- ---------------------------------------
YOU SHOULD CAREFULLY CONSIDER THE RISK
FACTORS BEGINNING ON PAGE S-3 OF THIS
PROSPECTUS SUPPLEMENT.
No governmental agency or
instrumentality will insure or guarantee
the receipts.
The offered receipts represent interests
in the assets held by the issuer only
and will not represent interests in or
obligations of the sponsor or any
affiliate of the sponsor. No investor
will have any claim or recourse to the
sponsor's assets for payment of any
principal or interest on the receipts.
This prospectus supplement may be used
to offer and sell any series of receipts
only if accompanied by the prospectus.
- ---------------------------------------
SUBJECT TO COMPLETION DATED [ ]
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED _____________)
PASS THROUGH FLOATING TAX-EXEMPT RECEIPT TRUST ____
ISSUER
MERRILL LYNCH MUNICIPAL ABS, INC.
SPONSOR
$_ _ _ PASS THROUGH FLOATING TAX-EXEMPT RECEIPTS
(P-FLOATS(SM)), SERIES R-
THE ISSUER--
o will issue a series of receipts, which consist of the P-FLOATs offered for
sale here and the Residual Interest Tax-Exempt Securities receipts, which
are not offered for sale here; and
o will own a pool of municipal bonds of one or more maturities and credits
identified on Schedule A of this prospectus supplement.
THE P-FLOATS OF THIS SERIES--
o will be issued in book-entry form through the facilities of DTC. The
P-FLOATs will be sold in minimum denominations of $5,000 and integral
multiples of $5,000;
o will evidence an undivided beneficial interest in the pool of bonds; and
o will be subject to optional and mandatory tender at a purchase price of par
plus accrued interest.
- --------------------------------------------------------------------------------
UNDERWRITING DISCOUNTS
PRICE TO PUBLIC AND COMMISSIONS PROCEEDS TO SELLER
- --------------------------------------------------------------------------------
Per P-FLOATs 100% N/A 100%
- --------------------------------------------------------------------------------
The price to public will also include any accrued interest.
The underwriter will not receive a discount or commission, but will receive a
remarketing fee in its capacity as remarketing agent.
This Registration Statement also relates to market-making transactions that may
be made by the remarketing agent, an affiliate of the registrant.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
MERRILL LYNCH & CO.
(SM) Service Mark of Merrill Lynch, Pierce, Fenner & Smith Incorporated
<PAGE>
IMPORTANT INFORMATION ABOUT INFORMATION PRESENTED IN
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
The offered receipts are described in two separate documents that
progressively provide more detail:
(1) the accompanying prospectus, which provides general information,
some of which may not apply to a particular series of receipts,
such as your receipts; and
(2) this prospectus supplement, which describes the specific terms of
your receipts and may differ from information in the prospectus.
If the description of the terms of your receipts varies between this
prospectus supplement and the prospectus, then you should rely on the
information in this prospectus supplement.
This prospectus supplement and the prospectus contain cross references to
captions where you can find additional information. The following Table of
Contents and the Table of Contents in the prospectus provide the locations of
these captions.
i
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
----
Summary.................................................................. S-1
Risk Factors............................................................. S-4
The Liquidity Provider................................................... S-4
Description of Liquidity Provider...................................... S-4
Financial Information of Liquidity Provider............................ S-4
Limitations of Liquidity Facility...................................... S-5
Plan of Distribution..................................................... S-5
Ratings.................................................................. S-5
Legal Matters............................................................ S-6
Reports to Receiptholders................................................ S-6
Year 2000 Problem........................................................ S-6
Additional Information................................................... S-8
Schedule of Bonds........................................................ S-9
ii
<PAGE>
================================================================================
SUMMARY
THIS SUMMARY CONTAINS ONLY A BRIEF DESCRIPTION OF THE BASIC STRUCTURE OF
SERIES R-[__]. TO FULLY UNDERSTAND THE STRUCTURE OF THESE SECURITIES AND
DETERMINE WHETHER TO INVEST, YOU MUST READ CAREFULLY THE ENTIRE PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS.
SECURITIES DESIGNATION
Receipts consist of Pass Through Floating Tax-Exempt Receipts, or
P-FLOATs(SM), offered for sale in this prospectus supplement and Residual
Interest Tax-Exempt Securities receipts, or RITES(SM), which are not offered for
sale in this prospectus supplement. The receipts represent an undivided
beneficial ownership interest in a pool of tax-exempt municipal bonds deposited
with the trustee. Each P-FLOATs represents a percentage of the pool of
bonds--and, therefore, a percentage of each bond--in equal proportion to its
percentage of P-FLOATs issued in this series. For example, if a P-FLOATs
constitutes 5% of the P-FLOATs issued in this series, then that P-FLOATs
represents 5% of the pool of bonds, and 5% of each bond, held in the trust.
One hundred percent of the principal amount of P-FLOATs for this series
initially will be offered on the initial issuance date of receipts, [_____]. The
P-FLOATs will be designated as Series R-[__] and issued in denominations of
$5,000 and integral multiples of $5,000. The P-FLOATs will have an initial
principal balance of $[ ] and the RITES will have an initial principal balance
of $[_______]. On the date the receipts are initially issued, the aggregate
principal balances of the bonds will be $[_______], and the aggregate market
value of the bonds will be $[_______].
THE TRUSTEE AND TENDER AGENT AND THE CO-TRUSTEE
[_____] will act as the trustee and tender agent and [_____] will act as
the co-trustee for the issuer. The corporate office of the trustee and tender
agent is at [_____] and the corporate office of the co-trustee is at [_____].
The trustee fee will be [___]% when the interest mode is the weekly or term
mode and [___]% when the interest mode is the daily mode.
THE BONDS
The bonds underlying the receipts will consist of general obligation bonds
and revenue bonds issued by states, municipalities and public authorities. If a
bond is designated in the schedule of bonds attached to this prospectus
supplement as a "private activity bond," then interest income on that bond will
be included in the computation of the federal alternative minimum tax. The
coupons on the bonds range from __% to __% per annum. No bond has a principal
maturity date later than [_______]. All of the bonds are rated [___] or higher.
All of the bonds have been purchased in the secondary market [, except for
_______]. Specific information with respect to each bond is contained in the
schedule of bonds attached to this prospectus supplement.
THE SPONSOR
The sponsor, Merrill Lynch Municipal ABS, Inc., a Delaware corporation,
will deposit the bonds with the issuer, Pass Through Floating Tax-Exempt Receipt
Trust 1999[ ], a Delaware statutory business trust established by the sponsor.
[Some bonds will have been underwritten by an affiliate of the sponsor at the
time of their initial issuance.]
THE RECEIPTS
After purchasing the bonds from the seller, the issuer will hold the bonds
and issue receipts, which will consist of both the
================================================================================
S-1
<PAGE>
================================================================================
P-FLOATs offered for sale here and the RITES, which are not being offered in
this prospectus supplement. Information about the RITES is presented in this
prospectus supplement solely for its relevance to you as a prospective investor
of P-FLOATs. The receipts will be available for purchase in book-entry form
through the securities depository and initially registered in the name of Cede &
Co., the nominee for the securities depository.
