<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED AUGUST 21, 1997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER 15, 1995)
$25,000,000
S&P-LINKED INVESTMENT TRUST CERTIFICATES,
SERIES 1997-SP-1
(SPLITS(SERVICE MARK))
PRINCIPAL PROTECTED PASS-THROUGH CERTIFICATES
Each S&P-Linked Investment Trust Certificate, Series 1997-SP-1 offered
hereby (collectively, 'SPLITs(Service Mark)' or the 'Certificates') represents a
beneficial interest in a trust (the 'Trust') to be formed pursuant to the Trust
Agreement, dated as of February 28, 1996, between Lehman ABS Corporation (the
'Depositor') and The Bank of New York, as trustee (the 'Trustee'), as
supplemented by the Series 1997-SP-1 Series Supplement, dated as of August 29,
1997 (collectively, the 'Trust Agreement').
The principal assets of the Trust will be (i) $25,000,000 principal amount
of United States Treasury Zero Coupon STRIPS, due August 15, 2007, issued by the
Treasury Department of the United States of America (the 'Underlying
Securities') as described herein and (ii) the rights of the Trust under an ISDA
Master Agreement (Multicurrency-Cross Border) with Westdeutsche Landesbank
Girozentrale, acting through its New York Branch ('WestLB' or the 'Swap
Counterparty'), on the terms set forth herein (the 'Swap Agreement') pursuant to
which any payments required to be made by the Swap Counterparty will be passed
through to the holders of record of the Certificates (the 'Certificateholders').
Distributions on the Certificates are dependent upon the aggregate of
amounts received (i) on the Underlying Securities and (ii) pursuant to the Swap
Agreement. Except in certain limited circumstances, no distributions will be
made on the Certificates prior to August 15, 2007 (the 'Scheduled Distribution
Date'). On the Scheduled Distribution Date, Certificateholders are scheduled to
receive their proportionate share of the Final Distribution Amount with respect
to the Certificates. The 'Final Distribution Amount' will be an amount equal to
(i) the par amount of the outstanding Certificates plus (ii) the product of the
S&P 500 Appreciation Factor and the aggregate principal amount of outstanding
Certificates (such product, the 'S&P 500 Appreciation Amount'). As described
more fully herein, the 'S&P 500 Appreciation Factor' will be equal to the
positive value, if any, of (i) the average of the closing values of the S&P 500
Composite Stock Price Index on June 1, 2007, July 1, 2007, and August 1, 2007
(subject to adjustment as provided herein) less the closing value of such Index
on the Closing Date (the 'Base Value') divided by (ii) the Base Value. See 'The
Certificates--Final Distribution Amount' in this Prospectus Supplement.
At the time of issuance of the Certificates, (i) Moody's Investors Service,
Inc. ('Moody's') will assign ratings of at least 'Aaa' with respect to the
principal component of the Certificates based upon the rating of the Underlying
Securities and 'Aa1' with respect to the S&P Appreciation Amount based upon the
rating of the Swap Counterparty, and (ii) Standard & Poor's Ratings Group, a
division of The McGraw-Hill Companies, Inc. ('S&P') will assign a rating to the
Certificates of 'AAAr.' Moody's rating of the S&P Appreciation Amount reflects
only the ability of the Swap Counterparty to pay such amount if any, and neither
Moody's nor S&P's ratings constitute a rating or statement as to whether, or the
extent to which, any S&P Appreciation Amount will be payable on the Scheduled
Distribution Date. S&P attaches the symbol 'r' to the ratings of instruments
such as the Certificates with significant noncredit risks and is intended to
highlight volatility of expected returns which are not addressed in the credit
rating of such instruments. Such S&P rating does not address the likelihood of
receipt by the Certificateholders of any amount under the Swap Agreement.
The Certificates have been authorized for listing, upon official notice of
issuance, with the New York Stock Exchange ('NYSE'). See 'Risk Factors' herein
on pages S-9 through S-11, and in the Prospectus on pages 4 and 5.
(Cover continued on next page)
------------------------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT
OBLIGATIONS OF OR INTERESTS IN THE DEPOSITOR OR ANY OF ITS AFFILIATES. THE
CERTIFICATES DO NOT REPRESENT A DIRECT OBLIGATION OF THE UNITED STATES
OF AMERICA.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT THE DEPOSITOR
Per Unit...................
Total......................
For further information with respect to the plan of distribution and any
discounts, commissions or profits that may be deemed underwriting discounts or
commissions, see 'Method of Distribution.' The Certificates are offered subject
to receipt and acceptance by Lehman Brothers Inc. (the 'Underwriter'), to prior
sale and to the Underwriter's right to reject any order in whole or in part and
to withdraw, cancel or modify the offer without notice. It is expected that
delivery of the Certificates will be made in book-entry form through the
facilities of The Depository Trust Company on August 29, 1997 (the 'Closing
Date').
------------------------
LEHMAN BROTHERS
AUGUST , 1997
<PAGE>
(cover page continued)
As and to the extent described herein, collections received by the Trustee
with respect to the Trust Assets will be distributed to Certificateholders in
the manner and priority described herein.
There is currently no secondary market for the Certificates, and there can
be no assurance that a secondary market for the Certificates will develop or, if
it does develop, that it will continue. See 'Risk Factors' herein and in the
Prospectus.
The Certificates initially will be represented by certificates registered
in the name of CEDE & Co., as nominee of The Depository Trust Company ('DTC').
The interests of beneficial owners of such Certificates will be represented by
book entries on the records of participating members of DTC ('Participants').
Definitive certificates will be available for such Certificates only under the
limited circumstances described herein. See 'Description of the
Certificates--Definitive Certificates.'
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT WILL CONSTITUTE A
SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE DEPOSITOR PURSUANT TO ITS
PROSPECTUS DATED NOVEMBER 15, 1995, OF WHICH THIS PROSPECTUS SUPPLEMENT IS A
PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING WHICH IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL. IN PARTICULAR, INVESTORS SHOULD CONSIDER CAREFULLY THE
FACTORS SET FORTH UNDER 'RISK FACTORS' IN THE PROSPECTUS AND IN THIS PROSPECTUS
SUPPLEMENT.
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS TO WHICH IT RELATES. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CERTIFICATES
INCLUDING PURCHASES OF THE CERTIFICATES TO STABILIZE THEIR MARKET PRICES,
PURCHASES OF THE CERTIFICATES TO COVER SOME OR ALL OF A SHORT POSITION IN THE
CERTIFICATES MAINTAINED BY THE UNDERWRITER AND THE IMPOSITION OF PENALTY BIDS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE 'METHOD OF DISTRIBUTION.'
S-2
<PAGE>
SUMMARY
The following summary of certain pertinent information does not purport to
be complete and is qualified in its entirety by reference to the detailed
information appearing elsewhere herein and in the Prospectus, including under
the headings 'Description of the Certificates' and 'Description of the
Underlying Securities.' Certain capitalized terms used herein are defined
elsewhere in this Prospectus Supplement on the pages indicated in the 'Index of
Defined Terms' or, to the extent not defined herein, have the meanings assigned
to such terms in the Prospectus.
THE CERTIFICATES
CERTIFICATES OFFERED.......... The S&P-Linked Investment Trust Certificates,
Series 1997-SP-1 ('SPLITs(Service Mark)' or the
'Certificates'). Each Certificate represents a
proportionate undivided beneficial interest in
certain distributions to be made by the Trust,
and will be issued pursuant to the Trust
Agreement. The Trust Assets will be the sole
assets of the Trust from which Certificateholders
will receive any distributions.
THE TRUST..................... The S&P-Linked Investment Trust, Series 1997-SP-1
(the 'Trust'). The Trust will be formed pursuant
to the Series Supplement, Series 1997-SP-1 (the
'Series Supplement'), which incorporates the
Standard Terms for Trust Agreements (the
'Standard Terms,' and together with the Series
Supplement, the 'Trust Agreement') by and between
the Depositor and the Trustee.
DEPOSITOR..................... Lehman ABS Corporation (the 'Depositor'), an
indirect, wholly-owned subsidiary of Lehman
Brothers Inc., will deposit the Underlying
Securities into the Trust. See 'The Depositor' in
the Prospectus.
TRUSTEE....................... The Bank of New York.
CLOSING DATE.................. August 29, 1997.
TRUST ASSETS.................. The principal assets of the Trust will be:
(1) The ownership interest in, and the right to
receive payment at maturity on, the
Underlying Securities.
(2) The rights of the Trust under the Swap
Agreement (as defined below).
AGGREGATE PRINCIPAL AMOUNT OF
CERTIFICATES................ $25,000,000.
SCHEDULED DISTRIBUTION DATE... August 15, 2007.
DISTRIBUTIONS--GENERAL........ The Trust Assets will be the sole source of
distributions on the Certificates. In general, no
distributions will be made on the Certificates
except on the Scheduled Distribution Date. Early
withdrawal of the Certificateholder's interest in
the Trust Assets will not be permitted except
upon the death or adjudication of insanity of the
Certificateholder. See 'Description of the
Certificates--Early Withdrawal.' In addition, the
Depositor will have certain limited rights to
withdraw Underlying Securities with respect to
Certificates that may be acquired by the
Depositor or its affiliates (any such withdrawal
an 'Optional Exchange'). See 'Description of the
Certificates--Optional Exchange by the
Depositor.' An Early Termination also could
result from a default by the Swap
S-3
<PAGE>
Counterparty (as defined below). See 'Description
of the Trust Assets--Events of Default and
Termination Events'.
FINAL DISTRIBUTION AMOUNT..... On the Scheduled Distribution Date,
Certificateholders are scheduled to receive their
proportionate share of the Final Distribution
Amount with respect to the Certificates. The
'Final Distribution Amount' will be an amount
equal to (i) the par amount of the Certificates
plus (ii) the product of the S&P 500 Appreciation
Factor and the aggregate Principal Amount of
outstanding Certificates (such product, the 'S&P
500 Appreciation Amount'). The 'S&P 500
Appreciation Factor' will be equal to the
positive value, if any, of (i) the average of the
closing values (the 'Final Value') of the S&P 500
Composite Stock Price Index (the 'S&P 500 Index')
on the Evaluation Dates (subject to adjustment as
provided herein) less the closing value of such
index on the Closing Date (the 'Base Value'),
divided by (ii) the Base Value. The Final Value
will be determined by the Calculation Agent. For
a description of the S&P 500 Index and the method
of calculation thereof see 'The Standard & Poor's
500 Index' herein.
EVALUATION DATES.............. June 1, 2007, July 1, 2007 and August 1, 2007;
provided, however that if any such day is not an
Evaluation Day (as defined below), as determined
in good faith by the Calculation Agent, the
applicable Evaluation Date shall be the next
following day that is an Evaluation Day.
EVALUATION DAY................ Any day on which the New York Stock Exchange
('NYSE') and the American Stock Exchange are open
for trading (a 'Trading Day') and a Market
Disruption Event has not occurred.
MARKET DISRUPTION EVENT....... 'Market Disruption Event' means either (i) the
suspension or material limitation, in each case,
for more than two hours of trading in 100 or more
of the securities included in the S&P 500 Index
or (ii) the suspension or material limitation, in
each case, for more than two hours of trading
(whether by reason of movements in price
otherwise exceeding levels permitted by the
relevant exchange or otherwise) in (A) futures
contracts related to the S&P 500 Index which are
traded on the Chicago Mercantile Exchange or (B)
option contracts related to the S&P 500 Index
which are traded on the Chicago Board Options
Exchange, Inc. The phrase 'material limitation'
as used in the preceding sentence shall include,
without limitation, limitations pursuant to NYSE
Rule 80A (or any applicable rule or regulation
enacted or promulgated by the NYSE or any other
self-regulatory organization or the Securities
and Exchange Commissions of similar scope as
determined by the Calculation Agent) on trading
during significant market fluctuations; provided,
however, that a limitation on the hours in a
trading day and/or number of days of trading will
not constitute a Market Disruption Event if it
results from an announced change in the regular
business hours of the relevant exchange. The
determination of whether or not a Market
Disruption Event has occurred on any Trading Day
shall be made by the Calculation Agent.
CALCULATION AGENT............. The initial Calculation Agent shall be Lehman
Brothers Finance S.A. Except as otherwise
provided herein, all determinations made by the
Calculation Agent shall be at the sole discretion
of the
S-4
<PAGE>
Calculation Agent and, in the absence of manifest
error, shall be conclusive for all purposes and
binding on the Trust and the Certificateholders.
It is anticipated that the Calculation Agent will
enter into a swap agreement (the 'Lehman Swap')
with the Swap Counterparty on terms similar to
those of the Swap Agreement. The Trust will not
be a party to and will have no rights under the
Lehman Swap. In the event that the Lehman Swap is
terminated prior to termination of the Swap
Agreement, WestLB will replace Lehman Brothers
Finance S.A. as Calculation Agent. The Trust
Agreement will provide that the
Certificateholders will have no right to make any
claim against the Calculation Agent in the
absence of the gross negligence or willful
misconduct of the Calculation Agent.
BUSINESS DAY.................. Any day other than (i) Saturday and Sunday or
(ii) a day on which banking institutions in New
York City are authorized or obligated by law or
executive order to be closed for business.
DENOMINATIONS AND SPECIFIED
CURRENCY.................... The Certificates will be denominated and payable
in U.S. dollars (the 'Specified Currency'). The
Certificates will be available for purchase in
minimum denominations of $1,000 and integral
multiples thereof.
FORM OF SECURITY.............. Book-entry Certificates with The Depository Trust
Company ('DTC'), except in certain limited
circumstances. See 'Description of the
Certificates--Definitive Certificates.'
Distributions thereon will be settled in
immediately available (same-day) funds.
CUSIP NUMBER.................. 74251WAA8.
EARLY WITHDRAWAL.............. Early withdrawal of a Certificateholder's
investment generally is not permitted. However,
subject to certain limitations described herein,
early withdrawal is permitted upon the death or
adjudication of insanity of a Certificateholder,
in which case (an 'Early Withdrawal') such
Certificateholder will be entitled to receive the
sum of (i) the sale proceeds of such
Certificateholder's proportionate share of the
Underlying Securities (the 'Liquidation
Proceeds') plus (ii) any termination payment due
to the Trust in connection with the partial Early
Termination of the Swap Agreement minus (iii) an
amount equal to 6 1/4% of the principal amount of
the Certificates being redeemed.
The termination payment specified in clause (ii)
will generally be equal to the market value of
the Trust's rights in the portion of the Swap
Agreement to be terminated as determined in good
faith by the Calculation Agent. Such Early
Withdrawal will result in a partial termination
of the Swap Agreement, as a result of which the
Notional Amount (as defined below) will be
reduced by an amount equal to the principal
amount of the Certificates that are the subject
of Early Withdrawal. See 'Description of The
Trust Assets--The Swap Agreement--Payments Upon
Early Termination.'
OPTIONAL EXCHANGE BY
THE DEPOSITOR............... The Depositor, or any affiliate of the Depositor,
may, if it holds Certificates, notify the Trustee
that it intends to tender such Certificates to
the Trustee on each February 15 and August 15 (an
S-5
<PAGE>
'Optional Exchange Date'), or the next succeeding
Business Day if such Optional Exchange Date is
not a Business Day, subject to certain
limitations described herein. Upon such tender,
the Trustee will deliver to the Depositor or its
affiliate the proportionate share of the
Underlying Securities corresponding to the
principal amount of Certificates being tendered.
In addition, the Calculation Agent will determine
the termination payment, if any, to be paid by
the Swap Counterparty on the Optional Exchange
Date to the Trust for distribution to the
Depositor or its affiliate. Such payment will
equal the proportionate share represented by the
Certificates being tendered of the market value,
if any, of the Trust's rights under the Swap
Agreement determined in good faith by the
Calculation Agent.
CERTAIN U.S. FEDERAL INCOME
TAX CONSEQUENCES............ In the opinion of tax counsel to the Depositor,
the Trust will be classified for Federal income
tax purposes as a grantor trust and not as an
association (or publicly traded partnership)
taxable as a corporation. The Certificates
represent interests in (i) the Underlying
Securities which will give rise to original issue
discount and (ii) the Swap Agreement which will
give rise to capital gain or loss upon a
termination of the Swap Agreement. See 'Certain
U.S. Federal Income Tax Consequences.'
LISTING....................... The Certificates have been authorized for
listing, upon official notice of issuance, with
the New York Stock Exchange.
RATINGS....................... At the time of issuance of the Certificates, (i)
Moody's Investors Service, Inc. ('Moody's') will
assign ratings of at least 'Aaa' with respect to
the principal component of the Certificates based
upon the rating of the Underlying Securities and
'Aa1' with respect to the S&P Appreciation Amount
based upon the rating of the Swap Counterparty,
and (ii) Standard & Poor's Ratings Group, a
division of The McGraw-Hill Companies, Inc.
('S&P') will assign a rating to the Certificates
of 'AAAr.' Moody's rating of the S&P Appreciation
Amount reflects only the ability of the Swap
Counterparty to pay such amount if any, and
neither Moody's nor S&P's ratings constitute a
rating or statement as to whether, or the extent
to which, any S&P Appreciation Amount will be
payable on the Scheduled Distribution Date. S&P
attaches the symbol 'r' to the ratings of
instruments such as the Certificates with
significant noncredit risks and is intended to
highlight volatility of expected returns which
are not addressed in the credit rating of such
instruments. Such S&P rating does not address the
likelihood of receipt by the Certificateholders
of any amount under the Swap Agreement.
The ratings of the Certificates by Moody's and
S&P are based on payment on the Scheduled
Distribution Date of principal of the
Certificates from proceeds to be derived from
maturing Underlying Securities and, in the case
of Moody's, payment of all amounts due under the
Swap Agreement by the Swap Counterparty. There is
no assurance that any such rating will continue
for any period of time or that it will not be
revised or withdrawn entirely by the related
rating agency if, in its judgment, circumstances
(including, without limitation, in the case of
Moody's rating a change in the rating of the Swap
Counterparty) so warrant. A revision or
withdrawal of such
S-6
<PAGE>
rating may have an adverse effect on the market
price of Certificates. A security rating is not a
recommendation to buy, sell or hold securities.
See 'Ratings.'
ERISA CONSIDERATIONS.......... An employee benefit plan subject to the Employee
Retirement Income Security Act of 1974, as
amended ('ERISA'), including an individual
retirement account (an 'IRA') or Keogh plan (a
'Keogh') (each, a 'Plan') should consult its
advisors concerning the ability of such Plan to
purchase Certificates under ERISA or the Code.
See 'ERISA Considerations.'
THE TRUST ASSETS
THE UNDERLYING SECURITIES
GENERAL....................... $25,000,000 aggregate principal amount of United
States Treasury Zero Coupon STRIPS due August 15,
2007, issued by the Treasury Department of the
United States of America. The entire principal
amount of the Underlying Securities will be
payable on the Underlying Securities Maturity
Date.
UNDERLYING SECURITIES MATURITY
DATE........................ August 15, 2007.
AMORTIZATION.................. None.
THE SWAP AGREEMENT
SWAP COUNTERPARTY............. Westdeutsche Landesbank Girozentrale, acting
through its New York Branch ('WestLB' or the
'Swap Counterparty').
NOTIONAL AMOUNT............... The Notional Amount will be equal to the
outstanding principal amount of the Certificates.
The initial Notional Amount will be $25,000,000.
TERMINATION DATE.............. August 15, 2007, unless sooner terminated in
whole or in part in accordance with the terms of
the Swap Agreement.
AMOUNTS PAYABLE BY SWAP
COUNTERPARTY................ Under the Swap Agreement, the Swap Counterparty
will be obligated to pay the Trust, on the
Scheduled Distribution Date, an amount equal to
the product of (i) the S&P 500 Appreciation
Factor and (ii) the principal amount of the
Certificates. See 'The Certificates--Final
Distribution Amount' and 'The Standard & Poor's
500 Index' herein. In addition, in the event of a
complete or partial Early Termination, the Swap
Counterparty may be required to make Early
Termination Payments to the Trust. See
'Description of the Certificates--Early
Withdrawal,' 'Description of the
Certificate--Optional Exchange by the Depositor'
and 'Description of the Trust Assets--Events of
Default and Early Termination.'
AMOUNTS PAYABLE BY TRUST...... Under the Swap Agreement, the Trust will be
obligated to pay the Swap Counterparty one
payment on the Closing Date.
EVENTS OF DEFAULT AND
TERMINATION EVENTS.......... In the event of the occurrence of certain Swap
Counterparty Events of Default specified under
the heading, 'The Swap Agreement--
S-7
<PAGE>
Events of Default,' the Swap Agreement is
terminable by the Trust. In addition, the Swap
Agreement will be partially terminated upon Early
Withdrawal by a Certificateholder or upon
Optional Exchange by the Depositor. See
'Description of the Certificates--Early
Withdrawal' and 'Description of the
Certificates--Optional Exchange by the
Depositor.' The Swap Agreement is also terminable
by either the Trust or the Swap Counterparty upon
the occurrence of the Termination Event specified
in clause (a) under the heading, 'The Swap
Agreement--Termination Events.'
Upon the occurrence of an Event of Default (other
than an event specified in clause (b) under the
heading 'The Swap Agreement-- Events of Default')
the Trustee will give notice thereof to the
Certificateholders, and, on the 15th Business Day
after giving such notice, will terminate the Swap
Agreement unless otherwise directed in writing by
Certificateholders representing at least 66 2/3%
of the outstanding Certificates. If an Event of
Default specified in clause (b) under the heading
The Swap Agreement--Events of Default has
occurred, the Trustee will immediately terminate
the Swap Agreement without notice to
Certificateholders. The Trustee will not
liquidate the Underlying Securities unless so
directed by 100% of the Certificateholders.
EARLY TERMINATION PAYMENT..... In the event of a partial termination of the Swap
Agreement resulting from an Early Withdrawal (i)
the Trustee will direct the Market Agent to sell
the applicable portion of the Underlying
Securities in accordance with the Sale Procedures
for settlement on the related Early Termination
Date and (ii) the Calculation Agent will
determine the termination payment to be paid by
the Swap Counterparty. The Trustee will
distribute such Liquidation Proceeds to the
applicable Certificateholders plus any
termination payment due to the Trust in
connection with the Early Termination of the Swap
Agreement minus any withdrawal penalty resulting
from Early Withdrawal. In connection with any
Early Withdrawal, an amount equal to 6 1/4% of
the principal amount of the Certificates being
redeemed will be deducted from the distribution
to applicable Certificateholders. In the event of
a partial termination of the Swap Agreement
resulting from an Optional Exchange by the
Depositor (i) the Trustee will deliver to the
Depositor or its affiliate its proportionate
share of the Underlying Securities corresponding
to the principal amount of the Certificates being
tendered and (ii) the Calculation Agent will
determine the termination payment to be paid by
the Swap Counterparty and the Swap Counterparty
will pay such amount to the Trust for payment to
the Depositor or its affiliate. In the event of
early termination of the Swap Agreement (other
than in the case of Early Withdrawal) the Trustee
will not direct the Market Agent to sell the
Underlying Securities except upon direction of
100% of the Certificateholders. All termination
payments from the Swap Counterparty under the
Swap Agreement generally will equal the market
value, as determined in good faith by the
Calculation Agent, if any, of the Trust's rights
under the Swap Agreement (or portion thereof to
be terminated) as determined in good faith by the
Calculation Agent. See 'Description of The
Certificates--Early Withdrawal' and 'The Swap
Agreement--Payments Upon Early Termination'
herein.
S-8
<PAGE>
RISK FACTORS
Prospective purchasers should consider, among other things, the following
factors (as well as the factors set forth under 'Risk Factors' in the
Prospectus) in connection with an investment in the Certificates.
Limited Liquidity. There is currently no secondary market for the
Certificates. Lehman Brothers Inc. (the 'Underwriter') is under no obligation to
make a market in the Certificates. It is unlikely that a secondary market will
develop and, if a secondary market does develop, it is unlikely that it will
provide Certificateholders with liquidity of investment or will continue for the
life of the Certificates.
Original Issue Discount; Yield; Final Distribution Amount. Investors will
not receive periodic payments of interest but will be subject to tax upon the
annual accretion on the Underlying Securities. See 'Certain U.S. Federal Income
Tax Consequences--Taxation of the Underlying Securities' herein. In addition,
investors will not receive any amounts in respect of dividends paid on stocks
included in the S&P 500 Index, and as a result may receive a lower yield than
they would receive upon a like amount invested directly in such stocks. If the
Final Value of the S&P 500 Index is not in excess of the Base Value, holders of
Certificates will be entitled to receive the principal amount of their
Certificates, but no amount in respect of any appreciation in the value of the
S&P 500 Index, even if the value of the S&P 500 Index at some point between the
closing date for the Certificates and the Evaluation Dates exceeded the Base
Value.
S&P 500 Index--Modification, Replacement or Discontinuance. The value of
the S&P 500 Index will be based primarily on the trading prices of the stocks
underlying the S&P 500 Index. Trading prices of the underlying stocks will be
influenced both by the complex and interrelated economic, financial, political
and other factors that can affect the capital markets generally and/or the
equity trading markets on which the underlying stocks are trading and by the
various circumstances that can influence the value of the underlying stocks.
Prospective purchasers of Certificates should familiarize themselves with the
basic features of the S&P 500 Index, including the underlying stocks and the
general method of calculating the S&P 500 Index. See 'The Standard & Poor's 500
Index' herein.
It is possible that S&P may modify the method of calculating the S&P 500
Index or that a Successor Index may replace the S&P 500 Index. If the method of
calculating the S&P 500 Index or any Successor Index is materially changed or
otherwise modified such that such index does not fairly represent the value that
the S&P 500 Index would have had, the Calculation Agent will make good faith
adjustments to such index when determining the S&P 500 Appreciation Factor. See
'The Certificates--Modification or Discontinuance of S&P 500 Index' herein. In
addition, if for any reason neither the S&P 500 Index nor a Successor Index is
published during the calculation period, the Calculation Agent will calculate
the S&P 500 Appreciation Factor as described under 'Modification or
Discontinuance of the S&P 500 Index' herein. Although these provisions are
intended to enable the S&P 500 Appreciation Factor to be determined on as
consistent a basis as practicable, discontinuities may arise in such
circumstances. Moreover, information as to the current level of a Successor
Index or as to the adjustments or calculations to be made by the Calculation
Agent may not be readily available to Certificateholders or prospective
purchasers of Certificates, which may adversely affect the trading market for
the Securities.
Increase of S&P 500 Index Uncertain. Prospective investors in the
Certificates are urged to perform their own analysis of the likelihood that the
S&P 500 Index will have increased on the Evaluation Dates. The offering of the
Certificates should not be viewed as an expression of any opinion by the
Depositor or the Underwriter as to the likelihood of such increase, and any such
opinion is expressly disclaimed by them.
Limited Assets. The Trust has no significant assets other than the Trust
Assets. If the Trust Assets are insufficient to make payments or distributions
on the Certificates, no other assets will be available for payment of the
deficiency.
Risks on Early Withdrawal; Penalty on Early Withdrawal. In the event of an
Early Withdrawal of a Certificateholder's investment upon such
Certificateholder's death or adjudicated insanity, the amount to be received in
respect of the withdrawal will be affected by market conditions at the time.
Among other things, the level of stock prices and option values as well as other
equity market conditions will affect the amount of the partial termination
payment payable under the Swap Agreement, and the level of interest rates and
treasury security prices as well as other debt market conditions will affect the
value of the Underlying Securities and the
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amount of sales proceeds realizable by the Certificateholder upon sale thereof.
In a flat or declining equity market and a rising interest rate environment, a
Certificateholder could fail to recover his or her initial investment, and could
suffer substantial losses. In addition, an amount equal to 6 1/4% of the
principal amount of the Certificates being redeemed will be deducted from any
payment to be made by the Trust to a Certificateholder claiming Early
Withdrawal. Such penalty could eliminate any profit that otherwise may have been
realized by the Certificateholder or increase any loss.
No Management of Trust Assets. Except as described herein, the Trust will
not terminate or take other actions under the Swap Agreement or dispose of any
Underlying Security, regardless of adverse events, financial or otherwise, which
may affect the ability of the Westdeutsche Landesbank Girozentrale, acting
through its New York Branch ('WestLB'), as swap counterparty (in such capacity,
the 'Swap Counterparty'), to perform its obligations under the Swap Agreement or
the value of the Underlying Securities. If an event described under the heading
'Events of Default and Termination Events--Events of Default' herein occurs, the
Trustee will terminate the Swap Agreement in the manner provided in the Trust
Agreement, notwithstanding market conditions at the time. Such termination may
result in greater losses than otherwise might occur. In the event of early
termination of the Swap Agreement (other than in the case of Early Withdrawal)
the Trustee will not liquidate the Underlying Securities except upon direction
of 100% of the holders of outstanding Certificates.
Credit Risk. The ability of the Trust to pay the S&P 500 Appreciation
Amount (as defined below) is dependent on the ability of the Swap Counterparty
to make payments pursuant to the Swap Agreement. The long-term unsecured debt
rating of the Swap Counterparty is 'Aa1' by Moody's and 'AA+' by S&P as of the
date of this Prospectus Supplement. The obligations of the Swap Counterparty
under the Swap Agreement are not insured or guaranteed by the Federal Deposit
Insurance Corporation or by German banking authorities, or by any other person.
Receipt of the S&P 500 Appreciation Amount will be subject to all the risks
associated with a direct investment in unsecured debt obligations of the Swap
Counterparty.
No Investigation of Swap Counterparty. None of the Depositor, the
Underwriter or the Trustee will (i) make any investigation of the business
condition, financial or otherwise, of the Swap Counterparty or (ii) verify any
reports or information filed by the Swap Counterparty with the Commission.
Investors are encouraged to consider publicly available financial and other
information regarding the Swap Counterparty. The issuance of the Certificates
should not be construed as an endorsement by the Depositor, the Underwriter or
the Trustee of the financial condition or business prospects of the Swap
Counterparty.
Conflicts of Interest of the Calculation Agent. Lehman Brothers Finance
S.A. will act as the initial calculation agent (the 'Calculation Agent'). The
Calculation Agent will make certain determinations and judgments in connection
with the transactions described herein. Lehman Brothers Finance S.A. will enter
into a swap agreement (the 'Lehman Swap') with the WestLB under which Lehman
Brothers Finance S.A. will be required to make to WestLB the same payments that
the Swap Counterparty will be required to make to the Trust. As a result,
conflicts of interest may arise in connection with Lehman Brothers Finance S.A.
performing its role as Calculation Agent. Lehman Brothers Finance S.A. is
obligated to carry out its duties and functions as Calculation Agent in good
faith and using its reasonable judgment. The Trust Agreement will provide that
the Certificateholders will have no right to make any claim against the
Calculation Agent in the absence of gross negligence or willful misconduct.
In the event that the Lehman Swap is terminated prior to termination of the
Swap Agreement, WestLB will replace Lehman Brothers Finance S.A. as Calculation
Agent under the Swap Agreement. In such event, WestLB will be subject to
conflicting interests in the same manner as Lehman Brothers Finance S.A., as
described above.
Lehman Brothers Inc. and its affiliates may from time to time engage in
transactions involving the stocks underlying the S&P 500 Index for their
proprietary accounts and for other accounts under their management, which may
influence the value of such stocks and therefore the value of the S&P 500 Index.
Ratings of the Certificates. At the time of issuance, Moody's will assign
a rating of 'Aaa' to the principal component of the Certificates based upon the
rating of the Underlying Securities and a rating of 'Aa1' to the S&P
Appreciation Amount based upon the rating of the Swap Counterparty. Moody's
rating of the S&P Appreciation Amount reflects only the ability of the Swap
Counterparty to pay such amount, if any, and neither Moody's nor S&P's rating
constitutes a statement as to the market value of the S&P 500 Index, or whether,
or the
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extent to which, any S&P Appreciation Amount will be payable on the Scheduled
Distribution Date based upon the value of such index. Also, at the time of
issuance, S&P will assign a rating of 'AAAr' to the Certificates. S&P attaches
the symbol 'r' to the ratings of instruments such as the Certificates with
significant noncredit risks and is intended to highlight volatility of expected
returns which are not addressed in the credit rating of such instruments. Such
rating does not address the likelihood of receipt by the Certificateholders of
any amount due under the Swap Agreement.
The ratings of the Certificates by Moody's and S&P are based on repayment
on the Scheduled Distribution Date of the principal of Certificates being made
from proceeds derived from maturing Underlying Securities and, in the case of
Moody's rating, payment of all amounts due under the Swap Agreement by the Swap
Counterparty. There is no assurance that any such rating will continue for any
period of time or that it will not be revised or withdrawn entirely by the
related rating agency if, in its judgment, circumstances (including, without
limitation, a change in the rating of the Swap Counterparty in the case of
Moody's rating) so warrant. A revision or withdrawal of such rating may have an
adverse effect on the market price of Certificates. See 'Ratings.'
Any rating issued with respect to the Certificates is not a recommendation
to purchase, sell or hold a security inasmuch as such ratings do not comment on
the market price of the Certificates or their suitability for a particular
investor.
Suitability. It is suggested that prospective investors who consider
purchasing the Certificates should reach an investment decision only after
carefully considering the suitability of the Certificates in light of their
particular circumstances.
The Certificates are subject to certain additional considerations. See
'Risk Factors' herein and in the Prospectus.
THE TRUST
The Trust will be formed pursuant to the Series Supplement, Series
1997-SP-1 (the 'Series Supplement'), which incorporates the Standard Terms for
Trust Agreements (the 'Standard Terms,' and together with the Series Supplement,
the 'Trust Agreement') by and between the Depositor and the Trustee.
Concurrently with the execution and delivery of the Series Supplement, the
Depositor will deposit the Underlying Securities into the Trust. The Trustee, on
behalf of the Trust, will accept such Underlying Securities, will enter into the
Swap Agreement, will make the initial payment to the Swap Counterparty and will
deliver the Certificates to or upon the order of the Depositor.
THE STANDARD & POOR'S 500 INDEX
All disclosure contained in this Memorandum regarding the S&P 500 Index,
including, without limitation, its make-up, method of calculation and changes in
its components, is derived from publicly available information prepared by
Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies, Inc.
('S&P'). None of the Trust, the Swap Counterparty, the Depositor, the
Underwriter or Lehman Brothers Finance S.A. nor any of their respective
affiliates takes any responsibility for the accuracy or completeness of such
information.
'Standard & Poor's(R),' 'S&P(R),' 'S&P 500(R),' 'Standard & Poor's 500(R)'
and '500(R)' are trademarks of The McGraw-Hill Companies, Inc. and have been
licensed for use by Lehman Brothers Inc. The Certificates are not sponsored,
endorsed, sold or promoted by S&P. S&P makes no representation or warranty,
express or implied, to the holders of the Certificates or any member of the
public regarding the advisability of investing in securities generally or in the
Certificates particularly or the ability of the S&P 500 Index to track general
stock market performance. S&P's only relationship to Lehman Brothers Inc. is the
licensing of certain trademarks and trade names of S&P and of the S&P 500 Index
which is determined, composed and calculated by S&P without regard to Lehman
Brothers Inc. or the Certificates. S&P has no obligation to take the needs of
Lehman Brothers Inc. or the holders of the Certificates into consideration in
determining, composing or calculating the S&P 500 Index. S&P is not responsible
for and has not participated in the determination of the prices and amount of
the Certificates or the timing of the issuance or sale of the Certificates or in
the
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determination or calculation of the equation by which the Certificates are to be
converted into cash. S&P has no obligation or liability in connection with the
administration, marketing or trading of the Certificates.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE CALCULATION AGENT, THE HOLDERS OF
THE CERTIFICATES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES,
AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED
THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY
LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
GENERAL
The S&P 500 Index is published by S&P and is intended to provide an
indication of the pattern of common stock price movement. The calculation of the
value of the S&P 500 Index (discussed below in further detail) is based on the
relative value of the aggregate market value of the common stocks of 500
companies as of a particular time as compared to the aggregate average market
value of the common stocks of 500 similar companies during the base period of
the years 1941 through 1943. As of July 31, 1997, the 500 companies included in
the S&P 500 Index represented approximately 76% of the aggregate market value of
common stocks traded on the NYSE; however, the 500 companies are not the 500
largest companies listed on the NYSE and not all 500 companies are listed on
such exchange. As of July 31, 1997, the aggregate market value of the 500
companies included in the S&P 500 Index represented approximately 72% of the
aggregate market value of United States domestic public companies. S&P chooses
companies for inclusion in the S&P 500 Index with the aim of achieving a
distribution by broad industry groupings that approximates the distribution of
these groupings in the common stock population of the NYSE, which S&P uses as an
assumed model for the composition of the total market. Relevant criteria
employed by S&P include the viability of the particular company, the extent to
which that company represents the industry group to which it is assigned, the
extent to which the market price of that company's common stock is generally
responsive to changes in the affairs of the respective industry and the market
value and trading activity of the common stock of that company. As of July 31,
1997 the 500 companies included in the S&P 500 Index were divided into 103
individual groups. These individual groups comprised the following four main
groups of companies (with the number of companies currently included in each
group indicated in parentheses): Industrials (384), Utilities (39),
Transportation (11), and Financial (64). S&P may from time to time, in its sole
discretion, add companies to, or delete companies from, the S&P 500 Index to
achieve the objectives stated above.
COMPUTATION OF THE S&P 500 INDEX
S&P currently computes the S&P 500 Index as of a particular time as
follows:
(1) the market value of each component stock is determined as of such
time;
(2) the market value of all component stocks as of such time (as
determined under clause (1) above) are aggregated;
(3) the mean average of the market value of each week in the base
period for the years 1941 through 1943 of the common stock of each company
in a group of 500 substantially similar companies is determined;
(4) the mean average market value of all such common stocks over such
base period (as determined under clause (3) above) are aggregated (such
aggregate amount being referred to as the 'Aggregate Base Value');
(5) the aggregate market value of all component stocks as of such time
(as determined under clause (2) above) is divided by the Aggregate Base
Value; and
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(6) the resulting quotient (expressed in decimals) is multiplied by
ten.
While S&P currently employs the above methodology to calculate the S&P 500
Index, no assurance can be given that S&P will not modify or change such
methodology in a manner that may affect the Certificates.
S&P adjusts the foregoing formula to negate the effect of changes in the
market value of a component stock that are determined by S&P to be arbitrary or
not due to true market fluctuations. Such changes may result from such causes as
the issuance of stock dividends, the granting to shareholders of rights to
purchase additional shares of such stock, the purchase thereof by employees
pursuant to employee benefit plans, certain consolidations and acquisitions, the
granting to shareholders of rights to purchase other securities of the company,
the substitution by S&P of particular component stocks in the S&P 500 Index, and
other reasons. In all such cases, S&P first recalculates the aggregate market
value of all component stocks (after taking account of the new market price per
share of the particular component stock or the new number of outstanding shares
thereof or both, as the case may be) and then determines the new Aggregate Base
Value in accordance with the following formula:
new market value new
old Aggregate X ---------------- = Aggregate Base
Base Value old market value Value
The result is that the Aggregate Base Value is adjusted in proportion to
any change in the aggregate market value of all component stocks resulting from
the causes referred to above to the extent necessary to negate the effects of
such causes upon the S&P 500 Index.
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HISTORICAL DATA ON THE S&P 500 INDEX
The following tables set forth the closing values of the S&P 500 Index on
the last business day of each year from 1947 through 1996 and the high, low and
closing value of the S&P 500 Index for each quarter from 1989 through to
present, as published by S&P. The historical experience of the S&P 500 Index
should not be taken as an indication of future performance.
YEAR END VALUE OF THE S&P 500 INDEX
YEAR CLOSING VALUE YEAR CLOSING VALUE
- ----- ------------- ---- -------------
1947 15.30 1972 118.05
1948 15.20 1973 97.55
1949 16.76 1974 68.56
1950 20.41 1975 90.19
1951 23.77 1976 107.46
1952 26.57 1977 95.10
1953 24.81 1978 96.11
1954 35.98 1979 107.94
1955 45.48 1980 135.76
1956 46.67 1981 122.55
1957 39.99 1982 140.64
1958 55.21 1983 164.93
1959 59.89 1984 167.24
1960 58.11 1985 211.28
1961 71.55 1986 242.17
1962 63.10 1987 247.08
1963 75.02 1988 277.72
1964 84.75 1989 353.40
1965 92.43 1990 330.22
1966 80.33 1991 417.09
1967 96.47 1992 435.71
1968 103.76 1993 466.45
1969 92.06 1994 459.27
1970 92.15 1995 615.93
1971 102.09 1996 740.74
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QUARTERLY VALUES OF THE S&P 500 INDEX SINCE 1989
LAST DAILY VALUES
CLOSING
HIGH LOW VALUE
------ ------ -------
1989:
1st Quarter............................. 299.63 275.31 294.87
2nd Quarter............................. 328.44 295.29 317.98
3rd Quarter............................. 353.73 319.23 349.15
4th Quarter............................. 359.80 332.61 353.40
1990:
1st Quarter............................. 359.69 322.98 339.94
2nd Quarter............................. 367.40 329.11 358.02
3rd Quarter............................. 368.95 300.97 306.05
4th Quarter............................. 331.75 295.46 330.22
1991:
1st Quarter............................. 376.72 311.49 375.22
2nd Quarter............................. 390.45 368.57 371.16
3rd Quarter............................. 396.64 373.33 387.86
4th Quarter............................. 417.09 375.22 417.09
1992:
1st Quarter............................. 420.77 403.00 403.69
2nd Quarter............................. 418.49 394.50 408.14
3rd Quarter............................. 425.27 409.16 417.80
4th Quarter............................. 441.28 402.66 435.71
1993:
1st Quarter............................. 456.33 429.05 451.67
2nd Quarter............................. 453.85 433.54 450.53
3rd Quarter............................. 463.56 441.43 458.93
4th Quarter............................. 470.94 457.48 466.45
1994:
1st Quarter............................. 482.00 445.55 445.76
2nd Quarter............................. 462.37 438.92 442.27
3rd Quarter............................. 476.07 446.13 462.71
4th Quarter............................. 473.77 445.45 459.27
1995:
1st Quarter............................. 503.90 459.11 500.71
2nd Quarter............................. 551.07 501.85 544.75
3rd Quarter............................. 586.77 547.09 584.41
4th Quarter............................. 615.93 612.36 615.93
1996:
1st Quarter............................. 661.45 598.48 645.50
2nd Quarter............................. 678.51 631.18 670.63
3rd Quarter............................. 687.31 626.65 687.31
4th Quarter............................. 757.03 687.31 740.74
1997:
1st Quarter............................. 816.29 737.01 757.12
2nd Quarter............................. 898.70 737.65 885.14
3rd Quarter (through August 13, 1997)... 960.32 891.03 922.02
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MODIFICATIONS TO OR DISCONTINUANCE OF S&P 500 INDEX
If S&P discontinues publication of the S&P 500 Index and S&P or another
entity publishes a successor or substitute index that the Calculation Agent
determines, in its sole discretion, to be comparable to the S&P 500 Index (any
such index being referred to hereinafter as a 'Successor Index'), then, upon the
Calculation Agent's notification of such determination to the
Certificateholders, the Trust and the Swap Counterparty, the Calculation Agent
will substitute the Successor Index as calculated by S&P or such other entity
for the S&P 500 Index.
If S&P discontinues publication of the S&P 500 Index and a Successor Index
is not selected by the Calculation Agent or is not published on any Evaluation
Date, the index to be substituted for the S&P 500 Index with respect to each
such Evaluation Date will be an index as described below under 'Discontinuance
of the S&P 500 Index.'
If a Successor Index is selected or the Calculation Agent determines an
index as a substitute for the S&P 500 Index as described below, such Successor
Index or index shall be substituted for the S&P 500 Index for all purposes,
including for purposes of determining whether a Market Disruption Event exists.
If at any time the method of calculating the S&P 500 Index, or the value
thereof, is changed in a material respect, or if the S&P 500 Index is modified
in any other way such that, in the opinion of the Calculation Agent, the S&P 500
Index does not fairly represent the value that the S&P 500 Index would have had
if such changes or modifications had not been made, then from and after such
time, the Calculation Agent shall, on each such Evaluation Day, make such
adjustment as in the good faith judgment of the Calculation Agent, may be
necessary in order to arrive at a calculation of a stock index comparable to the
S&P 500 Index as if such changes or modification had not been made. Accordingly,
if the method of calculating the S&P 500 Index is modified so that the value of
such S&P 500 Index is a fraction or a multiple of what it would have been if it
had not been modified (e.g., due to a split in the S&P 500 Index), then the
Calculation Agent shall adjust such S&P 500 Index in order to arrive at a
determinate of the S&P 500 Index as if it had not been modified (e.g., as if
such split had not occurred.)
DISCONTINUANCE OF THE S&P 500 INDEX
If the publication of the S&P 500 Index is discontinued and S&P or another
entity does not publish a Successor Index on any Evaluation Day on or prior to
the Evaluation Date, the index to be substituted for the S&P 500 Index for each
such Evaluation Day will be computed by the Calculation Agent in accordance with
the following procedures:
(1) identifying the component stocks of the S&P 500 Index or any Successor
Index as of the last date on which either of such indices was
calculated by S&P or another entity mutually acceptable to the
Calculation Agent and the Certificateholder and published by S&P or
such other entity (each such component stock is an 'Index Component
Stock');
(2) for each Index Component Stock, calculating as of each such Evaluation
Day the product of the market price per share and the number of the
then outstanding shares (such product referred to as the 'market value'
of such Index Component Stock), by reference to (a) the closing market
price per share of such Index Component Stock as, quoted by the
American Stock Exchange, the NYSE or any other registered national
securities exchange that is the primary market for such Index Component
Stock, or if no such quotation is available, then the closing market
price as quoted by any other registered national securities exchange or
the National Association of Securities Dealers Automated Quotation
National Market System, or if no such price is quoted, then the market
price from the best available source as determined by the Calculation
Agent, in each case as determined by the Calculation Agent
(collectively, the 'Exchange') and (b) the most recent publicly
available statement of the number of outstanding shares of such Index
Component Stock;
(3) aggregating the Market Values obtained in clause (2) for all Index
Component Stocks;
(4) ascertaining the Aggregate Base Value in effect as of the last day on
which either the S&P 500 Index or any Successor Index was published by
S&P or another entity, adjusted as described below;
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(5) dividing the aggregate Market Value of all Index Component Stocks by
the Aggregate Base Value (adjusted as described below); and
(6) multiplying the resulting quotient (expressed in decimals) by ten.
'Aggregate Base Value' means the aggregate of the mean average Market Value of
the common stock of each company in a group of 500 companies substantially
similar to the current S&P 500 group over the base period of the years 1941
through 1943.
