Prospectus Supplement
(To Prospectus Dated May 13, 1999)
Safety
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First(SM)
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Investments
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Safety of Principal, Opportunity for Growth
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THIS PRELIMINARY PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS ARE NOT AN OFFER TO SELL THESE
SECURITIES AND ARE NOT SOLICTING AN OFFER TO BUY THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
[GRAPHIC]
Structured Products Corp., the Depositor
____________TIERSsm Callable
Principal-Protected Asset Backed Trust
Certificates, Series S&P 1999-2
(Interest at Maturity Based Upon the S&P 500(R) Index)
Due _______, 2006
($10 Principal Amount Per Certificate)
Issued by
TIERS(SM) Callable Principal-Protected Asset
Backed Certificates Trust Series S&P 1999-2
SALOMON SMITH BARNEY
A MEMBER OF CITIGROUP (LOGO)
<PAGE>
SAFETY FIRST(SM) INVESTMENTS
TIERS(SM) CALLABLE PRINCIPAL-PROTECTED ASSET BACKED TRUST
CERTIFICATES, SERIES S&P 1999-2
TIERS(SM) Callable Principal-Protected Asset Backed Trust Certificates,
Series S&P 1999-2, part of the family of Safety First(SM) Investments, are
certificates whose return is tied or "linked" to the performance of the S&P
500(R) Index. Unlike typical bonds, no periodic interest payments are made on
these certificates prior to maturity. However, at maturity, the trust is
scheduled to repay the entire principal amount of the certificates plus an
amount linked to the increase, IF ANY, in the value of the S&P 500(R) Index
during a specified period prior to maturity, reduced by an annual adjustment
factor. In some cases, the trust will have the right to redeem the certificates
prior to maturity for a specified call price that will exceed the amount of an
investor's original investment, but may be less than the expected payment due at
maturity based on then-current index values.
ALL OF THE INFORMATION SET FORTH ON THIS PAGE IS QUALIFIED IN ITS ENTIRETY
BY THE MORE DETAILED EXPLANATIONS SET FORTH ELSEWHERE IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS.
SELECTED PURCHASE CONSIDERATIONS
o GROWTH POTENTIAL - The value of the certificates is tied to the performance
of the S&P 500(R) Index, enabling you to participate in potential increases
in the value of the S&P 500(R) Index without having to acquire each of the
underlying stocks.
o PRESERVATION OF CAPITAL - At maturity, the trust will pay you at least the
principal amount of the certificates, regardless of the performance of the
S&P 500(R) Index.
o DIVERSIFICATION - The certificates' link to the S&P 500(R) Index may allow
you to diversify an existing portfolio mix of stocks, bonds, mutual funds and
cash.
o EXCHANGE LISTING - Although the certificates are intended to be "buy and
hold" investments, they are expected to be approved for listing on the
American Stock Exchange.
o U.S. SETTLEMENT - The certificates trade and are settled in the
U.S. market.
o LOW MINIMUM INVESTMENT - Minimum investments start as low as $10 per
certificate.
o CAPITAL GAINS AT MATURITY - The return on the certificates at maturity based
upon the S&P 500(R) Index will be taxed as a capital gain.
SELECTED RISK CONSIDERATIONS
An investment in the certificates involves significant risks. These risks are
explained in more detail in the "Risk Factors" section of this Prospectus
Supplement. Some are summarized here.
o NO CURRENT INCOME - You will not receive any periodic interest payments on
the certificates. Unlike holders of the stocks underlying the S&P 500(R)
Index, investors in the certificates also will not receive any dividend
payments or other distributions on those stocks.
o POSSIBILITY OF NO CAPITAL APPRECIATION - If the adjusted ending value (as
calculated over the applicable period prior to maturity) is less than the
starting value at the time the certificates are first sold to the public,
you will receive only the principal amount of the certificates at maturity,
even if the adjusted value of the S&P 500(R)Index exceeded the starting
value at some point over the life of the certificates. In addition, the
adjusted ending value will be lower than the actual level of the S&P
500(R)Index during the calculation period prior to maturity due to the
application of the adjustment factor. Even if a supplemental amount due to
appreciation of the index is paid, the total yield on the certificates to
you may be less than that on a normal fixed income instrument.
o LIQUIDITY - The certificates are expected to be approved for listing on the
American Stock Exchange, but there can be no guarantee of liquidity in the
secondary market. Although Salomon Smith Barney Inc. intends to make a
market in the certificates, it is not obligated to do so.
o POSSIBLE LOSS OF VALUE IN SECONDARY MARKET - The market price for the
certificates will be affected by a number of interrelated factors
including, but not limited to, supply and demand, the level of the S&P
500(R)Index, the volatility of the S&P 500(R)Index, dividend rates on
stocks underlying the S&P 500(R)Index, the time remaining to maturity, the
level of interest rates and other economic conditions, as well as the
trust's perceived creditworthness. For these reasons, the certificates may
trade at prices below their initial issue price and investors selling their
certificates prior to maturity could thus receive substantially less than
the amount of their original investment.
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Subject to Completion, Dated November 2, 1999
PROSPECTUS SUPPLEMENT
(To Prospectus dated May 13, 1999)
STRUCTURED PRODUCTS CORP., THE DEPOSITOR
____________ TIERS(SM) Callable Principal-Protected Asset
BACKED TRUST CERTIFICATES, SERIES S&P 1999-2
(INTEREST AT MATURITY BASED UPON THE S&P 500(R) INDEX)
DUE ________, 2006
ISSUED BY
TIERS(SM) Callable Principal-Protected Asset Backed Certificates
TRUST SERIES S&P 1999-2
($10 PRINCIPAL AMOUNT PER CERTIFICATE)
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GENERAL:
| | Trust Certificates of TIERS(SM) Callable Principal-Protected Asset Backed
Certificates Trust Series S&P 1999-2.
| | Issuable and transferable only in denominations of $10 and integral
multiples thereof.
| | Generally, no payments prior to the final scheduled distribution date,
unless called by the trust. However, investors may receive semiannual
distributions, under limited circumstances.
| | Application will be made to list the certificates on the American Stock
Exchange under the symbol "RSB", subject to official notice of issuance.
Trading of the certificates on the American Stock Exchange is expected to
commence within a 30-day period after the initial delivery thereof or
earlier.
PAYMENT ON THE FINAL SCHEDULED DISTRIBUTION DATE:
| | Principal amount ($10 per certificate) + interest
distribution amount, if any.
| | The interest distribution amount will be based on the percentage
increase, if any, in S&P 500(R) Index during the term of the certificates,
reduced on a daily basis by an annual adjustment factor. The adjustment
factor is expected to be between 1.25% and 1.75% per annum, and will be
determined on the date of pricing of the certificates and disclosed in the
final prospectus supplement. The annual application of the adjustment
factor will result in a total reduction in the adjusted value of the S&P
500(R) Index used to determine the interest distribution amount on the
final scheduled distribution date of between 8.43% and 11.63%.
| | The interest distribution amount may be ZERO, but will not be less than
zero.
CALL FEATURE:
| | The trust may call (redeem) all (but not less than all) of the
certificates during certain specified periods prior to the final scheduled
distribution date, starting in 2002. If the trust elects to call the
certificates, you will receive only the specified call price and will not
receive an interest distribution amount.
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For information as to the interest distribution amount, call price and
certain United States federal income tax consequences to holders of the
certificates, you should refer to "Description of the Certificates--Interest
Distribution Amount", "--Call Right" and "United States Federal Income Tax
Considerations" in this prospectus supplement.
"Standard & Poor's(R)", "Standard & Poor's 500", "S&P 500(R)", "S&P(R)" and
"500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed
for use by Salomon Smith Barney Holdings Inc. The certificates are not
sponsored, endorsed, sold or promoted by Standard & Poor's or The McGraw-Hill
Companies, Inc. Neither Standard & Poor's nor The McGraw-Hill Companies, Inc.
makes any representation regarding the advisability of investing in the
certificates.
YOU SHOULD FULLY CONSIDER THE RISK FACTORS ON PAGE S-11 IN THIS PROSPECTUS
SUPPLEMENT PRIOR TO INVESTING IN THE CERTIFICATES. UNDER CERTAIN CIRCUMSTANCES,
YOU WILL BEAR THE RISK OF LOSS WITH RESPECT TO THE ASSETS OF THE TRUST. IN
PARTICULAR, UPON THE OCCURRENCE OF A TERM ASSETS CREDIT EVENT OR A DEFAULT BY
THE SWAP COUNTERPARTY, YOU MAY RECEIVE LESS THAN THE PRINCIPAL AMOUNT OF YOUR
CERTIFICATES AND NO INTEREST DISTRIBUTION AMOUNT.
THE TRUST WILL BE A PASSIVE FOREIGN INVESTMENT COMPANY FOR UNITED STATES
FEDERAL INCOME TAX PURPOSES. IN ORDER TO AVOID PUNITIVE UNITED STATES TAX RULES
OTHERWISE APPLICABLE TO DISTRIBUTIONS ON THE CERTIFICATES, ELIGIBLE U.S.
PURCHASERS OF CERTIFICATES SHOULD MAKE "QUALIFIED ELECTING FUND" ELECTIONS ON
THEIR INCOME TAX RETURNS. SEE "UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS,"
HEREIN.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Per
Certificate Total
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Public offering price...................... $_________ $_________
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Underwriting discount...................... $_________ $_________
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Proceeds to Trust (before expenses)........ $_________ $_________
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The underwriter expects to deliver your certificates in book-entry form
only through the Depository Trust Company on or about _____, 1999.
SM "TIERS" is a service mark of Salomon Smith Barney Inc.
SALOMON SMITH BARNEY
________, 1999
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INFORMATION ABOUT CERTIFICATES
We provide information to you about the certificates in two separate
documents that progressively provide more detail: (a) the accompanying
prospectus, which provides general information, some of which may not apply to
the certificates; and (b) this prospectus supplement, which describes the
specific terms of your certificates.
You are urged to read both the prospectus and this prospectus supplement
in full to obtain material information concerning the certificates. If the
descriptions of the certificates vary between this prospectus supplement and the
prospectus, you should rely on the information contained in this prospectus
supplement.
We include cross-references in this prospectus supplement and the
prospectus to captions in these materials where you can find further related
discussions. The table of contents for this prospectus supplement and the
prospectus identify the pages where these sections are located.
You can find a listing of the pages where capitalized terms used in this
prospectus supplement and the accompanying prospectus are defined under the
caption "Index of Terms" beginning on page S-50 in this document and beginning
on page 41 in the accompanying prospectus.
The depositor has filed with the Securities and Exchange Commission a
registration statement (of which this prospectus supplement and the accompanying
prospectus form a part) under the Securities Act of 1933, as amended, with
respect to the certificates. This prospectus supplement and the accompanying
prospectus do not contain all of the information contained in the registration
statement. For further information regarding the documents referred to in this
prospectus supplement and the prospectus, you should refer to the registration
statement and the exhibits thereto. The registration statement and such exhibits
can be inspected and copied at prescribed rates at the public reference
facilities maintained by the Securities and Exchange Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following Regional Offices of the Commission: New York Regional Office, Seven
World Trade Center, 13th Floor, New York, New York 10048, and Chicago Regional
Office, John C. Kluczynski Federal Building, Northwest Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
can also be obtained electronically through the Securities and Exchange
Commission's internet web site (http://www.sec.gov).
You should rely only on the information contained in this prospectus
supplement or the prospectus. Neither the depositor nor the underwriter has
authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. Neither the depositor nor the underwriter is making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted. You
should assume that the information appearing in this prospectus supplement or
the prospectus is accurate as of the date on their respective front covers only.
S-2
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SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from the accompanying prospectus and this prospectus supplement to
help you understand the TIERS(SM) Callable Principal-Protected Asset Backed
Trust Certificates, Series S&P 1999-2. You should carefully read the entire
prospectus and prospectus supplement to fully understand the terms of the
certificates, certain information regarding how the Standard & Poor's 500 Index
is calculated and maintained, as well as the principal tax and other
considerations that are important to you in making a decision about whether to
invest in the certificates. You should, in particular, carefully review the
section entitled "Risk Factors", which highlights certain risks, to determine
whether an investment in the certificates is appropriate for you. All of the
information set forth below is qualified in its entirety by the more detailed
explanation set forth elsewhere in this prospectus supplement and the
accompanying prospectus.
WHAT ARE THE CERTIFICATES?
The certificates are issued by TIERS(SM) Callable Principal-Protected Asset
Backed Certificates Trust Series S&P 1999-2, and represent in aggregate the
entire beneficial ownership interest in the assets of the trust. The
certificates mature on _______, 2006 and do not provide for earlier redemption
by you although they may be called prior to the final scheduled distribution
date by the trust, as described below. The trust will make semiannual
distributions on the certificates on each ___ and ___, commencing _______ equal
to the earnings, if any, received by the trust from certain investment
securities owned by the trust if such earnings equal or exceed $_______, as
described in the section "Description of the Certificates--Supplemental
Distribution" in this prospectus supplement. There is no assurance that any
investment earnings will be earned by the trust or that such earnings, if
received, will be distributed to you prior to the final scheduled distribution
date. Except in the case of an early redemption by the trust prior to final
scheduled distribution date (in which case the trust will pay you the specified
call price), or in the case of the occurrence of certain other events described
in this prospectus supplement, the trust will make no other payments on the
certificates until the final scheduled distribution date. You should refer to
the section "Description of the Certificates" in this prospectus supplement.
Each certificate will have a principal amount of $10. You may transfer the
certificates only in denominations of $10 and integral multiples thereof. You
will not have the right to receive physical certificates evidencing your
ownership except under limited circumstances. Instead, the trustee will issue
the certificates in the form of a global certificate which will be held by The
Depository Trust Company or its nominee. Direct and indirect participants in The
Depository Trust Company will record beneficial ownership of the certificates by
individual investors. You should refer to the section "Description of the
Certificates--Book-Entry System" in this prospectus supplement.
The certificates are expected to trade flat. This means that any accrued
and unpaid interest on the certificates will be reflected in the trading price,
and purchasers will not pay and sellers will not receive any accrued and unpaid
interest on the certificates not included in the trading price.
WHAT DOES "PRINCIPAL PROTECTED" MEAN?
"Principal Protected" means that your principal investment in the
certificates is not at risk due to a decline in the S&P 500 Index. "Principal
Protected" does NOT mean that you will receive a
S-3
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return of your principal investment in all cases. Under certain circumstances,
losses realized on the assets of the trust will be borne by the holders of the
certificates. In particular, upon the occurrence of a term assets credit event
or a default by the swap counterparty, you may receive less than the principal
amount of your investment and no interest distribution amount. For a description
of what constitutes a term assets credit event and of certain provisions of the
Swap Agreement, see "Description of the Swap Agreement--Payments Upon Term
Assets Credit Event," "--Termination of Swap Agreement," and "--Payments Upon
Swap Termination Date."
WHAT IS THE SWAP AGREEMENT?
On the closing date, the trust and Salomon Smith Barney Holdings Inc., the
swap counterparty, will enter into a swap agreement. The swap agreement is a
contract which provides that the swap counterparty will pay the trust an amount
equal to the distribution scheduled to be made on the certificates on the final
scheduled distribution date. The swap agreement also provides that the trust
will pay the swap counterparty the amounts scheduled to be received on the Term
Assets. In addition, on certain other dates, the swap agreement provides for
payments to be made to the swap counterparty or by the swap counterparty based
upon the market value of the Term Assets. These payments are designed to provide
that the value of the Term Assets plus any investment securities purchased by
the trust with payments made pursuant to this provision will at least equal the
principal amount of the certificates. You should refer to the section
"Description of the Swap Agreement" in this prospectus supplement.
WHAT WILL I RECEIVE ON THE FINAL SCHEDULED DISTRIBUTION DATE OF THE
CERTIFICATES?
The certificates are designed for investors who want to protect their
investment by receiving at least the principal amount of their investment on the
final scheduled distribution date (absent the occurrence of a term assets credit
event or a default by the swap counterparty) and who also want to participate in
a possible increase in the S&P 500 Index during a specified period. On the final
scheduled distribution date, unless the trust has earlier called the
certificates, you will receive a payment per certificate equal to the sum of:
(i) the principal amount of the certificate ($10 per certificate) and (ii) the
interest distribution amount which is an amount based upon the increase in the
value of the S&P 500 Index during a specified period from the date of pricing of
the certificates to the final scheduled distribution date as described below and
in more detail in the section "Description of the Certificates--Interest
Distribution Amount."
PRINCIPAL AMOUNT
The principal amount of each certificate is $10.
INTEREST DISTRIBUTION AMOUNT
The interest distribution amount per certificate will equal:
<TABLE>
<S> <C>
$10 X ADJUSTED ENDING VALUE OF THE S&P 500 INDEX-STARTING VALUE OF THE S&P 500 INDEX
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Starting Value of the S&P 500 Index
</TABLE>
but will not be less than zero.
Please refer to section "Description of the Certificates--Interest
Distribution Amount" in this prospectus supplement for the definition of
"Adjusted Ending Value" and "Starting Value."
S-4
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Absent the occurrence of a term assets credit event or a default by the
swap counterparty, the trust will pay you the interest distribution amount on
the certificates only if it has not earlier called the certificates and if the
Adjusted Ending Value of the S&P 500 Index at maturity is greater than the
Starting Value of the S&P 500 Index at the date of pricing of the certificates.
IF THE ADJUSTED ENDING VALUE IS LESS THAN, OR EQUAL TO, THE STARTING VALUE, THE
INTEREST DISTRIBUTION AMOUNT WILL BE ZERO. Assuming that it has not called the
certificates, the trust will pay you the principal amount of the certificates
regardless of whether any interest distribution amount is payable.
For more specific information about the interest distribution amount
payable on the final scheduled distribution date, please refer to the section
"Description of the Certificates--Interest Distribution Amount" in this
prospectus supplement.
THE INTEREST DISTRIBUTION AMOUNT PAYABLE ON THE FINAL SCHEDULED
DISTRIBUTION DATE--EXAMPLEs
Here are two examples of hypothetical interest distribution amount calculations:
Example 1:
The S&P 500 Index value, as adjusted, is less than the Starting Value on the
final scheduled distribution date:
Hypothetical Starting Value: 1,342.44
Hypothetical Adjusted Ending Value (calculated using the Hypothetical Adjustment
Factor of 1.5%): 1,208.20
The interest distribution amount per certificate:
1,208.20 - 1,342.44
$10 X ------------------------- -$0.99
1,342.44
(but the interest distribution
amount cannot be less than zero)
The interest distribution amount payable on the final scheduled distribution
date (per certificate) = $0
Total amount payable on the final scheduled distribution date = $10 + $0 = $10.
Example 2:
The S&P 500 Index value, as adjusted, is greater than the Starting Value on the
final scheduled distribution date:
Hypothetical Starting Value: 1,342.44
Hypothetical Adjusted Ending Value (calculated using the Hypothetical Adjustment
Factor of 1.5%): 1,610.93
S-5
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The interest distribution amount (per certificate):
1,610.93 - 1,342.44
$10 X ------------------------- = $2
1,342.44
The interest distribution amount on the final scheduled distribution date (per
certificate) = $2
Total amount payable on the final scheduled distribution date = $10 + $2 = $12.
Although the amount paid on the final scheduled distribution date is
referred to as "interest," it is not expected to be treated as interest for tax
purposes. Please refer to the sub-section "What about United States Taxes" in
this summary and "United States Federal Income Tax Considerations" in this
prospectus supplement.
CAN YOU TELL ME MORE ABOUT THE TRUST?
The trust will be established by Structured Products Corp. and designated
as TIERS(SM) Callable Principal-Protected Asset Backed Certificates Trust Series
S&P 1999-2. The trust will be formed under the laws of the Cayman Islands, and
The Bank of New York Trust Company (Cayman) Limited will be the trustee and The
Bank of New York will be the co-trustee of the trust. The assets of the trust
will primarily consist of $______ aggregate amount of asset backed securities of
various issuers (the "Term Assets") which as of the closing date, will be rated
in the highest rating category of at least one nationally recognized rating
agency, and rights under a swap agreement. The trust may also own, from time to
time, investment securities purchased with payments made to the trust by the
swap counterparty pursuant to the swap agreement. The trust will be treated as a
foreign corporation for United States federal income tax purposes. For more
information, you should refer to the sections "The Term Assets Issuers",
"Description of the Term Assets", "Description of the Trust Agreement" and
"Description of the Swap Agreement" in this prospectus supplement.
HOW DOES THE CALL FEATURE WORK?
The trust may call all (but not less than all) of the certificates on any
day on which the New York Stock Exchange and the American Stock Exchange are
open for trading during the 30-day period beginning on the anniversary of the
date of pricing of the certificates in each of 2002, 2003, 2004 or 2005 by
giving at least 15 days' notice to the holders of the certificates as described
below. Any such notice will specify the date on which the trust will pay the
applicable call price set forth below to you.
CALL PERIOD CALL PRICE
30 Day Period Beginning ________ [$14.50-$17.50] ([145%-175%] of
___, 2002 the principal amount)
30 Day Period Beginning ________ [$16.00-$20.00] ([160%-200%] of
___, 2003 the principal amount)
30 Day Period Beginning ________ [$17.50-$22.50] ([175%-225%] of
___, 2004 the principal amount)
30 Day Period Beginning ________ [$19.00-$25.00] ([190%-250%] of
___, 2005 the principal amount)
S-6
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If the trust elects to call the certificates prior to the final scheduled
distribution date, you will receive only the specified call price and will not
receive an interest distribution amount as described above. If the trust does
not call the certificates prior to the final scheduled distribution date, the
principal plus the interest distribution amount, if any, that you receive at the
final scheduled distribution date may be greater or less than any of the call
prices that would have been payable had the trust called the certificates. You
should refer to the section "Description of the Certificates--Call Right."
The trust will call the certificates if, and only if, the swap
counterparty elects to terminate the swap agreement pursuant to the swap
counterparty's optional termination right as described under the heading
"Description of the Swap Agreement Swap Counterparty Optional Termination
Notice."
WHO PUBLISHES THE INDEX AND WHAT DOES IT MEASURE?
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 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 September 30, 1999, the 500 companies included in
the S&P 500 Index represented approximately 85% of the aggregate market value of
common stocks traded on the NYSE; however, these 500 companies are not the 500
largest companies listed on the NYSE, and not all of these 500 companies are
listed on the NYSE. As of September 30, 1999, the aggregate market value of the
500 companies included in the S&P 500 Index represented approximately 75% 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 September
30, 1999, the 500 companies included in the S&P 500 Index were divided into 105
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 (377), Financial (71), Utilities (41) and
Transportation (11). 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. For more information, please refer to the section
"Description of the S&P 500 Index" in this prospectus supplement.
Please note that an investment in the certificates does not entitle you to
any ownership or other interest in the stocks of the companies included in the
S&P 500 Index.
HOW HAS THE S&P 500 INDEX PERFORMED HISTORICALLY?
We have provided a table showing the closing values of the S&P 500 Index
on the last business day of each year from 1947 to 1998 and the closing values
of the S&P 500 Index on the last business day of each month from October 1993
through October 1999. You can find these tables in
S-7
<PAGE>
the section "Description of the S&P 500 Index--Historical Data on the Index" in
this prospectus supplement. We have provided this historical information to help
you evaluate the behavior of the S&P 500 Index in various economic environments;
however, past performance is not necessarily indicative of how the S&P 500 Index
will perform in the future. You should refer to the section "Risk Factors--The
Historical Performance of the S&P 500 Index Is Not an Indication of the Future
Performance of the S&P 500 Index."
WHAT ABOUT UNITED STATES TAXES?
For United States federal income tax purposes: (1) your certificates will
be treated as equity interests in the trust, (2) the trust will be classified as
a foreign corporation, (3) the trust will not be treated as engaged in the
conduct of a trade or business in the United States and (4) the swap agreement
should be treated as a notional principal contract.
The trust will be a passive foreign investment company for United States
federal income tax purposes. In order to avoid punitive united states tax rules
otherwise applicable to distributions on the certificates, eligible u.s.
purchasers of certificates should make "qualified electing fund" elections on
their income tax returns and file the related tax form (irs form 8621) for every
year that they hold the certificates. IRS Form 8621 is attached as Appendix B.
For United States federal income tax purposes, a United States investor
that makes a qualified electing fund election will recognize income each year in
the amount of (and be required to pay tax on) that investor's pro rata share of
the trust's ordinary income and net capital gains even if the pro rata share of
the trust's income exceeds the amount of any distributions on the certificates
owned by the investor. A United States investor will not be able to deduct any
losses of the trust. A United States investor's tax basis in the certificates
will be increased by amounts included in its income and decreased by the amount
of nontaxable distributions.
The swap agreement should be characterized for United States federal
income tax purposes as a single notional principal contract and the trust will
keep its books and records accordingly. Under this approach, periodic payments
made or received by the trust under the swap agreement should constitute
ordinary deductions or ordinary income of the trust. The amount of the initial
payment to the trust under the swap agreement will be a nonperiodic payment that
should be included in ordinary income of the trust over the term of the swap
agreement in a manner that reflects the economic substance of the agreement.
If the swap agreement were to be characterized as other than a single
notional principal contract, the amount of the trust's income that is allocated
to a United States investor may be substantially greater than the amounts
distributed on the certificates. In addition, a portion of the trust's income
that is allocated to you that otherwise would be capital gain may, in certain
circumstances, be ordinary income.
A United States investor that makes a "qualified electing fund" election
will recognize capital gain or loss upon the sale of its certificates.
Similarly, the character of the income, gain or loss recognized as a result of
any payment made to or received from the swap counterparty on the final
scheduled distribution date should be capital gain or loss.
For the tax consequences to the trust and United States investors upon the
exercise of the trust's call right, upon a swap termination date, upon the final
scheduled distribution date of the
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certificates, upon a term asset credit event, or upon payment of the term assets
price return amount, see "United States Federal Income Tax Considerations."