RATINGS
As a condition to issuance, the receipts must be rated [___] by the rating
agency, [___], on the initial issuance date of receipts. The issuer has not
applied to any other rating agency to obtain a rating on the P-FLOATs. There is
no assurance that any rating will remain in effect for any given period of time.
If circumstances change, then the rating agency may revise a rating downward or
withdraw a rating entirely. The rating or ratings issued will not address the
likelihood that the P-FLOATs may be paid early due to events known as mandatory
tender events or that the bonds or the proceeds of the bonds will be distributed
due to events known as tender option termination events.
THE REMARKETING AGENT
The remarketing agent, Merrill Lynch Pierce Fenner & Smith Incorporated, a
Delaware corporation d/b/a Merrill Lynch & Co., will determine the interest rate
payable to investors either daily, weekly, or for term periods of up to one
year. The remarketing agent will initially determine this interest rate
[weekly]. The P-FLOATs interest rate will reflect the minimum rate of interest
that the remarketing agent determines would result in a sale of each P-FLOATs or
P-FLOATs portion at par plus accrued interest under prevailing market
conditions. However, this amount shall not exceed the aggregate interest payable
on the bonds minus the trustee fees. The trustee fee will be [___]% when the
remarketing agent determines the interest rate weekly or for a term period and
[___]% when the remarketing agent determines the interest rate monthly.
PRINCIPAL AND INTEREST DISTRIBUTIONS
Upon issuance of the receipts, the bonds will be deposited by the sponsor
with the trustee, [___]. Principal and interest will be payable on each bond
held by the trustee on the payment dates specified on the schedule of bonds. The
trustee will distribute principal and interest to investors on the business day
following the date on which the trustee receives payment on the bonds. The
trustee may, but is not obligated to, advance its own funds to distribute
interest on the P-FLOATs monthly. Any trustee advance will be based on the
amount of interest accrued on the bonds, whether or not this interest is then
payable by the bond issuers. The trustee is not responsible for delays in
receipt of payments on the bonds.
OPTIONAL AND MANDATORY TENDER
P-FLOATs are subject to tender to the tender agent either at the option of
the investors or pursuant to a mandatory tender. An optional tender occurs when
an investor decides to tender a P-FLOATs in exchange for that P-FLOATs' par
value. A mandatory tender occurs upon designated events and may be either
partial or complete. A partial mandatory tender requires the tender of the
affected portion of each P-FLOATs. A complete mandatory tender requires the
tender of all of an investor's P-FLOATs. Upon a mandatory tender, an investor
must exchange P-FLOATs for their par value. An investor may or may not be given
a right to retain its P-FLOATs upon the occurrence of a mandatory tender event.
After either an optional or mandatory tender, the remarketing agent will attempt
to remarket any tendered P-FLOATs.
================================================================================
S-2
<PAGE>
================================================================================
THE LIQUIDITY FACILITY
The sponsor and issuer have established a liquidity facility with respect
to this series. Under the terms specified in this liquidity facility, the
liquidity provider will purchase P-FLOATs at par plus accrued interest if the
remarketing agent is either unable to remarket, or is prohibited from
remarketing, any P-FLOATs that has been tendered either (1) at the option of the
investor, or (2) pursuant to a complete mandatory tender. The liquidity provider
will become the holder of any receipt that it purchases. The liquidity facility
will not be available for, and the liquidity provider will not be obligated for,
the payment of principal or interest on the receipts, the payment of any net
gain upon a partial mandatory tender, or the purchase of fixed rate receipts.
The liquidity facility agreement for this series will be filed with the
Securities and Exchange Commission under cover of Form 8-K.
FEDERAL INCOME TAX CONSEQUENCES
The sponsor has received an opinion from Cadwalader, Wickersham & Taft,
counsel to the sponsor, that the issuer will be classified as a partnership for
federal income tax purposes. Cadwalader, Wickersham & Taft has also opined that
amounts distributed to you that are attributable to payments of interest on the
bonds which are excludable from federal gross income will be excludable from
your federal gross income. A more complete discussion of material tax
consequences can be found on page 47 to the prospectus. The tax discussion in
the prospectus is current as of the date of this prospectus supplement. We
suggest that you consult your own tax advisor on the income tax considerations
applicable to your purchase of P-FLOATs.
================================================================================
S-3
<PAGE>
RISK FACTORS
With respect to this series, you should carefully consider the following
risk factors and other information in this prospectus supplement, as well as in
the prospectus, in deciding whether to invest:
[List additional risk factors.]
THE LIQUIDITY PROVIDER
DESCRIPTION OF LIQUIDITY PROVIDER
The liquidity provider will be [ ]. [ ] is a [diversified financial
services holding company] commercial banking institution], which is subject to
the information requirements of the [Securities Exchange Act of 1934, as
amended] [bank regulatory statute]. [In accordance with this act, [ ] files
reports and other information with the [SEC] [bank regulatory authority]. Copies
of such reports and other information may be obtained by contacting [ ],
Attention: [ ], telephone [ ].
The liquidity provider was originally incorporated in [ ]. [Insert brief
corporate history of liquidity provider]. [Insert relevant description of
structure of liquidity provider]. The liquidity provider is engaged in a broad
range of [banking and] [financial services] activities, including
[deposit-taking, lending and leasing, securities brokerage services, investment
management, investment banking, capital markets activities and foreign exchange
transactions].
As of [ ], the liquidity provider had total consolidated assets of [ ]. The
foregoing figure has been derived from reference to the liquidity provider's
audited consolidated financial statements and notes. These financial statements
and notes may contain a discussion of the significant accounting principles
applied.
FINANCIAL INFORMATION OF LIQUIDITY PROVIDER
TYPE OF INFORMATION YEAR TO DATE
1. Total Assets:..................... $[ ] 199___
2. Net Worth:........................ $[ ] 199___
3. Long-Term Debt Rating:............ [ ] 199___
4. Short-Term Rating:................ [ ] 199___
The liquidity provider has provided the above information. The information
appearing in the documents and financial statements referenced above is more
detailed.
S-4
<PAGE>
LIMITATIONS OF THE LIQUIDITY FACILITY
Under the liquidity facility, the liquidity provider's commitment to
purchase P-FLOATs is limited as follows: [Insert liquidity facility
limitations].
PLAN OF DISTRIBUTION
The sponsor has entered into an underwriting agreement with the underwriter
Merrill Lynch, Pierce, Fenner & Smith Incorporated. The underwriting agreement
provides that the obligations of the underwriter are subject to conditions
precedent, and that the underwriter will be obligated to purchase all of the
Receipts if they are purchased.
The underwriter has advised the sponsor that the underwriter proposes to
offer the Receipts from time to time for sale at the offering price set forth on
the cover page of this prospectus supplement. No concessions have been offered
to the underwriter.
The underwriter and any dealers that participate with the underwriter in
the distribution of Receipts may be deemed to be underwriters, and any discounts
or commissions received by them and any profit on the resale of Receipts by them
may be deemed to be underwriting discounts or commissions under the Securities
Act of 1933, as amended.
The sponsor has agreed to indemnify the underwriter against civil
liabilities, including liabilities under the Securities Act of 1933 or
contributions to payments the underwriter may be required to make.
