<PAGE> 1
Filed pursuant to Rule 424(b)(5)
Registration No. 333-57357
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 AND DECLARED EFFECTIVE. THIS
PRELIMINARY PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS ARE NOT AN
OFFER TO SELL THESE SECURITIES AND ARE NOT A SOLICITATION TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
[Graphic of Salomon Smith Barney trading floor]
Prospectus Supplement
(To Prospectus Dated May 13, 1999)
Safety
First(SM)
Investments
Safety of Principal, Opportunity for Growth
[CIRCLE AND ARROW ARTWORK GRAPHIC]
STRUCTURED PRODUCTS CORP., THE DEPOSITOR
TIERS(SM) PRINCIPAL-PROTECTED
TRUST CERTIFICATES
(INTEREST ON FINAL SCHEDULED DISTRIBUTION DATE
BASED UPON THE AMEX Semiconductor Index
DUE , 2005
($10 PRINCIPAL AMOUNT PER CERTIFICATE)
ISSUED BY
TIERS(SM) PRINCIPAL-PROTECTED ASSET BACKED
CERTIFICATES TRUST SERIES Semiconductor 2000-14
[AMBAC LOGO]
PAYMENTS TO THE TRUST WILL BE GUARANTEED PURSUANT TO THE TERMS OF A FINANCIAL
GUARANTY INSURANCE POLICY ISSUED BY AMBAC ASSURANCE CORPORATION AS DESCRIBED
HEREIN.
[SALOMON SMITH BARNEY LOGO]
<PAGE> 2
SAFETY FIRST[SM] INVESTMENTS
TIERS[SM] PRINCIPAL-PROTECTED TRUST CERTIFICATES, SERIES Semiconductor
2000-14
TIERS[SM] Principal-Protected Trust Certificates, Series Semiconductor
2000-14, part of the family of Safety First[SM] Investments, are certificates
whose return is tied or "linked" to the performance of the AMEX Semiconductor
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 based on
the return of the AMEX Semiconductor Index subject to a quarterly appreciation
cap.
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
- GROWTH POTENTIAL -- The value of the certificates is based on the return of
the AMEX Semiconductor Index subject to a quarterly appreciation cap, enabling
you to participate in potential increases in the value of the AMEX
Semiconductor Index, subject to the quarterly appreciation cap, without having
to acquire each of the underlying stocks.
- PRESERVATION OF CAPITAL -- At maturity, the trust will pay you at least the
principal amount of the certificates, regardless of the performance of the
AMEX Semiconductor Index.
- DIVERSIFICATION -- The certificates' link to the AMEX Semiconductor Index may
allow you to diversify an existing portfolio mix of stocks, bonds, mutual
funds and cash.
- EXCHANGE LISTING -- Although the certificates are intended to be "buy and
hold" investments, application will be made to list the certificates on the
American Stock Exchange.
- U.S. SETTLEMENT -- The certificates trade and are settled in the U.S. market.
- LOW MINIMUM INVESTMENT -- Minimum investments start as low as $10 per
certificate.
- TAXES -- You should recognize capital gain or loss upon the sale or redemption
of the certificates. Other than relating to the fees and expenses of the
trust, you generally should not receive or recognize income for tax purposes
prior to maturity. Please see "Selected Risk Considerations -- Taxes" below.
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.
- NO CURRENT INCOME -- You will not receive any periodic interest payments on
the certificates. Unlike holders of the stocks underlying the AMEX
Semiconductor Index, investors in the certificates also will not receive any
dividend payments or other distributions on those stocks.
- POSSIBILITY OF NO CAPITAL APPRECIATION -- The index return used to determine
the interest distribution amount, if any, payable to you on the final
scheduled distribution date is based on the return of the AMEX Semiconductor
Index subject to a quarterly appreciation cap. The interest distribution
amount may be zero even if the value of the AMEX Semiconductor Index has
increased at one or more times during the term of the certificates or if the
value of the AMEX Semiconductor Index as of the final scheduled distribution
date is greater than the value of the AMEX Semiconductor Index on the date
the certificates are priced. Even if an interest distribution amount is paid
to you on the final scheduled distribution date, the total yield on the
certificates may be less than that on a normal fixed income investment.
- LIQUIDITY -- Application will be made to list the certificates 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.
- THE RETURN ON THE CERTIFICATES IS CAPPED -- The opportunity for equity
appreciation afforded by an investment in the certificates may be
significantly less than the opportunity for equity appreciation afforded by a
direct investment in the AMEX Semiconductor Index because of the effect of the
quarterly appreciation cap.
- 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 AMEX Semiconductor
Index, the volatility of the AMEX Semiconductor Index, dividend rates on
stocks underlying the AMEX Semiconductor Index, the time remaining to
maturity, the level of interest rates and other economic conditions, as well
as the trust's perceived creditworthiness. 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.
- TAXES -- Because the trust is a Passive Foreign Investment Company, you should
make a Qualified Electing Fund election on your federal income tax return and
file the related IRS Form 8621 in order to benefit from the intended tax
treatment of the certificates. Failure to do so generally will result in a
punitive tax characterization of distributions at maturity or of any gain you
might recognize from the sale of the certificates.
<PAGE> 3
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 AND DECLARED EFFECTIVE.
THIS PRELIMINARY PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS ARE
NOT AN OFFER TO SELL THESE SECURITIES AND ARE NOT A SOLICITATION TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION DATED OCTOBER 6, 2000
PRELIMINARY PROSPECTUS SUPPLEMENT
(To Prospectus dated May 13, 1999)
STRUCTURED PRODUCTS CORP., THE DEPOSITOR
TIERS(SM) PRINCIPAL-PROTECTED TRUST CERTIFICATES
(INTEREST ON FINAL SCHEDULED DISTRIBUTION DATE BASED UPON THE AMEX SEMICONDUCTOR
INDEX)
DUE [ ], 2005
ISSUED BY
TIERS(SM) PRINCIPAL-PROTECTED ASSET BACKED CERTIFICATES
TRUST SERIES SEMICONDUCTOR 2000-14
($10 PRINCIPAL AMOUNT PER CERTIFICATE)
------------------------
GENERAL:
- Trust Certificates of TIERS(SM) Principal-Protected Asset Backed Certificates
Trust Series Semiconductor 2000-14.
- Issuable and transferable only in denominations of $10 and integral multiples
thereof.
- Generally, no payments prior to the final scheduled distribution date.
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 "XOS" subject to official notice of issuance.
- The certificates are expected to be rated "AAA" and "Aaa" by Standard & Poor's
Ratings Services and Moody's Investors Service, Inc., respectively.
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 return of the AMEX
Semiconductor Index subject to a quarterly appreciation cap of [15]%.
- The interest distribution amount may be ZERO, but will not be less than zero.
[AMBAC LOGO]
Payments to the trust will be guaranteed pursuant to the terms of a financial
guaranty insurance policy issued by Ambac Assurance Corporation as described
herein.
For information as to the interest distribution amount and certain United
States federal income tax consequences to holders of the certificates, you
should refer to "Description of the Certificates -- Interest Distribution
Amount" and "United States Federal Income Tax Considerations" in this prospectus
supplement.
The certificates have not been passed on by the American Stock Exchange as to
their legality or suitability. The certificates are not issued, endorsed, sold
or promoted by the American Stock Exchange. The American Stock Exchange makes no
warranties and bears no liability with respect to the certificates.
YOU SHOULD FULLY CONSIDER THE RISK FACTORS ON PAGE S-13 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 DEFAULT BY THE SWAP COUNTERPARTY AND THE
SWAP INSURER OR UPON THE OCCURRENCE OF A TERM ASSETS CREDIT EVENT, 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."
------------------------
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.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
PER CERTIFICATE TOTAL
----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Public offering price....................................... $ $
----------------------------------------------------------------------------------------------------------------------------
Underwriting discount to be paid by Salomon Smith Barney $ $
Holdings Inc................................................
----------------------------------------------------------------------------------------------------------------------------
Proceeds to Trust (before expenses)......................... $ $
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------
The underwriters expect to deliver your certificates in book-entry form only
through The Depository Trust Company on or about [ ], 2000.
"TIERS"(SM) is a service mark of Salomon Smith Barney Inc.
SALOMON SMITH BARNEY
[ ], 2000
<PAGE> 4
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-53 in this document and beginning
on page 43 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 underwriters have
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 underwriters are 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.
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)Principal-Protected Trust Certificates. You
should carefully read the entire prospectus and prospectus supplement to fully
understand the terms of the certificates, certain information regarding how the
AMEX Semiconductor 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. You should also be aware that although the prospectus and this prospectus
supplement use the terms "certificate principal balance" and "principal amount,"
your certificates represent a beneficial interest in and not a debt obligation
of the trust, and your certificates are subordinate to the claims of general
creditors. 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.
S-2
<PAGE> 5
WHAT ARE THE CERTIFICATES?
The certificates are issued by the trustee in respect of the TIERS(SM)
Principal-Protected Asset Backed Certificates Trust Series Semiconductor
2000-14, and represent in aggregate the entire undivided beneficial ownership
interest in the assets of the trust. The certificates mature on [ ],
2005 and do not provide for earlier redemption by you. Generally, the trust will
make no payments on the certificates prior to the final scheduled distribution
date. The trust will, however, make semiannual distributions on the certificates
on each [ ] and [ ] equal to the earnings, if any, received by
the trust from certain eligible investments owned by the trust if such earnings
equal or exceed $[ ], as described in the section "Description of the
Certificates -- Supplemental Distributions" 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. In the case of supplemental semiannual
distributions described above 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. Accountholders in the Euroclear or Clearstream clearance
systems may hold beneficial interests in the certificates through the accounts
that each such system maintains as a participant in The Depository Trust
Company. 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.
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-heading "What about United States Taxes" in
this summary and "United States Federal Income Tax Considerations" in this
prospectus supplement.
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 AMEX Semiconductor Index.
"Principal Protected" does not mean that you will receive a 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 default by the swap counterparty and the
swap insurer or upon the occurrence of a term assets credit event, 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, of certain provisions of the swap agreement and the obligations of the
swap insurer, see "Description of the Swap Agreement -- Payments Upon Term
Assets Credit Event," "-- Termination of Swap Agreement," "-- Payments Upon Swap
Termination Date" and "Description of the Policy."
WHAT IS THE SWAP AGREEMENT?
On the closing date, the trustee 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 trustee 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
trustee will pay the swap counterparty out of assets of the trust 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
S-3
<PAGE> 6
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 trustee for the trust with payments made pursuant to
this provision will at least equal the principal amount of the certificates.
Further, the swap counterparty will pay the underwriting discount incurred in
connection with the issuance of the certificates. You should refer to the
section "Description of the Swap Agreement" in this prospectus supplement.
WHAT ARE THE OBLIGATIONS OF THE SWAP INSURER?
The obligations of the swap counterparty under the swap agreement on a swap
termination date or upon the occurrence of a term assets credit event will be
insured by Ambac Assurance Corporation pursuant to the policy. The policy will
be issued pursuant to the insurance agreement, dated October [ ], 2000, between
the swap insurer and the swap counterparty. See "Description of the Policy" 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 default by the
swap counterparty and the swap insurer or the occurrence of a term assets credit
event) and who also want to participate in any possible increase in the AMEX
Semiconductor Index subject to a periodic maximum return or cap. The periodic
cap is [15]%, and the periodic capped return will be determined periodically as
explained below.
On the final scheduled distribution date, you will receive a payment per
certificate equal to the sum of: (i) the principal amount of the certificate
($10 per certificate) and (ii) an interest distribution amount based on the
index return. The index return will be calculated by compounding the periodic
capped returns, as determined over the term of the certificates. The index
return allows you to participate in the first [15]% of any appreciation in the
value of the AMEX Semiconductor Index in the period between the issue date and
the first reset date and in any subsequent quarter during the term of the
certificates. The actual quarterly reset dates will be determined on the date
the certificates are priced, and the final reset date is expected to coincide
with the final scheduled distribution date. We refer to the period between any
two consecutive reset dates (or the issue date and the first reset date) as a
reset period.
PRINCIPAL AMOUNT
The principal amount of each certificate is $10.
INTEREST DISTRIBUTION AMOUNT
Absent the occurrence of a term assets credit event or a swap termination
date, on the final scheduled distribution date, you will receive for each
certificate an interest distribution amount which will equal the product of:
Principal Amount ($10 per Certificate) * Index Return
The index return equals the compounded value of the periodic capped returns
computed in the following manner, and is presented in this prospectus supplement
as a percentage:
[Product of (1.00 + the periodic capped return) for each reset date] - 1.00
where the periodic capped return for any reset date (including the final
scheduled distribution date) equals the following fraction, which is presented
in this prospectus supplement as a percentage:
Ending Value - Starting Value
--------------------------------
Starting Value
provided, however, that the periodic capped return will not in any
circumstances be greater than [15]%.
If the ending value for any reset date is less than the starting value used
for the computation of the periodic capped return for such reset date, then the
periodic capped return for such reset date will be negative.
S-4
<PAGE> 7
However, the index return will not be less than zero (thus ensuring that the
payment you receive on the final scheduled distribution date will not be less
than the amount of your original investment in the certificates), nor can it be
more than [1,536.65]% (a maximum value that represents an increase of the AMEX
Semiconductor Index of at least [15]% in each reset period).
The ending value for any reset date other than the final scheduled
distribution date means the value of the AMEX Semiconductor Index at the close
of the market on that reset date or, if that reset date is not an index business
day, the value at the close of the market on the preceding index business day.
The ending value for the final scheduled distribution date will be the average
of the values of the AMEX Semiconductor Index 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. The ending value for the final scheduled
distribution date may, however, be calculated by reference to fewer than six or
even a single day's closing value if there is a disruption in the trading of the
component stocks comprising the AMEX Semiconductor Index or certain futures or
options relating to the AMEX Semiconductor Index during the calculation period.
The starting value for the initial reset date will equal 100, the value of
the AMEX Semiconductor Index at the close of the market on [ ], 2000,
which is the date the certificates are priced for initial sale to the public.
The starting value for each subsequent reset date (including the final scheduled
distribution date) will equal the ending value with respect to the immediately
preceding reset date.
For more specific information about the "Periodic Capped Return" and the
"Index Return," please see "Description of the Certificates -- Interest
Distribution Amount" in this prospectus supplement.
Absent the occurrence of a default by the swap counterparty and the swap
insurer or the occurrence of a term assets credit event, the trust will pay you
the interest distribution amount on the certificates only if the index return is
greater than zero. IF THE INDEX RETURN IS ZERO, THE PAYMENT YOU RECEIVE ON THE
FINAL SCHEDULED DISTRIBUTION DATE WILL BE EQUAL TO THE AMOUNT OF YOUR ORIGINAL
INVESTMENT.
The amount payable to you on the final scheduled distribution date is
dependent upon the return on the AMEX Semiconductor Index during each of the
reset periods. As demonstrated by some of the hypothetical examples provided
below, the possibility exists that an investment in the certificates will not
result in a gain even if the value of the AMEX Semiconductor Index increases
during one or more reset periods during the term of the certificates or if the
value of the AMEX Semiconductor Index as of the final scheduled distribution
date is greater than the value of the AMEX Semiconductor Index when the
certificates are issued.
The certificates also provide less opportunity for appreciation than a
direct investment in the AMEX Semiconductor Index because the periodic cap will
operate to limit the portion of any appreciation in the value of the AMEX
Semiconductor Index in which you will share to the first [15]% of any increase
in the value of the AMEX Semiconductor Index between the issue date and the
first reset date and in any subsequent quarter, but not limit your exposure to
any depreciation in the value of the AMEX Semiconductor Index in any given
period. Nevertheless, absent the occurrence of a default by the swap
counterparty and the swap insurer or the occurrence of a term assets credit
event, the payment to you on the final scheduled distribution date will be at
least equal to the amount of your initial investment in the certificates.
For more specific information about the interest distribution amount
payable on the final scheduled distribution date, please see "Description of the
Certificates -- Interest Distribution Amount" in this prospectus supplement.
PAYMENTS ON THE FINAL SCHEDULED DISTRIBUTION DATE -- HYPOTHETICAL EXAMPLES
The index return is dependent on the value of the AMEX Semiconductor Index
as of each reset date. Because the value of the AMEX Semiconductor Index may be
subject to significant variations over the term of the certificates, it is not
possible to present a chart or table illustrating a complete range of possible
payments on the final scheduled distribution date. The examples of hypothetical
payment calculations that follow are intended to illustrate the effect of
general trends in price of the AMEX Semiconductor Index on the
S-5
<PAGE> 8
amount payable on the certificates on the final scheduled distribution date. All
of the hypothetical examples assume that no default by the swap counterparty and
swap insurer occurs and that no term assets credit event occurs with respect to
the certificates, and all examples are based upon an initial price to the public
of each certificate of $10, an initial starting value of the AMEX Semiconductor
Index of 100, the periodic cap of 15%, and reset dates January 31, April 30,
July 31, and October 31 of each year, commencing January 31, 2001. The AMEX
Semiconductor Index values illustrated in each of the examples have been rounded
to the nearest whole number.