ADVERSE TAX CONSEQUENCES MAY ARISE IF ANY UNITED STATES INVESTOR OWNS 10%
OR MORE OF THE CERTIFICATES. ACCORDINGLY, EACH INVESTOR WILL BE DEEMED TO HAVE
REPRESENTED EITHER THAT (I) IT HOLDS (DIRECTLY AND INDIRECTLY) LESS THAN 10% OF
ALL CERTIFICATES OR (II) IF IT HOLDS 10% OR MORE OF THE CERTIFICATES, THAT IT IS
NOT A UNITED STATES INVESTOR AND IT IS NOT OWNED (DIRECTLY OR INDIRECTLY) BY A
UNITED STATES INVESTOR. Under the trust agreement, you may be required to
provide written certifications in respect of any representations deemed made by
you. The trust does not currently expect to require any such written
certifications, but may determine to do so in the future. See "United States
Federal Income Tax Considerations."
WHAT ABOUT CAYMAN ISLANDS TAXES?
Under Cayman Islands law (a) you will not be subject to Cayman Islands
taxation on payments received in respect of your Certificates and (b) the trust
is able to make payments on your certificates without any deduction or
withholding for or on account of Cayman Islands taxes. See "Certain Cayman
Islands Tax Considerations."
WHAT ABOUT ERISA?
It is our view that employee benefit plans subject to ERISA and individual
retirement accounts, Keogh plans and other similar plans can, generally,
purchase the certificates. However, each plan and account should consider
whether the purchase of the certificates is prudent and consistent with the
documents governing the plan or account. The fiduciary rules governing plans and
accounts are complex and individual considerations may apply to a particular
plan or account. Accordingly, any fiduciary of any plan or account should
consult with its legal advisers to determine whether the purchase of the
certificates is permissible under the fiduciary rules. Each employee benefit
plan subject to the fiduciary responsibility provisions of ERISA and each
individual retirement account, Keogh plan and other similar plan will be deemed
to have made certain representations concerning its purchase or other
acquisition of the certificates. You should refer to the section "Certain ERISA
Considerations" in this prospectus supplement.
WILL THE CERTIFICATES BE LISTED ON A STOCK EXCHANGE?
Application will be made to list the certificates on the American Stock
Exchange. Trading of the certificates on the American Stock Exchange is expected
to commence within a 30-day period after the initial delivery thereof or
earlier. You should be aware that the listing of the certificates on the
American Stock Exchange will not necessarily ensure that a liquid trading market
will be available for the certificates. You should refer to the sections
"Underwriting" and "Risk Factors--There May Not Be a Liquid Secondary Market for
the Certificates" in this prospectus supplement.
WHAT ARE THE RATINGS ON THE CERTIFICATES?
It is a condition to the issuance of the certificates that the
certificates be rated by Moody's Investors Service, Inc. and/or Standard and
Poor's Ratings Services no lower than the lower of the ratings of the Term
Assets or the swap counterparty. As of the date of this prospectus supplement,
Moody's Investors Service, Inc. and Standard and Poor's Ratings Services have
rated the Term Assets "Aaa" and "AAA" respectively and the swap counterparty
"Aa3" and "A", respectively.
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WHO ARE THE TRUSTEES?
The Bank of New York Trust Company (Cayman) Limited will act as trustee and
The Bank of New York will act as co-trustee pursuant to a trust agreement, as
supplemented by a supplement, each to be dated as of the closing date. You may
inspect the trust agreement and supplement at the respective offices of the
trustee at Butterfield House, Fort Street, P.O. Box 705, George Town, Grand
Cayman, Cayman Islands or the co-trustee at 101 Barclay Street, 21W, Global
Structured Products Unit, New York, NY 10286. You should refer to the section
"Description of the Trust Agreement" in this prospectus supplement.
WHAT IS THE ROLE OF OUR AFFILIATE, SALOMON SMITH BARNEY INC.?
Salomon Smith Barney Inc. is the underwriter for the offering and sale of
the certificates. After the initial offering, Salomon Smith Barney Inc. and/or
its affiliates intend to buy and sell certificates to create a secondary market
for the holders of the certificates, and may engage in other activities
described in the section "Underwriting" in this prospectus supplement. However,
neither Salomon Smith Barney Inc. nor any of its affiliates will be obligated to
engage in any market activities, or continue them once started. Salomon Smith
Barney Inc. will also be the trust's agent for purposes of calculating the
Starting Value, the Adjusted Ending Value, the interest distribution amount, if
any, on the final scheduled distribution date and in determining whether a
Market Disruption Event has occurred. Potential conflicts of interest may exist
between Salomon Smith Barney Inc. and you as a holder of the certificates.
Please refer to the section "Risk Factors--The Company, the Underwriter, the
Swap Counterparty and the Calculation Agent Are Affiliates and May Have Interest
Adverse to the Holders of the Certificates" in this Prospectus Supplement.
ARE THERE ANY RISKS ASSOCIATED WITH MY INVESTMENT?
Yes, the certificates are subject to a number of risks. Please refer to
the section "Risk Factors" in this prospectus supplement.
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RISK FACTORS
An investment in the certificates involves significant risks. Some of
these risks are summarized here:
THE INTEREST DISTRIBUTION AMOUNT PAYABLE ON THE FINAL SCHEDULED
DISTRIBUTION DATE MAY BE ZERO. In the event that the Adjusted Ending Value of
the S&P 500 Index does not increase sufficiently from the Starting Value of the
S&P 500 Index over the term of the certificates, the interest distribution
amount will be ZERO. This may be true even if the value of the S&P 500 Index, as
adjusted by the adjustment factor, increases at one or more times during the
life of the certificates but later falls. If the interest distribution amount is
zero, on the final scheduled distribution date you will receive only the $10.00
principal amount per certificate (assuming that we have not called the
Certificates earlier).
YOU MAY RECEIVE AN EARLY RETURN OF THE PRINCIPAL AMOUNT OF YOUR
CERTIFICATES AND NO INTEREST DISTRIBUTION AMOUNT IF A SWAP TERMINATION DATE
OCCURS PRIOR TO THE FINAL SCHEDULED DISTRIBUTION DATE. Regardless of the
performance of the S&P 500 Index, in the event a swap termination date occurs
prior to the final scheduled distribution date, you may only receive the
principal amount of the certificates and no interest distribution amount.
Furthermore, in the event the Term Assets are sold for a price less than the
principal amount of the certificates and the swap counterparty is unable to pay
the trust an amount equal to such shortfall, you may receive less than the
principal amount of your certificates. Please refer to the section "Description
of the Swap Agreement--Payments Upon Swap Termination Date" in this prospectus
supplement.
YOU WILL BEAR THE RISK OF LOSS ON THE ASSETS OF THE TRUST. In certain
circumstances, you will bear the risk of loss with respect to the assets of the
trust. In particular, upon the occurrence of a term assets credit event or a
default by the swap counterparty, you may receive less than the principal amount
of your certificates and no interest distribution amount. Please refer to the
section "Description of the Swap Agreement--Payments Upon Term Assets Credit
Event" in this prospectus supplement.
YOU WILL BEAR THE RISK OF LOSS IF THE SWAP COUNTERPARTY BECOMES BANKRUPT.
If the swap counterparty becomes a debtor in a bankruptcy case or files a
voluntary petition for relief under Title 11 of the United States Code (11
U.S.C. Sections 101 ET seq.) or any similar applicable insolvency laws with
respect to such party, such event can cause an early termination of the swap
agreement and may result in holders of certificates receiving less than their
principal amount and no interest distribution amount.
THE ASSETS OF THE TRUST ARE THE ONLY PAYMENT SOURCE FOR THE CERTIFICATES.
The certificates are payable solely from payments made on the assets of the
trust, which primarily consist of the Term Assets and the swap agreement. If the
assets of the trust are insufficient to pay distributions due on the
certificates, then you may receive less than the principal amount of your
certificates and no interest distribution amount.
THE SWAP COUNTERPARTY'S OBLIGATIONS ARE CONTINGENT. The swap
counterparty's obligations under the swap agreement are contingent upon timely
receipt of funds payable to the swap counterparty by the trust under the swap
agreement. As a result, in the event that there is a default or a delay in
payment of amounts due in connection with the Term Assets, the swap counterparty
will not be obligated to make any further payments due under the swap agreement
and may terminate the swap agreement.
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YIELD ON THE CERTIFICATES MAY BE LOWER THAN THE YIELD ON A STANDARD DEBT
SECURITY OF COMPARABLE MATURITY. The amount the trust will pay to you on the
final scheduled distribution date may be less than the return you could have
earned on other investments. Because the value of the S&P 500 Index on the final
scheduled distribution date may be less than, equal to or only slightly greater
than its value on the date the certificates are issued, the effective yield to
maturity on the certificates may be less than that which would be payable on a
conventional fixed-rate, non-callable debt security. In addition, any such
return may not fully compensate you for any opportunity cost to you when
inflation and other factors relating to the time value of money are taken into
account.
THERE MAY NOT BE A LIQUID SECONDARY MARKET FOR THE CERTIFICATES. The
certificates are expected to be approved for listing on the American Stock
Exchange. However, there can be no assurance as to whether there will be a
secondary market in the certificates or if there were to be such a secondary
market, whether such market would be liquid or illiquid. If the secondary market
for the certificates is limited, there may be few buyers if you decide to sell
your certificates prior to the final scheduled distribution date. This may
affect the price you will receive on the certificates. There is currently no
secondary market for the certificates.
YOU MAY NOT RECEIVE ANY DISTRIBUTIONS ON YOUR CERTIFICATES UNTIL THE FINAL
DISTRIBUTION DATE. Although you are entitled to receive semiannual distributions
representing investment earnings on various investment securities owned by the
trust (provided, that such earnings equal or exceed $_____), the trust may not
receive any investment earnings or, if it does receive any, may not distribute
them prior to the final scheduled distribution date.
THE HISTORICAL PERFORMANCE OF THE S&P 500 INDEX IS NOT AN INDICATION OF
THE FUTURE PERFORMANCE OF THE S&P 500 INDEX. The historical performance of the
S&P 500 Index should not be taken as an indication of the future performance of
the S&P 500 Index during the term of the certificates. While the trading prices
of the stocks underlying the S&P 500 Index will determine the value of the S&P
500 Index, it is impossible to predict whether the value of the S&P 500 Index
will fall or rise. Trading prices of the stocks underlying the S&P 500 Index
will be influenced by both the complex and interrelated political, economic,
financial and other factors that can affect the capital markets generally and
the equity trading markets on which the underlying stocks are traded, and by
various circumstances that can influence the values of the underlying stocks in
a specific market segment or a particular underlying stock.
YOUR POSITIVE RETURN ON THE CERTIFICATES WILL BE LESS THAN YOUR RETURN ON
A SIMILAR INDEXED INSTRUMENT THAT IS DIRECTLY LINKED TO THE S&P 500 INDEX
BECAUSE OF THE EFFECT OF THE ADJUSTMENT FACTOR. Because the actual index values
of the S&P 500 Index during the calculation period will be reduced by the
adjustment factor in order to determine the Adjusted Ending Value, your positive
return on the certificates will be less than your return on a similar indexed
instrument that is directly linked to the S&P 500 Index but not subject to such
adjustment.
YOUR RETURN ON THE CERTIFICATES WILL NOT REFLECT THE RETURN YOU WOULD
REALIZE IF YOU ACTUALLY OWNED THE STOCKS UNDERLYING THE S&P 500 INDEX. Your
return on the certificates will not reflect the return you would realize if you
actually owned the stocks underlying the S&P 500 Index because of the trust's
ability to call the certificates at a fixed call price, the reduction caused by
the adjustment factor and because S&P calculates the S&P 500 Index by reference
to the prices of the stocks comprising the S&P 500 Index without taking into
consideration the value of any dividends paid on those stocks.
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FACTORS AFFECTING TRADING VALUE OF YOUR CERTIFICATES. We believe that the
value of your certificates in the secondary market will be affected by supply
and demand of the certificates, the value of the S&P 500 Index and a number of
other factors. Some of these factors are interrelated in complex ways; as a
result, the effect of any one factor may be offset or magnified by the effect of
another factor. The price at which you will be able to sell your certificates
prior to the final scheduled distribution date may be at a discount, which could
be substantial, from the principal amount thereof, if, at such time, the value
of the S&P 500 Index is less than, equal to, or not sufficiently above the
Starting Value of the S&P 500 Index. The following paragraphs describe what we
expect to be the impact on the market value of the certificates of a change in a
specific factor, assuming all other conditions remain constant.
THE TRADING PRICE OF THE CERTIFICATES MAY BE LIMITED DUE TO THE SWAP
COUNTERPARTY'S RIGHT TO OPTIONALLY TERMINATE THE SWAP AGREEMENT AND THUS
CAUSE THE TRUST TO CALL THE CERTIFICATES. The swap counterparty's right to
exercise its option to terminate the swap agreement and thus cause the
trust to call the certificates is likely to limit the secondary market
price at which the certificates will trade in the event that the value of
the S&P 500 Index exceeds the Starting Value of the S&P 500 Index by a
sufficient amount to make the termination of the swap agreement attractive
to the swap counterparty. In particular, the secondary market price of the
certificates during a call period is not expected to exceed the applicable
call price (even if the value of the S&P 500 Index were high enough to
cause the market price to do so in the absence of the call feature), due
to the fact that the certificates may be called at the call price. In such
circumstances, if the trust did not have the right to call the
certificates, the secondary market price of the certificates could be
significantly different.
THE MARKET VALUE OF THE CERTIFICATES WILL DEPEND ON THE VALUE OF THE S&P
500 INDEX BUT MAY NOT INCREASE BY AS MUCH AS AN INCREASE IN THE S&P 500
INDEX. The trust expects that the market value of the certificates will
likely depend substantially on the relationship between the value of S&P
500 Index at the time of pricing of the certificates and the future value
of the S&P 500 Index, as adjusted by an adjustment factor. If you choose
to sell your certificates when the value of the S&P 500 Index exceeds the
starting value, you may receive substantially less than the amount that
would be payable on the final scheduled distribution date based on that
value of the S&P 500 Index because of expectations that the S&P 500 Index
will continue to fluctuate between such time and the time when the ending
value of the S&P 500 Index is determined. If you choose to sell your
certificates when the value of the S&P 500 Index is below the value as of
the date the certificates are issued, you can expect to receive less than
the $10.00 initial principal amount per certificate. In general, rising
U.S. dividend rates (i.e., dividends per share) may increase the value of
the S&P 500 Index, while falling U.S. dividend rates my decrease the value
of the S&P 500 Index. Political, economic and other developments that
affect the stocks underlying the S&P 500 Index may also affect the value
of the S&P 500 Index and, thus, the value of the certificates.
THE MARKET VALUE OF THE CERTIFICATES WILL DECREASE IF INTEREST RATES
INCREASE. The trust expects that the trading value of the certificates will
be affected by changes in interest rates. In general, if interest rates
increase, the trading value of the certificates may be adversely affected,
and if interest rates decrease, the trading value of the certificates may
be favorably affected. Interest rates may also affect the economy and, in
turn, the value of the S&P 500 Index, which (for the reasons discussed
above) would affect the value of the certificates. Rising interest rates
may lower the value of the S&P 500 Index and, thus, the value of the
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certificates. Falling interest rates may increase the value of the S&P 500
Index and, thus, the value of the certificates.
THE TRADING VALUE OF THE CERTIFICATES MAY BE ADVERSELY AFFECTED BY THE
VOLATILITY OF THE S&P 500 INDEX. Volatility is the term used to describe
the size and frequency of market fluctuations. If the volatility of the
S&P 500 Index increases or decreases, the trading value of the
certificates may be adversely affected.
THE MARKET VALUE OF THE CERTIFICATES MAY BE ADVERSELY AFFECTED BECAUSE OF
EVENTS INVOLVING THE COMPANIES COMPRISING THE S&P 500 INDEX. General
economic conditions and earnings results of the companies whose common
stocks comprise the S&P 500 Index and real or anticipated changes in such
conditions or results may affect the market value of the certificates. In
addition, if the dividend yields on such common stocks increase, the value
of the certificates may be adversely affected because the S&P 500 Index
does not incorporate the value of dividend payments. Conversely, if
dividend yields on the common stocks decrease, the value of the
certificates may be favorably affected.
THE TRADING VALUE OF THE CERTIFICATES MAY BE ADVERSELY AFFECTED AS THE
TIME REMAINING TO FINAL SCHEDULED DISTRIBUTION DATE OF THE CERTIFICATES
DECREASES. The certificates may trade at a value above that which would be
expected based on the level of interest rates and the S&P 500 Index. Any
such difference will reflect a "time premium" resulting from expectations
concerning the value of the S&P 500 Index during the period prior to the
final scheduled distribution date of the certificates. However, as the
time remaining to the final scheduled distribution date of the
certificates decreases, this time premium may decrease, adversely
affecting the trading value of the certificates.
We want you to understand that the impact of one of the factors specified
above, such as an increase in interest rates, may offset some or all of any
change in the trading value of your certificates attributable to another factor,
such as an increase in the S&P 500 Index value.
In general, assuming all relevant factors are held constant, we expect
that the effect on the trading value of your certificates of a given change in
most of the factors listed above will be less if it occurs later in the term of
the certificates than if it occurs earlier in the term of the certificates.
YOU WILL HAVE LIMITED ABILITY TO ENFORCE RIGHTS WITH RESPECT TO THE TERM
ASSETS AND SWAP AGREEMENT. You will have no contractual right to act directly
with respect to the Term Assets or the swap agreement or to proceed directly
against the swap counterparty. Such rights will be reserved to the trustee.
THE TRUST WILL BE A PASSIVE FOREIGN INVESTMENT COMPANY FOR UNITED STATES
FEDERAL INCOME TAX PURPOSES. In order to avoid punitive united states tax rules
otherwise applicable to distributions on the certificates, eligible u.s.
purchasers of certificates should make "qualified electing fund" elections on
their income tax returns and file the related tax form (irs form 8621) for every
year that they hold the certificates. IRS Form 8621 is attached as Appendix B.
NO RULING HAS BEEN REQUESTED FROM THE INTERNAL REVENUE SERVICE WITH
RESPECT TO THE TAX TREATMENT OF THE CERTIFICATES. No statutory, judicial or
administrative authority directly addresses the characterization of the
certificates or instruments similar to the certificates for United States
federal income tax purposes. As a result, significant aspects of the United
States federal income tax consequences of an investment in the certificates are
not certain. No ruling is being
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requested from the Internal Revenue Service with respect to the certificates,
and no assurance can be given that the Internal Revenue Service will agree with
the conclusions expressed under "United States Federal Income Tax
Considerations."
THE COMPANY, THE UNDERWRITER, THE SWAP COUNTERPARTY AND THE CALCULATION
AGENT ARE AFFILIATES AND MAY HAVE INTERESTS ADVERSE TO THE HOLDERS OF THE
CERTIFICATES. The company, the underwriter, and the swap counterparty are
affiliates, and the swap counterparty is also the calculation agent for matters
relating to the certificates and the swap agreement. Potential conflicts of
interest may exist between the calculation agent and certificateholders.
THE UNDERWRITER MAY BE ENGAGED BY THE ISSUERS OF THE TERM ASSETS FROM TIME
TO TIME AND MAY HAVE INTERESTS ADVERSE TO THE HOLDERS OF THE CERTIFICATES. From
time to time, the underwriter may be engaged by the issuers of the Term Assets
as an underwriter or a placement agent, in an advisory capacity or in other
business arrangements. In addition, the underwriter or an affiliate of the
company may make a market in other outstanding securities of an issuer of the
Term Assets. Potential conflicts of interest may exist between the underwriter
and certificateholders.
THE VALUE OF THE CERTIFICATES MAY BE AFFECTED BY HEDGING ACTIVITIES OF THE
UNDERWRITER, THE SWAP COUNTERPARTY OR OTHER PARTIES. From time to time after the
initial offering of the certificates and prior to the final scheduled
distribution date for the certificates, depending on market conditions
(including the market price of the S&P 500 Index), in connection with hedging
with respect to the certificates, we expect that the swap counterparty, the
underwriter or one or more of their affiliates will increase or decrease their
initial hedging positions using dynamic hedging techniques and may take long or
short positions in the S&P 500 Index, in listed or over-the-counter option
contracts in, or other derivative or synthetic instruments related to, the S&P
500 Index. In addition, the swap counterparty, the underwriter or one or more of
its affiliates may purchase or otherwise acquire a long or short position in
certificates from time to time and may, in their sole discretion, hold, resell
or exchange such certificates. The swap counterparty, the underwriter or one or
more of its affiliates may also take positions in other types of appropriate
financial instruments that may become available in the future in connection with
the hedging arrangements hereunder. To the extent that the swap counterparty,
the underwriter or one or more of its affiliates have a long hedge position in
the S&P 500 Index or option contracts in, or other derivative or synthetic
instruments related to, the S&P 500 Index, the swap counterparty, the
underwriter or one or more of its affiliates may liquidate a portion of their
holdings at or about the final scheduled distribution date for the certificates.
Depending, among other things, on future market conditions, the aggregate amount
and the composition of such positions are likely to vary over time. Profits or
losses from any such position cannot be ascertained until such position is
closed out and any offsetting position or positions are taken into account.
Although we have no reason to believe that any such hedging activity will
have a material impact on the price of such options or other derivative
instruments, on the market price of the S&P 500 Index or on the value of the
certificates, there can be no assurance that the swap counterparty, the
underwriter or one or more of its affiliates will not affect such prices or
values as a result of such hedging activities.
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FORMATION OF THE TRUST
Structured Products Corp. (the "Depositor" or the "Company") will establish
a trust, to be designated the TIERS(SM) Callable Principal-Protected Asset
Backed Trust Series S&P 1999-2 (the "Trust") under Cayman Islands law pursuant
to the Trust Agreement to be dated as of the Closing Date (the "Trust
Agreement"), as supplemented by the TIERS(SM) Asset Backed Supplement Series S&P
1999-2 to be dated as of the Closing Date. The "Closing Date" means the date of
initial delivery of the Certificates. The trustee of the Trust will be The Bank
of New York Trust Company (Cayman) Limited (the "Trustee"), and the co-trustee
of the Trust will be The Bank of New York (the "Co-Trustee"). The assets of the
Trust will consist primarily of $_________ aggregate amount of asset backed
securities (collectively, the "Term Assets") issued by various issuers (each a
"Term Assets Issuer") and the ISDA Master Agreement and the Schedule and
Confirmation thereto (collectively, the "Swap Agreement"), each to be dated as
of the Closing Date, by and between the Trust and Salomon Smith Barney Holdings
Inc., (the "Swap Counterparty"). The Trust may also own from time to time
investment securities (the "Eligible Investments") purchased with amounts
received from the Swap Counterparty. See "Description of the Certificates" and
"Description of the Swap Agreement" herein. The assets of the Trust will be held
by the Co-Trustee, on behalf of the Trust, for the benefit of the holders of the
Certificates (the "Certificateholders").
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Certificates together with the payment to be made by the Swap Counterparty on
the Closing Date will be used to purchase the Term Assets, which, after the
purchase thereof, will be deposited by the Company with the Trust and, together
with the Swap Agreement, will be the sole Deposited Assets (as defined in the
Prospectus) of the Trust.
THE TERM ASSETS ISSUERS
This Prospectus Supplement does not provide information with respect to
the Term Assets Issuers. No investigation has been made of the financial
condition or creditworthiness of the Term Assets Issuers or any of their
subsidiaries in connection with the issuance of the Certificates. The Company is
not an affiliate of any of the Term Assets Issuers.
Each Term Assets Issuer is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by each Term Assets Issuer with the
Commission pursuant to the informational requirements of the Exchange Act can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional Offices of the Commission: New York
Regional Office, Seven World Trade Center, 13th Floor, New York, New York 10048,
and Chicago Regional Office, John C. Kluczynski Federal Building, Northwest
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can also be maintained upon written request addressed to
the Securities and Exchange Commission, Public Reference Section, Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a web site at http://www.sec.gov containing reports, proxy statements
and other information regarding registrants that file electronically with the
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Commission. Such reports, proxy statements and other information can also be
inspected at the offices of any stock exchange on which a Term Assets Issuer's
securities are listed.
THIS PROSPECTUS SUPPLEMENT, THE PROSPECTUS, THE TERM ASSETS PROSPECTUSES
(DEFINED BELOW) AND THE TERM ASSETS REGISTRATION STATEMENTS (DEFINED BELOW)
DESCRIBE THE MATERIAL TERMS OF THE TERM ASSETS. THIS PROSPECTUS SUPPLEMENT IS
QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH, (I) THE
PROSPECTUS, (II) THE TERM ASSETS PROSPECTUSES, AND (III) THE TERM ASSETS
REGISTRATION STATEMENTS OF WHICH SUCH TERM ASSETS PROSPECTUSES ARE A PART. NO
REPRESENTATION IS MADE BY THE TRUST, THE TRUSTEE, THE UNDERWRITER, THE SWAP
COUNTERPARTY OR THE COMPANY AS TO THE ACCURACY OR COMPLETENESS OF THE
INFORMATION CONTAINED IN THE TERM ASSETS PROSPECTUSES OR THE TERM ASSETS
REGISTRATION STATEMENTS.
DESCRIPTION OF THE TERM ASSETS
The Term Assets of the Trust will consist solely of $_________ aggregate
principal amount of asset backed securities. Each of the Term Assets is
described in an offering document (collectively, the "Term Assets
Prospectuses"), and were registered pursuant to a registration statement
(collectively, the "Term Assets Registration Statements") under the Securities
Act of 1933, as amended (the "Securities Act"). Certain information concerning
the Term Assets is set forth in Appendix A.