If any Index Component Stock is no longer publicly traded on any registered
national securities exchange or in the over-the-counter market, the last
available market price per share for such Index Component Stock by any
registered national securities exchange or in the over-the-counter market, and
the number of outstanding shares thereof at such time, will be used in computing
the last available Market Value of such Index Component Stock. Such Market Value
will be used in the computation of the S&P 500 Index thereafter.
If a company that has issued an Index Component Stock and another company
that has issued an Index Component Stock are consolidated to form a new company,
the common stock of such new company will be considered an Index Component Stock
and the common stocks of the constituent companies will no longer be considered
Index Component Stocks. If any company that has issued an Index Component Stock
merges with, or acquires, a company that has not issued an Index Component
Stock, the common stock of the surviving corporation will, upon the
effectiveness of such merger or acquisition, be considered an Index Component
Stock. In each such case, the Aggregate Base Value will be adjusted so that the
Aggregate Base Value immediately after such consolidation, merger or acquisition
will equal (a) the Aggregate Base Value immediately prior to such event,
multiplied by (b) the quotient of the aggregate Market Value of all Index
Component Stocks immediately after such event, divided by the aggregate Market
Value for all Index Component Stocks immediately prior to such event.
If a company that has issued an Index Component Stock issues a stock
dividend, effects a stock split or issues new shares pursuant to the acquisition
of another company, then, in each case, the Aggregate Base Value will be
adjusted (in accordance with the formula described below) so that the Aggregate
Base Value immediately after the time the particular Index Component Stock
commences trading ex-dividend, the effectiveness of the stock split or the time
new shares of such Index Component Stock commence trading equals (a) the
Aggregate Base Value immediately prior to such event, multiplied by (b) the
quotient of the aggregate Market Value for all Index Component Stocks
immediately after such event, divided by the aggregate Market Value of all Index
Component Stocks immediately prior to such event.
The Aggregate Base Value used by the Calculation Agent to calculate the
value described above will not necessarily be adjusted in all cases in which S&P
in its discretion, might adjust the Aggregate Base Value (as described above
under the 'The Standard & Poor's 500 Index--Computation of the S&P 500 Index).
In particular, the Calculation Agent is not permitted by the above standards to
substitute new Index Component Stocks for those of bankrupt or otherwise
troubled companies, although S&P has done so on various occasions in the past.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The S&P-Linked Investment Trust Certificates, Series 1997-SP-1
('SPLITs(Service Mark)' or the 'Certificates') will be denominated and
distributions with respect thereto will be payable in U.S. dollars (the
'Specified Currency'). The Certificates have an initial aggregate principal
amount of $25,000,000.
Each Certificate represents a proportionate undivided beneficial interest
in certain distributions to be made by the Trust, and will be issued pursuant to
the Series Supplement, Series 1997-SP-1 (the 'Series Supplement'), which
incorporates the Standard Terms for Trust Agreements (the 'Standard Terms,'
together with the Series Supplement, the 'Trust Agreement') by and between
Lehman ABS Corporation (the 'Depositor') and the Trustee. The Depositor, an
indirect, wholly-owned subsidiary of Lehman Brothers Inc., will deposit the
Underlying Securities into the Trust. The Trustee will be The Bank of New York.
The Trustee will receive compensation at the rate set forth in the Trust
Agreement, payable by the Depositor or an affiliate thereof (the 'Trustee Fee').
The principal assets of the Trust will be:
(1) The ownership interest in, and the right to receive payment at
maturity on, the Underlying Securities; and
(2) The rights of the Trust under the Swap Agreement.
The Scheduled Distribution Date will be August 15, 2007. The Trust Assets
will be the sole source of distributions on the Certificates. In general, no
distributions will be made on the Certificates except on the Scheduled
Distribution Date. Early withdrawal of the Certificateholder's interest in the
Trust Assets will not be permitted except upon the death or adjudication of
insanity of the Certificateholder. In addition, the Depositor will have certain
limited Optional Exchange rights with respect to Certificates that may be
acquired by the Depositor or its affiliates. See 'Description of the
Certificates--Early Withdrawal' and 'Description of the Certificates--Optional
Exchange by the Depositor.' In addition, an early redemption could result from a
default by the Swap Counterparty. See 'Description of the Trust Assets--the Swap
Agreement.'
On the Scheduled Distribution Date, Certificateholders are scheduled to
receive their proportionate share of the Final Distribution Amount with respect
to the Certificates. The 'Final Distribution Amount' will be an amount equal to
(i) the par amount of the Certificates plus (ii) the product of the S&P 500
Appreciation Factor and the aggregate principal amount of the Certificates (such
product, the 'S&P Appreciation Amount'). the 'S&P 500 Appreciation Factor' will
be equal to the positive value, if any, of (i) the average of the closing values
(the 'Final Value') of the S&P 500 Composite Stock Price Index (the 'S&P 500
Index') on the Evaluation Dates (subject to adjustment as provided herein) minus
the closing value of such index on the Closing Date (the 'Base Value'), divided
by (ii) the Base Value. The Final Value will be determined by the Calculation
Agent. For a description of the S&P 500 Index and the method of calculation
thereof, see 'The Standard & Poor's 500 Index' herein. The Evaluation Dates
shall be June 1, 2007, July 1, 2007 and August 1, 2007; provided, however that
if any such day is not an Evaluation Day, as determined in good faith by the
Calculation Agent, the applicable Evaluation Date shall be the next following
day that is an Evaluation Day. An Evaluation Day is any day on which the NYSE
and the American Stock Exchange are open for trading (a 'Trading Day') and a
Market Disruption Event has not occurred.
'Market Disruption Event' means either (i) the suspension or material
limitation, in each case, for more than two hours of trading in 100 or more of
the securities included in the S&P 500 Index or (ii) the suspension or material
limitation, in each case, for more than two hours of trading (whether by reason
of movements in price otherwise exceeding levels permitted by the relevant
exchange or otherwise) in (A) futures contracts related to the S&P 500 Index
which are traded on the Chicago Mercantile Exchange or (B) option contracts
related to the S&P 500 Index which are traded on the Chicago Board Options
Exchange, Inc. The phrase 'material limitation' as used in the preceding
sentence shall include, without limitation, limitations pursuant to NYSE Rule
80A (or any applicable rule or regulation enacted or promulgated by the NYSE or
any other self-regulatory organization or the Securities and Exchange
Commissions of similar scope as determined by the Calculation Agent) on trading
during significant market fluctuations; provided, however, that a limitation on
the hours in a trading day and/or
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number of days of trading will not constitute a Market Disruption Event if it
results from an announced change in the regular business hours of the relevant
exchange. The determination of whether or not a Market Disruption Event has
occurred on any Trading Day shall be made by the Calculation Agent.
The Calculation Agent shall be Lehman Brothers Finance S.A. Except as
otherwise provided herein, all determinations made by the Calculation Agent
shall be at the sole discretion of the Calculation Agent and, in the absence of
manifest error, shall be conclusive for all purposes and binding on the Trust
and the Certificateholders. The Calculation Agent will enter into a swap
agreement with WestLB on terms similar to those of the Swap Agreement (the
'Lehman Swap'). The Trust will not be a party to and will have no rights under
the Lehman Swap. In the event that the Lehman Swap is terminated prior to
termination of the Swap Agreement, WestLB will replace Lehman Brothers Finance
S.A., as Calculation Agent under the Agreement.
EARLY WITHDRAWAL
Early withdrawal of a Certificateholder's investment generally is not
permitted. However, early withdrawal is permitted upon the death or adjudication
of insanity of a Certificateholder, in which case ('Early Withdrawal') such
Certificateholder will be entitled to receive the sum of (i) the sale proceeds
of such Certificateholder's proportionate share of the Underlying Securities
(the 'Liquidation Proceeds') plus (ii) any termination payment due to the Trust
in connection with the partial Early Termination of the Swap Agreement minus
(iii) an amount equal to 6 1/4% of the principal amount of Certificates being
redeemed (such amount, the 'Early Withdrawal Proceeds'). The termination payment
specified in clause (ii) will generally be equal to the market value of the
Trust's rights in the portion of the Swap Agreement to be terminated, as
determined in good faith by the Calculation Agent. Such Early Withdrawal will
result in a partial termination of the Swap Agreement, as a result of which the
Notional Amount (as defined below) will be reduced by an amount equal to the
principal amount of the Certificates that are the subject of the Early
Withdrawal. See 'The Trust Assets-- The Swap Agreement--Payments Upon Early
Termination.'
Subject to the conditions set forth in the next succeeding paragraph, upon
the occurrence of an event of Early Withdrawal, the legal representative of the
holder of the Certificates subject to such Early Withdrawal (the 'Legal
Representative') shall provide to the Trustee a written request relating to such
Early Withdrawal. Such request shall set forth the basis for such Early
Withdrawal and shall be accompanied by such evidence required by the Trustee to
verify the basis for such Early Withdrawal. Upon receipt of such request and
verification of such evidence, the Trustee shall (i) establish a date upon which
the applicable Certificates will be redeemed (the 'Early Withdrawal Date') and
(ii) notify the Legal Representative of the date of such redemption and the
principal amount of Certificates to be redeemed.
Any redemption resulting from Early Withdrawal shall be subject to the
following conditions:
(i) the beneficial owner must have owned the Certificates which are
the subject of such redemption for at least 180 days;
(ii) the aggregate amount of Certificates that may be redeemed for
events of Early Withdrawal during any 12-month period shall be limited to
25% of the average outstanding principal balance of Certificates (the
'Early Withdrawal Volume Cap') during such 12-month period; and
(iii) in the event that the Trustee receives Early Withdrawal requests
for more than the Early Withdrawal Volume Cap, the Trustee shall accept
such requests in the order that they were received by the Trustee;
provided, however, that if the Trustee is required to reject an Early
Withdrawal request, in whole or in part, because it would exceed the Early
Withdrawal Volume Cap during such 12-month period, the Trustee shall
establish an Early Withdrawal Date on the next date upon which such
redemption will not exceed the Early Withdrawal Volume Cap.
DTC
The Certificates will be delivered in registered form. The Certificates
will be issued, maintained and transferred on the book-entry records of DTC and
its Participants in minimum principal amounts of $1,000 and integral multiples
thereof. One Certificate may be issued in an amount other than an integral
multiple of the applicable minimum denomination. The Certificates will initially
be represented by one or more global
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certificates registered in the name of the nominee of DTC (together with any
successor clearing agency selected by the Depositor, the 'Clearing Agency'),
except as provided below. The Depositor has been informed by DTC that DTC's
nominee will be CEDE & Co. ('CEDE'). No holder of any such Certificate will be
entitled to receive a certificate representing such person's interest, except as
set forth below under '--Definitive Certificates.' Unless and until Definitive
Certificates are issued under the limited circumstances described herein, all
references to actions by Certificateholders with respect to any such
Certificates shall refer to actions taken by DTC upon instructions from its
Participants. See '--Definitive Certificates' below and 'Description of
Certificates--Global Securities' in the Prospectus.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC will take action permitted to be taken by a
Certificateholder under the Trust Agreement only at the direction of one or more
Participants to whose DTC account such Certificates are credited. Additionally,
DTC will take such actions with respect to specified voting rights only at the
direction and on behalf of participants whose holdings of such certificates
evidence such specified voting rights. DTC may take conflicting actions with
respect to voting rights, to the extent that Participants, whose holdings of
Certificates evidence such voting rights, authorize divergent action.
DEFINITIVE CERTIFICATES
Definitive Certificates will be issued to Certificateholders or their
nominees, respectively, rather than to DTC or its nominee, only if (i) the
Depositor advises the Trustee in writing that DTC is no longer willing or able
to discharge properly its responsibilities as Clearing Agency with respect to
the Certificates and the Depositor is unable to locate a qualified successor or
(ii) the Depositor, at its option, elects to terminate the book-entry system
through DTC.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee is required to notify all Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the definitive certificates representing the Certificates and receipt of
instructions for re-registration, the Trustee will reissue such Certificates as
Definitive Certificates issued in the respective principal amounts owned by the
individual owners of such Certificates, and thereafter the Trustee will
recognize the holders of such Definitive Certificates as Certificateholders
under the Trust Agreement.
LISTING ON THE NEW YORK STOCK EXCHANGE
The Certificates have been authorized for listing, upon official notice of
issuance, with the NYSE. There can be no assurance that the Certificates, once
listed, will continue to be eligible for trading on the NYSE.
COLLECTIONS AND DISTRIBUTIONS
Collections on the Trust Assets that are received by the Trustee pursuant
to the procedures described herein and in the Prospectus and deposited from time
to time into the Certificate Account will be applied by the Trustee on the
Scheduled Distribution Date or on any earlier date selected by the Trustee in
connection with an Early Termination relating to a partial or full redemption of
the Certificates (together with the Scheduled Distribution Date, the
'Distribution Dates') to the following distributions in the following order of
priority, solely to the extent of Available Funds (as defined below) on such
Distribution Date:
(a) to the Trustee, reimbursement for any Extraordinary Expenses
incurred by the Trustee in accordance with the Trust Agreement pursuant to
instructions of not less than 100% of the Certificateholders;
(b) solely in event of Early Termination relating to Early Withdrawal,
to the Swap Counterparty an amount equal to the Early Withdrawal Penalty;
provided that such distribution is conditioned on the Swap Counterparty
making the requisite termination payment, if any, under the Swap Agreement;
and
(c) the remainder to the holders of the Certificates; provided that,
in the case of Early Withdrawal, distributions shall be limited to
applicable Certificateholders in an amount equal to the Early Withdrawal
Proceeds.
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'Available Funds' for any Distribution Date means (i) all amounts actually
received on or with respect to Underlying Securities (including Liquidation
Proceeds) and (ii) all amounts received under the Swap Agreement from the Swap
Counterparty.
If the Trustee has not received payment on a Trust Asset on or prior to a
Distribution Date, such distribution will be made upon receipt of payment on the
applicable Trust Asset. No additional amounts will accrue on the Certificates or
be owed to Certificateholders as a result of any such delay. In the event of a
default on a Trust Asset, approved Extraordinary Expenses (see 'Description of
the Trust Agreement--The Trustee' herein) of the Trustee may be reimbursed to
the Trustee out of Available Funds before any distributions to
Certificateholders are made.
There can be no assurance that collections received from the Trust Assets
will be sufficient to make all required distributions to the Certificateholders.
The Trustee will bear its Ordinary Expenses.
OPTIONAL EXCHANGE OF CERTIFICATES BY DEPOSITOR
The Depositor or any affiliate of the Depositor may, if it holds
Certificates, notify the Trustee, not less than 30 (or such shorter period
acceptable to the Trustee) but not more than 45 days prior to each February 15
and August 15 (an 'Optional Exchange Date'), or the next succeeding Business Day
if such Optional Exchange Date is not a Business Day, that it intends to tender
such Certificates to the Trustee on such Optional Exchange Date; provided,
however, that in order to effect such Optional Exchange, the Depositor must have
continuously held the Certificates that are the subject of such Optional
Exchange for at least 180 days as of the date of such Optional Exchange and,
provided, further, that, the Depositor shall be permitted to tender not more
than five percent of the outstanding principal amount of Certificates on each
Optional Exchange Date. The Calculation Agent will determine the termination
payment, if any, to be paid by the Swap Counterparty on the Optional Exchange
Date. Such payment will equal proportionate share of the market value, if any,
of the Trust's rights under the Swap Agreement as determined in good faith by
the Calculation Agent. Upon such tender, the Trustee will deliver to the
Depositor (i) its proportionate share of the Underlying Securities corresponding
to the principal amount of the Certificates being tendered by the Depositor and
(ii) any early termination payment received from the Swap Counterparty.
DEFAULT ON TRUST ASSETS
The Trustee generally will not be required to take action in respect of a
default under, or other adverse event in connection with a Trust Asset. However,
upon the occurrence of an Event of Default under the Swap Agreement specified
under the heading 'Description of the Trust Asset--Events of Default and
Termination Events,' the Trustee will terminate the Swap Agreement. In the event
of early termination of the Swap Agreement (other than in the case of Early
Withdrawal) the Trustee will not direct the Market Agent to sell the Underlying
Securities except upon direction of 100% of the Certificateholders. (See 'The
Market Agent Agreement--Sale of the Underlying Securities'). The proceeds of the
Underlying Securities, if any, and any termination payment received under the
Swap Agreement will be distributed to the holders of the Certificates.
THE DEPOSITOR
Lehman ABS Corporation (the 'Depositor') was incorporated in the State of
Delaware on January 29, 1988. The Depositor is a wholly owned, special purpose
subsidiary of Lehman Commercial Paper Inc. ('LCPI'), which is itself a wholly
owned subsidiary of Lehman Brothers Inc., which is a wholly owned subsidiary of
Lehman Brothers Holdings Inc. ('Holdings'). None of Lehman Brothers Inc., LCPI,
Holdings or the Depositor, nor any affiliate of the foregoing, has guaranteed or
is otherwise obligated with respect to the Certificates.
The principal executive offices of the Depositor are located at Three World
Financial Center, New York, New York 10285 (Telephone: (212) 526-4428). See 'The
Depositor' in the Prospectus.
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DESCRIPTION OF THE TRUST ASSETS
THE UNDERLYING SECURITIES
The Underlying Securities consist of $25,000,000 aggregate principal amount
of United States Treasury Zero Coupon STRIPS, due August 15, 2007, issued by the
Treasury Department of the United States of America. The entire principal amount
of the Underlying Securities will be payable on the Underlying Securities
Maturity Date. The Underlying Securities Maturity Date is August 15, 2007.
THE SWAP AGREEMENT
The Swap Counterparty is WestLB. The Notional Amount will be equal to the
outstanding principal amount of the Certificates. The initial Notional Amount
will be $25,000,000. The Termination Date is August 15, 2007, unless sooner
terminated in whole or in part in accordance with the terms of the Swap
Agreement. Under the Swap Agreement, the Swap Counterparty will be obligated to
pay the Trust, on the Scheduled Distribution Date, an amount equal to the
positive value, if any, of the product of (i) the S&P 500 Appreciation Factor
and (ii) the principal amount of the Certificates. See 'The Certificates--Final
Distribution Amount' and 'The Standard & Poor's 500 Index' herein. Under the
Swap Agreement, the Trust will be obligated to pay the Swap Counterparty an
initial payment on the Closing Date.
Upon the occurrence of an Event of Default (other than an event specified
in clause (b) under the heading 'The Swap Agreement--Events of Default'), the
Trustee will give notice thereof to the Certificateholders, and, on the 15th
Business Day after giving such notice, will terminate the Swap Agreement unless
otherwise directed in writing by Certificateholders representing at least
66 2/3% of the outstanding Certificates. If an Event of Default specified in
clause (b) under the heading 'The Swap Agreement--Events of Default,' has
occurred, the Trustee will immediately terminate the Swap Agreement without
notice to Certificateholders.
Payments Upon Early Termination. In the event of a complete Early
Termination of the Swap Agreement or a partial termination resulting from an
Early Withdrawal or an Optional Exchange by the Depositor, the Trustee will
terminate the Swap Agreement (in whole or in part, as applicable). In the case
of a partial termination resulting from an Early Withdrawal, the Trustee will
(i) direct the Market Agent to sell a portion of the Underlying Securities in
accordance with the Sale Procedures for settlement on the related Early
Termination Date and (ii) distribute the Liquidation Proceeds, if any, of such
sale of the Underlying Securities to the applicable Certificateholders plus any
termination payment due to the Trust in connection with the Early Termination of
the Swap Agreement. An amount equal to 6 1/4% of the Certificates being redeemed
will be deducted from any payment to Certificateholders as a result of Early
Withdrawal. In the case of a partial termination resulting from an Optional
Exchange by the Depositor, the Trustee will distribute to the Depositor (i) its
proportionate share of Underlying Securities corresponding to the amount of
Certificates being tendered and (ii) any termination payment due to the Trust
from the Swap Counterparty. In the event of early termination of the Swap
Agreement (other than in the case of Early Withdrawal) the Trustee will not
direct the Market Agent to sell the Underlying Securities except upon direction
of 100% of the Certificateholders. See 'The Trust Assets--The Swap
Agreement--Payments Upon Early Termination.'
In the event of an Early Termination, the Calculation Agent will determine
the termination payment to be paid by the Swap Counterparty. Such amount will
equal the market value of the Trust's rights under the Swap Agreement (or
portion thereof to be terminated) to be determined in good faith by the
Calculation Agent. Such termination payment will be paid to Certificateholders
together with delivery of Liquidation Proceeds (net of withdrawal penalties in
the case of an Early Withdrawal) or Underlying Securities, as the case may be,
as described under 'Description of the Certificate--Early Withdrawal' and
'Description of the Certificates-- Optional Exchange by Depositor.' In
connection with any Early Withdrawal of a Certificateholder's investment or
Optional Exchange by the Depositor, the Notional Amount of the Swap will be
reduced by the aggregate principal amount of the Certificates subject to such
Early Withdrawal or Optional Exchange. See 'Description of the
Certificates--Early Withdrawal,' 'Description of Certificates--Optional Exchange
by Depositor,' and 'The Swap Agreement--Termination Events herein.'
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EVENTS OF DEFAULT AND TERMINATION EVENTS
Events of Default. The occurrence of any of the following with respect to
the Swap Counterparty, on the one hand, or the Trust, on the other hand,
constitutes an event of default (an 'Event of Default') under the Swap Agreement
by such party (the 'Defaulting Party'):
(a) failure by the Swap Counterparty to make, when due, any payment
under the Swap Agreement required to be made by it if such failure is not
remedied on or before the third Business day after notice of such failure
is given to the Swap Counterparty;
(b) the Swap Counterparty (1) is dissolved (other than pursuant to a
consolidation, amalgamation or merger); (2) becomes insolvent or is unable
to pay its debts or fails or admits in writing its inability generally to
pay its debts as they become due; (3) makes a general assignment,
arrangement or composition with or for the benefit of its creditors; (4)
institutes or has instituted against it a proceeding seeking a judgment of
insolvency or bankruptcy or any other relief under any bankruptcy or
insolvency law or other similar law affecting creditors' rights, or a
petition is presented for its winding-up or liquidation, and, in the case
of any such proceeding or petition instituted or presented against it, such
proceeding or petition (A) results in a judgment of insolvency or
bankruptcy or the entry of an order for relief or the making of an order
for its winding-up or liquidation or (B) is not dismissed, discharged,
stayed or restrained in each case within 30 days of the institution or
presentation thereof; (5) has a resolution passed for its winding-up,
official management or liquidation (other than pursuant to a consolidation,
amalgamation or merger); (6) seeks or becomes subject to the appointment of
an administrator, provisional liquidator, conservator, receiver, trustee,
custodian or other similar official for it or for all or substantially all
of its assets; (7) has a secured party take possession of all or
substantially all of its assets or has a distress, execution, attachment,
sequestration or other legal process levied, enforced or sued on or against
all or substantially all its assets and such secured party maintains
possession, or any such process is not dismissed, discharged, stayed or
restrained, in case within 30 days thereafter; (8) causes or is subject to
any event with respect to it which, under the applicable laws of any
jurisdiction, has an analogous effect to any of the events specified in
clauses (1) to (7) (inclusive); or (9) takes any action in furtherance of,
or indicating its consent to, approval of, or acquiescence in, any of the
foregoing acts;
(c) In the case of the Swap Counterparty, the occurrence or existence
of (i) a default, event of default or other similar condition or event
(however described) in respect of the Swap Counterparty under one or more
agreements or instruments relating to Specified Indebtedness in an
aggregate amount of not less than the applicable Threshold Amount which has
resulted in such Specified Indebtedness becoming, or becoming capable at
such time of being declared, due and payable under such agreements or
instruments, before it would otherwise have been due and payable or (2) a
default by such party in making one or more payments on the due date
thereof in an aggregate amount of not less than the applicable Threshold
Amount under such agreements or instruments (after giving effect to any
applicable notice requirement or grace period);
'Specified Indebtedness' means any obligation of the Swap Counterparty
(whether present or future, contingent or otherwise, as principal or security or
otherwise) in respect of borrowed money.
'Threshold Amount' means $100,000,000 or the equivalent thereof in
currencies other than U.S. Dollars based on the spot exchange rate of such
currencies as of the date of determination; and
(d) The Swap Counterparty consolidates or amalgamates with, or merges
into, or transfers all or substantially all of its assets to, another
entity and, at the time of such consolidation, amalgamation, merger or
transfer the resulting, surviving or transferee entity fails to assume all
of the obligations of the Swap Counterparty under the Swap Agreement.
Termination Events. The occurrence of any of the following with respect to
the Swap Counterparty or the Trust constitutes a termination event (a
'Termination Event') under the Swap Agreement with respect to such party:
(a) In the case of the Trust or the Swap Counterparty, as a result of
certain legislative, regulatory or judicial action, it becomes unlawful for
such party to comply with any material provision of the Swap Agreement,
including any payment obligation;
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(b) In the case of the Trust Certificates have been tendered by the
Depositor pursuant to an Optional Exchange as described under 'Description
of the Certificates--Optional Exchange by Depositor' in which case the
Notional Amount of the Transaction will be reduced by an amount equal to
the Optional Termination Amount; and
(c) In the case of the Trust, an Early Withdrawal has occurred as
described under 'Description of the Certificate--Early Withdrawal,' in
which case the Notional Amount of the Transaction will be reduced by an
amount equal to the principal amount of Underlying Securities affected
thereby.
Early Termination Date. If an Event of Default occurs in which the Swap
Counterparty is the 'Defaulting Party' or a Termination Event occurs and a
Termination Payment is due to the Trust from such Swap Counterparty (or there is
no Termination Payment due by either party), the Swap Agreement provides that
the Trustee may designate as an Early Termination Date the earliest date on
which the Swap Agreement can practicably be terminated, partially or fully (as
the case may be). In such case, for purposes of making any determination under
the Swap Agreement in connection with the termination of the Swap Agreement, the
Calculation Agent has been appointed under the Trust Agreement as the agent of
the Trustee.
If the termination event specified in clause (a) above occurs with respect
to the Trust, the Swap Counterparty may, but is not obligated to, designate an
Early Termination Date.
THE TRUST WILL HAVE NO SIGNIFICANT ASSETS OTHER THAN THE TRUST ASSETS FROM
WHICH TO MAKE DISTRIBUTIONS OF AMOUNTS DUE IN RESPECT OF THE CERTIFICATES.
CONSEQUENTLY, THE TRUST'S ABILITY TO MAKE DISTRIBUTIONS IN RESPECT OF THE
CERTIFICATES WILL DEPEND ENTIRELY ON THE TRUST'S RECEIPT OF PAYMENTS ON THE
TRUST ASSETS. PROSPECTIVE PURCHASERS OF THE CERTIFICATES SHOULD CONSIDER
CAREFULLY THE FINANCIAL CONDITION OF THE SWAP COUNTERPARTY AND ITS ABILITY TO
MAKE PAYMENTS IN RESPECT OF THE SWAP AGREEMENT. THIS PROSPECTUS SUPPLEMENT
RELATES ONLY TO THE CERTIFICATES BEING OFFERED HEREBY AND DOES NOT RELATE TO THE
SWAP COUNTERPARTY. ALL INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT
REGARDING THE SWAP COUNTERPARTY IS DERIVED FROM INFORMATION PROVIDED BY WESTLB.
NONE OF THE DEPOSITOR, THE UNDERWRITER, THE CALCULATION AGENT, THE TRUSTEE OR
ANY OF THEIR RESPECTIVE AFFILIATES PARTICIPATED IN THE PREPARATION OF SUCH
DOCUMENTS OR TAKES ANY RESPONSIBILITY FOR THE ACCURACY OR COMPLETENESS OF THE
INFORMATION PROVIDED THEREIN.
THE SWAP COUNTERPARTY
ALL DISCLOSURE CONTAINED IN THIS PROSPECTUS SUPPLEMENT REGARDING WESTLB,
INCLUDING, WITHOUT LIMITATION, THE INFORMATION SET FORTH UNDER THE HEADING 'THE
SWAP COUNTERPARTY,' THE FINANCIAL STATEMENTS OF WESTLB AND THE WESTLB GROUP
CONTAINED IN EXHIBIT A, AND THE SUMMARY OF MATERIAL DIFFERENCES BETWEEN
GENERALLY ACCEPTED GERMAN AND UNITED STATES ACCOUNTING PRINCIPLES CONTAINED IN
EXHIBIT B HAS BEEN PROVIDED BY WESTLB. NONE OF THE TRUST, THE DEPOSITOR, THE
UNDERWRITER, THE CALCULATION AGENT NOR ANY OF THEIR RESPECTIVE AFFILIATES TAKES
ANY RESPONSIBILITY FOR THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION.
GENERAL
WestLB, which traces its history to 1832, was created by the merger of the
two central banks, or Landesbanken (German State Banks), in the State of North
Rhine-Westphalia, the Federal Republic of Germany ('Germany') on January 1,
1969. As a German universal bank, WestLB provides commercial and investment
banking services regionally, nationally and internationally to public, corporate
and bank customers. WestLB is the largest of the Landesbanken and the third
largest bank in Germany. At December 31, 1996, WestLB had total assets of
approximately DM 349.8 billion (U.S.$225.0 billion).
WestLB is directly owned and controlled by (i) North Rhine-Westphalia,
which participates in 43.2% of WestLB's paid-in capital, (ii) the Savings Banks
and Giro Association of Rhineland (Rheinischer Sparkassen-und Giroverband, the
'Rhineland Association') and the Savings Banks and Giro Association of
Westphalia-Lippe (Westfalisch-Lippischer Sparkassen- und Giroverband, the
'Westphalia-Lippe Association') (collectively, the 'Associations'), each of
which participates in 16.7% of WestLB's paid-in-capital and (iii) the Regional
Association of Rhineland (Landschaftsverband Rheinland) and the Regional
Association of Westphalia-Lippe (Landschaftsverband Westfalen-Lippe)
(collectively, the 'Regional Associations'), each of which
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participates in 11.7% of WestLB's paid-in capital. The Associations are
comprised of the savings banks of North Rhine-Westphalia (the 'Savings Banks')
whose interests are promoted by the Associations.
THE NEW YORK BRANCH
The New York Branch (the 'Branch') operates pursuant to a license granted
by the Superintendent of Banks of the State of New York in 1975. Prior to the
establishment in New York of the Branch, WestLB operated a representative office
from 1970 to 1975. The Branch has specialized in wholesale lending to U.S.
corporations (including U.S. subsidiaries of German firms), corporate finance,
trade finance, money dealing, foreign exchange, swaps and other treasury
products.
Within WestLB, the management of the Branch ('Branch Management') is also
responsible for and oversees the operation of WestLB's Division Overseas, Region
North America ('Region North America'). Region North America is comprised of the
Branch, the Cayman Islands Branch, offering offshore deposits to WestLB's
clients in the western hemisphere, and WestLB's North American representative
offices, located in Chicago, Los Angeles and Toronto. As of December 31, 1996,
the assets of Region North America amounted to $18,943 million, an increase of
$7,308 million or 62.8% from its assets of $11,635 million as of December 31,
1995, reflecting a change in the composition of the balance sheet. These figures
are derived from the financial results and position of Region North America
which are fully consolidated with WestLB's financial reports and are included in
the audited annual accounts of WestLB. Neither the Branch nor Region North
America publishes separate annual reports.
The Branch funds itself by taking corporate, bank and government deposits,
borrowing in the interbank market and issuing medium-term notes, certificates of
deposit and commercial paper. It is active in money market dealing, foreign
exchange, interest rate swaps and currency swaps, in both the corporate and
inter-bank markets.
As of December 31 for each of the years indicated, the Branch and WestLB's
Cayman Islands Branch obtained their aggregate funding from the following
sources:
1996 1995
------- -------
(IN MILLIONS)
Inter-bank borrowing and Corporate Deposits....... $10,008 $ 6,232
Interbranch & affiliate deposits (including
capital)(1)..................................... 4,037 2,930
Certificates of deposit & commercial paper........ 2,706 904
Medium-term notes................................. 0 450
Subordinated debt................................. 500 500
------- -------
Total............................................. $17,251 $11,016
------- -------
- ------------------
(1) Includes retained earnings.
The Branch is located at 1211 Avenue of the Americas, New York, New York 10036.
It is not required to be and is not a member of the Federal Deposit Insurance
Corporation. Future information concerning the Swap Counterparty may be obtained
by contacting the Branch at the foregoing address.
DESCRIPTION OF THE TRUST AGREEMENT
GENERAL
The Certificates will be issued pursuant to the Trust Agreement, a form of
which is filed as an exhibit to the Registration Statement. A Current Report on
Form 8-K relating to the Certificates containing a copy of the Trust Agreement
as executed will be filed by the Depositor with the Commission following the
issuance and sale of the Certificates. The Trust created under the Trust
Agreement (including the Series 1997-SP-1 Supplement) will consist of (i) the
Underlying Securities and the Swap Agreement and (ii) all payments on or
collections in respect of the Underlying Securities and the Swap Agreement due
after the Closing Date. Reference is made to the Prospectus for important
information in addition to that set forth herein regarding the Trust, the terms
and
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conditions of the Trust Agreement and the Certificates. The following summaries
of certain provisions of the Trust Agreement do not purport to be complete and
are subject to the detailed provisions contained in the form of Trust Agreement,
to which reference is hereby made for a full description of such provisions,
including the definition of certain terms used herein.
The discussions in the Prospectus under 'Description of the Trust
Agreement--Retained Interest; Administrative Agent Compensation and Payment of
Expenses,'--Advances in Respect of Delinquencies,'
'--Certain Matters Regarding the Administrative Agent and the Depositor' (to the
extent the discussion relates to the Administrative Agent), '--Administrative
Agent Termination Events; Rights Upon Administrative Agent Termination Event,'
and '--Evidence as to Compliance' are not applicable to the Certificates.
THE TRUSTEE
The Bank of New York, a New York banking corporation, will act as trustee
(the 'Trustee') for the Certificates and the Trust pursuant to the Trust
Agreement. The Trustee's offices are located at 101 Barclay Street, New York,
New York 10286 and its telephone number is (212) 815-5098.
Pursuant to the Trust Agreement, the Trustee shall receive compensation at
the rate set forth in the Trust Agreement payable by the Depositor or an
affiliate thereof (the 'Trustee Fee').
The Trust Agreement provides that the Trustee may not take any action
which, in the Trustee's opinion, would or might cause it to incur Extraordinary
Expenses that would be payable out of the Trust property, unless (i) the Trustee
is satisfied that it will have adequate security or indemnity in respect of such
costs, expenses and liabilities and (ii) the Trustee has been instructed to do
so by Certificateholders representing not less than 100% of the aggregate voting
rights of the Certificates then outstanding. Extraordinary Expenses so incurred
may be reimbursed to the Trustee out of Available Funds on any Distribution Date
before any distributions to Certificateholders on such Distribution Date are
made.
'Extraordinary Expenses' are defined in the Trust Agreement as any and all
costs, expenses or liabilities arising out of the establishment, existence or
administration of the Trust, other than (i) Ordinary Expenses and (ii) costs and
expenses payable by a particular Certificateholder, the Trustee or the Depositor
pursuant to the Trust Agreement. Ordinary Expenses of the Trustee are borne by
the Trustee.
'Ordinary Expenses' are defined in the Trust Agreement and are generally
described as the Trustee's ordinary expenses and overhead in connection with its
services as Trustee, including (i) the costs and expenses of preparing, sending
and receiving all reports, statements, notices, returns, filings, solicitations
of consent or instructions, or other communications required by the Trust
Agreement, (ii) the costs and expenses of holding and making ordinary
collections or payments on the assets of the Trust and of determining and making
payments of interest or principal, (iii) the costs and expenses of the Trust's
or Trustee's counsel, accountants and other experts for ordinary or routine
consultation or advice in connection with the establishment, administration and
termination of the Trust, and (iv) any other costs and expenses that are or
reasonably should have been expected to be incurred in the ordinary course of
administration of the Trust.
EVENTS OF DEFAULT
Upon the occurrence of an Event of Default (other than an event specified
in clause (b) under the heading 'The Swap Agreement--Events of Default'), the
Trustee will give notice thereof to the Certificateholders, and, on the 15th
Business Day after giving such notice, will terminate the Swap Agreement unless
otherwise directed in writing by Certificateholders representing at least
66 2/3% of the outstanding Certificates. If an Event of Default specified in
clause (b) under the heading 'The Swap Agreement--Events of Default,' has
occurred, the Trustee will immediately terminate the Swap Agreement without
notice to Certificateholders. The Trustee will direct the Market Agent to sell
the Underlying Securities only if so directed by 100% of the holders of the
outstanding Certificates.
No Certificateholder will have the right to institute any proceeding with
respect to the Trust Agreement, unless (i) such Certificateholder previously has
given to the Trustee written notice of a continuing breach, (ii)
Certificateholders evidencing not less 66 2/3% of the outstanding Certificates
have requested in writing that the Trustee institute such proceeding in its own
name as Trustee, (iii) such Certificateholder or Certificateholders
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<PAGE>
have offered the Trustee reasonable indemnity, (iv) the Trustee has for 15 days
failed to institute such proceeding and (v) no direction inconsistent with such
written request has been given to the Trustee during such 15-day period by
Certificateholders evidencing not less than 66 2/3% of the outstanding
Certificates.
VOTING RIGHTS
At all times, 100% of all Voting Rights will be allocated to the
Certificateholders. The 'Required Percentage--Amendment' of Voting Rights
necessary to consent to a modification or amendment of the Trust Agreement or
any Trust Asset shall be 66 2/3%. Notwithstanding the foregoing, in addition to
the other restrictions on modification and amendment, the Trustee will not enter
into any amendment or modification of the Trust Agreement which would adversely
affect in any material respect the interests of the holders of the Certificates
without the consent of the holders of 100% of the Certificates; provided,
however, that no such amendment or modification will be permitted which would
alter the status of the Trust as a grantor trust for Federal Income tax
purposes. See 'Description of the Trust Agreement--Modification and Waiver' in
the Prospectus. Further, no amendment will be permitted which would adversely
affect in any material respect the interests of the Certificateholders without
confirmation by each Rating Agency that such amendment will not result in a
downgrading or withdrawal of its rating of such Certificates.
The Trustee shall have no liability for any failure to act resulting from
Certificateholders' late return of, or failure to return, directions requested
by the Trustee from the Certificateholders.
TERMINATION OF THE TRUST
The Trust shall terminate upon the earliest to occur of (i) the
distribution in full of all amounts due to the Certificateholders and (ii) the
Scheduled Distribution Date. See 'Description of the Trust Agreement--
Termination' in the Prospectus.
S-27
<PAGE>
THE MARKET AGENT AGREEMENT
MARKET AGENT
Pursuant to the Market Agent Agreement, dated as of the Closing Date,
between Lehman Brothers Inc., solely in its capacity as Market Agent, and the
Trust (the 'Market Agent Agreement'), the Market Agent shall: (a) act on behalf
of the Trust in connection with the sale of the Underlying Securities after
certain defaults or certain termination events under the Swap Agreement as
provided in the Trust Agreement; and (b) perform its other duties and comply
with the provisions set forth in the Market Agent Agreement. The Market Agent is
entitled to a customary fee for any sale of the Underlying Securities.
The Market Agent Agreement provides that the Market Agent has no liability
for any act or omission except as results from the Market Agent's gross
negligence or willful misconduct. The Market Agent may assign any and all of its
duties, obligations and rights as Market Agent to any organization controlled by
or under common control with Lehman Brothers Inc. The Market Agent may at any
time resign and be discharged of the duties and obligations created by the
Market Agent Agreement by providing at least 30 days notice to the Trustee.
SALE OF THE UNDERLYING SECURITIES
In the event of early termination of the Swap Agreement (other than in the
case of Early Withdrawal) the Trustee will not direct the Market Agent to sell
the Underlying Securities except upon direction of 100% of the
Certificateholders. The sale and settlement of the liquidation of the Underlying
Securities will occur as soon as practicable after the date of receipt of such
direction, and the liquidation proceeds will be deposited into the Certificate
Account maintained by the Trustee. Deliveries of the Underlying Securities by
the Trust to the Purchaser of such Underlying Securities will only be made
against payment in same day funds.
'Sale Procedures' means, in connection with any sale of some or all of the
Underlying Securities, the sale of such Underlying Securities to the highest of
not less than three solicited bidders for such Underlying Securities (which
bidders may include Lehman Brothers Inc. or any of its affiliates; provided,
however, that neither Lehman Brothers Inc. nor any of its affiliates are
obligated to bid, and that such bidders need not be limited to recognized broker
dealers). In the sole judgment of the Market Agent, bids may be evaluated on the
basis of bids for all or a portion of the Underlying Securities being sold or
any other basis selected in good faith by the Market Agent. No assurance can be
given as to whether the Market Agent will be successful in soliciting bids to
purchase the Underlying Securities. The Market Agent shall, prior to any sale of
Underlying Securities to Lehman Brothers Inc. or any of its affiliates, certify
in writing to the Trustee that any such purchaser submitted the highest of at
least three bids and shall identify the other bidders.
S-28
<PAGE>
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following general discussion summarizes certain of the material U.S.
federal income tax aspects of the acquisition, ownership and disposition of the
Certificates. This discussion is a summary for general information only and does
not consider all aspects of federal income taxation that may be relevant to the
purchase, ownership and disposition of the Certificates by a prospective
investor in light of his, her or its personal circumstances. This summary is
based upon the Code, existing and proposed regulations thereunder, and current
administrative rulings and court decisions. All of the foregoing are subject to
change, possibly on a retroactive basis; accordingly, any such change could
affect the continuing validity of this discussion.
The following discussion does not address the federal income tax
consequences of ownership of Certificates not held as capital assets within the
meaning of Section 1221 of the U.S. Internal Revenue Code of 1986, as amended
(the 'Code'), or the federal income tax consequences to investors subject to
special treatment under the federal income tax laws, such as dealers in
securities or foreign currency, banks, financial institutions, thrifts,
insurance companies, tax-exempt entities, persons that hold the Certificates as
part of a 'straddle,' a 'hedge' against currency risk, or a 'conversion
transaction,' persons that have a 'functional currency' other than the U.S.
dollar, and investors in pass-through entities. In addition, the discussion is
generally limited to the tax consequences to initial holders and does not
describe any tax consequences arising out of the tax laws of any state, local or
foreign jurisdiction.
The following discussion, moreover, is limited to the U.S. federal income
tax consequences relevant to a holder of a Certificate that is (i) a citizen or
resident of the United States, (ii) a corporation organized under the laws of
the United States or any political subdivision thereof or therein, (iii) an
estate or trust, the income of which is subject to federal income tax regardless
of the source, or (iv) a trust with respect to which a court within the United
States is able to exercise primary supervision over its administration and one
or more United States fiduciaries have the authority to control all of its
substantial decisions.
CLASSIFICATION OF INVESTMENT ARRANGEMENT
In the opinion of Weil, Gotshal & Manges LLP (a limited liability
partnership including professional corporations), counsel to the Depositor, the
Trust will be treated for federal income tax purposes as a grantor trust and not
as an association (or publicly-traded partnership) taxable as a corporation. The
Trustee intends to report income, gain, loss and deduction to the Internal
Revenue Service (the 'IRS') accordingly.
Under the grantor trust rules, each Certificateholder will be treated for
federal income tax purposes as having purchased an undivided interest in each of
the assets of the Trust, including the Swap Agreement (which will be treated as
a cash-settled option on the S&P 500 Index for federal income tax purposes).
Similarly, the sale of a Certificate by a Certificateholder will be considered a
sale of the Certificateholder's interests in the assets of the Trust with
respect to that holder. In addition, a Certificateholder effecting an Early
Withdrawal will be deemed to be a sale of the Underlying Securities, a
termination of the Swap Agreement and the payment of a termination fee by a
Certificateholder equal to 6 1/4% of the principal amount of Certificates being
redeemed.
In general, the tax consequences of an investment in Certificates will
depend on the separate rules applicable to the Underlying Securities and the
Swap Agreement. Therefore, although the Certificates resemble a single debt
instrument, the tax treatment of the Certificates could differ significantly
from the tax treatment of a single debt instrument having the economic
characteristics of the Certificates. In particular, a Certificateholder will
recognize ordinary income in respect of accreted interest on the Underlying
Securities and may recognize a capital gain or loss upon a sale of the
Underlying Securities or a sale or termination of the Swap Agreement. See
'Taxation of the Underlying Securities--OID' and 'Taxation of the Swap
Agreement.'
ALLOCATION OF BASIS AND SALES PROCEEDS
A Certificateholder should be considered to have purchased an interest in
the Underlying Securities for an amount equal to the cost of its Certificates
multiplied by a fraction, the numerator of which is the fair market value of the
Underlying Securities and the denominator of which is the sum of the fair market
value of the
S-29
<PAGE>
Underlying Securities and the fair market value to the Trust of the Swap
Agreement, in each case at the time of such purchase. The balance of a
Certificateholder's cost for the Certificates would be treated as the price paid
for its undivided interest in the Swap Agreement. In general, the fair market
value of the Swap Agreement upon the original issuance of the Certificates
should equal the amount of the up front payment made to the Swap Counterparty
under the Swap Agreement.
Upon the sale of a Certificate, the amount realized by the selling
Certificateholder would be allocated between the Certificateholder's undivided
interest in the Underlying Securities and the Swap Agreement deemed sold by
using the method described above on the basis of the relative fair market values
of such assets at the time of sale.
TAXATION OF THE UNDERLYING SECURITIES
In General. Under Code Section 1286, on the date the Underlying Securities
are deemed purchased by a Certificateholder, they will be treated for federal
income tax purposes as newly issued debt instruments that are issued with
original issue discount ('OID') equal to the excess of (i) the stated redemption
price at maturity (i.e., all payments made with respect to the Underlying
Securities to the Certificateholder) over (ii) the portion of the Certificate's
purchase price which is allocable to the Underlying Securities. Each
Certificateholder, regardless of its normal method of accounting, will accrue
income, prior to the receipt of cash, in respect of its interest in the
Underlying Securities under the rules relating to OID under the method described
below that takes account of the compounding of interest, based on the particular
Certificateholder's expected yield to maturity.