EXAMPLE 1: THE VALUE OF THE AMEX SEMICONDUCTOR INDEX AS OF THE FINAL SCHEDULED
DISTRIBUTION DATE IS GREATER THAN THE STARTING VALUE OF THE AMEX
SEMICONDUCTOR INDEX FOR THE INITIAL RESET DATE AND THE AMEX
SEMICONDUCTOR INDEX APPRECIATED BY 10% (AN AMOUNT LESS THAN THE
PERIODIC APPRECIATION CAP) DURING EACH RESET PERIOD THROUGHOUT THE
TERM OF THE CERTIFICATES:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
RESET DATES
---------------------------------------------------------------------------------------
JAN-01 APR-01 JUL-01 OCT-01 JAN-02 APR-02 JUL-02 OCT-02 JAN-03 APR-03
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Value of the
Index 110 121 133 146 161 177 195 214 236 259
--------------------------------------------------------------------------------------------------------------
Periodic Capped
Return 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
--------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
RESET DATES
---------------------------------------------------------------------------------------
JUL-03 OCT-03 JAN-04 APR-04 JUL-04 OCT-04 JAN-05 APR-05 JUL-05 OCT-05
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Value of the
Index 285 314 345 380 418 459 505 556 612 673
--------------------------------------------------------------------------------------------------------------
Periodic Capped
Return 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
--------------------------------------------------------------------------------------------------------------
</TABLE>
Index return = [(1.00 + 0.10) X (1.00 + 0.10) X (1.00 + 0.10) X
(1.00 + 0.10) X (1.00 + 0.10) X (1.00 + 0.10) X (1.00 + 0.10) X
(1.00 + 0.10) X (1.00 + 0.10) X (1.00 + 0.10) X (1.00 + 0.10) X
(1.00 + 0.10) X (1.00 + 0.10) X (1.00 + 0.10) X (1.00 + 0.10) X
(1.00 + 0.10) X (1.00 + 0.10) X (1.00 + 0.10) X (1.00 + 0.10) X
(1.00 + 0.10)] minus 1.00 = 5.7275 or 572.75%.
Interest distribution amount = $10 X 5.7275 = $57.275
Payment on the final scheduled distribution date = $10.00 + $57.275 =
$67.275 per certificate.
EXAMPLE 2: THE VALUE OF THE AMEX SEMICONDUCTOR INDEX AS OF THE FINAL SCHEDULED
DISTRIBUTION DATE IS GREATER THAN THE STARTING VALUE OF THE AMEX
SEMICONDUCTOR INDEX FOR THE INITIAL RESET DATE AND THE AMEX
SEMICONDUCTOR INDEX APPRECIATED BY 15% (AN AMOUNT EQUAL TO THE
PERIODIC APPRECIATION CAP) DURING EACH RESET PERIOD THROUGHOUT THE
TERM OF THE CERTIFICATES:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
RESET DATES
---------------------------------------------------------------------------------------
JAN-01 APR-01 JUL-01 OCT-01 JAN-02 APR-02 JUL-02 OCT-02 JAN-03 APR-03
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Value of the
Index 115 132 152 175 201 231 266 306 352 405
--------------------------------------------------------------------------------------------------------------
Periodic Capped
Return 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00%
--------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
RESET DATES
---------------------------------------------------------------------------------------
JUL-03 OCT-03 JAN-04 APR-04 JUL-04 OCT-04 JAN-05 APR-05 JUL-05 OCT-05
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Value of the
Index 465 535 615 708 814 936 1,076 1,238 1,423 1,637
--------------------------------------------------------------------------------------------------------------
Periodic Capped
Return 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00%
--------------------------------------------------------------------------------------------------------------
</TABLE>
Index return = [(1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X
(1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X
(1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X
(1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X
(1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X
(1.00 + 0.15)] minus 1.00 = 15.3665 or 1536.65%.
S-6
<PAGE> 9
Interest distribution amount = $10 X 15.3665 = $153.665
Payment on the final scheduled distribution date = $10.00 + $153.665 =
$163.665 per certificate.
EXAMPLE 3: THE VALUE OF THE AMEX SEMICONDUCTOR INDEX AS OF THE FINAL SCHEDULED
DISTRIBUTION DATE IS GREATER THAN THE STARTING VALUE OF THE AMEX
SEMICONDUCTOR INDEX FOR THE INITIAL RESET DATE AND THE AMEX
SEMICONDUCTOR INDEX APPRECIATED BY 20% (AN AMOUNT GREATER THAN THE
PERIODIC APPRECIATION CAP) DURING EACH RESET PERIOD THROUGHOUT THE
TERM OF THE CERTIFICATES:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
RESET DATES
---------------------------------------------------------------------------------------
JAN-01 APR-01 JUL-01 OCT-01 JAN-02 APR-02 JUL-02 OCT-02 JAN-03 APR-03
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Value of the
Index 120 144 173 207 249 299 358 430 516 619
--------------------------------------------------------------------------------------------------------------
Periodic Capped
Return 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00%
--------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
RESET DATES
---------------------------------------------------------------------------------------
JUL-03 OCT-03 JAN-04 APR-04 JUL-04 OCT-04 JAN-05 APR-05 JUL-05 OCT-05
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Value of the
Index 743 892 1,070 1,284 1,541 1,849 2,219 2,662 3,195 3,834
--------------------------------------------------------------------------------------------------------------
Periodic Capped
Return 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00%
--------------------------------------------------------------------------------------------------------------
</TABLE>
Index return = [(1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X
(1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X
(1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X
(1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X
(1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X
(1.00 + 0.15)] minus 1.00 = 15.3665 or 1536.65%.
Interest distribution amount = $10 X 15.3665 = $153.665
Payment on the final scheduled distribution date = $10.00 + $153.665 =
$163.665 per certificate.
EXAMPLE 4: THE VALUE OF THE AMEX SEMICONDUCTOR INDEX AS OF THE FINAL SCHEDULED
DISTRIBUTION DATE IS LESS THAN THE STARTING VALUE OF THE AMEX
SEMICONDUCTOR INDEX FOR THE INITIAL RESET DATE AND THE AMEX
SEMICONDUCTOR INDEX DECLINED STEADILY THROUGHOUT THE TERM OF THE
CERTIFICATES:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
RESET DATES
---------------------------------------------------------------------------------------
JAN-01 APR-01 JUL-01 OCT-01 JAN-02 APR-02 JUL-02 OCT-02 JAN-03 APR-03
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Value of the
Index 98 96 93 91 89 87 85 83 80 78
--------------------------------------------------------------------------------------------------------------
Periodic Capped
Return -2.18% -2.23% -2.28% -2.33% -2.39% -2.45% -2.51% -2.58% -2.64% -2.71%
--------------------------------------------------------------------------------------------------------------
</TABLE>
S-7
<PAGE> 10
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
RESET DATES
---------------------------------------------------------------------------------------
JUL-03 OCT-03 JAN-04 APR-04 JUL-04 OCT-04 JAN-05 APR-05 JUL-05 OCT-05
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Value of the
Index 76 74 72 69 67 65 63 61 59 56
--------------------------------------------------------------------------------------------------------------
Periodic Capped
Return -2.79% -2.87% -2.96% -3.05% -3.14% -3.24% -3.35% -3.47% -3.59% -3.73%
--------------------------------------------------------------------------------------------------------------
</TABLE>
Index return = [(1.00 + -0.0218) X (1.00 + -0.0223) X (1.00 + -0.0228) X
(1.00 + -0.0233) X (1.00 + -0.0239) X (1.00 + -0.0245) X (1.00 + -0.0251) X
(1.00 + -0.0258) X (1.00 + -0.0264) X (1.00 + -0.0271) X (1.00 + -0.0279) X
(1.00 + -0.0287) X (1.00 + -0.0296) X (1.00 + -0.0305) X (1.00 + -0.0314) X
(1.00 + -0.0324) X (1.00 + -0.0335) X (1.00 + -0.0347) X (1.00 + -0.0359) X
(1.00 + -0.0373)] minus 1.00 = -0.4363 or -43.63% but the index return
cannot be less than zero.
Interest distribution amount = $10 X 0 = $0
Payment on the final scheduled distribution date = $10.00 + $0 = $10.00
per certificate.
EXAMPLE 5: THE VALUE OF THE AMEX SEMICONDUCTOR INDEX AS OF THE FINAL SCHEDULED
DISTRIBUTION DATE IS GREATER THAN THE STARTING VALUE OF THE AMEX
SEMICONDUCTOR INDEX FOR THE INITIAL RESET DATE AND THE AMEX
SEMICONDUCTOR INDEX INCREASED STEADILY THROUGHOUT ALL BUT ONE OF THE
RESET PERIODS DURING THE TERM OF THE CERTIFICATES. IF THE DECLINE IS
EQUAL TO APPROXIMATELY 93% FOR ONE RESET PERIOD, THE INDEX RETURN
WILL BE REDUCED TO ZERO:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
RESET DATES
---------------------------------------------------------------------------------------
JAN-01 APR-01 JUL-01 OCT-01 JAN-02 APR-02 JUL-02 OCT-02 JAN-03 APR-03
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Value of the
Index 115 132 152 175 201 231 266 306 352 405
---------------------------------------------------------------------------------------------------------------
Periodic Capped
Return 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00%
---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
RESET DATES
---------------------------------------------------------------------------------------
JUL-03 OCT-03 JAN-04 APR-04 JUL-04 OCT-04 JAN-05 APR-05 JUL-05 OCT-05
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Value of the
Index 465 535 615 708 814 936 1,076 1,238 87 117
---------------------------------------------------------------------------------------------------------------
Periodic Capped
Return 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% -93.00% 15.00%
---------------------------------------------------------------------------------------------------------------
</TABLE>
Index return = [(1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X
(1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X
(1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X
(1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X
(1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X (1.00 + -0.93) X
(1.00 + 0.15)] minus 1.00 = -0.0038 or -0.38% but the index return cannot
be less than zero.
Interest distribution amount = $10 X 0 = $0
Payment on the final scheduled distribution date = $10.00 + $0 = $10.00 per
certificate.
S-8
<PAGE> 11
EXAMPLE 6: THE VALUE OF THE AMEX SEMICONDUCTOR INDEX ON THE FINAL SCHEDULED
DISTRIBUTION DATE IS LESS THAN THE STARTING VALUE OF THE AMEX
SEMICONDUCTOR INDEX FOR THE INITIAL RESET DATE AND THE VALUE OF THE
AMEX SEMICONDUCTOR INDEX FLUCTUATED DURING THE TERM OF THE
CERTIFICATES, DECLINING IN ONE HALF OF THE RESET PERIODS AND
INCREASING IN THE OTHER ONE HALF OF THE RESET PERIODS, WITH THE
MAGNITUDE OF THE PERCENTAGE INCREASES AND DECLINES BEING EQUAL:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
RESET DATES
----------------------------------------------------------------------------------------------
JAN-01 APR-01 JUL-01 OCT-01 JAN-02 APR-02 JUL-02 OCT-02 JAN-03 APR-03
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Value of the
Index 115 132 112 96 110 126 107 91 78 66
---------------------------------------------------------------------------------------------------------------------
Periodic Capped
Return 15.00% 15.00% -15.00% -15.00% 15.00% 15.00% -15.00% -15.00% -15.00% -15.00%
---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
RESET DATES
----------------------------------------------------------------------------------------------
JUL-03 OCT-03 JAN-04 APR-04 JUL-04 OCT-04 JAN-05 APR-05 JUL-05 OCT-05
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Value of the
Index 76 87 74 63 72 62 52 60 69 80
---------------------------------------------------------------------------------------------------------------------
Periodic Capped
Return 15.00% 15.00% -15.00% -15.00% 15.00% -15.00% -15.00% 15.00% 15.00% 15.00%
---------------------------------------------------------------------------------------------------------------------
</TABLE>
Index return = [(1.00 + 0.15) X (1.00 + 0.15) X (1.00 + -0.15) X
(1.00 + -0.15) X (1.00 + 0.15) X (1.00 + 0.15) X (1.00 + -0.15) X
(1.00 + -0.15) X (1.00 + -0.15) X (1.00 + -0.15) X (1.00 + 0.15) X
(1.00 + 0.15) X (1.00 + -0.15) X (1.00 + -0.15) X (1.00 + 0.15) X
(1.00 + -0.15) X (1.00 + -0.15) X (1.00 + 0.15) X (1.00 + 0.15) X
(1.00 + 0.15)] minus 1.00 = -0.2035 or -20.35% but the index return cannot
be less than zero.
Interest distribution amount = $10 X 0 = $0
Payment on the final scheduled distribution date = $10.00 + $0 = $10.00 per
certificate.
EXAMPLE 7: THE VALUE OF THE AMEX SEMICONDUCTOR INDEX ON THE FINAL SCHEDULED
DISTRIBUTION DATE IS GREATER THAN THE STARTING VALUE OF THE AMEX
SEMICONDUCTOR INDEX FOR THE INITIAL RESET DATE AND THE VALUE OF THE
AMEX SEMICONDUCTOR INDEX FLUCTUATED DURING THE TERM OF THE
CERTIFICATES, DECLINING IN ONE HALF OF THE RESET PERIODS AND
INCREASING IN THE OTHER ONE HALF OF THE RESET PERIODS, WITH THE
MAGNITUDE OF THE INCREASES BEING SIGNIFICANTLY GREATER THAN THE
MAGNITUDE OF THE DECLINES:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
RESET DATES
----------------------------------------------------------------------------------------
JAN-01 APR-01 JUL-01 OCT-01 JAN-02 APR-02 JUL-02 OCT-02 JAN-03 APR-03
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Value of the
Index 115 132 126 119 137 158 150 142 135 129
---------------------------------------------------------------------------------------------------------------
Periodic Capped
Return 15.00% 15.00% -5.00% -5.00% 15.00% 15.00% -5.00% -5.00% -5.00% -5.00%
---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
RESET DATES
----------------------------------------------------------------------------------------
JUL-03 OCT-03 JAN-04 APR-04 JUL-04 OCT-04 JAN-05 APR-05 JUL-05 OCT-05
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Value of the
Index 148 170 196 225 214 203 233 268 255 242
---------------------------------------------------------------------------------------------------------------
Periodic Capped
Return 15.00% 15.00% 15.00% 15.00% -5.00% -5.00% 15.00% 15.00% -5.00% -5.00%
---------------------------------------------------------------------------------------------------------------
</TABLE>
Index return = [(1.00 + 0.15) X (1.00 + 0.15) X (1.00 + -0.05) X
(1.00 + -0.05) X (1.00 + 0.15) X (1.00 + 0.15) X (1.00 + -0.05) X
(1.00 + -0.05) X (1.00 + -0.05) X (1.00 + -0.05) X (1.00 + 0.15) X
(1.00 + 0.15) X (1.00 + 0.15) X (1.00 + 0.15) X (1.00 + -0.05) X
(1.00 + -0.05) X (1.00 + 0.15) X (1.00 + 0.15) X (1.00 + -0.05) X
(1.00 + -0.05)] minus 1.00 = 1.4222 or 142.22%.
Interest distribution amount = $10 X 1.4222 = $14.222
Payment on the final scheduled distribution date = $10.00 + $14.222 =
$24.222 per certificate.
S-9
<PAGE> 12
CAN YOU TELL ME MORE ABOUT THE TRUST?
The trust will be established by Structured Products Corp. and designated
as TIERSSM Principal-Protected Asset Backed Certificates Trust Series
Semiconductor 2000-14. The trust will be formed under the laws of the Cayman
Islands, and U.S. Bank National Association, Cayman Islands Branch, will be the
trustee and U.S. Bank Trust National Association will be the co-trustee of the
trust. The assets of the trust will primarily consist of $[ ]
aggregate principal amount of asset backed securities of various issuers, 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 and
the policy. 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," "Description of the Swap
Agreement" and "Description of the Policy" in this prospectus supplement.
WHO PUBLISHES THE AMEX SEMICONDUCTOR INDEX AND WHAT DOES IT MEASURE?
The AMEX Semiconductor Index is a stock index calculated, published and
disseminated by the American Stock Exchange that is intended to measure the
composite price performance of the underlying stocks that comprise the index.
The underlying stock that comprise the AMEX Semiconductor Index have been
selected by Salomon Smith Barney. A list of the underlying stocks is included
below in the section "Description of the AMEX Semiconductor Index."
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
AMEX Semiconductor 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.
S-10
<PAGE> 13
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 a
swap termination date, upon the final scheduled distribution date of the
certificates, upon a term assets 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."
United States investors who transfer (directly or indirectly) more than
$100,000 to acquire certificates in the initial offering generally are required
to file a Form 926 with the IRS and to supply certain additional information to
the IRS. A copy of the IRS Form 926 is attached as Appendix C.
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 under the symbol "XOS," subject to official notice of issuance. 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?