The disclosure under this caption in this Prospectus Supplement is
intended primarily to identify the Term Assets and does not purport to summarize
the Term Assets or to provide information with respect to the Term Assets
Issuers. Appendix A to this Prospectus Supplement which contains summary
information regarding the Term Assets, is derived solely from the description
thereof in the applicable Term Assets Prospectus. Such information does not
purport to be complete and is qualified in its entirety by, and should be read
in conjunction with, the applicable Term Assets Prospectus. This Prospectus
Supplement relates only to the Certificates offered hereby and does not relate
to an offering of the Term Assets. No representation is made by the Company, the
Trust, the Trustee, the Co-Trustee, the Underwriter or the Swap Counterparty as
to the accuracy or completeness of the information contained in any Term Assets
Prospectus. No investigation has been made by the Company, the Trust, the
Trustee, the Co-Trustee, the Underwriter or the Swap Counterparty of the
financial condition or creditworthiness of any Term Assets Issuer in connection
with the issuance of the Certificates.
YEAR 2000
Certain information technology ("IT") and non-IT systems (i.e. embedded
technology such as microcontrollers) may utilize older computer programs that
were written using two digits rather than four to define the applicable year.
Consequently, such computer programs may recognize a date using "00" as the year
1900 rather than the year 2000. These computer programs may fail to operate
properly in the year 2000 and after if they are not modified or replaced to
comply with year 2000 requirements.
The Term Assets Issuers may not timely conduct or complete a year 2000
assessment and there can be no assurance that the Term Assets Issuers will make
any necessary modifications or replacements of its IT or non-IT systems in time,
if at all. Failure to do so could result in a disruption of operations of the
Term Assets Issuers, including, among other things, a temporary inability to
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process funds or engage in similar normal business practices. As a result,
payments to Certificateholders may be interrupted or impaired.
THE UNDERWRITER AND THE TERM ASSETS ISSUERS
From time to time, Salomon Smith Barney Inc. (the "Underwriter") may be
engaged by the Term Assets Issuers as an underwriter or a placement agent, in an
advisory capacity or in other business arrangements. In addition, the
Underwriter or an affiliate of the Depositor may make a market in other
outstanding securities of a Term Assets Issuer.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the terms of the Trust
Agreement. The following summary as well as other pertinent information included
elsewhere in this Prospectus Supplement and in the Prospectus describes material
terms of the Certificates and the Trust Agreement, but does not purport to be
complete and is subject to, and qualified in its entirety by reference to, all
the provisions of the Certificates and the Trust Agreement. The following
summary supplements the description of the general terms and provisions of the
Certificates of any given series and the related Trust Agreement set forth in
the Prospectus, to which description reference is hereby made.
The Certificates will be denominated and distributions with respect
thereto will be payable in United States Dollars, which will be the "Specified
Currency" as such term is defined in the Prospectus. The Certificates represent
in the aggregate the entire beneficial ownership interest in the Trust. The
property of the Trust will consist of (i) the Term Assets, (ii) the Swap
Agreement and (iii) any Eligible Investments owned by the Trust.
The Certificates represent undivided fractional beneficial interests in
the assets of the Trust and all distributions to Certificateholders will be made
only from the property of the Trust as described herein. The Certificates do not
represent an interest in or obligation of the Company, the Term Assets Issuers,
the Swap Counterparty, the Trustee, the Co-Trustee, the Underwriter or any
affiliate if any thereof.
PAYMENT ON THE FINAL SCHEDULED DISTRIBUTION DATE
Unless the Certificates have been previously called by the Trust or a Term
Assets Credit Event or a Swap Termination Date occurs, on ________ __, 2006 (the
"Final Scheduled Distribution Date"), Certificateholders will be entitled to
receive the principal amount thereof plus an Interest Distribution Amount (as
defined below), if any, as provided below. If the Adjusted Ending Value (as
defined below) does not exceed the Starting Value (as defined below),
Certificateholders will be entitled to receive only the principal amount
thereof. The principal amount will equal $10 per Certificate.
INTEREST DISTRIBUTION AMOUNT
Unless the Certificates have been previously called by the Trust or a Term
Assets Credit Event or a Swap Termination Date occurs, on the Final Scheduled
Distribution Date, the holders of
S-18
<PAGE>
the Certificates are entitled to receive an interest distribution (the "Interest
Distribution Amount") per Certificate determined according to the following
formula:
$10 X ADJUSTED ENDING VALUE - STARTING VALUE
--------------------------------------
Starting Value
provided, however, that in no event will the Interest Distribution Amount be
less than zero. As indicated in the formula above, the Interest Distribution
Amount will be calculated using the principal amount of the Certificates.
The "Adjusted Ending Value" will be determined by the Calculation Agent
and will equal the average (arithmetic mean) of the closing values of the S&P
500 Index as adjusted by the Adjustment Factor (the "Adjusted Index Value") on
each of the first five Calculation Days during the Calculation Period. If there
are fewer than five Calculation Days, then the Adjusted Ending Value will equal
the average (arithmetic mean) of the closing values of the Adjusted Index Value
on such Calculation Days, and if there is only one Calculation Day, then the
Adjusted Ending Value will equal the closing value of the Adjusted Index Value
on such Calculation Day. If no Calculation Days occur during the Calculation
Period, then the Adjusted Ending Value will equal the closing value of the S&P
500 Index as adjusted by the Adjustment Factor on the last scheduled Index
Business Day in the Calculation Period, regardless of the occurrence of a Market
Disruption Event on such day.
The "Adjustment Factor"is expected to be between 1.25% and 1.75% per
annum, and will be applied pro rata on a daily basis to reduce the value of the
S&P 500 Index during the term of the Certificates. We will determine the
Adjustment Factor on the date of pricing of the Certificates (the "Pricing
Date") and disclose it in the final Prospectus Supplement delivered to you in
connection with the sale of the Certificates. As a result of the application of
the Adjustment Factor, the Adjusted Ending Value used to calculate the Interest
Distribution Amount is expected to be 8.43% to 11.63% less than the actual
average of the S&P 500 Index values as calculated on each of the Calculation
Days during the Calculation Period. If the Adjusted Ending Value is calculated
with respect to a date earlier than the Final Scheduled Distribution Date, the
Adjustment Factor will be reduced pro rata to reflect the number of days elapsed
between the Pricing Date and such date.
The "Starting Value" will equal the closing value of the S&P 500 Index on
the Pricing Date. We will determine the Starting Value on the Pricing Date and
disclose it to investors in the final Prospectus Supplement delivered to you in
connection with the sale of the Certificates.
The "Calculation Period" means the period from and including the seventh
scheduled Index Business Day prior to the Final Scheduled Distribution Date to
and including the second scheduled Index Business Day prior to the Final
Scheduled Distribution Date. A "Calculation Day" means any Index Business Day
during the Calculation Period on which a Market Disruption Event has not
occurred. An "Index Business Day" is a day on which the New York Stock Exchange
("NYSE") and the American Stock Exchange ("AMEX") are open for trading and the
S&P 500 Index or any Successor Index, as defined below, is calculated and
published. The Calculation Agent may, in its discretion, add to (or delete from)
the definition of "Index Business Day" any other major U.S. exchange which
commences to serve (or ceases to serve) as the primary exchange upon which a
stock underlying the S&P 500 Index trades or as an exchange upon which a futures
contract, an option on a futures contract or an option contract relating to the
S&P 500 Index trades. All determinations made by the Calculation Agent shall be
at the sole discretion of the Calculation Agent
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<PAGE>
and shall be conclusive for all purposes and binding on the Company and the
beneficial owners of the Certificates, absent manifest error.
"Market Disruption Event" means any of the following events,
as determined by the Calculation Agent.
(a) The suspension or material limitation of trading in 20% or more of the
underlying stocks which then comprise the S&P 500 Index or any Successor
Index, in each case, for more than two hours of trading or during the
one-half hour period preceding the close of trading on the NYSE, Nasdaq,
or any other applicable organized U.S. exchange. For purposes of this
definition, limitations on trading during significant market fluctuations
imposed pursuant to NYSE Rule 80B (or any applicable rule or regulation
enacted or promulgated by the NYSE, Nasdaq, any other self regulatory
organization or the SEC of similar scope or as a replacement for Rule 80B,
as determined by the Calculation Agent) shall be considered "material."
(b) The suspension or material limitation, in each case, for more than two
hours of trading or during the one-half hour period preceding the close of
trading (whether by reason of movements in price exceeding levels
permitted by the relevant exchange or otherwise) in (A) futures contracts
related to the S&P 500 Index or any Successor Index or options on such
futures contracts which are traded on any major U.S. exchange or (B)
options contracts related to the S&P 500 Index or any Successor Index
which are traded on the Chicago Board Options Exchange or any other major
U.S. exchange.
(c) The unavailability, through a recognized system of public
dissemination of transaction information, for more than two hours of
trading or during the one-half hour period preceding the close of trading,
of accurate price, volume or related information in respect of 20% or more
of the underlying stocks which then comprise the S&P 500 Index or any
Successor Index or in respect of futures contracts related to the S&P 500
Index or any Successor Index, options on such futures contracts or options
contracts related to the S&P 500 Index or any Successor Index, in each
case traded on any major U.S. exchange.
For purposes of determining whether a Market Disruption Event has occurred:
(1) a limitation on the hours 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 or market, (2) a decision to discontinue
permanently trading in the relevant futures or options contract will not
constitute a Market Disruption Event, (3) any suspension in trading in a futures
or options contract on the S&P 500 Index or any Successor Index by a major
securities market by reason of (x) a price change violating limits set by such
securities market, (y) an imbalance of orders relating to such contracts or (z)
a disparity in bid and ask quotes relating to such contracts will constitute a
Market Disruption Event, notwithstanding that such suspension or material
limitation is less than two hours, and (4) a "suspension or material limitation"
on an exchange or in a market will include a suspension or material limitation
of trading by one class of investors provided that such suspension continues for
more than two hours of trading or during the last one-half hour period preceding
the close of trading on the relevant exchange or market (but will not include
limitations imposed on certain types of trading under NYSE Rule 80A or any
applicable rule or regulation enacted or promulgated by the NYSE, any other
self-regulatory organization or the SEC of a similar scope or as a replacement
for Rule 80A, as determined by the Calculation Agent) and will not
S-20
<PAGE>
include any time when such exchange or market is closed for trading as part of
such exchange's or market's regularly scheduled business hours. Under certain
circumstances, the duties of Salomon Smith Barney Inc. as Calculation Agent in
determining the existence of Market Disruption Events could conflict with the
interests of Salomon Smith Barney Inc. as an affiliate of the issuer of the
Certificates.
Based on the information currently available to the Company, on October
27, 1997, the NYSE suspended all trading during the one-half hour period
preceding the close of trading, pursuant to NYSE Rule 80B. If such a suspension
of trading occurred during the term of the Certificates, such event would
constitute a Market Disruption Event. The existence or non-existence of such
circumstances, however, is not necessarily indicative of the likelihood of such
circumstances arising or not arising in the future.
SUPPLEMENTAL DISTRIBUTIONS
Holders of the Certificates are entitled to receive semiannual
distributions on each _______ and _______ equal to (i) the earnings, if any,
from Eligible Investments (as defined herein) purchased from amounts paid by the
Swap Counterparty which represent Term Assets Price Return Amounts (as defined
herein) plus (ii) any Excess Investment Interest (as defined herein).
Distributions of such earnings, if any, and any Excess Investment Interest will
only be made if the distributions equal or exceed [$____] (the "Distribution
Threshold"). If such earnings do not equal or exceed the Distribution Threshold,
the earnings will be reinvested and distributed on the earlier of the date the
Distribution Threshold is satisfied and the Final Scheduled Distribution Date.
No representation is made by the Company or the Trust as to whether any Eligible
Investments will be owned by the Trust and whether any earnings or Excess
Investment Interest will be distributed to Certificateholders.
Holders of the Certificates are also entitled to receive on the Final
Scheduled Distribution Date, the Call Date or any Swap Termination Date, as the
case may be, the excess of the sale price of the Term Assets over the par amount
of the Term Assets plus accrued interest thereon to the sale date.
CALL RIGHT
The Trust has the right (the "Call Right"), upon not less than 15 days'
prior notice (such notice, the "Call Notice" and the date of such notice, the
"Trust Notice Date"), to call the Certificates, in whole but not in part, on any
Business Day during the 30-day period beginning on ________ __ in each of 2002,
2003, 2004 or 2005 (each a "Call Date") at the following Call Price:
<TABLE>
CALL PERIOD CALL PRICE
<S> <C>
30 Day Period Beginning ___________, 2002 [$14.50-$17.50] ([145%-175%] of
the principal amount)
30 Day Period Beginning ___________, 2003 [$16.00-$20.00] ([160%-200%] of
the principal amount)
30 Day Period Beginning ___________, 2004 [$17.50-$22.50] ([175%-225%] of
the principal amount)
30 Day Period Beginning ___________, 2005 [$19.00-$25.00] ([190%-250%] of
the principal amount)
</TABLE>
S-21
<PAGE>
The Co-Trustee shall exercise the Call Right and send the required Call
Notice only upon receipt of the Swap Counterparty Optional Termination Notice
(as defined herein), and shall fix the Call Date on the date indicated in the
Swap Counterparty Optional Termination Notice.
Generally, the Swap Counterparty can be expected to terminate the Swap
Agreement, and cause the Trustee to exercise the Call Right, if the value of the
S&P 500 Index has increased to a level at which the expected market value of
certificates with identical terms but without the relevant call would be greater
than the Call Price that the Trust would have to pay on the relevant Call Date.
A number of other factors can also be expected to affect the value of the
Certificates (and thus the likelihood that the Swap Counterparty will terminate
the Swap Agreement and cause the Trust to call the Certificates) at any time.
See "Risk Factors."
DISCONTINUANCE OF THE 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 herein as a "Successor Index"), then the Adjusted
Ending Value shall be determined by reference to the value of such Successor
Index using the methodology described above under "Interest Distribution Amount"
herein.
Upon any selection by the Calculation Agent of a Successor Index, the
Calculation Agent will cause notice thereof to be furnished to the Company, the
Trustee and the Co-Trustee, who shall provide notice thereof to the registered
holders of the Certificates.
If S&P discontinues publication of the S&P 500 Index and a Successor Index
is not selected by the Calculation Agent or is no longer published on any
Calculation Day, the value to be substituted for the S&P 500 Index for any such
Calculation Day used to calculate the Interest Distribution Amount will be a
value computed by the Calculation Agent for such Calculation Day in accordance
with the procedures last used to calculate the S&P 500 Index prior to any such
discontinuance.
If S&P discontinues publication of the S&P 500 Index prior to the period
during which the Interest Distribution Amount is to be determined and the
Calculation Agent determines that no Successor Index is available at such time,
then on each Index Business Day until the earlier to occur of (a) the
determination of the Adjusted Ending Value and (b) a determination by the
Calculation Agent that a Successor Index is available, the Calculation Agent
shall determine the value that would be used in computing the Interest
Distribution Amount as described in the preceding paragraph as if such day were
a Calculation Day. [The Calculation Agent will cause notice of each such value
to be published not less often than once each month in THE WALL STREET JOURNAL
(or another newspaper of general circulation), and arrange for information with
respect to such values to be made available by telephone.] Notwithstanding these
alternative arrangements, discontinuance of the publication of the S&P 500 Index
may adversely affect trading in the Certificates.
If a Successor Index is selected or the Calculation Agent calculates a
value as a substitute for the S&P 500 Index as described above, such Successor
Index or value shall be substituted for the S&P 500 Index for all purposes,
including for purposes of determining whether an Index Business Day occurs or a
Market Disruption Event exists. Notwithstanding these alternative arrangements,
discontinuance of the publication of the S&P 500 Index may adversely affect the
value of the Certificates.
S-22
<PAGE>
ALTERATION OF METHOD OF CALCULATION
If at any time the method of calculating the S&P 500 Index or a Successor
Index is changed in any material respect, or if the S&P 500 Index or a Successor
Index is in any other way modified so that the value of the S&P 500 Index or
such Successor Index does not, in the opinion of the Calculation Agent, fairly
represent the value thereof had such changes or modifications not been made,
then, from and after such time, the Calculation Agent shall, at the close of
business in New York, New York, on each date that the closing value with respect
to the Adjusted Ending Value is to be calculated, make such adjustments as, in
the good faith judgment of the Calculation Agent, may be necessary in order to
arrive at a calculation of a value of a stock index comparable to the S&P 500
Index or such Successor Index as if such changes or modifications had not been
made, and calculate such closing value with reference to the S&P 500 Index or
such Successor Index, as adjusted. Accordingly, if the method of calculation the
S&P 500 Index or such Successor Index is modified so that the value of the S&P
500 Index or such Successor 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 the S&P 500 Index in order to
arrive at a value of the S&P 500 Index as if it had not been modified (E.G., as
if such split had not occurred).
HYPOTHETICAL RETURNS
The following table illustrates, for a range of hypothetical ending values
of the S&P 500 Index during the Calculation Period and based upon the
hypothetical Starting Value of 1,342.44 and a seven year maturity of the
Certificates, (i) the hypothetical Adjusted Ending Value used to calculate the
Interest Distribution Amount; (ii) the percentage change from the hypothetical
Starting Value to the hypothetical Adjusted Ending Value; (iii) the hypothetical
total amount payable per Certificate; (iv) the hypothetical total rate of return
on the Certificates; (v) the hypothetical pretax annualized rate of return on
the Certificates; and (vi) the hypothetical pretax annualized rate of return on
the stocks underlying the S&P 500 Index (which includes an assumed aggregate
dividend yield of 1.24% per annum, as more fully described below). The
calculations in this table are based on the hypothetical Adjustment Factor of
1.5% per annum (or 10.0391% over the term of the Certificates) which is the
midpoint of the expected range of 1.25% to 1.75%. This table assumes that the
Certificates remain outstanding until the Final Scheduled Distribution Date.
S-23
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
Total
Percentage Amount Pretax
Change of Payable Annualized
Adjusted on the Total Pretax Rate of
Ending Final Rate of Annualized Return on
Value Over Scheduled Return Rate of Stocks
Hypothetical Hypothetical the Distribution on the Return on Underlying
Ending Adjusted Hypothetical Date Per Certificates the The S&P
Index Ending Starting $10 Certificates(3) 500Index
Value(1) Value (2) Value Certificate (3)(4)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
939.71 845.37 -37.03% $10.00 0.00% 0.00% -3.79%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1,073.95 966.14 -28.03% $10.00 0.00% 0.00% -1.92%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1,208.20 1,086.90 -19.04% $10.00 0.00% 0.00% -0.26%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1,342.44(5) 1,207.67 -10.04% $10.00 0.00% 0.00% 1.24%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1,476.68 1,328.44 -1.04% $10.00 0.00% 0.00% 2.61%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1,610.93 1,449.20 7.95% $10.80 7.95% 1.10% 3.87%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1,745.17 1,569.97 16.95% $11.69 16.95% 2.25% 5.04%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1,879.42 1,690.74 25.95% $12.59 25.95% 3.32% 6.13%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,013.66 1,811.51 34.94% $13.49 34.94% 4.32% 7.15%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,147.90 1,932.27 43.94% $14.39 43.94% 5.27% 8.11%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,282.15 2,053.04 52.93% $15.29 52.93% 6.16% 9.01%
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,416.39 2,173.81 61.93% $16.19 61.93% 7.00% 9.87%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,550.64 2,294.57 70.93% $17.09 70.93% 7.80% 10.69%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,684.88 2,415.34 79.92% $17.99 79.92% 8.56% 11.47%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,819.12 2,536.11 88.92% $18.89 88.92% 9.29% 12.21%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,953.37 2,656.88 97.91% $19.79 97.91% 9.99% 12.92%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,087.61 2,777.64 106.91% $20.69 106.91% 10.65% 13.60%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,221.86 2,898.41 115.91% $21.59 115.91% 11.29% 14.26%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,356.10 3,019.18 124.90% $22.49 124.90% 11.91% 14.89%
- -------------------------------------------------------------------------------
- --------------------------
</TABLE>
(1) The ending value of the S&P 500 Index is equal to the average of the
unadjusted S&P 500 Index values on each of the Calculation Days during the
Calculation Period and does not reflect the application of the Adjustment
Factor.
(2) The Adjusted Ending Value, for purposes of calculating the Interest
Distribution Amount, will be equal to the average of the unadjusted S&P
500 Index values on each of the Calculation Days during the Calculation
Period, as reduced by the Adjustment Factor. The Calculation Period, for
purposes of this illustration, consists of five Calculation Days.
(3) These annualized rates of return are calculated on a semi-annual
bond-equivalent basis.
(4) This rate of return assumes (i) a constant dividend yield of 1.24% per
annum, paid quarterly from the date of initial delivery of the
Certificates, applied to the value of the S&P 500 Index at the end of each
such quarter assuming such value increases or decreases linearly from the
Starting Value to the hypothetical ending value; (ii) no transaction fees
or expenses; (iii) a seven-year maturity of the Certificates from date of
issue; and (iv) a final ending value of the S&P 500 Index equal to the
hypothetical ending value.
(5) Hypothetical starting value. The closing value of the S&P 500 Index on
October 28, 1999 equaled 1,342.44. The actual Starting Value will equal
the closing value of the S&P 500 Index on the Pricing Date, and will be
disclosed in the final Prospectus Supplement delivered to investors in
connection with the sale of the certificates.
The above figures are for purposes of illustration only. The actual
Interest Distribution Amount and the total and pretax rate of return resulting
therefrom will depend entirely on the Starting Value, the Adjustment Factor and
the actual Adjusted Ending Value determined by the Calculation Agent as provided
herein. In particular, the actual Adjusted Ending Value could be
S-24
<PAGE>
lower or higher than those reflected in the table. Historical data regarding the
S&P 500 Index is included in this Prospectus Supplement under "Description of
the S&P 500 Index - Historical Data on the Index."
PAYMENTS UPON TERM ASSETS CREDIT EVENT
If a Term Assets Credit Event (as defined herein) occurs, the Co-Trustee
will sell the Term Assets and Eligible Investments to the highest bidder and the
Swap Agreement will terminate. Upon the termination date, the Trust will pay to
the Swap Counterparty an amount equal to the Net Aggregate Term Assets Price
Return Amount (as defined herein), if any. The proceeds from the sale of the
Term Assets and Eligible Investments, net of any amounts owed to the Swap
Counterparty upon the termination of the Swap Agreement plus any amounts paid by
the Swap Counterparty upon the termination of the Swap Agreement, will be
distributed pro rata to the holders of the Certificates. In addition, a payment
equal to the market value of the Swap Agreement, as determined by the
Calculation Agent, will be made by the Trust to the Swap Counterparty or will be
made to the Trust by the Swap Counterparty, as the case may be. See "Description
of the Swap Agreement-Payments Upon Term Assets Credit Event" herein.
LISTING ON THE AMERICAN STOCK EXCHANGE
Application will be made to list the Certificates on the American Stock
Exchange ("AMEX"). Trading of the certificates on the American Stock Exchange is
expected to commence within a 30-day period after the initial delivery thereof
or earlier. There can be no assurance that the Certificates, once listed, will
continue to be eligible for trading on the AMEX.
FORM OF THE CERTIFICATES
The Certificates will be delivered in registered form. The Certificates
will be issued, maintained and transferred on the book-entry records of The
Depositary Trust Company ("DTC") and its Participants (as defined below) in
minimum denominations of $10 and integral multiples thereof. Certificateholders
will not receive physical certificates.
BOOK-ENTRY SYSTEM
Upon issuance, all Certificates will be represented by one or more
fully-registered global securities (the "Global Certificates"). Each such Global
Certificate will be deposited with, or on behalf of, DTC and registered in the
name of DTC or a nominee thereof. Unless and until it is exchanged in whole or
in part for Certificates in definitive form, no Global Certificate may be
transferred except as a whole by DTC to a nominee of DTC or by a nominee of DTC
to DTC or another nominee of DTC or by DTC or any such nominee to a successor of
DTC or a nominee of such successor. Accountholders in the Euroclear or Cedel
Bank clearance systems may hold beneficial interests in the Certificates through
the accounts that each such system maintains as a participant in DTC.
DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code and a `clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC holds securities that its
S-25
<PAGE>
participants ("Participants") deposit with DTC. DTC also facilitates the
settlement among Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct Participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations ("Direct Participants"). DTC is owned by a number of its
Direct Participants and by the NYSE, the American Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others, such as securities brokers and dealers, banks and
trust companies that clear transactions through, or maintain a custodial
relationship with, a Direct Participant, either directly or indirectly. The
rules applicable to DTC and its Participants are on file with the SEC.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Certificates will be made by the Underwriter in
same-day funds. All distributions on the Certificates will be made in same-day
funds so long as the Certificates are maintained in book-entry form.
CALCULATION AGENT
The Calculation Agent for the Certificates will be Salmon Smith Barney
Inc. (the "Calculation Agent"). All determinations made by the Calculation Agent
shall be at the sole discretion of the Calculation Agent and shall, in the
absence of manifest error, be conclusive for all purposes and binding on the
Company and the holders of the Certificates. Because the Calculation Agent is an
affiliate of the Company, potential conflicts of interest may exist between the
Calculation Agent and the holders of the Certificates, including with respect to
certain determinations and judgments that the Calculation Agent must make in
determining the Adjusted Ending Value, the Interest Distribution Amount or
whether a Market Disruption Event has occurred. See "--Discontinuance of the S&P
500 Index" and "--Alteration of Method of Calculation" above. Salomon Smith
Barney Inc. is obligated to carry out its duties and functions as the
Calculation Agent in good faith and use its reasonable judgment.
DESCRIPTION OF THE SWAP AGREEMENT
GENERAL
The Swap Agreement will be governed by New York law and will be documented
on the form of master agreement published by the International Swaps and
Derivatives Association, Inc. in 1992. Under the Swap Agreement, the Trust and
the Swap Counterparty will be obligated to make payments to each other, as
specified in the Swap Agreement. Periodic payments by the Swap Counterparty to
the Trust will be based on a notional amount equal to the aggregate principal
amount of the Certificates outstanding from time to time. Periodic payments to
the Swap Counterparty from the Trust will be based on notional amounts equal to
the principal amount of each Term Asset. The payment obligations of the Trust
under the Swap Agreement will be computed in a manner, and paid on dates,
designed to match payments to be received by the Trust on the Term Assets.