OID. A holder of a Certificate, whether using the cash or accrual method
of accounting, generally will be required to include OID in income in advance of
the receipt of some or all of the related cash payments. The amount of OID
includable in income by such holder is the sum of the 'daily portions' of OID
with respect to each day during the taxable year or portion of the taxable year
in which such holder held such obligation ('accrued OID'). The daily portion is
determined by allocating to each day in any 'accrual period' a pro rata portion
of the OID allocable to the accrual period. Under the Treasury Regulations, the
'accrual period' for each obligation may be of any length and may vary in length
over the term of the obligation, provided that each accrual period is no longer
than one year and each scheduled payment occurs on either the first or last day
of an accrual period. The amount of OID allocable to any accrual period is an
amount equal to the product of each obligation's adjusted issue price at the
beginning of such accrual period and its yield to maturity (determined on the
basis of compounding at the close of each accrual period and properly adjusted
for the length of the accrual period). If all accrual periods are of equal
length except for either an initial short period or an initial and final short
period, the amount of OID allocable to the initial short accrual period may be
computed under any reasonable method. The 'adjusted issue price' of an interest
in an Underlying Security at the start of any accrual period is equal to its
purchase price (generally, the purchase price of the Certificate, less the
portion of the purchase price allocable to the Swap Agreement) increased by the
accrued OID for each prior accrual period.
Because the purchase of a Certificate would be treated as the original
issuance on the purchase date of a portion of the Underlying Securities by a
Certificateholder, such purchase should not result in acquisition premium, bond
premium or market discount.
Tax Basis. A Certificateholder's initial tax basis in the Underlying
Securities will equal the purchase price (as determined under 'Allocation of
Basis and Sales Proceeds') and will generally be increased by any amounts of
OID.
Sale, Exchange and Retirement of Underlying Securities. Upon the sale,
exchange or retirement of Underlying Securities (including a sale resulting from
a sale or redemption for cash of Certificates), a Certificateholder generally
will recognize gain or loss equal to the difference between the amount realized
on the sale, exchange or retirement of the Underlying Securities and the
Certificateholder's tax basis in the Underlying Securities (both, as determined
under 'Allocation of Basis and Sales Proceeds' and '--Tax Basis'). The
distribution, if any, to a Certificateholder of Underlying Securities
representing such Certificateholder's pro rata portion of all of the Trust's
Underlying Securities will not be treated as a sale or exchange, and the
Certificateholder will acquire the Underlying Securities with a tax basis equal
to the Certificateholder's tax basis in such Underlying Securities while held by
the Trust.
S-30
<PAGE>
Gain or loss recognized by an initial Certificateholder on the sale,
exchange or retirement of the Underlying Securities generally will be capital
gain or loss, and will be long-term capital gain or loss if the
Certificateholder is treated as having held the Underlying Securities for more
than one year at the time of the disposition.
TAXATION OF THE SWAP AGREEMENT
The Swap Agreement will be governed by tax rules applicable to cash settled
options. A Certificateholder therefore should not be required to recognize any
income with respect to any payments from the Swap Counterparty until such time
as the amount of such income is fixed and determinable. The Certificateholder
would recognize gain or loss equal the difference between the amount received by
the holder and the Certificateholder's tax basis in the Swap Agreement (i.e.,
the Certificateholder's pro rata portion of the up front payment made by the
Trust to the Swap Counterparty). Any gain or loss realized by the
Certificateholder upon the termination of the Swap Agreement will constitute
capital gain or loss and, if held for the requisite holding period, will be long
term capital gain or loss. In addition, upon an Early Withdrawal an amount equal
to 6 1/4% of the principal amount of Certificates being redeemed will be paid to
the Swap Counterparty (or netted against any payment due from the Swap
Counterparty) as a termination payment, thus reducing the Certificateholder's
capital gain or increasing its capital loss. A Certificateholder who effects an
Early Withdrawal nevertheless will be required to include the amount of such
accretion in income as OID. (see 'OID' above).
DEDUCTIBILITY OF TRUST'S FEES AND EXPENSES
In computing its federal income tax liability, a Certificateholder will be
entitled to deduct, consistent with its method of accounting, its share of
reasonable administrative fees, trustee fees and other fees, if any, paid or
incurred by the Trust as provided in Section 162 or 212 of the Code and any
allowable amortization deductions with respect to certain other assets of the
Trust. If a Certificateholder is an individual, estate or trust, the deduction
for his share of fees will be a miscellaneous itemized deduction that may be
disallowed in whole or in part.
TAX-EXEMPT ORGANIZATIONS
In general, income or gain from the Certificates held by a tax-exempt
organization will not be subject to the tax on unrelated business taxable income
if the Certificates are not 'debt-financed' property.
INFORMATION REPORTING
The Trustee will furnish or make available, within 90 days after the end of
each calendar year, to each party registered during such calendar year as a
holder of a Certificate, such information as is required under the Code (or
regulations under the Code) to be provided by the Trustee to enable each
Certificateholder to file its federal income tax returns.
BACKUP WITHHOLDING
Distributions made on a Certificate and proceeds from the sale of a
Certificate to or through certain brokers may be subject to a 'backup'
withholding tax of 31% unless, in general, the holder of the Certificate
provides its correct taxpayer identification number and other information or is
a corporation or other person exempt from such withholding and demonstrates such
status as provided under the relevant Treasury regulations. Any amounts so
withheld from distributions on the Certificate would be refunded by the IRS or
allowed as a credit against the holder's federal income tax, provided the
requisite information is supplied to the IRS.
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<PAGE>
STATE, LOCAL AND FOREIGN TAXES
Persons considering the purchase of Certificates should consult their own
tax advisors concerning the application of federal income tax laws, as well as
the laws of any state, local, or foreign taxing jurisdiction, to their
particular situations.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ('ERISA'),
and the Code impose certain requirements on (a) an employee benefit plan (as
defined in Section 3(3) of ERISA, (b) an individual retirement account ('IRA')
or other plan described in Section 4975(e)(1) of the Code or (c) any entity
whose underlying assets include plan assets by reason of any such plan's
investment in the entity (each, a 'Plan'). In particular, Section 4975 of the
Code imposes an excise tax on any disqualified person (as defined in such
Section) with respect to an IRA or other Plan who engages in a sale, exchange or
lease of property, a loan or other extension of credit, or certain other
prohibited transactions involving assets of such IRA or Plan, unless an
exemption applies. Further, ERISA prohibits fiduciaries of employee benefit
plans subject thereto from engaging in similar (but not identical) prohibited
transactions with parties in interest (as defined in Section 3 of ERISA) with
respect to such plans, unless an exemption applies. ERISA also sets forth
general fiduciary standards applicable to the investment of the assets of any
Plan subject to ERISA.
Any person considering an investment in Certificates on behalf of an IRA or
other Plan should consider whether such investment might constitute or give rise
to a non-exempt prohibited transaction under ERISA or the Code. In addition, a
fiduciary of a Plan should determine, among other things, whether such
investment is permitted under the governing Plan instruments and is appropriate
for the Plan in view of its overall investment policy and the composition and
diversification of its portfolio. Plans maintained or contributed to by the
Depositor, Underwriter, Trustee, and Swap Counterparty, or any of their
affiliates ('Excluded Plans'), should not acquire or hold any Certificate.
Under a 'look-through rule' set forth in Section 2510.3-101 of the United
States Department of Labor ('DOL') regulations, a Plan's assets may include an
interest in the underlying assets of an entity (such as a trust) for certain
purposes under ERISA if the Plan acquires an equity interest in such entity,
unless an exception to the look-through rule applies. There are no assurances
that any exception to the look-through rule applies to the Trust. Thus, an
investment in Certificates by a Plan might result in the assets of the Trust
being deemed to constitute Plan assets, which in turn might mean that certain
aspects of such investment, including the operation of the Trust, might be
subject to the prohibited transaction provisions under ERISA and the Section
4975 of the Code.
If the assets of the Trust were deemed to be Plan assets, transactions
involving the Depositor, Underwriter, Trustee, and Swap Counterparty might
constitute prohibited transactions with respect to an IRA or other Plan holding
a Certificate unless (i) one or more prohibited transaction exemptions ('PTEs')
applies or (ii) in the case of WestLB which is the Swap Counterparty, it is not
a disqualified person or party in interest with respect to such IRA or Plan.
Moreover, persons considering an investment in Certificates on behalf of an IRA
or other Plan should consider whether the Swap Agreement is a type of
transaction which simply is not subject to the prohibited transaction provisions
of ERISA or Section 4975 of the Code.
The Underwriter is a broker-dealer registered under the Securities Exchange
Act of 1934, as amended, and customarily purchases and sells securities for its
own account in the ordinary course of its business as a broker-dealer.
Accordingly, the sale of Certificates by the Underwriter to Plans may be exempt
under PTE 75-1 if the following conditions are satisfied: (i) the Underwriter is
not a fiduciary with respect to the Plan and is a party in interest or
disqualified person (if at all) solely by reason of Section 3(14)(B) of ERISA or
Section 4975(e)(2)(B) of the Code or a relationship to a person described in
such Sections, (ii) the transaction is at least as favorable to the Plan as an
arm's-length transaction with an unrelated party and is not a prohibited
transaction within the meaning of Section 503(b) of the Code, and (iii) the Plan
maintains for at least six years such records as are necessary to determine
whether the conditions of PTE 75-1 have been met.
The custodial and other services rendered by the Trustee might be exempt
pursuant to Section 408(b)(2) of ERISA and Section 4975(d)(2) of the Code, which
exempt services necessary for the establishment or operation
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<PAGE>
of a Plan under a reasonable contract or arrangement and for which no more than
reasonable compensation is paid. An arrangement would not be treated as
reasonable unless it can be terminated upon reasonably short notice under the
circumstances without penalty. The Trustee may be terminated upon 60 days prior
notice and the approval of Certificate holders owning more than 66 2/3% of the
aggregate beneficial interest of Certificates. The Depositor believes the
compensation of the Trustee is reasonable under the circumstances. The statutory
exemption for services noted above does not provide exemptive relief from
prohibited transactions described in Section 406(b) of ERISA or Section
4975(c)(1)(E) or (F) of the Code.
Other prohibited transaction exemptions could apply to the acquisition and
holding of Certificates by Plans, and the operation of the Trust, including, but
not limited to: PTE 84-14 (an exemption for certain transaction determined by an
independent qualified professional asset manager), PTE 91-38 (an exemption for
certain transactions involving bank collective investment funds), PTE 90-1 (an
exemption for certain transactions involving insurance company pooled separate
accounts) or PTE 95-60 (an exemption for certain transactions involving
insurance company general accounts).
By acquiring and holding a Certificate, an IRA or other Plan shall be
deemed to have represented and warranted to the Depositor, Trustee and
Underwriter that such acquisition and holding of a Certificate does not involve
a non-exempt prohibited transaction with respect to such IRA or Plan, including
with respect to the activities of the Trust.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, dated August , 1997 (the 'Underwriting Agreement'), the Depositor
has agreed to sell to Lehman Brothers Inc. (an affiliate of the Depositor) (the
'Underwriter'), and the Underwriter has agreed to purchase, the Certificates.
The Depositor has been advised by the Underwriter that the Underwriter
proposes to offer the Certificates to the public at the offering prices set
forth on the cover page to this Prospectus Supplement. The Underwriter may
effect such transactions by selling Certificates to or through dealers and such
dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriter and any purchasers of
Certificates for whom they may act as agents. The Underwriter and any dealers
that participate with the Underwriter in the distribution of Certificates may be
deemed to be underwriters, and any profit on the resale of Certificates by them
may be deemed to be underwriting discounts, or commissions under the Securities
Act. Discounts and concessions to dealers will vary but will not exceed 2.5% of
the face amount of the Certificates. The Underwriting Agreement provides that
the Depositor will indemnify the Underwriter against certain civil liabilities,
including liabilities under the Securities Act, or will contribute to payments
the Underwriter may be required to make in respect thereof.
In connection with this offering, the Underwriter and its affiliates and
dealers participating in the offering and their respective affiliates may engage
in transactions that stabilize, maintain or otherwise affect the market price of
the Certificates. Such transactions may include stabilization transactions
effected in accordance with Rule 104 of Regulation M under the Securities
Exchange Act of 1934, as amended, pursuant to which such persons may bid for or
purchase Certificates for the purpose of stabilizing their market price. The
Underwriter also may create a short position for their respective accounts by
selling more Certificates in connection with this offering than they are
committed to purchase from the Trust, and in such case may purchase Certificates
in the open market following completion of this offering to cover all or a
portion of such short position. In addition, the Underwriter, may impose
'penalty bids' whereby it may reclaim from a dealer participating in this
offering for the account of the Underwriter, the selling concession with respect
to Certificates that are distributed in this offering but subsequently purchased
for the account of the Underwriter in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
Certificates at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required, and,
if they are undertaken, they may be discontinued at any time.
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<PAGE>
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
the Depositor and the Underwriter by Weil, Gotshal & Manges LLP, New York, New
York.
RATINGS
At the time of issuance of the Certificates, (i) Moody's will assign
ratings of at least 'Aaa' with respect to the principal component of the
Certificates based upon the rating of the Underlying Securities and 'Aa1' with
respect to the S&P Appreciation Amount based upon the rating of the Swap
Counterparty, and (ii) S&P will assign a rating to the Certificates of 'AAAr.'
Moody's rating of the S&P Appreciation Amount reflects only the ability of the
Swap Counterparty to pay such amount if any, and neither Moody's nor S&P's
ratings constitute a rating or statement as to whether, or the extent to which,
any S&P Appreciation Amount will be payable on the Scheduled Distribution Date.
S&P attaches the symbol 'r' to the ratings of instruments such as the
Certificates with significant noncredit risks and is intended to highlight
volatility of expected returns which are not addressed in the credit rating of
such instruments. Such S&P rating does not address the likelihood of receipt by
the Certificateholders of any amount under the Swap Agreement.
The ratings of the Certificates by Moody's and S&P are based on payment on
the Scheduled Distribution Date of the principal of the Certificates being paid
from maturing Underlying Securities and, in the case of the Moody's rating,
payment of all amounts due under the Swap Agreement by the Swap Counterparty.
There is no assurance that any such rating will continue for any period of time
or that it will not be revised or withdrawn entirely by the related rating
agency if, in judgment, circumstances (including, without limitation, a change
in the rating of the Swap Counterparty) so warrant. A revision or withdrawal of
such rating may have an adverse effect on the market price of Certificates. A
security rating is not a recommendation to buy, sell or hold securities.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning Rating
Agency. Each security rating should be evaluated independently of similar
ratings on different securities.
The Depositor has not requested a rating on the Certificates by any rating
agency other than the Rating Agencies. However, there can be no assurance as to
whether any other rating agency will rate the Certificates, or, if it does, what
rating would be assigned by any such other rating agency. A rating on the
Certificates by another rating agency, if assigned at all, may be lower than the
ratings assigned to the Certificates by the Rating Agencies.
S-34
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
Aggregate Base Value....................... S-12
Associations............................... S-24
Available Funds............................ S-21
Base Value................................. S-1, S-4, S-18
Branch..................................... S-25
Branch Management.......................... S-25
Calculation Agent.......................... S-10
CEDE....................................... S-20
Certificateholders......................... S-1, S-3
Certificates............................... S-1, S-3
Clearing Agency............................ S-20
Closing Date............................... S-1
Code....................................... S-29
Depositor.................................. S-1, S-3
Distribution Dates......................... S-20
DOL........................................ S-32
DTC........................................ S-5
Early Withdrawal........................... S-5, S-19
Early Withdrawal Date...................... S-19
Early Withdrawal Proceeds.................. S-19
Early Withdrawal Volume Cap................ S-19
ERISA...................................... S-7, S-32
Event of Default........................... S-23
Excluded Plans............................. S-32
Extraordinary Expenses..................... S-26
Final Distribution Amount.................. S-1, S-4, S-18
Final Value................................ S-4, S-17
Holdings................................... S-21
Index Component Stock...................... S-16
IRA........................................ S-7, S-32
IRS........................................ S-29
Keogh...................................... S-32
Lehman Swap................................ S-5
LCPI....................................... S-21
Legal Representative....................... S-19
Liquidation Proceeds....................... S-5, S-19
Market Agent Agreement..................... S-28
Market Disruption Event.................... S-4, S-18
Moody's.................................... S-1, S-6
NYSE....................................... S-1, S-4
OID........................................ S-30
Optional Exchange.......................... S-6
Optional Exchange Date..................... S-6, S-21
Ordinary Expenses.......................... S-26
Participants............................... S-2
Plan....................................... S-32
PTEs....................................... S-32
Region North America....................... S-25
Regional Associations...................... S-24
Rhineland Association...................... S-24
S&P........................................ S-6, S-11
S&P 500 Appreciation Amount................ S-1, S-4
</TABLE>
S-35
<PAGE>
<TABLE>
<S> <C>
S&P 500 Appreciation Factor................ S-1, S-4
S&P 500 Index.............................. S-4
S&P Appreciation Amount.................... S-1, S-4
Sale Procedures............................ S-28
Savings Banks.............................. S-25
Scheduled Distribution Date................ S-1, S-3, S-18
Series Supplement.......................... S-3, S-18
SPLITsSM................................... S-1, S-3
Standard Terms............................. S-3, S-18
Successor Index............................ S-16
Swap Agreement............................. S-1, S-7
Swap Counterparty.......................... S-1, S-7
Termination Event.......................... S-23
Trading Day................................ S-4
Trust...................................... S-1, S-3
Trust Agreement............................ S-1, S-3, S-11
Trustee.................................... S-1, S-3
Trustee Fee................................ S-18
Underlying Securities...................... S-1
Underwriter................................ S-1, S-33
Underwriting Agreement..................... S-33
WestLB..................................... S-1, S-7
Westphalia-Lippe Association............... S-24
</TABLE>
S-36
<PAGE>
EXHIBIT A
WESTLB ANNUAL/GROUP ACCOUNTS FOR 1996
INDEX TO ANNUAL ACCOUNTS
Auditor's Report........................................................... A-2
WestLB Group Balance Sheet as at December 31, 1996......................... A-3
WestLB Group Statement Sheet of Income for the Year ended
December 31, 1996........................................................ A-7
WestLB Balance Sheet as at December 31, 1996............................... A-9
WestLB Statement of Income for the Year ended December 31, 1996............ A-13
Notes to the Annual Accounts as required by the German Commercial Code..... A-15
Notes to the WestLB Group Annual Accounts.................................. A-15
Notes to the WestLB Annual Accounts........................................ A-32
Supplemental Notes to Annual Accounts...................................... A-48
A-1
<PAGE>
AUDITOR'S REPORT
We have examined WestLB's consolidated and unconsolidated Balance Sheets as
of December 31, 1996 and 1995, its consolidated and unconsolidated Statements of
Income for the years ended December 31, 1996 and 1995 and the notes thereto
required by the German Commercial Code.
We note that the German version of WestLB's and WestLB Group's Balance
Sheets and its Statements of Income contains the legally prescribed nomenclature
for the items thereof and is authoritative for the auditors. We also note that
the notes to WestLB's and WestLB Group's Balance Sheets as of December 31, 1995
and Statements of Income for the year ended December 31, 1995 required by the
German Commercial Code are not included in the Offering Circular.
Our examination was made in accordance with auditing principles generally
accepted in Germany, as set out in the statement on auditing standards (1/1988)
of the German Institute of Certified Public Accountants ("Institut der
Wirtschaftsprufer"). Accordingly, it included such tests and other procedures as
we considered necessary under the circumstances.
On the basis of our examination, we are of the opinion that the financial
statements identified above, in conformity with accounting principles generally
accepted in Germany applied on a consistent basis, present fairly the financial
position of WestLB and the WestLB Group at December 31, 1996 and 1995 and the
results of each of its operations and the changes in each of its financial
positions for the years ended December 31, 1996 and 1995.
C&L Deutsche Revision
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
/s/ DR. ERNER /s/ NIGGEMANN
- -------------------------- -----------------------
Dr. Erner Niggemann
Wirtschaftsprufer Wirtschaftsprufer
Dusseldorf,
Federal Republic of Germany
July 3, 1997
A-2
<PAGE>
WESTLB GROUP BALANCE SHEET
AS AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
As of As of
December 31, December 31,
1996 1995
---- ----
(DM) (DM)
<S> <C> <C>
ASSETS
1. Cash (Supp. Note 1)
a) cash on hand 291,747,801.39 295,192,505.51
b) balances with central banks 2,587,716,324.54 1,319,931,392.90
including:
with Deutsche Bundesbank
DM 2,479,193,917.87 (1996)
DM 1,226,189,230.09 (1995)
c) balances in postal giro accounts 4,663,882.98 1,112,427.64
---------------- ----------------
2,884,128,008.91 1,616,236.326.05
2. Debt instruments issued by public
institutions and bills of exchange
eligible for refinancing with central
banks (Supp. Note 2)
a) treasury bills and discounted
treasury notes (Supp. Note 3)
as well as similar debt
instruments issued by public
institutions 1,351,114,173.77 759,343,032.08
---------------- --------------
including:
eligible for refinancing with
Deutsche Bundesbank
DM 870,364,017.50 (1996)
DM -- (1995)
b) bills of exchange 81,075,815.51 113,751,725.64
---------------- ----------------
including: 1,432,189,989.28 873,094,757.72
eligible for refinancing
with Deutsche Bundesbank
DM 16,471,175.98 (1996)
DM 26,467,740.58 (1995)
3. Claims on banks (Notes (1), (12), and
Supp. Note 4)
a) payable on demand 9,485,012,532.64 15,715,019,428.03
b) other 137,472,386,924.45 115,038,145,127.66
------------------ ------------------
including: 146,957,399,457.09 130,753,164,555.69
Loans of Landes--Bausparkasse
(LBS)
DM 2,304,662.04 (1996)
DM 2,512,423.19 (1995)
4. Claims on customers (Notes (2), (3),
(12) and Supp. Note 5) 180,082,849,322.17 174,484,929,927.50
including:
secured by mortgages
DM 25,459,601,449.46 (1996)
DM 32,816,520,071.59 (1995)
loans to public authorities
and entities organized
under public law
DM 72,196,372,730.28 (1996)
DM 73,255,622,196.34 (1995)
Landes--Bausparkasse (LBS) loans
DM 11,960,330,898.28 (1996)
DM 11,595,738,003.32 (1995)
5. Bonds and other interest-bearing
securities (Notes (4), (6), (12)
and Supp. Note 6)
a) money market instruments
aa) of public institutions 567,941,779.66 268,111,248.51
ab) of other issues 1,876,220,784.42 814,940,218.20
---------------- ----------------
2,444,162,564.08 1,083,051,466.71
</TABLE>
A-3
<PAGE>
WESTLB GROUP BALANCE SHEET
AS AT DECEMBER 31, 1996--(Continued)
<TABLE>
<CAPTION>
As of As of
December 31, December 31,
1996 1995
---- ----
(DM) (DM)
<S> <C> <C>
b) bonds and notes
ba) of public institutions 33,612,056,827.88 26,915,353,331.00
bb) of other issuers 55,194,589,390.12 43,954,244,778.07
including: 88,806,646,218.00 70,869,598,109.07
eligible as collateral
for Deutsche Bundesbank
advances
(Supp. Note 7)
DM 42,258,324,577.50 (1996)
DM 37,166,179,852.13 (1995)
c) bonds issued by the Bank 4,337,984,515.37 3,852,057,822.49
---------------- ----------------
(Supp. Note 8)
principal amount: 95,588,793,297.45 75,804,707,398.27
DM 4,215,436,894.77 (1996)
DM 3,718,565,639.07 (1995)
6. Shares and other non-interest-
bearing securities (Notes (5),
(6), (12) and Supp. Note 9) 4,299,868,023.03 4,012,985,152.64
7. Equity investments in non-affiliated
companies (Notes (7) and (9) and Supp.
Note 10) including: 5,606,323,580.80 5,140,900,971.78
banks
DM 1,116,495,541.48 (1996)
DM 345,038,678.27 (1995)
8. Equity investments in associated
companies (Supp. Note 10) 591,544,868.17 685,032,902.22
9. Equity investments in affiliated
companies (Notes (7) and (9)
and Supp. Note 10) 148,360,477.33 211,823,099.53
10. Trust assets (Note (8) and Supp.
Note 11) 10,919,636,398.59 11,023,618,066.81
including:
trust loans
DM 9,755,393,190.69 (1996)
DM 10,004,528,713.60 (1995)
11. Equalization claims against public
authorities including notes and bonds
issued in substitution thereof
(Supp. Note 12) 10,780,520,993.51 12,884,423,264.60
12. Intangible assets (Note (9)) 524,542,771.85 556,888,123.39
including:
goodwill
DM 523,796,850.38 (1996)
DM 544,181,857.25 (1995)
13. Fixed assets (Note (9) and Supp.
Note 13) 2,162,252,385.92 1,778,318,963.45
14. Other assets (Note (10)) 1,957,979,886.32 2,317,170,826.78
15. Deferred items (Note (11) and
Supp. Note 14) 6,852,499,918.47 6,478,699,538.24
------------------ ------------------
Total assets 470,788,889,378.89 428,621,993,874.67
================== ==================
</TABLE>
A-4
<PAGE>
WESTLB GROUP BALANCE SHEET
AS AT DECEMBER 31, 1996--(Continued)
<TABLE>
<CAPTION>
As of As of
December 31, December 31,
1996 1995
---- ----
(DM) (DM)
<S> <C> <C>
LIABILITIES
1. Liabilities to banks (Notes (13)
and Supp. Note 15)
a) payable on demand 15,180,097,628.98 13,996,251,644.31
b) with agreed maturity or period
of notice 154,645,576,131.86 143,704,010,816.94
c) deposits of Landes-Bausparkasse 102,392,438.68 83,949,342.09
------------------ ------------------
169,928,066,199.52 157,784,211,803.34
2. Liabilities to customers (Notes
(14) and Supp. Note 16)
a) deposits of Landes-Bausparkasse
and saving deposits
aa) deposits of Landes-Bausparkasse (LBS) 11,911,882,980.19 11,344,943,618.68
ab) with agreed period of notice
of 3 months 105,754,085.37 83,722,058.49
ac) with agreed period of notice
of more than 3 months 35,973,194.62 34,847,077.21
------------------ ------------------
12,053,610,260.18 11,436,512,754.38
b) other liabilities
ba) payable on demand 17,372,986,581.39 14,265,351,990.87
bb) with agreed maturity or
period of notice 81,879,524,426.82 72,696,148,819.57
----------------- -----------------
99,252,511,008.21 86,961,500,810.44
------------------ -----------------
111,306,121,268.39 98,425,013,564.82
3. Certificated liabilities
(Note (15) and Supp. Note 17)
a) bonds and notes issued by
the Bank 135,605,493,558.29 128,202,549,026.04
b) other certificated liabilities 15,039,904,309.22 7,577,167,580.01
------------------ ------------------
including: 150,645,397,867.51 135,759,716,606.05
money market instruments
DM 13,918,831,183.03 (1996)
DM 6,801,988,892.50 (1995)
own acceptances and promissory
notes outstanding
DM 546,397,279.22 (1996)
DM 607,629,563.60 (1995)
4. Trust liabilities (Note (16)
and Supp. Note 11) 10,919,636,398.59 11,023,618,066.81
including:
trust loans
DM 9,755,393,190.69 (1996)
DM 10,004,528,713.60 (1995)
5. Other Liabilities (Note (17)) 2,368,237,117.52 2,404,628,326.78
6. Deferred items (Note (18) and
Supp. Note 14) 1,944,592,257.80 1,093,194,347.58
7. Provisions
a) for pensions and similar
obligations 1,935,373,918.18 1,785,682,884.35
b) tax reserve 740,083,967.86 690,920,847.54
c) other 1,835,948,511.07 1,674,165,474.72
---------------- ----------------
4,511,406,397.11 4,150,769,206.61
8. Special Item with partial
reserve character (Note (19)
and Supp. Note 18) 14,087,574.25 11,633,418.75
9. Subordinated liabilities (Note (20)) 4,282,587,251.00 3,803,650,788.06
10. Profit participation capital
(Note (21) and Supp. Note 19) 1,770,588,950.00 1,040,368,950.00
including:
due in less than two years
DM .-- (1996)
DM .-- (1995)
11. Fund for general bank risks
(Note (21) and Supp. Note 20) 505,945,700.00 468,387,950.00
</TABLE>
A-5
<PAGE>
WESTLB GROUP BALANCE SHEET
AS AT DECEMBER 31, 1996--(Continued)
<TABLE>
<CAPTION>
As of As of
December 31, December 31,
1996 1995
---- ----
(DM) (DM)
<S> <C> <C>
12. Equity capital (Note (21)
and Supp. Note 21)
a) subscribed capital 2,315,315,985.00 2,315,315,985.00
b) capital reserves 6,489,684,015.00 6,489,684,015.00
c) reserves from retained earnings
ca) legal reserves -- --
cb) statutory reserves (Supp. Note 22) 800,000,000.00 760,000,000.00
cc) other reserves (Supp. Note 23) 1,885,000,000.00 1,725,000,000.00
------------------ ------------------
2,685,000,000.00 2,485,000,000.00
d) Group reserves (Supp. Note 24) 767,692,819.12 784,657,143.33
e) Equalizing item for shares of
other shareholders 172,829,578.08 420,843,702.54
f) Group profit 161,700,000.00 161,300,000.00
------------------ ------------------
12,592,222,397.20 12,656,800,845.87
------------------ ------------------
Total liabilities 470,788,889,378.89 428,621,993,874.67
================== ==================
13. Contingent liabilities
a) liabilities relating to bills
of exchange (Supp. Note 25) 393,942,189.89 535,163,937.82
b) liabilities from guarantees
and indemnity agreements
(Supp. Note 26) 16,073,180,428.21 13,222,585,083.29
c) liabilities relating to
collateral given for third-
party liabilities 223,023,970.14 1,217,234,410.94
----------------- -----------------
16,690,146,588.24 14,974,983,432.05
14. Other commitments (Note (22))
a) commitments from ungenuine
repurchase agreements 555,319,380.00 14,424,702.65
b) placing and underwriting
commitments 23,478,204.30 20,876,804.30
c) irrevocable credit commitments 70,115,861,574.98 55,837,173,470.07
----------------- -----------------
70,694,659,159.28 55,872,474,977.02
Administered funds (Supp. Note 27) 29,131,765,200.41 22,649,630,519.50
</TABLE>
A-6
<PAGE>
WESTLB GROUP STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1996 1995
---- ----
(DM)
<S> <C> <C>
1. Interest from
a) lending and money market transactions 20,094,399,285.27 20,301,207,785.21
b) interest-bearing securities and
book-entry securities 6,245,280,191.39 5,953,212,264.92
----------------- -----------------
26,339,679,476.66 26,254,420,050.13
2. Interest paid 23,074,643,976.29 22,945,871,697.87
----------------- -----------------
3,265,035,500.37 3,308,548,352.26
3. Current income from
a) shares and other non-interest
bearing securities 305,914,544.94 174,002,452.77
b) equity investments in non-affiliated
companies (Supp. Note 28) 269,647,561.29 218,013,875.28
c) equity investments in affiliated
companies (Supp. Note 28) 13,513,591.83 46,172,317.12
----------------- -----------------
589,075,698.06 438,188,645.17
4. Income from equity investments in
associated companies (Supp. Note 28) 69,187,255.14 64,107,637.84
5. Income from profit pooling, profit transfer
and partial profit transfer agreements 10,895,607.55 2,646,610.52
6. Commission income 2,232,062,148.10 1,859,546,171.24
7. Commission paid 580,394,680.34 467,358,186.54
----------------- -----------------
1,651,667,467.76 1,392,187,984.70
8. Net result from trading operations 458,236,169.51 287,871,007.57
9. Other operating income 1,113,275,560.53 865,978,455.27
10. Income from reversal of special
item with partial reserve character 457,503.00 312,074.77
11. General administrative expenses
a) personnel expenses
aa) wages and salaries 1,964,051,047.79 1,736,893,847.37
ab) compulsory social security
contributions and expenses for
pensions and other employee benefits 553,875,662.15 495,428,321.98
---------------- ----------------
including: 2,517,926,709.94 2,232,322,169.35
for pensions DM 297,888,762.09 (1996)
DM 284,328,572.44 (1995)
b) other administrative expenses 1,768,784,598.94 1,419,133,391.42
---------------- ----------------
4,286,711,308.88 3,651,455,560.77
12. Depreciation and value adjustments
on intangible and tangible fixed assets 432,033,385.17 329,953,196.22
13. Other operating expenses 476,428,812.16 498,264,275.38
14. Write-downs and value adjustments on
loans and certain securities, as well
as allocations to loan loss provisions
(Supp. Note 29) 620,651,836.06 588,540,028.27
including:
allocation to fund for general bank risks
DM 37,500,000.00 (1996)
DM 63,000,000.00 (1995)
15. Income from revaluation of equity investments
in non-affiliated companies, equity
investments in affiliated companies and
securities treated as fixed assets
(Supp. Note 30) 128,184,834.45 25,656,490.21
16. Expenses from the assumption of losses 12,359,022.75 10,218,800.46
17. Allocations to special item with
partial reserve character 2,876,692.48 --
---------------- -----------------
18. Profit or loss on ordinary activities 1,454,954,538.87 1,307,065,397.21
19. Extraordinary income 88,824,229.36 1,212,316.98
20. Extraordinary expenses 242,189,104.00 4,235,358.02
---------------- -----------------
21. Extraordinary result (153,364,874.64) (3,023,041.04)
</TABLE>
A-7
<PAGE>
WESTLB GROUP STATEMENT OF INCOME--(Continued)
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1996 1995
---- ----
(DM)
<S> <C> <C>
22. Taxes on income and revenues 499,740,673.63 586,078,966.72
23. Other taxes not shown under other
operating expenses 66,323,955.00 50,693,522.22
---------------- ------------------
566,064,628.63 636,772,488.94
---------------- ------------------
Net income for the year 735,525,035.60 667,269,867.23
Withdrawals of net income from reserves
from retained earnings
a) legal reserves -- --
b) statutory reserves -- --
c) other reserves -- --
d) Group reserves 81,382,975.12 18,831,105.79
---------------- ------------------
81,382,975.12 18,831,105.79
Allocation to capital of
Wohnungsbauforderungsanstalt/
Investitionsbank of Landesbank
Schleswig-Holstein 185,759,551.70 147,037,335.67
Allocations of net income to reserves from retained
earnings
a) legal reserves -- --
b) statutory reserves 40,000,000.00 40,000,000.00
c) other reserves 160,000,000.00 160,000,000.00
d) Group reserves 212,805,022.05 142,462,368.29
--------------- ---------------
412,805,022.05 342,462,368.29
Profit attributable to shareholders outside the Group 56,735,373.26 44,932,985.97
Loss apportionable to shareholders outside the Group 91,936.29 9,631,716.91
--------------- ---------------
56,643,436.97 35,301,269.06
--------------- ---------------
Group profit 161,700,000.00 161,300,000.00
=============== ===============
</TABLE>
A-8
<PAGE>
WESTLB BALANCE SHEET
AS AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
As of As of
December 31, December 31,
1996 1995
---- ----
(DM) (DM)
<S> <C> <C>
ASSETS
1. Cash (Supp. Note 1)
a) cash on hand 26,255,984.40 34,080,743.70
b) balances with central banks 2,489,002,874.02 1,126,715,969.14
including: with Deutsche Bundesbank
DM 2,429,527,846.17 (1996)
DM 1,097,381,312.89 (1995)
c) balances in postal giro accounts -- --
---------------- ----------------
2,515,258,858.42 1,160,796,712.84
2. Debt instruments issued by public
institutions and bills of exchange
eligible for refinancing with central
banks (Supp. Note 2)
a) treasury bills and discounted treasury
notes (Supp. Note 3) as well as similar
debt instruments issued by public institutions
including:
eligible for refinancing with Deutsche Bundesbank
DM 791,761,767.50 (1996)
DM -- (1995) 961,697,341.43 16,325,985.31
b) bills of exchange 6,751,636.26 14,253,826.96
----------------- ------------------
including: 968,448,977.69 30,579,812.27
eligible for refinancing with Deutsche
Bundesbank
DM 6,751,636.26 (1996)
DM 14,253,826.96 (1995)
3. Claims on banks (Notes (1), (11), (25) and
(27) and Supp. Note 4)
a) payable on demand 7,608,709,960.73 14,237,309,259.07
b) other 112,065,606,670.84 85,128,472,800.79
------------------ -----------------
including: loans of Landes-Bausparkasse (LBS) 119,674,316,631.57 99,365,782,059.86
DM 1,627,266.71 (1996)
DM 1,838,830.68 (1995)
4. Claims on customers (Notes (2) (3),
(11), (25) and (27) and Supp. Note 5) 142,132,917,745.84 137,199,516,603.02
including: secured by mortgages
DM 18,769,845,905.38 (1996)
DM 18,805,570,072.58 (1995)
loans to public authorities and entities
under public law
DM 56,506,902,408.44 (1996)
DM 57,161,837,409.13 (1995)
loans of Landes-Bausparkasse (LBS)
DM 10,372,911,010.61 (1996)
DM 10,104,277,480.85 (1995)
</TABLE>
A-9
<PAGE>
WESTLB BALANCE SHEET--(Continued)
AS AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
As of As of
December 31, December 31,
1996 1995
---- ----
(DM) (DM)
<S> <C> <C>
5. Bonds and other interest-bearing securities
(Notes (4), (9), (11), (12), (25)
and Supp. Note 6)
a) money market instruments
aa) of public institutions 2,642,563.50 --
ab) of other issuers 750,350,692.45 107,932,203.70
------------------ ------------------
752,993,255.95 107,932,203.70
b) bonds and notes
ba) of public institutions 18,246,110,973.04 13,742,668,306.88
bb) of other issuers 32,909,664,250.74 23,529,137,089.02
----------------- -----------------
51,155,775,223.78 37,379,737,599.60
including: eligible as collateral
for Deutsche Bundesbank advances
(Supp. Note 7)
DM 33,459,109,224.35 (1996)
DM 27,188,063,488.98 (1995)
c) bonds issued by the Bank (Supp. Note 8) 2,270,619,541.72 1,715,123,724.55
principal amount:
DM 2,226,029,700.00 (1996)
DM 1,674,821,300.00 (1995) 54,179,388,021.45 39,094,861,324.15
6. Shares and other non-interest bearing
securities (Note (5) and Supp. Note 9) 3,030,737,349.97 3,169,480,984.44
7. Equity investments in non affiliated
companies (Notes (6), (9) and Supp. Note 10) 5,220,590,305.73 4,756,853,397.21
including: banks
DM 2,438,550,910.38 (1996)
DM 1,664,931,871.78 (1995)
8. Equity investments in affiliated companies
(Note (9), and
Supp. Note 10) 5,443,518,575.91 5,301,002,590.79
including: banks
DM 1,877,783,814.83 (1996)
DM 1,921,207,308.01 (1995)
9. Trust assets (Note (7) and Supp. Note 11) 7,621,638,511.21 7,748,917,914.61
including: trust loans
DM 6,727,468,511.21 (1996)
DM 6,838,797,914.61 (1995)
10. Equalization claims against public
authorities including notes and bonds
issued in substitution thereof
(Supp. Note 12) 197,545,380.56 1,219,541,811.28
11. Intangible Assets (Note (9)) 2,406,044.29 --
12. Fixed assets (Note (9) and Supp. Note 13) 848,161,006.15 714,787,227.13
13. Other assets (Note (8)) 1,503,820,051.32 1,116,803,885.31
14. Deferred items (Note (10) and Supp. Note 14) 6,422,237,490.54 6,142,365,495.19
------------------ ------------------
Total assets (Note (23)) 349,760,984,950.65 307,021,289,818.10
================== ==================
</TABLE>
A-10
<PAGE>
WESTLB BALANCE SHEET--(Continued)
AS AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
As of As of
December 31, December 31,
1996 1995
---- ----
(DM) (DM)
<S> <C> <C>
LIABILITIES
1. Liabilities to banks (Notes (13), (26)
and Supp. Note 15)
a) payable on demand 12,335,519,680.77 9,648,997,736.84
b) with agreed maturity or period of notice 106,119,642,462.32 88,707,429,390.68
c) deposits of Landes-Bausparkasse(LBS) 89,418,417.83 72,316,197.90
------------------ -----------------
118,544,580,560.92 98,428,743,325.42
2. Liabilities to customers (Notes
(14), (26) and Supp. Note 16)
a) deposits of the Landes-Bausparkasse
and saving deposits
aa) deposits of the Landes-Bausparkasse 10,328,201,406.26 9,820,506,114.30
ab) saving deposits with agreed period
of notice of 3 months 69,904,035.26 57,870,735.60
ac) saving deposits with agreed period
of notice of more than 3 months 29,928,107.38
------------------ ------------------
10,428,033,548.90 9,907,218,814.50
b) other liabilities
ba) payable on demand 10,156,461,290.63 6,820,495,291.85
bb) with agreed maturity or period of notice 65,464,289,713.78 58,654,252,206.59
------------------ ------------------
75,620,751,004.41 65,474,747,498.44
------------------ ------------------
86,048,784,553.31 75,381,966,312.94
3. Certificated liabilities (Notes (15),
(27) and Supp. Note 17)
a) bonds and notes issued by the Bank 103,722,642,044.28 99,910,374,031.24
b) other certificated liabilities 11,251,307,892.93 5,537,146,112.98
------------------ ------------------
including: 114,973,949,937.21 105,447,520,144.22
money market instruments
DM 10,847,932,487.83 (1996)
DM 5,101,770,356.59 (1995)
own acceptances and promissory notes
outstanding
DM 400,989,299.10 (1996)
DM 435,375,756.39 (1995)
4. Trust liabilities (Note (16) and Supp. Note 11) 7,621,638,511.21 7,748,917,914.61
including:
trust loans
DM 6,727,468,511.21 (1996)
DM 6,838,797,914.61 (1995)
5. Other liabilities (Note (17)) 1,377,706,945.55 987,326,976.80
6. Deferred items (Note (18) and Supp. Note 14) 1,360,612,371.74 677,882,020.82
7. Provisions (Note 19)
a) for pensions and similar obligations 1,549,790,256.26 1,428,449,328.05
b) tax reserve 347,226,068.09 411,609,972.46
c) other 1,170,855,746.36 1,004,586,822.78
------------------ ------------------
3,067,872,070.71 2,844,646,123.29
8. Fund for building society-related risks 46,855,000.00 30,126,000.00
9. Subordinated liabilities (Note (20)) 3,306,173,000.00 2,980,000,000.00
10. Profit participation capital (Notes
(21) and 22 and Supp. Note 19) 1,591,112,000.00 872,862,000.00
including:
due in less than two years DM -- (1996)
DM -- (1995)
11. Fund for general bank risks (Supp. Note 20) 170,000,000.00 170,000,000.00
</TABLE>
A-11
<PAGE>
WESTLB BALANCE SHEET--(Continued)
AS AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
As of As of
December 31, December 31,
1996 1995
---- ----
(DM) (DM)
<S> <C> <C>
12. Equity capital (Notes (21) and (22) and Supp. Note 21)
a) subscribed capital 2,315,315,985.00 2,315,315,985.00
b) capital reserves 6,489,684,015.00 6,489,684,015.00
including:
special reserves pertaining to
the Wohnungsbauforderungsanstalt
DM 5,900,000,000.00 (1996)
DM 5,900,000,000.00 (1995)
c) reserves from retained earnings
ca) legal reserves -- --
cb) statutory reserves (Supp. Note 22) 800,000,000.00 760,000,000.00
cc) other reserves (Supp. Note 23) 1,885,000,000.00 1,725,000,000.00
------------------ ------------------
2,685,000,000.00 2,485,000,000.00
d) Profit 161,700,000.00 161,300,000.00
------------------ ------------------
11,651,700,000.00 11,451,300,000.00
Total liabilities (Note (23))
349,760,984,950.65 307,021,289,818.10
================== ==================
13. Contingent liabilities
a) liabilities relating to negotiated bills
of exchange (Supp. Note 25) 223,301,493.62 257,509,772.87
b) liabilities from guarantees and indemnity
agreements (Supp. Note 26) 12,214,339,377.28 9,841,181,356.73
c) contingent liabilities relating to collateral
given for third-party liabilities 224,339.10 224,339.10
----------------- -----------------
12,437,865,210.00 10,098,915,468.70
14. Other commitments (Note (24))
a) commitments from ungenuine repurchase agreements 518,655,000.00 --
b) placing and underwriting commitments -- --
c) irrevocable credit commitments 59,738,147,355.56 45,608,340,526.18
------------------ -----------------
60,256,802,355.56 45,608,340,526.18
Administered funds (Supp. Note 27) 975,573,005.03 955,516,631.57
</TABLE>
A-12
<PAGE>
WESTLB STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
1996 1995
---- ----
(DM)
<S> <C> <C>
1. Interest from
a) lending and money market transactions 15,962,570,016.49 15,008,593,146.30
b) interest-bearing securities and book
entry securities 3,189,798,683.23 2,710,882,938.14
----------------- -----------------
19,152,368,699.72 17,719,476,084.44
2. Interest paid 17,279,943,954.08 15,902,135,112.29
----------------- -----------------
1,872,424,745.64 1,817,340,972.15
3. Current income from
a) shares and other non interest-bearing securities 216,171,819.92 24,427,467.43
b) equity investments in non-affiliated
companies (Supp. Note 28) 217,712,972.90 138,615,117.10
c) equity investments in affiliated companies
(Supp. Note 28) 345,699,421.17 202,100,457.03
----------------- -----------------
779,584,213.99 365,143,041.56
4. Income from profit pooling, profit transfer
and partial profit transfer agreements 126,714,221.68 143,709,264.34
5. Commission income 606,510,871.94 545,722,631.00
6. Commission paid 258,333,982.42 214,185,097.26
----------------- -----------------
348,176,889.52 331,537,533.74
7. Net result from trading operations 142,169,284.02 30,262,026.08
8. Other operating income 177,597,751.48 184,255,097.79
9. General administrative expenses
a) personnel expenses
aa) wages and salaries 847,831,232.98 703,659,850.68
ab) compulsory social security contributions
and expenses for pensions and other
employee benefits 305,214,380.98 282,226,475.01
----------------- -----------------
including: 1,153,045,613.96 985,886,325.69
for pensions
DM 205,937,855.05 (1996)
DM 197,867,207.27 (1995)
b) other administrative expenses 759,406,586.99 595,178,240.45
---------------- ----------------
1,912,452,200.95 1,581,064,566.14
10. Depreciation and value adjustments on
intangible and tangible fixed assets 114,699,544.64 99,799,594.02
11. Other operating expenses 77,632,145.80 115,369,537.88
12. Write-downs and value adjustments on
loans and certain securities, as well as
allocations to loan loss provisions
(Supp. Note 29) 433,621,963.41 282,316,022.76
including:
allocation to fund for general bank risks
DM --.-- (1996)
DM 35,000,000.00 (1995)
</TABLE>
A-13
<PAGE>
WESTLB STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996--(Continued)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
1996 1995
---- ----
(DM)
<S> <C> <C>
13. Write-downs and value adjustments on
equity investments in non-affiliated and
affiliated companies and securities treated
as fixed assets 54,429,594.87 --
14. Income from reevaluation of equity investments
in non-affiliated companies, equity investments
in affiliated companies and securities treated
as fixed assets (Supp. Note 30) -- 147,046,544.39
15. Expenses from the assumption of losses 41,236,288.38 97,830,007.85
----------------- -----------------
16. Profit or loss on ordinary activities 812,595,368.28 842,914,751.40
17. Extraordinary income 37,706,355.05 --
18. Extraordinary expenses 240,664,000.00 --
19. Extraordinary result (202,957,644.95) --
20. Taxes on income and revenues 95,806,923.72 349,910,631.15
21. Other taxes not shown under
other operating expenses 4,656,494.91 5,064,462.58
----------------- -----------------
100,463,418.63 354,975,093.73
================= =================
Net income for the year 509,174,304.70 487,939,657.67
Allocation to capital of
Wohnungsbauforderungsanstalt 147,474,304.70 126,639,657.67
Allocations of net income to reserves
from retained earnings
a) legal reserves -- --
b) statutory reserves 40,000,000.00 40,000,000.00
c) other reserves 160,000,000.00 160,000,000.00
----------------- -----------------
200,000,000.00 200,000,000.00
Profit 161,700,000.00 161,300,000.00
================= =================
</TABLE>
A-14
<PAGE>
NOTES TO THE ANNUAL ACCOUNTS AS REQUIRED BY THE GERMAN COMMERCIAL CODE
Notes to the WestLB Group Annual Accounts as at December 31, 1996
Compilation of Group Annual Accounts
Westdeutsche Landesbank has prepared its Group annual accounts in
accordance with the provisions of the German Commercial Code (Handelsgesetzbuch)
and the Ordinance Regarding Accounting for Banks (RechKredV). Information which
can optionally be included in the balance sheet or in the Notes is set out in
the Notes.