The certificates are expected to be rated "AAA" and "Aaa" by Standard &
Poor's Ratings Services and Moody's Investors Service, Inc., 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 and the swap insurer. The
ratings do not address the likely performance of the AMEX Semiconductor Index.
S-11
<PAGE> 14
WHO ARE THE TRUSTEES?
U.S. Bank National Association, Cayman Islands Branch, will act as trustee
and U.S. Bank Trust National Association 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 c/o IBJ Whitehall Bank and Trust Company,
P.O. Box 1040 GT, Grand Cayman, Cayman Islands BWI or the co-trustee at 100 Wall
Street, Suite 1600, New York, NY 10005. 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. calculated the starting value, and will calculate the ending value
and the periodic capped return on each reset date and the index return and the
interest distribution amount, if any, on the final scheduled distribution date
and determine 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, Salomon Smith Barney Inc., the Underwriter, the Swap Counterparty and
the Calculation Agent Are Affiliates and May Have Interests 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.
S-12
<PAGE> 15
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. If the value of the AMEX Semiconductor Index
declines during any reset period during the term of the certificates, the
periodic capped return for that reset period will be less than zero. Because the
index return used to determine the interest distribution amount, if any, payable
to you on the final scheduled distribution date is based on the compounded value
of the periodic capped returns for each of the reset periods, the likelihood
that the interest distribution amount will be zero increases as the number of
periodic capped return values that are negative increases and as the size of the
decline in the value of the AMEX Semiconductor Index in any reset period
increases. As demonstrated by some of the hypothetical examples in the section
"Summary Information -- Q&A -- Payments on the Final Scheduled Distribution
Date -- Hypothetical Examples" above, the interest distribution amount may be
equal to zero even if the value of the AMEX Semiconductor Index increases during
one or more reset periods during the term of the certificates or if the value of
the AMEX Semiconductor Index as of the final scheduled distribution date is
greater than the value of the AMEX Semiconductor Index on the date the
certificates are priced. In fact, if the AMEX Semiconductor Index declines in
any single reset period by approximately [93]% or more, the interest
distribution amount will be zero, even if the value of the AMEX Semiconductor
Index increases in every other reset period. If the interest distribution amount
is zero, on the final scheduled distribution date, you will receive only the
$10.00 principal amount per certificate.
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 AMEX Semiconductor 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 and swap insurer
are 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 default by the swap counterparty
and the swap insurer or upon the occurrence of a term assets credit event, 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 EARLY TERMINATION 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.
THE ASSETS OF THE TRUST ARE THE ONLY PAYMENT SOURCE FOR THE
CERTIFICATES. Distributions on 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 trustee 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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LIMITATIONS ON THE SWAP INSURER'S OBLIGATIONS UNDER THE POLICY MAY AFFECT
THE RETURN ON THE CERTIFICATES. The timely payment of the payment obligations
of the swap counterparty to the trust pursuant to the swap agreement upon the
swap termination date or upon the occurrence of a term assets credit event will
be guaranteed by the policy to be issued by the swap insurer. Under the terms of
the policy, the swap insurer's obligations to the trust, and accordingly the
swap counterparty's obligations under the swap agreement, are limited to the
lesser of the unpaid amount of the swap counterparty's obligations pursuant to
the swap agreement and an amount that is the greater of the principal amount of
the certificates and two times the amount of the swap counterparty's obligations
pursuant to the swap agreement which would have been due had the swap
termination date or term assets credit event occurred on the last day on which
the swap counterparty had satisfied its obligations under the insurance
agreement.
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 AMEX Semiconductor Index
as of each reset date during the term of the certificates may be less than,
equal to or only slightly greater than its value on the immediately preceding
reset date or 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.
Application will be made to list the certificates 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
SCHEDULED DISTRIBUTION DATE. Although you are entitled to receive semiannual
distributions representing investment earnings on various eligible investments
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 INDICATIVE PERFORMANCE OF THE AMEX SEMICONDUCTOR INDEX IS NOT AN
INDICATION OF THE FUTURE PERFORMANCE OF THE AMEX SEMICONDUCTOR INDEX. The
indicative performance of the AMEX Semiconductor Index which is included in this
prospectus supplement and which assumes the AMEX Semiconductor Index had been
created on October 29, 1999, should not be taken as an indication of the future
performance of the AMEX Semiconductor Index during the term of the certificates.
While the trading prices of the stocks underlying the AMEX Semiconductor Index
will determine the value of the AMEX Semiconductor Index, it is impossible to
predict whether the value of the AMEX Semiconductor Index will fall or rise.
Trading prices of the stocks underlying the AMEX Semiconductor 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 MAY BE LESS THAN YOUR RETURN ON A
SIMILAR INDEXED INSTRUMENT THAT IS DIRECTLY LINKED TO THE AMEX SEMICONDUCTOR
INDEX BECAUSE OF THE PERIODIC CAPPED RETURN. As a result of the periodic capped
return, the certificates provide less opportunity for equity appreciation than a
direct investment in the stocks underlying the AMEX Semiconductor Index. The
periodic capped return will operate to limit the portion of any appreciation in
the value of the AMEX Semiconductor Index in which you will share to the first
[15]% of any increase in the period between the issue date and the first
quarterly distribution date and in any subsequent quarter, but will not limit
your exposure to any depreciation in the value of the AMEX Semiconductor Index.
If the value of the AMEX Semiconductor Index increases by more than [15]% in any
reset period during the term of the certificates, your return on the
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certificates will therefore be less than your return on the underlying stocks or
a similar security that was directly linked to the AMEX Semiconductor Index but
was not subject to an appreciation cap.
YOUR RETURN ON THE CERTIFICATES WILL NOT REFLECT THE RETURN YOU WOULD
REALIZE IF YOU ACTUALLY OWNED THE STOCKS UNDERLYING THE AMEX SEMICONDUCTOR
INDEX. Your return on the certificates will not reflect the return you would
realize if you actually owned the stocks underlying the AMEX Semiconductor Index
because of the appreciation cap and because AMEX calculates the AMEX
Semiconductor Index by reference to the prices of the stocks comprising the AMEX
Semiconductor Index without taking into consideration the value of any dividends
paid on those stocks.
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 AMEX Semiconductor 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 and/or as of prior reset dates, the value of the AMEX Semiconductor
Index is less than, equal to, or not sufficiently above the starting value of
the AMEX Semiconductor 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 MARKET VALUE OF THE CERTIFICATES WILL DEPEND ON THE VALUE OF THE
AMEX SEMICONDUCTOR INDEX BUT MAY NOT INCREASE BY AS MUCH AS AN INCREASE IN
THE AMEX SEMICONDUCTOR INDEX. The trust expects that the market value of
the certificates will likely depend substantially on the relationship
between the value of the AMEX Semiconductor Index at the time of pricing
of the certificates and the future value of the AMEX Semiconductor Index.
If you choose to sell your certificates when the value of the AMEX
Semiconductor 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 AMEX Semiconductor
Index because of the effect on the index return of previously determined
periodic capped returns and expectations that the AMEX Semiconductor Index
will continue to fluctuate between such time and the time when subsequent
ending values of the AMEX Semiconductor Index are determined. If you
choose to sell your certificates when the value of the AMEX Semiconductor
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 AMEX Semiconductor Index, while
falling U.S. dividend rates may decrease the value of the AMEX
Semiconductor Index. Political, economic and other developments that
affect the stocks underlying the AMEX Semiconductor Index may also affect
the value of the AMEX Semiconductor Index and, thus, the value of the
certificates. Because the index return is based on the compounded value of
the periodic capped returns for each of the reset periods and will be
reduced if the value of the AMEX Semiconductor Index declines during any
reset period, the price at which you will be able to sell your
certificates prior to the final scheduled distribution date may be less
than the amount originally invested, even if the value of the AMEX
Semiconductor Index when you sell your certificates is equal to, or higher
than, the value of the AMEX Semiconductor Index at the time you bought
your certificates. The effect of the current AMEX Semiconductor Index
value on the market value of the certificates will likely decrease
significantly over time during the term of the certificates because the
periodic capped return (and thus a portion of the index return) will be
determined on each reset date.
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 AMEX Semiconductor Index, which
(for the reasons discussed above) would affect the value of the
certificates. Rising interest rates may lower the value of the AMEX
Semiconductor Index and, thus, the value of the certificates. Falling
interest rates may increase the value of the AMEX Semiconductor Index and,
thus, the value of the certificates.
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THE TRADING VALUE OF THE CERTIFICATES MAY BE ADVERSELY AFFECTED BY THE
VOLATILITY OF THE AMEX SEMICONDUCTOR INDEX. Volatility is the term used
to describe the size and frequency of market fluctuations. If the
volatility of the AMEX Semiconductor Index increases or decreases, the
trading value of the certificates may be adversely affected. The effect of
the volatility of the AMEX Semiconductor Index on the market value of the
certificates will likely decrease significantly over time during the term
of the certificates because the periodic capped return (and thus a portion
of the index return) will be determined on each reset date.
THE MARKET VALUE OF THE CERTIFICATES MAY BE ADVERSELY AFFECTED BECAUSE
OF EVENTS INVOLVING THE COMPANIES COMPRISING THE AMEX SEMICONDUCTOR
INDEX. General economic conditions and earnings results of the companies
whose common stocks comprise the AMEX Semiconductor 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 AMEX Semiconductor 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 AMEX
Semiconductor Index. Any such difference will reflect a "time premium"
resulting from expectations concerning the value of the AMEX Semiconductor
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 AMEX Semiconductor 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 AND THE POLICY. You will have no contractual right to
act directly with respect to the term assets or the swap agreement or the policy
or to proceed directly against the swap counterparty or the swap insurer. 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 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.
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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. On or prior to the closing
date, the swap counterparty, directly or through its subsidiaries, will hedge
its anticipated exposure under the swap agreement by the purchase or sale of
options, futures contracts, forward contracts or swaps or options on the AMEX
Semiconductor Index, or other derivative or synthetic instruments related to the
AMEX Semiconductor Index. 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
AMEX Semiconductor Index), in connection with hedging with respect to the
certificates, we expect that the swap counterparty, the underwriter or one or
more of its affiliates will increase or decrease its initial hedging positions
using dynamic hedging techniques and may take long or short positions in the
AMEX Semiconductor Index, in listed or over-the-counter option contracts in, or
other derivative or synthetic instruments related to, the AMEX Semiconductor
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 the
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 AMEX Semiconductor Index or option contracts in, or other derivative or
synthetic instruments related to, the AMEX Semiconductor 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 AMEX Semiconductor 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") and U.S. Bank
National Association, Cayman Islands Branch (the "Trustee"), will establish a
trust, to be designated the TIERS(SM) Principal-Protected Asset Backed
Certificates Trust Series Semiconductor 2000-14 (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 Semiconductor 2000-14 to be dated as of the Closing Date. The
Trust will issue its TIERS(SM) Principal-Protected Trust Certificates, Series
Semiconductor 2000-14 (the "Certificates"). The term "Trust" where the context
so requires will be construed as a reference to the Trustee and/or Co-Trustee
acting solely in their capacities as Trustee or Co-Trustee, as the case may be,
in respect of the Trust. The "Closing Date" means the date of initial delivery
of the Certificates. The co-trustee of the Trust will be U.S. Bank Trust
National Association (the "Co-Trustee"). The assets of the Trust will consist
primarily of $[ ] aggregate principal 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
The Term Assets were selected at the time the Certificates were priced.
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
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.
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,
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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 CO-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 was registered pursuant to a registration statement
(collectively, the "Term Assets Registration Statements") under the Securities
Act of 1933, as amended (the "Securities Act") The Term Assets may not have been
issued pursuant to a trust agreement qualified under the Trust Indenture Act of
1939. Certain information concerning the Term Assets is set forth in Appendix A.
References to the Term Assets will be deemed to refer to any asset backed
securities substituted for the Term Assets and asset backed securities or
Eligible Investments purchased with principal proceeds of the Term Assets as
described under the sections "Description of the Swap Agreement -- Amortization
of Term Assets" and "Description of the Trust Agreement -- Substitution of Term
Assets."
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.
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 undivided beneficial ownership interest in the Trust. The
property of the Trust will consist of (i) the Term Assets, (ii) the Swap
Agreement, (iii) the rights of the Trust
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as beneficiary pursuant to financial guaranty insurance policy no. [ ]
(the "Policy") issued by Ambac Assurance Corporation (the "Swap Insurer"), and
(iv) 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 a Term Assets Credit Event or a Swap Termination Date occurs on or
prior to [ ], 2005 (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 Index Return (as defined below) is zero, Certificateholders will be
entitled to receive only the principal amount thereof. The principal amount will
equal $10 per Certificate.
INTEREST DISTRIBUTION AMOUNT
Absent the occurrence of a Term Assets Credit Event or a Swap Termination
Date, on the Final Scheduled Distribution Date, the holders of the Certificates
are entitled to receive an interest distribution (the "Interest Distribution
Amount") per Certificate determined according to the following formula:
Principal Amount ($10) for each Certificate * Index Return
The Index Return (the "Index Return") equals the compounded result of the
Periodic Capped Returns computed in the following manner:
[Product of (1.00 + the Periodic Capped Return) for each Reset Date] - 1.00
where the Periodic Capped Return (the "Periodic Capped Return") for any
Reset Date (including the Final Scheduled Distribution Date) equals the
following fraction:
Ending Value - Starting Value
---------------------------------
Starting Value
provided, however, that the Periodic Capped Return will not in any
circumstances be greater than [15]%.
If the Ending Value (as defined below) for any Reset Date is less than the
Starting Value (as defined below) used for the computation of the Periodic
Capped Return for such Reset Date, then the Periodic Capped Return for such
Reset Date will be negative. However, the Index Return will not be less than
zero (thus ensuring that the payment you receive on the Final Scheduled
Distribution Date will not be less than the amount of your original investment
in the Certificates), nor can it be more than [1,536.65]% (a maximum value that
represents an increase of the AMEX Semiconductor Index (the "AMEX Semiconductor
Index") of at least [15]% in each reset period).
As indicated in the formula above, the Interest Distribution Amount will be
calculated using the principal amount of the Certificates, and in no event will
the Interest Distribution Amount be less than zero.
"Reset Dates" will occur on January [ ], April [ ], July [ ], and
October [ ], commencing January [ ], 2001 and ending on the Final Scheduled
Distribution Date.
The "Starting Value" for the initial Reset Date will be 100, which will be
the value of the AMEX Semiconductor Index at the close of the market on the date
the Certificates are priced for initial sale to the public. The Starting Value
for each subsequent Reset Date (including the Final Scheduled Distribution Date)
will equal the Ending Value with respect to the immediately preceding Reset
Date.
The "Ending Value" for any Reset Date (other than the Final Scheduled
Distribution Date) means the value of the AMEX Semiconductor Index at the close
of the market on that Reset Date or, if that Reset Date is not an Index Business
Day (as defined below), the value at the close of the market on the preceding
Index
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Business Day. The Ending Value for the Reset Date with respect to the Final
Scheduled Distribution Date will equal the average (arithmetic mean) of the
closing values of the AMEX Semiconductor Index on each of the first six
Calculation Days during the Calculation Period. If there are fewer than six
Calculation Days, then the Ending Value for the Reset Date with respect to the
Final Scheduled Distribution Date will equal the average (arithmetic mean) of
the closing values of the AMEX Semiconductor Index on such Calculation Days and,
if there is only one Calculation Day, then the Ending Value for the Reset Date
with respect to the Final Scheduled Distribution Date will equal the closing
value of the AMEX Semiconductor Index on such Calculation Day. If no Calculation
Days occur during the Calculation Period, then the Ending Value for the Reset
Date with respect to the Final Scheduled Distribution Date will equal the
closing value of the AMEX Semiconductor Index on the last scheduled Index
Business Day during the Calculation Period, regardless of the occurrence of a
Market Disruption Event (as defined below) on such day.
The "Calculation Period" means the period from and including the seventh
scheduled Index Business Day prior to each Reset Date (including the Final
Scheduled Distribution Date) to and including the second scheduled Index
Business Day prior to the Reset Date (including 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"), the Nasdaq National
Market of the Nasdaq Stock Market, Inc. ("NASDAQ"), and the American Stock
Exchange ("AMEX"), are open for trading and the AMEX Semiconductor 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 major U.S. exchange which commences to serve (or ceases to
serve) as the primary exchange upon which a stock underlying the AMEX
Semiconductor Index trades or as an exchange upon which a futures contract, an
option on a futures contract or an option contract relating to the AMEX
Semiconductor Index trades. All determinations made by the Calculation Agent
will be at the sole discretion of the Calculation Agent and will 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 number of the underlying stocks which then comprise the AMEX
Semiconductor 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 AMEX, the NYSE, the NASDAQ, or any other applicable
organized U.S. exchange. For purposes of this definition, limitations on
trading during significant market fluctuations imposed pursuant to AMEX
Rule 117, NYSE Rule 80B (or any applicable rule or regulation enacted or
promulgated by NYSE, the NASDAQ, any other self regulatory organization or
the SEC of similar scope or as a replacement for AMEX Rule 117 or NYSE Rule
80B, as determined by the Calculation Agent) will 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 AMEX Semiconductor 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 AMEX Semiconductor Index or any
Successor Index which are traded on the Chicago Board Options Exchange
("CBOE") 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 number of the underlying stocks which then comprise the AMEX
Semiconductor Index or any Successor Index or in respect of futures
contracts related to the AMEX Semiconductor Index or any Successor Index,
options on such futures contracts or options contracts related to the AMEX
Semiconductor Index or any Successor Index, in each case traded on any
major U.S. exchange.