Similarly, the amounts to be received by the Trust under the Swap Agreement will
be computed in a manner designed to match payments to be made by the Trust on
the Certificates. The parties' payment obligations with respect to the Swap
Agreement will be settled on a net basis in accordance with prevailing practice
in the swap market. The Swap Agreement may be amended by the Trust and the
S-26
<PAGE>
Swap Counterparty without the consent of Certificateholders provided that such
amendment does not materially adversely affect the rights of the
Certificateholders.
PERIODIC PAYMENTS
The Trust will pay all periodic payments received on the Term Assets on
the date of receipt thereof (each such date, a "Term Assets Payment Date") to
the Swap Counterparty. In addition, on each Term Assets Payment Date, any Swap
Termination Date, any Call Date and on the Final Scheduled Distribution Date
(each such date, a "Valuation Date"), the Calculation Agent will determine (i)
the mark to market value (on the bid side) of the Term Assets (the "Market
Value") as of such date and (ii) an amount (the "Term Assets Price Return
Amount") equal to the difference between (a) the lesser of (x) the Market Value
of such Term Assets as of such date and (y) the par amount of such Term Assets
and (b) (A) in case of the first Term Assets Payment Date for any Term Assets,
the par amount of such Term Assets, and (B) on all other Term Assets Payment
Dates, the lesser of (x) the Market Value of such Term Assets as of the
immediately preceding Term Assets Payment Date and (y) the par amount of such
Term Assets. If the Term Assets Price Return Amount is negative, then the Swap
Counterparty shall pay such amount to the Trust. If the Term Assets Price Return
Amount is positive, then the Trust will pay such amount to the Swap
Counterparty. Under the above formula, any excess of the Market Value of the
Term Assets over their par amount will not result in a payment from the Trust to
the Swap Counterparty. The Term Assets Price Return Amount will be calculated
separately for each Term Asset and will not be netted across Term Assets. All
Term Assets Price Return Amounts received by the Trust will be invested in
Eligible Investments and interest earned on such Eligible Investments will be
distributed to Holders of Certificates as provided herein. No Term Assets Price
Return Amount will be paid on a Term Assets Payment Date unless the Term Assets
Price Return Amount exceeds $10,000, provided, however, that any Term Assets
Price Return Amount which by reason of this sentence is not required to be paid
will be carried forward and taken into account in any future Term Assets Price
Return Amount. If, on any Term Assets Payment Date, a Term Assets Price Return
Amount is owed to the Swap Counterparty, the Trust will sell Eligible
Investments in amounts necessary to pay such Term Assets Price Return Amount to
the Swap Counterparty.
PAYMENTS ON FINAL SCHEDULED DISTRIBUTION DATE
On the Final Scheduled Distribution Date, the Co-Trustee will sell the
Term Assets and Eligible Investments owned by the Trust and pay the proceeds
thereof (other than the proceeds of any Eligible Investments representing
investment earnings on the Term Assets Price Return Amount) to the Swap
Counterparty to the extent such proceeds do not exceed the par amount of, plus
accrued interest on, the Term Assets and Eligible Investments. On the Final
Scheduled Distribution Date, the Swap Counterparty will pay to the Trust an
amount equal to the principal amount of the Certificates plus the Interest
Distribution Amount then due on the Certificates.
SWAP COUNTERPARTY OPTIONAL TERMINATION NOTICE
On any Business Day during the 30-day period beginning on the anniversary
of the Pricing Date in each of 2002, 2003, 2004 or 2005, the Swap Counterparty
has the right to terminate the Swap Agreement and have the Trust exercise the
Call Right and fix the Call Date upon 20 days' prior notice to the Trust (such
right, the "Swap Counterparty Optional Termination Notice"). In the event the
Swap Counterparty elects to terminate the Swap Agreement, the Swap Counterparty
will pay to the Trust on or prior to the Call Date an amount for each $10.00
principal amount of Certificates equal to
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the Call Price, and (ii) the Trust will sell the Term Assets and Eligible
Investments and pay the proceeds thereof (other than the proceeds of any
Eligible Investments representing earnings on the Term Assets Price Return
Amounts) to the Swap Counterparty on the Call Date to the extent that such
proceeds do not exceed the par amount of, plus accrued interest on, the Term
Assets.
TERMINATION OF SWAP AGREEMENT
The Swap Agreement will terminate following the earliest of (i) the Final
Scheduled Distribution Date, (ii) a Swap Termination Date, (iii) notification by
the Swap Counterparty to the Trust of the occurrence of a Term Assets Credit
Event or (iv) a Call Date, in the case of a Swap Counterparty Optional
Termination Notice delivered with respect to all Certificates.
PAYMENTS UPON SWAP TERMINATION DATE
Upon the occurrence of a Swap Termination Date, the Co-Trustee will sell
the Term Assets and the Eligible Investments, and a payment equal to the market
value of the Swap Agreement will be made by the Trust to the Swap Counterparty
or by the Swap Counterparty to the Trust, as the case may be; provided, however,
that (a) the Trust will have no obligation to make a payment to the Swap
Counterparty to the extent that after such payment, the remaining proceeds from
the sale of the Term Assets and Eligible Investments do not equal or exceed the
principal amount of the Certificates and (b) if such proceeds, plus any payment
from the Swap Counterparty to the Trust, or minus any payment from the Trust to
the Swap Counterparty, equals an amount less than the principal amount of the
Certificates, then the Swap Counterparty shall pay to the Trust an amount equal
to such shortfall. If a payment is to be made by the Trust to the Swap
Counterparty, the payment will be made from the proceeds of the sale of the Term
Assets and the Eligible Investments on or prior to two Business Days after the
Swap Termination Date, and the remainder of the proceeds will be distributed to
the holders of the Certificates on or prior to two Business Days after the Swap
Termination Date.
The market value of the Swap Agreement will be determined by the
Calculation Agent based on a "Market Quotation" (as defined below); provided,
however, if a Market Quotation cannot be determined or would not produce a
commercially reasonable result, the termination payment will be calculated based
on the "Loss" (as defined below) of the Swap Counterparty. In determining the
market value of the Swap Agreement, the payment of the Term Assets Price Return
Amounts will not be considered.
"Market Quotation" means an amount determined by the Swap Counterparty on
the basis of quotations from three leading dealers in the relevant interest rate
market, selected by the Swap Counterparty, each of which quotations will be for
an amount, if any, that would be paid to the Swap Counterparty or by the Swap
Counterparty in consideration of an agreement between the Swap Counterparty and
the quoting dealer to enter into a transaction that would have the effect of
preserving for the Swap Counterparty the economic equivalent of the Swap
Agreement (assuming the Swap Agreement was not being terminated).
"Loss" means the amount that the Swap Counterparty reasonably determines
in good faith to be its total losses and costs (or gains) in connection with the
termination of the Swap Agreement. Loss does not include a party's legal fees
and out-of-pocket expenses with respect to enforcing and protecting its rights
under the Swap Agreement. Under the Swap Agreement, the Swap Counterparty will
determine its Loss as of the termination date of the Swap Agreement or, if not
reasonably practicable, as of the earliest date thereafter as is reasonably
practicable.
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"Swap Termination Date" means the early termination date as defined in the
Swap Agreement, which date may be designated as set forth in the Swap Agreement
upon the occurrence of certain events including, but not limited to, (i) the
third Business Day after the giving of notice of a payment default by the Swap
Counterparty under the Swap Agreement, (ii) the thirtieth day after the giving
of notice of any default by either party (other than any payment default) under
the Swap Agreement, (iii) illegality on the part of the Company or the Swap
Counterparty to be a party to, or perform any obligation under, the Swap
Agreement, (iv) the occurrence of certain tax events specified in the Swap
Agreement or (v) any Term Assets Issuer fails to satisfy its reporting
obligations under the Exchange Act.
PAYMENTS UPON TERM ASSETS CREDIT EVENT
Upon notification from the Swap Counterparty to the Trust of the
occurrence of a Term Assets Credit Event, the Swap Agreement will terminate and
the Co-Trustee will sell the Term Assets and Eligible Investments. Upon the
termination date, the Trust will pay to the Swap Counterparty an amount equal to
the Net Aggregate Term Assets Price Return Amount (as defined herein), if any.
In addition, a payment equal to the market value of the Swap Agreement, as
determined by the Calculation Agent (as described above in "--Payments Upon Swap
Termination Date"), will be made by the Trust to the Swap Counterparty or will
be made to the Trust by the Swap Counterparty, as the case may be. If such a
payment is to be made by the Trust to the Swap Counterparty, the payment will be
made from the proceeds of the sale of the Term Assets and Eligible Investments
(other than any Eligible Investments representing earnings on the Term Assets
Price Return Amounts), and the remainder of the proceeds will be distributed pro
rata to the holders of the Certificates. The "Net Aggregate Term Assets Price
Return Amount" equals, as of any date of determination, an amount equal to the
difference between (i) all Term Assets Price Return Amounts paid by the Swap
Counterparty to the Trust and (ii) all Term Assets Price Return Amounts paid by
the Trust to the Swap Counterparty.
"Term Assets Credit Event" means (i) as a result of a reduction in
payments made to holders of the Term Assets, the Company fails to make a payment
owed to the Swap Counterparty pursuant to the Swap Agreement or (ii) the stated
amount of any of the Term Assets is reduced by the Term Assets Issuer thereof
without a corresponding payment to the holder of such Term Asset.
AMORTIZATION OF TERM ASSETS
If an amortization period occurs with respect to the Term Assets or
payments of principal are received with respect to any Term Assets prior to the
Final Scheduled Distribution Date (such Term Assets being referred to as the
"Affected Term Assets"), payments of principal made on such Affected Term Assets
will be invested in other asset backed securities rated in the highest rating
category of at least one nationally recognized rating agency as directed by the
Swap Counterparty or, if no such asset-backed securities are available, the
Trust will invest in Eligible Investments. Interest earnings on such substituted
Term Assets or Eligible Investments will be paid to the Swap Counterparty up to
an amount equal to the interest that would have been earned on the Term Assets
had there been no amortization period or principal payments. Any interest earned
on such substituted Term Assets or Eligible Investments in excess of such amount
(the "Excess Investment Interest") will be distributed to Certificateholders as
provided herein. Any substituted Term Assets and any Eligible Investments
purchased with payments of principal on Affected Term Assets will be treated as
Term Assets for purposes of payments to be made under the Swap Agreement, upon
the
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termination of the Swap Agreement, and for calculating the Market Value of
the Term Assets and the Term Assets Price Return Amount.
"Eligible Investments" means any one or more of the
following obligations or securities:
(a) direct obligations of, and obligations fully guaranteed by, the United
States, the Federal Home Loan Mortgage Corporation, the Federal National
Mortgage Association, the Federal Farm Credit System or any agency or
instrumentality of the United States the obligations of which are backed by the
full faith and credit of the United States of America; provided that obligations
of, or guaranteed by, the Federal Home Loan Mortgage Corporation, the Federal
National Mortgage Association or the Federal Farm Credit System will be Eligible
Investments only if, at the time of investment, they have the rating specified
in the Trust Agreement for Eligible Investments;
(b) demand and time deposits in, certificates of deposit of, or banker's
acceptances issued by, any depository institution or trust company (including
the Co-Trustee or any agent of the Co-Trustee acting in their respective
commercial capacities) incorporated under the laws of the United States or any
State and subject to supervision and examination by Federal and/or State banking
authorities so long as the commercial paper and/or the short-term debt
obligations of such depository institution or trust company (or, in the case of
a depository institution which is the principal subsidiary of a holding company,
the commercial paper or other short-term debt obligations of such holding
company) at the time of such investment or contractual commitment providing for
such investment have the rating specified in the Trust Agreement for Eligible
Investments;
(c) repurchase agreements with respect to (i) any security described in
clause (a) above or (ii) any other security issued or guaranteed by an agency or
instrumentality of the United States, with an entity having a credit rating in
one of the two highest long term rating categories of each of the Rating
Agencies;
(d) securities bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States or any State that
have the rating specified in the Trust Agreement for Eligible Investments at the
time of such investment; and
(e) commercial paper having at the time of such investment the rating specified
in the Trust Agreement for Eligible Investments.
DESCRIPTION OF THE SWAP COUNTERPARTY
Salomon Smith Barney Holdings Inc. ("SSBHI") operates through its
subsidiaries in two business segments: (i) Investment Services and (ii) Asset
Management, SSBHI provides investment banking, securities and commodities
trading, capital raising, asset management, advisory, research and brokerage
services to its customers, other financial services and executes proprietary
trading strategies on its own behalf. As used in this section, unless the
context otherwise requires, SSBHI refers to Salomon Smith Barney Holdings Inc.
and its consolidated subsidiaries.
Citigroup Inc., SSBHI's parent, is a diversified holding company whose
businesses provide a broad range of financial services to consumer and corporate
customers around the world. Citigroup Inc.'s activities are conducted through
Global Consumer, Global Corporate and Investment Bank, Asset Management, and
Investment Activities.
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SSBHI is a global, full-service investment banking and securities
brokerage firm with more than 514 offices in 26 countries worldwide. SSBHI
provides a full range of financial advisory, research and capital raising
services to corporations, governments and individuals. The firm's 10,800
Financial Consultants, located in approximately 450 offices across the United
States, service over 5.7 million client accounts, representing over $770 billion
in assets.
SSBHI's global investment banking services encompass a full range of
capital market activities, including the underwriting and distribution of debt
and equity securities for United States and foreign corporations and for state,
local and other governmental and government sponsored authorities. SSBHI
frequently acts as an underwriter or private placement agent in corporate and
public securities offerings and provides alternative financing options. It also
provides financial advice to investment banking clients on a wide variety of
transactions including mergers and acquisitions, divestitures, leveraged
buyouts, financial restructurings and a variety of cross-border transactions.
The Private Client division provides investment advice and financial
planning and brokerage services for almost six million client accounts,
primarily through the network of Salomon Smith Barney Financial Consultants.
The Asset Management segment is comprised of two primary asset management
business platforms: Salomon Brothers Asset Management and the Smith Barney Asset
Management division of Salomon Smith Barney Inc. These companies offer a broad
range of asset management products and services from global investment centers,
including mutual funds, closed-end funds, managed accounts and unit investment
trusts.
SSBHI is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports, proxy statements
and other information with the Commission. Reports, proxy statements and other
information filed by SSBHI with the Commission pursuant to the informational
requirements of the Exchange Act can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: New York Regional Office, Seven World Trade Center,
13th Floor, New York, New York 10048, and Chicago Regional Office, John C.
Kluczynski Federal Building, Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can also be
maintained upon written request addressed to the Securities and Exchange
Commission, Public Reference Section, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site
at http://www.sec.gov containing reports, proxy statements and other information
regarding registrants that file electronically with the Commission. Such
reports, proxy statements and other information can also be inspected at the
offices of the New York Stock Exchange, on which one or more of SSBHI's
securities are listed.
The principal offices of SSBHI are located at 388 Greenwich Street, New
York, New York 10013, telephone number (212) 816-6000. SSBHI was incorporated in
New York in 1977.
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DESCRIPTION OF THE S&P 500 INDEX
GENERAL
Unless otherwise stated, all information herein on the S&P 500 Index is
derived from S&P or other publicly available sources. Such information reflects
the policies of S&P as stated in such sources, and such policies are subject to
change by S&P. S&P is under no obligation to continue to publish the S&P 500
Index and may discontinue publication of the S&P 500 Index at any time.
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 (as defined below) of the common
stocks of 500 companies as of a particular time 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 September 30, 1999, the 500
companies included in the S&P 500 Index represented approximately 85% of the
aggregate Market Value of common stocks traded on the NYSE; however, these 500
companies are not the 500 largest companies listed on the NYSE, and not all of
these 500 companies are listed on the NYSE. As of September 30, 1999, the
aggregate Market Value of the 500 companies included in the S&P 500 Index
represented approximately 75% 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 September 30, 1999, the 500 companies included in
the S&P 500 Index were divided into 105 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 (377), Financial (71), Utilities (41) and
Transportation (11). 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.
THE S&P 500 INDEX DOES NOT REFLECT THE PAYMENT OF DIVIDENDS ON THE STOCKS
UNDERLYING IT AND THEREFORE THE INTEREST DISTRIBUTION ON THE CERTIFICATES WILL
NOT PRODUCE THE SAME RETURN YOU WOULD RECEIVE IF YOU WERE TO PURCHASE SUCH
UNDERLYING STOCKS AND HOLD THEM UNTIL THE FINAL SCHEDULED DISTRIBUTION DATE.
COMPUTATION OF THE INDEX
While S&P currently employs the following 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 Interest Distribution Amount, if
any, payable to the beneficial owners of the Certificates.
S&P currently computes the S&P 500 Index as of a particular time as
follows:
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(a) the product of the market price per share and the number of then
outstanding shares of each component stock is determined as of such time (such
product referred to as the "Market Value" of such stock);
(b) the Market Value of all component stocks as of such time (as
determined under clause (a) above) are aggregated;
(c) the mean average of the Market Values as of each week in the base
period of the years 1941 through 1943 of the common stock of each company in a
group of 500 substantially similar companies is determined;
(d) the mean average Market Values of all such common stocks over
such base period (as determined under clause (c) above) are aggregated (such
aggregate amount being referred to herein as the "Base Value");
(e) the aggregate Market Value of all component stocks as of such
time (as determined under clause (b) above) is divided by the Base Value; and
(f) the resulting quotient (expressed in decimals) is multiplied by
ten.
S&P adjusts the foregoing formula to negate the effects 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 of shares 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 the determines the New Base Value in
accordance with the following formula:
NEW MARKET VALUE
__________________ = NEW BASE VALUE
OLD BASE VALUE X OLD MARKET VALUE
The result is that the 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 Index.
HISTORICAL DATA ON THE INDEX
The following table sets forth the value of the S&P 500 Index at the end
of each month in the period from October 1993 through October 1999. These
historical data on the S&P 500 Index are not necessarily indicative of the
future performance of the S&P 500 Index are not necessarily indicative of the
future performance of the S&P 500 Index or what the value of the Certificates
may be. Any historical upward or downward trend in the value of the S&P 500
Index during any period set forth below is not any indication that the S&P 500
Index is more or less likely to increase or decrease at any time during the term
of the Certificates.
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1993 1994 1995 1996 1997 1998 1999
January... 481.61 470.42 636.02 786.1 980.28 1279.64
February.. 467.14 487.39 640.43 790.8 1049.34 1238.33
March..... 445.77 500.71 645.50 757.1 1101.75 1286.37
April..... 450.91 514.71 654.17 801.3 1111.75 1335.18
May....... 456.50 533.40 669.12 848.2 1090.82 1301.84
June...... 444.27 544.75 670.63 885.1 1133.84 1372.71
July...... 458.26 562.06 639.95 954.2 1120.67 1328.72
August.... 475.49 561.88 651.99 899.4 957.28 1320.41
September. 462.69 584.41 687.33 947.2 1017.01 1282.71
October... 467.83 472.35 581.50 705.27 914.6 1098.67 1362.93
November.. 461.79 453.69 605.37 757.02 955.4 1163.63
December.. 466.45 459.27 615.93 740.74 970.4 1229.23
The following table sets forth the closing values of the S&P 500 Index on
the last business day of each year from 1947 through 1998, as published by S&P.
The historical experience of the S&P 500 Index should not be taken as an
indication of future performance, and no assurance can be given that the value
of the S&P 500 Index will not decline (or not increase sufficiently) and thereby
reduce or eliminate the Interest Distribution Amount.
YEAR END CLOSING VALUE INDEX
Year Year
Year End End Year End End
Closing Closing Closing Closing
Year Value Year Value Year Value Year Value
1947 15.30 1961 71.55 1975 90.19 1989 353.40
1948 15.20 1962 63.10 1976 107.46 1990 330.22
1949 16.79 1963 75.02 1977 95.10 1991 417.09
1950 20.43 1964 84.75 1978 96.11 1992 435.71
1951 23.77 1965 92.43 1979 107.94 1993 466.45
1952 26.57 1966 80.33 1980 135.76 1994 459.27
1953 24.81 1967 96.47 1981 122.55 1995 615.93
1954 35.98 1968 103.86 1982 140.64 1996 740.74
1955 45.48 1969 92.06 1983 164.93 1997 970.43
1956 46.67 1970 92.15 1984 167.24 1998 1229.23
1957 39.99 1971 102.09 1985 211.28
1958 55.21 1972 118.05 1986 242.17
1959 59.89 1973 97.55 1987 247.08
1960 58.11 1974 68.56 1988 277.72
The closing value of the Index on October 29, 1999 was 1,362.93.
HISTORICAL YEAR-END CLOSING VALUES
The following graph illustrates the historical performance of the S&P 500
Index based on the closing value thereof at the end of each year from 1947
through 1998. Past movements of the S&P 500 Index are not necessarily indicative
of future S&P 500 Index values.
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[Graphic of S&P 500 Index
Year End Closing Values from
1947 to 1998]
LICENSE AGREEMENT
S&P and SSBHI have entered into a non-exclusive license agreement
providing for the license to the Company, in exchange for a fee, of the right to
use indices owned and published by S&P in connection with certain securities,
including the Certificates.
The license agreement between S&P and SSBHI provides that the following
language must be stated in this Prospectus Supplement.
"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 the SSBHI (other than transactions entered into in the
ordinary course of business) is the licensing of certain servicemarks 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 the Company or the Certificates. S&P has no
obligation to take the needs of the Company 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
timing of the sale of the Certificates, prices at which the Certificates are to
be initially be sold, or quantities of the Certificates to be issued or in the
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.
All disclosures contained in this Prospectus Supplement regarding the S&P
500 Index, including its make-up, method of calculation and changes in its
components, are derived from publicly available information prepared by S&P.
None of the Company, the Swap Counterparty, the Underwriter, the Trustee or the
Co-Trustee assumes any responsibility for the accuracy or completeness of such
information.
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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 of which this
Prospectus Supplement and the Prospectus form a part. A Current Report on Form
8-K or 8-A relating to the Certificates containing a copy of the TIERS(SM)
Supplement 1999-2 to the Trust Agreement as executed will be filed by the
Company with the Commission following the issuance and sale of the Certificates.
The assets of the Trust created under the Trust Agreement will consist of (i)
the Term Assets, (ii) the Swap Agreement and (iii) the Eligible Investments
owned by the Trust. Reference is made to the Prospectus for important
information in addition to that set forth herein regarding the Trust, the terms
and conditions of the Trust Agreement and the 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 TRUSTEE AND THE CO-TRUSTEE
The Bank of New York Trust Company (Cayman) Limited will act as the
Trustee (the "Trustee") and The Bank of New York will act as the Co-Trustee (the
"Co-Trustee") for the Certificates and the Trust pursuant to the Trust
Agreement. The office of the Trustee is located at Butterfield House, Fort
Street, P.O. Box 705, George Town, Grand Cayman, Cayman Islands and its
telephone number is (345) 949-7734. The office of the Co-Trustee is located at
101 Barclay Street, 21W, Global Structured Products Unit, New York, NY 10286 and
its telephone number is (212) 815-5881.
The Trust Agreement will provide that the Trustee, the Co-Trustee and any
director, officer, employee or agent thereof will be indemnified by the Company
and held harmless against any loss, liability or expense incurred in connection
with any legal action relating to the Trust Agreement or the Certificates or the
performance of the Trustee's and the Co-Trustee's duties under the Trust
Agreement, other than any loss, liability or expense that was incurred by reason
of willful misconduct, bad faith or negligence in the performance of the
Trustee's and the Co-Trustee's duties under the Trust Agreement.
Pursuant to the Trust Agreement, as compensation for the performance of
its duties under such agreement, the Trustee and Co-Trustee shall be entitled to
payments of trustee fees and reimbursement of expenses by the Company pursuant
to a separate agreement with the Company, but shall not have any claim against
the Trust with respect thereto.
EVENT OF DEFAULT
There are no events of default with respect to the Certificates.
VOTING OF TERM ASSETS
The Co-Trustee, as holder of the Term Assets, has the right to vote and
give consents and waivers in respect of such Term Assets as permitted by the
depositary with respect thereto and except as otherwise limited by the Trust
Agreement. In the event that the Co-Trustee receives a request
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from the Term Assets Issuers for its consent to any amendment, modification or
waiver of the Term Assets or any document relating thereto, or receives any
other solicitation for any action with respect to the Term Assets, the
Co-Trustee will give notice of such proposed amendment, modification, waiver or
solicitation to the Trustee. The Co-Trustee shall request instructions from the
Trustee as to whether or not to consent to or vote to accept such amendment,
modification, waiver or solicitation. The Co-Trustee shall consent or vote, or
refrain from consenting or voting, in the preparation designated by the Trustee,
PROVIDED, HOWEVER, that, notwithstanding anything to the contrary stated herein,
the Co-Trustee shall at no time vote in favor of or consent to any matter (i)
which would alter the timing or amount of any payment on the Term Assets,
including, without limitation, any demand to accelerate the Term Assets or (ii)
which would result in the exchange or substitution of any Term Asset pursuant to
a plan for the refunding or refinancing of such Term Asset, except in each case
with the unanimous consent of the Certificateholders.
TERMINATION OF THE TRUST
The Trust shall terminate upon (i) the payment in full of all amounts due
and payable under the Certificates on the Final Scheduled Distribution Date,
(ii) the sale of the Term Assets and Eligible Investments, if any, following a
Swap Termination Date, the payment (or receipt) by the Trust of amounts owed to
(or to be received from) the Swap Counterparty, and the distribution of the
remaining amount to holders of the Certificates, (iii) the sale of the Term
Assets and Eligible Investments, if any, following a Term Assets Credit Event,
the payment (or receipt) by the Trust of amounts owed to (or to be received
from) the Swap Counterparty, and the distribution of the remaining amount to
holders of the Certificates or (iv) the payment of the Call Price following the
Call Date and delivery to the Co-Trustee of all then outstanding Certificates.