Consolidation Principles
As required by law, the accounts of the individual Group companies are
uniformly prepared in accordance with the accounting and valuation methods
applicable to WestLB (unless this is already done from the outset). Claims and
liabilities, expenses and income, as well as interim results existing or arising
between companies included in the Group Accounts, are eliminated. Where
necessary, a deferred tax item is formed to cover any consolidation measures
affecting net income.
The annual accounts of foreign subsidiaries prepared in a foreign
currency were converted at the official mean rates of exchange prevailing on
December 30, 1996.
Valuation differences arising from exchange-rate adjustments in
previous years are netted against the Group reserves so that they have no effect
on profits.
Group members which are consolidated for the first time are valued
according to the book value method, with valuation as at the Group balance sheet
date; expenses and income for the entire business year are included in the Group
statement of income at their full amount. In accordance with HFA 3/95, the
annual profits of companies consolidated for the first time arising from their
inclusion as of the Group balance sheet date were neutralized by forming an
equalization item.
In 1996, 29 companies were consolidated for the first time; twelve
consolidation balances amounting to DM 199.6 million were offset against Group
reserves, and nine consolidation balances totalling DM 41.5 million led to an
increase in Group reserves. In eight cases there was no difference. In one case,
the full acquisition of two previously partially owned companies resulted in
goodwill of DM 45.0 million which was also netted against Group reserves. In a
further case, goodwill valued at DM 85.4 million arose and was written down in
full with a corresponding effect on earnings.
The 29 companies included in WestLB's consolidated accounts for the
first time account for 0.21% or approximately DM 1 billion of the Group's total
assets. These companies had no influence on the Group's net income for the year
and had only a marginal effect on the other items of WestLB's consolidated
accounts.
The equity valuation of the nine associated companies continues to be
effected according to the book value method. In the case of companies classified
as associated companies for the first time, the valuation basis was the balance
sheet reporting date for the Group Accounts. Any valuation methods used for
associated companies which deviate from those applied by WestLB are not
adjusted. We are aware of no facts requiring the elimination of interim results.
Thirteen associated companies were not valued at-equity, as these
enterprises are only of minor importance for the net assets, financial condition
and earnings of the Group.
Unless they are netted as part of capital consolidation, the earnings
of the consolidated subsidiaries are allocated to Group reserves. The Group
reserves also reflect the impact of certain consolidation measures on earnings.
This means that the Group profit is identical to the profit of WestLB.
A-15
<PAGE>
Companies Included in the Group Annual Accounts
At the end of 1996, WestLB had a total of 347 affiliated companies, of
which 191 are included in the Group annual accounts. The following table
classifies the affiliated companies:
Group Companies of Westdeutsche Landesbank
<TABLE>
<CAPTION>
Previous Report
Year Additions Subtractions Year
-------- --------- ------------ ------
<S> <C> <C> <C> <C>
Affiliated companies 329 52 34 347
Included in the Group accounts 166 29 4 191
Not included in the Group
accounts pursuant to ss.296 (1)
No 3 or (2) of the German
Commercial Code (HGB) 156 22 30 148
Not included in the Group
accounts pursuant to ss.295 (1)
of the German Commercial
Code (HGB) 7 1 -- 8
Jointly-managed companies 3 -- -- 3
Associated companies pursuant to
ss.311 (1) of the German
Commercial Code (HGB) 10 -- 1 9
Associated companies pursuant to
ss.311 (2) of the German
Commercial Code (HGB) 16 1 4 13
</TABLE>
Landesbank Rheinland-Pfalz and Landesbank Schleswig-Holstein Groups, as
well as Westdeutsche ImmobilienBank, are consolidated on a pro rata basis as
jointly-managed companies.
A total of 148 affiliated companies were not included in the Group
Accounts, as they are only of minor importance only for the net assets,
financial condition and earnings of the WestLB Group or because the shares in
these companies are held solely for the purpose of being sold. The aggregate
unconsolidated assets of the 132 companies which were not consolidated due to
their minor importance accounted for 0.1% of Group total assets.
Moreover, eight affiliated companies were not included in the Group
Accounts, as their inclusion was not compatible with the obligation to provide a
true and fair view of the net assets, financial condition and earnings of the
Group.
Accounting and Valuation Principles
WestLB's accounting principles, valuation principles and reporting
procedures are applicable to the entire Group. In accordance with the legal
requirements, the financial accounts of individual companies included in the
Group annual accounts are prepared in accordance with WestLB's standard
accounting and valuation methods.
The valuation of assets, liabilities and pending transactions is
made in accordance with ss.ss.252 et seq. and ss.ss.340 et seq. of the German
Commercial Code (HGB).
Claims are shown with the principal amount outstanding less unamortized
discounts. Liabilities are carried at the amount repayable; the accompanying
discounts are entered under deferred items. Premiums relating to claims or
liabilities are shown under deferred items as an asset or liability,
respectively. The proportionate amount of interest at year-end is included with
the claim or liability to which it applies. Discounts and premiums from own
bonds issued and lending business are dissolved according to the interest-share
method. Bills of exchange, treasury bills and discounted treasury notes were
discounted at the effective interest rate. Non-interest bearing loans to
employees are shown with the principal amount outstanding in line with tax
regulations. Non-interest and low-interest-bearing loans of the
Wohnungsbauforderungsanstalt and/or the Investitionsbank Kiel are stated at
their cash value. Zero bonds issued by the Bank are carried as liabilities and
shown at their issue value plus interest accrued on the balance sheet date.
A-16
<PAGE>
Value adjustments and specific provisions were made to cover
discernible risks in the loan business. Adequate account was taken of risks in
respect of outstanding claims by way of general provisions on receivables within
the limits allowed by the relevant tax regulations. There is a fund for general
bank risks pursuant to ss.340g of the German Commercial Code (HGB).
Securities held in the trading portfolio and in the liquidity reserve
are valued strictly according to the lower of cost or market principle at market
or lower book values. Securities held in the Group's investment portfolio
(financial assets) are valued at cost. Partial holdings were written down using
the modified lower of cost or market principle. Any difference between the cost
and repayment value of securities held in the investment portfolio is included
pro rata temporis in the Group's results.
Equity investments in affiliated and non-affiliated companies are
carried at cost; where a loss of value is expected to be permanent, they are
written down to the lower applicable value.
Tangible assets whose use is limited by time are written off in
accordance with the relevant tax regulations. Low-value assets are written off
in full in their year of purchase.
Adequate provision has been made to cover contingent liabilities and
pending losses; provision for anniversary expenses has been made in accordance
with the maximum amounts permitted under tax regulations. Provision for pension
obligations has been established on the basis of actuarial principles in
accordance with ss.6a of German Income Tax Law (Einkommenssteuergesetz).
Income tax charges carried in the statement of income relate to the
profit or loss on ordinary activities.
The WestLB Group's equity includes the special reserves pertaining to
the Wohnungsbauforderungsanstalt of WestLB, as well as the pro-rata appropriated
reserves of Landesbank Schleswig-Holstein, as part of the Group reserves. In
contrast to previous years, the annual results of the
Wohnungsbauforderungsanstalt Nordrhein-Westfalen and the Investitionsbank of
Landesbank Schleswig-Holstein are included in the net Group profit for the year
in the 1996 consolidated accounts. The equivalent 1995 figures have been
adjusted accordingly. In accordance with applicable legal requirements, the
results have been allocated to the corresponding capital items in the promotion
areas of the two Landesbanks.
Foreign Exchange Valuation
Foreign currencies are converted and foreign currency transactions
valued in accordance with the provisions of ss.340h of the German Commercial
Code (HGB), as well as BFA statement 3/95. WestLB Group did not exercise the
option of special cover for balance-sheet and forward positions.
Foreign currency assets and liabilities, as well as pending
transactions, are converted and valued on the basis of the official mean spot or
forward rates prevailing at year-end. Profits or losses resulting from the
conversion of hedged items and corresponding pending transactions are
neutralized by forming adjustment items in the balance sheet. Swap premiums were
accrued pro rata temporis; in addition, residual valuation was applied for
interest arbitrage transactions. Valuation losses arising from currency options
on the one hand and from outright forward transactions and residual valuation on
the other are offset against valuation gains from same-currency transactions
effected for straightforward cover purposes. Provisions are formed for any
valuation losses not offset against valuation gains; valuation gains which were
not offset are not shown as income.
A-17
<PAGE>
Derivatives
As part of their business activities, WestLB Group companies conduct
currency or interest-related and other types of derivatives in the following
categories:
Currency-Related Derivatives
Forward exchange transactions, written and bought currency options,
forward exchange contracts, issued currency warrants, currency swaps,
interest/currency swaps and gold and precious metals forward
trans-actions/options.
Interest-Related Derivatives
Interest-rate forward contracts, interest-rate swaps, forward rate
agreements (FRAs), written and bought interest-rate options, issued
interest-rate warrants, interest-rate caps, interest-rate floors, interest-rate
collars and options on interest-rate swap transactions (swaptions).
Other Derivatives
Share forward contracts, written and bought share options, index
futures contracts, written and bought index options, issued shares and index
warrants.
The total nominal volume of the WestLB Group's derivatives business is
DM 717.6 (501.2) billion.
A-18
<PAGE>
On December 31, 1996, the derivatives business comprised the following
major categories and volumes:
Derivatives--Volumes--Group
<TABLE>
<CAPTION>
Nominal Values Credit Risks Replacement
------------------------------ Equivalents Costs*
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1996 1995 1996 1995
------------- --------------- ------------- ------------
(DM millions)
<S> <C> <C> <C> <C>
Interest-rate risks
Interest-rate swaps 339,211 223,049 2,467 7,749
FRAs 87,586 59,301 110 235
Interest-rate options
--bought options 1,366 3,976 3 6
--written options 1,378 1,641 -- --
Caps, floors 40,117 26,676 82 222
Stock market contracts 15,655 19,818 -- --
Other interest-rate forward
transactions 35,996 15,061 109 134
------- ------- ------- -------
Interest-rate risks total 521,309 349,522 2,771 8,346
Currency risks
Forward exchange transactions 169,808 138,846 1,136 2,702
Interest-currency swaps/
currency swaps 11,194 11,421 279 222
Currency options
--bought options 2,881 3,354 17 38
--written options 3,573 3,342 -- --
Stock market contracts 1,205 -- -- --
Other currency forward
transactions 695 75 -- 1
------- ------- ------- -------
Currency risks total 189,356 157,038 1,432 2,963
Shares and other price risks
Share options
--bought options 1,943 1,662 53 79
--written options 484 84 -- --
Stock market contracts 2,765 1,211 -- --
Other forward transactions 1,700 731 2 2
------- ------- ------- -------
Shares and other price risks
total 6,892 3,688 55 81
Derivatives 717,557 510,248 4,258 11,390
======= ======= ======= =======
</TABLE>
* excluding LB Rheinland-Pfalz, LB Schleswig-Holstein and Banque d'Orsay.
WestLB Group primarily enters into contracts with domestic and foreign
banks, with non-OECD banks accounting for only a very small portion.
A-19
<PAGE>
Derivatives--Classification of Counterparties*
<TABLE>
<CAPTION>
Nominal Values Credit Risks Replacement
------------------------------ Equivalents Costs*
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1996 1995 1996 1995
------------- --------------- ------------- ------------
(DM millions)
<S> <C> <C> <C> <C>
OECD banks 490,564 346,568 2,346 9,230
Non-OECD banks 5,382 3,767 43 89
Customers** 145,183 103,717 1,347 2,066
Public-sector entities 5,611 2,680 10 6
------- ------- ----- ------
Total 646,740 456,732 3,746 11,391
</TABLE>
* excluding LB Rheinland-Pfalz, LB Schleswig-Holstein, Banque d'Orsay
and The Thomas Cook-Group.
** including stock market contracts.
WestLB Group's derivates business primarily focuses on trading
transactions and contracts for hedging the Group's own portfolios.
Derivatives--Trading Transactions*
<TABLE>
<CAPTION>
Nominal Values Credit Risks Replacement
------------------------------ Equivalents Costs*
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1996 1995 1996 1995
------------- --------------- ------------- ------------
(DM millions)
<S> <C> <C> <C> <C>
Interest-rate contracts 440,597 280,499 2,363 8,071
Currency contracts 139,568 110,195 1,052 2,741
Share contracts 6,422 1,592 48 76
------- ------- ----- ------
Total trading transactions 586,587 392,286 3,463 10,888
</TABLE>
* excluding LB Rheinland-Pfalz, LB Schleswig-Holstein, Banque d'Orsay
and The Thomas Cook-Group.
The following table shows the scope of the derivatives business
according to residual maturity:
Derivatives--Classification by Maturity*
<TABLE>
<CAPTION>
Share and
Interest-Rate Risks Currency Risks Other Price Risks
-------------------- -------------- -----------------
December 31, December 31, December 31, December 31, December 31, December 31,
Nominal Values 1996 1995 1996 1995 1996 1995
- -------------- ------------ ------------ ------------ ------------ ----------- ------------
(DM millions)
<S> <C> <C> <C> <C> <C> <C>
Residual maturity
- --up to one year 199,615 136,407 139,936 116,171 6,508 3,409
- --one to five years 194,014 128,045 10,770 9,875 200 --
- --more than five years 93,971 60,492 1,726 2,334 -- --
------- ------- ------- ------- ----- -----
Total 487,600 324,944 152,432 128,380 6,708 3,409
</TABLE>
* excluding LB Rheinland-Pfalz, LB Schleswig-Holstein, Banque d'Orsay
and The Thomas Cook-Group.
Futures and other forward transactions, options as well as warrants
issued by the Group on shares, bonds, deposit interest or indices are valued at
market rates. Where hedging transactions
A-20
<PAGE>
and contracts are involved, they are not shown as income. Valuation gains were
not shown as income. Provision was made for valuation losses.
Interest-rate swap transactions held as part of the trading portfolio,
forward rate agreements, swaptions as well as caps and floors are grouped into
product-related or cross-product portfolios according to currency. The
portfolios are valued at market rates in line with their residual life. One-off
payments, option premiums and results derived from collateral transactions are
included for valuation purposes. Remaining valuation gains were not included as
income; nor were they offset against the results of other portfolios; provision
was made for valuation losses.
Derivatives--Average Volumes
<TABLE>
<CAPTION>
Average
Average Average Nominal Average Credit Risk Replacement
1.1.-31.12.1996 Values Equivalents Costs
- --------------- --------------- ------------------- -----------
(DM millions)
<S> <C> <C> <C>
Interest-rate risks 450,034 2,141 7,754
Currency risks 183,135 1,249 48
Share and other price risks 7,754 48 70
------- ----- -----
Derivatives total 640,923 3,438 7,872
</TABLE>
The credit risk equivalents are calculated on the basis of the
market-valuation method in accordance with German bank supervisory requirements
including a corresponding contracting party weighting and a percentage add-on.
WestLB Group's credit risk equivalents pursuant to Principle 1 represent 2.4
(1.8)% of the entire risk assets of the WestLB Group.
The replacement costs stated are calculated on the basis of the market
prices prevailing at year-end and only include contracts for which the buy-in
transaction necessary to regain the previous position in the event of a
counterparty default would result in additional expenditure or lower income;
positive values were not taken into account. Accordingly, a counterparty
weighting was not made.
There is no netting for the purpose of calculating credit risk
equivalents and replacement costs.
Claims on Banks (1)
Claims on banks comprise the following:
<TABLE>
<CAPTION>
1996 1995
--------------------------------------- -----------------------------------------
Claims on Claims on Claims on Claims on
Associated Other Associated Other
Banks Banks Banks Banks
---------- --------- ---------- ---------
(DM millions) (DM millions)
<S> <C> <C> <C> <C>
payable on demand 1,657.4 7,827.6 1,878.7 13,836.4
with agreed maturity or period
of notice of:
--less than three months 154.4 23,837.5 69.0 15,869.6
--at least three months, but
less than four years 233.1 49,445.4 117.3 45,648.3
--four years or more 19,455.2 44,346.8 17,145.3 36,188.6
-------- --------- -------- ---------
Total 21,500.1 125,457.3 19,210.3 111,542.9
Total 146,957.4 130,753.2
========= =========
including:
loans of building and loan
associations 1.6 0.7 1.8 0.7
loans of the
Wohnungsbaufor-
derungsanstalten -- 5,209.6 -- 413.7
</TABLE>
A-21
<PAGE>
At the end of 1996, claims on banks included claims on companies in
which equity investments are held in an amount of DM 3,105.0 (1,731.9) million.
Claims from leasing transactions amounted to DM 337.4 (283.9) million.
Claims on Customers (2)
Claims on customers comprise the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
(DM millions)
<S> <C> <C>
with agreed maturity or period of notice of:
--less than four years 36,399.9 36,442.9
--four years or more 143,682.9 138,042.0
--------- ---------
Total 180,082.8 174,484.9
including:
--non-consolidated affiliated companies 325.1 386.6
--companies in which equity investments are held 1,477.7 1,112.1
--from leasing transactions 4,156.9 3,703.3
--loans of building and loan associations 11,960.3 11,595.7
--loans of the Wohnungsbauforderungsanstalten 10,820.6 10,947.3
<CAPTION>
Claims Secured by Mortgages (3)
1995 1996
---- ----
(DM millions)
<S> <C> <C>
Claims on customers with an agreed maturity or period of notice of:
--less than four years 1,075.2 1,042.4
--four years or more 24,384.4 23,905.5
including:
Loans of building and loan associations 8,097.8 7,868.6
-------- --------
Total 25,459.6 24,947.9
<CAPTION>
Bonds and Other Interest-Bearing Securities (4)
1995 1996
---- ----
(DM millions)
<S> <C> <C>
Bonds and notes 93,144.6 74,721.6
including:
--listed on a stock exchange 86,648.4 71,538.3
--not listed on a stock exchange 6,120.5 3,156.8
including:
--claims on companies in which equity
investments are held 884.8 629.1
Money-market instruments 2,444.2 1,083.1
-------- --------
Total 95,588.8 75,804.7
</TABLE>
A-22
<PAGE>
The following table classifies the Group's portfolio of bonds and other
interest-bearing securities (excluding money-market instruments) according to
maturity:
<TABLE>
<CAPTION>
1995 1996
---- ----
(DM millions)
<S> <C> <C>
Bonds and notes of public-sector issuers with original maturities of:
--less than four years 2,070.2 1,901.6
--four years or more 31,541.8 25,013.7
Bonds and debentures of other issuers with original maturities of:
--less than four years 7,483.5 5,757.8
--four years or more 47,711.1 38,196.4
Bonds issued by the Group with original maturities of
--less than four years 705.1 522.1
--four years or more 3,632.9 3,330.0
-------- --------
Total 93,144.6 74,721.6
</TABLE>
The portfolios are classified according to the purpose of the bonds
allocated to them and are shown separately for accounting purposes. The bonds
forming part of the Group investment portfolio in an amount of DM 55.7 (36.9)
billion including proportionate interest are shown as fixed assets and valued
accordingly. At year-end, financial assets of DM 7.4 (8.3) billion were not
valued according to the modified lower of cost or market principle. Of these, a
total of DM 3.6 (5.8) billion consisted of securities acquired in connection
with interest-rate swap transactions (asset swaps) and whose commercial value is
commensurate with the purchase price.
Shares and Other Non-Interest-Bearing Securities (5)
Of the marketable securities included under this item with a value of
DM 1,724.8 (1,360.5) million, securities with a value of DM 1,022.7 (983.6)
million are listed and securities with a value of DM 702.1 (376.9) million are
not listed on a stock exchange. Shareholdings are valued strictly according to
the lower of cost or market principle.
Allocation of Securities Holdings (6)
Of the Group's portfolio of bonds, shares and other securities;
DM 13.7 (9.8) billion are carried as trading portfolio;
DM 55.9 (37.0) billion are carried as investment portfolio; and
DM 30.3 (33.0) billion are carried as liquidity reserve.
Equity Investments in Affiliated and Non-Affiliated Companies (7)
WestLB Group's equity investments in non-affiliated companies amounting
to DM 6,197.9 (5,825.9) million include marketable securities of DM 2,177.3
(1,903.9) million. Of these, DM 1,628.9 (DM 1,304.2) million are listed and DM
548.4 (599.7) million are not listed on a stock exchange. Of the equity
investments in affiliated companies in an amount of DM 148.4 (211.8) million, DM
19.7 (38.8) million are marketable securities; of these securities, DM 19.1
(19.1) million are listed on a stock exchange. The list of shareholdings
pursuant to ss.ss.285 No. 11, 313 (2) of the German Commercial Code (HGB) has
been deposited with the Dusseldorf district court (Amtsgericht). The exception
provided for under ss.ss.286 (3) No. 2, 313 (3) (HGB) was utilized in 14 cases.
A-23
<PAGE>
The structure of the WestLB Group is as follows:
Structure of the Group of Wesdeutsche Landesbank Girozentrale Dusseldorf/Munster
<TABLE>
<CAPTION>
Banking Group Subsidiaries Other Group Subsidiaries
- -------------------------- ------------------------
<S> <C> <C> <C>
West Merchant Bank Holdings Ltd., London (100%) (LC) The Thomas Cook-Group Ltd., London (100%) (LC)
West Merchant Bank Ltd., London (100%) (LC) Thomas Cook Inc., New York (100%) (LC)
Banque Europeenne pour l'Amerique Latine (LC) (100 Companies) (100%) (LC)
(BEAL) S.A., Brussels (100%) (LC) TCT Touristik Beteiligungs-GmbH & Co. KG,
Dusseldorf (100%) (LC)
Banque d'Orsay S.A., Paris (100%) (LC) TBG Touristik Beteiligungs-GmbH, Dusseldorf (100%) (LC)
Westdeutsche Landesbank (Europa) AG,
Duseldorf (100%) (LC) GEV Gesellschaft fur Energie und Versorgungswerte
mbH, Dortmund (100%)
WestLB Asia Pacific Ltd., Singapore (100%) (LC) WestKB Westdeutsche Kapitalbeteiligungsges.
mbH Dusseldorf (100%)
Panmure Gordon & Co. Ltd., London (100%) (LC) WestTM Westdeutsche Technologie
Westdeutsche Landesbank (Schweiz) AG, Zurich
(67.5%) (LC) Management GmbH, Dusseldorf (100%)
A/O Westdeutsche Landesbank Vostok, Moscow (100%) (LC) Westfinanz Westdeutsche Finanzierungsges mbH,
Munster (100%)
Westdeutsche Landesbank (Austria) AG, Vienna (100%) (LC) WestLeasing Westdeutsche Leasing Holding GmbH,
Dusseldorf (100%)
Westdeutsche Landesbank (France) S.A., Paris (100%) (LC) Westdeutsche Lotterie GmbH & Co., Munster (100%)
Westdeutsche Landesbank (Hungaria) Rt., Budapest
(99.5%) (LC) Westdeutsche Spielbanken GmbH & Co., KG,
Munster (100%)
Westdeutsche Landesbank (Ireland) Plc,
Dublin (100%) (LC) WestLB ASLAC Bank Ltd., Port Vanuatu (100%) (LC)
Westdeutsche Landesbank Polska S.A.,
Warsaw (100%) (LC) WestLB Europe (UK) Fund Ltd., London (100%) (LC)
WestLB Europa Finanziaria S.p.A., Milano (100%) (LC) WestLB Finance Curacao N.V., Curacao (100%) (LC)
WestLB International S.A., Luxembourg (75%) (LC) WestLB Finance Netherlands B.V., Den Bosch (100%) (LC)
WestLB Europe (UK) Holdings Ltd., London (100%) (LC)
WestLB Finance (Credits) Ltd., London (100%) (LC) 52 additional affiliated companies included in
the consolidated accounts.
WestLB Finance UK Plc., London (100%) (LC)
WestLB Securities Pacific Ltd., Hongkong (100%) (LC) 156 additional affiliated companies not included in the
consolidated accounts.
WestLB UK Ltd., London (100%) (LC)
WestLB Capital Management GmbH, Dusseldorf (100%) (LC) 9 associated companies.
Deutsche Aussenhandelsbank AG, Berlin (100%) (LC)
Deutsche Industrie- und Handelsbank AG,
Berlin (100%) (LC)
WestLB Investment (Hungaria) Rt., Budapest (100%) (LC)
WestKA Westdeutsche Kapitalanlageges. mbH,
Dusseldorf (100%)
Westdeutsche ImmobilienBank--Group--Mainz (50%)*
Landesbank Schleswig-Holstein--Group--Kiel (39.9%)*
Landesbank Rheinland-Pfalz--Group--Mainz (37.5%)*
</TABLE>
* pro-rata consolidated.
(LC) covered by WestLB's letter of comfort for group subsidiaries.
A-24
<PAGE>
<TABLE>
<CAPTION>
Trust Assets (8)
1996 1995
---- ----
(DM millions)
<S> <C> <C>
Claims on banks 947.4 977.0
Claims on customers 9,051.5 9,084.6
Bonds and Notes 11.3 11.3
Participations in RWI-Fonds 894.2 910.1
Equity Investments 15.2 14.4
Other -- 26.2
-------- --------
Total 10,919.6 11,023.6
======== ========
</TABLE>
Fixed Assets (9)
The following table illustrates the development of the WestLB Group's
fixed assets. The value of bonds shown in the balance sheet does not include any
proportional interest; the changes in the business year include additions and
subtractions as well as changes resulting from the pro rata temporis dissolution
of premiums and discounts.
The Group's fixed assets developed as follows:
<TABLE>
<CAPTION>
Depre-
Acquisition Additions Subtractions Net Book Net Book ciation
Cost/ in the in the Value on Value on in the
Cost of Business Business Total Dec. 31, Dec. 31, Business
Production Year Year Depreciation 1996 1995 Year
---------- ---- ---- ------------ ---- ---- ----
(DM millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Bonds and non-interest bearing
securities forming part of
fixed assets 35,946.1 27,906.1 9,309.2 38.2 54,504.8 35,911.2 2.1
Equity investments in affiliated
companies 327.6 30.0 43.1 165.8 148.7 211.8 50.0
Equity investments in non-
affiliated companies 6,054.7 1,379.8 926.0 310.6 6,197.9 5,825.9 78.3
Intangible assets 23.0 5.0 16.0 8.1 3.9 12.7 1.4
Goodwill 622.6 111.0 -- 213.0 520.6 544.2 134.6
Land and Buildings 1,760.7 238.9 34.5 652.0 1,313.1 1,180.7 53.4
Office equipment 1,572.0 539.1 156.5 1,247.4 707.2 495.3 196.5
Leasing assets 115.0 129.1 38.4 85.1 120.6 86.1 40.8
Other fixed assets 27.6 24.9 14.1 17.2 21.2 16.1 5.4
</TABLE>
Of its land and buildings, the WestLB Group utilizes premises with a
value of DM 1,170.1(850.4) million for its own business activities.
Other Assets (10)
The total figure of DM 1,958.0 (2,317.2) million consists principally
of DM 187.1 (299.0) million in premiums for warrants, foreign-currency, security
and other options; DM 140.9 (164.3) million in current construction contracts;
DM 44.2 (35.2) million in inventories; DM 259.6 (246.4) million for land and
buildings acquired as collateral for claims and DM 38.9 (liabilities 189.9)
million in equalization items from foreign currency valuation.
There are deferred taxes shown as assets in an amount of DM 12.3 (7.0)
million.
A-25
<PAGE>
Deferred Items (11)
<TABLE>
<CAPTION>
1996 1995
---- ----
(DM millions)
<S> <C> <C>
Premiums on claims 167.5 96.7
Discounts from underwriting business 917.3 775.4
Discounts from liabilities 361.8 253.2
Other 5,405.9 5,353.4
------- -------
Total 6,852.5 6,478.7
======= =======
</TABLE>
Subordinated Assets (12)
<TABLE>
<CAPTION>
1996 1995
---- ----
(DM millions)
<S> <C> <C>
Claims on banks 68.9 176.1
Claims on customers 87.6 101.9
Bonds and other interest-bearing securities 44.0 31.3
Shares and other non-interest bearing securities 5.9 --
------- -------
Total 206.4 309.3
======= =======
</TABLE>
Pledged Assets
Of the assets shown, DM 11,571.2 (11,464.3) million were pledged under
repurchase agreements.
Foreign Currency Assets/Foreign Currency Liabilities
Foreign currency assets were valued at DM 163.2 (118.6) billion and
foreign currency liabilities were valued at DM 167.7 (117.0) billion at
year-end.
Liabilities to Banks (13)
<TABLE>
<CAPTION>
1996 1995
--------------------------------------- --------------------------------------
Liabilities Liabilities Liabilities Liabilities
to to to to
Affiliated Other Affiliated Other
Banks Banks Banks Banks
-------- --------- -------- ---------
(DM millions)
<S> <C> <C> <C> <C>
Payable on demand 3,570.6 11,609.5 5,791.1 8,205.1
With agreed maturity or period
of notice of
--less than three months 5,477.4 56,482.6 4,083.3 55,471.5
--at least three months, but less
than four years 2,897.0 51,861.8 3,903.1 46,736.2
--four years or more 160.0 37,766.9 39.2 33,470.8
Deposits of building and loan
associations 89.4 12.9 72.3 11.6
-------- --------- -------- ---------
Total 12,194.4 157,733.7 13,889.0 143,895.2
Total 169,928.1 157,784.2
========= =========
including:
--due in less than four years 34.7 18,444.9 29.6 15,568.5
</TABLE>
At the end of 1996, liabilities to banks included liabilities of
DM 2,575.7 (1,288.0) million to companies in which equity investments are
held.
A-26
<PAGE>
Liabilities to Customers (14)
<TABLE>
<CAPTION>
1996 1995
---- ----
(DM millions)
<S> <C> <C>
Savings and deposits of building and loan associations 12,053.6 11,463.5
Payable on demand 17,373.0 14,265.4
With agreed maturity or period of notice of
- --less than three months 28,377.0 26,460.4
- --at least three months, but less than four years 13,342.6 10,835.0
- --four years or more 40,159.9 35,400.7
--------- ---------
Total 111,306.1 98,425.0
including:
- --due in less than four years 14,357.4 14,238.1
- --deposits of the building and loan associations 11,911.9 11,344.9
- --liabilities to non-consolidated affiliated companies 188.9 173.4
- --liabilities to companies in which equity
investments are held 1,149.1 1,375.5
</TABLE>
Certificated Liabilities (15)
The following table classifies the Group's certificated liabilities
according to agreed maturities or periods of notice:
<TABLE>
<CAPTION>
1996 1995
---- ----
(DM millions)
<S> <C> <C>
Certificated liabilities with maturities of
- --up to four years 34,039.0 23,526.0
- --more than four years 116,606.4 112,233.7
including:
- --due in less than four years 66,762.0 63,922.3
--------- ---------
Total 150,645.4 135,759.7
========= =========
</TABLE>
Cover
All issues of WestLB and of the pro-rata consolidated Landesbanks
requiring cover were covered in accordance with the relevant legal and statutory
regulations.
The following table details the amount of cover as at December 31,
1996:
<TABLE>
<CAPTION>
1996 1995
---- ----
(DM millions)
<S> <C> <C>
Mortgage-backed bonds 13,074.0 11,917.4
Assets used for covering purposes
- --claims on banks 22.9 19.9
- --claims on customers 16,650.2 16,341.4
Excess cover 3,599.1 4,443.9
Bonds of public authorities and entities under
public law 117,383.2 104,441.7
Assets used for covering purposes
- --claims on banks 52,665.3 43,286.4
- --claims on customers 61,398.3 62,201.0
Replacement cover 17,606.8 13,299.8
Excess cover 14,287.2 14,345.5
</TABLE>
A-27
<PAGE>
Trust Liabilities (16)
<TABLE>
<CAPTION>
1996 1995
---- ----
(DM millions)
<S> <C> <C>
Liabilities to banks 1,206.1 1,176.7
Liabilities to customers 6,310.2 6,423.1
RWI certificates 894.2 910.1
Other liabilities 2,509.1 2,513.7
-------- --------
Total 10,919.6 11,023.6
======== ========
</TABLE>
Other Liabilities (17)
The main components of this item include liabilities from foreign
currency, security and other options and warrants in an amount of DM 443.2
(294.0) million, as well as proportionate interest from profit participation
rights amounting to DM 141.3 (65.4) million and from subordinated liabilities
amounting to DM 148.2 (177.3) million.
Deferred Items (18)
<TABLE>
<CAPTION>
1996 1995
---- ----
(DM millions)
<S> <C> <C>
Discounts on claims 138.7 240.5
Premiums from own bonds issued 34.1 48.1
Other 1,771.8 804.5
--------- ---------
Total 1,944.6 1,093.1
========= =========
</TABLE>
Special Item with Partial Reserve Character (19)
The item of DM 14.1 (11.6) million was formed pursuant to ss.6b of
German Income Tax Law (EStG) and equivalent taxation regulations in other
countries. A sum of DM 0.5 million was withdrawn in the year under review and a
sum of DM 2.9 million was added.
Subordinated Liabilities (20)
The following subordinated liabilities exceed 10% of the total value of
all subordinated liabilities of the WestLB Group:
<TABLE>
<CAPTION>
Nominal Amount Interest
Currency in millions Rate in % Maturity
-------- -------------- --------- --------
<S> <C> <C> <C>
DM 468.1 7.0 1993-2004
USD 500.0 6.75 1993-2005
USD 300.0 FRN 1993-2003
GBP 250.0 8.5 1993-2003
</TABLE>
WestLB Group's remaining subordinated liabilities with a value of DM
1,914.0 (2,618.8) million carry an average interest rate of 7.12% (7.03%) and
original maturities of between 6 and 15 years.
In 1996, WestLB Group incurred total costs of DM 277.1 (275.0) million
for subordinated liabilities. Subordinated liabilities carried by WestLB or its
subsidiaries comply with the requirements of ss.10 (5a) Sentence 1 of German
Banking Law (KWG); the subordinated liabilities do not provide for an
extraordinary right of termination.
Capital and Reserves (21)
On December 31, 1996, WestLB Group's equity capital amounted to DM
12,430.5 (12,495.5) million.
A-28
<PAGE>
Group reserves include special reserves pertaining to the
Wohnungsbauforderungsanstalt of DM 5,900 million.
Group reserves contain the pro-rata appropriated reserves of
Investitionsbank of Landesbank Schleswig-Holstein. A total of DM 185.8 million
was allocated from the net Group profit for the year to the capital of the
Wohnungsbauforderungsanstalt Nordrhein-Westfalen-Anstalt der Westdeutschen
Landesbank Girozentrale- and to the capital of Investitionsbank of Landesbank
Schleswig-Holstein.
WestLB Group's total capital and reserves comprise the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
(DM millions)
<S> <C> <C>
Subscribed Capital 2,315.3 2,315.3
Capital reserves 6,489.7 6,489.7
Reserves from retained earnings
- --required by WestLB's statutes 800.0 760.0
- --other 1,885.0 1,725.0
Group reserves 767.7 784.7
Equalizing items for shares of other shareholders 172.8 420.8
Equity capital pursuant to the German Commercial
Code (HGB) 12,430.5 12,495.5
Fund for general bank risks 505.9 468.4
Profit participation capital 1,770.6 1,040.4
Subordinated liabilities 4,282.6 3,803.7
Other capital and reserves 6,559.1 5,312.5
Capital and reserves total 18,989.6 17,808.0
</TABLE>
Other Commitments (22)
The amounts shown in the balance sheet for placing and underwriting
commitments as well as irrevocable credit commitments involve amounts which have
not yet been utilized. Utilization of placing and underwriting commitments
amounted to DM 23.5 (20.9) million on the balance sheet date.
WestLB Group's irrevocable credit commitments totalled DM 70.1 (55.8)
billion.
Disposal Restrictions/Security Provisions
WestLB Group deposited or assigned own bonds and securities with a
nominal value of DM 26,119.5 (27,598.8) million as collateral for Bundesbank
advances against pledge of securities (Lombard loans) and in connection with
repurchase agreements under open market transactions with the Bundesbank. In
some cases, the Group's business activities were subject to legal requirements
and local practices requiring the provision of collateral to public institutions
and banks. Compliance with such requirements tied up assets in the amount of DM
7,119.4 (2,404.6) million.
Collateral for Own Liabilities
<TABLE>
<CAPTION>
1996 1995
---- ----
(DM millions)
<S> <C> <C>
Liabilities to banks ....................... 5,302.1 4,464.7
Liabilities to customers ................... 1,391.0 1,398.5
Total ...................................... 6,693.1 5,863.2
</TABLE>
These are registered mortgage-backed bonds and municipal bonds issued
to creditors as collateral for liabilities incurred.
A-29
<PAGE>
Letter of Comfort
WestLB will, except in the case of political risk, ensure
that--proportionate with its investment quota--the banks, financial institutions
and management companies in which it holds a significant investment will be in a
position to meet their obligations. Enterprises covered by this Letter of
Comfort and WestLB's investment quotas in such enterprises are set forth and
specifically designated on pages 29 of the 1996 Annual Report.
This Letter of Comfort applies to WestLB International S.A. and to
WestLB (Schweiz) AG irrespective of WestLB's investment quota.
Guarantor Obligation
WestLB is a guarantor of Landesbank Rheinland-Pfalz, Mainz, Landesbank
Schleswig-Holstein, Kiel, and Westdeutsche ImmobilienBank, Mainz.
Other Financial Obligations
The Group has annual rental and leasing obligations amounting to DM
196.2 (126.8) million.
Number of Employees
The average number of employees during 1996 was as follows:
Male Female Total
---- ------ -----
Domestic Group companies 4,948 4,093 9,041
Foreign Group companies 5,043 10,556 15,599
Pro rata consolidated Group companies 870 839 1,709
------ ------ ------
Total 10,861 15,488 26,349
Of the above, an average of 231 employees were engaged in
apprenticeship training or equivalent training during 1996.
Remuneration Paid to the Executive Bodies
Within the WestLB Group, the total remuneration paid to the Managing
Board in 1996 was DM 13.1 (10.9) million; pensions paid to former members of the
Managing Board or their survivors amounted to DM 4.2 (4.8) million. Total
remuneration paid to the members of the Supervisory Board and the Guarantors'
Meeting remained at the previous year's level of DM 1.2 million. Remuneration
paid to the Advisory Boards amounted to DM 1.1 (1.0) million.
As in the previous year, pension provisions in the amount of DM 39.2
million were made for former members of the Managing Board and their survivors.
A-30
<PAGE>
Statement of Income
The principal components of profit shown in the WestLB Group Statement
of Income were obtained in the following markets:
<TABLE>
<CAPTION>
Other
Other EU European North South Asia/
Germany Countries Countries America America Australia Consolidations Total
------- --------- --------- ------- ------- --------- -------------- -----
(DM Millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income 20,918.1 10,133.6 73.9 2,545.9 611.5 2,087.5 -10,030.8 26,339.7
Current income from other
non-interest-bearing
securities, equity investments
in affiliated and non-
affiliated companies, profit
pooling agreements 1,093.4 160.8 -- -- -- -- -585.0 669.2
Commission income 965.9 977.0 2.7 146.7 35.1 176.2 -71.5 2,232.1
Net income from trading operations 156.8 293.2 4.0 13.0 0.7 -9.5 -- 458.2
Other operating income 733.0 932.3 2.3 196.2 13.4 168.1 -932.0 1,113.3
</TABLE>
Other operating income includes gross revenues from the Thomas Cook
Group's tourism activities of DM 132.6 million as well as a further DM 39.6
million of revenues from other external activities.
The extraordinary result of DM -153.4 (-3.0) million was due to higher
charges resulting from the adoption of new deferral methods for upfront fees at
the building and loan associations and the sale of certain business units of two
group companies.
A-31
<PAGE>
Notes to the WestLB Annual Accounts as at December 31, 1996
Compilation of Annual Accounts
Westdeutsche Landesbank has prepared its Annual Accounts in accordance
with the provisions of the German Commercial Code (Handelsgesetzbuch) and the
Ordinance Regarding Accounting for Banks (RechKredV). Information which can
optionally be included in the balance sheet or in the notes is set out in the
notes. The assets and liabilities of the LBS Westdeutsche Landes-Bausparkasse
("LBS") and Wohnungsbauforderungsanstalt Nordrhein-Westfalen ("Wfa") are
included in the relevant items of the Bank's annual accounts. The claims and
liabilities as well as expenditure and income of the Bank, LBS and Wfa have been
offset against each other.
The annual results of LBS and Wfa form part of the WestLB annual
result. Unlike in previous years, the Wfa profit has been included in WestLB's
net profit for the year in the statement of income for 1996; the equivalent
figures for 1995 have been adjusted accordingly. As in previous years, the Wfa
profit has been allocated to the capital of the Wohnungsbauforderungsanstalt in
accordance with legal requirements.
Accounting and Valuation Principles
The valuation of assets, liabilities and pending transactions is made
in accordance with ss.ss.252 et seq. and ss.ss.340 et seq. of the German
Commercial Code (HGB).
Claims are shown with the principal amount outstanding less unamortized
discounts. Liabilities are carried at the amount repayable; the accompanying
discounts are entered under deferred items. Premiums relating to claims or
liabilities are shown under deferred items as an asset or liability,
respectively. The proportionate amount of interest at year-end is included with
the claim or liability to which it applies. Discounts and premiums from own
bonds issued and lending business are dissolved according to the interest-share
method. Bills of exchange, treasury bills and discounted treasury notes were
discounted at the effective interest rate. Non-interest-bearing loans to
employees are shown with the principal amount outstanding in line with tax
regulations. Non-interest and low interest-bearing loans of the Wfa are stated
at their cash value. Zero bonds issued by the Bank are carried as liabilities
and shown at their issue value plus interest accrued on the balance sheet date.
Value adjustments and specific provisions were made to cover
discernible risks in the loan business. Adequate account was taken of risks in
respect of outstanding claims by way of general provisions on receivables within
the limits allowed by the relevant tax regulations.
There is a fund for general bank risks pursuant to ss.340g of the
German Commercial Code (HGB) as well as a fund for building-society related
risks.
Securities held in the trading portfolio and in the liquidity reserve
are valued strictly according to the lower of cost or market principle at market
or lower book values.
Securities held in the Bank's investment portfolio (financial assets)
are valued at cost. Partial holdings were written down using the modified lower
of cost or market principle. Any difference between the cost and repayment value
of securities held in the investment portfolio is included pro rata temporis in
the Bank's results.
Equity investments in affiliated and non-affiliated companies are
carried at cost; where a loss of value is expected to be permanent, they are
written down to the lower applicable value.
Tangible assets whose use is limited by time are written off in
accordance with the relevant tax regulations. Low-value assets are written off
in full in their year of purchase.
Adequate provision has been made to cover contingent liabilities and
pending losses; provision for anniversary expenses has been made in accordance
with the maximum amounts permitted
A-32
<PAGE>
under tax regulations. Provision for pension obligations has been established on
the basis of actuarial principles in accordance with ss.6a of German Income Tax
Law (EStG).
Income tax charges carried in the statement of income relate to the
profit or loss on ordinary activities.
Extraordinary Result
The extraordinary result includes expenses incurred by LBS resulting
from the adoption of new deferral methods for initial income. Following a recent
court decision, a different method must now be used to calculate the deferral
period. For all contracts held in the portfolio, the pro-rata share of initial
income apportionable to the saving phase until the minimum allotment
requirements are met as well as the initial income attributable to the loan
phase were deferred effective as of the balance sheet date. Additions to
increase the deferrals item to DM 469 million are carried as an extraordinary
charge of DM 240.7 million in so far as they refer to contracts already held in
the portfolio in the previous year. This is offset by extraordinary income of DM
37.7 million from provisions liquidated in this connection, with the result that
WestLB's extraordinary result amounts to DM -203.0 million.
Foreign Exchange Valuation
Foreign currencies are converted and foreign currency transactions
valued in accordance with the provisions of ss.340h of the German Commercial
Code (HGB) as well as BFA Statement 3/95. WestLB's foreign currency position was
determined in accordance with the provisions of Principle Ia. WestLB did not
exercise the option of special cover for balance-sheet and forward positions.
Foreign currency assets and liabilities as well as pending transactions
are converted and valued on the basis of the official mean spot or forward rates
prevailing at year-end. Profits or losses resulting from the conversion of
hedged items and corresponding pending transactions are neutralized by forming
adjustment items in the balance sheet. Swap premiums were accrued pro rata
temporis; in addition, residual valuation was applied for interest arbitrage
transactions. Valuation losses arising from currency options on the one hand and
from outright forward transactions and residual valuation on the other are
offset against valuation gains from same-currency transactions effected for
straightforward cover purposes. Provisions are set up for any valuation losses
not offset against valuation gains; valuation gains which were not offset are
not shown as income.
Derivatives
As part of its business activities, WestLB conducts currency or
interest-related and other types of derivatives in the following categories:
Currency-Related Derivatives. Forward exchange transactions, written
and bought currency options, forward exchange contracts, issued currency
warrants, currency swaps, interest/currency swaps and gold and precious metals
forward transactions/options.