The underwriter is an affiliate of the sponsor and is a registered
broker/dealer. Any obligations of the underwriter are the sole responsibility of
the underwriter and do not create any obligation or guarantee on the part of any
affiliate of the underwriter. This prospectus supplement and the prospectus may
be used by the underwriter in connection with offers and sales related to market
making transactions in the Receipts. The underwriter may act as principal or
agent in these market making transactions.
RATINGS
If a bond is not insured, the long-term rating of the Receipts is based on
the credit rating of the bond issuer. If a bond is insured, the long-term rating
of the Receipts is based on the credit rating of the bond insurer in connection
with its issuance of the financial guaranty policy guaranteeing the payment of
principal and interest on the related bond. The short-term rating of the
Receipts is based on the credit rating of the liquidity provider in connection
with its issuance of the related liquidity facility. The short-term rating
assigned to the Receipts will apply for only as long as the Receipts benefit
from the liquidity facility. The ratings on the Receipts do not reflect any
advances made by the trustee.
The ratings are not recommendations to buy, sell or hold the Receipts. The
ratings of such Receipts reflect only the views of the rating agency. An
explanation of the significance of such ratings may be obtained from the rating
agency. There is no assurance that any ratings will continue for any period of
time or will not be revised downward or withdrawn entirely by the rating agency
if in its judgment circumstances so warrant. The ratings are based on current
S-5
<PAGE>
information furnished to the rating agency by the sponsor and the liquidity
provider, and information obtained from other sources, including the issuers of
the bonds and, if the bonds are insured, the insurers. The ratings may be
changed, suspended or withdrawn as a result of changes in, or the unavailability
of, such information.
LEGAL MATTERS
Cadwalader, Wickersham & Taft, New York, New York, counsel to the sponsor,
has given a legal opinion on the offering of the Receipts and the material
federal income tax consequences of the purchase, ownership and disposition of
the Receipts. The opinion of counsel to the sponsor relating to the material
federal income tax consequences of the purchase, ownership and disposition of
the Receipts is attached to the prospectus as Exhibit A. [ ], counsel for the
trustee and tender agent has given a legal opinion relating to the trustee and
tender agent; [ ], counsel for the co-trustee has given a legal opinion relating
to the co-trustee; and [ ], counsel for the liquidity provider has given a legal
opinion relating to the liquidity provider.
REPORTS TO RECEIPTHOLDERS
The issuer will prepare periodic reports that will contain audited
financial statements. Unless and until certificated Receipts are issued, the
reports will be sent to Cede & Co. as nominee for the securities depository and
the registered holder of the Receipts. You will not receive financial reports
directly from the issuer.
YEAR 2000 PROBLEM
The issuer does not have a computer system. However, the issuer relies on
the computer systems of others, including the sponsor, seller, remarketing agent
and liquidity provider. The sponsor, seller and remarketing agent [and liquidity
provider] are all Merrill Lynch entities that share a computer system. Merrill
Lynch believes that it has identified and evaluated its internal Year 2000
problem and that it is devoting sufficient resources to renovating technology
systems that are not already Year 2000 compliant. The resource-intensive
renovation phase of Merrill Lynch's Year 2000 efforts was approximately 99.7%
completed as of April 16, 1999. Merrill Lynch will focus primarily on completing
its renovation and testing and on integration of the Year 2000 programs of
recent acquisitions during the remainder of 1999. In order to focus attention on
the Year 2000 problem, management has deferred other technology projects;
however, this deferral is not expected to have a material adverse effect on the
company's business, results of operations, or financial condition.
The failure of Merrill Lynch's technology systems relating to a Year 2000
problem would likely have a material adverse effect on the company's business,
results of operations, and financial condition. This effect could include
disruption of normal business transactions, such as the settlement, execution,
processing, and recording of trades in securities, commodities, currencies, and
other assets. The Year 2000 problem could also increase Merrill Lynch's exposure
to risk and its need for liquidity.
S-6
<PAGE>
In 1995, Merrill Lynch established the Year 2000 Compliance Initiative,
which is an enterprise-wide effort to address the risks associated with the Year
2000 problem, both internal and external. The Year 2000 Compliance Initiative's
efforts to address the risks associated with the Year 2000 problem have been
organized into six phases: planning, pre-renovation, renovation, production
testing, certification, and integration testing.
The planning phase involved defining the scope of the Year 2000 Compliance
Initiative, including its annual budget and strategy, and determining the level
of expert knowledge available within Merrill Lynch regarding particular systems
or applications. The pre-renovation phase involved developing a detailed
enterprise-wide inventory of applications and systems, identifying the scope of
necessary renovations to each application or system, and establishing a
conversion schedule. During the renovation phase, source code is actually
converted, date fields are expanded or windowed, test data is prepared, and each
system or application is tested using a variety of Year 2000 scenarios.
Windowing is a technique that moves an existing 2-digit year field, known as a
window, to another set of values by making changes to the program logic in
source programs. Windowing is used on an exception basis only. The production
testing phase validates that a renovated system is functionally the same as the
existing production version, that renovation has not introduced defects, and
that expanded or windowed date fields continue to handle current dates properly.
The certification phase validates that a system can run successfully in a Year
2000 environment. The integration testing phase, which will occur throughout
1999, validates that a system can successfully interface with both internal and
external systems. Finally, as Merrill Lynch continues to implement new systems,
they are also being tested for Year 2000 readiness.
In 1996 and 1997, as part of the planning and pre-renovation phases, both
plans and funding of plans for inventory, preparation, renovation, and testing
of computer systems for the Year 2000 problem were approved. All plans for both
mission-critical and non-mission-critical systems are tracked and monitored. The
work associated with the Year 2000 Compliance Initiative has been accomplished
by Merrill Lynch employees, with the assistance of consultants where necessary.
As part of the production testing and certification phases, Merrill Lynch
has performed, and will continue to perform, both internal and external Year
2000 testing intended to address the risks from the Year 2000 problem. As of
April 16, 1999, production testing was approximately 99.1% completed. In March
and April 1999, Merrill Lynch continued its participation in U.S. industrywide
testing sponsored by the Securities Industry Association. These tests involved
an expanded number of firms, transactions, and conditions compared with those
previously conducted.
Merrill Lynch continues to survey and communicate with third parties whose
Year 2000 readiness is important to the company. Information technology and
non-information technology vendors and service providers are contacted in order
to obtain their Year 2000 compliance plans. Based on the nature of the response
and the importance of the product or service involved, Merrill Lynch determines
if additional testing is needed. The results of these efforts are maintained in
a database that is accessible throughout the firm. Third parties that have been
contacted include transactional counterparties, exchanges, and clearinghouses; a
process to access and rate their responses has been developed. This information
as well as other Year 2000 readiness information on particular countries and
their political subdivisions
S-7
<PAGE>
will be used by Merrill Lynch to manage risk resulting from the Year 2000
problem. Management is unable at this point to ascertain whether all significant
third parties will successfully address the Year 2000 problem. Merrill Lynch
will continue to monitor third parties' Year 2000 readiness to determine if
additional or alternative measures are necessary. In connection with information
technology and non-information technology products and services, contingency
plans, which are developed at the business unit level, may include selection of
alternate vendors or service providers and changing business practices so that a
particular system is not needed. In the case of securities exchanges and
clearinghouses, risk mitigation could include the re-routing of business. In
light of the interdependency of the parties in or serving the financial markets,
however, there can be no assurance that all Year 2000 problems will be
identified and remediated on a timely basis or that all remediation will be
successful. The failure of exchanges, clearing organizations, vendors, service
providers, counterparties, regulators, or others to resolve their own processing
issues in a timely manner could have a material adverse effect on Merrill
Lynch's business, results of operations, and financial condition.
