the Registration Fee" table in this Registration
Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or
any material change of such information in the Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in the post-effective amendment by
those paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are included by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) (i) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(ii) For purposes of determining any liability under the
Securities Act of 1933, 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 such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-3
<PAGE>
(c) The undersigned Registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the indenture trustee to
act under subsection (a) of Section 310 of the Trust Indenture Act of 1939,
as amended, in accordance with the rules and regulations prescribed by the
Commission under Section 305(b)(2) of the Trust Indenture Act.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the 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 director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 (including the security rating requirement)
and has duly caused this pre-effective amendment to its Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Richmond, Commonwealth of Virginia, on September 14, 2000.
NATIONAL FINANCIAL SECURITIES
CORPORATION (Registrant)
/s/ William E. Hardy
--------------------------------------------------
William E. Hardy
President and Chairman of the Board of Directors
Pursuant to the requirements of the Securities Act of 1933, this pre-
effective amendment to its Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ William E. Hardy Chairman of the Board of Directors September 14, 2000
-----------------------
William E. Hardy and President (Principal Executive Officer)
/s/ Steven C. DeLaney Director and Vice President September 14, 2000
-----------------------
Steven C. DeLaney
/s/ Michael D. Johnston Director and Vice President September 14, 2000
-------------------------
Michael D. Johnston
/s/ Randall B. Saufley Secretary and Treasurer September 14, 2000
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Randall B. Saufley (Principal Financial Officer
and Principal Accounting Officer)
II-5