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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 AMEX
Semiconductor 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 AMEX, the NYSE, the NASDAQ, 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 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), (ii) any Excess Investment Interest (as defined
herein), plus (iii) realized gains from the exchange, if any, of the Term Assets
for other asset backed securities rated in the highest rating category of at
least one nationally recognized rating agency. Distributions of such earnings,
if any, any Excess Investment Interest and realized gains from the exchange of
the Term Assets, if any, 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 next semiannual distribution date on which 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 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.
DISCONTINUANCE OF THE AMEX SEMICONDUCTOR INDEX
If AMEX discontinues publication of the AMEX Semiconductor Index or another
entity publishes a successor or substitute index that the Calculation Agent
determines, in its sole discretion, to be comparable to the AMEX Semiconductor
Index (any such index being referred to herein as a "Successor Index"), then the
Ending Value as of any succeeding Reset Date will be determined by reference to
the value of such Successor Index using the methodology described above under
"Interest Distribution Amount" herein.
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<PAGE> 25
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 will provide notice thereof to the registered
holders of the Certificates.
If AMEX discontinues publication of the AMEX Semiconductor Index and a
Successor Index is not selected by the Calculation Agent or is no longer
published on any Reset Date or Calculation Day, the value to be substituted for
the AMEX Semiconductor Index for any such Reset Date or Calculation Day used to
calculate the Interest Distribution Amount will be a value computed by the
Calculation Agent for such Reset Date or Calculation Day in accordance with the
procedures last used to calculate the AMEX Semiconductor Index prior to any such
discontinuance.
If AMEX discontinues publication of the AMEX Semiconductor 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 Ending Value and (b) a determination by the Calculation
Agent that a Successor Index is available, the Calculation Agent will 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 Reset Date or
Calculation Day, as the case may be. 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 AMEX Semiconductor 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 AMEX Semiconductor Index as described above, such
Successor Index or value will be substituted for the AMEX Semiconductor 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 AMEX
Semiconductor Index may adversely affect the value of the Certificates.
ALTERATION OF METHOD OF CALCULATION
If at any time the method of calculating the AMEX Semiconductor Index or a
Successor Index is changed in any material respect, or if the AMEX Semiconductor
Index or a Successor Index is in any other way modified so that the value of the
AMEX Semiconductor 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 will, at the close of business in New York, New York, on each date that
the closing value with respect to any 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 AMEX Semiconductor Index or such Successor Index as if such
changes or modifications had not been made, and calculate such closing value
with reference to the AMEX Semiconductor Index or such Successor Index.
Accordingly, if the method of calculating the AMEX Semiconductor Index or such
Successor Index is modified so that the value of the AMEX Semiconductor 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 AMEX Semiconductor Index),
then the Calculation Agent will adjust the AMEX Semiconductor Index in order to
arrive at a value of the AMEX Semiconductor Index as if it had not been modified
(e.g., as if such split had not occurred).
HYPOTHETICAL RETURNS
For a presentation of the return on the Certificates according to various
hypothetical returns on the AMEX Semiconductor Index as of each Reset Date, see
the examples set forth under the heading "Summary Information -- Q&A -- Payments
on the Final Scheduled Distribution Date -- Hypothetical Examples" beginning on
page S-5.
The examples are for purposes of illustration only. The actual Interest
Distribution Amount will depend entirely on the Starting Value and the actual
Ending Value as of any Reset Date determined by the
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<PAGE> 26
Calculation Agent as provided herein. Indicative data regarding the AMEX
Semiconductor Index, which assumes the AMEX Semiconductor Index had been created
on October 29, 1999 are included in this Prospectus Supplement under
"Description of the AMEX Semiconductor Index."
PAYMENT UPON SWAP TERMINATION DATE
If a Swap Termination Date occurs, the Co-Trustee will sell the Term Assets
and the Eligible Investments, and the Swap Agreement will terminate. On the
termination date, 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 that the Swap Counterparty's obligation to
make a payment to the trust will not exceed an amount that is the greater of the
principal amount of the Certificates and twice the Swap Counterparty's
obligations under the Swap Agreement had the Swap Termination Date occurred on
the last date on which the Swap Counterparty had satisfied its obligations under
the Insurance Agreement; and provided, further, 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 will pay 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. See "Description of the Swap Agreement -- Payments Upon Swap
Termination Date" herein.
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 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; provided that
the Swap Counterparty's obligation to make a payment to the trust will not
exceed an amount that is the greater of the principal amount of the Certificates
and twice the Swap Counterparty's obligations under the Swap Agreement had the
Term Assets Credit Event occurred on the last date on which the Swap
Counterparty had satisfied its obligations under the Insurance Agreement. 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 AMEX under the
symbol "XOS," subject to official notice of issuance. 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
S-24
<PAGE> 27
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 Clearstream 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 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 Commission.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Certificates will be made by the Underwriters 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 will
be at the sole discretion of the Calculation Agent and will, 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 Ending Value, the Interest Distribution Amount or whether a
Market Disruption Event has occurred. See "-- Discontinuance of the AMEX
Semiconductor 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. The Calculation
Agent may not be replaced without the consent of the Swap Insurer.
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. In addition, the Swap Counterparty will pay the underwriting
discount incurred in connection with the issuance of 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 Swap Counterparty with the
consent of the Swap Insurer but without the consent of Certificate-
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<PAGE> 28
holders; provided that such amendment does not materially adversely affect the
rights of the Certificateholders.
INITIAL PAYMENT
On the Closing Date, pursuant to the Swap Agreement, the Swap Counterparty
will pay the Trust an initial payment in an amount equal to $[ ].
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, 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 "Term Asset 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 Term Asset 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 Term Asset 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 will 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 Term Asset 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 $[ ]; 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.
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) the occurrence of certain defaults by the Swap Counterparty or
certain termination events under the Insurance Agreement dated October [ ],
2000, between the Swap Counterparty and the Swap Insurer.
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 that the
Swap Counterparty's obligations under the Swap Agreement shall not exceed an
amount that is the greater
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<PAGE> 29
of the principal amount of the Certificates and twice the Swap Counterparty's
obligations under the Swap Agreement had the Swap Termination Date occurred on
the last day on which the Swap Counterparty had satisfied its obligations under
the Insurance Agreement, and provided further 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 will 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.
"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 (v) any Term Assets Issuer fails to satisfy its reporting obligations
under the Exchange Act, (vi) the occurrence of certain insolvency events with
respect to either party to the Swap Agreement or (vii) the occurrence of certain
defaults by the Swap Counterparty or certain termination events under the
Insurance Agreement dated October [ ], 2000, between the Swap Counterparty and
the Swap Insurer (such defaults and termination events include, but are not
limited to, a failure to post collateral as required under the Insurance
Agreement, a failure by the Swap Counterparty to perform its obligations under
certain other agreements which it has entered into, a failure to reimburse the
Swap Insurer for amounts paid by the Swap Insurer under the Policy, a failure of
the Swap Counterparty to maintain certain rating thresholds, and certain changes
in control of the Swap Counterparty).
PAYMENTS UPON TERM ASSETS CREDIT EVENT
Upon notification from the Swap Counterparty to the Trust of the occurrence
of a Term Assets Credit Event (as defined herein), 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
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<PAGE> 30
Counterparty or will be made to the Trust by the Swap Counterparty, as the case
may be; provided that the Swap Counterparty's obligations under the Swap
Agreement shall not exceed an amount that is the greater of the principal amount
of the Certificates and twice the Swap Counterparty's obligations under the Swap
Agreement had the Term Assets Credit Event occurred on the last date on which
the Swap Counterparty had satisfied its obligations under the Insurance
Agreement. 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 Trust fails to make a payment owed to
the Swap Counterparty pursuant to the Swap Agreement or (ii) the principal
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 termination of the Swap Agreement, and for calculating the Term Asset 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, which in all cases have a stated final maturity that is within
twelve months of the date of purchase by the Trust:
(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;
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(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 or offshore money market funds 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.
SSBHI is a global, full-service investment banking and securities brokerage
firm. SSBHI provides a full range of financial advisory, research and capital
raising services to corporations, governments and individuals. The firm's 11,300
Financial Consultants, located in approximately 476 offices across the United
States, service over 6.6 million client accounts, representing over $965 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 Exchange Act 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 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
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<PAGE> 32
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.
DESCRIPTION OF THE POLICY
The following summary of the terms of the Policy does not purport to be
complete and is qualified in its entirety by reference to the Policy. The
information in this section regarding the Policy has been supplied by the Swap
Insurer for inclusion in this prospectus supplement.
GENERAL
The timely payment of the payment obligations of the Swap Counterparty to
the Trust pursuant to the Swap Agreement upon the Swap Termination Date or upon
the occurrence of a Term Assets Credit Event will be guaranteed to the extent
described herein under the Policy issued by the Swap Insurer pursuant to an
Insurance Agreement dated as of October [ ], 2000, between the Swap Counterparty
and the Swap Insurer.
THE POLICY
The Swap Insurer, in consideration of the payment of the premium and
subject to the terms and limitations of the Policy (see "Risk
Factors -- Limitations on the Swap Insurer's Obligations Under the Policy May
Affect the Return on the Certificates" herein), thereby unconditionally and
irrevocably guarantees to the Trust that an amount equal to the payment
obligations of the Swap Counterparty to the Trust pursuant to the Swap Agreement
upon the Swap Termination Date or upon the occurrence of a Term Assets Credit
Event will be received by the Trust, or its successor, from the Swap Insurer,
for distribution by the Trust to each Certificateholder of each
Certificateholder's proportionate share of such payments. Under the terms of the
Policy, the Swap Insurer's obligations to the Trust is limited to the lesser of
the unpaid amount of the Swap Counterparty's obligations pursuant to the Swap
Agreement and an amount that is the greater of the principal amount of the
certificates and two times the amount of the Swap Counterparty's obligations
pursuant to the Swap Agreement which would have been due had the Swap
Termination Date or Term Assets Credit Event occurred on the last day on which
the Swap Counterparty had satisfied its obligations under the Insurance
Agreement. The Swap Insurer's obligations under the Policy with respect to a
particular payment shall be discharged to the extent funds equal to the
applicable payment are received by the Trust, whether or not such funds are
properly applied by the Trust. No accelerated payments shall be made regardless
of any acceleration of the certificates (including any early redemption), unless
such acceleration is at the sole option of the Swap Insurer.
If the payment of any amount which is due by the Swap Counterparty to the
Trust under the terms of the Swap Agreement is voided under any applicable
Insolvency Proceedings (as defined below), and, as a result of such event, the
Trust is required to return such voided payment, or any portion of such voided
payment (an "Avoided Payment"), the Swap Insurer will pay the amount of the
Avoided Payment out of the funds of the Swap Insurer when due to be paid
pursuant to the Order (as defined below) but in any event no earlier than the
fourth Business Day following receipt by the Swap Insurer from the Trust of (i)
a certified copy of a final, non-applicable order of a court or other
governmental body exercising jurisdiction in the related Insolvency Proceedings
to the effect that the Trust is required to return such Avoided Payment paid
during the term of the Policy because such payments were voided as a
preferential transfer or otherwise rescinded or required to be restored by the
Trust (the "Order"), (ii) an opinion of counsel satisfactory to the Swap
Insurer, and upon which the Swap Insurer shall be entitled to rely, stating that
the Order is final and not subject to appeal, (iii) an assignment in form and
substance satisfactory to the Swap Insurer, duty executed and delivered by the
Trust, irrevocably assigning to the Swap Insurer all rights and claims of the
Trust relating to or arising under the Swap Agreement and the Policy against the
estate of the Swap Counterparty or otherwise with respect to such Avoided
Payment, and (iv) a notice of claim as required by the Policy (a "Notice of
Claim") appropriately completed and executed by the Trust. Such payment shall be
disbursed to the receiver, conservator, debtor-in-possession or trustee in
bankruptcy named in the Order, and not to the Trust directly, unless the Trust
has made a payment to the court or such receiver, conservator,
debtor-in-possession or trustee
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<PAGE> 33
in bankruptcy named in the Order, in which case the Swap Insurer will pay the
Trust subject to the delivery of (a) the items referred to in clauses (i), (ii),
(iii) and (iv) above, and (b) evidence satisfactory to the Swap Insurer that
payment has been made to such court or receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Order.
Notwithstanding the foregoing, in no event shall the Swap Insurer be obligated
to make any payment in respect of an Avoided Payment prior to the date on which
any such payment is due under the terms of the Policy.
As used in the preceding paragraph, "Insolvency Proceedings" means the
commencement, after the effective date of the Policy, of any bankruptcy,
insolvency, readjustment of debt, reorganization, marshaling of assets and
liabilities or similar proceedings by or against the Swap Counterparty, as
debtor, or the commencement, after the effective date of the Policy, of any
proceedings by or against the Swap Counterparty, as debtor, for the winding up
or the liquidation of its affairs, or the consent after the date hereof to the
appointment of a trustee, conservator, receiver or liquidator in any bankruptcy,
insolvency, readjustment of debt, reorganization, marshaling of assets and
liabilities or similar proceedings relating to the Swap Counterparty, as debtor.
If any Notice of Claim received by the Swap Insurer is not in proper form
or is otherwise insufficient, it shall be deemed not to have been received by
the Swap Insurer, and the Swap Insurer shall promptly so advise the Trust and
the Trust may submit an amended Notice of Claim.
Payments due under the Policy, unless otherwise stated therein, will be
disbursed by the Swap Insurer to the Trust on behalf of the Certificateholders
by wire transfer of immediately available funds in the amount of the payments
less, in respect of payments related to Avoided Payments, any amount held by the
Trust for the payment of such payments and legally available therefor.
The Swap Insurer shall be subrogated to the rights of the Trust to receive
payments under the Swap Agreement to the extent of any payment by the Swap
Insurer under the Policy.
Any notice under the Policy or service of process on the Swap Insurer may
be made at the address listed below or such other address as the Swap Insurer
shall specify in writing to the Trust.
The notice address of the Swap Insurer is One State Street Plaza, New York,
New York 10004, Attention: General Counsel, telephone number (212) 668-0340 and
facsimile number (212) 509-9190, or such other address as the Swap Insurer shall
specify to the Trustee in writing.
The Policy is being issued under and pursuant to, and shall be construed
under, the laws of the State of New York, without giving effect to the conflict
of laws principles thereof.
The Policy is not cancelable for any reason. The premium on the Policy is
not refundable for any reason, including payment, or provisions being made for
payment, of the Certificates prior to maturity of the Certificates.
The Swap Insurer's obligations under the Policy may be reinsured. Such
reinsurance does not relieve the Swap Insurer of any of its obligations under
the Policy.
The insurance provided by the Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
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<PAGE> 34
THE SWAP INSURER
The Swap Insurer and the Swap Counterparty will enter into an Insurance
Agreement, on or about the Closing Date, pursuant to which the Swap Insurer will
issue the Policy. Set forth below is certain information with respect to the
Swap Insurer which has been provided by the Swap Insurer.
Ambac Assurance Corporation is a Wisconsin-domiciled stock insurance
corporation regulated by the Office of the Commissioner of Insurance of the
State of Wisconsin and licensed to do business in 50 states, the District of
Columbia, the Commonwealth of Puerto Rico and the Territory of Guam. Ambac
Assurance Corporation primarily insures newly-issued municipal and structured
finance obligations. Ambac Assurance Corporation is a wholly-owned subsidiary of
Ambac Financial Group, Inc. (formerly, AMBAC, Inc.), a 100% publicly-held
company. Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings
Services ("Standard and Poor's Ratings Services"), a division of The McGraw-Hill
Companies, Inc., and Fitch, Inc. have each assigned a triple-A financial
strength rating to the Swap Insurer.
The consolidated financial statements of the Swap Insurer and subsidiaries
as of December 31, 1999 and December 31, 1998 and for each of the years in the
three year period ended December 31, 1999, prepared in accordance with generally
accepted accounting principles, included in the Annual Report on Form 10-K of
Ambac Financial Group, Inc. (which was filed with the Commission on March 30,
2000; Commission File No. 1-10777), and the unaudited consolidated financial
statements of the Swap Insurer and subsidiaries as of June 30, 2000 and for the
periods ending June 30, 2000 and June 30, 1999, included in the Quarterly Report
on Form 10-Q of Ambac Financial Group, Inc., for the period ended June 30, 2000
(which was filed with the Commission on August 11, 2000), are hereby
incorporated by reference into this prospectus supplement and shall be deemed to
be a part hereof. Any statement contained in a document incorporated herein by
reference shall be modified or superseded for the purposes of this prospectus
supplement to the extent that a statement contained herein by reference herein
also modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this prospectus supplement.