As of March 26, 1999, the total estimated expenditures for the entire Year
2000 Compliance Initiative were approximately $520 million, of which
approximately $157 million was remaining. The majority of these remaining
expenditures are expected to cover testing, risk management, and contingency
planning. There can be no assurance that the costs associated with such
remediation efforts will not exceed those currently anticipated by Merrill
Lynch, or that the costs associated with the remediation efforts or the possible
failure of such remediation efforts would not have a material adverse effect on
Merrill Lynch's business, results of operations, or financial condition.
ADDITIONAL INFORMATION
The sponsor filed a registration statement relating to the Receipts with
the SEC. This prospectus supplement is part of the registration statement, but
the registration statement also includes additional information.
The trustee will file with the SEC all required annual, monthly and special
SEC reports and other information about the issuer.
You may read and copy any reports, statements or other information that is
filed in connection with the Receipts at the SEC's public reference room in
Washington, D.C. You can request copies of these documents, upon payment of a
duplicating fee, by writing to the SEC. Please call the SEC at (800) SEC-0330
for further information on the operation of the public reference rooms. SEC
filings are also available to the public on the SEC Internet site
(http://www.sec.gov).
You may obtain the Official Statements for bonds that are subject to Rule
15c2-12 of the Securities Exchange Act of 1934 from a NRMSIR identified on
Exhibit B to the prospectus, the Municipal Securities Rulemaking Board or an
appropriate state information depository. You may also obtain from a NRMSIR
identified on Exhibit B to the prospectus, at a charge for non-subscribers, the
annual reports and event notices required under Rule 15c2-12 contracts. A Rule
15c2-12 contract is an agreement between the underwriter and the issuer that
requires the issuer to provide annual financial information and specific
material event notices for the benefit of bondholders.
S-8
<PAGE>
SCHEDULE OF BONDS
INFORMATION TO BE PROVIDED WITH RESPECT TO EACH BOND:
ISSUER:
ISSUE:
CUSIP NO.:
PRINCIPAL AMOUNT:
DATED DATE:
COUPON:
INTEREST PAYMENT DATES:
OPTIONAL REDEMPTION DATES/PRICES:
OFFICIAL STATEMENT DATED:
RATINGS:
INSURER:
PRINCIPAL MATURITY:
ORIGINAL ISSUE PRICE:
INITIAL DEPOSIT PRICE:
ADJUSTED ISSUE PRICE:
RESIDUAL OWNERSHIP DATE:
ACCRUAL COMMENCEMENT DATE:
FIRST BOND INTEREST PAYMENT DATE SUBSEQUENT TO DATE OF ORIGINAL ISSUE:
FIRST BOND PRINCIPAL PAYMENT DATE:
PRIVATE ACTIVITY BONDS [YES/NO]:
DENOMINATION OF BONDS:
BOND COUNSEL:
NATURE OF BOND OBLIGATION: [PRECISE DESCRIPTION TO BE PROVIDED IN OFFICIAL
STATEMENT]
This bond is a [premium bond] [de minimis market discount bond] [market
discount bond]. If this is a premium bond, attach a schedule of the unamortized
premium percentage.
S-9
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
- ----------------------------------------
YOU SHOULD CAREFULLY CONSIDER THE RISK
FACTORS BEGINNING ON PAGE 7 OF THIS
PROSPECTUS.
The receipts of any series will not be
insured or guaranteed by any
governmental agency or instrumentality.
The receipts of each series will
represent interests in the assets held
by the related issuer only and will not
represent interests in or obligations of
the sponsor nor any affiliate of the
sponsor. No investor will have any claim
or recourse to the sponsor's assets for
payment of any principal or interest on
the receipts.
This prospectus may be used to offer and
sell any series of receipts only if
accompanied by the prospectus supplement
for that series.
- ----------------------------------------
SUBJECT TO COMPLETION, DATED [ ]
PRELIMINARY PROSPECTUS
MERRILL LYNCH MUNICIPAL ABS, INC.
SPONSOR
PASS THROUGH FLOATING TAX-EXEMPT RECEIPTS
(P-FLOATS(SM))
(ISSUABLE IN SERIES)
----------
EACH ISSUER--
o will issue a series of receipts, which consist of the P-FLOATs offered for
sale here and the Residual Interest Tax-Exempt Securities Receipts, which
are not offered for sale here; and
o will own a pool of municipal bonds of one or more maturities and credits.
P-FLOATS OF EACH SERIES--
o will be issued in book-entry form through the facilities of DTC. The
P-FLOATs will be sold in minimum denominations of $5,000 and integral
multiples of $5,000;
o will evidence an undivided beneficial interest in the pool of bonds; and
o will be subject to optional and mandatory tender at a purchase price of par
plus accrued interest.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
THE DATE OF THIS PRELIMINARY PROSPECTUS IS _________
MERRILL LYNCH & CO.