ENFORCEMENT OF FOREIGN JUDGMENTS IN THE CAYMAN ISLANDS
A judgment obtained in a foreign court will be recognized and enforced in
the courts of the Cayman Islands without any re-examination of the merits:
(a) at common law, by an action commenced on the foreign judgment debt in
the Grand Court of the Cayman Islands, where the judgment is final and
in respect of which the foreign court had jurisdiction over the
defendant according to Cayman Islands conflict of law rules and which
is conclusive, for a liquidated sum not in respect of penalties or
taxes or a fine or similar fiscal or revenue obligations, and which
was neither obtained in a manner, nor is of a kind enforcement of
which is contrary to natural justice or the public policy of the
Cayman Islands; or
(b) by statute, by registration in the Grand Court of the Cayman Islands
and execution as if it were a judgment of the Grand Court, where the
judgment is a judgment of a superior court of any state of the
Commonwealth of Australia which is final and conclusive for a sum of
money not in respect of taxes or other charges of a like nature or in
respect of a fine, penalty or revenue obligation and which remains
enforceable by execution in that jurisdiction.
Most of the directors and executive officers of the Trustee live outside
the United States. Most of its assets are located outside the United States.
Because of this, the Certificateholders may not be able to serve notice of legal
action on it or to enforce judgments against it. The Trustee has been advised by
its Cayman Islands counsel, Walkers, that because of this, Certificateholders
may
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not be able to enforce in the Cayman Islands, in original actions or in actions
for enforcement of judgments of United States courts, civil liabilities based on
the federal securities laws of the United States.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion supplements the discussion in the Prospectus under
the heading "Certain Federal Income Tax Consequences." For ease
of presentation, it repeats the relevant portions of that discussion and
supersedes it so that prospective investors may read and rely solely on the
discussion herein.
The following is a summary of material United States federal income tax
consequences of the ownership of the Certificates as of the date hereof. Certain
minor and incidental consequences are discussed as well. It is based on the
advice of Orrick, Herrington & Sutcliffe LLP, Special Tax Counsel ("Special Tax
Counsel"), which has delivered an opinion to the Trust that the discussion
below, to the extent it constitutes matters of law or legal conclusions thereto,
is true and correct in all material respects.
As discussed below, Special Tax Counsel has also delivered an opinion
that, although it is aware of no judicial or administrative authorities
addressing the characterization of securities with terms similar to those of the
Certificates (or entities that engage in transactions similar to those engaged
in by the Trust) or contracts with terms similar to the Swap Agreement, for
United States federal income tax purposes (1) the Certificates will be treated
as equity interests in the Trust, (2) the Trust will be classified as a foreign
corporation, (3) the Trust will not be treated as engaged in the conduct of a
trade or business in the United States and (4) the Swap Agreement should be
treated as a notional principal contract. Special Tax Counsel has not delivered
(and does not intend to deliver) any other opinions regarding the Trust or the
Certificates. Prospective investors should be aware that no rulings have been
sought from the Internal Revenue Service (the "IRS"), and that legal opinions
are not binding on the IRS or the courts. Accordingly, there can be no assurance
that the IRS or the courts will agree with Special Tax Counsel's opinions. If
any contrary characterization of the Trust, the Certificates or the Swap
Agreement were sustained, the ability of the Trust to make payments on the
Certificates and any Certificateholder's tax position would likely be materially
adversely affected. The balance of this discussion assumes the correctness of
the opinions of Special Tax Counsel.
This summary is based on the Internal Revenue Code of 1986 (the "Code"),
as well as Treasury regulations and administrative and judicial rulings and
practice all in effect as of the date of this Prospectus Supplement.
Legislative, judicial and administrative changes may occur, possibly with
retroactive effect, that could alter or modify the continued validity of the
statements and conclusions set forth herein. This summary is intended as an
explanatory discussion of the consequences of holding the Certificates generally
and does not purport to furnish information in the level of detail or with
respect to the investor's specific tax circumstances that would be provided by
an investor's own tax advisor. Accordingly, it is recommended that each
prospective investor consult with its own tax advisor regarding the application
of United States federal income tax laws, as well as any state, local, foreign
or other tax laws, to their particular situations.
Except with respect to certain withholding tax matters discussed below
under "Taxation of Non-U.S. Holders", the discussion is limited to consequences
to U.S. Persons that hold the Certificates as capital assets ("U.S. Holders").
For purposes of this discussion, a U.S. Person is: (i) a
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citizen or resident of the United States, (ii) a corporation or partnership
organized in or under the laws of the United States, any state thereof or the
District of Columbia (except in the case of a partnership, to the extent
otherwise provided in Treasury regulations), or (iii) an estate or trust that is
a U.S. Person within the meaning of Section 7701(a)(30) of the Code.
ADVERSE TAX CONSEQUENCES MAY ARISE IF ANY U.S. HOLDER OWNS 10% OR MORE OF
THE CERTIFICATES. ACCORDINGLY, EACH HOLDER OF A CERTIFICATE WILL BE DEEMED TO
HAVE REPRESENTED EITHER THAT (I) IT HOLDS (EITHER DIRECTLY OR INDIRECTLY) LESS
THAN 10% OF ALL CERTIFICATES OR (II) IF IT HOLDS 10% (EITHER DIRECTLY OR
INDIRECTLY) OR MORE OF THE CERTIFICATES, THAT IT IS NOT A U.S. HOLDER AND IT IS
NOT OWNED (EITHER DIRECTLY OR INDIRECTLY) BY A U.S. PERSON. In addition, each
holder of a registered Certificate will be deemed to have consented to identify
all the beneficial owners of its Certificate and to provide the Trust with any
reasonably requested information that the Trust requests to help it determine
its status for United States federal income tax purposes. Further, the Trust
Agreement provides that the Trust may require any Certificateholder to provide
it with written certifications in respect of any representation deemed made by
it. The Trust does not currently expect to require such written certifications,
but may determine to do so in the future. In light of the foregoing, the balance
of the discussion herein assumes that no U.S. Holder holds (directly or
indirectly) 10% or more of the Certificates.
The Trust will keep its books and records, in accordance with Special Tax
Counsel's opinion (discussed below) that the Swap Agreement should be treated,
for United States federal income tax purposes, as a single notional principal
contract ("NPC") and that the Trust is the owner of the Term Assets. Prospective
investors should be aware, however, that there are other possible
characterizations that may apply to the Swap Agreement. As further discussed in
"Taxation of U.S. Holders--Current Income of the Trust," below, these
alternative characterizations generally would have the effect, among others, of
significantly accelerating the income recognized by a U.S. Holder from its
investment in its Certificate.
In connection with the original issuance of the Term Assets, counsel to
the sponsor of such assets generally provides opinion to the effect that the
asset will or should be treated for United States federal income tax purposes as
indebtedness. Accordingly, the balance of this discussion assumes that the Term
Assets and any Eligible Investments will be so treated for United States federal
income tax purposes. Prospective investors should be aware, however, that
neither the Initial Purchaser nor Special Tax Counsel has made or will make any
investigation of the Term Assets or any Eligible Investments or the
circumstances surrounding their issuance.
TAX STATUS OF THE TRUST AND THE CERTIFICATES
Orrick, Herrington & Sutcliffe LLP, Special Tax Counsel to the Company has
advised the Company that although it is aware of no judicial or administrative
authorities addressing the characterization of securities with terms similar to
those of the Certificates (or entities that engage in transactions similar to
those engaged in by the Trust), for United States federal income tax purposes
(1) the Certificates will be treated as equity in the Trust, (2) the Trust will
be classified as a foreign corporation and (3) the Trust will not be treated as
engaged in the conduct of a trade or business in the United States. Accordingly,
the Trust will not be subject to net income taxation in the United States. In
addition, the Trust will not be subject to United States withholding taxes on
income earned on the Term Assets or the Swap Agreement.
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STATUS OF THE TRUST AS A PFIC. The Trust will be a "passive foreign
investment company" ("PFIC") for United States federal income tax purposes. U.S.
Holders in PFICs, other than U.S. Holders that make the "qualified electing
fund" or "QEF" election described below and certain tax-exempt investors, are
subject to certain punitive rules regarding the taxation of "excess
distributions" (which include both certain distributions by a PFIC and any gain
recognized on a disposition of PFIC stock). ACCORDINGLY, ALL U.S. HOLDERS (OTHER
THAN CERTAIN TAX-EXEMPT INVESTORS) SHOULD CONSIDER MAKING A QEF ELECTION. THAT
ELECTION, IF MADE, MUST BE ACCOMPANIED BY FILING EACH YEAR A FORM WITH THE U.S.
HOLDER'S TAX RETURN, IN THE MANNER DESCRIBED BELOW. THE BALANCE OF THIS
DISCUSSION ASSUMES THAT EACH U.S. HOLDER (OTHER THAN CERTAIN TAX-EXEMPT
INVESTORS) MAKES THE QEF ELECTION PROVIDED IN SECTION 1295 OF THE CODE.
The QEF election is effective only if certain required information is made
available by the Trust. The Trust will undertake to comply with the IRS
information requirements necessary to be a QEF, and to provide to each U.S.
Holder information needed for the determination of such holder's pro rata share
of the Trust's ordinary and net capital gain income. In general, a QEF election
should be made by filing IRS Form 8621 on or before the due date for filing a
U.S. Holder's federal income tax return for the first taxable year for which
that U.S. Holder owns a Certificate. A U.S. Holder making the QEF election must
also file Form 8621 annually with the IRS. Failure to comply with the annual
reporting requirement described in the preceding sentence may result in the
termination or invalidation of a U.S. Holder's QEF election. A copy of Form 8621
is attached as Appendix B.
TAXATION OF U.S. HOLDERS
IN GENERAL. For United States federal income tax purposes, a U.S. Holder
that makes a QEF election will recognize income each year in the amount of (and
be required to pay tax on) such U.S. Holder's pro rata share of the Trust's
ordinary income and net capital gains (as calculated in the manner described in
"--Current Income of the Trust", below) for each taxable year of the Trust that
ends with or within the taxable year of the U.S. Holder, even if such pro rata
share of the Trust's income exceeds the amount of any distributions such U.S.
Holder has received. (A U.S. Holder that makes the QEF election may, however, in
general, elect to defer the payment of tax on undistributed income until such
income is distributed to it, if it agrees to pay interest on the deferred tax
liability). Any losses of the Trust will not be deductible by such U.S. Holder.
In addition, a U.S. Holder may recognize gain or loss from the sale, redemption
or other disposition of a Certificate. If the Trust distributes amounts
attributable to the income on which a U.S. Holder has already paid taxes (under
the ordering rule discussed in "--Current Income of U.S. Holders Attributable to
Pro Rata Share of Trust Income", below), amounts so distributed to the U.S.
Holder will not be further taxable to it. A U.S. Holder's tax basis in the
Certificates will be increased by amounts included in the holder's income and
decreased by the amount of nontaxable distributions.
Prospective investors should be aware that because the Certificates are
not debt instruments, the rules applicable to original issue discount, market
discount and premium on debt instruments will not apply. Further, as a
corporation, the Trust will not be entitled to make any election to adjust the
basis of its assets to reflect the purchase of a Certificate by a U.S. Holder at
a price that differs from the Trust's basis in its assets allocable to such
Certificateholder.
The following section ("--Current Income of the Trust") describes the rules
applicable to calculating the Trust's income under United States federal income
tax principles (although the Trust will not itself be subject to U.S. tax). The
section "--Current Income of U.S. Holders Attributable to
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Pro Rata Share of Trust Income" describes the rules employed to calculate a U.S.
Holder's pro rata share of that income.
CURRENT INCOME OF THE TRUST. Because the Term Assets (and Eligible
Investments, if any) will be treated as debt instruments for United States
federal income tax purposes, the Trust will include in income the full amount of
interest on the Term Assets (and Eligible Investments, if any) as that interest
income accrues. The Term Assets (and Eligible Investments, if any) may also be
subject to market discount or premium rules, depending on the Trust's purchase
price. The Trust anticipates that it will acquire the Term Assets (and Eligible
Investments, if any) at prices that will represent a DE MINIMIS amount of market
discount or premium (if any), and the remainder of this section "--Current
Income of the Trust" does not consider the application of the market discount or
premium rules of the Code to the Trust's acquisition, ownership or disposition
of the Term Assets (and Eligible Investments, if any).
The characterization, for United States federal income tax purposes, of
the Swap Agreement is not certain. Special Tax Counsel has advised the Trust
that, while it is not aware of any authority addressing the characterization of
contracts with terms similar to those of the Swap Agreement, and thus, while the
matter is not free from doubt, the Swap Agreement should be characterized as a
single NPC (and the Term Assets, and Eligible Investments, if any, should be
treated as owned by the Trust). The Trust will keep its books and records under
that assumption. Under this approach, periodic payments made or received by the
Trust under the Swap Agreement should constitute ordinary deductions or ordinary
income of the Trust. The amount of the initial payment to the Trust under the
Swap Agreement will be a nonperiodic payment that should be included in ordinary
income of the Trust over the term of the Swap Agreement in a manner that
reflects the economic substance of the contract as provided in Treasury
regulations governing the treatment of NPCs. Accordingly, the Trust intends to
include the initial payment, if any, in income in a manner analogous to a
constant yield amortization of bond premium.
Notwithstanding the Trust's treatment of the Swap Agreement as a single
NPC, the Swap Agreement could be analyzed in a different fashion. For example,
the Swap Agreement could be treated for United States federal income tax
purposes in part as an NPC and in part as an option to acquire the S&P 500
Index. If the Swap Agreement were so characterized, the Trust's income may be
substantially greater than if the Swap Agreement were treated as a single NPC,
because, in any given year, one-time and periodic payments the Trust is deemed
to make to acquire the constructive option would not be deductible, but instead
would be treated as the purchase price for the option. As a result, some or all
of the interest earned on the Term Assets (and Eligible Investments, if any)
would be included in the Trust's income without current offset for payments made
on the Swap Agreement. If the constructive option were to expire worthless, the
Trust would be treated as having a capital loss equal to amounts previously paid
but not deducted; if the constructive option were exercised, the Trust would
have a basis in the S&P 500 Index equal to the amount deemed paid to acquire the
constructive option plus the amount deemed paid for the S&P 500 Index upon
exercise of the constructive option.
Although less likely, it is also possible that the Swap Counterparty may
be treated as the owner of the Term Assets for tax purposes and that the Swap
Agreement may be treated as a debt instrument issued by the Swap Counterparty.
In such a case, the Swap Agreement would be subject to the rules applicable to
"contingent payment debt instruments" (the "CPDI rules" and "CPDIs,"
respectively). Very generally, under the CPDI rules, interest on the Swap
Agreement would accrue at the Swap Counterparty's normal borrowing rate for
non-contingent debt and any gain recognized
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by the Trust upon the sale, redemption or other disposition of the instrument
would be interest income (i.e., ordinary). Any loss realized upon the sale,
exchange or redemption of the Swap Agreement generally would be ordinary to the
extent of previously accrued interest income and otherwise would be capital
loss.
CURRENT INCOME OF U.S. HOLDERS ATTRIBUTABLE TO PRO RATA SHARE OF TRUST
INCOME. As previously described, under the QEF rules each electing U.S. Holder
will be required each year to recognize as income (and pay tax on) its pro rata
share of the Trust's ordinary income and net capital gains for each taxable year
of the Trust that ends with or within such U.S. Holder's taxable year. If the
Swap Agreement is treated for United States federal income tax purposes as a
single NPC and is taxed in the manner described in "--Current Income of the
Trust", above, then U.S. Holders will include in income each year their pro rata
share of the ordinary income earned on the Term Assets (and Eligible
Investments, if any) plus or minus any net periodic payments (and the
amortization of the initial nonperiodic payment) under the Swap Agreement, and
further reduced by any other deductible costs and expenses of the Trust. If,
however, the Swap Agreement were to be treated for United States federal income
tax purposes in part as an NPC and in part as an option to acquire the S&P 500
Index (or alternatively as a debt instrument issued by the Swap Counterparty),
then the amount of the Trust's income that would be allocated to holders
probably would be substantially greater than the distributions (if any) on the
Certificates. In addition, if the Swap Agreement were recharacterized as a CPDI,
a portion of the Trust's income that is allocated to holders that otherwise
would be capital gain would be ordinary income. See ("--Current Income of the
Trust", above).
Under ordering rules applicable to QEFs, distributions by the Trust on the
Certificates (if any) will be allocated first to amounts previously taxed
pursuant to the QEF election and, to this extent, will not be taxable to U.S.
Holders. Distributions in excess of such previously taxed amounts will be
taxable to U.S. Holders as ordinary income upon receipt, to the extent of any
remaining amounts of untaxed current and accumulated earnings and profits of the
Trust. Distributions in excess of previously taxed amounts and current and
accumulated earnings and profits will be treated first as a nontaxable return of
capital to the extent of a U.S. Holder's basis in its Certificates and then as
capital gain.
TAX CONSEQUENCES TO THE TRUST AND U.S. HOLDERS ON THE FINAL SCHEDULED
DISTRIBUTION DATE. On the Final Scheduled Distribution Date of the Certificates,
the Trust will sell the Term Assets (and Eligible Investments, if any) and
recognize capital gain or loss (which may be short-term capital gain or loss)
equal to the difference between the sales proceeds and the Trust's tax basis in
the Term Assets (and Eligible Investments, if any). If the Swap Counterparty is
required to make a payment (as required by the Swap Agreement) the Trust will
recognize additional income in an amount equal to such payment. The Trust will
treat such income, gain or loss on the Final Scheduled Distribution Date as a
payment received or made to terminate the Swap Agreement. Although there is no
authority directly on point, the Trust believes that the character of the
income, gain or loss recognized as a result of any payment made to or received
from the Swap Counterparty described in this section "--Tax Consequences to the
Trust and U.S. Holders On the Final Scheduled Distribution Date" should be
capital gain or loss. Prospective U.S. Holders should be aware, however, that
the IRS may assert that the character of such resulting income, gain or loss is
ordinary. This risk is greatest with respect to the net payments, if any,
received or made at the scheduled maturity of the Swap Agreement. Further,
ordinary income treatment will be certain with respect to all payments received
in respect of the Swap Agreement in the event it is recharacterized as a debt
instrument. Prospective U.S. Holders are urged to consult with their tax
advisors regarding the character of any such income, gain or loss.
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The QEF rules governing the treatment of U.S. Holders that recognize net
capital gain in respect of their ownership of Certificates are analogous to the
rules (described in "--Current Income of U.S. Holders Attributable to Pro Rata
Share of Trust Income", above) governing the treatment of U.S. Holders that
recognize current income. Under such rules, on the Final Scheduled Distribution
Date of the Certificates, a U.S. Holder will be required to include in income
its pro rata share of the Trust's net capital gains, if any (unreduced by prior
year losses), and pay tax thereon, even if cash is not currently distributed to
the U.S. Holder by the Trust. Any losses of the Trust will not be deductible by
a U.S. Holder. If the Trust later distributes cash attributable to such gain on
which a U.S. Holder has already paid taxes (under ordering rules for gain
analogous to those described above for current income), amounts distributed to
the U.S Holder will not be further taxable to it. A U.S. Holder's tax basis in
the Certificates will be increased by the amount so included and decreased by
the amount of nontaxable distributions.
In addition, upon a U.S. Holder's disposition of its Certificates, the
U.S. Holder will recognize capital gain or loss equal to the difference, if any,
between the cash and the U.S. Holder's tax basis in the Certificates. Any such
gain or loss will be long term capital gain or loss if the U.S. Holder has held
the Certificates for more than one year at the time of the disposition.
TAX CONSEQUENCES TO THE TRUST AND U.S. HOLDERS UPON A TERM ASSET CREDIT
EVENT. Upon the occurrence of a Term Asset Credit Event, the Trust will sell the
Term Assets (and Eligible Investments, if any) and recognize capital gain or
loss equal to the difference between the sales proceeds and the Trust's tax
basis in the Term Assets (and Eligible Investments if any). Then, depending on
the value of the Swap Agreement, the Trust will pay cash to, or receive cash
from, the Swap Counterparty to terminate the Swap Agreement, and the Trust will
recognize additional income, gain or loss equal to the amount received from or
paid to the Swap Counterparty. The Trust will treat such income, gain or loss as
a payment received or made to terminate the Swap Agreement. The Trust believes
that (except in the case of gain in the event the Swap Agreement is
recharacterized as a CPDI) the character of such income, gain or loss recognized
upon termination of the Swap Agreement should be capital gain or loss.
Under the QEF rules discussed in "--Current Income of U.S. Holders
Attributable to Pro Rata Share of Trust Income", U.S. Holders will be required
to include in income their pro rata share of the Trust's net capital gains, if
any. In addition, U.S. Holders will recognize gain or loss equal to the
difference between the cash distributed by the Trust and the U.S. Holders' tax
basis in the Certificates. Any such gain or loss will be long term capital gain
or loss if a U.S. Holder has held its Certificates for more than one year at the
time of the redemption.
TAX CONSEQUENCES TO THE TRUST AND U.S. HOLDERS UPON PAYMENT OF THE TERM
ASSETS PRICE RETURN AMOUNT. As discussed in "Description of the Swap
Agreement-Periodic Payments", on each Term Assets Payment Date, the Swap
Counterparty may make payment of the Term Assets Price Return Amount to the
Trust or the Trust may make payment of such amount to the Swap Counterparty. Any
such payment received will be included in the income of the Trust. Any amounts
paid will be an expense or loss of the Trust for tax purposes. The character of
any such income, expense or loss as ordinary or capital is uncertain, but the
IRS can be expected to argue that any such income, expense or loss arises in
respect of a periodic payment on an NPC giving rise to ordinary income or an
expense.
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If the Trust is required to make payment of the Term Assets Price Return
Amount, the Trust may sell Eligible Investments and recognize capital gain or
loss equal to the difference between the amount of the sale proceeds and its tax
basis in the Eligible Investments.
Under the QEF rules, any income or gain of the Trust generally will be
included, indirectly, in the income of U.S. Holders, even though such amounts
are not distributed to holders, and any loss of the Trust will not be deductible
by U.S. Holders.
TAX CONSEQUENCES TO U.S. HOLDERS UPON SALE OF THE CERTIFICATES. Upon a
sale or other exchange of the Certificates, a U.S. Holder generally will
recognize gain or loss equal to the difference between the amount realized on
the sale and the U.S. Holder's tax basis in the Certificates. Any such gain or
loss will be long term capital gain or loss if the U.S. Holder has held the
Certificates for more than one year at the time of the sale or other exchange.
TAXATION OF NON-U.S. HOLDERS
A holder of Certificates that is not a U.S. Person and has no present or
former connection with the United States other than owning a Certificate (a
"Non-U.S. Holder") will not be subject to United States federal withholding
taxes with respect to gain derived from the sale, exchange, or redemption of, or
any distributions received in respect of, the Certificates. In addition, such
income, gain or distributions received by a Non-U.S. Holder will not be subject
to U.S. information reporting requirements or U.S. backup withholding; provided
in each case holders provide (if necessary) a certificate to the paying agent of
the Trust attesting to their status as non-U.S. Persons.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Information reporting to the IRS generally will be required with respect
to payments on the Certificates and proceeds of the sale of the Certificates to
U.S. Holders other than corporations and other exempt recipients. A 31% backup
withholding tax will apply to those payments if such holder fails to provide
certain identifying information (such as the holder's taxpayer identification
number) to the paying agent. Non-U.S. Holders may be required to comply with
applicable certification procedures to establish that they are not U.S. Persons
in order to avoid the application of such information reporting requirements and
backup withholding.
INFORMATION REPORTING REQUIREMENTS BY CERTIFICATEHOLDERS
On February 5, 1999, the Treasury Department released final regulations
with regard to reporting requirements relating to the transfer of property
(including certain transfers of cash) to a foreign corporation by U.S. Persons
or entities. In general, these rules may require U.S. Holders who acquire
Certificates to file a Form 926 with the IRS and to supply certain additional
information to the IRS. The regulations are effective for payments made in
taxable years beginning after February 5, 1999. In the event a U.S. Holder fails
to file any such required form, the U.S. Holder could be subject to a penalty
equal to 10% of the gross amount paid for the Certificates.
In general, for United States federal income tax purposes, a foreign
business entity may, absent an election, be classified as a corporation or
partnership depending on certain aspects of the law under which it is
established (such classification, the "default classification"). An entity whose
default classification is as a partnership may elect to be classified, for
United States federal income tax purposes, as a corporation by filing a Form
8832 with the U.S. Internal Revenue Service. The
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Trust believes that its default classification is as a corporation. However, as
a matter of prudence the Trust will file an IRS Form 8832 (on a protective
basis) to elect to be taxable as a corporation, in the event it is determined
that its default classification is not as a corporation. Each holder of a
Certificate that holds its certificate in the year in which the Trust is formed
is required to attach a copy of that Form 8832 to its own tax return. (Failure
of any holder to attach a copy to its own return will not, however, affect the
classification of the Trust as a corporation.)
STATE AND OTHER TAX CONSEQUENCES
In addition to the United States federal income tax consequences described
above, potential investors should consider the state, local and foreign tax
consequences of the acquisition, ownership, and disposition of the Certificates.
State, local, and foreign tax law may differ substantially from United States
federal income tax law, and this discussion does not purport to describe any
aspect of the tax law of a state or other jurisdiction. Therefore, prospective
purchasers should consult their own tax advisers with respect to such matters.
PROPOSED LEGISLATION
Congress proposes legislation from time to time that affects the taxation
of securities and securities transactions. Each prospective investor should
consult with its tax advisor concerning the applicability of any such proposed
legislation (and the prospects of applicable future legislation).
CERTAIN CAYMAN ISLANDS TAX CONSIDERATIONS
Under the current laws of the Cayman Islands, there are no income, estate,
transfer, sales or other taxes payable by the Trust or withholding taxes
applicable to any distributions by the Trust.
Application will be made to register the Trust as an exempted trust
pursuant to section 74 of the Trusts Law (1998 Revision) of the Cayman Islands.