Interest-Related Derivatives. Interest-rate forward contracts,
interest-rate swaps, forward rate agreements (FRAs), written and bought
interest-rate options, issued interest-rate warrants, interest-rate caps,
interest-rate floors, interest-rate collars and options on interest-rate swap
transactions (swaptions).
Other Derivatives. Share forward contracts, written and bought share
options, index futures contracts, written and bought index options, issued share
and index warrants.
The total nominal value of WestLB's derivatives business is DM 583.3
(404.6) billion.
A-33
<PAGE>
Derivatives--Volumes
<TABLE>
<CAPTION>
Nominal Value Credit Risk Equivalents Replacement Costs
------------- ----------------------- -----------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
DM Millions
- -----------
Interest-rate risks
Interest-rate swaps 302,132 209,588 2,315 1,799 7,820 5,935
FRAs 70,694 39,938 101 6 220 29
Interest-rate options
- --bought 600 3,746 -- 35 2 65
- --written 764 1,432 -- -- -- --
Caps, floors 34,355 21,809 78 59 221 194
Stock market contracts 9,556 19,210 -- -- -- --
Other interest-rate forward transactions 37,122 16,035 102 35 134 11
------- ------- ----- ----- ------ -----
Interest-rate risks total 455,224 311,758 2,596 1,934 8,397 6,234
Currency risks
Forward exchange transactions 108,647 75,196 841 578 2,318 1,585
Interest-currency swaps/currency swaps 6,958 7,751 127 143 190 103
Currency options
- --bought 2,726 3,043 16 24 45 73
- --written 3,174 3,277 -- -- -- --
Stock market contracts -- -- -- -- -- --
Other currency forward transactions 496 75 1 -- 1 1
------- ------- ----- ----- ------ -----
Currency risks total 122,001 89,342 985 745 2,554 1,762
Shares and other price risks
Share options
- --bought 1,925 1,771 51 23 82 30
- --written 464 84 -- -- -- --
Stock market contracts 2,601 936 -- -- -- --
Other forward transactions 1,081 731 2 4 2 5
------- ------- ----- ----- ------ -----
Shares and other price risks total 6,071 3,522 53 27 84 35
Derivatives total 583,296 404,622 3,634 2,706 11,035 8,031
======= ======= ===== ===== ====== =====
</TABLE>
Futures and other forward transactions, options as well as warrants
issued by the Bank on shares, bonds, deposit interest or indices are valued at
market rates. Where hedging transactions and contracts are involved, they are
not shown as income. Valuation gains were not shown as income. Provision was
made for valuation losses.
Interest-rate swap transactions held as part of the trading portfolio,
forward rate agreements, swaptions as well as caps and floors are grouped into
product-related or cross-product portfolios according to currency. The
portfolios are valued at market rates in line with their residual life. One-off
payments, option premiums and results derived from collateral transactions are
included for valuation purposes. Remaining valuation gains were not included as
income; nor were they offset against the results of other portfolios; provision
is made for valuation losses.
At approximately DM 76 billion, the annual average nominal volume of
derivative transactions was lower than at year-end. The growing trend towards
year-end portfolios exceeding average volumes is mainly due to the development
and expansion of WestLB's global derivatives business as part of the growth of
investment banking activities.
A-34
<PAGE>
Derivatives--Average Volumes
Average Average Average
Average 1/1 to 12/31/96 Nominal Credit Risk Replacement
DM millions Value Equivalents Costs
- ----------- ------- ----------- -----------
Interest-rate risks 389,474 2,028 6,491
Currency risks 112,558 841 1,939
Shares and other price risks 4,965 46 71
------- ----- -----
Derivatives total 506,997 2,915 8,501
The credit risk equivalents are calculated on the basis of the
market-valuation method in accordance with German bank supervisory requirements
including a corresponding counterparty weighting and a percentage add-on.
WestLB's credit risk equivalents pursuant to Principle I represent less than
2.5% (2%) of the entire risk assets of the Bank.
The replacement costs stated are calculated on the basis of the market
prices prevailing at year-end and only include contracts for which the buy-in
transaction necessary to regain the previous position in the event of a
counterparty default would result in additional expenditure or lower income;
positive values were not taken into account, accordingly, a counterparty
weighting was not made.
There is no netting for the purpose of calculating credit risk
equivalents and replacement costs.
WestLB primarily enters into contracts with domestic and foreign banks,
with non-OECD banks accounting for only a very small portion.
Derivatives--Classification of Counterparties
<TABLE>
<CAPTION>
Nominal Value Credit Risk Equivalents Replacement Costs
------------- ----------------------- -----------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
(DM millions)
<S> <C> <C> <C> <C> <C> <C>
OECD banks 440,076 300,615 2,218 1,693 8,816 6,526
Non-OECD banks 2,019 2,127 22 18 39 28
Customers* 135,589 99,400 1,384 990 2,174 1,476
Public-sector entities 5,612 2,480 10 5 6 1
------- ------- ------- ------- ------ ------
Total 583,296 404,622 3,634 2,706 11,035 8,031
</TABLE>
* including stock market contracts.
WestLB's derivatives business primarily focuses on trading transactions
and contracts for hedging its own portfolios.
Derivatives--Trading Transactions
<TABLE>
<CAPTION>
Nominal Credit Risk Replacement
Value Equivalents Costs
December 31, December 31, December 31,
-------------------- ------------------------- ---------------------
DM millions 1996 1995 1996 1995 1996 1995
- ----------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Interest-rate contracts 432,708 262,965 2,421 1,426 8,128 4,875
Currency contracts 121,466 82,200 983 678 2,569 1,767
Share contracts 5,897 1,438 53 8 89 13
Trading transactions total 560,071 346,603 3,457 2,112 10,789 6,655
</TABLE>
A-35
<PAGE>
Derivatives--Classification by Maturity
<TABLE>
<CAPTION>
Shares
Interest Rate Currency and other
Risks Risks Price Risks
December 31, December 31, December 31,
Nominal Values ------------ ------------ ------------
DM millions 1996 1995 1996 1995 1996 1995
- ----------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Residual Maturity
- --up to one year 170,059 116,282 109,520 77,790 5,978 3,522
- --one to five years 190,051 137,427 10,582 9,313 93 --
- --more than five years 95,114 58,049 1,899 2,239 -- --
------- ------- ------- ------ ----- -----
Total 455,224 311,758 122,001 89,342 6,071 3,522
</TABLE>
Claims on Banks (1)
Claims on banks include claims on affiliated companies in an amount of
DM 14,037.6 (10,363.1) million and claims on companies in which equity
investments are held in an amount of DM 10,726.7 (6,422.3) million. Claims from
leasing transactions amount to DM 337.4 (283.9) million.
<TABLE>
<CAPTION>
1996 1995
---- ----
Claims on Claims on Claims on Claims on
Associated Other Associated Other
DM millions Banks Banks Banks Banks
- ----------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
Payable on demand
With agreed maturity or period
of notice of: 1,652.2 5,956.5 1,876.1 12,361.2
- --less than three months 154.4 22,123.2 69.1 11,549.8
- --at least three months but less
than four years 232.4 38,223.2 117.3 28,003.4
- --four years or more 19,351.6 31,980.8 17,062.6 28,326.3
-------- -------- -------- --------
Total 21,390.6 98,283.7 19,125.1 80,240.7
Total 119,674.3 99,365.8
========= ========
including:
--Landes-Bausparkasse (LBS) loans 1.6 -- 1.8 --
</TABLE>
Claims on Customers (2)
1996 1995
---- ----
(DM millions)
With agreed maturity or period of notice of:
- --less than four years 31,206.5 28,722.1
- --four years or more 110,926.4 108,477.4
Total 142,132.9 137,199.5
including:
- --affiliated companies 12,100.9 10,056.7
- --companies in which equity investments are held 1,138.7 1,016.9
- --from leasing transactions 4,057.2 3,652.6
- --LBS loans 10,372.9 10,104.3
- --loans of the Wohnungsbauforderungsanstalt 8,309.9 8,567.0
- --Interest and repayment arrears under LBS loans 6.1 5.8
- --LBS loans allocated but not yet disbursed
- --allotted 455.0 446.4
- --pre-and interim financing 202.9 113.7
- --other -- --
A-36
<PAGE>
Claims Secured by Mortgages (3)
1996 1995
---- ----
(DM millions)
Claims on customers with an agreed maturity or
period of notice of:
- --less than four years 693.0 632.8
- --four years or more 11,254.8 11,496.8
LBS loans 6,822.0 6,676.0
-------- --------
Total 18,769.8 18,805.6
Bonds and Other Interest-Bearing Securities (4)
1996 1995
---- ----
(DM millions)
Bonds and notes including: 53,426.4 38,986.9
- --listed on a stock exchange 52,357.4 38,018.4
- --not listed on a stock exchange including: 1,069.0 968.5
- --claims on affiliated companies 252.7 127.6
- --claims on companies in which equity investments
are held 702.4 584.2
Money-market instruments 753.0 107.9
-------- --------
Total 54,179.4 39,094.9
The following table classifies the Bank's portfolio of bonds and other
interest-bearing securities according to maturity:
1996 1995
---- ----
(DM millions)
Money-market instruments 753.0 108.0
Bonds and notes of public-sector issuers with
original maturities of
- --less than four years 618.8 561.2
- --more than four years 17,627.3 13,181.4
Bonds and notes of other issuers with original
maturities of
- --less than four years 2,544.2 1,762.5
- --more than four years 30,365.4 21,766.7
Bonds issued by the Bank with original
maturities of
- --less than four years 211.5 66.2
- --more than four years 2,059.1 1,648.9
-------- --------
Total 54,179.4 39,094.9
Of the Bank's portfolio of bonds (excluding money-market instruments),
DM 7.2 (3.1) billion forms part of the Bank's trading portfolio, DM 29.5 (15.5)
billion forms part of the Bank's investment portfolio and an amount of DM 16.7
(20.3) billion forms part of the Bank's liquidity reserve.
The portfolios are classified according to the purpose of the bonds
allocated to them and are shown separately for accounting purposes. The bonds
forming part of the Bank's investment portfolio in an amount of DM 29.5 (15.5)
billion are shown as fixed assets and valued accordingly. At year-end, financial
assets of DM 2.9 (2.5) billion were not valued according to the modified lower
of cost or market principle. Of these, a total of DM 1.6 (1.2) billion consisted
of securities acquired in connection with interest-rate swap transactions (asset
swaps) and whose commercial value is commensurate with the purchase price.
A-37
<PAGE>
Shares and Other Non-Interest-Bearing Securities (5)
Of the marketable securities included under this item with a value of
DM 744.9 (772.1) million, securities with a value of DM 604.7 (727.4) million
are listed on a stock exchange. As in the previous year, this item comprises
shares in a special fund launched in 1995 in the amount of DM 2,032.4 million.
This fund primarily consists of listed securities. All holdings are valued
strictly according to the lower of cost or market principle.
Equity Investments in Affiliated and Non-Affiliated Companies (6)
WestLB's equity investments in non-affiliated companies amounting to DM
5,220.6 (4,756.9) million include marketable securities of DM 2,094.7 (1,829.9)
million. Of these, DM 1,569.5 (1,251.5) million are listed and DM 527.2 (578.4)
million are not listed on a stock exchange.
Equity investments in non-affiliated companies held by WestLB in
accordance with ss.285 No. 11 of the German Commercial Code (HGB) are itemized
in a separate list which has been deposited with the Dusseldorf district court
(Amtsgericht).
Of the equity investments in affiliated companies in an amount of DM
5,443.5 (5,301.0) million, DM 1,960.1 (1,916.0) million are marketable
securities; as in the previous year, none of these securities are listed on a
stock exchange.
Trust Assets (7)
1996 1995
---- ----
(DM millions)
Claims on banks 706.5 735.5
Claims on customers 6,021.0 6,103.2
Bonds and notes 0.1 0.1
Participations in RWI-Fonds 894.0 910.1
------- -------
Total 7,621.6 7,748.9
Other Assets (8)
The total figure of DM 1,503.8 (1,116.8) million consists principally
of DM 280.8 (319.6) million in premiums and equalization items for warrants,
foreign-currency, security and other options as well as equalization items for
currency valuation; DM 371.8 (204.3) million in claims from earnings transfers
from affiliated companies; DM 220.5 (166.7) million in claims arising from tax
refunds; DM 175.6 (170.0) million in premiums from interest-rate caps and/or
interest-rate floors; and DM 123.7 (118.7) million for land and buildings
acquired as collateral for claims. There are no deferred taxes shown as assets.
A-38
<PAGE>
Fixed Assets (9)
<TABLE>
<CAPTION>
Acquisition Additions Subtractions Net Book Net Book Depreciation
Cost/Cost in the in the Value on Value on in the
of Business Business Total Dec. 31, Dec. 31, Business
Production Year Year Depreciation 1996 1995 Year
---------- ---- ---- ------------ ---- ---- ----
(DM millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Bonds and interest-bearing
securities forming part of
fixed assets 15,080.1 13,878.4 -79.2 -8.9 28,870.4 15,071.2 --
Equity investments in
affiliated companies 5,364.8 1,018.4 -732.2 -207.9 5,443.1 5,277.2 -143.6
Equity investments in
non-affiliated companies 4,853.6 1,281.3 -752.8 -161.5 5,220.6 4,753.4 -64.8
Intangible assets -- 8.5 -- -6.1 2.4 -- -6.1
Land and buildings 913.9 12.6 -2.3 -445.4 478.8 491.6 -23.1
Office equipment 752.9 270.7 -41.4 -612.9 369.3 224.9 -84.9
</TABLE>
The value of bonds shown in the balance sheet does not include any
proportional interest. The changes in the business year include additions and
subtractions as well as changes resulting from the pro rata temporis dissolution
of premiums and discounts. Of its land and buildings, WestLB utilizes premises
with a value of DM 423.0 (424.0) million for its own business activities.
Deferred Items (10)
Deferred items comprise the following:
1996 1995
---- ----
(DM millions)
Premiums on claims 135.4 72.4
Discounts from underwriting business 837.4 700.3
Other 5,449.4 5,369.7
------- -------
Total 6,422.2 6,142.4
Subordinated Assets (11)
Subordinated assets are included in the following balance sheet items:
1995 1996
---- ----
(DM millions)
Claims on banks 293.9 364.0
Claims on customers 138.8 110.7
Bonds and other interest-bearing securities 13.7 17.5
----- -----
Total 446.4 492.2
Pledged Assets (12)
Of the assets shown, DM 3,630.5 (5,363.3) million were pledged under
repurchase agreements. Securities sold under repurchase agreements were covered
by repo transactions at the respective spot price (DM 3,361.5 million) and by
securities borrowing transactions at the borrowing price (DM 250.8 million).
A-39
<PAGE>
Liabilities to Banks (13)
<TABLE>
<CAPTION>
1996 1995
---- ----
Liabilities Liabilities Liabilities Liabilities
to to to to
Affiliated Other Affiliated Other
Banks Banks Banks Banks
----- ----- ----- -----
(DM millions)
<S> <C> <C> <C> <C> <C> <C>
Payable on demand
With agreed maturity or period
of notice of: 3,545.0 8,790.5 5,753.6 3,895.4
- --less than three months 5,258.2 35,805.3 3,684.6 30,778.2
- --at least three months but less
than four years 2,751.7 30,044.7 3,835.1 21,254.1
- --four years or more 143.5 32,116.3 24.2
Deposits of the building and loan
associations 89.4 -- 72.3 29,131.2
Total 11,787.8 106,756.8 13,369.8 85,058.9
Total 118,544.6 98,428.7
========= ========
including:
- --due in less than four years 19.7 12,466.2 14.6 9,566.7
</TABLE>
At the end of 1996, liabilities to banks included liabilities of DM
5,859.8 (4,354.4) million to affiliated companies and liabilities of DM 2,399.1
(1,627.7) million to companies in which equity investments are held.
Liabilities to Customers (14)
1996 1995
---- ----
(DM millions)
Savings deposits 99.8 86.7
Deposits of buildings and loan associations 10,328.2 9,820.5
Payable on demand 10,156.5 6,820.5
With agreed maturity or period of notice of
- --less than three months 21,364.7 18,769.9
- --at least three months, but less than four years 11,136.6 10,600.8
- --four years or more 32,963.0 29,283.5
-------- --------
Total 86,048.8 75,381.9
======== ========
including:
- --due in less than four years 11,860.4 11,078.9
- --liabilities to affiliated companies 7,940.1 6,434.1
- --liabilities to companies in which equity
investments are held 774.0 695.0
A-40
<PAGE>
Certificated Liabilities (15)
The following table classifies the Bank's certificated liabilities
according to agreed maturities or periods of notice:
1996 1995
---- ----
(DM millions)
Certificated liabilities with maturities of
- --up to four years 21,810.2 13,620.9
- --more than four years 93,163.7 91,826.6
including:
- --due in less than four years 53,488.0 51,929.4
--------- ---------
Total 114,973.9 105,447.5
========= =========
Trust Liabilities (16)
1996 1995
---- ----
(DM millions)
Liabilities to banks 901.6 1,015.2
Liabilities to customers 3,333.9 3,329.5
RWI certificates 894.0 910.1
Other liabilities 2,492.1 2,494.1
--------- ---------
Total 7,621.6 7,748.9
========= =========
Other Liabilities (17)
The main components of this item, amounting to DM 1,377.7 (987.3)
million, include premiums from foreign currency, security and other options,
caps, floors, swaptions and warrants in an amount of DM 403.6 (361.0) million as
well as liabilities from interest to be paid on profit participation rights
issued by WestLB as laid down by the Guarantors' Meeting in an amount of DM 95.2
(52.0) million.
The 1996 figure also includes DM 462.0 million in delivery commitments
from securities transactions.
Deferred Items (18)
1996 1995
---- ----
(DM millions)
Discounts on claims 120.3 117.1
Premiums from own bonds issued 17.7 42.7
Other 1,183.6 518.1
--------- --------
Total 1,360.6 677.9
========= ========
Provisions (19)
For the first time, provisions include provisions for deferred taxes in
an amount of DM 6.1 million relating to the business operations of our foreign
branches. Total provisions amount to DM 3,067.9 (2,844.6) million.
A-41
<PAGE>
Subordinated Liabilities (20)
The following subordinated liabilities exceed 10% of the total value of
all subordinated liabilities of WestLB amounting to DM 3,306 (2,980) million:
Nominal Amount Interest
Currency in millions Rate in % Maturity
- -------- ----------- --------- --------
DEM 468.1 7.00 1993-2004
USD 500.0 6.75 1993-2005
USD 300.0 FRN 1993-2003
GBP 250.0 8.50 1993-2003
WestLB's remaining subordinated liabilities include subordinated loans
with a value of DM 602.3 million and DM 335.1 million in subordinated borrower's
note loans which carry an average interest rate of 7.13% and original maturities
of between 7 and 14 years.
Expenditure of DM 217.7 (209.7) million was incurred in connection with
subordinated liabilities. Subordinated liabilities towards the affiliated
companies WestLB Finance B.V. and WestLB Finance Curacao N.V. amount to DM
1,725.6 (1,460.1) million.
Subordinated liabilities carried by WestLB or its subsidiaries comply
with the requirements of ss.10 (5a) of the German Banking Law (KWG); the
subordinated liabilities do not provide for an extraordinary right of
termination.
Capital and Reserves (21)
On December 31, 1996, WestLB's subscribed capital amounted to DM 2,315
million. The Bank's reserves totalled DM 9,175 (8,975) million. As in the
previous year, a total of DM 200 million was allocated to the reserves from the
net profit in the report year. The fund for general bank risks now totals DM 170
million.
Subordinated liabilities increased in 1996 as a result of the issue of
DM 134.1 (--.--) million; profit participation capital rose by DM 718.3 (288)
million. Subordinated liabilities and profit participation capital total DM
4,897 (3,853) million. Exchange-rate-related changes, in particular as a result
of the development of the USD and GBP, had a positive effect on the equity
capital.
WestLB's total capital and reserves comprise the following:
1996 1995
---- ----
(DM millions)
Subscribed capital 2,315 2,315
Capital reserves: 6,490 6,490
of which:
special reserves pertaining to the
Wohnungsbauforderungsanstalt (5,900) (5,900)
Reserves from retained earnings
- --required by WestLB's statutes 800 760
- --other 1,885 1,725
Equity capital pursuant to the German Commercial
Code (HGB) 11,490 11,290
Fund for general bank risks 170 170
Profit participation capital 1,591 873
Subordinated liabilities 3,306 2,980
Other capital and reserves 5,067 4,023
Total capital and reserves 16,557 15,313
A-42
<PAGE>
The Bank's liable capital pursuant to ss.10 of German Banking Law
(KWG) amounted to DM 14,849 (13,602) million at the end of 1996. Undisclosed
reserves (revaluation reserves) pursuant to ss.10 (4a) sentence 1, No.4 of
German Banking Law (KWG) were not used as an item for the Solvency Ratio
(Principle I).
Special Reserves Pertaining to the Wohnungsbauforderungsanstalt (22)
Pursuant to ss.2 of Housing Development Law (WBFG), WestLB operates
the Wohnungsbauforderungsanstalt NordrheinWestfalen--Anstalt der Westdeutschen
Landesbank Girozentrale--(Wfa) as an organizationally and economically
independent institution under public law without legal capacity.
Pursuant to ss.3 of Housing Development Law (WBFG), WestLB has
allocated the share capital and the reserves of Wfa, as well as the state
residential construction business of Wfa, to the special reserves pertaining to
the Wohnungsbauforderungsanstalt.
The unchanged special reserves pertaining to the
Wohnungsbauforderungsanstalt of DM 5,900 million are fully covered by the assets
of the Wfa subject to the generally accepted discounts on non and
low-interest-bearing housing construction loans.
The capital of the Wohnungsbauforderungsanstalt developed as follows in
the report year:
1996 1995
---- ----
(DM millions)
Capital on 1.1.1996 29,548 28,267
- --transfers from state budget 1,327 1,299
- --other additions 151 20
- --allocation from WestLB's net profit for 1996 147 127
- --subsidies to third parties 51 68
- --capital reductions and other subtractions 133 97
Capital on 31.12.1996 30,989 29,548
A sum of DM 147 million was transferred from WestLB's net profit for
1996 to the capital used for the state residential construction business of the
Wohnungsbauforderungsanstalt pursuant to ss.17 of Housing Development Law
(WFBG).
Banking Law Ratios
WestLB at all times adhered to the ratios relating to own funds and
bank liquidity as defined in ss.ss.10, 10a and 11 and to the limitation of
investments as defined in ss.12 of the German Banking Law (KWG). The
recommendations of the Committee for Banking Regulations and Supervision of July
1988 (Capital Adequacy Ratio of the Cooke Committee) were complied with.
Foreign Currency Assets/Foreign Currency Liabilities (23)
Foreign currency assets were valued at DM 92.4 (61.8) billion and
foreign currency liabilities were valued at DM 91.5 (61.2) billion at year-end.
Other Commitments (24)
The amounts shown in the balance sheet for placing and underwriting
commitments as well as irrevocable credit commitments involve amounts which have
not yet been utilized.
Of WestLB's irrevocable credit commitments, an amount of DM 1,532.1
(1,698.7) million is accounted for by central lending schemes, DM 328.9 (234.0)
million by approved but not yet released building society loans of the LBS and
DM 6,092.6 (6,323.8) million by similar commitments of the Wfa.
A-43
<PAGE>
Disposal Restrictions/Security Provisions (25)
WestLB deposited or assigned own bonds and securities as well as those
of its affiliated companies with a nominal value of DM 14,259.6 (14,687.7)
million as collateral for Bundesbank advances against pledge of securities
(Lombard loans) and in connection with repurchase agreements under open market
transactions with the Bundesbank. Accounts receivable totalling DM 2,244.3
(2,258) million were assigned to secure loans made as part of public credit
programmes. In some cases, the Bank's business activities abroad were subject to
legal requirements and local practices requiring the provision of collateral to
public institutions and banks. Compliance with such requirements tied up assets
in the amount of DM 4,265.5 (2,644.4) million.
Collateral for Own Liabilities (26)
1996 1995
---- ----
(DM millions)
Liabilities to banks 4,545.3 3,888.1
Liabilities to customers 1,369.6 1,374.1
------- -------
Total 5,914.9 5,262.2
These are registered mortgage-backed bonds and municipal bonds issued
to creditors as collateral for liabilities incurred.
Liability
As a result of its participation in the Liquiditatskonsortialbank,
WestLB has a potential liability to make additional contributions to the
Liquiditatskonsortialbank, amounting to a maximum of DM 121 (121) million. The
Bank's potential liability to make additional contributions to the security
reserves of the Landesbanken/Girozentralen total no more than DM 102.8 (97.4)
million. The Bank may have additional obligations arising from the potential
liability incurred by members of the German Savings Banks and Giro Association
to make additional contributions to the Liquiditatskonsortialbank.
Letter of Comfort
WestLB will, except in the case of political risk, ensure
that--proportionate with its investment quota--the banks, financial institutions
and management companies in which it holds a significant investment will be in a
position to meet their obligations. Enterprises covered by this Letter of
Comfort and WestLB's investment quotas in such enterprises are set forth and
specifically designated on page 29 of the Annual Report for 1996.
This Letter of Comfort applies to WestLB International S.A. and to
WestLB (Schweiz) AG irrespective of WestLB's investment quota.
Guarantor Obligation
WestLB is a guarantor of Landesbank Rheinland-Pfalz, Mainz, Landesbank
Schleswig-Holstein, Kiel and Westdeutsche ImmobilienBank, Mainz.
Other Financial Obligations
WestLB has rental and leasing obligations amounting to DM 164.8 (115.3)
million, of which DM 25.5 (7.8) million are to affiliated companies and DM 14.5
(6.4) million to companies in which equity investments are held.
Cover (27)
All issues of WestLB requiring cover were covered in accordance with
the relevant legal and statutory regulations.
A-44
<PAGE>
The following table details the amount of cover as at December 31,
1996:
1996 1995
---- ----
(DM millions)
Mortgage-backed bonds 10,102.4 9,956.3
Assets used for covering purposes
- --claims on banks 17.1 19.9
- --claims on customers 11,069.2 11,385.8
Excess cover 983.9 1,449.4
Bonds of public authorities and
entities under public law 101,560.6 93,683.4
Assets used for covering purposes
- --claims on banks 45,529.9 36,950.6
- --claims on customers 50,248.4 51,679.9
Replacement cover 7,032.3 5,821.3
Excess cover 1,250.4 768.4
Number of Employees
The average number of employees during 1996 was as follows:
Male Female Total
---- ------ -----
Domestic branches 2,510 2,267 4,777
Foreign branches 370 306 676
LBS 622 327 949
Wfa 287 202 489
----- ----- -----
WestLB Total 3,789 3,102 6,891
Of the above, an average of 161 (185) employees were engaged in
apprenticeship training or equivalent training during 1996.
Remuneration Paid to the Executive Bodies
In 1996, the total remuneration paid to the Managing Board was DM 12.1
(10.2) million; pensions paid to former members of the Managing Board or their
survivors amounted to DM 4.2 (4.8) million. Total remuneration paid to the
members of the Supervisory Board and the Guarantors' Meeting remained at the
previous year's level of DM 1.2 million and to the Advisory Boards DM 1.1 (1.0)
million.
As in the previous year, pension provisions in the amount of DM 39.2
million were made for former members of the Managing Board and their survivors.
Loans to Members of the Executive Bodies
Members of the Managing Board and the Supervisory Board received
advances and loans amounting to DM 11.5 (11.9) million. Members of the
Guarantors' Meeting and the Advisory Boards received advances and loans of DM
73.8 (22.4) million.
A-45
<PAGE>
Geographic Breakdown of Profit Components
The principal components of profit shown in WestLB's Statement of
Income were obtained in the following markets:
<TABLE>
<CAPTION>
Far East and
- -DM millions- Germany Europe Australia USA Total
- ------------- ------- ------ --------- --- -----
<S> <C> <C> <C> <C> <C>
Interest Income 15,056 4,883 1,887 2,395 19,145
Current income from other non-interest bearing
securities, equity investments in affiliated
and non-affiliated companies, profit
pooling agreements 905 -- -- -- 905
Commission income 555 16 14 21 606
Net profit or loss from trading operations 102 47 (20) 13 142
Other operating income 182 10 9 1 177
</TABLE>
The geographic breakdown refers to the countries in which the branches
that generated the respective results are domiciled.
The results from transactions between the regional units/branches have
not been included.
Executive Bodies
Supervisory Board Dr. Manfred Scholle, Chairman
Heinz Schleusser, Vice Chairman
Wolfgang Clement, Vice Chairman
Ferdinand Esser, Vice Chairman
Johannes Frohlings, Vice Chairman
(until October 31, 1996)
Dr. Karlheinz Bentele, Vice Chairman
(since November 1, 1996)
Dr. Rolf Gerlach, Vice Chairman
Dr. Wolfgang Buchow
Heinz Biesenbach
Dr. Andreas Dohrmann
Michael Geuenich
Heinz Kettler
Dr. Hermann Kramer
Dr. Helmut Linssen
Klaus Matthiesen
Friedrich Spath
Jens Petring
(since January 1, 1996)
Joachim Barbonus
Rolf Brunswig
Dr. Gerd Wixforth
Fred Eicke
Hans-Peter Kramer
Gustav Adolf Schroder
(until December 31, 1996)
Christian Gerigk
Helmut Heczko
Gerd-Uwe Loschmann
Doris Ludwig
Udo Molsberger
Manfred Schimpf
A-46
<PAGE>
Hubertus Schreiber
Josef Sudbrock
Gerhard Turck
Peter Wagemann
Guarantors' Meeting Reinhard Abels
(until June 30, 1996)
Dr. Gunter Berg
Dr. Wolfgang Bodenbender
Ursula Bolte
(until January 19, 1996)
Ingeborg Friebe
Rudiger Frohn
Dieter Gebhard
(since January 19, 1996)
Dr. Karlheinz Gierden
Dr. Thomas Griese
Rudolf Heib
(since July 1, 1996)
Dr. Walter Hostert
Bernd Kiesow
Josef Krings
Manfred Morgenstern
Wolfgang Riotte
Dr. Hans-Christian Vollert
Gerhard Wattenberg
Marianne Wendzinski
Joachim Westermann
Harry Voigtsberger
(since January 1, 1996)
Managing Board Friedel Neuber, Chairman
Hans-Henning Offen, Vice Chairman
Dr. Wolf-Albrecht Prautzsch, Vice
Chairman
Dr. Dieter Falke
Dr. Adolf Franke
Dr. Rudolf Holdijk
Dr. Axel Kollar
Dr. Johannes Ringel
Gerhard Roggemann
(since August 1, 1996)
Hans-Peter Sattele
Jurgen Sengera
A-47
<PAGE>
SUPPLEMENTAL NOTES TO ANNUAL ACCOUNTS
Supp. Note 1. Cash on hand; balances with central banks; balances in postal giro
accounts.
WestLB is obligated to deposit minimum reserves with the Bundesbank
pursuant to Section 16 of the Federal Central Bank Law (Bundesbankgesetz). Most
of WestLB's deposits with the Bundesbank included in this item consist of such
minimum reserves. See "Regulation and Supervision of WestLB in the Federal
Republic of Germany--Powers of the Bundesbank Affecting WestLB's Conduct of
Business."
Supp. Note 2. Debt instruments issued by public institutions and bills of
exchange eligible for refinancing with central banks.
These debt instruments bear interest on a discounted basis. Debt
instruments issued by public institutions that do not meet the requirements of
this item are entered in item 5 a) aa) if they qualify for listing on a stock
exchange and otherwise in item 4. For a discussion of refinancing by the
Bundesbank see "Regulation and Supervision of WestLB in the Federal Republic of
Germany--Powers of the Bundesbank Affecting WestLB's Conduct of Business."
Supp. Note 3. Treasury bills and discounted treasury notes.
Discounted treasury notes are short-term and medium-term notes with a
maturity of no longer than two years, issued by federal or state governments of
Germany or foreign governments, or by special entities of the German federal
government such as the federal railroad system (Deutsche Bundesbahn) and the
federal postal system (Deutsche Bundespost). These notes usually do not bear
interest but are sold on a discounted basis like drafts.
Treasury bills are drafts drawn by federal or state governments of
Germany or by such special entities of the federal government as described in
the preceding paragraphs or foreign governments. Treasury bills are sold on a
discounted basis.
Supp. Note 4. Claims on banks.
This item includes all amounts due from German and non-German banks,
unless the obligations are bills of exchange (drafts) meeting the requirements
of Item 2 b) notes, bonds and other interest bearing securities that qualify for
listing on a stock exchange (entered in Item 5 b) bb).
Supp. Note 5. Claims on customers.
This item includes all amounts due from customers that are not banks,
unless the obligations are bills of exchange (drafts) meeting the requirements
of Item 2 b) notes, or bonds and other interest-bearing securities that qualify
for listing on a stock exchange (entered in Item 5).
Item 4 includes mortgage-secured loans (Hypothekendarlehen) made by
WestLB that meet certain requirements of the Mortgage Bank Act
(Hypothekenbankgesetz). Such loans may be used as security (cover) for
mortgage-backed bonds issued by WestLB (Hypothekenpfandbriefe). Item 4 also
includes loans to public authorities and entities organized under public law
(Kommunalkredite). These are loans, e.g., to municipalities, counties, special
purpose associations of municipalities and counties, and other entities and
associations established under public law (Anstalten und Korperschaften) and to
member states of the European Union and their territorial subdivisions meeting
certain requirements, and loans guaranteed by such entities. Such loans may be
used as security (cover) for public debt-backed bonds issued by WestLB
(offentliche Pfandbriefe). See "The Business of WestLB--Funding--Table Capital
Market Borrowings."
A-48
<PAGE>
Supp. Note 6. Bonds and other interest-bearing securities.
This item includes interest-bearing debt securities that are qualified
for listing on a stock exchange, such as bearer securities, negotiable
securities that are part of an offering, bills of exchange and discounted notes
of public authorities that do not meet the conditions of Item 2 a) and other
money market instruments (such as commercial paper, euro-notes, certificates of
deposit, medium-term (up to four years) interest-bearing notes in bearer form
(Kassenobligationen) and book-entry securities).
Supp. Note 7. Collateral for Deutsche Bundesbank advances.
Bonds that are eligible as collateral for Lombard loans from the
Deutsche Bundesbank must be presented separately on the balance sheet even if
they are already serving as collateral for other obligations. Eligible
securities are set forth on a list of securities eligible as collateral
maintained by the Deutsche Bundesbank. Lombard loans are short-term loans
extended by the Bundesbank to banks that are secured by collateral and usually
bear interest at a rate of 1% over the Bundesbank discount rate.
Supp. Note 8. Bonds issued by the Bank.
This item consists of securities of a type qualified for listing on a
stock exchange that were issued by WestLB in a public offering and later
repurchased by WestLB. Securities issued by WestLB that do not qualify for
listing on a stock exchange and that were repurchased by WestLB are deducted
from Item 3 a) on the liabilities side of the Balance Sheet.
WestLB purchases and holds its own notes and bonds for purposes of
price support of WestLB's securities issues.
Supp. Note 9. Shares and other non interest-bearing securities.
This item includes shares that are not contained in Items 7, 8 or 9. It
also includes profit participation certificates (Genussscheine) that are
bearer or negotiable instruments and that qualify for listing on a stock
exchange, and all other non interest-bearing securities that are listed on a
stock exchange.
Supp. Note 10. Equity investments in non-affiliated companies; equity
investments in affiliated companies; equity investments in associated
companies.
An "equity investment" (Beteiligung) as defined in Section 271(1) of
the German Commercial Code is a direct or indirect equity investment in another
enterprise that WestLB intends to hold on a long-term basis in order to
establish a permanent relationship that contributes to its own business. Equity
interests of 20% or more are subject to a rebuttable presumption that they are
equity investments (Beteiligungen).
"Affiliated companies" (verbundene Unternehmen) within the meaning of
Section 271(2) of the German Commercial Code are companies (i) that are wholly
or more than 50%-owned, or otherwise controlled, by WestLB, (ii) WestLB's
interest in which is characterized as an equity investment (Beteiligung), and
(iii) which must be fully consolidated with WestLB in accordance with Section
290 of the German Commercial Code. Thus, WestLB's investment in all affiliated
companies are equity investments (Beteiligungen).
An equity investment (Beteiligung) can be an investment (i) in an
affiliated company or (ii) a company that is not an affiliated company if the
conditions of Section 271(1) of the German Commercial Code are met. Item 7
refers to equity investments in companies that are not affiliated companies,
whereas Item 9 refers to equity investments in affiliated companies.
A-49
<PAGE>
If a parent company which is included in the consolidated financial
statements can exercise a significant influence over the business and financial
policies of a second company which is not included in the consolidation and in
which the parent company has an investment pursuant to Section 271(1) of the
German Commercial Code (Beteiligung), then the second company is an "associated
company" (assoziiertes Unternehmen) as defined in Section 311 of the German
Commercial Code. A significant influence will be presumed if the parent company
holds at least 20% of the voting rights of the other company. Equity investments
(Beteiligungen) in associated companies are equity in non-affiliated companies
but must be shown in the consolidated balance sheet under a separate heading. A
significant influence will be presumed if the parent company holds at least 20%
of the voting rights of the other company. Item 8 refers to equity investments
in associated companies.
Companies in which a company owns at least 20% of the capital must also
be listed pursuant to Section 285 No. 11 of the German Commercial Code in the
Notes to Annual Accounts required by the German Commercial Code. Such Notes for
the years beginning January 1, 1993 indicate which of the companies listed
pursuant to Section 285 No. 11 of the German Commercial Code are affiliated
companies. See "Notes to Annual Accounts Required by the German Commercial
Code--Notes to the 1996 Annual Accounts of the WestLB Group--Group Companies of
WestLB" and "Main Equity Investments of WestLB."
Supp. Note 11. Trust assets; trust liabilities.
The major portion of "trust assets" and "trust liabilities" consist of
fiduciary loans that are loans made by WestLB in WestLB's name but on behalf of
other entities with funds entirely supplied by, and for a purpose and on terms
specified by, such other entities. WestLB has liability only for its duties as
trustee of the other entities' funds and bears no credit risks with respect to
fiduciary loans. See "The Business of WestLB--Trust Assets." An equal amount
appears under fiduciary loans on both the assets side and the liabilities side
of the Balance Sheet.
Supp. Note 12. Equalization claims against public authorities.
This item consists of adjustment claims against the North
Rhine-Westphalia state or German federal government provided to financial
institutions in connection with the currency reform after the Second World War
and the integration of the former German Democratic Republic (Deutsche
Demokratische Republic) in connection with the German reunification in amounts
equal to deficits otherwise existing at such times.
Supp. Note 13. Fixed assets.
This item includes land and buildings used by WestLB and the WestLB
Group, respectively, for its business activities and furniture and office
equipment. See "Notes to Annual Accounts Required by the German Commercial
Code--Notes to the 1996 Consolidated Annual Accounts of the WestLB Group" and
"Notes to the 1996 Unconsolidated Annual Accounts of WestLB"--"Fixed Assets."
Supp. Note 14. Deferred items.
This item reflects the fact that the balance sheet must show all
transactions which result in receipts or payments irrespective whether these
amounts become effective as income or expenses in the year of the transaction or
the following years. Deferred items on the asset side of the balance sheet
represent payments that become expenses after the date of the balance sheet.
Deferred items on the liability side of the balance sheet represent receipts
that become income at a certain time after the date of the balance sheet. See
"Notes to Annual Accounts Required by the German Commercial Code--Notes to the
1996 Consolidated Annual Accounts of the WestLB Group" and "Notes to the 1996
Unconsolidated Annual Accounts of WestLB--Deferred Items."
A-50
<PAGE>
Supp. Note 15. Liabilities to banks.
This item includes all kinds of liabilities to German and non-German
credit institutions, unless the liabilities are certificated liabilities
(entered in Item 3). Item 1 includes, among others, registered debt securities,
negotiable debt securities that are not part of an offering, registered money
market instruments, and obligations arising out of securities transactions or
arising out of settlement accounts and obligations arising from bills of
exchange (drafts) sold by WestLB for which no payment has been received by
WestLB from its customers.
Supp. Note 16. Liabilities to customers.
This item includes all kinds of liabilities to German and non-German
customers other than banks, unless these obligations are certificated
liabilities (Item 3). Item 2 includes, among others, savings deposits,
registered debt securities, negotiable debt securities that are not part of an
offering, and registered money market instruments.
Supp. Note 17. Certificated liabilities.
Certificated liabilities are debt obligations that are evidenced by a
transferable certificate other than a certificate registered in the name of the
holder. "Bonds issued by the Bank" are bearer notes and bonds and negotiable
notes and bonds that are part of an offering, in each case irrespective of
whether they qualify for listing on a stock exchange or not. Securities issued
by WestLB that do not qualify for listing on a stock exchange and that were
repurchased by WestLB are deducted from Item 3 a) on the liabilities side of the
Balance Sheet. "Money market paper" are bearer securities, and negotiable
securities that are part of an offering, irrespective of whether they qualify
for listing on a stock exchange.
For a description of the types, amounts and maturities of and interest
rates on bonds and notes issued by WestLB, see "Funding."
In addition to the bonds and notes included in this item, WestLB issues
registered mortgage backed bonds and registered public debt-backed bonds to
creditors of WestLB's liabilities included in liability Items 1 and 2 as
security for such liabilities.
Supp. Note 18. Special item with partial reserve character.
This item represents the reserves pursuant to Section 6b of the German
Income Tax Law (Einkommenssteuergesetz). See "Notes to Annual Accounts Required
by the German Commercial Code Notes to the 1995 Consolidated Annual Accounts of
the WestLB Group" and "Notes to the 1995 Unconsolidated Annual Accounts of
WestLB"--"Special Reserves."
Supp. Note 19. Profit participation capital.
Capital paid in consideration of profit participation rights
(Genussscheine) meeting certain conditions set forth in the German Banking
Law, including the requirements that it be subordinated to all other creditors
and participate in the bank's losses. A Genussschein is part of a bank's
liable capital if it meets certain requirements established by the German
Banking Law, principally:
(i) if it participates in full in any loss and the bank
is obligated in case of loss to postpone interest payments;
(ii) if it is agreed that in case of bankruptcy or liquidation
of the bank, it can be paid back only after all non-subordinated
creditors have been satisfied;
(iii) if it has been placed at the bank's disposal for at
least 5 years and cannot be prepaid upon demand of the creditor. (The
5-year period does not apply if a change in tax law results in the
payment of additional interest and the capital is replaced by other
liable capital of at least equal ranking); and
A-51
<PAGE>
(iv) as long as any claim for repayment is not due, or by
virtue of the agreement cannot become due, in less than two years.
Supp. Note 20. Fund for general bank risks.
Section 340g of the German Commercial Code permits the creation of a
special reserve to protect against the general risks inherent in the business of
banking to the extent this is necessary in accordance with a prudent commercial
evaluation. The fund for general banking risks counts as Liable Capital and, in
particular, as Core Capital. See "Regulation and Supervision of WestLB in the
Federal Republic of Germany--Regulation by the German Federal Banking
Supervisory Authority."
Supp. Note 21. Equity capital.
See "Capitalization of WestLB."
Supp. Note 22. Statutory reserves.
Pursuant to Section 26 of the statutes (Satzung) for WestLB, at least
10% of WestLB's net income for each year must be allocated to the reserves.
Supp. Note 23. Other reserves.
This item comprises all additional reserves from retained earnings,
which are not required by WestLB statutes or law.
Supp. Note 24. Group reserves.
The deduction from the retained earnings reserve is a result of a
higher differential amount on the asset side of the balance sheet caused by the
capital consolidation. This item represents adjustments equal to the difference
between equity capital in consolidated companies held by WestLB and the book
value of such companies if the book value is less than such portion of the
capital.
Supp. Note 25. Contingent liabilities relating to negotiated bills of
exchange.
This item does not include liabilities in connection with instruments
deposited with the Bundesbank as collateral for lombard loans or for purposes of
repurchase agreements.
Supp. Note 26. Liabilities from guaranties and indemnity agreements.
This item includes contingent liabilities in respect of guaranties,
avals on bills of exchange, check guaranties and indemnity agreements.
Supp. Note 27. Administered funds.
Administered funds are loans made by WestLB in the name of other
entities with funds entirely supplied by, and for the purpose and on terms
specified by, such entities. WestLB has liability only for its duties as trustee
of the other entities' funds and bears no credit risk.
Supp. Note 28. Income from equity investments in non-affiliated, affiliated and
associated companies.
See Supp. Note 10 for description of equity investments (Beteiligungen)
in affiliated, non-affiliated and associated enterprises.
A-52
<PAGE>
Supp. Note 29. Write-downs and value adjustments on loans and certain
securities, as well as allocations to loan loss provisions.
See Supp. Note 20 and "The Business of WestLB--Loan Portfolio Risks and
Reserves."
Supp. Note 30. Income from reevaluation of equity investments in non-affiliated
companies, equity investments in
affiliated companies and securities treated as fixed assets.
See Supp. Note 10. The amount listed represented the difference between
the book value of an equity investment in an affiliated or non-affiliated
enterprise and its disposition price.
A-53
<PAGE>
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<PAGE>
EXHIBIT B
SUMMARY OF MATERIAL DIFFERENCES BETWEEN GENERALLY ACCEPTED
GERMAN AND UNITED STATES ACCOUNTING PRINCIPLES
The information set forth below has been provided by WestLB. None of the
Trust, the Depositor, Lehman Brothers Inc. nor any of their respective
affiliates takes any responsibility for the accuracy or completeness of such
information.
The audited annual accounts of WestLB and the WestLB Group for the years
ended December 31, 1996 and 1995 have been prepared in accordance with generally
accepted accounting principles in Germany ('German GAAP'), which emphasize the
concept of 'prudence' in the presentation of the annual accounts in order to
protect the interest of creditors and various practices, laws and regulations of
Germany. WestLB Group's and WestLB's Annual Accounts included as Exhibit A to
this Prospectus Supplement differ in certain substantial respects from annual
accounts prepared in accordance with the accounting and financial reporting
practices followed in the United States and have not been prepared in accordance
with the accounting rules and regulations adopted by the Securities and Exchange
Commission under the Securities Act of 1933. It is not feasible to prepare and
present the various annual accounts of WestLB Group or WestLB in accordance with
practices and principles followed in the United States.