All financial statements of the Swap Insurer and its subsidiaries included
in documents filed by Ambac Financial Group, Inc. with the Commission pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this prospectus supplement and prior to the termination of the offering of
the Certificates shall be deemed to be incorporated by reference into this
prospectus supplement and to be a part hereof from the respective dates of
filing such financial statements.
The following table sets forth the capitalization of the Swap Insurer as of
December 31, 1998, December 31, 1999 and June 30, 2000 in conformity with
generally accepted accounting principles consistently applied.
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, DECEMBER 31, 2000
1998 1999 (UNAUDITED)
------------- ------------- -------------
<S> <C> <C> <C>
Unearned premiums................................. $1,303 $1,442 $1,452
Other liabilities................................. 548 524 504
------ ------ ------
Total liabilities................................. 1,851 1,966 1,956
------ ------ ------
Stockholder's equity
Common stock................................. 82 82 82
Additional paid-in capital................... 541 752 753
Accumulated other comprehensive income
(loss)..................................... 138 (92) (46)
Retained earnings............................ 1,405 1,674 1,834
------ ------ ------
Total stockholder's equity........................ 2,166 2,416 2,623
------ ------ ------
Total liabilities and stockholder's equity........ $4,017 $4,382 $4,579
====== ====== ======
</TABLE>
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---------------
For additional financial information concerning the Swap Insurer, see the
audited financial statements of the Swap Insurer incorporated by reference
herein. Copies of the financial statements of the Swap Insurer incorporated by
reference and copies of the Swap Insurer's annual statement for the year ended
December 31, 1999 prepared in accordance with statutory accounting standards are
available, without charge, from the Swap Insurer. The address of the Swap
Insurer's administrative offices and its telephone number are One State Street
Plaza, 19(th) Floor, New York, New York 10004 and (212) 668-0340.
The Swap Insurer makes no representation regarding the Certificates or the
advisability of investing in the Certificates and makes no representation
regarding, nor has it participated in the preparation of, this prospectus
supplement other than the information supplied by the Swap Insurer and presented
under the heading "The Swap Insurer" and in the financial statements
incorporated herein by reference.
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<PAGE> 36
DESCRIPTION OF THE AMEX SEMICONDUCTOR INDEX
The AMEX Semiconductor Index represents a basket of the common stocks of 18
corporations operating in the semiconductor industry. The stocks underlying the
AMEX Semiconductor Index (the "Underlying Stocks") have been selected by Salomon
Smith Barney Inc. ("Salomon Smith Barney") based on information provided by the
Salomon Smith Barney Research Department (the "Salomon Smith Barney Research
Department"). The Salomon Smith Barney Research Department is staffed by over
100 investment analysts, who currently follow equities issued by more than 1,600
companies (both domestic and foreign) in 85 industry groups or stock areas of
the market. The investment rankings by Salomon Smith Barney normally pertain to
an outlook for a 12-18 month period. There is, of course, no assurance that any
of the Underlying Stocks comprising the AMEX Semiconductor Index will appreciate
in value, and indeed any or all of such Underlying Stocks (and, therefore, the
AMEX Semiconductor Index itself) may depreciate in value at any time in the
future.
All of the Underlying Stocks are publicly traded on a stock exchange. In
addition, the Underlying Stocks met the following criteria at the time they were
selected:
- minimum market capitalization of $150 million, except that up to 10
percent of the Underlying Stocks may have a market capitalization of not
less than $50 million;
- trading volume during each of the six months prior to the offering of the
Certificates of not less than one million shares, except that up to 10
percent of the Underlying Stocks may have a trading volume during each of
the six months prior to the offering of the Certificates of not less than
500,000 shares;
- at least 80 percent of the Underlying Stocks met the then current
criteria for standardized options trading set forth in Exchange Act Rule
915;
- at least 80 percent of the Underlying Stocks are listed on the NYSE or
the AMEX, or are traded through the NASDAQ;
- all of the Underlying Stocks that are issued by companies incorporated in
the U.S. are "reported securities" as defined in Rule 11Aa3-1 under the
Exchange Act; and
- no more than 20 percent of the Underlying Stocks are listed only on a
foreign stock exchange.
THE AMEX SEMICONDUCTOR INDEX
UNDERLYING STOCKS
<TABLE>
<CAPTION>
PRINCIPAL
TRADING STOCK INVESTMENT
ISSUER MARKET SYMBOL RANKING
------ --------- ------ ----------
<C> <S> <C> <C> <C>
1. Applied Materials Inc. ............................. NASDAQ AMAT 1-H
2. Lam Research Corp. ................................. NASDAQ LRCX 1-H
3. Novellus Systems Inc. .............................. NASDAQ NVLS 1-H
4. KLA Tencor Corp. ................................... NASDAQ KLAC 1-H
5. Applied Micro Circuits Corp. ....................... NASDAQ AMCC 1-H
6. PMC-Sierra Inc. .................................... NASDAQ PMCS 1-H
7. Broadcom Corp. A.................................... NASDAQ BRCM 1-S
8. Xilinx Inc. ........................................ NASDAQ XLNX 1-H
9. Altera Corp. ....................................... NASDAQ ALTR 1-H
10. Intel Corp.......................................... NASDAQ INTC 2-M
11. Texas Instruments Inc. ............................. NYSE TXN 2-M
</TABLE>
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<PAGE> 37
<TABLE>
<CAPTION>
PRINCIPAL
TRADING STOCK INVESTMENT
ISSUER MARKET SYMBOL RANKING
------ --------- ------ ----------
<C> <S> <C> <C> <C>
12. Advanced Micro Devices.............................. NYSE AMD 2-S
13. Chartered Semiconductor Manufacturing............... NASDAQ CHRT 1-H
14. Amkor Technology Inc................................ NASDAQ AMKR 1-H
15. Analog Devices Inc.................................. NYSE ADI 1-H
16. ST Microelectronics NV.............................. NYSE STM 2-H
17. National Semiconductor Cor.......................... NYSE NSM 2-H
18. Motorola Inc. ...................................... NYSE MOT 2-M
</TABLE>
---------------
(1) These rankings are current as of the date of this Prospectus Supplement, and
are subject to change without notice. Salomon Smith Barney has assigned
these rankings according to the following system, which uses two codes; a
letter for the level of risk (L, M, H, S or V) and a number for performance
expectation (1-5).
Risk assesses predictability of earnings/dividends and stock price volatility:
L (Low Risk): highly predictable earnings/dividends and stock price
volatility;
M (Moderate Risk): moderately predictable earnings/dividends, moderate price
volatility
H (High Risk): low predictability of earnings/dividends, high price volatility
S (Speculative): exceptionally low predictability of earnings/dividends,
highest risk of price volatility
V (Venture): Risk and return consistent with venture capital, suitable only
for well-diversified portfolios
Performance rankings indicate the expected total return (capital gain or loss
plus dividends) over the next
12-18 months, assuming an unchanged or "flat" market; performance expectations
depend on the risk category assigned to the stock, as shown in the following
chart.
<TABLE>
<CAPTION>
MODERATE
LOW RISK RISK HIGH RISK SPECULATIVE
-------- -------- --------- -----------
<S> <C> <C> <C> <C>
1 (Buy) Over 15% Over 20% Over 25% Over 30%
2 (Outperform) 5% to 15% 5% to 20% 10% to 25% 10% to 30%
3 (Neutral) -5% to 5% -5% to 5% -10% to 10% -10% to 10%
4 (Underperform) -5% to -15% -5% to -15% -10% to -20% -10% to -20%
5 (Sell) -15% or worse -15% or worse -20% or worse -20% or worse
</TABLE>
These rankings represent current opinions of Salomon Smith Barney research
analysts and are of course, subject to change without notice; no assurance can
be given that the stocks will perform in line with such rankings. These rankings
have not been audited.
INDICATIVE ENDING VALUES OF THE AMEX SEMICONDUCTOR INDEX
The following table sets forth indicative Ending Values of the AMEX
Semiconductor Index on the last business day of each month in the period from
October 1999 through September 2000, each calculated as if the AMEX
Semiconductor Index had been created on October 29, 1999. The table set forth
below was prepared by Salomon Smith Barney and is based on historical trading
data for each of the Underlying Stocks obtained from the primary trading market
for such stocks and was calculated using hypothetical weightings for each of the
Underlying Stocks based on an investment of $10,000 in each of the Underlying
Stocks (rounded to the nearest whole share) as of October 2, 2000. The
indicative Ending Values set forth below in the table have not been verified by
an independent third party. As explained below, the actual weightings of each of
the Underlying Stocks will be determined as of the date the Certificates are
priced for initial sale to the public and will therefore differ from those used
in calculating the indicative Ending Values in this table. These indicative
Ending Values should not be taken as an indication of future performance. The
indicative values set forth herein have been adjusted to reflect certain
corporate events that affected the relevant trading data, including, but not
limited to, stock splits and stock dividends. Certain adjustments to the AMEX
Semiconductor Index will be made by the AMEX as set forth under "Calculation of
the AMEX Semiconductor Index" below.
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<PAGE> 38
Those adjustments may not correspond to the adjustments made in determining the
indicative Ending Values set forth herein.
<TABLE>
<S> <C>
10/29/1999.......................................... 66.18
11/30/1999.......................................... 77.42
12/31/1999.......................................... 94.61
1/31/2000.......................................... 105.09
2/29/2000.......................................... 141.48
3/31/2000.......................................... 143.05
4/28/2000.......................................... 143.91
5/31/2000.......................................... 119.79
6/30/2000.......................................... 127.54
7/31/2000.......................................... 115.21
8/31/2000.......................................... 134.88
9/29/2000.......................................... 102.75
</TABLE>
An investment of $10,000 in each of the Underlying Stocks (rounded to the
nearest whole share) as of October 2, 2000 would have resulted in a purchase of
the following number of shares of each of the Underlying Stocks: Applied
Materials Inc. (176); Lam Research Corp (440); Novellus Systems Inc. (233); KLA
Tencor Corp (263); Applied Micro Circuits Corp (52); PMC-Sierra Inc. (47);
Broadcom Corp A (43); Xilinx Inc. (115); Altera Corp (215); Intel Corp (249);
Texas Instruments Inc. (200); Advanced Micro Devices (430); Chartered
Semiconductor Manufacturing (182); Amkor Technology Inc. (400); Analog Devices
Inc. (119); ST Microelectronics NV (205); National Semiconductor Cor (258);
Motorola Inc. (356). The indicative Ending Values set forth above equal the
market value of the sum of the number of shares of each of the Underlying Stocks
as of the relevant date divided by an index divisor of 1,800.24.
CALCULATION OF THE AMEX SEMICONDUCTOR INDEX
The AMEX Semiconductor Index will be calculated by the AMEX using an "equal
dollar-weighting" methodology designed to ensure that each of the Underlying
Stocks is represented in an approximately equal dollar amount in the AMEX
Semiconductor Index as of the date the Certificates are priced for initial sale
to the public. To create the AMEX Semiconductor Index, Salomon Smith Barney will
calculate a notional portfolio of the Underlying Stocks representing an
investment of $10,000 in each component security (rounded to the nearest whole
share) as of the date the Certificates are priced for initial sale to the
public. The value of the AMEX Semiconductor Index will equal the market value of
the sum of the assigned number of shares of each of the Underlying Stocks
divided by an AMEX Semiconductor Index divisor. The AMEX Semiconductor Index
divisor will be set to provide a benchmark value of 100.00 as of the date the
Certificates are priced for initial sale to the public. The initial starting
value of the Index will thus be equal to 100.00.
The number of shares of each Underlying Stock in the AMEX Semiconductor
Index will remain fixed except in the event of certain types of corporate
actions such as the payment of a dividend (other than an ordinary cash
dividend), a stock distribution, stock split, reverse stock split, rights
offering, distribution, reorganization, recapitalization, or similar event with
respect to the Underlying Stocks. The number of shares of each Underlying Stock
also may be adjusted by the AMEX, if necessary, in the event of a merger,
consolidation, dissolution, or liquidation of an issuer or in certain other
events such as the distribution of property by an issuer to shareholders, the
expropriation or nationalization of a foreign issuer, or the imposition of
certain foreign taxes on shareholders of a foreign issuer. Shares of an
Underlying Stock may be replaced (or supplemented) by the AMEX with another
security only under certain circumstances, such as in the event of a merger or
consolidation, the conversion of an Underlying Stock into another class of
security, the termination of a depository receipt program, or the spin-off of a
subsidiary. No attempt will be made by the AMEX to find a replacement stock or
to otherwise compensate for an Underlying Stock that is extinguished due to
bankruptcy or similar circumstances.
More specifically, (i) in the event of a merger or consolidation (whether
between two issuers of Underlying Stocks or between the issuer of an Underlying
Stock and an issuer of a non-Underlying Stock), the original Underlying Stock
will be replaced by the new security; (ii) in the event of a conversion into
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<PAGE> 39
another class of security, the original Underlying Stock will be replaced by the
new security; and (iii) in the event of a spin-off of a subsidiary, both the
subsidiary issue and the original "parent security" will be included in the AMEX
Semiconductor Index, unless the subsidiary is an insignificant percentage of the
original security, in which case the AMEX will consult with the Commission prior
to omitting the subsidiary issue from the AMEX Semiconductor Index.
If the Underlying Stock remains in the AMEX Semiconductor Index following
the occurrence of any such event, the number of shares of the Underlying Stock
may be adjusted by AMEX to the nearest whole share to maintain the component's
relative weight in the AMEX Semiconductor Index at the level immediately prior
to the corporate action. In all cases, the divisor will be adjusted by the AMEX,
if necessary, to ensure continuity of the value of the AMEX Semiconductor Index.
The AMEX Semiconductor Index will be calculated based on real-time prices
for all of the Underlying Stocks.
The value of the AMEX Semiconductor Index will be calculated and
disseminated by AMEX every 15 seconds.
THE AMERICAN STOCK EXCHANGE
The AMEX, the second largest floor-based exchange in the United States, has
a significant presence in common stocks, index shares and equity derivative
securities. On the AMEX, trading is conducted through an advanced centralized
specialist system combining the speed of computer delivered orders with the
liquidity of customer driven markets. Members of the AMEX represent a
comprehensive cross-section of the United States' leading brokerage houses,
including 661 regular members who transact business in equities and options, and
203 options principal members who execute transactions in options only.
The AMEX will enter into a calculation agency agreement with the Trust,
pursuant to which it will calculate the AMEX Semiconductor Index as described
under "-- Calculation of the AMEX Semiconductor Index" above. The Certificates
are not sponsored, endorsed, sold or promoted by the AMEX. The AMEX 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 in the ability of
the AMEX Semiconductor Index to track the performance of any market segment. The
AMEX has no obligation to take the needs of the holders of the Certificates into
consideration in calculating the AMEX Semiconductor Index. The AMEX 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 sold
initially, 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. The AMEX has no obligation or liability in connection with
the administration or marketing of the Certificates.
THE AMEX DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE
AMEX SEMICONDUCTOR INDEX OR ANY DATA INCLUDED THEREIN. THE AMEX MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE HOLDERS OF THE
CERTIFICATES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE AMEX
SEMICONDUCTOR INDEX OR ANY DATA INCLUDED THEREIN. THE AMEX MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE AMEX
SEMICONDUCTOR INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, IN NO EVENT SHALL THE AMEX HAVE ANY LIABILITY FOR
ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST
PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
THE UNDERLYING ISSUERS
The following information was taken from publicly available information
provided by the respective underlying issuers. 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 provided by
the
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underlying issuers. No investigation has been made by the Company, the Swap
Insurer, the Trust, the Trustee, the Co-Trustee, the Underwriter or the Swap
Counterparty of the financial condition of any underlying issuers.
- Applied Materials, Inc. ("Applied") develops, manufactures, markets and
services semiconductor wafer fabrication equipment and related spare
parts. The Company's worldwide customers include both companies which
manufacture semiconductor devices for use in their own products and
companies which manufacture semiconductor devices for sale to others.
Applied operates exclusively in the semiconductor wafer fabrication
equipment industry. Applied is also a fifty percent stockholder in
Applied Komatsu Technology, Inc., which produces thin film transistor
manufacturing systems for active-matrix liquid crystal displays.
- Lam Research Corporation ("Lam") designs, manufactures, markets and
services semiconductor processing equipment used in the fabrication of
integrated circuits. Lam is recognized as a leading supplier of front-end
wafer processing equipment to the worldwide semiconductor industry. Lam's
products are used selectively to etch away portions of various films to
create an integrated circuit. Etch processes, which are repeated numerous
times during the fabrication cycle, are required to manufacture every
type of semiconductor device produced today. With the acquisition of
OnTrak Systems, Inc., completed in August 1997, Lam has added both
chemical mechanical planarization ("CMP") and post-CMP wafer cleaning
product lines. CMP is currently the planarization technology of choice
for manufacturing sub-0.35 micron integrated circuits with multiple metal
layers.