(SM) Service Mark of Merrill Lynch, Pierce, Fenner & Smith Incorporated
<PAGE>
TABLE OF CONTENTS
Summary..................................................................... 1
Risk Factors................................................................ 10
Introduction................................................................ 14
Interest and Principal...................................................... 14
Description of Interest Modes......................................... 14
Distribution of Interest.............................................. 15
Priority in Distribution of Interest.................................. 15
Period that Floating Rate is in Effect................................ 16
Method of Determining the Interest Rate............................... 16
Conversion of Interest Mode........................................... 17
Distribution of Principal............................................. 17
Optional Tender of P-FLOATs................................................. 18
Right of Optional Tender in Daily and Weekly Mode..................... 18
Exercise of Tender Option............................................. 18
Mandatory Tender of P-FLOATs................................................ 19
Mandatory Tender...................................................... 19
Complete Mandatory Tender with Right to Retain........................ 19
Complete Mandatory Tender with No Right to Retain..................... 20
Partial Mandatory Tender with No Right to Retain...................... 20
Procedures for Mandatory Tender....................................... 20
Remarketing and Source of Funds for Purchase.......................... 21
Immediate Termination of Optional and Mandatory Tender Rights............... 22
Tender Option Termination Events...................................... 22
Procedures for Tender Option Termination.............................. 22
Fixed Rate Conversion....................................................... 24
Fixed Rate Conversion Events.......................................... 24
Procedures for Fixed Rate Conversion.................................. 24
Withdrawal of Bonds......................................................... 25
Withdrawal Requirements............................................... 25
Procedures for Withdrawal............................................. 26
Procedures for Purchase and Remarketing..................................... 26
Remarketing of P-FLOATs............................................... 26
Funds for Purchases on Purchase Dates................................. 26
Procedures for Optional Tender when P-FLOATs Deposited with the
Securities Depository................................................ 27
Investors to Comply with Tender and Election Procedures............... 28
Details of the Receipts..................................................... 29
Voting on Bonds....................................................... 29
Pro Rata Distribution................................................. 29
Book-Entry Only System for Receipts................................... 29
Registration, Transfer and Payments................................... 32
Prior Accrued Bond Interest........................................... 33
Designated Office of the Trustee...................................... 33
i
<PAGE>
Redemption Upon Redemption of Underlying Bonds.............................. 33
Redemption of Receipts................................................ 33
Notice of Redemption.................................................. 34
Selection of Receipts to be Redeemed.................................. 34
Effect of Call for Redemption......................................... 34
Material Terms of the Trust Agreement....................................... 35
Purposes and Powers................................................... 35
No Additional Liabilities or Indebtedness............................. 35
The Trustee........................................................... 35
The Co-Trustee........................................................ 36
Trustee Advances...................................................... 36
Limited Liability..................................................... 37
Resignation and Replacement of Trustee................................ 38
Amendments to the Trust Agreement..................................... 38
Termination of the Trust Agreement.................................... 39
Default on Bonds...................................................... 39
Miscellaneous............................................................... 40
Fees and Expenses..................................................... 40
Information for Investors............................................. 40
Investors Not Liable for Claims Against Issuer........................ 41
The Bonds................................................................... 41
Information About the Bonds........................................... 41
Residual Ownership Date............................................... 41
Diversification Requirement........................................... 42
The Sponsor................................................................. 43
The Remarketing Agreement................................................... 43
The Liquidity Facility...................................................... 44
Description of Liquidity Facility..................................... 44
Termination of Obligations of Liquidity Provider...................... 45
Substitution of Successor Liquidity Provider.......................... 45
Liquidity Provider Default............................................ 46
Income Tax Considerations................................................... 46
Federal Income Tax Consequences....................................... 46
Tax Exemption of the Bonds............................................ 47
Taxation of Investors................................................. 47
Additional Tax Considerations......................................... 51
State and Local Tax Consequences...................................... 52
Plan of Distribution........................................................ 53
Use of Proceeds............................................................. 53
Rating...................................................................... 53
Legal Matters............................................................... 54
Reports to Receiptholders................................................... 54
Incorporation of Information by Reference................................... 54
Additional Information...................................................... 55
Glossary.................................................................... 56
Exhibit A--Opinion of Special Counsel as to Tax Matters..................... A-1
Exhibit B--Nationally Recognized Municipal Securities Repositories.......... B-1
Exhibit C--Audited Financial Statement...................................... C-1
ii
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
This summary contains only some of the information that may be important to
you. You should read the entire prospectus and related prospectus supplement for
information about each series of receipts before you decide whether to invest.
SECURITIES DESIGNATION
Receipts, comprised of P-FLOATs(SM) and RITES(SM), will be issued in
series. The receipts will evidence an undivided beneficial interest in the pool
of underlying bonds for that series, the principal payments, any redemption
premium and the interest payable on bonds held by the issuer for that series.
Each P-FLOATs represents a percentage of the pool of bonds--and, therefore, a
percentage of each bond--in equal proportion to its percentage of P-FLOATs
issued in that series. For example, if a P-FLOATs constitutes 5% of the P-FLOATs
issued in a series, then that P-FLOATs represents 5% of the pool of bonds, and
5% of each bond, held in the trust for that series.
The initial RITES holder will most likely be an affiliate of either the
sponsor or the liquidity provider. However, the initial RITES holder may
transfer the RITES in a private transaction to another holder.
The RITES are not being offered through this prospectus. Information about
the RITES is presented in this prospectus solely for its relevance to
prospective P-FLOATs investors.
THE ISSUER
The issuer will be a master Delaware statutory business trust established
by the sponsor pursuant to a series trust agreement among the sponsor, the
trustee and the co-trustee. The issuer then will issue the receipts in series.
The issuer will acquire municipal bonds of one or more maturities and credits
for the benefit of investors. The diversification requirement will relate to
each discrete series. The related prospectus supplement will specify the
issuer's principal office.
The RITES holder will be responsible for paying the fees, expenses and
liabilities incurred by the issuer in connection with the Trust Agreement. The
RITES holder will not be responsible for paying trustee fees, trustee advances
and principal or interest paid on P-FLOATS.
THE SPONSOR
Merrill Lynch Municipal ABS, Inc., a Delaware corporation, will act as
sponsor and will deposit the bonds with the issuer. The sponsor will not be
liable for any debts and obligations of, or claims against, the issuer. The
sponsor will not guarantee any payments to investors and no investor will have
any claim or recourse to the sponsor's assets for payment of any principal or
interest on the receipts. The issuer will pay the principal of, and interest on,
the receipts solely from the funds and financial assets the issuer holds, as
described below.
The sponsor may assign its right to withdraw bonds to the liquidity
provider or any person that certifies that it does not then own any P-FLOATs.
- --------------------------------------------------------------------------------
1
<PAGE>
- --------------------------------------------------------------------------------
THE TRUSTEE AND TENDER AGENT AND THE CO-TRUSTEE
The related prospectus supplement will specify the trustee and tender agent
and the co-trustee for each series of receipts. The sponsor may remove the
trustee and tender agent and the co-trustee with the consent of either the RITES
holder or a majority of P-FLOATs investors. If there is more than one RITES
holder, 100% of the RITES holders must consent to the removal. See "Some
Provisions of the Trust Agreement --The Trustee" on page 35 of this prospectus
and "--The Co-Trustee" on page 36 of this prospectus.
THE BONDS
The bonds underlying each series of receipts will consist of general
obligation bonds and revenue bonds. General obligation bonds are bonds issued by
states, municipalities and public authorities to finance their general
operations. These bonds are repaid with general revenue and borrowings and may
be backed by the full faith and credit, including the taxing and further
borrowing power, of the municipality issuing the bonds. Revenue bonds are bonds
issued by states, municipalities and public authorities to finance the cost of
buying, building, or improving various projects intended to generate revenue,
such as airports, healthcare facilities, housing and municipal electric, water
and sewer utilities. Generally, payments on revenue bonds depend solely on the
revenues generated by the projects, excise taxes or state appropriations, and
are not backed by the government's taxing power. You should refer to the
Official Statement of a bond for a description of the precise nature of the
obligation.
The related prospectus supplement will specify the bonds underlying each
series of receipts and will contain summary information about the bonds. There
is no limit on the percentage of any one bond offering that the trust may hold.
This prospectus and the prospectus supplement will not contain detailed
information about the bonds, any bond issuer, any bond insurer or any legal,
financial or other rights or obligations in connection with the bonds. The
sponsor has not investigated the financial condition or creditworthiness of any
bond issuer or bond insurer. However, before the initial issuance date of
receipts, the sponsor will determine whether notice of any material event
affecting the bonds is on file with any NRMSIR. If a bond defaults, investors
will bear the entire risk of loss.
For additional information about the bonds, you should consult the Official
Statements available from either a NRMSIR, identified on Exhibit B of this
prospectus, or an appropriate state information depository. The sponsor also
will provide Official Statements upon request.
DENOMINATIONS
The issuer will issue receipts in book-entry form through the facilities
of DTC. The receipts will be sold in minimum denominations of $5,000 and
integral multiples of $5,000.
PRINCIPAL AND INTEREST DISTRIBUTIONS
The trustee will distribute principal and/or interest to P-FLOATs holders
on the
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
business day following the date on which the trustee receives a principal or
interest payment on each bond. The prospectus supplement will specify the dates
on which principal and interest are payable on each bond. The bonds held by the
issuer will likely pay principal and interest on many different payment dates.