The following is a summary of the material differences between German GAAP
and generally accepted accounting principles in the United States ('U.S. GAAP')
at December 31, 1996 and July 3, 1997:
1. Receivables (loans) and liabilities are classified under German GAAP
according to their original maturity or the period after which the
obligor thereof may, or may be required to, repay in full such
receivables or liabilities at the earliest after inception, rather than
according to their remaining maturity as of the balance sheet date as
under U.S. GAAP. In contrast to U.S. GAAP, which divide receivables and
liabilities into current assets and debt with a remaining maturity of up
to one year and long-term assets and debt with a remaining maturity of
one year or longer, German GAAP for credit institutions require that a
bank divide receivables and liabilities on its balance sheet into short-
term assets and debt that are either payable on demand, have an original
maturity of less than four years or may be, or may be required to be,
repaid in full in less than four years after inception and long-term
assets and debt that have an original maturity of four years or longer
and may be, or may be required to be, repaid in full at the earliest at
or after four years after inception.
2. Under German GAAP, assets are categorized as fixed assets
(Anlagevermogen) or current assets (Umlaufvemogen). Fixed assets are
assets deemed to be held for permanent use or investment and current
assets are deemed not to be held for permanent use or investment. Fixed
assets and current assets are valued differently. Current assets are
valued individually based on a strict minimum value principle at the
lower of historic cost (the original purchase price) and market value.
Fixed assets are valued based upon a modified minimum value principle
according to which the historic cost (the original purchase price) is
only subject to an exceptional depreciation where a permanent impairment
in value is anticipated. Once the value of an asset has been written
down, its book value is permitted, but is not required, to be readjusted
to the historic cost when the reasons for the write-down are no longer
applicable. The book value of an asset, therefore, may be lower than
both market value on the balance sheet date and historic cost.
Non-investment securities (current assets) are valued individually under
the strict 'minimum value principle', that is, at the lower of historic cost
(the original purchase price) or book value or market value. Once the value of a
security has been written down, its book value is permitted, but is not
required, to be readjusted to the historic cost when the reason for the
write-downs is no longer applicable. The book value of a security, therefore,
may be lower than both market value on the balance sheet date and historic cost.
In general, investment securities (fixed assets) are not valued, or are not
permitted to be valued, under the strict 'minimum value principle' and can
instead be valued at historic cost.
Securities are defined in section 7 of the Regulation on Accounting by
Credit Institutions (Verordnung uber die Rechnungslegung der Kreditinstitute);
in the balance sheet they are disclosed under 'Bonds and other
B-1
<PAGE>
interest-bearing securities' and 'Shares and other non-fixed income securities'.
In disclosing income and expense, a distinction is made between securities held
in trading portfolios and those held as liquidity reserves (securities which are
neither treated as fixed assets nor held for trading purposes). In both cases
the securities are carried as current assets and are valued, for each type of
security separately, at the lower of average values and market value at the
balance sheet date. Securities held as liquidity reserves are stated net of the
general banking risk reserves allowed by Section 340f of the German Commercial
Code (Handelsgesetzbuch).
Equity investments (Beteiligungen) in non-affiliated and affiliated
enterprises are valued at cost. In the consolidated balance sheet the
significant investments in associated companies are included according to the
equity method of accounting based on the WestLB Group's holding of equity in the
respective company.
3. German GAAP, unlike U.S. GAAP, permit credit institutions like WestLB to
create loss risk provisions that, in accordance with German law, are not
disclosed. Provisions for risks are dealt with as follows under German
GAAP:
(a) The credit risk of the loan portfolio is continuously assessed
with respect to each individual exposure. Specific provisions are
established by writing down the book value of each such item according to
its assessed risk. In addition, a general provision is established for risk
that is not individually identifiable but is inherent in the loan
portfolio. Like specific provisions, general provisions are deducted from
the assets reserved against and are therefore not shown separately on the
balance sheet.
(b) Under German law, in order to create a general provision for risks
inherent in a bank's business, banks are permitted to record in the balance
sheet assets at a lower value than would otherwise be required by specific
valuation procedures. Moreover, with respect to presentation in the profit
and loss account, banks are permitted to offset (without disclosure)
profits from the sale of certain securities (in the so-called liquidity
portfolio, see paragraph 2 above) and the revaluation of receivables (i.e.,
payments received on loans previously written-off or write-backs of risk
provisions) against write-downs of the respective receivables and
securities. Based on the foregoing, WestLB discloses the net result from
movements in risk provisions and management of the liquidity portfolio.
B-2
<PAGE>
PROSPECTUS
TRUST CERTIFICATES
(ISSUABLE IN SERIES)
LEHMAN ABS CORPORATION
DEPOSITOR
The Trust Certificates (the 'Certificates') offered hereby and by
supplements (each a 'Prospectus Supplement') to this Prospectus will be offered
from time to time in one or more series (each a 'Series') and in one or more
classes within each such Series (each a 'Class'), denominated in dollars or in
one or more foreign or composite currencies, including the European Currency
Unit ('ECU'). Certificates of each respective Series and Class will be offered
on terms to be determined at the time of sale as described in the related
Prospectus Supplement accompanying the delivery of this Prospectus. Certificates
may be sold for United States dollars or for one or more foreign or composite
currencies, and the principal of, premium on, if any, and any interest to be
distributed in respect of Certificates may be payable in United States dollars
or in one or more foreign or composite currencies. Each Series and Class of
Certificates may be issuable as individual securities in registered form without
coupons ('Registered Certificates') or in bearer form with or without coupons
attached ('Bearer Certificates') or as one or more global securities in
registered or bearer form (each a 'Global Security').
Each Series of Certificates will represent in the aggregate the entire
beneficial ownership interest in a publicly issued, fixed income debt security
or a pool of such debt securities (the 'Underlying Securities'), together with
certain other assets described herein and in the related Prospectus Supplement
(such assets, together with the Underlying Securities, the 'Deposited Assets'),
to be deposited in a trust (the 'Trust') for the benefit of holders of
Certificates of such Series ('Certificateholders') by Lehman ABS Corporation
(the 'Depositor') pursuant to a Trust Agreement and a series supplement thereto
with respect to any given Series (collectively, the 'Trust Agreement') among the
Depositor, the administrative agent, if any (the 'Administrative Agent') and the
trustee (the 'Trustee') named in the related Prospectus Supplement. The
Underlying Securities will be purchased by the Depositor in the secondary market
(either directly or through an affiliate of the Depositor), and will not be
acquired from the obligor with respect thereto or pursuant to any distribution
by or agreement with any such obligor. The Underlying Securities discussed
herein and in the related Prospectus Supplement represent (i) an obligation
issued or guaranteed by the United States of America or any agency thereof for
the payment of which the full faith and credit of the United States of America
is pledged, (ii) an obligation of one or more U.S. government sponsored
entities, (iii) Government Trust Certificates ('GTCs') (provided that such GTCs,
together with any AID-Guaranteed Underlying Securities (as defined below), shall
not account for 20% or more of the aggregate cash flows on the Underlying
Securities securing any Series of Certificates), or (iv) obligations guaranteed
by the United States Agency for International Development pursuant to the AID
Housing Guaranty Program ('AID-Guaranteed Underlying Securities') (provided that
such AID-Guaranteed Underlying Securities, together with any GTCs, shall not
account for 20% or more of the aggregate cash flows on the Underlying Securities
securing any Series of Certificates). If so specified in the related Prospectus
Supplement, the Trust for a Series of Certificates may also include, or the
Certificateholders of such Certificates may have the benefit of, any combination
of insurance policies, letter of credit, reserve accounts and other types of
rights or assets designed to support or ensure the servicing and distribution of
amounts due in respect of the Deposited Assets (collectively, 'Credit Support').
See 'Description of Certificates' and 'Description of Deposited Assets and
Credit Support.'
Each Class of Certificates of any Series will represent the right, which
may be senior to those of one or more of the other Classes of such Series, to
receive specified portions of payments of principal, interest and certain other
amounts on the Deposited Assets in the manner described herein and in the
related Prospectus Supplement. A Series may include two or more Classes
differing as to the timing, sequential order or amount of distributions of
principal, interest or premium and one or more Classes within such Series may be
subordinated in certain respects to other Classes of such Series.
Except as otherwise provided herein and in the applicable prospectus
supplement, the Depositor's only obligations with respect to each Series of
Certificates will be, pursuant to certain representations and warranties
concerning the Deposited Assets, to assign and deliver the Deposited Assets and
certain related documents to the applicable Trustee and, in certain cases, to
provide for the Credit Support, if any. The principal obligations of an
Administrative Agent, if any is named in the applicable Prospectus Supplement,
with respect to a Series of Certificates will be pursuant to its contractual
administrative obligations and, only as and to the extent provided in the
related Prospectus Supplement, its obligation to make certain cash advances in
the event of payment delinquencies on the Deposited Assets. See 'Description of
the Certificates--Advances in Respect of Delinquencies.'
The Certificates of each Series will not represent an obligation of or
interest in the Depositor, any Administrative Agent or any of their respective
affiliates, except to the limited extent described herein and in the related
Prospectus Supplement. Neither the Certificates nor the Deposited Assets
(unless, and only as and to the extent otherwise specified in such Prospectus
Supplement) will be guaranteed or insured by any governmental agency or
instrumentality, or by the Depositor, any Administrative Agent or their
respective affiliates.
Prospective investors should consider the factors set forth herein under
'Risk Factors,' beginning on page 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Certificates may be offered and sold to or through underwriters,
through dealers or agents or directly to purchasers, as more fully described
under 'Plan of Distribution' and in the related Prospectus Supplement. This
Prospectus may not be used to consummate sales of Certificates offered hereby
unless accompanied by a Prospectus Supplement.
LEHMAN BROTHERS
November 15, 1995
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PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Certificates to be
offered thereby and hereby will set forth, among other things, the following
with respect to such Series: (a) the specific designation and aggregate
principal amount, (b) the currency or currencies in which the principal (the
'Specified Principal Currency'), premium, if any (the 'Specified Premium
Currency'), and any interest (the 'Specified Interest Currency') are
distributable (the Specified Principal Currency, the Specified Premium Currency
and the Specified Interest Currency being collectively referred to as the
'Specified Currency'), (c) the number of Classes of such Series and, with
respect to each Class of such Series, its designation, aggregate principal
amount or, if applicable, notional amount and authorized denominations, (d)
certain information concerning the type, characteristics and specifications of
the Deposited Assets and any Credit Support for such Series or Class, (e) the
relative rights and priorities of each such Class (including the method for
allocating collections from the Deposited Assets to the Certificateholders of
each Class and the relative ranking of the claims of the Certificateholders of
each Class to such Deposited Assets), (f) the name of the Trustee and the
Administrative Agent, if any, for such Series, (g) the Pass Through Rate (as
defined below) or the terms relating to the applicable method of calculation
thereof, (h) the time and place of distribution (each such date, a 'Distribution
Date') of any interest, premium (if any) and/or principal, (i) the date of
issue, (j) the scheduled final Distribution Date, if applicable, (k) the
offering price, (l) any exchange, whether mandatory or optional, the redemption
terms and any other specific terms of Certificates of each such Series or Class.
See 'Description of Certificates--General' for a listing of other items that may
be specified in the applicable Prospectus Supplement.
AVAILABLE INFORMATION
The Depositor is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the 'Exchange Act'), and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the 'Commission'). Reports and other information concerning
the Depositor can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at Seven World Trade
Center, New York, New York 10048, and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
be obtained upon written request addressed to the Commission, Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Depositor does not intend to send any financial reports to
Certificateholders.
The Depositor has filed with the Commission a registration statement on
Form S-3 (together with all amendments and exhibits, the 'Registration
Statement') under the Securities Act of 1933, as amended (the 'Securities Act'),
relating to the Certificates. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Depositor pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Certificates shall be deemed to be
incorporated by reference in this Prospectus. Any statement contained herein or
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Depositor will provide without charge to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of any such person,
a copy of any or all of the documents incorporated herein by
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reference, except the exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Written requests for
such copies should be directed to the Secretary of Lehman ABS Corporation, 3
World Financial Center, New York, New York 10285. Telephone requests for such
copies should be directed to the Secretary of Lehman ABS Corporation at (212)
526-5594.
REPORTS TO CERTIFICATEHOLDERS
Except as otherwise specified in the applicable Prospectus Supplement,
unless and until Definitive Certificates are issued, on each Distribution Date
unaudited reports containing information concerning the related Trust will be
prepared by the related Trustee and sent on behalf of each Trust only to Cede &
Co. ('Cede'), as nominee of DTC and registered holder of the Certificates. See
'Description of Certificates--Global Securities' and 'Description of the Trust
Agreement--Reports to Certificateholders; Notice.' Such reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles. The Depositor, on behalf of each Trust, will cause to be
filed with the Commission such periodic reports as are required under the
Exchange Act.
IMPORTANT CURRENCY INFORMATION
Purchasers are required to pay for each Certificate in the Specified
Principal Currency for such Certificate. Currently, there are limited facilities
in the United States for conversion of U.S. dollars into foreign currencies and
vice versa, and banks do not currently offer non-U.S. dollar checking or savings
account facilities in the United States. However, if requested by a prospective
purchaser of a Certificate having a Specified Principal Currency other than U.S.
dollars, Lehman Brothers Inc. (the 'Offering Agent') will arrange for the
exchange of U.S. dollars into such Specified Principal Currency to enable the
purchaser to pay for such Certificate. Such request must be made on or before
the fifth Business Day (as defined below) preceding the date of delivery of such
Certificate or by such later date as is determined by the Offering Agent. Each
such exchange will be made by the Offering Agent on such terms and subject to
such conditions, limitations and charges as the Offering Agent may from time to
time establish in accordance with its regular foreign exchange practice. All
costs of exchange will be borne by the purchaser.
References herein to 'U.S. dollars,' 'U.S.$,' USD, 'dollar' or '$' are to
the lawful currency of the United States.
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RISK FACTORS
Limited Liquidity. There will be no market for any Series (or Class within
such Series) of Certificates prior to the issuance 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 such Certificates.
Certain Legal Aspects. The applicable Prospectus Supplement may set forth
certain legal considerations that are applicable to a specific Series (or Class
or Classes within such Series) of Certificates being offered in connection with
that Prospectus Supplement or the assets deposited in or assigned to the related
Trust.
Limited Obligations and Interests. The Certificates will not represent a
recourse obligation of or interest in the Depositor or any of its affiliates.
Unless otherwise specified in the applicable Prospectus Supplement, the
Certificates of each Series will not be insured or guaranteed by any government
agency or instrumentality, the Depositor, any Person affiliated with the
Depositor or the Issuer, or any other Person. The obligations, if any, of the
Depositor with respect to the Certificates of any Series will only be pursuant
to certain limited representations and warranties. The Depositor does not have,
and is not expected in the future to have, any significant assets with which to
satisfy any claims arising from a breach of any representation or warranty. If,
for example, the Depositor were required to repurchase an Underlying Security
with respect to which the Depositor has breached a representation or warranty,
its only sources of funds to make such repurchase would be from funds obtained
from the enforcement of a corresponding obligation, if any, on the part of the
seller of such Underlying Security to the Depositor, or from a reserve fund
established to provide funds for such repurchases. The Depositor has no
obligation to establish or maintain any such reserve fund.
Credit Support; Limited Assets. Although the Trust for any Series (or Class
of such Series) of Certificates may include, or the Certificateholders of such
Certificates may have the benefit of, certain assets which are designed to
support the payment upon, or otherwise ensure the servicing or distribution with
respect to, the Deposited Assets related to such Series or Class as described in
the related Prospectus Supplement, the Certificates do not represent obligations
of the Depositor, any Administrative Agent or any of their affiliates and,
unless otherwise specified in the applicable Prospectus Supplement, are not
insured or guaranteed by the Depositor, any Administrative Agent, any of their
affiliates or any other person or entity. Accordingly, Certificateholders'
receipt of distributions in respect of the Certificates will depend entirely on
the performance of and the Trust's receipt of payments with respect to the
Deposited Assets and any Credit Support identified in the related Prospectus
Supplement. See 'Description of Deposited Assets and Credit Support.'
Maturity and Redemption Considerations. The timing of distributions of
interest, premium (if any) and principal of any Series (or of any Class within
such Series) of Certificates is affected by a number of factors, including the
performance of the related Deposited Assets, the extent of any early redemption,
repayment or extension of maturity with respect to the related Underlying
Securities and the manner and priority in which collections from such Underlying
Securities and any other Deposited Assets are allocated to each Class of such
Series. Certain of these factors may be influenced by a variety of accounting,
tax, economic, social and other factors. The related Prospectus Supplement will
discuss any calls, puts or other redemption options, any extension of maturity
provisions and certain other terms applicable to such Underlying Securities and
any other Deposited Assets. See 'Maturity and Yield Considerations.'
Tax Considerations. The Federal income tax consequences of the purchase,
ownership and disposition of the Certificates and the tax treatment of the Trust
will depend on the specific terms of the Certificates, the Trust, any Credit
Support and the Deposited Assets. See the description under 'Certain Federal
Income Tax Considerations' in the related Prospectus Supplement.
Ratings of the Certificates. At the time of issue, the Certificates of any
given Series (or each Class of such Series that is offered hereby) will be rated
in one of the investment grade categories recognized by one or more nationally
recognized rating agencies (a 'Rating Agency'). Unless otherwise specified in
the applicable Prospectus Supplement, the rating of any Series or Class of
Certificates is based primarily on the related Deposited Assets and any Credit
Support and the relative priorities of the Certificateholders of such Series or
Class to receive collections from, and to assert claims against, the Trust with
respect to such Deposited Assets
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and any Credit Support. The rating is not a recommendation to purchase, hold or
sell Certificates, inasmuch as such 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. Any Class or Classes of a given Series
of Certificates may not be offered pursuant to this Prospectus, in which case
such Class or Classes may or may not be rated in an investment grade category by
a Rating Agency.
Global Securities. Unless otherwise specified in the related Prospectus
Supplement, the Certificates of each Series (or, if more than one Class exists,
each Class of such Series) will initially be represented by one or more Global
Securities deposited with, or on behalf of, a Depositary (as defined below) and
will not be issued as individual definitive Certificates to the purchasers of
such Certificates. Consequently, unless and until such individual definitive
Certificates of a particular Series or Class are issued, such purchasers will
not be recognized as Certificateholders under the Trust Agreement. Hence, until
such time, such purchasers will only be able to exercise the rights of
Certificateholders indirectly through the Depositary and its respective
participating organizations and, as a result, the ability of any such purchaser
to pledge that Certificate to persons or entities that do not participate in the
Depositary's system, or to otherwise act with respect to such Certificate, may
be limited. See 'Description of Certificates--Global Securities' and any further
description contained in the related Prospectus Supplement.
Currency Risks. The Certificates of any given Series (or Class within such
Series) may be demonstrated in a currency other than U.S. dollars to the extent
specified in the applicable Prospectus Supplement. This Prospectus does not
describe all the risks of an investment in such Certificates, and the Depositor
disclaims any responsibility to advise prospective purchasers of such risks as
they exist from time to time. Prospective purchasers of such Certificates should
consult their own financial and legal advisors as to the risks entailed by an
investment in such Certificates denominated in a currency other than U.S.
dollars. See 'Currency Risks.'
Passive Nature of the Trust. The Trustee with respect to any Series of
Certificates will hold the Deposited Assets for the benefit of the
Certificateholders. Each Trust will generally hold the related Deposited Assets
to maturity and not dispose of them, regardless of adverse events, financial or
otherwise, which may affect any GSE Issuer or the value of the Deposited Assets.
Under certain circumstances the holders of the Certificates may direct the
Trustee to dispose of the Underlying Securities or take certain other actions in
respect of the Deposited Assets.
In addition, the Prospectus Supplement for each Series of Certificates will
set forth information regarding additional risk factors, if any, applicable to
such Series (and each Class within such Series).
THE COMPANY
The Depositor was incorporated in the State of Delaware on January 29,
1988, as an indirect, wholly-owned, limited-purpose subsidiary of Lehman
Brothers Inc. The principal office of the Depositor is located in 3 World
Financial Center, New York, New York 10285. Its telephone number is (212)
526-5594.
The Certificate of Incorporation of the Depositor provides that the
Depositor may conduct any lawful activities necessary or incidental to serving
as depositor of one or more trusts that may issue and sell Certificates. The
Certificate of Incorporation of the Depositor provides that any securities,
except for subordinated securities, issued by the Depositor must be rated in one
of the four highest categories available by any Rating Agency rating the Series.
Formation of a grantor trust will not relieve the Depositor of its obligation to
issue only securities, except for subordinated securities, rated in one of the
four highest rating categories. Pursuant to the terms of the Trust Agreement,
the Depositor may not issue any securities which would result in the lowering of
the then current ratings of the outstanding Certificates of any Series.
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USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the net
proceeds to be received from the sale of each Series or Class of Certificates
(whether or not offered hereby) will be used by the Depositor to purchase the
related Deposited Assets and arrange certain Credit Support including, if
specified in the related Prospectus Supplement, making required deposits into
any reserve account or the applicable Certificate Account (as defined below) for
the benefit of the Certificateholders of such Series or Class. Any remaining net
proceeds, if any, will be used by the Depositor for general corporate purposes.
FORMATION OF THE TRUST
The Depositor will assign the Deposited Assets for each Series of
Certificates to the Trustee named in the applicable Prospectus Supplement, in
its capacity as Trustee, for the benefit of the Certificateholders of such
Series. See 'Description of the Trust Agreement --Assignment of Deposited
Assets.' The Trustee named in the applicable Prospectus Supplement will
administer the Deposited Assets pursuant to the Trust Agreement and will receive
a fee for such services (the 'Trustee's Fee'). Any Administrative Agent named in
the applicable Prospectus Supplement will perform such tasks as are specified
therein and in the Trust Agreement and will receive a fee for such services (the
'Administration Fee') as specified in the Prospectus Supplement. See
'Description of the Trust Agreement--Collection and Other Administrative
Procedures' and '--Retained Interest; Administrative Agent Compensation and
Payment of Expenses.' The Trustee or an Administrative Agent, if applicable,
will either cause the assignment of the Deposited Assets to be recorded or will
obtain an opinion of counsel that no recordation is required to obtain a first
priority perfected security interest in such Deposited Assets.
Unless otherwise stated in the Prospectus Supplement, the Depositor's
assignment of the Deposited Assets to the Trustee will be without recourse. To
the extent provided in the applicable Prospectus Supplement, the obligations of
an Administrative Agent so named therein with respect to the Deposited Assets
will consist primarily of its contractual administrative obligations, if any,
under the Trust Agreement, its obligation, if any, to make certain cash advances
in the event of delinquencies in payments on or with respect to any Deposited
Assets in amounts described under 'Description of the Trust Agreement--Advances
in Respect of Delinquencies,' and its obligations, if any, to purchase Deposited
Assets as to which there has been a breach of certain representations and
warranties or as to which the documentation is materially defective. The
obligations of an Administrative Agent, if any, named in the applicable
Prospectus Supplement to make advances will be limited to amounts which any such
Administrative Agent believes ultimately would be recoverable under any Credit
Support, insurance coverage, the proceeds of liquidation of the Deposited Assets
or from other sources available for such purposes. See 'Description of the Trust
Agreement--Advances in Respect of Delinquencies.'
Unless otherwise provided in the related Prospectus Supplement, each Trust
will consist of (i) such Deposited Assets, or interests therein, exclusive of
any interest in such assets (the 'Retained Interest') retained by the Depositor
or any previous owner thereof, as from time to time are specified in the Trust
Agreement; (ii) such assets as from time to time are identified as deposited in
the related Certificate Account; (iii) property, if any, acquired on behalf of
Certificateholders by foreclosure or repossession and any revenues received
thereon; (iv) those elements of Credit Support, if any, provided with respect to
any Class within such Series that are specified as being part of the related
Trust in the applicable Prospectus Supplement, as described therein and under
'Description of Deposited Assets and Credit Support--Credit Support'; (v) the
rights of the Depositor under the agreement or agreements entered into by the
Trustee on behalf of the Certificateholders which constitute, or pursuant to
which the Trustee has acquired, such Deposited Assets; and (vi) the rights of
the Trustee in any cash advances, reserve fund or surety bond, if any, as
described under 'Description of the Trust Agreement--Advances in Respect of
Delinquencies.'
In addition, to the extent provided in the applicable Prospectus
Supplement, the Depositor will obtain Credit Support for the benefit of the
Certificateholders of any related Series (or Class within such Series) of
Certificates.
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MATURITY AND YIELD CONSIDERATIONS
Each Prospectus Supplement will, to the extent applicable, contain
information with respect to the type and maturities of the related Underlying
Securities and the terms, if any, upon which such Underlying Securities may be
subject to early redemption (either by the applicable obligor or pursuant to a
third-party call option), repayment (at the option of the holders thereof) or
extension of maturity. The provisions of the Underlying Securities with respect
to the foregoing will, unless otherwise specified in the applicable Prospectus
Supplement, affect the weighted average life of the related Series of
Certificates.
The effective yield to holders of the Certificates of any Series (and Class
within such Series) may be affected by certain aspects of the Deposited Assets
or any Credit Support or the manner and priorities of allocations of collections
with respect to such Deposited Assets between the Classes of a given Series.
With respect to any Series of Certificates the Underlying Securities of which
consist of one or more redeemable securities, extendable securities or
securities subject to a third-party call option, the yield to maturity of such
Series (or Class within such Series) may be affected by any optional or
mandatory redemption or repayment or extension of the related Underlying
Securities prior to the stated maturity thereof. A variety of tax, accounting,
economic, and other factors will influence whether an issuer exercises any right
of redemption in respect of its securities. The rate of redemption may also be
influenced by prepayments on the obligations a GSE Issuer holds for its own
account. All else remaining equal, if prevailing interest rates fall
significantly below the interest rates on the related Underlying Securities, the
likelihood of redemption would be expected to increase. There can be no
certainty as to whether any Underlying Security redeemable at the option of a
GSE Issuer will be repaid prior to its stated maturity.
Unless otherwise specified in the related Prospectus Supplement, each of
the Underlying Securities will be subject to acceleration upon the occurrence of
certain Underlying Security Events of Default (as defined below). The maturity
and yield on the Certificates will be affected by any early repayment of the
Underlying Securities as a result of the acceleration of the Outstanding Debt
Securities by the holders thereof. See 'Description of the Deposited
Assets--Underlying Securities Indenture.'
The extent to which the yield to maturity of such Certificates may vary
from the anticipated yield due to the rate and timing of payments on the
Deposited Assets will depend upon the degree to which they are purchased at a
discount or premium and the degree to which the timing of payments thereon is
sensitive to the rate and timing of payments on the Deposited Assets.
The yield to maturity of any Series (or Class) of Certificates will also be
affected by variations in the interest rates applicable to, and the
corresponding payments in respect of, such Certificates, to the extent that the
Pass-Through Rate for such Series (or Class) is based on variable or adjustable
interest rates. With respect to any Series of Certificates representing an
interest in a pool of corporate debt securities, disproportionate principal
payments (whether resulting from differences in amortization schedules, payments
due on scheduled maturity or upon early redemption) on the related Underlying
Securities having interest rates higher or lower than the then applicable
Pass-Through Rates applicable to such Certificates may affect the yield thereon.
The Prospectus Supplement for each Series of Certificates will set forth
additional information regarding yield and maturity considerations applicable to
such Series (and each Class within such Series) and the related Deposited
Assets, including the applicable Underlying Securities.
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DESCRIPTION OF CERTIFICATES
Each Series (or, if more than one Class exists, the Classes within such
Series) of Certificates will be issued pursuant to a Trust Agreement and a
separate series supplement thereto among the Depositor, the Administrative
Agent, if any, and the Trustee named in the related Prospectus Supplement, a
form of which Trust Agreement is attached as an exhibit to the Registration
Statement. The provisions of the Trust Agreement (as so supplemented) may vary
depending upon the nature of the Certificates to be issued thereunder and the
nature of the Deposited Assets, Credit Support and related Trust. The following
summaries describe certain provisions of the Trust Agreement which may be
applicable to each Series of Certificates. The applicable Prospectus Supplement
for a Series of Certificates will describe any provision of the Trust Agreement
that materially differs from the description thereof contained in this
Prospectus. The following summaries do not purport to be complete and are
subject to the detailed provisions of the form of Trust Agreement to which
reference is hereby made for a full description of such provisions, including
the definition of certain terms used, and for other information regarding the
Certificates. Article and section references in parentheses below are to
articles and sections in the Trust Agreement. Wherever particular sections or
defined terms of the Trust Agreement are referred to, such sections or defined
terms are incorporated herein by reference as part of the statement made, and
the statement is qualified in its entirety by such reference. As used herein
with respect to any Series, the term 'Certificate' refers to all the
Certificates of that Series, whether or not offered hereby and by the related
Prospectus Supplement, unless the context otherwise requires.
A copy of the applicable series supplement to the Trust Agreement relating
to each Series of Certificates issued from time to time will be filed by the
Depositor as an exhibit to a Current Report on Form 8-K to be filed with the
Commission following the issuance of such Series.
GENERAL
There is no limit on the amount of Certificates that may be issued under
the Trust Agreement, and the Trust Agreement will provide that Certificates of
the applicable Series may be issued in multiple Classes (Section 5.01). The
Series (or Classes within such Series) of Certificates to be issued under the
Trust Agreement will represent the entire beneficial ownership interest in the
Trust for such Series created pursuant to the Trust Agreement and each such
Class will be allocated certain relative priorities to receive specified
collections from, and a certain percentage ownership interest of the assets
deposited in, such Trust, all as identified and described in the applicable
Prospectus Supplement. See 'Description of Deposited Assets and Credit Support--
Collections.'
Reference is made to the related Prospectus Supplement for a description of
the following terms of the Series (and, if applicable, Classes within such
Series) of Certificates in respect of which this Prospectus and such Prospectus
Supplement are being delivered: (i) the title of such Certificates; (ii) the
Series of such Certificates and, if applicable, the number and designation of
Classes of such Series; (iii) certain information concerning the type,
characteristics and specifications of the Deposited Assets being deposited into
the related Trust by the Depositor (and, with respect to any Underlying Security
which at the time of such deposit represents a significant portion of all such
Deposited Assets and any related Credit Support, certain information concerning
the terms of each such Underlying Security, the identity of the issuer thereof
and where publicly available information regarding such issuer may be obtained);
(iv) the limit, if any, upon the aggregate principal amount or notional amount,
as applicable, of each Class thereof; (v) the dates on which or periods during
which such Series or Classes within such Series may be issued (each, an
'Original Issue Date'), the offering price thereof and the applicable
Distribution Dates on which the principal, if any, of (and premium, if any, on)
such Series or Classes within such Series will be distributable; (vi) if
applicable, the relative rights and priorities of each such Class (including the
method for allocating collections from and defaults or losses on the Deposited
Assets to the Certificateholders of each such Class); (vii) whether the
Certificates of such Series or each Class within such Series are Fixed Rate
Certificates or Floating Rate Certificates (each as defined below) and the
applicable interest rate (the 'Pass-Through Rate') for each such Class including
the applicable rate, if fixed (a 'Fixed Pass-Through Rate'), or the terms
relating to the particular method of calculation thereof applicable to such
Series or each Class within such Series, if variable (a 'Variable Pass-Through
Rate'); the date or dates from which such interest will accrue; the applicable
Distribution Dates on which interest, principal and premium, in each case as
applicable, on such Series or Class will be distributable and the related Record
Dates, if any; (viii) the option, if
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<PAGE>
any, of any Certificateholder of such Series or Class to withdraw a portion of
the assets of the Trust in exchange for surrendering such Certificateholder's
Certificate or of the Depositor or Administrative Agent, if any, or another
third party to purchase or repurchase any Deposited Assets (in each case to the
extent not inconsistent with the Depositor's continued satisfaction of the
applicable requirements for exemption under Rule 3a-7 under the Investment
Depositor Act of 1940 and all applicable rules, regulations and interpretations
thereunder) and the periods within which or the dates on which, and the terms
and conditions upon which any such option may be exercised, in whole or in part;
(ix) the rating of each Series or each Class within such Series offered hereby
(provided, however, that one or more Classes within such Series not offered
hereunder may be unrated or may be rated below investment grade); (x) if other
than denominations of $1,000 and any integral multiple thereof, the
denominations in which such Series or Class within such Series will be issuable;
(xi) whether the Certificates of any Class within a given Series are to be
entitled to (1) principal distributions, with disproportionate, nominal or no
interest distributions, or (2) interest distributions, with disproportionate,
nominal or no principal distributions ('Strip Certificates'), and the applicable
terms thereof; (xii) whether the Certificates of such Series or of any Class
within such Series are to be issued in the form of one or more Global Securities
and, if so, the identity of the Depositary (as defined below), if other than The
Depository Trust Company, for such Global Security or Securities; (xiii) if a
temporary Certificate is to be issued with respect to such Series or any Class
within such Series, whether any interest thereon distributable on a Distribution
Date prior to the issuance of a definitive Certificate of such Series or Class
will be credited to the account of the Persons entitled thereto on such
Distribution Date; (xiv) if a temporary Global Security is to be issued with
respect to such Series or Class, the terms upon which beneficial interests in
such temporary Global Security may be exchanged in whole or in part for
beneficial interests in a definitive Global Security or for individual
Definitive Certificates (as defined below) of such Series or Class and the terms
upon which beneficial interests in a definitive Global Security, if any, may be
exchanged for individual Definitive Certificates of such Series or Class; (xv)
if other than U.S. dollars, the Specified Currency applicable to the
Certificates of such Series or Class for purposes of denominations and
distributions on such Series or each Class within such Series and the
circumstances and conditions, if any, when such Specified Currency may be
changed, at the election of the Depositor or a Certificateholder, and the
currency or currencies in which any principal of or any premium or any interest
on such Series or Class are to be distributed pursuant to such election; (xvi)
any additional Administrative Agent Termination Events (as defined below), if
applicable, provided for with respect to such Class; (xvii) all applicable
Required Percentages and Voting Rights (each as defined below) relating to the
manner and percentage of votes of Certificateholders of such Series and each
Class within such Series required with respect to certain actions by the
Depositor or the applicable Administrative Agent, if any, or Trustee under the
Trust Agreement or with respect to the applicable Trust; and (xviii) any other
terms of such Series or Class within such Series of Certificates not
inconsistent with the provisions of the Trust Agreement relating to such Series.
Unless otherwise indicated in the applicable Prospectus Supplement,
Certificates of each Series (including any Class of Certificates not offered
hereby) will be issued only as Registered Certificates in denominations of
$1,000 and any integral multiple thereof and will be payable only in U.S.
dollars (Section 5.01). The authorized denominations of Registered Certificates
of a given Series or Class within such Series having a Specified Currency other
than U.S. dollars will be set forth in the applicable Prospectus Supplement.
The United States Federal income tax consequences and ERISA consequences
relating to any Series or any Class within such Series of Certificates will be
described in the applicable Prospectus Supplement. In addition, any risk
factors, the specific terms and other information with respect to the issuance
of any Series or Class within such Series of Certificates on which the principal
of and any premium and interest are distributable in a Specified Currency other
than U.S. dollars will be described in the applicable Prospectus Supplement
relating to such Series or Class. Unless otherwise specified in the applicable
Prospectus Supplement, the U.S. dollar equivalent of the public offering price
or purchase price of a Certificate having a Specified Principal Currency other
than U.S. dollars will be determined on the basis of the noon buying rate in New
York City for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York (the 'Market Exchange Rate')
for such Specified Principal Currency on the applicable issue date. As specified
in the applicable Prospectus Supplement, such determination will be made by the
Depositor, the Trustee, the Administrative Agent, if any, or an agent thereof as
exchange rate agent for each Series of Certificates (the 'Exchange Rate Agent').
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Unless otherwise provided in the applicable Prospectus Supplement,
Registered Certificates may be transferred or exchanged for like Certificates of
the same Series and Class at the corporate trust office or agency of the
applicable Trustee in the City and State of New York, subject to the limitations
provided in the Trust Agreement, without the payment of any service charge,
other than any tax or governmental charge payable in connection therewith
(Section 5.04). The Depositor may at any time purchase Certificates at any price
in the open market or otherwise. Certificates so purchased by the Depositor may,
at the discretion of the Depositor, be held or resold or surrendered to the
Trustee for cancellation of such Certificates.
DISTRIBUTIONS
Distributions allocable to principal, premium (if any) and interest on the
Certificates of each Series (and Class within such Series) will be made in the
Specified Currency for such Certificates by or on behalf of the Trustee on each
Distribution Date as specified in the related Prospectus Supplement and the
amount of each distribution will be determined as of the close of business on
the date specified in the related Prospectus Supplement (the 'Determination
Date'). If the Specified Currency for a given Series or Class within such Series
is other than U.S. dollars, the Administrative Agent, if any, or otherwise the
Trustee will (unless otherwise specified in the applicable Prospectus
Supplement) arrange to convert all payments in respect of each Certificate of
such Series or Class to U.S. dollars in the manner described in the following
paragraph. The Certificateholder of a Registered Certificate of a given Series
or Class within such Series denominated in a Specified Currency other than U.S.
dollars may (if the applicable Prospectus Supplement and such Certificate so
indicate) elect to receive all distributions in respect of such Certificate in
the Specified Currency by delivery of a written notice to the Trustee and
Administrative Agent, if any, for such Series not later than fifteen calendar
days prior to the applicable Distribution Date, except under the circumstances
described under 'Currency Risks--Payment Currency' below. Such election will
remain in effect until revoked by written notice to such Trustee and
Administrative Agent, if any, received by each of them not later than fifteen
calendar days prior to the applicable Distribution Date.
Unless otherwise specified in the applicable Prospectus Supplement, in the
case of a Registered Certificate of a given Series or Class within such Series
having a Specified Currency other than U.S. dollars, the amount of any U.S
dollar distribution in respect of such Registered Certificate will be determined
by the Exchange Rate Agent based on the highest firm bid quotation expressed in
U.S. dollars received by the Exchange Rate Agent at approximately 11:00 a.m.,
New York City time, on the second Business Day preceding the applicable
Distribution Date (or, if no such rate is quoted on such date, the last date on
which such rate was quoted), from three (or, if three are not available, then
two) recognized foreign exchange dealers in The City of New York (one of which
may be the Offering Agent and another of which may be the Exchange Rate Agent)
selected by the Exchange Rate Agent, for the purchase by the quoting dealer, for
settlement on such Distribution Date, of the aggregate amount payable in such
Specified Currency on such payment date in respect of all Registered
Certificates. All currency exchange costs will be borne by the
Certificateholders of such Registered Certificates by deductions from such
distributions. If no such bid quotations are available, such distributions will
be made in such Specified Currency, unless such Specified Currency is
unavailable due to the imposition of exchange controls or to other circumstances
beyond the Depositor's control, in which case such distributions will be made as
described under 'Currency Risks--Payment Currency' below. The applicable
Prospectus Supplement will specify such information with respect to Bearer
Certificates.
Unless otherwise provided in the applicable Prospectus Supplement and
except as provided in the succeeding paragraph, distributions with respect to
Certificates will be made (in the case of Registered Certificates) at the
corporate trust office or agency of the Trustee specified in the applicable
Prospectus Supplement in The City of New York; provided, however, that any such
amounts distributable on the final Distribution Date of a Certificate will be
distributed only upon surrender of such Certificate at the applicable location
set forth above (Sections 4.01 and 9.01).
Unless otherwise specified in the applicable Prospectus Supplement,
distributions on Registered Certificates in U.S. dollars will be made, except as
provided below, by check mailed to the Registered Certificateholders of such
Certificates (which, in the case of Global Securities, will be a nominee of the
Depositary); provided, however, that, in the case of a Series or Class of
Registered Certificates issued between a Record Date (as defined below) and the
related Distribution Dates, interest for the period beginning on the issue date
for such Series or
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Class and ending on the last day of the interest accrual period ending
immediately prior to or coincident with such Distribution Date will, unless
otherwise specified in the applicable Prospectus Supplement, be distributed on
the next succeeding Distribution Date to the Registered Certificateholders of
the Registered Certificates of such Series or Class on the related Record Date.
A Certificateholder of $10,000,000 (or the equivalent thereof in a Specified
Principal Currency other than U.S. dollars) or more in aggregate principal
amount of Registered Certificates of a given Series shall be entitled to receive
such U.S. dollar distributions by wire transfer of immediately available funds,
but only if appropriate wire transfer instructions have been received in writing
by the Trustee for such Series not later than fifteen calendar days prior to the
applicable Distribution Date. Simultaneously with the election by any
Certificateholder to receive payments in a Specified Currency other than U.S.
dollars (as provided above), such Certificateholder shall provide appropriate
wire transfer instructions to the Trustee for such Series, and all such payments
will be made by wire transfer of immediately available funds to an account
maintained by the payee with a bank located outside the United States.
Except as otherwise specified in the applicable Prospectus Supplement,
'Business Day' with respect to any Certificate means any day, other than a
Saturday or Sunday, that is (i) not a day on which banking institutions are
authorized or required by law or regulation to be closed in (a) The City of New
York or (b) if the Specified Currency for such Certificate is other than U.S.
dollars, the financial center of the country issuing such Specified Currency
(which, in the case of ECU, shall be Brussels, Belgium) and (ii) if the
Pass-Through Rate for such Certificate is based on LIBOR, a London Banking Day.
'London Banking Day' with respect to any Certificate means any day on which
dealings in deposits in the Specified Currency of such Certificate are
transacted in the London interbank market. The Record Date with respect to any
Distribution Date for a Series or Class of Registered Certificates shall be
specified as such in the applicable Prospectus Supplement.
INTEREST ON THE CERTIFICATES
General. Each Class of Certificates (other than certain Classes of Strip
Certificates) of a given Series may have a different Pass-Through Rate, which
may be a fixed or variable Pass-Through Rate, as described below. In the case of
Strip Certificates with no or, in certain cases, a nominal Certificate Principal
Balance, such distributions of interest will be in an amount (as to any
Distribution Date, 'Stripped Interest') described in the related Prospectus
Supplement. For purposes hereof, 'Notional Amount' means the notional principal
amount specified in the applicable Prospectus Supplement on which interest on
Strip Certificates with no or, in certain cases, a nominal Certificate Principal
Balance will be made on each Distribution Date. Reference to the Notional Amount
of a Class of Strip Certificates herein or in a Prospectus Supplement does not
indicate that such Certificates represent the right to receive any distribution
in respect of principal in such amount, but rather the term 'Notional Amount' is
used solely as a basis for calculating the amount of required distributions and
determining certain relative voting rights, all as specified in the related
Prospectus Supplement.
Fixed Rate Certificates. Each Series (or, if more than one Class exists,
each Class within such Series) of Certificates with a fixed Pass-Through Rate
('Fixed Rate Certificates') will bear interest, on the outstanding Certificate
Principal Balance (or Notional Amount, if applicable), from its Original Issue
Date, or from the last date to which interest has been paid, at the fixed
Pass-Through Rate stated on the face thereof and in the applicable Prospectus
Supplement until the principal amount thereof is distributed or made available
for repayment (or in the case of Fixed Rate Certificates with no or a nominal
principal amount, until the Notional Amount thereof is reduced to zero), except
that, if so specified in the applicable Prospectus Supplement, the Pass-Through
Rate for such Series or any such Class or Classes may be subject to adjustment
from time to time in response to designated changes in the rating assigned to
such Certificates by one or more rating agencies, in accordance with a schedule
or otherwise, all as described in such Prospectus Supplement. Unless otherwise
set forth in the applicable Prospectus Supplement, interest on each Series or
Class of Fixed Rate Certificates will be distributable in arrears on each
Distribution Date specified in such Prospectus Supplement. Each such
distribution of interest shall include interest accrued through the day
specified in the applicable Prospectus Supplement. Unless otherwise specified in
the applicable Prospectus Supplement, interest on Fixed Rate Certificates will
be computed on the basis of a 360-day year of twelve 30-day months.
Floating Rate Certificates. Each Series (or, if more than one Class
exists, each Class within such Series) of Certificates with a variable
Pass-Through Rate ('Floating Rate Certificates') will bear interest, on the
outstanding Certificate Principal Balance (or Notional Amount, if applicable),
from its Original Issue Date to the
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first Interest Reset Date (as defined below) for such Series or Class at the
Initial Pass-Through Rate set forth on the face thereof and in the applicable
Prospectus Supplement. Thereafter, the Pass-Through Rate on such Series or Class
for each Interest Reset Period (as defined below) will be determined by
reference to an interest rate basis (the 'Base Rate'), plus or minus the Spread,
if any, or multiplied by the Spread Multiplier, if any. The 'Spread' is the
number of basis points (one basis point equals one one-hundredth of a percentage
point) that may be specified in the applicable Prospectus Supplement as being
applicable to such Series or Class, and the 'Spread Multiplier' is the
percentage that may be specified in the applicable Prospectus Supplement as
being applicable to such Series or Class, except that if so specified in the
applicable Prospectus Supplement, the Spread or Spread Multiplier on such Series
or any such Class or Classes of Floating Rate Certificates may be subject to
adjustment from time to time in response to designated changes in the rating
assigned to such Certificates by one or more rating agencies, in accordance with
a schedule or otherwise, all as described in such Prospectus Supplement. The
applicable Prospectus Supplement, unless otherwise specified therein, will
designate one of the following Base Rates as applicable to a Floating Rate
Certificate: (i) LIBOR (a 'LIBOR Certificate'), (ii) the Commercial Paper Rate
(a 'Commercial Paper Rate Certificate'), (iii) the Treasury Rate (a 'Treasury
Rate Certificate'), (iv) the Federal Funds Rate (a 'Federal Funds Rate
Certificate'), (v) the CD Rate (a 'CD Rate Certificate') or (vi) such other Base
Rate (which may be based on, among other things, one or more market indices or
the interest and/or other payments (whether scheduled or otherwise) paid,
accrued or available with respect to a designated asset, pool of assets or type
of asset) as is set forth in such Prospectus Supplement and in such Certificate.
The 'Index Maturity' for any Series or Class of Floating Rate Certificates is
the period of maturity of the instrument or obligation from which the Base Rate
is calculated. 'H.15(519)' means the publication entitled 'Statistical Release
H.15(519), Selected Interest Rates,' or any successor publication, published by
the Board of Governors of the Federal Reserve System. 'Composite Quotations'
means the daily statistical release entitled 'Composite 3:30 p.m. Quotations for
U.S. Government Securities' published by the Federal Reserve Bank of New York.