Although there is currently no Cayman Islands legislation that would impose
taxation as detailed above, the exempted Trust is entitled to apply for an
undertaking signed by the Governor in Council of the Cayman Islands to the
effect that for a period of fifty years from the date of creation of the Trust,
notwithstanding any change in the legislation, the Trust will benefit from an
exemption from any tax or duty that might be levied in the future on the income
or on capital gains.
Upon issuance of the Certificates, Walkers, Cayman Islands counsel to the
Trustee, will issue its opinion to the effect that under existing Cayman Islands
laws (i) payments of interest on, and payments on redemption of, the
Certificates will not be subject to taxation in the Cayman Islands and no
withholding will be required on such payments to any holder of a Certificate and
gains derived from the sale of the Certificates will not be subject to Cayman
Islands income or corporation tax, and that the Cayman Islands currently have no
income, corporation or capital gains tax and no estate duty, inheritance tax or
gift tax, and (ii) no stamp duty is payable in respect of the transfer or
exchange of the Certificates, except that an agreement to transfer the
Certificates would be subject to nominal Cayman Islands stamp duty if executed
in or, after execution abroad, the agreement is brought into or produced before
a court of the Cayman Islands.
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CERTAIN ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended, imposes
certain requirements on "employee benefit plans," as defined in Section 3(3) of
ERISA, subject to ERISA, including entities such as collective investment funds
and separate accounts whose underlying assets include the assets of such plans
(collectively, "ERISA Plans"), and on those persons who are fiduciaries with
respect to ERISA Plans. Section 406 of ERISA and Section 4975 of the Code
prohibit certain transactions involving the assets of an ERISA Plan or a plan,
such as a Keogh plan or an individual retirement account, which is not subject
to ERISA but which is subject to Section 4975 of the Code (together with ERISA
Plans, "Plans") and certain persons, referred to as "parties in interest" under
ERISA or "disqualified persons" under the Code, having certain relationships to
such Plans, unless a statutory or administrative exception or exemption is
applicable to the transaction.
The U.S. Department of Labor has promulgated a regulation, 29 C.F.R.
Section 2510.3-101, describing what constitutes the assets of a Plan with
respect to the Plan's investment in an entity for purposes of certain provisions
of ERISA, including the fiduciary responsibility provisions of Title I of ERISA
and Section 4975 of the Code. Under this regulation, if a Plan invests in a
beneficial interest in a trust or a profits interest in a partnership, the
Plan's assets include both the equity interest and an undivided interest in each
of the entity's underlying assets, unless the interest is a "publicly-offered
security" or certain other conditions are satisfied. It is anticipated that the
Certificates should constitute "publicly-offered securities" within the meaning
of the regulation, and that, consequently, transactions engaged in by the Trust,
including the Swap Agreement, should not be subject to the provisions of ERISA
or Section 4975 of the Code.
Any Plan fiduciary which proposes to cause a Plan to purchase the
Certificates should consult with its counsel regarding the applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and
Section 4975 of the Code to such an investment, and to confirm that such
investment will not constitute or result in a prohibited transaction or any
other violation of an applicable requirement of ERISA or the Code for which an
exemption is not available. Governmental plans and certain church plans not
subject to the fiduciary responsibility provisions of ERISA or the provisions of
Section 4975 of the Code but subject to state or other federal laws that are
substantially similar to the foregoing provisions of ERISA and the Code should
also consult with their counsel before purchasing any Certificates.
By its purchase of any Certificate, each initial purchaser and subsequent
transferee will be deemed to have represented and warranted on each day from the
date on which the purchaser or transferee acquires the Certificates through and
including the date on which the purchaser or transferee disposes of its interest
in the Certificates, either that (A) it is not an ERISA Plan, or other Plan, or
a governmental plan which is subject to any federal, state, or local law that is
substantially similar to the provisions of Section 406 of ERISA or Section 4975
of the Code, or (B) its purchase, holding and disposition of such Certificates
will not result in a prohibited transaction under Section 406 of ERISA or
Section 4975 of the Code or any other violation of an applicable requirement of
ERISA or the Code (or in the case of a governmental plan, any substantially
similar federal, state or local law) for which an exemption is not available,
all of the conditions of which have been satisfied.
S-46
<PAGE>
NOTHING HEREIN SHALL BE CONSTRUED AS A REPRESENTATION THAT AN INVESTMENT
IN THE CERTIFICATES WOULD MEET ANY OR ALL OF THE RELEVANT LEGAL REQUIREMENTS
WITH RESPECT TO INVESTMENTS BY, OR IS APPROPRIATE FOR, PLANS GENERALLY OR ANY
PARTICULAR PLAN. ANY PLAN OR ANY OTHER ENTITY THE ASSETS OF WHICH ARE DEEMED TO
BE "PLAN ASSETS," SUCH AS AN INSURANCE COMPANY INVESTING ASSETS OF ITS GENERAL
ACCOUNT, PROPOSING TO ACQUIRE CERTIFICATES SHOULD CONSULT WITH ITS COUNSEL.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement (the "Underwriting Agreement") between the Underwriter and the
Company, the Company will sell the Certificates to the Underwriter, and the
Underwriter has agreed to purchase from the Company all the Certificates. In the
Underwriting Agreement, the Underwriter has agreed, subject to the terms and
conditions set forth therein, to purchase all of the Certificates if any
Certificates are purchased.
The Company has been advised by the Underwriter that it proposes initially
to offer the Certificates to the public at the public offering price set forth
on the cover page of this Prospectus Supplement, and to certain dealers at such
price less a concession not in excess of $___ per Certificate. The Underwriter
may allow and such dealers may reallow a concession not in excess of $___. After
the initial public offering, the public offering price and the concessions may
be changed.
The Certificates are a new issue of securities with no established trading
market. The Certificates are expected to be approved for listing, subject to
official notice of issuance, on the AMEX. Trading of the Certificates on the
AMEX is expected to commence within the 30-day period after the initial delivery
thereof or earlier. In order to meet one of the requirements for listing the
Certificates on the AMEX, the Underwriter has undertaken to sell the
Certificates to a minimum of 400 beneficial owners. The Underwriter has told the
Company that it presently intends to make a market in the Certificates prior to
commencement of trading on the AMEX, as permitted by applicable laws and
regulations. The Underwriter is not obligated, however, to make a market in the
Certificates. Any market making by the Underwriter may be discontinued at any
time at the sole discretion of the Underwriter. No assurance can be given as to
whether a trading market for the Certificates will develop or as to the
liquidity of any trading market.
The Certificates are expected to trade flat. This means that any accrued
and unpaid interest on the Certificates will be reflected in the trading price,
and purchasers will not pay and sellers will not receive any accrued and unpaid
interest on the Certificates not included in the trading price.
Until the distribution of the Certificates is completed, rules of the
Commission may limit the ability of the Underwriter to bid for and purchase the
Certificates. As an exception to these rules, the Underwriter is permitted to
engage in certain transactions that stabilize the price of the Certificates.
Possible transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Certificates.
If the Underwriter creates a short position in the Certificates in
connection with this offering, that is, if it sells a greater aggregate
principal amount of Certificates than is set forth on the cover page of this
Prospectus Supplement, the Underwriter may reduce that short position by
purchasing Certificates in the open market. The Underwriter may also impose a
penalty bid on certain selling group members. This means that if the Underwriter
purchases Certificates in the open market to
S-47
<PAGE>
reduce its short position or to stabilize the price of the Certificates, it may
reclaim the amount of the selling concession from the selling group members who
sold those Certificates as part of the offering.
In general, purchase of a security for the purposes of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a Certificate to the extent that it
were to discourage resales of the Certificates.
Neither the Company nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transaction
described above might have on the price of the Certificates. In addition,
neither the Company nor the Underwriter makes any representation that the
Underwriter will engage in such transactions. Such transactions, once commenced,
may be discontinued without notice.
The Underwriting Agreement provides that the Company 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.
The Underwriter has agreed not to sell any Certificates to a person if
such Certificates would cause a U.S. person (whether the transferee or an
indirect owner of the transferee) to own 10% or more of the Certificates.
Salomon Smith Barney Inc. is an affiliate of the Company, and the
participation by Salomon Smith Barney Inc. in the offering of the Certificates
complies with Conduct Rule 2720 of the National Association of Securities
Dealers, Inc. regarding underwriting securities of an affiliate.
RATINGS
It is a condition to the issuance of the Certificates that the
Certificates be rated by Moody's and/or S&P no lower than the lower of the
ratings of the Term Assets or the Swap Counterparty. Moody's and S&P have rated
the Term Assets "Aaa" and "AAA" respectively and the Swap Counterparty "Aa3" and
"A", respectively.
The ratings address the likelihood of the receipt by holders of the
Certificates of payments required under the Trust Agreement, and are based
primarily on the credit quality of the Term Assets.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time. Each security rating
should be evaluated independently of any other security rating.
The Company has not requested a rating on the Certificates by any rating
agency other than Moody's and/or S&P. 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 Moody's and/or S&P.
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed upon for
the Company and for the Underwriter by Orrick, Herrington & Sutcliffe LLP, New
York, New York. Certain legal matters
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<PAGE>
relating to Cayman Islands law will be passed on for the Company and for the
Underwriter by Walkers. As to all matters of Cayman Islands law, Orrick,
Herrington & Sutcliffe LLP will rely on the opinions of Walkers.
S-49
<PAGE>
INDEX OF TERMS
Adjusted Ending Value......S-19
Adjusted Index Value.......S-19
Adjustment Factor..........S-19
Affected Term Assets.......S-29
AMEX.................S-19, S-25
Calculation Agent..........S-26
Calculation Day............S-19
Calculation Period.........S-19
Call Date..................S-21
Call Notice................S-21
Call Right.................S-21
Certificateholders.........S-16
Closing Date...............S-16
Code.......................S-38
Commission.................S-16
Company....................S-16
Co-Trustee...........S-16, S-36
CPDI rules.................S-41
CPDIs......................S-41
Depositor..................S-16
Direct Participants........S-26
Distribution Threshold.....S-21
DTC........................S-25
Eligible Investments.S-16, S-30
ERISA Plans................S-46
Excess Investment Interest.S-29
Exchange Act...............S-16
Final Scheduled
Distribution Date..........S-18
Global Certificates........S-25
Index Business Day.........S-19
Interest Distribution
Amount.....................S-19
IRS........................S-38
IT ........................S-17
Loss.......................S-28
Market Disruption Event....S-20
Market Quotation...........S-28
Market Value...............S-27
Net Aggregate Term Assets
Price Return Amount........S-29
Non-U.S. Holder............S-44
NPC........................S-39
NYSE.......................S-19
Participants...............S-26
PFIC.......................S-40
Pricing Date...............S-19
QEF........................S-40
S&P 500 Index...............S-8
Securities Act.............S-17
Special Tax Counsel........S-38
Specified Currency.........S-18
SSBHI......................S-30
Starting Value.............S-19
Successor Index............S-22
Swap Agreement.............S-16
Swap Counterparty..........S-16
Swap Counterparty Optional
Termination Notice.........S-27
Swap Termination Date......S-29
Term Assets...........S-6, S-16
Term Assets Credit Event...S-29
Term Assets Issuer.........S-16
Term Assets Payment Date...S-27
Term Assets Price Return
Amount.....................S-27
Term Assets Prospectuses...S-17
Term Assets Registration
Statements.................S-17
Trust......................S-16
Trust Agreement............S-16
Trust Notice Date..........S-21
Trustee..............S-16, S-36
U.S. Holders...............S-38
Underwriter................S-18
Underwriting Agreement.....S-47
Valuation Date.............S-27
S-50
<PAGE>
APPENDIX A
DESCRIPTION OF THE TERM ASSETS
Issuer:......... [Term Assets Issuer]
Term Assets:.... [Term Assets] due __________, ____
Maturity Date:.. __________, ____
Original Principal Amount Issued: $______________
CUSIP No.:...... ______________
Stated Interest Rate: _% per annum
Interest Payment Dates: _____ and _________
Principal Amount of Term Assets
Deposited Under Trust Agreement: $_________
Issuer:......... [Term Assets Issuer]
Term Assets:.... [Term Assets] due __________, ____
Maturity Date:.. __________, ____
Original Principal Amount Issued: $______________
CUSIP No.:...... ______________
Stated Interest Rate: _% per annum
Interest Payment Dates: _____ and _________
Principal Amount of Term Assets
Deposited Under Trust Agreement: $_________
The above summary is qualified in its entirety by reference to the Term
Assets Prospectuses. Neither the Depositor nor any of its affiliates make any
representation about the completeness, accuracy or timeliness of information in
the Term Assets Prospectuses.
AVAILABLE INFORMATION
Each Term Assets Issuer is subject to the informational requirements of
the Securities Exchange Act of 1934 and in accordance therewith files reports,
proxy statements and other information with the Commission. Reports, proxy
statements and other information filed by the Term Assets Issuers with the
Commission pursuant to the informational requirements of the Exchange Act can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional Offices of the Commission: New York
Regional Office, Seven World Trade Center, 13th Floor, New York, New York 10048,
and Chicago Regional Office, John C. Kluczynski Federal Building, Northwest
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can also be maintained upon written request addressed to
the Securities and Exchange Commission, Public Reference Section, Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web site at http://www.sec.gov containing reports, proxy statements
and other information regarding registrants that file electronically with the
Commission. Such reports, proxy statements and other information can also be
inspected at the offices of any stock exchange on which a Term Assets Issuer's
securities are listed.
A-1
<PAGE>
APPENDIX B
IRS FORM 8621
<PAGE>
PROSPECTUS
Trust Certificates
(Issuable in Series)
Structured Products Corp.
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") with an aggregate initial public offering
price or purchase price of up to $7,000,000,000 or the equivalent thereof 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, 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 securities (the "Term Assets"), issued by one
or more issuers (the "Term Assets Issuers"), together with certain other assets
described herein and in the related Prospectus Supplement (such assets, together
with the Term Assets, the "Deposited Assets"), to be deposited in a trust (the
"Trust") for the benefit of holders of Certificates of such Series
("Certificateholders") by Structured Products Corp. (the "Company") pursuant to
a trust agreement and a series supplement thereto with respect to a given Series
(collectively, the "Trust Agreement") among the Company, as depositor or
transferor, the administrative agent, if any (the "Administrative Agent"), and
the trustee (the "Trustee") named in the related Prospectus Supplement. The Term
Assets consist of a publicly issued, fixed income debt security or asset backed
security or a pool of such debt securities or asset backed securities issued by
one or more corporations, banking organizations, insurance companies or special
purpose vehicles (including trusts, limited liability companies, partnerships or
other special purpose entities), organized under the laws of the United States
of America or any state, which are subject to the informational requirements of
the Securities Exchange Act of 1934 and which in accordance therewith file
reports and other information with the Securities and Exchange Commission. 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, letters 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".
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH UNDER "RISK FACTORS" COMMENCING ON PAGE 3 OF THIS PROSPECTUS AND IN THE
RELATED PROSPECTUS SUPPLEMENT.
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. The Certificates of each
Series (or Class within such Series) offered hereby will be rated at the time of
issuance in one of the recognized investment grade rating categories by one or
more nationally recognized rating agencies.
To the extent provided herein and in the applicable Prospectus Supplement, the
Company'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 Trust Agreement--Advances in
Respect of Delinquencies".
The Certificates of each Series will not represent an obligation of or interest
in the Company, any Administrative Agent or any of their respective affiliates,
except to the limited extent described herein and in the related Prospectus
Supplement. The Certificates will not be guaranteed or insured by any
governmental agency or instrumentality, or by the Company, any Administrative
Agent or their respective affiliates.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. 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" herein and "Method of Distribution" in the related Prospectus
Supplement. This Prospectus may not be used to consummate sales of Certificates
offered hereby unless accompanied by a Prospectus Supplement.
The date of this Prospectus is May 13, 1999
<PAGE>
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 herein) 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 Company 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
Company 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 Commission maintains a Web site at http://www.sec.gov containing reports,
proxy statements and other information regarding registrants that file
electronically with the Commission. The Company does not intend to send any
financial reports to Certificateholders.
The Company 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 Company 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.
2
<PAGE>
The Company 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 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 Structured Products Corp., 32nd Floor,
Room 33-126, Seven World Trade Center, New York, New York 10048. Telephone
requests for such copies should be directed to the Secretary of Structured
Products Corp. at (212) 783-6645.
REPORTS TO CERTIFICATEHOLDERS
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 Trust
Agreement--Reports to Certificateholders; Notice". Such reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles. The Company, 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, Salomon Smith Barney 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 herein) 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.
RISK FACTORS
In connection with an investment in the Securities of any Series,
prospective investors should consider, among other things, the material risk
factors set forth below and any additional material risk factors set forth in
the applicable Prospectus Supplement.
THE CERTIFICATES MAY NOT BE A LIQUID INVESTMENT. 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.
CERTIFICATES ARE LIMITED OBLIGATIONS AND ARE NOT RECOURSE OBLIGATIONS OF
THE COMPANY OR ITS AFFILIATES. The Certificates will not represent a recourse
obligation of or interest in the Company or any of its affiliates. The
Certificates of each Series will not be insured or guaranteed by any government
agency or instrumentality, the Company, any Person affiliated with the Company
or the Issuer, or any other Person. The obligations, if any, of the Company with
respect to the Certificates of any Series will only be pursuant to certain
limited representations and warranties with respect to the Term Assets or other
Deposited Assets. The Company 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 Company were
required to repurchase a Term Asset with respect to which the Company has
breached a representation or warranty, its only sources of funds to make such
repurchase
3
<PAGE>
would be from funds obtained from the enforcement of a corresponding obligation,
if any, on the part of the seller of such Term Asset to the Company, or from a
reserve fund established to provide funds for such repurchases. The Company has
no obligation to establish or maintain any such reserve fund.
TRUST CONSISTS OF LIMITED ASSETS AND PAYMENTS ON THE CERTIFICATES WILL BE
MADE SOLELY FROM DEPOSITED ASSETS. The only material assets expected to be in a
Trust are the Deposited Assets corresponding to the related Series (or Class) of
Certificates being offered. The Certificates are not insured or guaranteed by
the Company, any Administrative Agent or any of their affiliates. 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".
AVERAGE LIFE AND YIELD OF CERTIFICATES MAY VARY THUS CREATING REINVESTMENT
RISK. 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, amortization, acceleration of
payment rate, slow down of payment rate or extension of maturity or amortization
with respect to the related Term Assets (or portion thereof) and the manner and
priority in which collections from such Term Assets 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 Term Assets and any other Deposited Assets. See "Maturity and
Yield Considerations".
TAX CONSIDERATIONS SHOULD BE REVIEWED. Special Tax Counsel has delivered
an opinion to the Company that the discussion contained herein under the caption
"Certain Federal Income Tax Considerations", to the extent it constitutes
matters of law or legal conclusions thereto, is true and correct in all material
respects. Special Tax Counsel has also delivered an opinion that the Trust will
not be characterized as an association taxable as a corporation (or publicly
traded partnership treated as an association) for federal income tax purposes.
Special Tax Counsel has not delivered (and unless otherwise indicated in the
Prospectus Supplement does not intend to deliver) any other opinions regarding
the Trust or the Certificates. Prospective investors should be aware that no
rulings have been sought from the Internal Revenue Service ("IRS"), and that
legal opinions are not binding on the IRS or the courts. Accordingly, there can
be no assurance that the IRS or the courts will agree with Special Tax Counsel's
opinions. If, contrary to Special Tax Counsel's opinion, the Trust is
characterized or treated as a corporation for federal income tax consequences,
among other consequences, the Trust would be subject to federal income tax (and
similar state income or franchise taxes) on its income and distributions to
Certificateholders would be impaired. See "Federal Income Tax Considerations"
herein and in the related Prospectus Supplement.
LIMITED NATURE OF RATING; REDUCTION OR WITHDRAWAL OF RATING COULD OCCUR
WHICH MAY ADVERSELY AFFECT THE VALUE 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 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 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. In addition, the rating does not address
the likelihood that the principal amount of any Series or Class will be paid
prior to any final legal maturity date. 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 LIMIT DIRECT VOTING AND ABILITY TO PLEDGE CERTIFICATES.
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 herein) and will not
be issued as individual definitive Certificates to the purchasers of such
Certificates. Consequently, unless and until such individual
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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 "Limitations on Issuance of Bearer Certificates" and any further
description contained in the related Prospectus Supplement.
RISKS WITH RESPECT TO CURRENCY, EXCHANGE RATES AND EXCHANGE CONTROLS MAY
EXIST. The Certificates of any given Series (or Class within such Series) may be
denominated in a currency other than U.S. dollars to the extent specified in the
applicable Prospectus Supplement. 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 U.S. dollar-denominated security.
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 Company 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. Past fluctuations
in any particular exchange rate do not necessarily indicate, however,
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 decrease 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 and the availability of a
Specified Currency for making distributions in respect of Certificates
denominated in such currency. 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 would not be available.
IT IS STRONGLY RECOMMENDED THAT PROSPECTIVE PURCHASERS 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. See "Currency
Risks".
TRUST MAY INCLUDE DERIVATIVES WHICH COULD AFFECT THE VALUE OF THE
CERTIFICATES. A Trust may include various derivative instruments, including
interest rate, currency, securities, commodity and credit swaps, caps, floors,
collars and options and structured securities having embedded derivatives (such
as structured notes). Swaps involve the exchange with another party of their
respective commitments to pay or receive amounts computed by reference to
specified fixed or floating interest rates, currency rates, securities prices,
yields or returns (including baskets of securities or securities indices) or
commodity prices and a notional principal amount (i.e., the reference amount
with respect to which such obligations are determined, although no actual
exchange of principal occurs except for currency swaps); for example, an
exchange of floating rate payments for fixed rate payments. Interim payments are
generally netted, with the difference being paid by one party to the other. The
purchase of a cap entitles the purchaser, to the extent that a specified rate,
price, yield or return exceeds a predetermined level, to receive payments
computed by reference to a specified fixed or floating rate, price, yield or
return and a notional principal amount from the party selling such cap. The
purchase of a floor entitles the purchaser, to the extent that a specified rate,
price, yield or return declines below a predetermined level, to receive payments
computed by reference to a specified fixed or floating rate, price, yield or
return and a notional principal amount from the party selling such floor.
Options function in a manner similar to caps and floors, and exist on various
underlying securities, such as bonds, equities, currencies and commodities.
Options can also be structured as securities such as warrants or can be embedded
in securities such as certain commodity or equity-linked bonds with option-like
characteristics. Forward contracts involve the purchase and sale of a specified
security, commodity, currency or other financial instrument at a specified price
and date in the future, and may be settled by physical delivery or cash payment.
Credit derivatives involve swap and option contracts designed to assume or lay
off credit risk on loans,
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debt securities or other assets, or in relation to a particular reference entity
or country, in return for either swap payments or payment of premium. Credit
derivatives may also be embedded in other instruments such as notes or warrants.
Credit derivatives give one party to a transaction the right to dispose of or
acquire an asset (or group of assets), or the right to receive or make a payment
from the other party, upon the occurrence of specified credit events.
Fluctuations in securities, currency and commodity rates, prices, yields
and returns may have a significant effect on the yield to maturity of
derivatives or the levels of support that derivatives can provide to a Trust. In
addition, derivatives may be limited to covering only certain risks. Continued
payments on derivatives may be affected by the financial condition of the
counterparties thereto (or, in some instances, the guarantor thereunder). There
can be no assurance that counterparties will be able to perform their
obligations. Failure by a counterparty (or the related guarantor, if any) to
make required payments may result in the delay or failure to make payments on
the related securities and risks. In addition, the notional amounts on which
payments are made may vary under certain circumstances and may not bear any
correlation to principal amounts of the related securities. The terms and risks
of the relevant derivatives will be described in the related Prospectus
Supplement. Further, the relevant Prospectus Supplement will identify the
material terms, the material risks and the counterparty for any derivative
instrument in a Trust which is the result of an agreement with such counterparty
to the extent that such agreement is material.
PUBLICLY AVAILABLE INFORMATION CONCERNING TERM ASSETS ISSUERS SHOULD BE
REVIEWED; RISK OF LOSS IF PUBLIC INFORMATION NOT AVAILABLE. It is strongly
recommended that each prospective purchaser of Certificates obtain and evaluate
the same information concerning each Term Assets Issuer (as defined herein) as
it would obtain and evaluate if it were investing directly in the Term Assets or
in other securities issued by the Term Assets Issuer. The publicly-available
information concerning a Term Assets Issuer is important in considering whether
to invest in or sell Certificates. To the extent such information ceases to be
available, an investor's ability to make an informed decision to purchase or
sell Certificates could be impeded. The information in this Prospectus and any
Prospectus Supplement concerning the Term Assets and the Term Assets Issuers has
been obtained from publicly available documents, and none of the Company, the
Trustee or any of their affiliates has undertaken, or will undertake, any
investigation of the accuracy or completeness of such documents (whether or not
filed with the Commission) or the financial condition or creditworthiness of any
Term Assets Issuer. The issuance of Certificates of any Series should not be
construed as an endorsement by the Company or the Trustee or any of their
affiliates of the financial condition or business prospects of any Term Assets
Issuer.
REMEDIES AVAILABLE TO CERTIFICATEHOLDERS ARE LIMITED DUE TO PASSIVE NATURE
OF THE TRUST. The remedies available to a Trustee of a relevant Trust are
predetermined and therefore an investor in the Certificates has less discretion
over the exercise of remedies than if such investor directly invested in the
Term Assets. 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 Term Assets Issuer or the value of the Deposited
Assets. Except as indicated below, a holder will not be able to dispose of or
take other actions with respect to any Deposited Assets. Under certain
circumstances described in the applicable Prospectus Supplement, the Trustee
will (or will at the direction of a specified percentage of Certificateholders
of the relevant Series) dispose of, or take certain other actions in respect of,
the Deposited Assets. In certain limited circumstances, such as a mandatory
redemption of Term Assets or the exercise by a third party of the right to
purchase Term Assets (as described below under "Description of Trust Agreement -
Termination"), the Trustee may dispose of the Deposited Assets prior to
maturity. The applicable Prospectus Supplement will describe the particular
circumstances, if any, under which a Deposited Asset may be disposed of prior to
maturity.