Accordingly, the trustee may, but is not obligated to, advance its own funds to
distribute interest on P-FLOATs monthly. Any trustee advance will be based on
the amount of interest accrued on the bonds, whether or not this interest is
then payable by the bond issuers. See "Interest and Principal--Distribution of
Interest" on page 15 of this prospectus and "--Distribution of Principal" on
page 18 of this prospectus. The trustee is not responsible for delays in receipt
of payments on the bonds.
Before distributions on the P-FLOATs are made, the trustee will deduct
trustee fees and trustee advances from payments received on the bonds. If the
trustee elects to make an advance, it will be reimbursed the advance plus
interest. This interest component will be equal to the outstanding advances
multiplied by the trustee's prime rate for the number of days the advances were
outstanding. The RITES holder will pay all of the interest on trustee advances.
See "Some Provisions of the Trust Agreement--Trustee Advances" on page 36 of
this prospectus.
Following each date on which the trustee receives a principal or interest
payment on a bond, the trustee will distribute to the RITES holder its pro rata
share of principal or interest on the bonds after the trustee deducts any
outstanding trustee fees, trustee advances and principal or interest distributed
to P-FLOATs.
THE REMARKETING AGENT
Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation
d/b/a Merrill Lynch & Co., will act as the P-FLOATs remarketing agent pursuant
to the Trust Agreement and a remarketing agreement. The liquidity provider may
remove the remarketing agent with the consent of either the RITES holder or a
majority of the P-FLOATs holders. See "The Remarketing Agreement" on page 43 of
this prospectus.
P-FLOATS INTEREST RATE
The remarketing agent will determine the interest rate payable to P-FLOATs
holders either daily, weekly or for term periods of up to one year. Each of
these periods will constitute an interest mode. See "Interest and
Principal--Period That Floating Rate is in Effect" on page 16 of this
prospectus. The interest rate on P-FLOATs, or floating rate, will be the minimum
rate of interest that the remarketing agent determines would result in a sale of
each P-FLOATs, or P-FLOATs portion at par plus accrued interest under prevailing
market conditions. This amount shall not exceed the aggregate interest payable
on the bonds minus the trustee fees. See "Interest and Principal--Method of
Determining the Interest Rate" on page 16 of this prospectus. The interest rate
on the P-FLOATs also may be converted to a fixed rate, as described below.
If the floating rate for a P-FLOATs is determined for a term period, then
that P-FLOATs will be subject to mandatory tender on the last day of the
interest rate period. Investors, however, may elect to retain the P-FLOATs at
the new interest
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
rate and for the new term designated by the remarketing agent. P-FLOATs not
retained by the investor will be remarketed by the remarketing agent to a new
investor or to the liquidity provider. See "Mandatory Tender of P-FLOATs" on
page 19 of this prospectus.
CHANGE IN INTEREST RATE DETERMINATION
The remarketing agent may, with the consent of the RITES holder, change the
frequency for determining the floating rate for any P-FLOATs, based upon
prevailing market conditions, or convert any P-FLOATs to a fixed rate receipt.
If the frequency for determining the floating rate for a P-FLOATs is
changed or a P-FLOATs is converted to a fixed rate receipt, then that P-FLOATs
will be subject to mandatory tender on the day the change is effective.
Investors, however, may elect to retain the P-FLOATs at the new floating rate or
fixed rate designated by the remarketing agent. P-FLOATs not retained by the
investor will be remarketed by the remarketing agent to a new investor or to the
liquidity provider. See "Interest and Principal--Conversion of Interest Mode" on
page 17 of this prospectus.
TENDER OPTION
If the remarketing agent determines the floating rate for P-FLOATs daily or
weekly, then an investor may tender those P-FLOATs to the tender agent by giving
notice to the remarketing agent and the tender agent prior to the purchase date.
The notice period for daily periods is one business day. The notice period for
weekly periods is five business days. The remarketing agent will remarket
tendered P-FLOATs to a new investor or to the liquidity provider at the purchase
price, an amount equal to par plus interest accrued at the floating rate. See
"Optional Tender of P-FLOATs" on page 18 of this prospectus.
Investors may not optionally tender P-FLOATs for which the floating rate is
determined for a term period; however, those P-FLOATs are subject to mandatory
tender as described below. See "Mandatory Tender of P-FLOATs" on page 19 of this
prospectus.
TENDER OPTION TERMINATION EVENTS
An investor's right to optionally tender a portion of its P-FLOATs
proportionate to an affected bond will terminate immediately, without notice, if
any tender option termination event occurs. Similarly, an investor's right to
have the portion of its P-FLOATs proportionate to an affected bond purchased
upon a mandatory tender event also will terminate immediately, without notice,
if any tender option termination event occurs. The following are tender option
termination events:
(1) the bond issuer or bond insurer fails to pay any installment of
principal of, or any premium or interest on, a bond;
(2) some events of bankruptcy or insolvency of the bond issuer or the bond
insurer of a bond;
(3) the rating on any bond is downgraded to below investment grade, "BBB-"
or the equivalent; or
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
(4) some events that would adversely affect the tax exempt status of a
bond.
If one of the events described above occurs, the trustee will:
(1) if the market value of the affected bond is less than the purchase
price of the aggregate P-FLOATs portions proportionate to that bond,
distribute the affected bond, in whole, to investors to the extent possible
based on minimum denominations; or
(2) if the market value of the bond is greater than or equal to the
purchase price of the aggregate P-FLOATs portions proportionate to that
bond, or if whole bonds cannot be distributed based on minimum
denominations, sell the bond and use the proceeds to pay first an amount up
to the purchase price plus 10% of any net gain on the affected bond to
P-FLOATs investors and second the remainder to the RITES holder.
See "Immediate Termination of Optional and Mandatory Tender Rights Tender
Option Termination Events" on page 22 of this prospectus.
RESIDUAL OWNERSHIP DATE
The Residual Ownership date for a bond is specified in the related
prospectus supplement. This date occurs at the expiration of approximately 80%
of the "average life" of a bond as of the date the P-FLOATs are issued. In
general, the average life of a bond is determined under market conditions in
effect at the time the P-FLOATs are issued, and reflects the expected maturity
or earlier redemption of the bond, taking into account any scheduled sinking
fund redemptions, any optional redemptions at par and any other expected
redemptions. See "The Bonds--Residual Ownership Date" on page 41 of this
prospectus.
If the sale of a bond on its Residual Ownership Date would result in a net
gain, then the P-FLOATs proportionate to that bond will be subject to partial
mandatory tender. If the sale of a bond on its Residual Ownership Date would not
result in a net gain, then that bond will remain in the trust and will not be
segregated. See "Mandatory Tender of P-FLOATs--Partial Mandatory Tender with No
Right to Retain" on page 20 of this prospectus.
MANDATORY TENDER IN WHOLE
An investor's P-FLOATs will be subject to mandatory tender, in whole, to
the liquidity provider if any of the following events occurs:
(1) the liquidity facility is replaced;
(2) the interest rate mode is converted to another mode or to a fixed rate
at the discretion of the remarketing agent;
(3) a term period expires;
(4) any fixed rate conversion event occurs; or
(5) the diversification requirement is violated, as
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
described on page 42 of this prospectus.