As specified in the applicable Prospectus Supplement, Floating Rate
Certificates of a given Series or Class may also have either or both of the
following (in each case expressed as a rate per annum on a simple interest
basis): (i) a maximum limitation, or ceiling, on the rate at which interest may
accrue during any interest accrual period specified in the applicable Prospectus
Supplement ('Maximum Pass-Through Rate') and (ii) a minimum limitation, or
floor, on the rate at which interest may accrue during any such interest accrual
period ('Minimum Pass-Through Rate'). In addition to any Maximum Pass-Through
Rate that may be applicable to any Series or Class of Floating Rate
Certificates, the Pass-Through Rate applicable to any Series or Class of
Floating Rate Certificates will in no event be higher than the maximum rate
permitted by applicable law, as the same may be modified by United States law of
general application. The Floating Rate Certificates will be governed by the law
of the State of New York and, under such law as of the date of this Prospectus,
the maximum rate of interest, with certain exceptions, is 25% per annum on a
simple interest basis.
The Depositor will appoint, and enter into agreements with, agents (each a
'Calculation Agent') to calculate Pass-Through Rates on each Series or Class of
Floating Rate Certificates. The applicable Prospectus Supplement will set forth
the identity of the Calculation Agent for each Series or Class of Floating Rate
Certificates. All determinations of interest by the Calculation Agent shall, in
the absence of manifest error, be conclusive for all purposes and binding on the
holders of Floating Rate Certificates of a given Series or Class.
The Pass-Through Rate on each Class of Floating Rate Certificates will be
reset daily, weekly, monthly, quarterly, semiannually or annually (such period
being the 'Interest Reset Period' for such Class, and the first day of each
Interest Reset Period being an 'Interest Reset Date'), as specified in the
applicable Prospectus Supplement. Interest Reset Dates with respect to each
Series, and any Class within such Series of Floating Rate Certificates will be
specified in the applicable Prospectus Supplement; provided, however, that
unless otherwise specified in such Prospectus Supplement, the Pass-Through Rate
in effect for the ten days immediately prior to the Scheduled Final Distribution
Date will be that in effect on the tenth day preceding such Scheduled Final
Distribution Date. If an Interest Reset Date for any Class of Floating Rate
Certificates would otherwise be a day that is not a Business Day, such Interest
Reset Date will occur on a prior or succeeding Business Day, specified in the
applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement,
interest payable in respect of Floating Rate Certificates shall be the accrued
interest from and including the Original Issue Date of such Series or Class
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or the last Interest Reset Date to which interest has accrued and been
distributed, as the case may be, to but excluding the immediately following
Distribution Date.
With respect to a Floating Rate Certificate, accrued interest shall be
calculated by multiplying the Certificate Principal Balance of such Certificate
(or, in the case of a Strip Certificate with no or a nominal Certificate
Principal Balance, the Notional Amount specified in the applicable Prospectus
Supplement) by an accrued interest factor. Such accrued interest factor will be
computed by adding the interest factors calculated for each day in the period
for which accrued interest is being calculated. Unless otherwise specified in
the applicable Prospectus Supplement, the interest factor (expressed as a
decimal calculated to seven decimal places without rounding) for each such day
is computed by dividing the Pass-Through Rate in effect on such day by 360, in
the case of LIBOR Certificates, Commercial Paper Rate Certificates, Federal
Funds Rate Certificates and CD Rate Certificates or by the actual number of days
in the year, in the case of Treasury Rate Certificates. For purposes of making
the foregoing calculation, the variable Pass-Through Rate in effect on any
Interest Reset Date will be the applicable rate as reset on such date.
Unless otherwise specified in the applicable Prospectus Supplement, all
percentages resulting from any calculation of the Pass-Through Rate on a
Floating Rate Certificate will be rounded, if necessary, to the nearest
1/100,000 of 1% (.0000001), with five one-millionths of a percentage point
rounded upward, and all currency amounts used in or resulting from such
calculation on Floating Rate Certificates will be rounded to the nearest
one-hundredth of a unit (with .005 of a unit being rounded upward).
Interest on any Series (or Class within such Series) of Floating Rate
Certificates will be distributable on the Distribution Dates and for the
interest accrual periods as and to the extent set forth in the applicable
Prospectus Supplement.
Upon the request of the holder of any Floating Rate Certificate of a given
Series or Class, the Calculation Agent for such Series or Class will provide the
Pass-Through Rate then in effect and, if determined, the Pass-Through Rate that
will become effective on the next Interest Reset Date with respect to such
Floating Rate Certificate.
(1) CD Rate Certificates. Each CD Rate Certificate will bear interest for
each Interest Reset Period at the Pass-Through Rate calculated with reference to
the CD Rate and the Spread or Spread Multiplier, if any, specified in such
Certificate and in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the 'CD
Rate' for each Interest Reset Period shall be the rate as of the second Business
Day prior to the Interest Reset Date for such Interest Reset Period (a 'CD Rate
Determination Date') for negotiable certificates of deposit having the Index
Maturity designated in the applicable Prospectus Supplement as published in
H.15(519) under the heading 'CDs (Secondary Market).' In the event that such
rate is not published prior to 3:00 p.m., New York City time, on the Calculation
Date (as defined below) pertaining to such CD Rate Determination Date, then the
'CD Rate' for such Interest Reset Period will be the rate on such CD Rate
Determination Date for negotiable certificates of deposit of the Index Maturity
designated in the applicable Prospectus Supplement as published in Composite
Quotations under the heading 'Certificates of Deposit.' If by 3:00 p.m., New
York City time, on such Calculation Date such rate is not yet published in
either H.15(519) or Composite Quotations, then the 'CD Rate' for such Interest
Reset Period will be calculated by the Calculation Agent for such CD Rate
Certificate and will be the arithmetic mean of the secondary market offered
rates as of 10:00 a.m., New York City time, on such CD Rate Determination Date,
of three leading nonbank dealers in negotiable U.S. dollar certificates of
deposit in The City of New York selected by the Calculation Agent for such CD
Rate Certificate for negotiable certificates of deposit of major United States
money center banks of the highest credit standing (in the market for negotiable
certificates of deposit) with a remaining maturity closest to the Index Maturity
designated in the related Prospectus Supplement in a denomination of $5,000,000;
provided, however, that if the dealers selected as aforesaid by such Calculation
Agent are not quoting offered rates as mentioned in this sentence, the 'CD Rate'
for such Interest Reset Period will be the same as the CD Rate for the
immediately preceding Interest Reset Period (or, if there was no such Interest
Reset Period, the Initial PassThrough Rate).
The 'Calculation Date' pertaining to any CD Rate Determination Date shall
be the first to occur of (a) the tenth calendar day after such CD Rate
Determination Date or, if such day is not a Business Day, the next
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succeeding Business Day or (b) the second Business Day preceding the date any
distribution of interest is required to be made following the applicable
Interest Reset Date.
(2) Commercial Paper Rate Certificates. Each Commercial Paper Rate
Certificate will bear interest for each Interest Reset Period at the
Pass-Through Rate calculated with reference to the Commercial Paper Rate and the
Spread or Spread Multiplier, if any, specified in such Certificate and in the
applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the
'Commercial Paper Rate' for each Interest Reset Period will be determined by the
Calculation Agent for such Commercial Paper Rate Certificate as of the second
Business Day prior to the Interest Reset Date for such Interest Reset Period (a
'Commercial Paper Rate Determination Date') and shall be the Money Market Yield
(as defined below) on such Commercial Paper Rate Determination Date of the rate
for commercial paper having the Index Maturity specified in the applicable
Prospectus Supplement, as such rate shall be published in H.15(519) under the
heading 'Commercial Paper.' In the event that such rate is not published prior
to 3:00 p.m., New York City time, on the Calculation Date (as defined below)
pertaining to such Commercial Paper Rate Determination Date, then the
'Commercial Paper Rate' for such Interest Reset Period shall be the Money Market
Yield on such Commercial Paper Rate Determination Date of the rate for
commercial paper of the specified Index Maturity as published in Composite
Quotations under the heading 'Commercial Paper.' If by 3:00 p.m., New York City
time, on such Calculation Date such rate is not yet published in either
H.15(519) or Composite Quotations, then the 'Commercial Paper Rate' for such
Interest Reset Period shall be the Money Market Yield of the arithmetic mean of
the offered rates, as of 11:00 a.m., New York City time, on such Commercial
Paper Rate Determination Date of three leading dealers of commercial paper in
The City of New York selected by the Calculation Agent for such Commercial Paper
Rate Certificate for commercial paper of the specified Index Maturity placed for
an industrial issuer whose bonds are rated 'AA' or the equivalent by a
nationally recognized rating agency; provided, however, that if the dealers
selected as aforesaid by such Calculation Agent are not quoting offered rates as
mentioned in this sentence, the 'Commercial Paper Rate' for such Interest Reset
Period will be the same as the Commercial Paper Rate for the immediately
preceding Interest Reset Period (or, if there was no such Interest Reset Period,
the Initial Pass-Through Rate).
'Money Market Yield' shall be a yield calculated in accordance with the
following formula:
D X 360 X 100
-------------
Money Market Yield = 360 - (D X M)
where 'D' refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and 'M' refers to the actual
number of days in the specified Index Maturity.
The 'Calculation Date' pertaining to any Commercial Paper Rate
Determination Date shall be the first to occur of (a) the tenth calendar day
after such Commercial Paper Rate Determination Date or, if such day is not a
Business Day, the next succeeding Business Day or (b) the second Business Day
preceding the date any distribution of interest is required to be made following
the applicable Interest Reset Date.
(3) Federal Funds Rate Certificates. Each Federal Funds Rate Certificate
will bear interest for each Interest Reset Period at the Pass-Through Rate
calculated with reference to the Federal Funds Rate and the Spread or Spread
Multiplier, if any, specified in such Certificate and in the applicable
Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the
'Federal Funds Rate' for each Interest Reset Period shall be the effective rate
on the Interest Reset Date for such Interest Reset Period (a 'Federal Funds Rate
Determination Date') for Federal Funds as published in H.15(519) under the
heading 'Federal Funds (Effective).' In the event that such rate is not
published prior to 3:00 p.m., New York City time, on the Calculation Date (as
defined below) pertaining to such Federal Funds Rate Determination Date, the
'Federal Funds Rate' for such Interest Reset Period shall be the rate on such
Federal Funds Rate Determination Date as published in Composite Quotations under
the heading 'Federal Funds/Effective Rate.' If by 3:00 p.m., New York City time,
on such Calculation Date such rate is not yet published in either H.15(519) or
Composite Quotations, then the 'Federal Funds Rate' for such Interest Reset
Period shall be the rate on such Federal Funds Rate Determination Date made
publicly available by the Federal Reserve Bank of New York which is equivalent
to the rate which appears in H.15(519) under the heading 'Federal Funds
(Effective)'; provided, however, that if such rate is not made publicly
available by the Federal Reserve Bank of New York by 3:00 p.m., New York City
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time, on such Calculation Date, the 'Federal Funds Rate' for such Interest Reset
Period will be the same as the Federal Funds Rate in effect for the immediately
preceding Interest Reset Period (or, if there was no such Interest Reset Period,
the Initial Pass-Through Rate). Unless otherwise specified in the applicable
Prospectus Supplement, in the case of a Federal Funds Rate Certificate that
resets daily, the Pass-Through Rate on such Certificate for the period from and
including a Monday to but excluding the succeeding Monday will be reset by the
Calculation Agent for such Certificate on such second Monday (or, if not a
Business Day, on the next succeeding Business Day) to a rate equal to the
average of the Federal Funds Rates in effect with respect to each such day in
such week.
The 'Calculation Date' pertaining to any Federal Funds Rate Determination
Date shall be the next succeeding Business Day.
(4) LIBOR Certificates. Each LIBOR Certificate will bear interest for each
Interest Reset Period at the Pass-Through Rate calculated with reference to
LIBOR and the Spread or Spread Multiplier, if any, specified in such Certificate
and in the applicable Prospectus Supplement.
With respect to LIBOR indexed to the offered rates for U.S. dollar
deposits, unless otherwise specified in the applicable Prospectus Supplement,
'LIBOR' for each Interest Reset Period will be determined by the Calculation
Agent for any LIBOR Certificate as follows:
(i) On the second London Banking Day prior to the Interest Reset Date
for such Interest Reset Period (a 'LIBOR Determination Date'), the
Calculation Agent for such LIBOR Certificate will determine the arithmetic
mean of the offered rates for deposits in U.S. dollars for the period of
the Index Maturity specified in the applicable Prospectus Supplement,
commencing on such Interest Reset Date, which appear on the Reuters Screen
LIBO Page at approximately 11:00 a.m., London time, on such LIBOR
Determination Date. 'Reuters Screen LIBO Page' means the display designated
as page 'LIBOR' on the Reuters Monitor Money Rates Service (or such other
page may replace the LIBO page on that service for the purpose of
displaying London interbank offered rates of major banks). If at least two
such offered rates appear on the Reuters Screen LIBO Page, 'LIBOR' for such
Interest Reset Period will be the arithmetic mean of such offered rates as
determined by the Calculation Agent for such LIBOR Certificate.
(ii) If fewer than two offered rates appear on the Reuters Screen LIBO
Page on such LIBOR Determination Date, the Calculation Agent for such LIBOR
Certificate will request the principal London offices of each of four major
banks in the London interbank market selected by such Calculation Agent to
provide such Calculation Agent with its offered quotations for deposits in
U.S. dollars for the period of the specified Index Maturity, commencing on
such Interest Reset Date, to prime banks in the London interbank market at
approximately 11:00 a.m., London time, on such LIBOR Determination Date and
in a principal amount equal to an amount of not less than $1,000,000 that
is representative of a single transaction in such market at such time. If
at least two such quotations are provided, 'LIBOR' for such Interest Reset
Period will be the arithmetic mean of such quotations. If fewer than two
such quotations are provided, 'LIBOR' for such Interest Reset Period will
be the arithmetic mean of rates quoted by three major banks in The City of
New York selected by the Calculation Agent for such LIBOR Certificate at
approximately 11:00 a.m., New York City time, on such LIBOR Determination
Date for loans in U.S. dollars to leading European banks, for the period of
the specified Index Maturity, commencing on such Interest Reset Date, and
in a principal amount equal to an amount of not less than $1,000,000 that
is representative of a single transaction in such market at such time;
provided, however, that if fewer than three banks selected as aforesaid by
such Calculation Agent are quoting rates as mentioned in this sentence,
'LIBOR' for such Interest Reset Period will be the same as LIBOR for the
immediately preceding Interest Reset Period (or, if there was no such
Interest Reset Period, the Initial Pass-Through Rate).
If LIBOR with respect to any LIBOR Certificate is indexed to the offered
rates for deposits in a currency other than U.S. dollars, the applicable
Prospectus Supplement will set forth the method for determining such rate.
(5) Treasury Rate Certificates. Each Treasury Rate Certificate will bear
interest for each Interest Reset Period at the Pass-Through Rate calculated with
reference to the Treasury Rate and the Spread or Spread Multiplier, if any,
specified in such Certificate and in the applicable Prospectus Supplement.
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Unless otherwise specified in the applicable Prospectus Supplement, the
'Treasury Rate' for each Interest Reset Period will be the rate for the auction
held on the Treasury Rate Determination Date (as defined below) for such
Interest Reset Period of direct obligations of the United States ('Treasury
bills') having the Index Maturity specified in the applicable Prospectus
Supplement, as such rate shall be published in H.15(519) under the heading 'U.S.
Government Certificates-Treasury bills-auction average (investment)' or, in the
event that such rate is not published prior to 3:00 p.m., New York City time, on
the Calculation Date (as defined below) pertaining to such Treasury Rate
Determination Date, the auction average rate (expressed as a bond equivalent on
the basis of a year of 365 or 366 days, as applicable, and applied on a daily
basis) on such Treasury Rate Determination Date as otherwise announced by the
United States Department of the Treasury. In the event that the results of the
auction of Treasury bills having the specified Index Maturity are not published
or reported as provided above by 3:00 p.m., New York City time, on such
Calculation Date, or if no such auction is held on such Treasury Rate
Determination Date, then the 'Treasury Rate' for such Interest Reset Period
shall be calculated by the Calculation Agent for such Treasury Rate Certificate
and shall be a yield to maturity (expressed as a bond equivalent on the basis of
a year of 365 or 366 days, as applicable, and applied on a daily basis) of the
arithmetic mean of the secondary market bid rates, as of approximately 3:30
p.m., New York City time, on such Treasury Rate Determination Date, of three
leading primary United States government securities dealers selected by such
Calculation Agent for the issue of Treasury bills with a remaining maturity
closest to the specified Index Maturity; provided, however, that if the dealers
selected as aforesaid by such Calculation Agent are not quoting bid rates as
mentioned in this sentence, then the 'Treasury Rate' for such Interest Reset
Period will be the same as the Treasury Rate for the immediately preceding
Interest Reset Period (or, if there was no such Interest Reset Period, the
Initial Pass-Through Rate.)
The 'Treasury Rate Determination Date' for such Interest Reset Period will
be the day of the week in which the Interest Reset Date for such Interest Reset
Period falls on which Treasury bills would normally be auctioned. Treasury bills
are normally sold at auction on Monday of each week, unless that day is a legal
holiday, in which case the auction is normally held on the following Tuesday,
except that such auction may be held on the preceding Friday. If, as the result
of a legal holiday, an auction is so held on the preceding Friday, such Friday
will be the Treasury Rate Determination Date pertaining to the Interest Reset
Period commencing in the next succeeding week. Unless otherwise specified in the
applicable Prospectus Supplement, if an auction date shall fall on any day that
would otherwise be an Interest Reset Date for a Treasury Rate Certificate, then
such Interest Reset Date shall instead be the Business Day immediately following
such auction date.
The 'Calculation Date' pertaining to any Treasury Rate Determination Date
shall be the first to occur of (a) the tenth calendar day after such Treasury
Rate Determination Date or, if such a day is not a Business Day, the next
succeeding Business Day or (b) the second Business Day preceding the date any
distribution of interest is required to be made following the applicable
Interest Reset Date.
PRINCIPAL OF THE CERTIFICATES
Unless the related Prospectus Supplement provides otherwise, each
Certificate (other than certain Classes of Strip Certificates) will have a
'Certificate Principal Balance' which, at any time, will equal the maximum
amount that the holder thereof will be entitled to receive in respect of
principal out of the future cash flow on the Deposited Assets and other assets
included in the related Trust. Unless otherwise specified in the related
Prospectus Supplement, distributions generally will be applied to undistributed
accrued interest on, then to principal of, and then to premium (if any) on, each
such Certificate of the Class or Classes entitled thereto (in the manner and
priority specified in such Prospectus Supplement) until the aggregate
Certificate Principal Balance of such Class or Classes has been reduced to zero.
The outstanding Certificate Principal Balance of a Certificate will be reduced
to the extent of distributions of principal thereon, and, if applicable pursuant
to the terms of the related Series, by the amount of any net losses realized on
any Deposited Asset ('Realized Losses') allocated thereto. Unless the related
Prospectus Supplement provides otherwise, the initial aggregate Certificate
Principal Balance of all Classes of Certificates of a Series will equal the
outstanding aggregate principal balance of the related Deposited Assets as of
the applicable Cut-off Date. The initial aggregate Certificate Principal Balance
of a Series and each Class thereof will be specified in the related Prospectus
Supplement. Distributions of principal of any Class of Certificates will be made
on a pro rata basis among all the Certificates of such Class. Strip Certificates
with no Certificate Principal Balance will not receive distributions of
principal.
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FOREIGN CURRENCY CERTIFICATES
If the specified currency of any Certificate is not U.S. dollars (a
'Foreign Currency Certificate'), certain provisions with respect thereto will be
set forth in the related Prospectus Supplement which will specify the
denominations, the currency or currencies in which the principal and interest
with respect to such Certificate are to be paid and any other terms and
conditions relating to the non-U.S. dollar denominations or otherwise applicable
to the Certificates.
INDEXED CERTIFICATES
From time to time, the Issuer may offer a Series of Certificates ('Indexed
Certificates'), the principal amount payable at the stated maturity date of
which (the 'Indexed Principal Amount') and/or interest with respect to which is
determined by reference to (i) the rate of exchange between the specified
currency for such Certificate and the other currency or composite currency (the
'Indexed Currency') specified therein; (ii) the difference in the price of a
specified commodity (the 'Indexed Commodity') on specified dates; (iii) the
difference in the level of a specified stock index (the 'Stock Index'), which
may be based on U.S. or foreign stocks, on specified dates; or (iv) such other
objective price or economic measure as are described in the related Prospectus
Supplement. The manner of determining the Indexed Principal Amount of an Indexed
Certificate, and historical and other information concerning the Indexed
Currency, Indexed Commodity, Stock Index or other price or economic measure used
in such determination, will be set forth in the related Prospectus Supplement,
together with any information concerning tax consequences to the Holders of such
Indexed Certificates.
Except as otherwise specified in the related Prospectus Supplement,
interest on an Indexed Certificate will be payable based on the amount
designated in the related Prospectus Supplement as the 'Face Amount' of such
Indexed Certificate. The related Prospectus Supplement will describe whether the
principal amount of the related Indexed Certificate that would be payable upon
redemption or repayment prior to the stated maturity date will be the Face
Amount of such Indexed Certificate, the Indexed Principal Amount of such Indexed
Certificate at the time of redemption or repayment, or another amount described
in such Prospectus Supplement.
DUAL CURRENCY CERTIFICATES
Certificates may be issued as dual currency certificates ('Dual Currency
Certificates'), in which case payments of principal and/or interest in respect
of Dual Currency Certificates will be made in such currencies, and rates of
exchange will be calculated upon such bases, as indicated in the Certificates
and described in the related Prospectus Supplement. Other material terms and
conditions relating to Dual Currency Certificates will be set forth in the
Certificates and the related Prospectus Supplement.
OPTIONAL EXCHANGE
If a holder may exchange Certificates of any given Series for a pro rata
portion of the Deposited Assets, the applicable Prospectus Supplement will
designate such Series as an 'Exchangeable Series.' The terms upon which a holder
may exchange Certificates of any Exchangeable Series for a pro rata portion of
the Deposited Assets of the related Trust will be specified in the related
Prospectus Supplement; provided that any right of exchange shall be exercisable
only to the extent that such exchange would not be inconsistent with the
Depositor's and such Trust's continued satisfaction of the applicable
requirements for exemption under Rule 3a-7 under the Investment Company Act of
1940 and all applicable rules, regulations and interpretations thereunder. Such
terms may relate to, but are not limited to, the following:
(a) a requirement that the exchanging holder tender to the Trustee
Certificates of each Class within such Exchangeable Series;
(b) a minimum Certificate Principal Balance or Notional Amount, as
applicable, with respect to each Certificate being tendered for exchange;
(c) a requirement that the Certificate Principal Balance or Notional
Amount, as applicable, of each Certificate tendered for exchange be an
integral multiple of an amount specified in the Prospectus Supplement;
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(d) specified dates during which a holder may effect such an exchange
(each, an 'Optional Exchange Date');
(e) limitations on the right of an exchanging holder to receive any
benefit upon exchange from any Credit Support or other non-Underlying
Securities deposited in the applicable Trust; and
(f) adjustments to the value of the proceeds of any exchange based
upon the required prepayment of future expense allocations and the
establishment of a reserve for any anticipated Extraordinary Trust
Expenses.
Unless otherwise specified in the related Prospectus Supplement, in order
for a Certificate of a given Exchangeable Series (or Class within such
Exchangeable Series) to be exchanged by the applicable Certificateholder, the
Trustee for such Certificate must receive, at least 30 (or such shorter period
acceptable to the Trustee) but not more than 45 days prior to an Optional
Exchange Date (i) such Certificate with the form entitled 'Option to Elect
Exchange' on the reverse thereof duly completed, or (ii) in the case of
Registered Certificates, a telegram, telex, facsimile transmission or letter
from a member of a national securities exchange or the National Association of
Securities Dealers, Inc., the Depositary (in accordance with its normal
procedures) or a commercial bank or trust company in the United States setting
forth the name of the holder of such Registered Certificate, the Certificate
Principal Balance or Notional Amount of such Registered Certificate to be
exchanged, the certificate number or a description of the tenor and terms of
such Registration Certificate, a statement that the option to elect exchange is
being exercised thereby and a guarantee that the Registered Certificate to be
exchanged with the form entitled 'Option to Elect Exchange' on the reverse of
the Registered Certificate duly completed will be received by such Trustee not
later than five Business Days after the date of such telegram, telex, facsimile
transmission or letter. If the procedure described in clause (ii) of the
preceding sentence is followed, then such Registered Certificate and form duly
completed must be received by such Trustee by such fifth Business Day. Any
tender of a Certificate by the holder for exchange shall be irrevocable. The
exchange option may be exercised by the holder of a Certificate for less than
the entire Certificate Principal Balance of such Certificate provided that the
Certificate Principal Balance or Notional Amount, as applicable, of such
Certificate remaining outstanding after redemption is an authorized denomination
and all other exchange requirements set forth in the related Prospectus
Supplement are satisfied. Upon such partial exchange, such Certificate shall be
cancelled and a new Certificate or Certificates for the remaining Certificate
Principal Balance thereof shall be issued (which, in the case of any Registered
Certificate, shall be in the name of the holder of such exchanged Certificate).
Unless otherwise specified in the applicable Prospectus Supplement, because
initially and until Definitive Certificates are issued each Certificate will be
represented by a Global Security, the Depositary's nominee will be the
Certificateholder of such Certificate and therefore will be the only entity that
can exercise a right of exchange. In order to ensure that the Depositary's
nominee will timely exercise a right of exchange with respect to a particular
Certificate, the beneficial owner of such Certificate must instruct the broker
or other direct or indirect participant through which it holds an interest in
such Certificate to notify the Depositary of its desire to exercise a right of
exchange. Different firms have different cut-off times for accepting
instructions from their customers and, accordingly, each beneficial owner should
consult the broker or other direct or indirect participant through which it
holds an interest in a Certificate in order to ascertain the cut-off time by
which such an instruction must be given in order for timely notice to be
delivered to the Depositary.
Unless otherwise provided in the applicable Prospectus Supplement, upon the
satisfaction of the foregoing conditions and any applicable conditions with
respect to the related Deposited Assets, as described in such Prospectus
Supplement, the applicable Certificateholder will be entitled to receive a
distribution of a pro rata share of the Deposited Assets related to the
Exchangeable Series (and Class within such Exchangeable Series) of the
Certificate being exchanged, in the manner and to the extent described in such
Prospectus Supplement. Alternatively, to the extent so specified in the
applicable Prospectus Supplement, the applicable Certificateholder, upon
satisfaction of such conditions, may direct the related Trustee to sell, on
behalf of such Certificateholder, such pro rata share of the Deposited Assets,
in which event the Certificateholder shall be entitled to receive the net
proceeds of such sale, less any costs and expenses incurred by such Trustee in
facilitating such sale, subject to any additional adjustments set forth in the
Prospectus Supplement.
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GLOBAL SECURITIES
Unless otherwise specified in the applicable Prospectus Supplement, all
Certificates of a given Series (or, if more than one Class exists, any given
Class within that Series) will, upon issuance, be represented by one or more
Global Securities that will be deposited with, or on behalf of, The Depository
Trust Company, York, New York (for Registered Certificates denominated and
payable in U.S. dollars), or such other depositary identified in the related
Prospectus Supplement (the 'Depositary'), and registered in the name of a
nominee of the Depositary. Global Securities may be issued in either temporary
or definitive form. Unless and until it is exchanged in whole or in part for the
individual Certificates represented thereby (each a 'Definitive Certificate'), a
Global Security may not be transferred except as a whole by the Depositary for
such Global Security to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by such
Depositary or any such nominee to a successor of such Depositary or a nominee of
such successor (Sections 5.02 and 5.04).
The Depository Trust Company has advised the Depositor as follows: The
Depositary Trust Company is a limited-purpose trust company organized under the
laws of the State of New York, a member of the Federal Reserve System, a
'clearing corporation' within the meaning of the New York Uniform Commercial
Code, and a 'clearing agency' registered pursuant to the provisions of Section
17A of the Exchange Act. The Depository Trust Company was created to hold
securities of its participants and to facilitate the clearance and settlement of
securities transactions among the institutions that have accounts with such
Depositary ('participants') in such securities through electronic book-entry
changes in accounts of the participants, thereby eliminating the need for
physical movement of securities certificates. Such Depositary's participants
include securities brokers and dealers (including the Offering Agent), banks,
trust companies, clearing corporations, and certain other organizations, some of
whom (and/or their representatives) own such Depositary. Access to such
Depositary's book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. The Depository
Trust Company has confirmed to the Depositor that it intends to follow such
procedures.
Upon the issuance of a Global Security, the Depositary for such Global
Security will credit, on its book-entry registration and transfer system, the
respective principal amounts of the individual Certificates represented by such
Global Security to the accounts of its participants. The accounts to be
accredited shall be designated by the underwriters of such Certificates, or, if
such Certificates are offered and sold directly through one or more agents, by
the Depositor or such agent or agents. Ownership of beneficial interests in a
Global Security will be limited to participants or Persons that may hold
beneficial interests through participants. Ownership of beneficial interests in
a Global Security will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the Depositary for such Global
Security or by participants or Persons that hold through participants. The laws
of some states require that certain purchasers of securities take physical
delivery of such securities. Such limits and such laws may limit the market for
beneficial interests in a Global Security.
So long as the Depositary for a Global Security, or its nominee, is the
owner of such Global Security, such Depositary or such nominee, as the case may
be, will be considered the sole Certificateholder of the individual Certificates
represented by such Global Security for all purposes under the Trust Agreement
governing such Certificates. Except as set forth below, owners of beneficial
interests in a Global Security will not be entitled to have any of the
individual Certificates represented by such Global Security registered in their
names, will not receive or be entitled to receive physical delivery of any such
Certificates and will not be considered the Certificateholder thereof under the
Trust Agreement governing such Certificates. Because the Depositary can only act
on behalf of its participants, the ability of a holder of any Certificate to
pledge that Certificate to persons or entities that do not participate in the
Depositary's system, or to otherwise act with respect to such Certificate, may
be limited due to the lack of a physical certificate for such Certificate.
Distributions of principal of (and premium, if any) and any interest on
individual Certificates represented by a Global Security will be made to the
Depositary or its nominee, as the case may be, as the Certificateholder of such
Global Security. None of the Depositor, the Administrative Agent, if any, the
Trustee for such Certificates, any Paying Agent or the Certificate Registrar for
such Certificates will have responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial interests in such
Global Security or for maintaining, supervising or reviewing any records
relating to such beneficial interests.
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The Depositor expects that the Depositary for Certificates of a given Class
and Series, upon receipt of any distribution of principal, premium or interest
in respect of a definitive Global Security representing any of such
Certificates, will credit immediately participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of such Global Security as shown on the records of such Depositary. The
Depositor also expects that payments by participants to owners of beneficial
interests in such Global Security held through such participants will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or registered
in 'street name,' and will be the responsibility of such participants.
If the Depositary for Certificates of a given Class of any Series is at any
time unwilling or unable to continue as depositary and a successor depositary is
not appointed by the Depositor within ninety days, the Depositor will issue
individual Definitive Certificates in exchange for the Global Security or
Securities representing such Certificates. In addition, the Depositor may at any
time and in its sole discretion determine not to have any Certificates of a
given Class represented by one or more Global Securities and, in such event,
will issue individual Definitive Certificates of such Class in exchange for the
Global Security or Securities representing such Certificates. Further, if the
Depositor so specifies with respect to the Certificates of a given Class, an
owner of a beneficial interest in a Global Security representing Certificates of
such Class may, on terms acceptable to the Depositor and the Depositary of such
Global Security, receive individual Definitive Certificates in exchange for such
beneficial interest. In any such instance, an owner of a beneficial interest in
a Global Security will be entitled to physical delivery of individual Definitive
Certificates of the Class represented by such Global Security equal in principal
amount to such beneficial interest and to have such Definitive Certificates
registered in its name (if the Certificates of such Class are issuable as
Registered Certificates). Individual Definitive Certificates of such Class so
issued will be issued as Registered Certificates in denominations, unless
otherwise specified by the Depositor, of $1,000 and integral multiples thereof
(Section 5.03).
The applicable Prospectus Supplement will set forth any specific terms of
the depositary arrangement with respect to any Class or Series of Certificates
being offered thereby to the extent not set forth or different from the
description set forth above.
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DESCRIPTION OF DEPOSITED ASSETS AND CREDIT SUPPORT
GENERAL
Each Certificate of each Series (or if more than one Class exists, each
Class (whether or not each such Class is offered hereby) within such Series)
will represent an ownership interest specified for such Series (or Class) of
Certificates in a designated, publicly issued, fixed income debt security or a
pool of such debt securities (the 'Underlying Securities'), purchased by the
Depositor (or an affiliate thereof) in the secondary market and assigned to a
Trust as described in the applicable Prospectus Supplement. Each Underlying
Security will represent (i) an obligation issued or guaranteed by the United
States of America or any agency thereof for the payment of which the full faith
and credit of the United States of America is pledged ('Treasury Securities'),
(ii) an obligation of one or more U.S. government sponsored entities created
pursuant to federal statute (a 'GSE'), (iii) Government Trust Certificates
('GTCs') (provided that such GTCs, together with any AID-Guaranteed Underlying
Securities (as defined below), shall not account for 20% or more of the
aggregate cash flows on the Underlying Securities securing any Series of
Certificates), or (iv) obligations guaranteed by the United States Agency for
International Development pursuant to the AID Housing Guaranty Program ('AID-
Guaranteed Underlying Securities') (provided that such AID-Guaranteed Underlying
Securities, together with any GTCs, shall not account for 20% or more of the
aggregate cash flows on the Underlying Securities securing any Series of
Certificates). As specified in the applicable Prospectus Supplement, the
obligations of one or more of the following GSEs may be included in a Trust:
Federal National Mortgage Association ('Fannie Mae'), Federal Home Loan Mortgage
Association ('Freddie Mac'), Student Loan Marketing Association ('Sallie Mae'),
Resolution Funding Corporation ('REFCORP'), Federal Home Loan Banks ('FHLB') (to
the extent such obligations represent the joint and several obligations of the
twelve Federal Home Loan Banks), Tennessee Valley Authority ('TVA') and Federal
Farm Credit Banks ('FFCB'). GSE debt securities are exempt from registration
under the Securities Act pursuant to Section 3(a)(2) of the Securities Act (or
are deemed by statute to be so exempt) and are not required to be registered
under the Exchange Act. The securities of any GSE will be included in a Trust
only to the extent (A) its obligations are supported by the full faith and
credit of the U.S. government or (B) such organization makes publicly available
its annual report, which shall include financial statements or similar financial
information with respect to such organization (a 'GSE Issuer'). GTCs and AID-
Guaranteed Obligations will have been registered under the Securities Act of
1933 (or will qualify for an exemption from registration) and will have been
acquired by the Depositor in purely secondary market transactions. Based on
information contained in the prospectus pursuant to which any GSE Issuer's
securities were originally offered (an 'Underlying Security Prospectus'), the
applicable Prospectus Supplement will set forth certain information with respect
to the public availability of information with respect to any GSE Issuer the
debt securities of which constitute more than ten percent of the Underlying
Securities for any Series of Certificates as of the date of such Prospectus
Supplement. The specific terms and conditions of the Underlying Securities will
be set forth in the related Prospectus Supplement.
This Prospectus relates only to the Certificates offered hereby and does
not relate to the Underlying Securities. The following description of the
Underlying Securities is intended only to summarize certain characteristics of
the Underlying Securities the Depositor is permitted to deposit in a Trust and
does not purport to be a complete description of any Underlying Security and is
qualified in its entirety by reference to the applicable Prospectus Supplement,
Underlying Security Prospectus, if any, and, to the extent applicable, the
statement of terms or similar document with respect to any Underlying Security.
UNDERLYING SECURITIES
General. Unless otherwise specified in the related Prospectus Supplement,
none of the Underlying Securities will have been issued pursuant to an
indenture, and no trustee is provided for with respect to any Underlying
Security. There will generally be a fiscal agent ('Fiscal Agent') for a GSE
Issuer with respect to any related Underlying Security whose actions will be
governed by a fiscal agency agreement. A Fiscal Agent is not a trustee for the
holders of the Underlying Securities and does not have the same responsibilities
or duties to act for the holders of a GSE's securities as would a trustee.
Unless otherwise specified in the related Prospectus Supplement, the Underlying
Securities with respect to any GSE Issuer will not be guaranteed by the United
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States and do not constitute a debt or obligation of the United States or of any
agency or instrumentality thereof other than the related GSE.
Contractual and Statutory Restrictions. A GSE Issuer and the related
Underlying Securities may be subject to certain contractual and statutory
restrictions which may provide some protection to securityholders against the
occurrence or effects of certain specified events. Unless otherwise specified in
the related Prospectus Supplement, each GSE is limited to such activities as
will promote its statutory purposes as set forth in the publicly available
information with respect to such issuer. See 'Description of the Deposited
Assets--Publicly Available Information' in the related Prospectus Supplement. A
GSE's promotion of its statutory purposes, as well as its statutory, structural
and regulatory relationships with the federal government may cause or require
such GSE to conduct its business in a manner that differs from that an
enterprise which is not a GSE might employ.
Neither the United States nor any agency thereof is obligated to finance
any GSE Issuer's operations or to assist a GSE Issuer in any manner. Prospective
purchasers should consult the publicly available information with respect to
each GSE Issuer for a more detailed description of the regulatory and statutory
restrictions on the related GSE's activities.
Events of Default. Underlying Securities issued by a GSE Issuer may
provide that any one of a number of specified events will constitute an event of
default with respect thereto. Such events of default typically include the
following or variations thereof: (i) failure by the issuer to pay an installment
of interest or principal on the securities at the time required (subject to any
specified grace period) or to redeem any of the securities when required
(subject to any specified grace period); (ii) failure by the issuer to observe
or perform any covenant, agreement or condition contained in the securities or
authorizing legislation or regulation, as the case may be, which failure is
materially adverse to securityholders and continues for a specified period after
notice thereof; and (iii) certain events of insolvency or bankruptcy with
respect to the GSE Issuer. The Underlying Securities will generally provide
that, upon the occurrence of an event of default, the holders of not less than a
specified percentage of the outstanding securities may declare all or a portion
of the principal and accrued interest on the outstanding securities immediately
due and payable, subject to the issuer's right to cure, if applicable.
Each Underlying Security may include some, all or none of the foregoing
provisions or variations thereof or additional events of default not discussed
herein. The Prospectus Supplement with respect to any Series of Certificates
will describe the events of default under the Underlying Securities with respect
to any Concentrated Underlying Security ('Underlying Security Events of
Default') and applicable remedies with respect thereto. With respect to any
Trust comprised of a pool of securities, the applicable Prospectus Supplement
will describe certain common Underlying Security Events of Default with respect
to such pool. There can be no assurance that any such provision will protect the
Trust, as a holder of the Underlying Securities, against losses. If an
Underlying Security Event of Default occurs and the Trustee as a holder of the
Underlying Securities is entitled to vote or take such other action to declare
the principal amount of an Underlying Security and any accrued and unpaid
interest thereon to be due and payable, the Certificateholders' objectives may
differ from those of holders of other securities of the same series and class as
any Underlying Security ('Outstanding Debt Securities') in determining whether
to declare the acceleration of the Underlying Securities.
PRINCIPAL ECONOMIC TERMS OF UNDERLYING SECURITIES
Reference is made to the applicable Prospectus Supplement with respect to
each Series of Certificates for a description of the following terms, as
applicable, of any Concentrated Underlying Security: (i) the title and series of
such Underlying Securities, the aggregate principal amount, denomination and
form thereof; (ii) whether such securities are senior or subordinated to any
other obligations of the Underlying Securities Issuer; (iii) whether any of the
obligations are secured or unsecured and the nature of any collateral; (iv) the
limit, if any, upon the aggregate principal amount of such debt securities; (v)
the dates on which, or the range of dates within which, the principal of (and
premium, if any, on) such debt securities will be payable; (vi) the rate or
rates or the method of determination thereof, at which such Underlying
Securities will bear interest, if any ('Underlying Securities Rate'); the date
or dates from which such interest will accrue ('Underlying Securities Interest
Accrual Periods'); and the dates on which such interest will be payable
('Underlying Securities Payment Dates'); (vii) the obligation, if any, of the
Underlying Securities Issuer to redeem the securities pursuant to any sinking
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fund or analogous provisions, or at the option of a holder thereof, and the
periods within which or the dates on which, the prices at which and the terms
and conditions upon which such debt securities may be redeemed or repurchased,
in whole or in part, pursuant to such obligation; (viii) the periods within
which or the dates on which, the prices at which and the terms and conditions
upon which such debt securities may be redeemed, if any, in whole or in part, at
the option of the Underlying Securities Issuer; (ix) whether the Underlying
Securities were issued at a price lower than the principal amount thereof; (x)
if other than United States dollars, the foreign or composite currency in which
such debt securities are denominated, or in which payment of the principal of
(and premium, if any) or any interest on such Underlying Securities will be made
(the 'Underlying Securities Currency'), and the circumstances, if any, when such
currency of payment may be changed; (xi) material events of default or
restrictive covenants provided for with respect to such Underlying Securities;
(xii) the rating thereof, if any; and (xiii) any other material terms of such
Underlying Securities.
With respect to a Trust comprised of a pool of Underlying Securities, the
related Prospectus Supplement will describe the composition of the Underlying
Securities pool as of the Cutoff Date, certain material events of default or
restrictive covenants common to the Underlying Securities, and, on an aggregate,
percentage or weighted average basis, as applicable, the characteristics of the
pool with respect to the terms set forth in (ii), (iii), (v), (vi), (vii),
(viii) and (ix) of the preceding paragraph and any other material terms
regarding such pool of securities.
PUBLICLY AVAILABLE INFORMATION
In addition to the foregoing, with respect to each Concentrated Underlying
Security issued by a GSE Issuer the applicable Prospectus Supplement will
disclose the identity of the applicable obligor, and will describe the existence
and type of certain information that is made publicly available by each obligor
regarding such Underlying Security or Underlying Securities and will disclose
where and how prospective purchasers of the Certificates may obtain such
publicly available information with respect to each such obligor. Such
information will typically consist of such obligor's annual report, which
contains financial statements or similar financial information, and can be
obtained from the Commission, if so specified in the applicable Prospectus
Supplement, or from the office of such obligor identified in the related
Prospectus Supplement. However, the precise nature of such publicly available
information and where and how it may be obtained with respect to any given GSE
Issuer will vary, and, as described above, will be set forth in the applicable
Prospectus Supplement with respect to any such obligor.
OTHER DEPOSITED ASSETS
In addition to the Underlying Securities, the Depositor may also deposit
into a given Trust, or the Trustee on behalf of the Certificateholders of a
Trust may enter into an agreement constituting or providing for the purchase of,
to the extent described in the related Prospectus Supplement, certain assets
related or incidental to one or more of such Underlying Securities or to some
other asset deposited in the Trust, including hedging contracts and other
similar arrangements (such as puts, calls, interest rate swaps, currency swaps,
floors, caps and collars, cash and assets ancillary or incidental to the
foregoing or to the Underlying Securities (including assets obtained through
foreclosure or in settlement of claims with respect thereto) (all such assets
for any given Series, together with the related Underlying Securities, the
'Deposited Assets'). The applicable Prospectus Supplement will, to the extent
appropriate, contain analogous disclosure with respect to the foregoing assets
as referred to above with respect to the Underlying Securities.
Unless otherwise specified in the related Prospectus Supplement, the
Deposited Assets for a given Series of Certificates and the related Trust will
not constitute Deposited Assets for any other Series of Certificates and the
related Trust and the Certificates of each Class of a given Series possess an
equal and ratable undivided ownership interest in such Deposited Assets. The
applicable Prospectus Supplement may, however, specify that certain assets
constituting a part of the Deposited Assets relating to any given Series may be
beneficially owned solely by or deposited solely for the benefit of one Class or
a group of Classes within such Series. In such event, the other Classes of such
Series will not possess any beneficial ownership interest in those specified
assets constituting a part of the Deposited Assets.
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CREDIT SUPPORT
As specified in the applicable Prospectus Supplement for a given Series of
Certificates, the Trust for any Series of Certificates may include, or the
Certificateholders of such Series (or any Class or group of Classes within such
Series) may have the benefit of, Credit Support for any Class or group of
Classes within such Series. Such Credit Support may be provided by any
combination of the following means described below or any other means described
in the applicable Prospectus Supplement. The applicable Prospectus Supplement
will set forth whether the Trust for any Class or group of Classes of
Certificates contains, or the Certificateholders of such Certificates have the
benefit of, Credit Support and, if so, the amount, type and other relevant terms
of each element of Credit Support with respect to any such Class or Classes and
certain information with respect to the obligors of each such element, including
financial information with respect to any such obligor providing Credit Support
for 20% or more of the aggregate principal amount of such Class or Classes.
Subordination. As discussed below under '--Collections,' the rights of the
Certificateholders of any given Class within a Series of Certificates to receive
collections from the Trust for such Series and any Credit Support obtained for
the benefit of the Certificateholders of such Series (or Classes within such
Series) may be subordinated to the rights of the Certificateholders of one or
more other Classes of such Series to the extent described in the related
Prospectus Supplement. Such subordination accordingly provides some additional
credit support to those Certificateholders of those other Classes. For example,
if losses are realized during a given period on the Deposited Assets relating to
a Series of Certificates such that the collections received thereon are
insufficient to make all distributions on the Certificates of such Series, those
realized losses would be allocated to the Certificateholders of any Class of
such Series that is subordinated to another Class, to the extent and in the
manner provided in the related Prospectus Supplement. In addition, if so
provided in the applicable Prospectus Supplement, certain amounts otherwise
payable to Certificateholders of any Class that is subordinated to another Class
may be required to be deposited into a reserve account. Amounts held in any
reserve account may be applied as described below under '--Reserve Accounts' and
in the related Prospectus Supplement.
If so provided in the related Prospectus Supplement, the Credit Support for
any Series or Class of Certificates may include, in addition to the
subordination of certain Classes of such Series and the establishment of a
reserve account, any of the other forms of Credit Support described below. Any
such other forms of Credit Support that are solely for the benefit of a given
Class will be limited to the extent necessary to make required distributions to
the Certificateholders of such Class or as otherwise specified in the related
Prospectus Supplement. In addition, if so provided in the applicable Prospectus
Supplement, the obligor of any other forms of Credit Support may be reimbursed
for amounts paid pursuant to such Credit Support out of amounts otherwise
payable to one or more of the Classes of the Certificates of such Series.