OPTIONAL EXCHANGE FOR DEPOSITED ASSETS WILL GENERALLY BE UNAVAILABLE.
Although the Prospectus Supplement for a Series of Certificates may designate
such Series as an Exchangeable Series (as defined herein) and may provide that a
Certificateholder may exchange Certificates of the Exchangeable Series for a pro
rata portion of Deposited Assets of the related Trust, any such Optional
Exchange Right will be exercisable only to the extent that the exercise of such
right would not be inconsistent with the Company's or Trust's continued
satisfaction of the applicable requirements for exemption under Rule 3a-7 under
the Investment Company Act of 1940, as amended, and all applicable rules,
regulations and interpretations thereunder. See "Description of Certificates -
Optional Exchange.". Accordingly, the optional exchange right described in this
Prospectus under the heading "Description of Certificates - Optional Exchange"
and further described in the relevant Prospectus Supplement may be available
only to the Company and its affiliates and designees. Other Certificateholders
will generally not be able to exchange
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their Certificates of an Exchangeable Series for a pro rata portion of the
Deposited Assets of the related Trust. In addition, the exercise of an optional
exchange right will decrease the outstanding aggregate amount of Certificates of
the applicable Exchangeable Series.
---------------------------------
The Prospectus Supplement for each Series of Certificates will set forth
information regarding any additional material risk factors applicable to such
Series (and each Class within such Series).
THE COMPANY
The Company was incorporated in the State of Delaware on November 23,
1992, as an indirect, wholly-owned, limited-purpose finance subsidiary of
Salomon Smith Barney Holdings Inc. The Company will not engage in any business
or other activities other than issuing and selling securities from time to time
and acquiring, owning, holding, pledging and transferring assets (including
Deposited Assets and Credit Support) in connection therewith or with the
creation of a Trust and in activities related or incidental thereto. The Company
does not have, nor is it expected to have, any significant unencumbered assets.
The Company's principal executive offices are located at Room 33-126, 32nd
Floor, Seven World Trade Center, New York, New York 10048 (telephone (212)
783-6645).
USE OF PROCEEDS
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 Company for
such purposes as may be specified in the applicable Prospectus Supplement. Such
purposes may include, without limitation, purchasing the related Deposited
Assets (or providing a Trust with funds to purchase such Deposited Assets) and
arranging certain Credit Support including, if specified in the related
Prospectus Supplement, making required deposits into any reserve account or
other account for the benefit of the Certificateholders of such Series or Class.
Any remaining net proceeds will be used by the Company for general corporate
purposes.
FORMATION OF THE TRUST
The Company will assign the Deposited Assets (or cash to purchase such
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 Trust
Agreement--Assignment of Deposited Assets". The Deposited Assets will consist of
a publicly issued, fixed income debt security or asset backed security or pool
of such debt securities or asset backed securities issued by one or more
corporations, banking organizations, insurance companies or special purpose
vehicles (including trusts, limited liability companies, partnerships or other
special purpose entities) organized under the laws of the United States of
America or any state, which are subject to the informational requirements of the
Exchange Act and which in accordance therewith file reports and other
information with the Commission. See "Description of Deposited Assets and Credit
Support." 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 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.
The Company'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, if any, 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 Trust
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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 Trust Agreement--Advances in Respect of Delinquencies".
To the extent provided in the related Prospectus Supplement, each Trust
will consist of (i) the applicable Deposited Assets, or interests therein,
exclusive of any interest in such assets (the "Retained Interest") retained by
the Company or any previous owner thereof, as from time to time are specified in
the Trust Agreement; (ii) such collections 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 Company 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 advance, reserve fund or
surety bond.
In addition, to the extent provided in the applicable Prospectus
Supplement, the Company will obtain Credit Support for the benefit of the
Certificateholders of any related Series (or Class within such Series) of
Certificates.
MATURITY AND YIELD CONSIDERATIONS
Each Prospectus Supplement will, to the extent applicable, contain
information with respect to the type and maturities of the related Term Assets
and the terms, if any, upon which such Term Assets 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 Term Assets with respect to the foregoing may
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. The yield to maturity of any Series (or Class within such Series) may be
affected by any optional or mandatory redemption, repayment, amortization or
extension of maturity of the related Term Assets. A variety of tax, accounting,
economic, and other factors will influence whether any applicable party
exercises any right of redemption, repurchase or extension in respect of its
securities. The rate of redemption may also be influenced by prepayments on the
obligations a Term Assets Issuer holds for its own account. All else remaining
equal, if prevailing interest rates fall significantly below the interest rates
on the related Term Assets, the likelihood of redemption would be expected to
increase. There can be no certainty as to whether any Term Asset redeemable at
the option of a Term Assets Issuer will be repaid prior to its stated maturity.
To the extent specified in the related Prospectus Supplement, each of the
Term Assets will be subject to acceleration upon the occurrence of certain Term
Asset Events of Default (as defined herein). The maturity and yield on the
Certificates will be affected by any early repayment of the Term Assets as a
result of the acceleration of the Term Assets. See "Description of Deposited
Assets".
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
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Pass-Through Rate for such Series (or Class) is based on variable or adjustable
interest rates. With respect to any Series of Certificates, disproportionate
principal payments (whether resulting from differences in amortization
schedules, payments due on scheduled maturity or upon early redemption) on the
related Term Assets 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 Term Assets.
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 Company, 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 material 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 material
provision of the Trust Agreement or the applicable Certificates that is not
described 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. 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.
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. 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 Company (and, with respect to any Term Asset 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 Term Asset, 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
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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 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 to put the Certificate to the Company or a third party or of the
Company 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 Company's or 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) 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 such 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 as Registered Securities or Bearer Certificates or
both and, if Bearer Certificates are to be issued, whether coupons ("Coupons")
will be attached thereto; whether Bearer Certificates of such Series or Class
may be exchanged for Registered Securities of such Series or Class and the
circumstances under which and the place or places at which any such exchanges,
if permitted, may be made; (xiii) 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 herein), if
other than The Depository Trust Company, for such Global Security or Securities;
(xiv) 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; (xv) 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 herein) 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;
(xvi) 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 Company 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; (xvii) any
additional Administrative Agent Termination Events (as defined herein), if
applicable, provided for with respect to such Class; (xviii) 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 Company
or the applicable Administrative Agent, if any, or the Trustee; and (xix) 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.
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 this Prospectus and 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. 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
transfer 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 Company, 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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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. Bearer Certificates will be transferable by delivery. Provisions with
respect to the exchange of Bearer Certificates will be described in the
applicable Prospectus Supplement. Registered Securities may not be exchanged for
Bearer Certificates. The Company may at any time purchase Certificates at any
price in the open market or otherwise. Certificates so purchased by the Company
may, at the discretion of the Company, 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
of Registered Certificates 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 into 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.
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 Company'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.
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; 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. No
distribution on a Bearer Certificate will be made by mail to an address in the
United States or by wire transfer to an account maintained by the
Certificateholder thereof in the United States.
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 herein) and the
related Distribution Dates, interest for the period
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beginning on the issue date for such Series or Class and ending on the last day
of the interest accrual period ending immediately prior to or coincident with
such Distribution Date will 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.
"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 distributions
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 payment (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. 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. 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 first Interest Reset Date (as defined
herein) 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 herein) will be determined by reference to an interest rate basis (the
"Base Rate"), 12
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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 Reference Rate
Certificate"), (ii) the Commercial Paper Rate (a "Commercial Paper Reference
Rate Certificate"), (iii) the Treasury Rate (a "Treasury Reference Rate
Certificate"), (iv) the Federal Funds Rate (a "Federal Funds Reference Rate
Certificate"), (v) the CD Rate (a "CD Reference 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 Company 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.
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 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.
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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. 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 Reference Rate Certificates, Commercial Paper Reference
Rate Certificates, Federal Funds Reference Rate Certificates and CD Reference
Rate Certificates or by the actual number of days in the year, in the case of
Treasury Reference 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.
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 REFERENCE RATE CERTIFICATES. Each CD Reference 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.
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 herein) 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 Reference 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 Reference 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 Pass-Through 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 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.
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(2) COMMERCIAL PAPER REFERENCE RATE CERTIFICATES. Each Commercial Paper
Reference 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.
The "Commercial Paper Rate" for each Interest Reset Period will be
determined by the Calculation Agent for such Commercial Paper Reference 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 herein) 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 herein) 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 Reference Rate Certificate for commercial paper
of the specified Index Maturity placed for an industrial issuer whose bonds are
rated "AA" or the equipment 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:
Money Market Yield = D X 360 x 100
-------
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 REFERENCE RATE CERTIFICATES. Each Federal Funds
Reference Rate Certificate will bear interest for each Interest Resort Period at
the Pass-Through Rate calculated with name to the Federal Funds Rate and the
Spread or Spread Multiplier, if any, specified in such Certificate and 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 herein) 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
time, on such Calculation Date, the "Federal Funds Rate" for such Interest Reset
Period will be the
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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 Reference 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 REFERENCE RATE CERTIFICATES. Each LIBOR Reference Rate
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, "LIBOR" for each Interest Reset Period will be determined by the
Calculation Agent for any LIBOR Reference Rate 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 Reference Rate 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 Reference Rate
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 Reference Rate 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 Reference Rate 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 Reference Rate 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.
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(5) TREASURY REFERENCE RATE CERTIFICATES. Each Treasury Reference 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.
The "Treasury Rate" for each Interest Reset Period will be the rate for
the auction held on the Treasury Rate Determination Date (as defined herein) 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 herein) 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 Reference 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 each 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. If an auction date shall fall on
any day that would otherwise be an Interest Reset Date for a Treasury Reference
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
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. 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, 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. 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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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 exerciseable
only to the extent that such exchange would not be inconsistent with the
Company'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;
(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-Term Assets 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.
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 Registered 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).
Because initially and unless 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
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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.
Upon the satisfaction of the foregoing conditions and any applicable
conditions with respect to the related Deposited Assets, as described in the
applicable 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, and would therefore own the Deposited Assets and
have the ability to enforce their rights directly as owners of the Deposited
Assets. 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.
PUT OPTION
If specified in the applicable Prospectus Supplement, a holder may put
Certificates of a given Series to the Company or a third party. The terms upon
which a holder may put its Certificates (including the price) will be specified
in the related Prospectus Supplement; PROVIDED, HOWEVER, any put option shall be
exerciseable only to the extent that such put would not be inconsistent with the
Company's or 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.
GLOBAL SECURITIES
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, New 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
registered or bearer form and in either temporary or definitive form. See
"Limitations on Issuance of Bearer Certificates" for provisions applicable to
Certificate issued in bearer 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.
The Depository Trust Company has advised the Company as follows: The
Depository 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 Company that it intends to follow such
procedures.
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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 Company 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. 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 entries
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.
Subject to the restrictions discussed under "Limitations on Issuance of
Bearer Certificates" below, 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 Company, the
Administrative Agent, if any, the Trustee for such Certificates, any Paying
Agent or the Certificate Registrar for such Certificates will have any
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. Receipt by owners of beneficial interests in a temporary Global
Security of payments of principal, premium or interest in respect thereof will
be subject to the restrictions discussed below under "Limitations on Issuance of
Bearer Certificates" below.
The Company 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
Company 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. Receipt
by owners of beneficial interests in a temporary Global Security of payments of
principal, premium or interest in respect thereof will be subject to the
restrictions discussed below under "Limitations on Issuance of Bearer
Certificates".
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 Company within ninety days, the Company will
issue individual Definitive Certificates in exchange for the Global Security or
Securities representing such Certificates. In addition, the Company 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
Company 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 Company and the Depositary for 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 20
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be issued as (a) Registered Certificates in denominations, unless otherwise
specified by the Company, of $1,000 and integral multiples thereof if the
Certificates or such Class are issuable as Registered Securities, (b) as Bearer
Certificates in the denomination or denominations specified by the Company if
the Certificates of such Class are issuable as Bearer Certificates or (c) as
either Registered or Bearer Certificates, if the Certificates of such Class are
issuable in either form. See, however, "Limitations on Issuance of Bearer
Certificates" below for a description of certain restrictions on the issuance of
individual Bearer Certificates in exchange for beneficial interests in a Global
Security.
The applicable Prospectus Supplement will set forth any material terms of
the depositary arrangement with respect to any Class or Series of Certificates
being offered thereby to the extent not set forth above.
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
asset backed security or a pool of such debt securities or asset backed
securities (the "Term Assets") issued by one or more issuers (the "Term Assets
Issuers"), purchased by a Trust with proceeds from, and at the direction of, the
Company or purchased by the Company (or an affiliate thereof) in the secondary
market and assigned to a Trust as described in the applicable Prospectus
Supplement. The Term Assets Issuers will be one or more corporations, banking
organizations, insurance companies or special purpose vehicles (including trust,
limited liability companies, partnerships or other special purpose entities)
organized under the laws of the United States or any state, which are subject to
the informational requirements of the Exchange Act and which, in accordance
therewith, file reports and other information with the Commission. Based on
information contained in the offering document pursuant to which any Term Assets
Issuer's securities were originally offered (a "Term Assets Prospectus"), the
applicable Prospectus Supplement shall set forth certain information with
respect to the public availability of information with respect to any Term
Assets Issuer the debt securities of which constitute more than ten percent of
the Term Assets for any series of Certificates as of the date of such Prospectus
Supplement ("Concentrated Term Assets"). Material terms of the Term Assets will
be set forth in the related Prospectus Supplement.
The following is a general description of the Deposited Assets which the
Company is permitted to include in a Trust and does not purport to be a complete
description of any such Deposited Asset. This description is qualified in its
entirety by reference to the applicable Prospectus Supplement, the Term Assets
Prospectus and the Term Assets themselves. Material information regarding the
actual Deposited Assets, as of the Cut-off Date (as defined herein), will be
provided in the Prospectus Supplement used to offer a Series of Certificates. A
maximum of 5% of the aggregate principal balance of the Deposited Assets
included with respect to a Series of Certificates as described in this
Prospectus and the related Prospectus Supplement as of the relevant Cut-off Date
will deviate from the characteristics of the assets as of the date of issuance
of such Series.
TERM ASSETS
GENERAL. As specified in the related Prospectus Supplement, each Term
Asset will have been issued pursuant to an agreement (each, a "Term Assets
Indenture") between the Term Assets Issuer and the Term Assets Trustee. Unless
otherwise specified, the Term Assets Indenture and the Term Assets Trustee will
be qualified under the Trust Indenture Act of 1939 (the "TIA") and the Term
Assets Indenture will contain certain provisions required by the TIA.
CERTAIN COVENANTS. Indentures generally contain covenants intended to
protect security holders against the occurrence or effects of certain specified
events, including restrictions limiting the issuer's, and in some cases any
subsidiary's, ability to: (i) consolidate, merge, or transfer or lease assets;
(ii) incur or suffer to exist any lien, charge, or encumbrance upon any of its
property or assets, or to incur, assume, guarantee or suffer to exist any
indebtedness for borrowed money if the payment of such indebtedness is secured
by the grant of such a lien; (iii) declare or pay any cash dividends, or make
any distribution on or in respect of, or purchase, redeem, exchange or otherwise
acquire
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or retire for value any capital stock or subordinated indebtedness of the issuer
or its subsidiaries, if any. An indenture may also contain financial covenants
which, among other things, require the maintenance of certain financial ratios
or the creation or maintenance of reserves. Subject to certain exceptions,
indentures typically may be amended or supplemented and past defaults may be
waived with the consent of the indenture trustee, the consent of the holders of
not less than a specified percentage of the outstanding securities, or both.
The Term Assets Indenture related to one or more Term Assets included in a
Trust may include some, all or none of the foregoing provisions or variations
thereof or additional covenants not discussed herein. To the extent that the
Term Assets are investment grade debt they are unlikely to contain significant
restrictive covenants although certain non-investment grade debt may not be
subject to restrictive covenants either. There can be no assurance that any such
provision will protect the Trust or Trustee as a holder of the Term Assets
against losses. The Prospectus Supplement used to offer any Series of
Certificates will describe material covenants in relation to any Concentrated
Term Asset and, as applicable, will describe material covenants which are common
to any pool of Term Assets.
EVENTS OF DEFAULT. Indentures generally provide that any one of a number
of specified events will constitute an event of default with respect to the
securities issued thereunder. 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
the indenture which failure is materially adverse to security holders and
continues for a specified period after notice thereof is given to the issuer by
the indenture trustee or the holders of not less than a specified percentage of
the outstanding securities; (iii) failure by the issuer to make any required
payment of principal (and premium, if any) or interest with respect to certain
of the other outstanding debt obligations of the issuer or the acceleration by
or on behalf of the holders thereof of such securities, and (iv) certain events
of insolvency or bankruptcy with respect to the Term Assets Issuer.
REMEDIES. Indentures generally provide that upon the occurrence of an
event of default, the indenture trustee may, and upon the written request of the
holders of not less than a specified percentage of the outstanding securities
must, take such action as it may deem appropriate to protect and enforce the
rights of the security holders. Certain indentures provide that the indenture
trustee or a specified percentage of the holders of the outstanding securities
have the right to declare all or a portion of the principal and accrued interest
on the outstanding securities immediately due and payable upon the occurrence of
certain events of default, subject to the issuer's right to cure, if applicable.
Generally, an indenture will contain a provision entitling the trustee
thereunder to be indemnified by the security holders prior to proceeding to
exercise any right or power under such indenture with respect to such securities
at the request of such security holders. An indenture is also likely to limit a
security holder's right to institute certain actions or proceedings to pursue
any remedy under the indenture unless certain conditions are satisfied,
including consent of the indenture trustee, that the proceeding be brought for
the ratable benefit of all holders of the security, and/or the indenture
trustee, after being requested to institute a proceeding by the owners of at
least a specified minimum percentage of the securities, shall have refused or
neglected to comply with such request within a reasonable time.
Each Term Assets Indenture 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 Term Assets Indenture with respect
to any Concentrated Term Asset ("Term Asset 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
Term Asset 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
Term Assets, against losses. If a Term Asset Event of Default occurs and the
Trustee as a holder of the Term Assets is entitled to vote or take such other
action to declare the principal amount of a Term Assets 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 Term Asset ("outstanding debt securities") in
determining whether to declare the acceleration of the Term Assets.
SUBORDINATION. As set forth in the applicable Prospectus Supplement,
certain of the Term Assets with respect to any Trust may be either senior
("Senior Term Assets") or subordinated ("Subordinated Term Assets") in right to
payment to other existing or future indebtedness of the Term Assets Issuer. With
respect to Subordinated 22
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Term Assets, to the extent of the subordination provisions of such securities,
and after the occurrence of certain events, security holders and direct
creditors whose claims are senior to Subordinated Term Assets, if any, may be
entitled to receive payment of the full amount due thereon before the holders of
any subordinated debt securities are entitled to receive payment on account of
the principal (and premium, if any) or any interest on such securities.
Consequently, the Trust or Trustee as a holder of subordinated debt may suffer a
greater loss than if it held unsubordinated debt of the Term Assets Issuer.
There can be no assurance, however, that in the event of a bankruptcy or similar
proceeding the Trust or Trustee as a holder of Senior Term Assets would receive
all payments in respect of such securities even if holders of subordinated
securities receive amounts in respect of such securities. Reference is made to
the Prospectus Supplement used to offer any Series of Certificates for a
description of any subordination provisions with respect to any Concentrated
Term Assets and the percentage of Senior Term Assets and Subordinated Term
Assets, if any, in a Trust comprised of a pool of securities.
SECURED OBLIGATIONS. Certain of the Term Assets with respect to any Trust
may represent secured obligations of the Term Assets Issuer ("Secured Term
Assets"). Generally, unless an event of default shall have occurred, or with
respect to certain collateral or as otherwise set forth in the indenture
pursuant to which such securities were offered and sold, an issuer of secured
obligations generally has the right to remain in possession and retain exclusive
control of the collateral securing a security and to collect, invest and dispose
of any income related to the collateral. The indenture pursuant to which any
secured indebtedness is issued may also contain certain provisions for release,
substitution or disposition of collateral under certain circumstances with or
without the consent of the indenture trustee or upon the direction of not less
than a specified percentage of the security holders. The indenture pursuant to
which any secured indebtedness is issued will also provide for the disposition
of the collateral upon the occurrence of certain events of default with respect
thereto. In the event of a default in respect of any secured obligation,
security holders may experience a delay in payments on account of principal (and
premium, if any) or any interest on such securities pending the sale of any
collateral and prior to or during such period the related collateral may decline
in value. If proceeds of the sale of collateral following an indenture event of
default are insufficient to repay all amounts due in respect of any secured
obligations, the holders of such securities (to the extent not repaid from the
proceeds of the sale of the collateral) would have only an unsecured claim
ranking PARI PASSU with the claims of all other general unsecured creditors.
The Term Assets Indenture with respect to any Secured Term Asset may
include, some, or all or none of the foregoing provisions or variations thereof.
The Prospectus Supplement used to offer any Series of Certificates which
includes Concentrated Term Assets which are Secured Term Assets, will describe
the security provisions of such Term Assets and the related collateral. With
respect to any Trust comprised of a pool of securities, a substantial portion of
which are Secured Term Assets, the applicable Prospectus Supplement will
disclose certain general information with respect to such security provisions
and the collateral.
PRINCIPAL ECONOMIC TERMS OF TERM ASSETS
The applicable Prospectus Supplement will disclose the name of each Term
Assets Issuer with respect to the applicable Series of Certificates. In
addition, 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 Term Asset: (i) the title and series of such
Term Assets, the aggregate principal amount, denomination and form thereof; (ii)
whether such securities are senior or subordinated to any other obligations of
the 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 Term Assets will bear interest, if any
("Term Assets Rate"); the date or dates from which such interest will accrue
("Term Assets Interest Accrual Periods"); and the dates on which such interest
will be payable ("Term Assets Payment Dates"); (vii) the obligation, if any, of
the Term Assets Issuer to redeem the outstanding debt securities pursuant to any
sinking 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 Term Assets Issuer; (ix) whether the Term
Assets 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
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principal of (and premium, if any) or any interest on such Term Assets will be
made (the "Term Assets 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 Term Assets; (xii) the
rating thereof, if any; and (xiii) any other material terms of such Term Assets.
With respect to a Trust comprised of a pool of Term Assets, the related
Prospectus Supplement will, to the extent applicable, describe the composition
of the Term Assets pool as of the Cut-off Date, certain material events of
default or restrictive covenants common to the Term Assets, and, on an
aggregate, percentage or weighted average basis, as applicable, the
characteristics of the pool with respect to certain terms set forth above in the
preceding paragraph and any other material terms regarding such pool of
securities.
PUBLICLY AVAILABLE INFORMATION
In addition to the foregoing, the applicable Prospectus Supplement will
describe, with respect to each Concentrated Term Assets Issuer, the existence
and type of certain information that is made publicly available by such Term
Assets Issuer regarding such Term Asset or Term Assets and will disclose where
and how prospective purchasers of the Certificates may obtain such publicly
available information with respect to each such Term Assets Issuer. Such
information will typically consist of such Term Assets Issuer'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 Term Assets Issuer 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 Term Assets Issuer will vary, and, as described above, will be set forth
in the applicable Prospectus Supplement.
OTHER DEPOSITED ASSETS
In addition to the Term Assets, the Company 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 Term Assets 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, credit swaps, default
swaps, floors, caps and collars, cash and assets ancillary or incidental to the
foregoing or to the Term Assets (including assets obtained through foreclosure
or in settlement of claims with respect thereto) (all such assets for any given
Series, together with the related Term Assets, 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 Term Assets.
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 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.
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. 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. In
addition, the applicable Prospectus Supplement will include (or incorporate by
reference, as applicable) audited financial statements for any obligor providing
Credit Support for
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20% or more of the cashflow of the relevant Series and information required by
Item 301 of Regulation S-K for any obligor providing Credit Support for between
10 and 20% of the cashflow of such Series.
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,
its 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 Certificateholder 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
describe the manner, priority and source of funds by which any such draws are to
be repaid.
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 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
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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 Company or such other person named in the related Prospectus
Supplement.
OTHER CREDIT SUPPORT. If so provided in the related Prospectus Supplement,
the Trust may include, or the Certificateholders of any Series (or any Class or
group of Classes within such Series) may have the benefit of, one or more
interest rate, currency, securities, commodity or credit swaps, caps, floors,
collars or options. The Prospectus Supplement will identify the counterparty to
any such instrument and will provide a description of the material terms
thereof.
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 Administration 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 any 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.
DESCRIPTION OF TRUST AGREEMENT
GENERAL
The following summary of material provisions of the Trust Agreement and
the Certificates does 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. The applicable
Prospectus Supplement for a Series of Certificates will describe any applicable
material provision of the Trust Agreement or the Certificates that is not
described herein. 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.
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ASSIGNMENT OF DEPOSITED ASSETS
At the time of issuance of any Series of Certificates, the Company will
cause the Term Assets 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 Company 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. If specified in
the Prospectus Supplement, the Trustee will, concurrently with such assignment,
deliver the Certificates to the Company in exchange for certain assets to be
deposited in the Trust. 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 Term Asset and each other
Deposited Asset as of the Cut-off Date, and in the event any Term Asset
represents ten percent or more of the total Term Assets 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 term thereof, the rating, if any, thereof
and certain other information with respect thereto.
In addition, the Company 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.