If an event described in clauses (1), (2), (3) or (4) above occurs, then
investors may elect to retain their P-FLOATs, subject to the terms of the
replacement liquidity facility, the new interest rate mode or the fixed rate.
The remarketing agent will remarket P-FLOATs that have not been retained by
investors, to a new investor or the liquidity provider at the purchase price. If
the event described in clause (5) above occurs, then investors may not elect to
retain their P-FLOATs and the remarketing agent may not remarket those P-FLOATs.
In that event, the liquidity provider will pay to investors the purchase price
plus 10% of any gain for those P-FLOATs. See "Procedures for Purchase and
Remarketing" on page 26 of this prospectus.
MANDATORY TENDER IN PART
A portion of an investor's P-FLOATs proportionate to an affected bond will
be subject to mandatory tender to the liquidity provider if any of the following
events occurs with respect to that bond:
(1) the rating on the bond is withdrawn or downgraded such that it would
cause the rating on the P-FLOATs to be withdrawn or downgraded, but remains
at or above investment grade, and the liquidity provider elects to require
a partial mandatory tender;
(2) the trustee receives notice from the liquidity provider that the
liquidity facility will not be extended upon its expiration with respect to
any affected bonds; or
(3) a sale of the bond when approximately 80% of the average life of the
bond expires would result in a net gain.
If an event described above occurs, then the affected bond will be
segregated by the trustee and P-FLOATs investors will no longer have a
beneficial interest in that bond. P-FLOATs investors may not elect to retain the
portion of P-FLOATs subject to mandatory tender in part and the remarketing
agent may not remarket those P-FLOATs. The liquidity provider will pay to
investors the purchase price of the tendered portion of P-FLOATs plus 10% of any
net gain on the affected bond, determined by the issuer or its designee as of
the date of mandatory tender. See "Mandatory Tender of P-FLOATs" on page 19 of
this prospectus.
FIXED RATE CONVERSION EVENTS
All P-FLOATs will be converted to fixed rate receipts if any of the
following fixed rate conversion events occurs:
(1) the liquidity facility expires, unless it is extended or replaced for
some of the bonds;
(2) an event of default occurs under the liquidity facility and the
liquidity provider elects to convert to a fixed rate;
(3) five business days elapse after at least 25% of P-FLOATs were tendered
without remarketing and the liquidity
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
provider elects to convert to a fixed rate;
(4) some events occur that would adversely affect the tax status of the
issuer and are disadvantageous to the investors, and the RITES holder
elects to convert to a fixed rate; or
(5) the trustee receives notice that the liquidity provider elects to
convert the P-FLOATs to the fixed rate on a specified date because the
fixed rate determined for that date would be greater than the Maximum Fixed
Rate.
Upon their conversion to fixed rate receipts, the P-FLOATs will be subject
to mandatory tender at the purchase price. Investors, however, may elect to
retain the fixed rate receipts. Upon a fixed rate conversion event, the
remarketing agent will remarket P-FLOATs that have not been retained by
investors, to a new investor or the liquidity provider, at the purchase price.
The remarketing agent will remarket those P-FLOATs as fixed rate receipts. After
conversion, investors will no longer have the option to tender their P-FLOATs,
the P-FLOATs will no longer be subject to mandatory tender, and the liquidity
facility will expire.
The fixed rate on the converted fixed rate receipts will be equal to the
weighted average for all bonds, calculated for each bond as the lesser of the
maximum fixed rate and the index rate. The maximum fixed rate is the bond's
coupon rate minus trustee fees. The index rate is the Municipal Market Data
insured bond rate in effect on the conversion date for the term closest to the
"average life" of that bond, as determined by the remarketing agent. Once the
interest rate is converted to the fixed rate, the remarketing agent will no
longer establish the interest rate on the receipts based on changes in market
conditions or in the Municipal Market Data index. However, the fixed rate on the
receipts will be re-calculated from time to time whenever principal payments are
made on the bonds or bonds are withdrawn as described below. See "Fixed Rate
Conversion" on page 24 of the prospectus.
THE LIQUIDITY FACILITY
Before receipts of a series are issued, the sponsor and the issuer will
establish a standby purchase agreement, a liquidity letter of credit or other
similar arrangement with the liquidity provider designated by the sponsor and
identified in the prospectus supplement. The liquidity provider may or may not
be affiliated with the sponsor. The liquidity facility for each series of
receipts will expire on the date specified in the prospectus supplement, unless
the liquidity provider chooses to extend its facility with respect to all or a
portion of the bonds. The RITES holder may remove and replace the liquidity
provider on behalf of P-FLOATs investors with the consent of the trustee.
Under the liquidity facility, the liquidity provider will purchase P-FLOATs
at the purchase price if the remarketing agent is unable to remarket to another
investor or is prohibited from remarketing any P-FLOATs that has been tendered
(1) at the option of its owner or (2) pursuant to a mandatory tender event. The
liquidity provider will become the holder of any P-FLOATs that it purchases. The
liquidity facility will not be available for, and the liquidity provider will
not be obligated for,
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
the payment of principal or interest on the receipts, the payment of any net
gain upon a partial mandatory tender or the purchase of fixed rate receipts.
If the liquidity facility expires and is not extended or replaced, the
P-FLOATs will be converted to fixed rate receipts and be subject to mandatory
tender in whole unless investors elect to retain the fixed rate receipts. If the
liquidity facility is replaced, then the P-FLOATs will be subject to mandatory
tender in whole five business days before the last day of the then-current
liquidity facility, unless investors elect to retain the P-FLOATs under the new
liquidity facility. If the liquidity facility expires and is extended for only a
portion of the bonds, then the portion of P-FLOATs proportionate to the bonds
for which the facility is not extended will be subject to mandatory tender in
part without the right of investors to retain that portion of their P-FLOATs.
See "The Liquidity Facility" on page 44 of this prospectus.
WITHDRAWAL OF BONDS
Subject to the limitations under this heading, the sponsor may at any time
withdraw bonds held by the issuer. To exercise this right, the sponsor first
must transfer to the trustee a proportionate amount of P-FLOATs and RITES. The
sponsor must also pay the trustee the following:
(1) a proportionate amount of outstanding trustee fees and trustee
advances; and
(2) for the benefit of the P-FLOATs and RITES, any interest not previously
advanced by the trustee that has accrued on the bond withdrawn and that is
payable to investors, any taxes or other governmental charges that are
typically withheld by the trustee and any net gain.
Net gain is the excess of any gain on the bond withdrawn over the
weighted-average of any gain on the bonds remaining.
For purposes of calculating net gain, "gain" on a bond means, in general,
the bid-side value of the bond, as determined by the issuer, over the price at
which the issuer acquired the bond. The price at which the issuer acquired the
bond will be adjusted for any accrued original issue discount or any amortized
premium. Upon a withdrawal of bonds, the trustee will distribute to the P-FLOATs
holders from amounts it receives from the sponsor their pro rata share of the
principal payment received, any accrued interest, plus 10% of the payment of any
net gain received under the preceding clause (2). The trustee will distribute
the balance to the RITES holder. The sponsor will keep the portion attributable
to its P-FLOATs and RITES.