Letter of Credit; Surety Bond. The Certificateholders of any Series (or
Class or group of Classes of Certificates within such Series) may, if specified
in the applicable Prospectus Supplement, have the benefit of a letter or letters
of credit (a 'Letter of Credit') issued by a bank (a 'Letter of Credit Bank') or
a surety bond or bonds (a 'Surety Bond') issued by a surety company (a
'Surety'). In either case, the Trustee or such other person specified in the
applicable Prospectus Supplement will use its reasonable efforts to cause the
Letter of Credit or the Surety Bond, as the case may be, to be obtained, to be
kept in full force and effect (unless coverage thereunder has been exhausted
through payment of claims) and to pay timely the fees or premiums therefor
unless, as described in the related Prospectus Supplement, the payment of such
fees or premiums is otherwise provided for. The Trustee or such other person
specified in the applicable Prospectus Supplement will make or cause to be made
draws under the Letter of Credit or the Surety Bond, as the case may be, under
the circumstances and to cover the amounts specified in the applicable
Prospectus Supplement. Any amounts otherwise available under the Letter of
Credit or the Surety Bond will be reduced to the extent of any prior
unreimbursed draws thereunder. The applicable Prospectus Supplement will provide
the manner, priority and source of funds by which any such draws are to be
repaid.
Unless otherwise specified in the applicable Prospectus Supplement, in the
event that the Letter of Credit Bank or the Surety, as applicable, ceases to
satisfy any credit rating or other applicable requirements specified in the
related Prospectus Supplement, the Trustee or such other person specified in the
applicable Prospectus Supplement will use its reasonable efforts to obtain or
cause to be obtained a substitute Letter of Credit or Surety Bond, as
applicable, or other form of credit enhancement providing similar protection,
that meets such
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requirements and provides the same coverage to the extent available for the same
cost. There can be no assurance that any Letter of Credit Bank or any Surety, as
applicable, will continue to satisfy such requirements or that any such
substitute Letter of Credit, Surety Bond or similar credit enhancement will be
available providing equivalent coverage for the same cost. To the extent not so
available, the credit support otherwise provided by the Letter of Credit or the
Surety Bond (or similar credit enhancement) may be reduced to the level
otherwise available for the same cost as the original Letter of Credit or Surety
Bond.
Reserve Accounts. If so provided in the related Prospectus Supplement, the
Trustee or such other person specified in the Prospectus Supplement will deposit
or cause to be deposited into an account maintained with an eligible institution
(which may be the Trustee) (a 'Reserve Account') any combination of cash or
permitted investments in specified amounts, which will be applied and maintained
in the manner and under the conditions specified in such Prospectus Supplement.
In the alternative or in addition to such deposit, a Reserve Account may be
funded through application of a portion of collections received on the Deposited
Assets for a given Series of Certificates, in the manner and priority specified
in the applicable Prospectus Supplement. Amounts may be distributed to
Certificateholders of such Class or group of Classes within such Series, or may
be used for other purposes, in the manner and to the extent provided in the
related Prospectus Supplement. Amounts deposited in any Reserve Account will be
invested in certain permitted investments by, or at the direction of, the
Trustee, the Depositor or such other person named in the related Prospectus
Supplement.
COLLECTIONS
The Trust Agreement will establish procedures by which the Trustee or such
other person specified in the Prospectus Supplement is obligated, for the
benefit of the Certificateholders of each Series of Certificates, to administer
the related Deposited Assets, including making collections of all payments made
thereon, depositing from time to time prior to any applicable Distribution Date
such collections into a segregated account maintained or controlled by the
applicable Trustee for the benefit of such Series (each a 'Certificate
Account'). An Administrative Agent, if any is appointed pursuant to the
applicable Prospectus Supplement, will direct the Trustee, and otherwise the
Trustee will make all determinations, as to the appropriate application of such
collections and other amounts available for distribution to the payment of any
administrative or collection expenses (such as the administrative fee) and
certain Credit Support-related ongoing fees (such as insurance premiums, letter
of credit fees or any required account deposits) and to the payment of amounts
then due and owing on the Certificates of such Series (and Classes within such
Series), all in the manner and priorities described in the related Prospectus
Supplement. The applicable Prospectus Supplement will specify the collection
periods, if applicable, and Distribution Dates for a given Series of
Certificates and the particular requirements relating to the segregation and
investment of collections received on the Deposited Assets during a given
collection period or on or by certain specified dates. There can be no assurance
that amounts received from the Deposited Assets and any Credit Support obtained
for the benefit of Certificateholders for a particular Series or Class of
Certificates over a specified period will be sufficient, after payment of all
prior expenses and fees for such period, to pay amounts then due and owing to
holders of such Certificates. The applicable Prospectus Supplement will also set
forth the manner and priority by which any Realized Loss will be allocated among
the Classes of any Series of Certificates, if applicable.
The relative priorities of distributions with respect to collections from
the assets of the Trust assigned to Classes of a given Series of Certificates
may permanently or temporarily change over time upon the occurrence of certain
circumstances specified in the applicable Prospectus Supplement. Moreover, the
applicable Prospectus Supplement may specify that the relative distribution
priority assigned to each Class of a given Series for purposes of payments of
certain amounts, such as principal, may be different from the relative
distribution priority assigned to each such Class for payments of other amounts,
such as interest or premium.
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DESCRIPTION OF THE TRUST AGREEMENT
GENERAL
The following summary of certain provisions of the Trust Agreement and the
Certificates do not purport to be complete and such summary is qualified in its
entirety by reference to the detailed provisions of the form of Trust Agreement
filed as an exhibit to the Registration Statement. Article and section
references in parentheses below are to articles and sections in the Trust
Agreement. Wherever particular sections or defined terms of the Trust Agreement
are referred to, such sections or defined terms are incorporated herein by
reference as part of the statement made, and the statement is qualified in its
entirety by such reference.
ASSIGNMENT OF DEPOSITED ASSETS
At the time of issuance of any Series of Certificates, the Depositor will
cause the Underlying Securities to be included in the related Trust, and any
other Deposited Asset specified in the Prospectus Supplement, to be assigned to
the related Trustee, together with all principal, premium (if any) and interest
received by or on behalf of the Depositor on or with respect to such Deposited
Assets after the cut-off date specified in the Prospectus Supplement (the
'Cut-off Date'), other than principal, premium (if any) and interest due on or
before the Cut-off Date and other than any Retained Interest (Section 2.01). The
Trustee will, concurrently with such assignment, deliver the Certificates to the
Depositor in exchange for certain assets to be deposited in the Trust (Section
2.06). Each Deposited Asset will be identified in a schedule appearing as an
exhibit to the Trust Agreement. Such schedule will include certain statistical
information with respect to each Underlying Security and each other Deposited
Asset as of the Cut-off Date, and in the event any Underlying Security
represents ten percent or more of the total Underlying Securities with respect
to any Series of Certificates, such schedule will include, to the extent
applicable, information regarding the payment terms thereof, the Retained
Interest, if any, with respect thereto, the maturity or terms thereof, the
rating, if any, thereof and certain other information with respect thereto.
In addition, the Depositor will, with respect to each Deposited Asset,
deliver or cause to be delivered to the Trustee (or to the custodian hereinafter
referred to) all documents necessary to transfer ownership of such Deposited
Asset to the Trustee. The Trustee (or such custodian) will review such documents
upon receipt thereof or within such period as is permitted in the Prospectus
Supplement, and the Trustee (or such custodian) will hold such documents in
trust for the benefit of the Certificateholders (Sections 2.01 and 2.02).
Each of the Depositor and the Administrative Agent, if any, will make
certain representations and warranties regarding its authority to enter into,
and its ability to perform its obligations under, the Trust Agreement. Upon a
breach of any such representation of the Depositor or any such Administrative
Agent, as the case may be, which materially and adversely affects the interests
of the Certificateholders, the Depositor or any such Administrative Agent,
respectively, will be obligated to cure the breach in all material respects
(Section 2.05).
COLLECTION AND OTHER ADMINISTRATIVE PROCEDURES
General. With respect to any Series of Certificates the Trustee or such
other person specified in the Prospectus Supplement directly or through
sub-administrative agents, will make reasonable efforts to collect all scheduled
payments under the Deposited Assets and will follow or cause to be followed such
collection procedures, if any, as it would follow with respect to comparable
financial assets that it held for its own account, provided that such procedures
are consistent with the Trust Agreement and any related instrument governing any
Credit Support (collectively, the 'Credit Support Instruments') and provided
that, except as otherwise expressly set forth in the applicable Prospectus
Supplement, it shall not be required to expend or risk its own funds or
otherwise incur personal financial liability.
Sub-Administration. Any Trustee or Administrative Agent may delegate its
obligations in respect of the Deposited Assets to third parties they deem
qualified to perform such obligations (each, a 'Sub-Administrative Agent'), but
the Trustee or Administrative Agent will remain obligated with respect to such
obligations under the Trust Agreement. Each Sub-Administrative Agent will be
required to perform the customary functions of an administrator of comparable
financial assets, including, if applicable, collecting payments from obligors
and remitting such collections to the Trustee; maintaining accounting records
relating to the Deposited Assets,
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attempting to cure defaults and delinquencies; and enforcing any other remedies
with respect thereto all as and to the extent provided in the applicable
Sub-Administration Agreement (as defined below).
The agreement between any Administrative Agent or Trustee and a
Sub-Administrative Agent (a 'Sub-Administration Agreement') will be consistent
with the terms of the Trust Agreement and such assignment to the
Sub-Administrator by itself will not result in a withdrawal or downgrading of
the rating of any Class of Certificates issued pursuant to the Trust Agreement.
With respect to any Sub-Administrative Agreement between an Administrative Agent
and a Sub-Administrative Agent, although each such Sub-Administration Agreement
will be a contract solely between such Administrative Agent and the
Sub-Administrative Agent, the Trust Agreement pursuant to which a Series of
Certificates is issued will provide that, if for any reason such Administrative
Agent for such Series of Certificates is no longer acting in such capacity, the
Trustee or any successor Administrative Agent must recognize the
Sub-Administrative Agent's rights and obligations under such Sub-Administration
Agreement.
The Administrative Agent or Trustee, as applicable, will be solely liable
for all fees owed by it to any Sub-Administrative Agent, irrespective of whether
the compensation of the Administrative Agent or Trustee, as applicable, pursuant
to the Trust Agreement with respect to the particular Series of Certificates is
sufficient to pay such fees. However, a Sub-Administrative Agent may be entitled
to a Retained Interest in certain Deposited Assets to the extent provided in the
related Prospectus Supplement. Each Sub-Administrative Agent will be reimbursed
by the Administrative Agent, if any, or otherwise the Trustee for certain
expenditures which it makes, generally to the same extent the Administrative
Agent or Trustee, as applicable, would be reimbursed under the terms of the
Trust Agreement relating to such Series. See '--Retained Interest;
Administrative Agent Compensation and Payment of Expenses.'
The Administrative Agent or Trustee, as applicable, may require any
Sub-Administrative Agent to agree to indemnify the Administrative Agent or
Trustee, as applicable, for any liability or obligation sustained by the
Administrative Agent or Trustee, as applicable, in connection with any act or
failure to act by the Sub-Administrative Agent.
Realization upon Defaulted Deposited Assets. Unless otherwise specified in
the applicable Prospectus Supplement, as administrator with respect to the
Deposited Assets, the Trustee, on behalf of the Certificateholders of a given
Series (or any Class or Classes within such Series), will present claims under
each applicable Credit Support Instrument, and will take such reasonable steps
as are necessary to receive payment or to permit recovery thereunder with
respect to defaulted Deposited Assets. As set forth above, all collections by or
on behalf of the Trustee or Administrative Agent under any Credit Support
Instrument are to be deposited in the Certificate Account for the related Trust,
subject to withdrawal as described above.
Unless otherwise provided in the applicable Prospectus Supplement, if
recovery on a defaulted Deposited Asset under any related Credit Support
Instrument is not available, the Trustee will be obligated to follow or cause to
be followed such normal practices and procedures as it deems necessary or
advisable to realize upon the defaulted Deposited Asset (Section 3.12), provided
that, except as otherwise expressly provided in the applicable Prospectus
Supplement, it shall not be required to expend or risk its own funds or
otherwise incur personal financial liability. If the proceeds of any liquidation
of the defaulted Deposited Asset are less than the sum of (i) the outstanding
principal balance of the defaulted Deposited Asset, (ii) interest accrued
thereon at the applicable interest rate and (iii) the aggregate amount of
expenses incurred by the Administrative Agent and the Trustee, as applicable, in
connection with such proceedings to the extent reimbursable from the assets of
the Trust under the Trust Agreement, the Trust will realize a loss in the amount
of such difference. Only if and to the extent provided in the applicable
Prospectus Supplement, the Administrative Agent or Trustee, as so provided, will
be entitled to withdraw or cause to be withdrawn from the related Certificate
Account out of the net proceeds recovered on any defaulted Deposited Asset,
prior to the distribution of such proceeds to Certificateholders, amounts
representing its normal administrative compensation on the Deposited Asset,
unreimbursed administrative expenses incurred with respect to the Deposited
Asset and any unreimbursed advances of delinquent payments made with respect to
the Deposited Asset (Section 3.12).
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RETAINED INTEREST; ADMINISTRATIVE AGENT COMPENSATION AND PAYMENT OF EXPENSES
The Prospectus Supplement for a Series of Certificates will specify whether
there will be any Retained Interest in the Deposited Assets, and, if so, the
owner thereof. If so provided, the Retained Interest will be established on an
asset-by-asset basis and will be specified in an exhibit to the applicable
series supplement to the Trust Agreement. A Retained Interest in a Deposited
Asset represents a specified interest therein. Payments in respect of the
Retained Interest will be deducted from payments on the Deposited Assets as
received and, in general, will not be deposited in the applicable Certificate
Account or become a part of the related Trust. Unless otherwise provided in the
applicable Prospectus Supplement, any partial recovery of interest on a
Deposited Asset, after deduction of all applicable administration fees, will be
allocated between the Retained Interest (if any) and interest distributions to
Certificateholders on a pari passu basis.
The applicable Prospectus Supplement will specify the Administrative
Agent's, if any, and the Trustee's compensation, and the source, manner and
priority of payment thereof, with respect to a given Series of Certificates.
If and to the extent specified in the applicable Prospectus Supplement, in
addition to amounts payable to any Sub-Administrative Agent, the Administrative
Agent, if any, and otherwise the Trustee will pay from its compensation certain
expenses incurred in connection with its administration of the Deposited Assets,
including, without limitation, payment of the fees and disbursements of the
Trustee, if applicable, and independent accountants, payment of expenses
incurred in connection with distributions and reports to Certificateholders, and
payment of any other expenses described in the related Prospectus Supplement
(Section 3.14).
ADVANCES IN RESPECT OF DELINQUENCIES
Unless otherwise specified in the applicable Prospectus Supplement, the
Administrative Agent, if any, specified therein will have no obligation to make
any advances with respect to collections on the Deposited Assets or in favor of
the Certificateholders of the related Series of Certificates. However, to the
extent provided in the applicable Prospectus Supplement, any such Administrative
Agent will advance on or before each Distribution Date its own funds or funds
held in the Certificate Account for such Series that are not part of the funds
available for distribution for such Distribution Date, in an amount equal to the
aggregate of payments of principal, premium (if any) and interest (net of
related administration fees and any Retained Interest) with respect to the
Deposited Assets that were due during the related Collection Period and were
delinquent on the related Determination Date, subject to (i) any such
Administrative Agent's good faith determination that such advances will be
reimbursable from Related Proceeds (as defined below) and (ii) such other
conditions as may be specified in the Prospectus Supplement.
Advances are intended to maintain a regular flow of scheduled interest,
premium (if any) and principal payments to holders of the Class or Classes of
Certificates entitled thereto, rather than to guarantee or insure against
losses. Unless otherwise provided in the related Prospectus Supplement, advances
of an Administrative Agent's funds, if any, will be reimbursable only out of
related recoveries on the Deposited Assets (and amounts received under any form
of Credit Support) for such Series with respect to which such advances were made
(as to any Deposited Assets, 'Related Proceeds'); provided, however, that any
such advance will be reimbursable from any amounts in the Certificate Account
for such Series to the extent that such Administrative Agent shall determine, in
its sole judgment, that such advance (a 'Nonrecoverable Advance') is not
ultimately recoverable from Related Proceeds. If advances have been made by such
Administrative Agent from excess funds in the Certificate Account for any
Series, such Administrative Agent will replace such funds in such Certificate
Account on any future Distribution Date to the extent that funds in such
Certificate Account on such Distribution Date are less than payments required to
be made to Certificateholders on such date (Section 4.03). If so specified in
the related Prospectus Supplement, the obligations, if any, of an Administrative
Agent to make advances may be secured by a cash advance reserve fund or a surety
bond. If applicable, information regarding the characteristics of, and the
identity of any obligor on, any such surety bond, will be set forth in the
related Prospectus Supplement.
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CERTAIN MATTERS REGARDING THE ADMINISTRATIVE AGENT AND THE DEPOSITOR
An Administrative Agent, if any, for each Series of Certificates under the
Trust Agreement will be named in the related Prospectus Supplement. The entity
serving as Administrative Agent for any such Series may be the Trustee, the
Depositor, an affiliate of either thereof, the Deposited Asset Provider or any
third party and may have other normal business relationships with the Trustee,
the Depositor, their affiliates or the Deposited Asset Provider.
The Trust Agreement will provide that an Administrative Agent may resign
from its obligations and duties under the Trust Agreement with respect to any
Series of Certificates only if such resignation, and the appointment of a
successor, will not result in a withdrawal or downgrading of the rating of any
Class of Certificates of such Series or upon a determination that its duties
under the Trust Agreement with respect to such Series are no longer permissible
under applicable law. No such resignation will become effective until the
Trustee or a successor has assumed the Administrative Agent's obligations and
duties under the Trust Agreement with respect to such Series (Section 6.04).
The Trust Agreement will further provide that neither such an
Administrative Agent, the Depositor nor any director, officer, employee, or
agent or the Administrative Agent or the Depositor will incur any liability to
the related Trust or Certificateholders for any action taken, or for refraining
from taking any action, in good faith pursuant to the Trust Agreement or for
errors in judgment; provided, however, that none of the Administrative Agent,
the Depositor nor any such person will be protected against any liability that
would otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties thereunder or by reason of reckless
disregard of obligations and duties thereunder. The Trust Agreement will further
provide that, unless otherwise provided in the applicable series supplement
thereto, such an Administrative Agent, the Depositor and any director, officer,
employee or agent of the Administrative Agent or the Depositor will be entitled
to indemnification by the related Trust and will be held harmless against any
loss, liability or expense incurred in connection with any legal action relating
to the Trust Agreement or the Certificates, other than any loss, liability or
expense incurred by reason of willful misfeasance, bad faith or gross negligence
in the performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. In addition, the Trust Agreement will provide
that neither such an Administrative Agent nor the Depositor will be under any
obligation to appear in, prosecute or defend any legal action which is not
incidental to their respective responsibilities under the Trust Agreement or
which in its opinion may involve it in any expense or liability. Each of such
Administrative Agent or the Depositor may, however, in its discretion undertake
any such action which it may deem necessary or desirable with respect to the
Trust Agreement and the rights and duties of the parties thereto and the
interests of the Certificateholders thereunder (Section 6.03). The applicable
Prospectus Supplement will describe how such legal expenses and costs of such
action and any liability resulting therefrom will be allocated.
Any person into which an Administrative Agent may be merged or
consolidated, or any person resulting from any merger or consolidation to which
an Administrative Agent is a part, or any person succeeding to the business of
an Administrative Agent, will be the successor of the Administrative Agent under
the Trust Agreement with respect to the Certificates of any given Series
(Section 6.02).
ADMINISTRATIVE AGENT TERMINATION EVENTS; RIGHTS UPON ADMINISTRATIVE AGENT
TERMINATION EVENT
Unless otherwise provided in the related Prospectus Supplement,
'Administrative Agent Termination Events' under the Trust Agreement with respect
to any given Series of Certificates will consist of the following: (i) any
failure by an Administrative Agent to remit to the Trustee any funds in respect
of collections on the Deposited Assets and Credit Support, if any, as required
under the Trust Agreement, that continues unremedied for five days after the
giving of written notice of such failure to the Administrative Agent by the
Trustee or the Depositor, or to the Administrative Agent, the Depositor and the
Trustee by the holders of such Certificates evidencing not less than 25% of the
Voting Rights (as defined below); (ii) any failure by an Administrative Agent
duly to observe or perform in any material respect any of its other covenants or
obligations under the Trust Agreement with respect to such Series which
continues unremedied for thirty days after the giving of written notice of such
failure to the Administrative Agent by the Trustee or the Depositor, or to the
Administrative Agent, the Depositor and the Trustee by the holders of such
Certificates evidencing not less than 25% of the
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Voting Rights; and (iii) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings and certain actions
by or on behalf of an Administrative Agent indicating its insolvency or
inability to pay its obligations (Section 7.01). Any additional Administrative
Agent Termination Events with respect to any given Series of Certificates will
be set forth in the applicable Prospectus Supplement. In addition, the
applicable Prospectus Supplement and the related series supplement to the Trust
Agreement will specify as to each matter requiring the vote of holders of
Certificates of a Class or group of Classes within a given Series, the
circumstances and manner in which the Required Percentage (as defined below)
applicable to each such matter is calculated. 'Required Percentage' means, with
respect to any matter requiring a vote of holders of Certificates of a given
Series, the specified percentage (computed on the basis of outstanding
Certificate Principal Balance or Notional Amount, as applicable) of Certificates
of a designated Class or group of Classes within such Series (either voting as
separate classes or as a single class) applicable to such matter, all as
specified in the applicable Prospectus Supplement and the related series
supplement to the Trust Agreement. 'Voting Rights' evidenced by any Certificate
will be the portion of the voting rights of all the Certificates in the related
Series allocated in the manner described in the related Prospectus Supplement
(Article I).
Unless otherwise specified in the applicable Prospectus Supplement, so long
as an Administrative Agent Termination Event under the Trust Agreement with
respect to a given Series of Certificates remains unremedied, the Depositor or
the Trustee may, and at the direction of holders of such Certificates evidencing
not less than the 'Required Percentage--Administrative Agent Termination' of the
Voting Rights, the Trustee will, terminate all the rights and obligations of
such Administrative Agent under the Trust Agreement relating to the applicable
Trust and in and to the related Deposited Assets (other than any Retained
Interest of such Administrative Agent), whereupon the Trustee will succeed to
all the responsibilities, duties and liabilities of such Administrative Agent
under the Trust Agreement with respect to such Series (except that if the
Trustee is prohibited by law from obligating itself to make advances regarding
delinquent Deposited Assets, then the Trustee will not be so obligated) and will
be entitled to similar compensation arrangements. In the event that the Trustee
is unwilling or unable to act, it may or, at the written request of the holders
of such Certificates evidencing not less than the 'Required
Percentage--Administrative Agent Termination' of the Voting Rights, it will
appoint, or petition a court of competent jurisdiction for the appointment of,
an administration agent acceptable to the Rating Agency with a net worth at the
time of such appointment of at least $15,000,000 to act as successor to such
Administrative Agent under the Trust Agreement with respect to such Series.
Pending such appointment, the Trustee is obligated to act in such capacity
(except that if the Trustee is prohibited by law from obligating itself to make
advances regarding delinquent Deposited Assets, then the Trustee will not be so
obligated). The Trustee and any such successor may agree upon the compensation
be paid to such successor, which in no event may be greater than the
compensation payable to such Administrative Agent under the Trust Agreement with
respect to such Series (Sections 7.01 and 7.02).
No Certificateholder will have the right under the Trust Agreement to
institute any proceeding with respect thereto unless such holder previously has
given to the Trustee written notice of breach and unless the holders of
Certificates evidencing not less than the 'Required Percentage-Remedies' of the
Voting Rights have made written request upon the Trustee to institute such
proceeding in its own name as Trustee thereunder and have offered to the Trustee
reasonable indemnity, and the Trustee for fifteen days has neglected or refused
to institute any such proceeding (Section 10.03). The Trustee, however, is under
no obligation to exercise any of the trusts or powers vested in it by the Trust
Agreement or to make any investigation of matters arising thereunder or to
institute, conduct or defend any litigation thereunder or in relation thereto at
the request, order or direction of any of the holders of Certificates covered by
the Trust Agreement, unless such Certificateholders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby (Section 8.02).
MODIFICATION AND WAIVER
Unless otherwise specified in the applicable Prospectus Supplement, the
Trust Agreement for each Series of Certificates may be amended by the Depositor
and the Trustee with respect to such Series, without notice to or consent of the
Certificateholders, for certain purposes including (i) to cure any ambiguity,
(ii) to correct or supplement any provision therein which may be inconsistent
with any other provision therein or in the Prospectus Supplement, (iii) to add
or supplement any Credit Support for the benefit of any Certificateholders
(provided that
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if any such addition affects any series or class of Certificateholders
differently than any other series or class of Certificateholders, then such
addition will not, as evidenced by an opinion of counsel, have a material
adverse effect on the interests of any affected series or class of
Certificateholders), (iv) to add to the covenants, restrictions or obligations
of the Depositor, the Administrative Agent, if any, or the Trustee for the
benefit of the Certificateholders, (v) to add, change or eliminate any other
provisions with respect to matters or questions arising under such Trust
Agreement so long as (x) any such addition, change or elimination will not, as
evidenced by an opinion of counsel, affect the tax status of the Trust or result
in a sale or exchange of any Certificate for tax purposes and (y) the Trustee
has received written confirmation from each Rating Agency rating such
Certificates that such amendment will not cause such Rating Agency to reduce or
withdraw the then current rating thereof, or (vi) to comply with any
requirements imposed by the Code. Without limiting the generality of the
foregoing, unless otherwise specified in the applicable Prospectus Supplement,
the Trust Agreement may also be modified or amended from time to time by the
Depositor, and the Trustee, with the consent of the holders of Certificates
evidencing not less than the 'Required Percentage--Amendment' of the Voting
Rights of those Certificates that are materially adversely affected by such
modification or amendment for the purpose of adding any provision to or changing
in any manner or eliminating any provision of the Trust Agreement or of
modifying in any manner the rights of such Certificateholders; provided,
however, that in the event such modification or amendment would materially
adversely affect the rating of any Series or Class by each Rating Agency, the
'Required Percentage-- Amendment' specified in the related series supplement to
the Trust Agreement shall include an additional specified percentage of the
Certificates of such Series or Class.
Except as otherwise set forth in the applicable Prospectus Supplement, no
such modification or amendment may, however, (i) reduce in any manner the amount
of or alter the timing of, distributions or payments which are required to be
made on any Certificate without the consent of the holder of such Certificate or
(ii) reduce the aforesaid Required Percentage of Voting Rights required for the
consent to any such amendment without the consent of the holders of all
Certificates covered by the Trust Agreement then outstanding.
Unless otherwise specified in the applicable Prospectus Supplement, holders
of Certificates evidencing not less than the 'Required Percentage--Waiver' of
the Voting Rights of a given Series may, on behalf of all Certificateholders of
that Series, (i) waive, insofar as that Series is concerned, compliance by the
Depositor, the Trustee or the Administrative Agent, if any, with certain
restrictive provisions, if any, of the Trust Agreement before the time for such
compliance and (ii) waive any past default under the Trust Agreement with
respect to Certificates of that Series, except a default in the failure to
distribute amounts received as principal of (and premium, if any) or any
interest on any such Certificate and except a default in respect of a covenant
or provision the modification or amendment of which would require the consent of
the holder of each outstanding Certificate affected thereby (Section 7.04).
REPORTS TO CERTIFICATEHOLDERS; NOTICES
Reports to Certificateholders. Unless otherwise provided in the applicable
Prospectus Supplement, with each distribution to Certificateholders of any Class
of Certificates of a given Series, the Administrative Agent or the Trustee, as
provided in the related Prospectus Supplement, will forward or cause to be
forwarded to each such Certificateholder, to the Depositor and to such other
parties as may be specified in the Trust Agreement, a statement setting forth:
(i) the amount of such distribution to Certificateholders of such
Class allocable to principal of or interest or premium, if any, on the
Certificates of such Class; and the amount of aggregate unpaid interest as
of such Distribution Date;
(ii) in the case of Certificates with a variable Pass-Through Rate,
the Pass-Through Rate applicable to such Distribution Date, as calculated
in accordance with the method specified herein and in the related
Prospectus Supplement;
(iii) the amount of compensation received by the Administrative Agent,
if any, and the Trustee for the period relating to such Distribution Date,
and such other customary information as the Administrative Agent, if any,
or otherwise the Trustee deems necessary or desirable to enable
Certificateholders to prepare their tax returns;
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(iv) if the Prospectus Supplement provides for advances, the aggregate
amount of advances included in such distribution, and the aggregate amount
of unreimbursed advances at the close of business on such Distribution
Date;
(v) the aggregate stated principal amount or, if applicable, notional
principal amount of the Deposited Assets and the current interest rate
thereon at the close of business on such Distribution Date;
(vi) the aggregate Certificate Principal Balance or aggregate Notional
Amount, if applicable, of each Class of Certificates (including any Class
of Certificates not offered hereby) at the close of business on such
Distribution Date, separately identifying any reduction in such aggregate
Certificate Principal Balance or aggregate Notional Amount due to the
allocation of any Realized Losses or otherwise; and
(vii) as to any Series (or Class within such Series) for which Credit
Support has been obtained, the amount of coverage of each element of Credit
Support included therein as of the close of business on such Distribution
Date.
In the case of information furnished pursuant to subclauses (i) and (iii)
above, the amounts shall be expressed as a U.S. dollar amount (or equivalent
thereof in any other Specified Currency) per minimum denomination of
Certificates or for such other specified portion thereof. Within a reasonable
period of time after the end of each calendar year, the Administrative Agent or
the Trustee, as provided in the related Prospectus Supplement, shall furnish to
each person who at any time during the calendar year was a Certificateholder a
statement containing the information set forth in subclauses (i) and (iii)
above, aggregated for such calendar year or the applicable portion thereof
during which such person was a Certificateholder. Such obligation of the
Administrative Agent or the Trustee, as applicable, shall be deemed to have been
satisfied to the extent that substantially comparable information shall be
provided by the Administrative Agent or the Trustee, as applicable, pursuant to
any requirements of the Code as are from time to time in effect (Section 4.02).
Notices. Unless otherwise provided in the applicable Prospectus
Supplement, any notice required to be given to a holder of a Registered
Certificate will be mailed to the last address of such holder set forth in the
applicable Certificate Register.
EVIDENCE AS TO COMPLIANCE
Unless otherwise specified in the applicable Prospectus Supplement, the
Trust Agreement will provide that commencing on a certain date and on or before
a specified date in each year thereafter, a firm of independent public
accountants will furnish a statement to the Trustee to the effect that such firm
has examined certain documents and records relating to the administration of the
Deposited Assets during the related 12-month period (or, in the case of the
first such report, the period ending on or before the date specified in the
Prospectus Supplement, which date shall not be more than one year after the
related Original Issue Date) and that, on the basis of certain agreed upon
procedures considered appropriate under the circumstances, such firm is of the
opinion that such administration was conducted in compliance with the terms of
the Trust Agreement, except for such exceptions as such firm shall believe to be
immaterial and such other exceptions and qualifications as shall be set forth in
such report (Section 3.16).
The Trust Agreement will also provide for delivery to the Depositor, the
Administrative Agent, if any, and the Trustee on behalf of the
Certificateholders, on or before a specified date in each year, of an annual
statement signed by two officers of the Trustee to the effect that the Trustee
has fulfilled its obligations under the Trust Agreement throughout the preceding
year with respect to any Series of Certificates (Section 3.15).
Copies of the annual accountants' statement, if any, and the statement of
officers of the Trustee may be obtained by Certificateholders without charge
upon written request to either the Administrative Agent or the Trustee, as
applicable, at the address set forth in the related Prospectus Supplement.
REPLACEMENT CERTIFICATES
Unless otherwise provided in the applicable Prospectus Supplement, if a
Certificate is mutilated, destroyed, lost or stolen, it may be replaced at the
corporate trust office or agency of the applicable Trustee in the City and State
of New York, or such other location as may be specified in the applicable
Prospectus Supplement, upon
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payment by the holder of such expenses as may be incurred by the applicable
Trustee in connection therewith and the furnishing of such evidence and
indemnity as such Trustee may require. Mutilated Certificates must be
surrendered before new Certificates will be issued (Section 5.05).
TERMINATION
The obligations created by the Trust Agreement for each Series of
Certificates will terminate upon the payment to Certificateholders of that
Series of all amounts held in the related Certificate Account or by an
Administrative Agent, if any, and required to be paid to them pursuant to the
Trust Agreement following the earlier of (i) the final payment or other
liquidation of the last Deposited Asset subject thereto or the disposition of
all property acquired upon foreclosure or liquidation of any such Deposited
Asset and (ii) the purchase of all the assets of the Trust by the party entitled
to effect such termination, under the circumstances and in the manner set forth
in the related Prospectus Supplement. In no event, however, will any trust
created by the Trust Agreement continue beyond the respective date specified in
the related Prospectus Supplement. Written notice of termination of the
obligations with respect to the related Series of Certificates under the Trust
Agreement will be provided as set forth above under '--Reports to
Certificateholders; Notices--Notices,' and the final distribution will be made
only upon surrender and cancellation of the Certificates at an office or agency
appointed by the Trustee which will be specified in the notice of termination
(Section 9.01).
Any such purchase of Deposited Assets and property acquired in respect of
Deposited Assets evidenced by a Series of Certificates shall be made at a price
approximately equal to the aggregate fair market value of all the assets in the
Trust (as determined by the Trustee, the Administrative Agent, if any, and, if
different than both such persons, the person entitled to effect such
termination), in each case taking into account accrued interest at the
applicable interest rate to the first day of the month following such purchase
or, to the extent specified in the applicable Prospectus Supplement, a specified
price as determined therein (such price, a 'Purchase Price'). The exercise of
such right will effect early retirement of the Certificates of that Series, but
the right of the person entitled to effect such termination is subject to the
aggregate principal balance of the outstanding Deposited Assets for such Series
at the time of purchase being less than the percentage of the aggregate
principal balance of the Deposited Assets at the Cut-off Date for that Series
specified in the related Prospectus Supplement (Section 9.01).
DUTIES OF THE TRUSTEE
The Trustee makes no representations as to the validity or sufficiency of
the Trust Agreement, the Certificates of any Series or any Deposited Asset or
related document and is not accountable for the use or application by or on
behalf of any Administrative Agent of any funds paid to such Administrative
Agent or its designee in respect of such Certificates or the Deposited Assets,
or deposited into or withdrawn from the related Certificate Account or any other
account by or on behalf of such Administrative Agent (Section 8.03). If no
Administrative Agent Termination Event has occurred and is continuing with
respect to any given Series, the Trustee is required to perform only those
duties specifically required under the Trust Agreement with respect to such
Series. However, upon receipt of the various certificates, reports or other
instruments required to be furnished to it, the Trustee is required to examine
such documents and to determine whether they conform to the applicable
requirements of the Trust Agreement (Section 8.01).
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THE TRUSTEE
The Trustee for any given Series of Certificates under the Trust Agreement
will be named in the related Prospectus Supplement. The commercial bank,
national banking association or trust company serving as Trustee will be
unaffiliated with, but may have normal banking relationships with, the
Depositor, any Administrative Agent and their respective affiliates.
CURRENCY RISKS
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in a Certificate having a Specified Currency other than U.S.
dollars entails significant risks that are not associated with a similar
investment in a security denominated in U.S. dollars. Such risks include,
without limitation, the possibility of significant changes in rates of exchange
between the U.S. dollar and such Specified Currency and the possibility of the
imposition or modification of foreign exchange controls with respect to such
Specified Currency. Such risks generally depend on factors over which the
Depositor has no control, such as economic and political events and the supply
of and demand for the relevant currencies. In recent years, rates of exchange
between the U.S. dollar and certain currencies have been highly volatile, and
such volatility may be expected in the future. Fluctuations in any particular
exchange rate that have occurred in the past are not necessarily indicative,
however, of fluctuations in the rate that may occur during the term of any
Certificate. Depreciation of the Specified Currency for a Certificate against
the U.S. dollar would result in a decrease in the effective yield of such
Certificate below its Pass-Through Rate and, in certain circumstances, could
result in a loss to the investor on a U.S. dollar basis.
Governments have from time to time imposed, and may in the future impose,
exchange controls that could affect exchange rates as well as the availability
of a Specified Currency for making distributions in respect of Certificates
denominated in such currency. At present, the Depositor has identified the
following currencies in which distributions of principal, premium and interest
on Certificates may be made: Australian dollars, Canadian dollars, Danish
kroner, Italian lire, Japanese yen, New Zealand dollars, U.S. dollars and ECU.
However, Certificates distributable with Specified Currencies other than those
listed may be issued at any time. There can be no assurance that exchange
controls will not restrict or prohibit distributions of principal, premium or
interest in any Specified Currency. Even if there are no actual exchange
controls, it is possible that, on a Distribution Date with respect to any
particular Certificate, the currency in which amounts then due to be distributed
in respect of such Certificate are distributable would not be available. In that
event, such payments will be made in the manner set forth above under
'Description of Certificates--General' or as otherwise specified in the
applicable Prospectus Supplement.
PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL
ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN CERTIFICATES DENOMINATED
IN A CURRENCY OTHER THAN U.S. DOLLARS. SUCH CERTIFICATES ARE NOT AN APPROPRIATE
INVESTMENT FOR PERSONS WHO ARE UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY
TRANSACTIONS.
The information set forth in this Prospectus is directed to prospective
purchasers of Certificates who are United States residents. The applicable
Prospectus Supplement for certain issuances of Certificates may set forth
certain information applicable to prospective purchasers who are residents of
countries other than the United States with respect to matters that may affect
the purchase or holding of, or receipt of distributions of principal, premium or
interest in respect of, such Certificates.
Any Prospectus Supplement relating to Certificates having a Specified
Currency other than U.S. dollars will contain information concerning historical
exchange rates for such currency against the U.S. dollar, a description of such
currency, any exchange controls affecting such currency and any other required
information concerning such currency.
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PAYMENT CURRENCY
Except as set forth below or unless otherwise provided in the applicable
Prospectus Supplement, if distributions in respect of a Certificate are required
to be made in a Specified Currency other than U.S. dollars and such currency is
unavailable due to the imposition of exchange controls or other circumstances
beyond the Depositor's control or is no longer used by the government of the
country issuing such currency or for the settlement of transactions by public
institutions of or within the international banking community, then all
distributions in respect of such Certificate shall be made in U.S. dollars until
such currency is again available or so used. The amounts so payable on any date
in such currency shall be converted into U.S. dollars on the basis of the most
recently available Market Exchange Rate for such currency or as otherwise
indicated in the applicable Prospectus Supplement.
If distribution in respect of a Certificate is required to be made in ECU
and ECU is no longer used in the European Monetary System, then all
distributions in respect of such Certificate shall be made in U.S. dollars until
ECU is again so used. The amount of each distribution in U.S. dollars shall be
computed on the basis of the equivalent of the ECU in U.S. dollars, determined
as described below, as of the second Business Day prior to the date on which
such distribution is to be made.
The equivalent of the ECU in U.S. dollars as of any date (the 'Day of
Valuation') shall be determined for the Certificates of any Series and Class by
the applicable Trustee on the following basis. The component currencies of the
ECU for this purpose (the 'Components') shall be the currency amounts that were
components of the ECU as of the last date on which the ECU was used in the
European Monetary System. The equivalent of the ECU in U.S. dollars shall be
calculated by aggregating the U.S. dollar equivalents of the Components. The
U.S. dollar equivalent of each of the Components shall be determined by such
Trustee on the basis of the most recently available Market Exchange Rates for
such Components or as otherwise indicated in the applicable Prospectus
Supplement.
If the official unit of any component currency is altered by way of
combination or subdivision, the number of units of that currency as a Component
shall be divided or multiplied in the same proportion. If two or more component
currencies are consolidated into a single currency, the amounts of those
currencies as Components shall be replaced by an amount in such single currency
equal to the sum of the amounts of the consolidated component currencies
expressed in such single currency. If any component currency is divided into two
or more currencies, the amount of that currency as a Component shall be replaced
by amounts of such two or more currencies, each of which shall be equal to the
amount of the former component currency divided by the number of currencies into
which that currency was divided.
All determinations referred to above made by the applicable Trustee shall
be at its sole discretion and shall, in the absence of manifest error, be
conclusive for all purposes and binding on the related Certificateholders of
such Series.
FOREIGN CURRENCY JUDGMENTS
Unless otherwise specified in the applicable Prospectus Supplement, the
Certificates will be governed by and construed in accordance with the law of the
State of New York. Courts in the United States customarily have not rendered
judgments for money damages denominated in any currency other than the U.S.
dollar. A 1987 amendment to the Judiciary Law of the State of New York provides,
however, that an action based upon an obligation denominated in a currency other
than U.S. dollars will be rendered in the foreign currency of the underlying
obligation and converted into U.S. dollars at the rate of exchange prevailing on
the date of the entry of the judgment or decree.
PLAN OF DISTRIBUTION
Certificates may be offered in any of three ways: (i) through underwriters
or dealers; (ii) directly to one or more purchasers; or (iii) through agents.
The applicable Prospectus Supplement will set forth the terms of the offering of
any Series of Certificates, which may include the names of any underwriters, or
initial purchasers, the purchase price of such Certificates and the proceeds to
the Depositor from such sale, any underwriting discounts and other items
constituting underwriters' compensation, any initial public offering price, any
discounts or
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concessions allowed or reallowed or paid to dealers, any securities exchanges on
which such Certificates may be listed and the place and time of delivery of the
Certificates to be offered thereby.
If underwriters are used in the sale, Certificates will be acquired by the
underwriters for their own account and may be resold from time to time in one or
more transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale. Such Certificates may
be offered to the public either through underwriting syndicates represented by
managing underwriters or by underwriters without a syndicate. Such managing
underwriters or underwriters in the United States will include Lehman Brothers
Inc., an affiliate of the Depositor. Unless otherwise set forth in the
applicable Prospectus Supplement, the obligations of the underwriters to
purchase such Certificates will be subject to certain conditions precedent, and
the underwriters will be obligated to purchase all such Certificates if any of
such Certificates are purchased. Any initial public offering price and any
discounts or concessions allowed or reallowed or paid to dealers may be changed
from time to time.
Certificates may also be sold through agents designated by the Depositor
from time to time. Any agent involved in the offer or sale of Certificates will
be named, and any commissions payable by the Depositor to such agent will be set
forth, in the applicable Prospectus Supplement. Unless otherwise indicated in
the applicable Prospectus Supplement, any such agent will act on a best efforts
basis for the period of its appointment.
If so indicated in the applicable Prospectus Supplement, the Depositor will
authorize agents, underwriters or dealers to solicit offers by certain specified
institutions to purchase Certificates at the public offering price described in
such Prospectus Supplement pursuant to delayed delivery contracts providing for
payment and delivery on a future date specified in such Prospectus Supplement.
Such contracts will be subject only to those conditions set forth in the
applicable Prospectus Supplement and such Prospectus Supplement will set forth
the commissions payable for solicitation of such contracts.
Any underwriters, dealers or agents participating in the distribution of
Certificates may be deemed to be underwriters and any discounts or commissions
received by them on the sale or resale of Certificates may be deemed to be
underwriting discounts and commissions under the Securities Act. Agents and
underwriters may be entitled under agreements entered into with the Depositor to
indemnification by the Depositor against certain civil liabilities, including
liabilities under the Securities Act, or to contribution with respect to
payments that the agents or underwriters may be required to make in respect
thereof. Agents and underwriters may be customers of, engage in transactions
with, or perform services for, the Depositor or its affiliates in the ordinary
course of business.
Lehman Brothers Inc. is an affiliate of the Depositor. Lehman Brothers
Inc.'s participation in the offer and sale of Certificates complies with the
requirements of Schedule E of the By-Laws of the National Association of
Securities Dealers, Inc. regarding underwriting securities of an affiliate.
As to each Series of Certificates, only those Classes rated in one of the
investment grade rating categories by a Rating Agency will be offered hereby.
Any unrated Classes or Classes rated below investment grade may be retained by
the Depositor or sold at any time to one or more purchasers.
Affiliates of the Underwriters may act as agents or underwriters in
connection with the sale of the Certificates. Any affiliate of the Underwriters
so acting will be named, and its affiliation with the Underwriters described, in
the related Prospectus Supplement. Also, affiliates of the Underwriters may act
as principals or agents in connection with market-making transactions relating
to the Certificates.
LEGAL OPINIONS
Certain legal matters with respect to the Certificates will be passed upon
for the Depositor and the underwriters by Weil, Gotshal & Manges, New York, New
York or other counsel identified in the applicable Prospectus Supplement.
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No dealer, salesman or other person has been authorized to given any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Depositor or Lehman Brothers. This Prospectus Supplement and the Prospectus do
not constitute an offer of any securities other than those to which they relate
or an offer to sell, or a solicitation of an offer to buy, to any person in any
jurisdiction where such an offer or solicitation would be unlawful. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to their
respective dates.
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TABLE OF CONTENTS
Prospectus Supplement
PAGE
----------
Summary.............................................. S-3
Risk Factors......................................... S-9
The Trust............................................ S-11
The Standard & Poor's 500 Index...................... S-11
Modifications to or Discontinuance or S&P 500
Index.............................................. S-16
Description of the Certificates...................... S-18
The Depositor........................................ S-21
Description of the Trust Assets...................... S-22
The Swap Counterparty................................ S-24
Description of the Trust Agreement................... S-25
The Market Agent Agreement........................... S-28
Certain Federal Income Tax Consequences.............. S-29
State, Local and Foreign Taxes....................... S-32
ERISA Considerations................................. S-32
Method of Distribution............................... S-33
Legal Matters........................................ S-34
Ratings.............................................. S-34
Index of Defined Terms............................... S-35
Exhibit A............................................ A-1
Exhibit B............................................ B-1
Prospectus
PAGE
----------
Prospectus Supplement................................ 2
Available Information................................ 2
Incorporation of Certain Documents by Reference...... 2
Reports to Certificateholders........................ 3
Important Currency Information....................... 3
Risk Factors......................................... 4
The Company.......................................... 5
Use of Proceeds...................................... 6
Formation of the Trust............................... 6
Maturity and Yield Considerations.................... 7
Description of the Certificates...................... 8
Description of Deposited Assets and Credit Support... 21
Description of the Trust Agreement................... 26
Currency Risks....................................... 34
Plan of Distribution................................. 35
Legal Opinions....................................... 36
$25,000,000
S&P-Linked Certificates,
Series 1997-SP-1
(SPLITs(Service Mark))
Principal Protected
Pass-Through Certificates
Lehman ABS Corporation
(Depositor)
------------------------
PROSPECTUS SUPPLEMENT
August , 1997
------------------------
LEHMAN BROTHERS
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