With respect to certain types of Deposited Assets specified in the
applicable Prospectus Supplement only if and to the extent provided therein, if
any such document is found to be missing or defective in any material respect,
the Trustee (or such custodian) shall immediately notify the Administrative
Agent, if any, and the Company, and the Administrative Agent, if any, and
otherwise the Trustee shall immediately notify the relevant person who sold the
applicable Deposited Asset to the Company (a "Deposited Asset Provider"). To the
extent specified in the applicable Prospectus Supplement, if the Deposited Asset
Provider cannot cure such omission or defect within 60 days after receipt of
such notice, the Deposited Asset Provider will be obligated, within 90 days of
receipt of such notice, to repurchase the related Deposited Asset from the Trust
at the Purchase Price (as defined herein) or provide a substitute for such
Deposited Asset. There can be no assurance that a Deposited Asset Provider will
fulfill this repurchase or substitution obligation. Although the Administrative
Agent, if any, or otherwise an Administrator, on behalf of the Trustee is
obligated to use its best efforts to enforce such obligation, neither such
Administrative Agent nor the Company will be obligated to repurchase or
substitute for such Deposited Asset if the Deposited Asset Provider defaults on
its obligation. When applicable, this repurchase or substitution obligation
constitutes the sole remedy available to the Certificateholders or the Trustee
for omission of, or a material defect in, or failure to provide, a constituent
document, and the Trust and the Certificateholders will not have any continuing
direct or indirect liability under the Trust Agreement as sellers of the assets
of the Trust in enforcing such obligation.
Each of the Company 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 Company or any such Administrative
Agent, as the case may be, which materially and adversely affects the interests
of the Certificateholders, the Company or any such Administrative Agent,
respectively, will be obligated to cure the breach in all material respects.
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.
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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, 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 herein).
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. As administrator with respect
to the Deposited Assets, the Trustee (or an Administrator on its behalf), 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.
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, provided that 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.
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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.
ADVANCES IN RESPECT OF DELINQUENCIES
The Administrative Agent, if any, specified in the applicable Prospectus
Supplement 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 herein) and (ii) such other conditions as may be specified
in the Prospectus Supplement.
Advances, if any, 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. 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. 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.
CERTAIN MATTERS REGARDING THE ADMINISTRATIVE AGENT AND THE COMPANY
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
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Trustee, the Company, an affiliate of either thereof, the Deposited Asset
Provider or any third party and may have other normal business relationships
with the Trustee, the Company, 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.
The Trust Agreement will further provide that neither such an
Administrative Agent, the Company nor any director, officer, employee, or agent
of the Administrative Agent or the Company 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
Company nor any such person will be protected against any liability that would
otherwise be imposed by reason of willful misfeasance, bad faith or negligence
in the performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. The Trust Agreement may further provide that,
unless otherwise provided in the applicable series supplement thereto, such an
Administrative Agent, the Company and any director, officer, employee or agent
of the Administrative Agent or the Company will be entitled to the
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 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 Company 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 Company any, 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. 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.
ADMINISTRATIVE AGENT TERMINATION EVENTS; RIGHTS UPON
ADMINISTRATIVE AGENT TERMINATION EVENT
"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 Company, or to the Administrative Agent, the Company and
the Trustee by the holders of such Certificates evidencing not less than 25% of
the Voting Rights (as defined herein); (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 Company, or to
the Administrative Agent, the Company and the Trustee by the holders of such
Certificates evidencing not less than 25% of the 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. 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 herein) applicable to each such matter is
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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 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
Company 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 so to act, it may, or, at the
written request of the holders of such Certificates evidencing not less than the
"Required Percentage--Termination" of the Voting Rights, it will appoint, or
petition a court of competent jurisdiction for the appointment of, an
administration agent 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 to 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.
REMEDIES OF CERTIFICATEHOLDERS
Any Certificateholder may institute any proceeding with respect to the
applicable Trust Agreement subject to the following conditions: (i) such holder
previously has given to the Trustee written notice of breach; (ii) 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 (iii) the Trustee for fifteen days has neglected or
refused to institute any such proceeding. 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.
MODIFICATION AND WAIVER
The Trust Agreement for each Series of Certificates may be amended by the
Company 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 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 Company, 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
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foregoing, the Trust Agreement may also be modified or amended from time to time
by the Company, 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.
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.
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 Company, 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.
REPORTS TO CERTIFICATEHOLDERS; NOTICES
REPORTS TO CERTIFICATEHOLDERS. With each distribution to
Certificateholders of any Class of Certificates of a given Series, the
Administrative Agent or the Trustee, if provided in the related Prospectus
Supplement, will forward or cause to be forwarded to each such
Certificateholder, to the Company 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;
(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;
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(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, if
any, or the Trustee 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.
NOTICES. Any notice required to be given to a holder of a Registered
Certificate will be mailed to the address of such holder set forth in the
applicable Certificate Register. Any notice required to be given to a holder of
a Bearer Certificate will be published in a newspaper of general circulation in
the city or cities specified in the Prospectus Supplement relating to such
Bearer Certificate.
EVIDENCE AS TO COMPLIANCE
If specified in the applicable Prospectus Supplement, the Trust Agreement
will provide that a firm of independent public accountants will furnish an
annual 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), which report should enable the recipients to determine
whether such administration was conducted in compliance with the terms of the
Trust Agreement. Such report shall identify any exceptions found during the
examination.
If so specified in the applicable Prospectus Supplement, the Trust
Agreement will also provide for delivery to the Company, 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.
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
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 (in the case of Registered Securities) or at the
principal London office of the applicable Trustee (in the case of Bearer
Certificates), or such other location as may be specified in the applicable
Prospectus Supplement, upon 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.
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
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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.
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, which price will not be less than the outstanding
principal balance of the Certificates plus accrued interest, if any, thereon
(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 not more than 10% of the aggregate principal balance of the
Deposited Assets at the Cut-off Date for that Series, or such smaller percentage
as shall be specified in the related Prospectus Supplement. The Trust and the
Certificateholders shall have no continuing direct or indirect liability under
the Trust Agreement as sellers of the assets of the Trust in effecting such
termination.
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. 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.
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 Company,
any Administrative Agent and their respective affiliates.
LIMITATIONS ON ISSUANCE OF BEARER CERTIFICATES
In compliance with United States federal income tax laws and regulations,
the Company and any underwriter, agent or dealer participating in the offering
of any Bearer Certificate will agree that, in connection with the original
issuance of such Bearer Certificate and during the period ending 40 days after
the issue date of such Bearer Certificate, they will not offer, sell or deliver
such Bearer Certificate, directly or indirectly, to a U.S. Person or to any
person within the United States, except to the extent permitted under U.S.
Treasury regulations.
Bearer Certificates will bear a legend to the following effect: "Any
United States Person who holds this obligation will be subject to limitations
under the United States income tax laws, including the limitations provided in
Sections 1650(j) and 1287(a) of the Internal Revenue Code". The sections
referred to in the legend provide that, with certain exceptions, a United States
taxpayer who holds Bearer Certificates will not be allowed to deduct any loss
with respect to, and will not be eligible for capital gain treatment with
respect to any gain realized on a sale, exchange, redemption or other
disposition of, such Bearer Certificates.
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As used herein, "United States" means the United States of America and its
possessions, and "U.S. Person" means a citizen or resident of the United States,
a corporation, partnership or other entity created or organized in or under the
laws of the United States, or an estate or trust the income of which is subject
to United States Federal income taxation regardless of its source.
Pending the availability of a definitive Global Security or individual
Bearer Certificates, as the case may be, Securities that are issuable as Bearer
Certificates may initially be represented by a single temporary Global Security,
without interest coupons, to be deposited with a common depositary in London for
Morgan Guaranty Trust Company of New York, Brussels Office, as operator of the
Euroclear System ("Euroclear"), and Centrale de Livraison de Valeurs Mobilieres
S.A. ("CEDEL") for credit to the accounts designated by or on behalf of the
purchases thereof. Following the availability of a definitive Global Security in
bearer form, without coupons attached, or individual Bearer Certificates and
subject to any further limitations described in the applicable Prospectus
Supplement, the temporary Global Security will be exchangeable for interests in
such definitive Global Security or for such individual Bearer Certificates,
respectively, only upon receipt of a Certificate of Non-U.S. Beneficial
Ownership. A "Certificate of Non-U.S. Beneficial Ownership" is a certificate to
the effect that a beneficial interest in a temporary Global Security is owned by
a person that is not a U.S. Person or is owned by or through a financial
institution in compliance with applicable U.S. Treasury regulations. No Bearer
Certificate will be delivered in or to the United States. If so specified in the
applicable Prospectus Supplement, interest on a temporary Global Security will
be distributed to each of Euroclear and CEDEL with respect to that portion of
such temporary Global Security held for its account, but only upon receipt as of
the relevant Distribution Date of a Certificate of Non-U.S. Beneficial
Ownership.
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
Company 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 Company 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.
IT IS STRONGLY RECOMMENDED THAT PROSPECTIVE PURCHASERS 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
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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.
PAYMENT CURRENCY
Except as set forth below, 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 Company'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.
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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.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of material United States federal income tax
consequences of the ownership of the Certificates as of the date hereof.
(Certain minor and incidental consequences are discussed as well.) It is based
on the advice of Orrick, Herrington & Sutcliffe LLP, Special Tax Counsel
("Special Tax Counsel"), which has delivered an opinion to the Company that the
discussion below, to the extent it constitutes matters of law or legal
conclusions thereto, is true and correct in all material respects.
Special Tax Counsel has also delivered an opinion that the Trust will not
be characterized as an association taxable as a corporation (or publicly traded
partnership treated as an association) for federal income tax purposes. Special
Tax Counsel has not delivered (and unless otherwise indicated in the Prospectus
Supplement does not intend to deliver) any other opinions regarding the Trust or
the Certificates. Prospective investors should be aware that no rulings have
been sought from the Internal Revenue Service (the "IRS"), and that legal
opinions are not binding on the IRS or the courts. Accordingly, there can be no
assurance that the IRS or the courts will agree with Special Tax Counsel's
opinions. If, contrary to Special Tax Counsel's opinion, the Trust is
characterized or treated as a corporation for federal income tax consequences,
among other consequences, the Trust would be subject to federal income tax (and
similar state income or franchise taxes) on its income and distributions to
Certificateholders would be impaired. In light of Special Tax Counsel's opinion,
however, the balance of this discussion assumes that the Trust will not be
characterized or treated as a corporation.
This summary is based on the Internal Revenue Code of 1986 (the "Code") as
well as Treasury regulations and administrative and judicial rulings and
practice. Legislative, judicial and administrative changes may occur, possibly
with retroactive effect, that could alter or modify the continued validity of
the statements and conclusions set forth herein. This summary is intended as an
explanatory discussion of the consequences of holding the Certificates generally
and does not purport to furnish information in the level of detail or with the
investor's specific tax circumstances that would be provided by an investor's
own tax advisor. Accordingly, it is strongly recommended that each prospective
investor consult with its own tax advisor regarding the application of United
States federal income tax laws, as well as any state, local, foreign or other
tax laws, to their particular situations.
Except with respect to certain withholding tax matters discussed below
under "Withholding Taxes", the discussion is limited to consequences to U.S.
Persons. For purposes of this discussion, a U.S. Person is: (i) a citizen or
resident of the United States, (ii) a corporation or partnership organized in or
under the laws of the United States, any state thereof or the District of
Columbia, or (iii) an estate or trust that is a United States Person within the
meaning of Section 7701(a)(30) of the Code.
For the purposes of this discussion, the Company and Special Tax Counsel
have assumed, without inquiry, that the Term Assets will be characterized as
indebtedness for federal income tax purposes. The Prospectus Supplement may
contain additional information about the federal income tax characterization of
the Term Assets.
TAX STATUS OF THE TRUST
The Trustee intends for tax reporting purposes to treat the Trust as a
grantor trust. Prospective investors should be aware, however, that certain of
the terms of Certificates (for example, the allocation of the proceeds of a
disposition of the Term Assets) may be viewed by the IRS as inconsistent with
the grantor trust rules and, accordingly, unless otherwise indicated in the
Prospectus Supplement, Special Tax Counsel is not able to deliver an
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opinion that the Trust will be treated as a grantor trust. Nonetheless, because
treating the Trust as a grantor trust is the more appropriate approach for tax
reporting purposes, the Trustee currently intends to treat the trust as a
grantor trust and, except as specifically indicated otherwise under "Possible
Recharacterization of the Trust as a Partnership" below, the balance of this
discussion assumes that the Trust will be so classified. (The Trust Agreement
prohibits the Trust from electing to be taxed as a corporation.)
Each Certificateholder will be treated, for federal income tax purposes,
as a holder of an equity interest in the Trust and, accordingly, (i) as if it
had purchased its pro rata interest of the Trust's underlying assets and (ii) as
if it were the obligor on its pro rata portion of the Trust's obligations. Thus,
for example, if the Certificates are subject to early redemption on account of
the Trust being the obligor under any call options ("Call Warrants"), each
Certificateholder will be treated as if it had sold Call Warrants with respect
to the Term Assets in an amount representing its pro rata interest in the Trust.
Further, if the income of the Trust is used (directly or indirectly) to pay
expenses of the Trust, the holders will be treated as if each had first earned
its pro rata share of that income and then paid its share of the expense.
Prospective investors should be aware that expenses of the Trust may be subject
to limitations on deductibility, which may depend on each particular investor's
circumstances, but would include, in the case of an individual (or entity
treated as an individual) section 67 of the Code that allows miscellaneous
itemized deductions only to the extent that in the aggregate they exceed 2
percent of adjusted gross income.
The Trust has identified the Term Assets and any Call Warrants as part of
an integrated transaction within the meaning of Treasury Regulation ss.
1.1275-6. Among other consequences of such identification is the treatment
generally of each Certificate as a synthetic debt instrument issued on the date
it is acquired by the holder thereof. Similar treatment will also generally
apply to Certificates representing "stripped coupons" and/or "stripped bonds,"
which generally will be the case when Certificates are issued in multiple
classes and the different classes represent the ownership of differing
percentage ownership interests of the right to interest and principal on the
Term Assets. It is also possible that each Certificate will be treated as an
actual debt instrument issued on the Closing Date. In that case, the
Certificates would be taxed like conventional debt instruments and the
discussion under "Income of Certificateholders" would not apply. If a Series of
Certificates has more than one Class and some but not all classes are treated as
actual debt instruments issued on the Closing Date, income on the Classes not so
treated may be treated as unrelated business taxable income (and thus subject to
tax) in the hands of pension plans, individual retirement accounts and other
tax-exempt investors.
INCOME OF CERTIFICATEHOLDERS
ORIGINAL ISSUE DISCOUNT. Each Certificateholder will be subject to the
original issue discount ("OID") rules of the Code and Treasury Regulations with
respect to such Certificates. Under those rules, the Certificateholder (whether
on the cash or accrual method of accounting) will be required to include in
income the OID on the Certificates as it accrues on a daily basis, on a constant
yield method regardless of when cash payments are received. The amount of OID on
a Certificate generally will be equal to the excess of all amounts payable on
the Certificate over the amount paid to acquire the Certificate and the constant
yield used in accruing OID generally will be the yield to maturity of a
Certificate as determined by each holder based on that holder's purchase price
for the Certificate. It is unclear whether the holder of a Certificate should,
in calculating OID, assume that the Term Assets will, or will not, be called
pursuant to any Call Warrant. Further, it is not clear how actual and expected
future prepayments or losses on the Term Assets are to be taken into account.
The Trustee intends for information reporting purposes to account for OID,
if any, reportable by Certificateholders by reference to the price paid for a
Certificate by an initial purchaser at an assumed issue price, although the
amount of OID will differ for other purchasers. Such purchasers should consult
their tax advisers regarding the proper calculation of OID.
The amount of OID that is reported in income in any particular year will
not necessarily bear any relationship to the amount of distributions, if any,
paid to a holder in that year.
PURCHASE AND SALE OF A CERTIFICATE. A Certificateholder's tax basis in a
Certificate generally will equal the cost of the Certificates increased by any
amounts includible in income as OID, and reduced by any payments made on the
Certificates. If a Certificate is sold or redeemed, capital gain or loss will be
recognized equal to the difference between the proceeds of sale and the
Certificateholder's adjusted basis in the Certificates.
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POSSIBLE RECHARACTERIZATION OF THE TRUST AS A PARTNERSHIP
As indicated above, it is possible that the IRS will seek to
recharacterize the Trust as a partnership. If the IRS were to successfully
recharacterize the Trust as a partnership, the Trust would not be subject to
federal income tax. Under Treasury Regulation 1.761-2, certain partnerships may
"elect out" of subchapter K of the Code (partnership tax accounting). Although
subject to uncertainty, the Trust is likely to be eligible for this election.
Assuming that it is so eligible, each Certificateholder will be required to
report its respective share of the items of income, deductions, and credits of
the organization on their respective returns (making such elections as to
individual items as may be appropriate) in a manner consistent with the
exclusion of the Trust from partnership tax accounting. Such reporting should be
substantially similar to the income tax reporting that would be required under
the grantor trust rules. In mutual consideration for each Holder's purchase of a
Certificate, each such Holder is deemed to consent to the Trust's making of a
protective election out of subchapter K of the Code.
If the election to be excluded from the partnership tax accounting
provisions of the Code is not effective, among other consequences, (i) the Trust
would be required to account for its income and deductions at the Trust level
(not necessarily taking into account any particular holder's circumstances,
including any difference between the holder's basis in its Certificates and the
Trust's basis in its assets) and to utilize a taxable year for reporting
purposes and (ii) each Holder would be required to separately take into account
such Holder's distributive share of income and deductions of the Trust. A Holder
would take into account its distributive share of Trust income and deductions
for each taxable year of the Trust in the Holder's taxable year which ends with
or within the Trust's taxable year. A Holder's share of the income of the Trust
computed at the Trust level would not necessarily be the same if computed under
the OID rule described above under "Income of Certificateholders" and, in
particular, may not take account of any difference in the yield on the
Certificate to the Holder based on the Certificateholder's purchase price and
the yield on the Term Assets determined at the Trust level.
WITHHOLDING TAXES
Payments made on a Certificate to a person that is not a U.S. Person and
has no connection with the United States other than holding its certificates
generally will be made free of United States federal withholding tax, provided
that (i) the holder is not related (directly or indirectly) to the obligor,
guarantor, if any, or sponsor of the Term Assets, the Company, the holder of any
other class of Certificates (if such Series provides for multiple classes of
Certificates), the holder of any Call Warrant or the counterparty on any notion
principal contract or other derivative contract of which the Trust is a party
and (ii) the holder complies with certain identification and certification
requirements imposed by the IRS.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described above,
potential investors should consider the state, local and foreign tax
consequences of the acquisition, ownership and disposition of the Certificates.
State, local and foreign tax law may differ substantially from federal tax law,
and this discussion does not purport to describe any aspect of the tax law of a
state or other jurisdiction (including whether the Trust, if treated as a
partnership for federal income tax purposes, would be treated as a partnership
under any state or local jurisdiction). Therefore, it is strongly recommended
that prospective purchasers consult their own tax advisers with respect to such
matters.
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 Company from such sale, any underwriting discounts and other items
constituting underwriters' compensation, any initial public offering price, any
discounts or concessions allowed or reallowed or paid to dealers, any securities
exchanges on which such Certificates may be listed, any restrictions on the sale
and delivery of Certificates in bearer form and the place and time of delivery
of the Certificates to be offered thereby.
39
<PAGE>
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 Salomon Smith
Barney Inc., an affiliate of the Company. 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 Company
from time to time. Any agent involved in the offer or sale of Certificates will
be named, and any commissions payable by the Company 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 Company 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 Company to
indemnification by the Company 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 Company or its affiliates in the ordinary
course of business.
Salomon Smith Barney Inc. is an affiliate of the Company and is an
indirect wholly owned subsidiary of Salomon Smith Barney Holdings Inc., the
indirect parent corporation of the Company. Salomon Smith Barney Inc.'s
participation in the offer and sale of Certificates complies with the
requirements of Rule 2720 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 Company 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. A Prospectus Supplement will be prepared with respect to
the Certificates for use by such affiliates in connection with offers and sales
related to market-making transactions in the Certificates.
LEGAL OPINIONS
Certain legal matters (including federal income tax matters) with respect
to the Certificates will be passed upon for the Company and the Underwriters by
Orrick, Herrington & Sutcliffe LLP, New York, New York or other counsel
identified in the applicable Prospectus Supplement.
40
<PAGE>
INDEX OF TERMS
Administration Fee............7
Administrative Agent..........1
Base Rate....................12
Bearer Certificates...........1
Business Day.................12
Calculation Agent............13
Calculation Date.............14
CD Rate......................14
CD Rate Determination Date...14
CD Reference Rate Certificate13
Cede..........................3
CEDEL........................35
Certificate Account..........26
Certificate Principal Balance17
Certificateholders............1
Certificates..................1
Class.........................1
Code.........................37
Commercial Paper Rate
Determination Date...........15
Commercial Paper Reference
Rate Certificate.............15
Commission....................2
Company.......................1
Components...................36
Composite Quotations.........13
Concentrated Term Assets.....21
Coupons......................10
Credit Support................1
Credit Support Instruments...27
Day of Valuation.............36
Definitive Certificate.......19
Depositary...................19
Deposited Asset Provider.....27
Deposited Assets..............1
Determination Date...........11
Distribution Date.............2
ECU...........................1
Euroclear....................35
Exchange Act..................2
Exchange Rate Agent..........10
Exchangeable Series..........18
Federal Funds Rate...........15
Federal Funds Rate
Determination Date...........15
Federal Funds Reference
Rate Certificate.............13
Fixed Pass-Through Rate.......9
Fixed Rate Certificates......12
Floating Rate Certificates...12
Global Security...............1
H.15(519)....................13
Index Maturity...............13
Interest Reset Date..........13
Interest Reset Period........13
IRS..........................37
Letter of Credit.............25
Letter of Credit Bank........25
LIBOR........................16
LIBOR Determination Date.....16
LIBOR Reference Rate
Certificate..................13
London Banking Day...........12
Market Exchange Rate.........10
Maximum Pass-Through Rate....13
Minimum Pass-Through Rate....13
Money Market Yield...........15
Nonrecoverable Advance.......29
Notional Amount..............12
Offering Agent................3
Option to Elect Exchange.....18
Optional Exchange Date.......18
Original Issue Date...........9
outstanding debt securities..22
Pass-Through Rate.............9
Prospectus Supplement.........1
Purchase Price...............34
Rating Agency.................4
Realized Losses..............17
Registered Certificates.......1
Registration Statement........2
Related Proceeds.............29
Required Percentage..........31
Reserve Account..............25
Retained Interest.............8
Reuters Screen LIBO Page.....16
Secured Term Assets..........23
Securities Act................2
Senior Term Assets...........22
Series........................1
Special Tax Counsel..........37
Specified Currency............2
Specified Interest Currency...2
Specified Premium Currency....2
Specified Principal Currency..2
Spread.......................13
Spread Multiplier............13
Strip Certificates...........10
Stripped Interest............12
Sub-Administration Agreement.28
Sub-Administrative Agent.....28
Subordinated Term Assets.....22
Surety.......................25
Surety Bond..................25
Term Asset Events of Default.22
Term Assets...................1
Term Assets Currency.........24
Term Assets Indenture........21
Term Assets Interest
Accrual Periods..............23
Term Assets Issuers..........21
Term Assets Payment Dates....23
Term Assets Rate.............23
Treasury bills...............17
Treasury Rate................17
Treasury Rate Determination
Date.........................17
Treasury Reference Rate
Certificate..................13
Trust.........................1
Trust Agreement...............1
Trustee.......................1
Trustee's Fee.................7
U.S. Person..................35
United States................35
Variable Pass-Through Rate...10
Voting Rights................31
41
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
Information About Certificates...............S-2
Summary Information--Q&A.....................S-3
Risk Factors................................S-11
Formation of the Trust......................S-16
Use of Proceeds.............................S-16
The Term Assets Issuers.....................S-16
Description of the Term Assets..............S-17
Description of the Certificates.............S-18
Description of the Swap Agreement...........S-26
Description of the Swap Counterparty.......S-30
Description of the S&P 500 Index...........S-32
Description of the Trust Agreement..........S-36
Enforcement of Foreign Judgments
in the Cayman Islands....................S-37
United States Federal Income
Tax Considerations.......................S-38
Certain Cayman Islands Tax Considerations...S-45
Certain ERISA Considerations................S-46
Underwriting................................S-47
Ratings.....................................S-48
Legal Opinions..............................S-48
Index of Terms..............................S-50
Appendix A - Description of the Term Assets..A-1
Appendix B - IRS Form 8621..B-1
PROSPECTUS
Prospectus Supplement........................2
Available Information........................2
Incorporation of Certain Documents by
Reference...................................2
Reports to Certificateholders...............3
Important Currency Information..............3
Risk Factors................................3
The Company.................................7
Use of Proceeds.............................7
Formation of the Trust......................7
Maturity and Yield Considerations...........8
Description of Certificates.................9
Description of Deposited Assets and
Credit Support.............................21
Description of Trust Agreement............26
Limitations on Issuance of Bearer
Certificates...............................34
Currency Risks.............................35
Certain Federal Income Tax
Considerations.............................37
Plan of Distribution.......................39
Legal Opinions.............................40
Index of Terms.............................41
<PAGE>
===================================================================
YOU SHOULD RELY ON THE INFORMATION INCORPORATED BY REFERENCE OR PROVIDED
IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT MAKING
AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU
SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS ACCURATE
AS OF ANY DATE OTHER THAN ON THE FRONT OF THE DOCUMENT.
STRUCTURED PRODUCTS CORP., THE DEPOSITOR
__________TIERSSM CALLABLE PRINCIPAL-PROTECTED ASSET BACKED TRUST
CERTIFICATES, SERIES S&P 1999-2
(INTEREST AT MATURITY BASED UPON
THE S&P 500(R) INDEX)
DUE _______, 2006
($10 PRINCIPAL AMOUNT PER CERTIFICATE)
ISSUED BY
TIERS(SM) CALLABLE PRINCIPAL-PROTECTED ASSET BACKED CERTIFICATES
TRUST SERIES S&P 1999-2
PROSPECTUS SUPPLEMENT
DATED _________, 1999
SALOMON SMITH BARNEY
<PAGE>
[Background: Salomon Smith Barney trading floor]
SALOMON SMITH BARNEY
A member of citigroup (Logo)
Salomon Smith Barney is a service mark of
Salomon Smith Barney Inc.