- Novellus Systems, Inc. ("Novellus") manufactures, markets and services
advanced automated wafer fabrication systems for the deposition of thin
films within the semiconductor equipment market. Novellus is a leading
supplier of high productivity deposition systems used in the fabrication
of integrated circuits. Chemical Vapor Deposition systems employ a
chemical plasma to deposit all of the dielectric (insulating) layers and
certain of the conductive metal layers on the surface of a semiconductor
wafer. Physical Vapor Deposition systems are used to deposit conductive
metal layers by sputtering metallic atoms from the surface of a target
source via high DC power. Electrofill systems are used for depositing
copper conductive layers in a dual damascene design architecture using an
aqueous solution. Novellus' strategy is to focus on major semiconductor
manufacturers, and has sold one or more of its systems to each of the 20
largest semiconductor manufacturers in the world.
- KLA-Tencor Corporation ("KLA-Tencor") is the world's leading supplier of
process control and yield management solutions for the semiconductor and
related microelectronics industries. The comprehensive portfolio of
products, software, analysis, services and expertise is designed to help
integrated circuit manufacturers manage yield throughout the entire wafer
fabrication process -- from research and development to final mass
production yield analysis. KLA-Tencor offers a broad spectrum of products
and services that are used by every major semiconductor manufacturer in
the world. These services include in-line wafer defect monitoring;
reticle and photomask defect inspection; CD SEM metrology; wafer overlay;
film and surface measurement, and overall yield and fab-wide data
analysis. These advanced products, coupled with their unique yield
management consulting practice, allow them todeliver the complete yield
management solutions customers need to accelerate their yield learning
rates, reduce their yield excursion risks and adopt industry-leading
yield management practices.
- Applied Micro Circuits ("Applied Micro") designs, develops, manufactures
and markets high-performance, high-bandwidth silicon solutions for the
world's optical networks. Applied Micro offers integrated circuit
products that enable the transport of voice and data over fiber optic
networks by utilizing a combination of high-frequency analog,
mixed-signal and digital design expertise coupled with system-level
knowledge and multiple silicon process technologies. Applied Micro's
customers include leading communications equipment manufacturers such as
Alcatel, Ciena, Cisco, JDS Uniphase, Lucent, Marconi Communications and
Nortel as well as emerging communications systems providers such as
Cerent (acquired by Cisco), Juniper Networks, Monterey Networks (acquired
by Cisco), Nexabit (acquired by Lucent) and Sycamore Networks.
- PMC-Sierra, Inc. ("PMC") designs, develops, markets and supports
high-performance semiconductor system solutions for advanced
communications markets. PMC's products are used in broadband
communications infrastructures and high bandwidth networks. PMC is a
leading supplier of ATM, SONET/SDH, T1/E1 and D3/E3 integrated circuits
in the communications infrastructure and
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networking markets and also provides fast ethernet integrated circuits to
the networking markets. In August 1996 PMC announced its decision to exit
the personal computer modem chipset business, to restructure its other
non-networking products and focus on its networking products. All of
PMC's modem products were disposed of in 1997. PMC's remaining
non-networking products are still being sold but no development or
follow-on products are planned.
- Broadcom Corporation ("Broadcom") is the leading provider of highly
integrated silicon solutions that enable broadband digital transmission
of voice, video and data to and throughout the home and within the
business enterprise. These integrated circuits permit the cost effective
delivery of high-speed, high-bandwidth networking using existing
communications infrastructures that were not originally designed for the
transmission of broadband digital content. Using proprietary technologies
and advanced design methodologies, Broadcom designs, develops and
supplies integrated circuits for a number of the most significant
broadband communications markets, including the markets for digital cable
set-top boxes, cable modems, high-speed office networks, home networking,
direct broadcast satellite and terrestrial digital broadcast, and digital
subscriber lines. Customers currently shipping broadband communications
equipment incorporating Broadcom's product include 3Com, Cisco Systems,
General Instrument (which was acquired by Motorola in January, 2000),
Hewlett-Packard, Motorola, Nortel Network, Pace, Samsung,
Scientific-Atlanta and Thomson CE.
- Xilinx, Inc. ("Xilinx") designs, develops and markets complete
programmable logic solutions, including advanced integrated circuits,
software design tools, predefined system functions delivered as cores of
logic and field engineering support. Xilinx programmable logic devices
include field programmable gate arrays and complex programmable logic
devices. These devices are standard products that can be programmed to
perform desired logic functions.
- Altera Corporation ("Altera") designs, manufactures and markets
programmable logic devices and associated development tools. Programmable
logic devices are semiconductor integrated circuits that offer on-site
programmability to customers using the Altera's proprietary software,
which operates on personal computers and engineering workstations.
Founded in 1983, Altera was the first supplier of CMOS programmable logic
devices and is currently a global leader in this market. Altera offers a
broad line of CMOS programmable logic devices that address high-speed,
high-density and lower power applications. Altera's products serve a wide
range of markets, including telecommunications, data communications,
electronic data processing and industrial applications.
- Intel Corporation ("Intel"), the world's largest semiconductor chip
maker, supplies the computing and communications industries with chips,
boards, systems and software that are integral in computers, servers, and
networking and communications products. These products are used by
industry members to create advanced computing and communications systems
and are offered at various levels of integration. Intel's major products
include microprocessors, chipsets, flash memory products, networking and
communications products, embedded processors and microcontrollers, and
digital imaging and other PC-peripheral products. Intel's component-level
products consist of integrated circuits used to process information.
- Texas Instruments Incorporated ("TI") is a global semiconductor company
and the world's leading designer and supplier of digital signal
processing solutions, the engines driving the digitization of
electronics. These digital signal processing solutions consist primarily
of digital signal processors and mixed-signal/analog devices that convert
the analog signals of the real world into digital data, then back again
as analog output. They enable a wide range of new products and features
for TI's more than 30,000 customers in industrial, commercial and
government end-equipment markets. TI also is a world leader in the design
and manufacturing of other semiconductor products. Those products include
application-specific integrated circuits, reduced instruction-set
microprocessors, microcontrollers, standard logic, and memories.
- Advanced Micro Devices, Inc. ("AMD") is a semiconductor manufacturer with
manufacturing facilities in the U.S., Europe and Asia and sales offices
throughout the world. AMD's products include a wide variety of
industry-standard integrated circuits which are used in many diverse
product applications such as telecommunications equipment, data and
network communications equipment, consumer electronics, personal
computers and workstations.
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- Chartered Semiconductor Manufacturing ("Chartered") is one of the world's
leading independent semiconductor foundries providing world class silicon
wafer fabrication services and technologies to suppliers of
semiconductors and electronic systems. Chartered's services enable
customers to create and deliver market leading systems-level
semiconductor solutions. Chartered strives to be the trusted foundry
partner within its chosen segments. Chartered operates five fabrication
facilities that serve high-growth, technologically advanced applications
such as communications and networking.
- Amkor Tech ("Amkor") is the world's largest independent provider of
semiconductor packaging and test services. Amkor offers one of the
industry's broadest integrated sets of packaging and test services, which
are the final procedures necessary to prepare semiconductor devices for
further use. Amkor also markets the wafer fabrication services provided
by Anam Semiconductor, Inc. Amkor's customers include Advanced Micro
Devices, Inc., Intel Corporation, International Business Machines Corp.,
Lucent Technologies, Inc., Motorola, Inc., National Semiconductor Corp.,
Philips Electronics N.V., ST Microelectronics PTE, Infineon Technologies
AG and Texas Instruments, Inc.
- Analog Devices, Inc. ("Analog") is a world leader in the design,
manufacture and marketing of high-performance analog, mixed-signal and
digital signal processing integrated circuits (ICs) used in signal
processing applications. Communications applications include wireless
handsets and base stations, as well as products used for high-speed
access to the Internet, including ICs used in ADSL and cable modems and
central office networking equipment. Analog serves the PC market with
products that monitor and manage power usage, process signals used in
flat panel displays and LCD projectors and enable PCs to provide
CD-quality audio. Analog also serves the high-end consumer market with
products used in digital cameras and camcorders, DVD players and surround
sound audio systems. Analog provides a broad array of products to the
industrial market, including products for automatic test equipment and
for the digital speed control of AC motors.
- ST Microelectronics ("ST") is a global independent semiconductor company
that designs, develops, manufactures and markets a broad range of
semiconductor integrated circuits and discrete devices used in
microelectronic applications; including telecommunications systems,
computer systems, consumer products, automotive products, and industrial
automation and control systems. ST is the world's leading developer of
MPEG-2 decoder ICs, Digital Set Top Box ICs, Special Automotive ICs, MCO-
based Smart Card ICs, and EPROM non volatile memories.
- National Semiconductor Corp ("National") designs, develops, manufactures
and markets a wide array of semiconductor products, including a broad
line of analog, mixed-signal and other integrated circuits. These
products address a variety of markets and applications, including
information appliances, personal systems, wireless communications, flat
panel and CRT displays, power management, local and wide area networks,
automotive, consumer and military aerospace. National retained the
integrated Media GX microprocessor, which forms the core of the company's
new Goode TM family of solutions for the information appliance market. In
December 1999, National acquired Algorex Inc., a provider of high
performance digital signal processing products, architecture and software
technologies for the wireless communication market.
- Motorola ("Motorola") is a global leader in providing integrated
communications solutions and embedded electronic solutions. These
include: Software-enhanced wireless telephone, two-way radio, messaging
and satellite communications products and systems, as well as networking
and Internet-access products, for consumers, network operators, and
commercial, government and industrial customers. Motorola also provides
embedded semiconductor solutions for customers in networking,
transportation, wireless communications and imaging entertainment
markets. In addition, Motorola is a leader in embedded electronic systems
for automotive, communications, imaging manufacturing systems, computer
and industrial markets, digital and analog systems, as well as set-top
terminals for Broadband cable television operators.
Any registration statement, report, proxy statement or other information of
the underlying issuers filed with the Commission may be inspected and copied at
the offices of the Commission at the addresses listed above under "The Term
Assets Issuers".
THE UNDERLYING ISSUERS ARE NOT AFFILIATED WITH SALOMON SMITH BARNEY, WILL
NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF THE CERTIFICATES AND WILL HAVE
NO OBLIGATIONS WITH RESPECT TO THE CERTIFICATES. THIS PROSPECTUS SUPPLEMENT
RELATES ONLY TO THE CERTIFICATES OFFERED HEREBY AND DOES NOT RELATE TO THE
UNDERLYING ISSUERS OR THE UNDERLYING STOCKS.
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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 2000-14 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, (iii) the Policy and (iv) the Eligible
Investments owned by the Trust. The Swap Insurer will be named as a third party
beneficiary of the Trust Agreement. 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
U.S. Bank National Association, Cayman Islands Branch, will act as the
Trustee (the "Trustee") and U.S. Bank Trust National Association 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 c/o IBJ Whitehall Bank
and Trust Company, P.O. Box 1040 GT, Grand Cayman, Cayman Islands BWI and its
telephone number is (345) 949-5409. The office of the Co-Trustee is located at
100 Wall Street, Suite 1600, New York, NY 10005 and its telephone number is
(212) 361-2510.
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 will be entitled to
payments of trustee fees and reimbursement of expenses by the Company pursuant
to a separate agreement with the Company, but will not have any claim against
the Trust with respect thereto.
The Trustee is not required to register the Trust as a mutual fund under
the Mutual Funds Law, 1999 Revision of the Cayman Islands. Neither the Cayman
Islands Monetary Authority nor any governmental agency or authority in the
Cayman Islands has passed upon or approved the terms or merits of this
Prospectus Supplement. There is no investor compensation scheme available to
investors in the Cayman Islands.
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 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 will 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 will consent or vote, or refrain from
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consenting or voting, in the same proportion (based on the principal balances of
the Term Assets) as the Term Assets were actually voted or not voted by the
holders thereof as of the date determined by the Trustee; provided, however,
that, notwithstanding anything to the contrary stated herein, the Co-Trustee
will 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.
SUBSTITUTION OF TERM ASSETS
The Trust Agreement provides that the Trustee, on behalf of the Trust, may,
at any time, exchange the Term Assets for other asset backed securities rated in
the highest rating category of at least one nationally recognized rating agency;
provided that, in connection with any such exchange, the consent of the Swap
Counterparty and the Swap Insurer must be obtained, the exchange will not result
in the reduction or withdrawal by either Moody's Investors Service, Inc. or
Standard and Poor's Ratings Services of its then existing rating on the
Certificates, and the exchange will not be inconsistent with the Trust's
continued satisfaction of the applicable requirements for exemption under Rule
3a-7 of the Investment Company Act of 1940 and all applicable rules, regulations
and interpretations thereunder.
TERMINATION OF THE TRUST
The Trust will terminate upon the earliest of one of the following: (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) one hundred and fifty
years commencing from the date of execution of the Trust.
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.
Certificateholders may 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, if such actions or judgments fall within the type of judgments which are
not enforceable under the principles described above.
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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 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 THE 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
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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 that Make the QEF Election -- 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 an 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.
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 (OTHER THAN THE DISCUSSION BELOW UNDER "TAXATION OF U.S. HOLDERS THAT
DO NOT MAKE THE QEF ELECTION") 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 THAT MAKE THE QEF ELECTION
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
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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 (which is expected to be [ ] through [ ]) 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 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. As discussed above under "Description of the Trust
Agreement -- Substitution of Term Assets," under certain circumstances, the
Trust may exchange the Term Assets for other asset backed securities rated in
the highest rating category of at least one nationally recognized rating agency.
The exercise of the right (which cannot be exercised if it would result in any
loss to the Trust), may cause the Trust to recognize taxable gain. 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. Premium generally is
treated as an offset to interest earned on the related debt instrument and
accrued market discount is treated as ordinary income when the related debt
instrument is disposed of (or when a principal payment is made).
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, if any, 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 AMEX
Semiconductor 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
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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 AMEX Semiconductor
Index equal to the amount deemed paid to acquire the constructive option plus
the amount deemed paid for the AMEX Semiconductor 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 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
(including the amortization of certain expenses over the life of the
transaction). 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 AMEX Semiconductor 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,
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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.
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 Assets Credit
Event. Upon the occurrence of a Term Assets 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.
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.
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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 the Trust and U.S. Holders Upon the Replacement of Term
Assets with Substitute Term Assets. As discussed under "Description of the
Trust Agreement -- Substitution of Term Assets," the Trust may, in certain
circumstances, exchange the Term Assets for other asset backed securities rated
in the highest rating category of at least one nationally recognized rating
agency. Under the QEF rules, any gain recognized by the Trust generally will be
included in the income of U.S. Holders, even if such amounts are not currently
distributed to such 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 U.S. HOLDERS THAT DO NOT MAKE THE QEF ELECTION
If a U.S. holder does not make the QEF election (described above), it will
be subject to special rules for the taxation of "excess distributions," which
include both certain distributions by a PFIC and any gain recognized on a
disposition of PFIC stock. (For this purpose, under regulations proposed by the
United States Treasury Department, a U.S. holder that pledges a Certificate as
security for an obligation, including pursuant to a margin account, generally
will be treated as having disposed of the Certificate.) In general, Section 1291
of the Code provides that the amount of any "excess distribution" will be
treated as ordinary income and will be treated as earned pro rata over the
holding period of the shareholder's investment. The amount allocated to the
current year will be included in the U.S. holder's gross income for the current
year as ordinary income. With respect to amounts allocated to prior years, tax
would be imposed based upon the maximum rate applicable in the year in which
such income is deemed to be earned, and interest would be charged (based upon
interest rates for underpayments of U.S. federal income taxes) with respect to
such income from the due date of the return for such year.
An excess distribution is the amount by which distributions for a taxable
year exceed 125% of the average distribution in respect of the Certificates
during the three preceding taxable years (or, if shorter, the investor's holding
period for the Certificates). AS INDICATED ABOVE, ANY GAIN RECOGNIZED UPON SALE
OR REDEMPTION OF THE CERTIFICATES (AND ANY FINAL DISTRIBUTION) WILL BE TREATED
AS A DISTRIBUTION AND TAXED UNDER THE RULES DESCRIBED ABOVE. ACCORDINGLY, ALL
U.S. HOLDERS (OTHER THAN CERTAIN TAX-EXEMPT INVESTORS) SHOULD CONSIDER MAKING A
QEF ELECTION.
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.
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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. The regulations are effective for cash payments made in taxable
years beginning in the year 2000. In general, these rules may require U.S.
Holders who transfer (directly or indirectly) more than $100,000 to acquire
Certificates in the initial offering to file a Form 926 with the IRS and to
supply certain additional information to the IRS. 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. A copy of
the IRS Form 926 is attached as Appendix C.
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 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 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.) The Trust will provide holders with a completed copy of the IRS
Form 8832.
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 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, Maples and Calder, Cayman Islands
counsel, 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
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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.
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.
NOTHING HEREIN WILL 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.
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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 re-allow 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. Application will be made to list the Certificates on the AMEX under the
symbol "XOS," subject to official notice of issuance. 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 Underwriters create a short position in the Certificates in
connection with this offering, that is, if they sell 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 reduce their short position or to
stabilize the price of the Certificates, they 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.
S-51
<PAGE> 54
Salomon Smith Barney is an affiliate of the Company, and the participation
by Salomon Smith Barney 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
The Certificates are expected to be rated "AAA" and "Aaa" by Standard &
Poor's Ratings Services and Moody's, 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 and the Swap Insurer. The
ratings do not address the likely performance of the AMEX Semiconductor Index.
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 Standard & Poor's Ratings Services and/or Moody's. 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
Standard & Poor's Ratings Services and/or Moody's.
EXPERTS
The consolidated financial statements of Ambac Assurance Corporation and
Subsidiaries as of December 31, 1999 and December 31, 1998 and for each of the
years in the three year period ended December 31, 1999, are incorporated by
reference in this preliminary prospectus supplement and the registration
statement in reliance on the report of KPMG LLP, independent certified public
accountants, incorporated by reference in this preliminary prospectus supplement
and on the authority of that firm as experts in accounting and auditing.
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed upon for
the Company and the Underwriter by Orrick, Herrington & Sutcliffe LLP, New York,
New York. Certain legal matters relating to Cayman Islands law will be passed on
for the Company and for the Underwriter by Maples and Calder. As to all matters
of Cayman Islands law, Orrick, Herrington & Sutcliffe LLP will rely on the
opinions of Maples and Calder.
S-52
<PAGE> 55
INDEX OF TERMS
<TABLE>
<S> <C>
Affected Term Assets............... S-28
AMEX............................... S-21
Avoided Payment.................... S-30
Calculation Agent.................. S-25
Calculation Day.................... S-21
Calculation Period................. S-21
CBOE............................... S-21
Certificates....................... S-18
Certificateholders................. S-18
Closing Date....................... S-18
Code............................... S-43
Commission......................... S-18
Company............................ S-18
Co-Trustee......................... S-18,41
CPDI rules......................... S-46
CPDIs.............................. S-46
Depositor.......................... S-18
Direct Participants................ S-25
Distribution Threshold............. S-22
DTC................................ S-24
Eligible Investments............... S-18,28
Ending Value....................... S-5,20
ERISA Plans........................ S-50
Excess Investment Interest......... S-28
Exchange Act....................... S-18
Final Scheduled Distribution
Date............................. S-20
Global Certificates................ S-24
Index Business Day................. S-21
Index Return....................... S-20
Insolvency Proceedings............. S-31
Interest Distribution Amount....... S-20
IRS................................ S-49
Loss............................... S-27
Market Disruption Event............ S-21
Market Quotation................... S-27
Moody's............................ S-32
NASDAQ............................. S-21
Net Aggregate Term Assets Price
Return Amount.................... S-28
Non-U.S. Holder.................... S-48
Notice of Claim.................... S-30
NPC................................ S-44
NYSE............................... S-21
Order.............................. S-30
Participants....................... S-25
Periodic Capped Return............. S-20
PFIC............................... S-48
Plans.............................. S-50
Policy............................. S-20
QEF................................ S-44
Reset Dates........................ S-20
Securities Act..................... S-19
Special Tax Counsel................ S-43
AMEX............................... S-21
Specified Currency................. S-19
AMEX Semiconductor Index........... S-20
SSBHI.............................. S-29
Standard & Poor's Ratings
Services......................... S-32
Starting Value..................... S-5,20
Successor Index.................... S-21
Swap Agreement..................... S-18
Swap Counterparty.................. S-18
Swap Insurer....................... S-20
Swap Termination Date.............. S-27
Term Assets........................ S-18
Term Assets Credit Event........... S-28
Term Assets Issuer................. S-18
Term Asset Market Value............ S-26
Term Assets Payment Date........... S-26
Term Assets Price Return Amount.... S-26
Term Assets Prospectuses........... S-19
Term Assets Registration
Statements....................... S-19
Trust.............................. S-18
Trust Agreement.................... S-18
Trustee............................ S-18,41
U.S. Holders....................... S-43
Underwriter........................ S-19
Underwriting Agreement............. S-51
Valuation Date..................... S-26
</TABLE>
S-53
<PAGE> 56
APPENDIX A
DESCRIPTION OF TERM ASSETS
<TABLE>
<S> <C> <C>
------------------------------------------------------------------------------------------------------------------
Issuer:
------------------------------------------------------------------------------------------------------------------
Term Assets:
------------------------------------------------------------------------------------------------------------------
Original Principal Amount
Issued: $ $
------------------------------------------------------------------------------------------------------------------
CUSIP No.:
------------------------------------------------------------------------------------------------------------------
Stated Interest Rate:
------------------------------------------------------------------------------------------------------------------
Interest Payment Dates:
------------------------------------------------------------------------------------------------------------------
Principal Amount of Term
Assets Under the Trust
Agreement: $ $
------------------------------------------------------------------------------------------------------------------
</TABLE>
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
Exchange Act 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> 57
<TABLE>
<CAPTION>
<S> <C> <C>
Form 8621 RETURN BY A SHAREHOLDER OF A PASSIVE FOREIGN APPENDIX B
INVESTMENT COMPANY OR QUALIFIED ELECTING FUND
(Rev. February 1999) SEE SEPARATE INSTRUCTIONS. OMB No. 1545-1002
------------------------
Department of the Attachment
Treasury Sequence No. 69
Internal Revenue Service
----------------------------------------------------------------------------------------------------------------
Name of shareholder Identifying number (see page 3 of instructions)
----------------------------------------------------------------------------------------------------------------
Number, street, and room or suite no. (If a P.O. box, see Your tax year: calendar year ___ or other tax year
page 3 of instructions.)
beginning and ending .
----------------------------------------------------------------------------------------------------------------
City or town, state, and ZIP code or country
----------------------------------------------------------------------------------------------------------------
Check type of shareholder filing the return: [ ] Individual [ ] Corporation [ ] Partnership
[ ] S Corporation [ ] Nongrantor Trust [ ] Estate
----------------------------------------------------------------------------------------------------------------
Name of passive foreign investment company (PFIC) or Employer identification number (if any)
qualified electing fund (QEF)
----------------------------------------------------------------------------------------------------------------
Address (Enter number, street, city or town, and country.) Tax year of company or fund: calendar year ____ or
other tax year beginning _________ and
ending _________ .
----------------------------------------------------------------------------------------------------------------
</TABLE>
PART I ELECTIONS (See instructions.)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
A [ ] I, a shareholder of a PFIC, elect to treat the PFIC as a
QEF. (Section 1295.) Complete lines 1a through 2c of Part
II.
B [ ] I, a shareholder on the first day of a PFIC's first tax year
as a QEF, elect to recognize gain on the deemed sale of my
interest in the PFIC. (Section 1291(d)(2)(A). Enter gain or
loss on line 10f of Part IV.
C [ ] I, a shareholder on the first day of a PFIC's first tax year
as a QEF that is a controlled foreign corporation (CFC),
elect to treat an amount equal to my share of the post-1986
earnings and profits of the CFC as an excess distribution.
(Section 1291(d)(2)(B).) Enter this amount on line 10e.
D [ ] I, a shareholder of a QEF, elect to extend the time for
payment of tax on the undistributed earnings and profits of
the QEF until this election is terminated. (Section 1294.)
Complete lines 3a through 4c of Part II to calculate the tax
that may be deferred.
NOTE: If any portion of line 1a or line 2a of Part II is
includible under section 551 or 951, you may NOT make this
election. Also, see Sections 1294(c) and 1294(f) and the
related regulations for events that terminate this election.
E [ ] I, a shareholder of a former PFIC, elect to treat as an
excess distribution the gain recognized on the deemed sale
of my interest in the PFIC, or, if I qualify, my share of
the PFIC's post-1986 earnings and profits deemed
distributed, on the last day of its last tax year as a PFIC
under section 1297(a). (Section 1298(b)(1).) Enter excess
distribution on line 10e or 10f of Part IV.
F [ ] I, a shareholder of a PFIC, elect to mark-to-market the
stock of that PFIC, which stock is marketable within the
meaning of section 1296(e). (Section 1296.) Complete Part
III.
------
</TABLE>
PART II INCOME FROM A QUALIFIED ELECTING FUND (QEF). All QEF shareholders
complete lines 1a through 2c. If you are making Election D. also
complete lines 3a through 4c. (See page 5 of instructions.)
<TABLE>
<CAPTION>
<S> <C>
---
1a Enter your pro rata share of the ordinary earnings of the
QEF......................................................... 1a
----------------------------------
b Enter the portion of line 1a that is included in income
under section 551 or 951 or that may be excluded under
section 1293(g)............................................. 1b
----------------------------------
c Subtract line 1b from line 1a. Enter this amount on your tax return as dividend income........... 1c
-------
2a Enter your pro rata share of the total net capital gain of
the QEF 2a
----------------------------------
b Enter the portion of line 2a that is included in income
under section 551 or 951 or that may be excluded under
section 1293(g)............................................. 2b
----------------------------------
c Subtract line 2b from line 2a. This amount is a net long-term capital gain. Enter this amount in
Part II of the Schedule D used for your income tax return. (See page 5 of instructions.)......... 2c
-------
3a Add lines 1c and 2c.............................................................................. 3a
-------
b Enter the total amount of cash and the fair market value of
other property distributed or deemed distributed to you
during the tax year of the QEF. (See page 5 of
instructions.).............................................. 3b
----------------------------------
c Enter the portion of line 3a to the extent not already
included in line 3b that is attributable to shares in the
QEF that you disposed of, pledged, or otherwise transferred
during the tax year......................................... 3c
----------------------------------
d Add lines 3b and 3c.............................................................................. 3d
-------
e Subtract line 3d from line 3a, and enter the difference (if zero or less, enter amount in 3e
brackets)........................................................................................
-------
IMPORTANT: If line 3e is greater than zero, and no portion
of line 1a or 2a is includible in income under section 551
or 951, you may make Election D with respect to the amount
on line 3e.
4a Enter the total tax for total taxable income for the tax
year........................................................ 4a
----------------------------------
b Enter the total tax for the tax year determined without
regard to the amount entered on line 3e..................... 4b
----------------------------------
c Subtract line 4b from line 4a. THIS IS THE DEFERRED TAX, THE TIME FOR PAYMENT OF WHICH IS
EXTENDED BY MAKING ELECTION D. SEE INSTRUCTIONS.................................................. 4c
--------------------------------------------------------------------------------------------------------------
</TABLE>
FOR PAPERWORK REDUCTION ACT NOTICE, SEE PAGE 7 OF SEPARATE INSTRUCTIONS.
Cat No. 64174H Form 8621 (Rev. 2-99)
B-1
<PAGE> 58
FORM 8621 (REV. 2-99)
--------------------------------------------------------------------------------
PART III INCOME OR (LOSS) FROM MARK-TO-MARKET ELECTION (See page 5 of
instructions.)
<TABLE>
<CAPTION>
<C> <S> <C> <C>
-----------------------------------------------------------------------------------------------------
5 Enter the fair market value of your PFIC stock at the end of
tax year.................................................... 5
----------------------------------
6 Enter your adjusted basis in the stock at the end of the tax
year........................................................ 6
----------------------------------
7 EXCESS. Subtract line 6 from line 5. If a gain, STOP HERE.
Include this amount as ordinary income on your tax return.
If a loss, go to line 8..................................... 7
----------------------------------
8 Enter any unreversed inclusions (as defined in section
1296(d)).................................................... 8
----------------------------------
9 Enter the smaller of line 7 or line 8. Include this amount
as an ordinary loss on your tax return...................... 9
-----------------------------------------------------------------------------------------------------
</TABLE>
PART IV DISTRIBUTIONS AND DISPOSITION OF STOCK IN A SECTION 1291 FUND (See
page 6 of instructions.)
Complete a separate Part IV for each excess distribution.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
10a Enter your total distributions from the PFIC during the
current tax year. If the holding period of the PFIC stock
began in the current tax year, this amount is dividend
income to the extent there are accumulated earnings and
profits..................................................... 10a
----------------------------------
b Enter the total distributions (reduced by the portions of
such distributions that were excess distributions but not
included in income under section 1291(a)(1)(B)) made by the
company for each of the 3 years preceding the current tax
year (or if shorter, the portion of the shareholder's
holding period before the current tax year)................. 10b
----------------------------------
c Divide line 10b by 3. (See instructions if the number of
preceding tax years is less than 3.)........................ 10c
----------------------------------
d Multiply line 10c by 125%. Enter the lesser of line 10a or
line 10d as a dividend on your income tax return............ 10d
----------------------------------
e Subtract line 10d from line 10a. This amount, if more than
zero, is the total excess distribution. If zero or less and
you did not dispose of stock during the tax year, DO NOT
complete the rest of Part IV. See instructions if you
received more than one distribution during the current tax
year........................................................ 10e
----------------------------------
f Enter gain or loss from the disposition of stock of a
section 1291 fund or former section 1291 fund. If a gain,
complete line 11. If a loss, show it in brackets and DO NOT
complete line 11............................................ 10f
----------------------------------
11a On an attached statement for each distribution and
disposition, show your holding period for each share of
stock or block of shares held. Allocate the excess
distribution to each day in your holding period. Add all
amounts that are allocated to days in each tax year.........
b Enter the total of the amounts determined in line 11a that
are allocable to the current tax year and tax years before
the foreign corporation became a PFIC (pre-PFIC tax years).
Enter these amounts on your income tax return as other
income...................................................... 11b
----------------------------------
c Enter the aggregate increases in tax (before credits) for
each tax year in your holding period (other than the current
tax year and pre-PFIC years). (See instructions.)........... 11c
----------------------------------
d Foreign tax credit. (See instructions.)..................... 11d
----------------------------------
e Subtract line 11d from line 11c. Enter this amount on your
income tax return as "additional tax." (See
instructions.).............................................. 11e
----------------------------------
f Determine interest on each net increase in tax determined on
line 11e using the rates and methods of section 6621. Enter
the aggregate amount of interest here. (See
instructions.).............................................. 11f
-----------------------------------------------------------------------------------------------------
</TABLE>
PART V STATUS OF PRIOR YEAR SECTION 1294 ELECTIONS AND TERMINATION OF SECTION
1294 ELECTIONS
Complete a separate column for each outstanding election. Complete
lines 9 and 10 only if there is a partial termination of the section
1294 election.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
(i) (ii) (iii) (iv) (v)
------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
1 Tax year of outstanding election...
------------ ------------ ------------ ------------ ------------
------------------------------------------------------------------------------
2 Undistributed earnings to which the
election relates...................
------------------------------------------------------------------------------
3 Deferred tax.......................
------------------------------------------------------------------------------
4 Interest accrued on deferred tax
(line 3) as of the filing date.....
------------------------------------------------------------------------------
5 Event terminating election.........
------------------------------------------------------------------------------
6 Earnings distributed or deemed
distributed during the tax year....
------------------------------------------------------------------------------
7 Deferred tax due with this
return.............................
------------------------------------------------------------------------------
8 Accrued interest due with this
return.............................
------------------------------------------------------------------------------
------------------------------------------------------------------------------
9 Deferred tax outstanding after
partial termination of election....
------------------------------------------------------------------------------
10 Interest accrued after partial
termination of election............
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
--- --------------
(vi)
--------------
<C> <S> <C>
1 Tax year of outstanding election...
------------ ------------ ------------ ------------ ------------
2 Undistributed earnings to which the ------------------------------------------------------------------------------
election relates...................
3 Deferred tax....................... ------------------------------------------------------------------------------
4 Interest accrued on deferred tax ------------------------------------------------------------------------------
(line 3) as of the filing date.....
5 Event terminating election......... ------------------------------------------------------------------------------
6 Earnings distributed or deemed ------------------------------------------------------------------------------
distributed during the tax year....
7 Deferred tax due with this ------------------------------------------------------------------------------
return.............................
8 Accrued interest due with this ------------------------------------------------------------------------------
return.............................
------------------------------------------------------------------------------
9 Deferred tax outstanding after ------------------------------------------------------------------------------
partial termination of election....
10 Interest accrued after partial ------------------------------------------------------------------------------
termination of election............
------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-2
<PAGE> 59
APPENDIX C
<TABLE>
<S> <C> <C>
Form 926
(Rev. October 1998) RETURN BY A U.S. TRANSFEROR OF PROPERTY
Department of the Treasury TO A FOREIGN CORPORATION OMB No. 1545-0026
Internal Revenue Service (UNDER SECTION 367)
---------------------------------------------------------------------------------------------------------------------------------
PART I U.S. TRANSFEROR INFORMATION (see instructions)
---------------------------------------------------------------------------------------------------------------------------------
Name of transferor Identification number (see instructions)
---------------------------------------------------------------------------------------------------------------------------------
Number, street and room or suite no. (if a P.O. box, see instructions.)
---------------------------------------------------------------------------------------------------------------------------------
City or town, state and ZIP code
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
1 The following questions apply only if the transferor is a corporation:
a If the transfer was a section 361(a) or (b) transfer, was the transferor controlled (under section 368(c)) by
5 or fewer domestic corporations? ......................................................................... [ ] Yes [ ] No
b Did the transferor remain in existence after the transfer? ................................................ [ ] Yes [ ] No
If not, list the controlling shareholder(s) and their identification number(s):
</TABLE>
<TABLE>
<S> <C>
---------------------------------------------------------------------------------------------------------------------------------
CONTROLLING SHAREHOLDER IDENTIFICATION NUMBER
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
c If the transferor was a member of an affiliated group filing a consolidated return, was it the parent
corporation? .............................................................................................. [ ] Yes [ ] No
If not, list the name and employer identification number (EIN) of the parent corporation
</TABLE>
<TABLE>
<S> <C>
---------------------------------------------------------------------------------------------------------------------------------
NAME OF PARENT CORPORATION EIN OF PARENT CORPORATION
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2 If the transferor was a partner in a partnership that was the actual
transferor (but is not treated as such under section 367), list the name
and EIN of the transferor's partnership:
<TABLE>
<S> <C>
---------------------------------------------------------------------------------------------------------------------------------
NAME OF PARTNERSHIP EIN OF PARTNERSHIP
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
PART II TRANSFEREE FOREIGN CORPORATION INFORMATION (see instructions)
---------------------------------------------------------------------------------------------------------------------------------
3 Name of transferee (foreign corporation) 4 Identification number, if any
---------------------------------------------------------------------------------------------------------------------------------
5 Address (including country)
---------------------------------------------------------------------------------------------------------------------------------
6 Place of organization or creation 7 Foreign law characterization (see
instructions)
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
8 Is the transferee foreign corporation a controlled foreign corporation? ................................... [ ] Yes [ ] No
---------------------------------------------------------------------------------------------------------------------------------
For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 16962D Form 926 (Rev. 10-98)
</TABLE>
C-1
<PAGE> 60
<TABLE>
FORM 926 (REV. 10-98) Page 2
<S> <C>
------------------------------------------------------------------------------------------------------------------------------------
PART III INFORMATION REGARDING TRANSFER OF PROPERTY (SEE INSTRUCTIONS)
------------------------------------------------------------------------------------------------------------------------------------
9 Date of transfer | 10 Type of nonrecognition transaction
| (see instructions)
------------------------------------------------------------------------------------------------------------------------------------
11 Description of property transferred:
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
12 Did this transfer result from a change in the classification of the transferee to that of a foreign corporation
/ / Yes / / No
13 Was the transferor required to recognize income under Temporary Regulations sections 1.367(a)-4T through
1.367(a)-6T (e.g., for tainted property, depreciation recapture, branch loss recapture, etc.)? / / Yes / / No
14a Was intangible property (within the meaning of section 936(h)(3)(B)) transferred pursuant to the transaction? / / Yes / / No
b If yes, describe the nature of the rights to the intangible property that was transferred in the transfer:
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
PLEASE | Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and
SIGN | statements, and to the best of my knowledge and belief it is true, correct, and complete. Declaration of preparer
HERE | (other than taxpayer) is based on all information of which preparer has any knowledge.
| |
| -------------------------------------------------------- ------------------ --------------------------------------
| Signature Date Title
------------------------------------------------------------------------------------------------------------------------------------
| Preparer's |Date | Check if Preparer's social
| Signature | | self-employed / / security no.
PAID | | |
PREPARER'S | ----------------------------------------------------------------------------------------------------------------------
USE | Firm's name (or yours | EIN |
ONLY | if self-employed), and | ---------------------------------------------
| address | ZIP CODE
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 61
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
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PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Certificates to be
offered thereby and hereby will set forth, among other things, the following
with respect to such Series: (a) the specific designation and aggregate
principal amount, (b) the currency or currencies in which the principal (the
"Specified Principal Currency"), premium, if any (the "Specified Premium
Currency"), and any interest (the "Specified Interest Currency") are
distributable (the Specified Principal Currency, the Specified Premium Currency
and the Specified Interest Currency being collectively referred to as the
"Specified Currency"), (c) the number of Classes of such Series and, with
respect to each Class of such Series, its designation, aggregate principal
amount or, if applicable, notional amount and authorized denominations, (d)
certain information concerning the type, characteristics and specifications of
the Deposited Assets and any Credit Support for such Series or Class, (e) the
relative rights and priorities of each such Class (including the method for
allocating collections from the Deposited Assets to the Certificateholders of
each Class and the relative ranking of the claims of the Certificateholders of
each Class to such Deposited Assets), (f) the name of the Trustee and the
Administrative Agent, if any, for such Series, (g) the Pass Through Rate (as
defined 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 will 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 will
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 will not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
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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
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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
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.
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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
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
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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, 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.
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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
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 390 Greenwich Street,
New York, New York 10013 (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
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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 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
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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
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
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<PAGE> 70
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 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
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<PAGE> 71
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").
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
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<PAGE> 72
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 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 will 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
will 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, will 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 will 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,
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<PAGE> 73
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 will 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"), 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
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<PAGE> 74
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 will, 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 will 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.
With respect to a Floating Rate Certificate, accrued interest will 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-
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<PAGE> 75
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 will 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 will 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.
(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
will 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 will 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 will 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 will 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;
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<PAGE> 76
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" will be a yield calculated in accordance with the
following formula:
<TABLE>
<S> <C> <C>
D X 360
Money Market Yield = ------------- X 100
360 - (D X M)
</TABLE>
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 will 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 will 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 will 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 will 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 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 will 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
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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.
(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 will 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 will
be calculated by the Calculation Agent for such Treasury Reference Rate
Certificate and will 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
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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 will fall on
any day that would otherwise be an Interest Reset Date for a Treasury Reference
Rate Certificate, then such Interest Reset Date will instead be the Business Day
immediately following such auction date.
The "Calculation Date" pertaining to any Treasury Rate Determination Date
will 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.
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 will 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;
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(d) specified dates during which a holder may effect such an exchange
(each, an "Optional Exchange Date");
(e) limitations on the right of an exchanging holder to receive any
benefit upon exchange from any Credit Support or other non-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 will 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 will be
cancelled and a new Certificate or Certificates for the remaining Certificate
Principal Balance thereof will be issued (which, in the case of any Registered
Certificate, will 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
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 will be entitled to receive the net proceeds of such sale,
less any costs and expenses incurred by such Trustee in facilitating such sale,
subject to any additional adjustments set forth in the Prospectus Supplement.
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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 will 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.
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 will 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
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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 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.
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DESCRIPTION OF DEPOSITED ASSETS AND CREDIT SUPPORT
GENERAL
Each Certificate of each Series (or if more than one Class exists, each
Class (whether or not each such Class is offered hereby) within such Series)
will represent an ownership interest specified for such Series (or Class) of
Certificates in a designated, publicly issued, fixed income debt security or
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 will 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 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
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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, will 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 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
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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 will 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
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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 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
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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 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
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not so available, the credit support otherwise provided by the Letter of Credit
or the Surety Bond (or similar credit enhancement) may be reduced to the level
otherwise available for the same cost as the original Letter of Credit or Surety
Bond.
Reserve Accounts. If so provided in the related Prospectus Supplement, the
Trustee or such other person specified in the Prospectus Supplement will deposit
or cause to be deposited into an account maintained with an eligible institution
(which may be the Trustee) (a "Reserve Account") any combination of cash or
permitted investments in specified amounts, which will be applied and maintained
in the manner and under the conditions specified in such Prospectus Supplement.
In the alternative or in addition to such deposit, a Reserve Account may be
funded through application of a portion of collections received on the Deposited
Assets for a given Series of Certificates, in the manner and priority specified
in the applicable Prospectus Supplement Amounts may be distributed to
Certificateholders of such Class or group of Classes within such Series, or may
be used for other purposes, in the manner and to the extent provided in the
related Prospectus Supplement. Amounts deposited in any Reserve Account will be
invested in certain permitted investments by, or at the direction of, the
Trustee, the 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.
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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.
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) will immediately notify the Administrative
Agent, if any, and the Company, and the Administrative Agent, if any, and
otherwise the Trustee will 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
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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 will not be required to expend or risk its own funds or otherwise
incur personal financial liability.
Sub-Administration. Any Trustee or Administrative Agent may delegate its
obligations in respect of the Deposited Assets to third parties they deem
qualified to perform such obligations (each, a "Sub-Administrative Agent"), but
the Trustee or Administrative Agent will remain obligated with respect to such
obligations under the Trust Agreement. Each Sub-Administrative Agent will be
required to perform the customary functions of an administrator of comparable
financial assets, including, if applicable, collecting payments from obligors
and remitting such collections to the Trustee; maintaining accounting records
relating to the Deposited Assets, 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
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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 will
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.
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.
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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 will 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 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 may, however, in its discretion undertake
any such action which it may deem necessary or desirable with respect to the
Trust Agreement and the rights and duties of the parties thereto and the
interests of the Certificateholders thereunder. The applicable Prospectus
Supplement will describe how such legal expenses and costs of such action and
any liability resulting therefrom will be allocated.
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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 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.
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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
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 will 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.
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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;
(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 will 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 will 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, will
be deemed to have been satisfied to the extent that substantially comparable
information will 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
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specified in the Prospectus Supplement, which date will 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 will 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 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 will 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 will be specified in the related Prospectus Supplement. The Trust and the
Certificateholders will have no continuing direct or indirect liability under
the Trust Agreement as sellers of the assets of the Trust in effecting such
termination.
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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.
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 Clearstream Banking ("Clearstream") 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 Clearstream 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.
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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
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 will 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 will be converted
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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 will be made in U.S. dollars until
ECU is again so used. The amount of each distribution in U.S. dollars will 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") will 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") will 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 will be
calculated by aggregating the U.S. dollar equivalents of the Components. The
U.S. dollar equivalent of each of the Components will 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
will 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 will 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 will be replaced
by amounts of such two or more currencies, each of which will 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 will be
at its sole discretion and will, in the absence of manifest error, be conclusive
for all purposes and binding on the related Certificateholders of such Series.
FOREIGN CURRENCY JUDGMENTS
Unless otherwise specified in the applicable Prospectus Supplement, the
Certificates will be governed by and construed in accordance with the law of the
State of New York. Courts in the United States customarily have not rendered
judgments for money damages denominated in any currency other than the U.S.
dollar. A 1987 amendment to the Judiciary Law of the State of New York provides,
however, that an action based upon an obligation denominated in a currency other
than U.S. dollars will be rendered in the foreign currency of the underlying
obligation and converted into U.S. dollars at the rate of exchange prevailing on
the date of the entry of the judgment or decree.
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
38
<PAGE> 99
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 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 sec.
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"
39
<PAGE> 100
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.
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
40
<PAGE> 101
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.
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.
41
<PAGE> 102
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.
42
<PAGE> 103
INDEX OF TERMS
<TABLE>
<S> <C>
Administration Fee.................. 8
Administrative Agent................ 1
Administrative Agent Termination
Events............................ 32
Base Rate........................... 13
Bearer Certificates................. 1
Business Day........................ 12
Calculation Agent................... 14
Calculation Date.................... 15,16,18
CD Rate............................. 15
CD Rate Determination Date.......... 15
CD Reference Rate Certificate....... 13
Cede................................ 3
Certificate Account................. 27
Certificate of Non-U.S. Beneficial
Ownership......................... 36
Certificate Principal Balance....... 18
Certificateholders.................. 1
Certificates........................ 1
Class............................... 1
Clearstream......................... 36
Code................................ 39
Commercial Paper Rate............... 15
Commercial Paper Rate Determination
Date.............................. 15
Commercial Paper Reference Rate
Certificate....................... 13
Commission.......................... 2
Company............................. 1
Components.......................... 38
Composite Quotations................ 13
Concentrated Term Assets............ 22
Coupons............................. 10
Credit Support...................... 1
Credit Support Instruments.......... 29
Cut-off Date........................ 28
Day of Valuation.................... 38
Definitive Certificate.............. 20
Depositary.......................... 20
Deposited Asset Provider............ 28
Deposited Assets.................... 1,25
Determination Date.................. 11
Distribution Date................... 2
ECU................................. 1
Euroclear........................... 36
Exchange Act........................ 2
Exchange Rate Agent................. 11
Exchangeable Series................. 18
Federal Funds Rate.................. 16
Federal Funds Rate Determination
Date.............................. 16
Federal Funds Reference Rate
Certificate....................... 13
Fixed Pass-Through Rate............. 10
Fixed Rate Certificates............. 13
Floating Rate Certificates.......... 13
Global Security..................... 1
H.15(519)........................... 13
Index Maturity...................... 13
Interest Reset Date................. 14
Interest Reset Period............... 14
IRS................................. 39
Letter of Credit.................... 26
Letter of Credit Bank............... 26
LIBOR............................... 16
LIBOR Determination Date............ 16
LIBOR Reference Rate Certificate.... 13
London Banking Day.................. 12
Market Exchange Rate................ 11
Maximum Pass-Through Rate........... 14
Minimum Pass-Through Rate........... 14
Money Market Yield.................. 16
Nonrecoverable Advance.............. 31
Notional Amount..................... 12
Offering Agent...................... 3
Optional Exchange Date.............. 19
Original Issue Date................. 10
outstanding debt securities......... 23
Pass-Through Rate................... 10
Prospectus Supplement............... 1
Purchase Price...................... 35
Rating Agency....................... 4
Realized Losses..................... 18
Registered Certificates............. 1
Registration Statement.............. 2
Related Proceeds.................... 31
Required Percentage................. 32
Reserve Account..................... 27
Retained Interest................... 8
Reuters Screen LIBO Page............ 17
Secured Term Assets................. 24
Securities Act...................... 2
Senior Term Assets.................. 23
Series.............................. 1
Special Tax Counsel................. 38
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........ 29
Sub-Administrative Agent............ 29
Subordinated Term Assets............ 23
Surety.............................. 26
Surety Bond......................... 26
Term Asset Events of Default........ 23
Term Assets......................... 1,22
Term Assets Currency................ 25
Term Assets Indenture............... 22
Term Assets Interest Accrual
Periods........................... 24
Term Assets Issuers................. 1,22
Term Assets Payment Dates........... 24
Term Assets Prospectus.............. 22
Term Assets Rate.................... 24
TIA................................. 22
Treasury bills...................... 17
Treasury Rate....................... 17
Treasury Rate Determination Date.... 18
Treasury Reference Rate
Certificate....................... 13
Trust............................... 1
Trust Agreement..................... 1
Trustee............................. 1
Trustee's Fee....................... 7
U.S. Person......................... 36
United States....................... 36
Variable Pass-Through Rate.......... 10
Voting Rights....................... 32
</TABLE>
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<PAGE> 104
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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 THE DATE ON THE FRONT OF THE DOCUMENT.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Information about Certificates............. S-2
Summary Information -- Q&A................. S-2
Risk Factors............................... S-13
Formation of the Trust..................... S-18
Use of Proceeds............................ S-18
The Term Assets Issuers.................... S-18
Description of the Term Assets............. S-19
Description of the Certificates............ S-19
Description of the Swap Agreement.......... S-25
Description of the Swap Counterparty....... S-29
Description of the Policy.................. S-30
The Swap Insurer........................... S-32
Description of the AMEX Semiconductor
Index.................................... S-34
Description of the Trust Agreement......... S-41
Enforcement of Foreign Judgments in the
Cayman Islands........................... S-42
United States Federal Income Tax
Considerations........................... S-43
Certain Cayman Islands Tax
Considerations........................... S-49
Certain ERISA Considerations............... S-50
Underwriting............................... S-51
Ratings.................................... S-52
Experts.................................... S-52
Legal Opinions............................. S-52
Index of Terms............................. S-53
Appendix A -- Description of the Term
Assets................................... A-1
Appendix B -- IRS Form 8621................ B-1
Appendix C -- IRS Form 926................. C-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.................................. 22
Description of Trust Agreement............. 28
Limitations on Issuance of Bearer
Certificates............................. 36
Currency Risks............................. 37
Certain Federal Income Tax
Considerations........................... 38
Plan of Distribution....................... 41
Legal Opinions............................. 42
Index of Terms............................. 43
</TABLE>
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STRUCTURED PRODUCTS CORP.,
THE DEPOSITOR
TIERS(SM)
PRINCIPAL-PROTECTED
TRUST CERTIFICATES
(INTEREST ON FINAL SCHEDULED
DISTRIBUTION DATE BASED UPON
THE AMEX SEMICONDUCTOR INDEX)
DUE [ ], 2005
($10 PRINCIPAL AMOUNT PER CERTIFICATE)
ISSUED BY
TIERS(SM)
PRINCIPAL-PROTECTED ASSET
BACKED CERTIFICATES
TRUST SERIES
SEMICONDUCTOR 2000-14
------------
PROSPECTUS SUPPLEMENT
DATED [ ], 2000
------------
SALOMON SMITH BARNEY
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