The sponsor may acquire the necessary P-FLOATs and RITES in the secondary
market, but may not cause a mandatory tender of receipts for the purpose of
withdrawing bonds. The sponsor must hold the requisite P-FLOATs and RITES for at
least 30 days before withdrawing bonds. During the holding period, the sponsor
will receive all payments of principal of, and interest on, its Receipts. The
sponsor's right to withdraw bonds is subject to the following conditions:
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
(1) withdrawals may only occur once per month;
(2) no more than 25% of the initial amount of bonds held by the issuer may
be withdrawn in a single withdrawal;
(3) withdrawals may only be made in the minimum principal amount of $5
million;
(4) there may be no withdrawal if the withdrawal will cause a rating agency
to downgrade the rating of the P-FLOATs; and
(5) there may be no withdrawal if the withdrawal will violate the
diversification requirement.
See "Withdrawal of Bonds" on page 25 of this prospectus.
TERMINATION OF THE TRUST AGREEMENT
The Trust Agreement related to a series will terminate following the
redemption at maturity of all of the bonds held by the issuer for that series.
See "Some Provisions of the Trust Agreement"--Termination of the Trust
Agreement" on page 39 of this prospectus.
FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Cadwalader, Wickersham & Taft, Tax counsel to the
sponsor, the issuer will be classified as a partnership for federal income tax
purposes. Amounts distributed to investors that are attributable to payments of
interest on the bonds which are excludable from federal gross income will be
excludable from the federal gross income of the investors. See "Income Tax
Considerations" on page 47 of this prospectus. We suggest that you consult your
own tax advisor on the income tax considerations applicable to your purchase of
P-FLOATs.
RATINGS
The P-FLOATs will be rated by one or more nationally-recognized statistical
rating organizations. The long-term rating of the P-FLOATs represents the
likelihood of P-FLOATs receiving scheduled principal and interest at the
floating rate. This rating is based upon the credit rating of the bonds or, if
the bonds are insured, the bond insurer. The short-term rating of the receipts
is based on the credit rating of the liquidity provider in connection with its
issuance of the related liquidity facility. This credit rating will apply for
only as long as the receipts benefit from the liquidity facility.
A series of P-FLOATs will only be issued if the series is rated in one of
the three highest categories by the nationally-recognized rating agency or
agencies specified in the prospectus supplement. P-FLOATs ratings are not
recommendations to buy, sell or hold the P-FLOATs; ratings reflect only the view
of the rating agency issuing them. See "Rating" on page 54 of this prospectus
and in the prospectus supplement.
- --------------------------------------------------------------------------------
9
<PAGE>
The following information will be supplemented in the prospectus supplement
of any series. You must read the prospectus together with the prospectus
supplement.
The following descriptions in this prospectus of the series trust agreement
address the material aspects of the receipts. However, the descriptions in this
prospectus and its related documents are not complete. Additional information
about the Receipts is set forth in the series trust agreement. We suggest that
you read the entire series trust agreement, which may be obtained from the
sponsor.
RISK FACTORS
You should carefully consider the following risk factors and other
information in this prospectus, as well as in the prospectus supplement, in
deciding whether to invest:
THIS PROSPECTUS MAY NOT PROVIDE ENOUGH INFORMATION ABOUT THE BONDS AND ANY
BOND ISSUER AND YOU MAY NEED TO FURTHER INVESTIGATE THE PAYMENT AND CREDIT
CHARACTERISTICS OF THE BONDS
This prospectus does not provide detailed information with respect to the
bonds or any bond issuer, or with respect to any rights or obligations, legal,
financial or otherwise, arising under or related to the bonds. You should
therefore investigate the payment and credit characteristics of the bonds before
purchasing receipts.
The sponsor will update Exhibit B through periodic reports filed under the
Securities Exchange Act of 1934.
THIS PROSPECTUS DOES NOT UPDATE THE ORIGINAL OPINION OF BOND COUNSEL AND
YOU MAY NEED TO INVESTIGATE THE CONTINUING TAX EXEMPT STATUS OF THE BONDS
When the bonds were originally issued, an opinion of bond counsel was
rendered as to their tax-exempt status. The sponsor has not, and will not,
update the original opinion of bond counsel. Notice of any adverse tax opinions
or events affecting the tax-exempt status of the bonds may be available from a
Nationally Recognized Municipal Securities Repository identified on Exhibit B to
this prospectus. Prior to the initial issuance date of receipts, the sponsor
will determine whether notice of any such event is on file with any such
Nationally Recognized Municipal Securities Repository. However, some of the
bonds may not be subject to these filing requirements.
YOUR ABILITY TO RESELL P-FLOATS IN THE SECONDARY MARKET IS LIMITED
There is currently no active secondary market for P-FLOATs and it is not
expected that one will develop. Consequently, your ability to resell your
P-FLOATs in the secondary market is limited. Even if a secondary market does
develop, it may be temporary or may not foster circumstances that permit you to
resell your P-FLOATs.
YOUR RECEIPT OF INTEREST AND PRINCIPAL PAYMENTS ON P-FLOATS MAY BE DELAYED
IF THERE ARE DELAYS IN PAYMENTS ON THE BONDS
10
<PAGE>
The trustee will distribute principal and/or interest to you on the
business day following the date on which the trustee receives a principal or
interest payment on each bond. Consequently, your receipts of interest and
principal payments on your P-FLOATs may be delayed if there are delays in the
trustee's receipt of payments on the bonds. The trustee may, but is not
obligated to, advance its own funds to distribute interest on P-FLOATs monthly.
Any trustee advance will be based on the amount of interest accrued on the
bonds. The trustee may make these advances whether or not the interest accrued
on the bonds is then payable by the bond issuers. The trustee is not responsible
for delays in receipt of payments on the bonds.
EVENTS COULD RESULT IN THE TERMINATION OF YOUR OPTION TO TENDER YOUR
P-FLOATS
P-FLOATs may be converted to fixed rate receipts. After conversion, the
P-FLOATs will no longer be subject to tender at the option of their owners, and
the liquidity facility will expire. If an investor elects to retain the fixed
rate receipt, it will retain a long term investment for which there is currently
no secondary market. The quality of the long term investment may be adversely
affected by the event that caused the fixed rate conversion.
YOUR RIGHT TO OPTIONALLY TENDER A PORTION OF YOUR P-FLOATS RELATING TO AN
AFFECTED BOND WILL TERMINATE, WITHOUT NOTICE, IF EVENTS CALLED "TENDER OPTION
TERMINATION EVENTS" OCCUR
Your right to optionally tender the portion of a P-FLOATs relating to an
affected bond will terminate, without notice, if events called "tender option
termination events" occur. If any of these events occurs, the trustee will sell
the bonds and use the proceeds to pay you the purchase price plus 10% of any
gain on the affected bonds. However, if the proceeds from selling the bonds
would not be sufficient to pay you that amount, instead of selling the bonds,
the trustee will distribute them, in whole, to you to the extent possible based
on minimum denominations. The quality of the long term investment may be
adversely affected by the tender option termination event.
A CHANGE IN THE FREQUENCY FOR DETERMINING THE FLOATING RATE FOR P-FLOATS
COULD RESULT IN THE MANDATORY TENDER OF YOUR P-FLOATS
The remarketing agent may change the frequency for determining the floating
rate for the P-FLOATs. If the frequency is changed, the interest rate and the
terms for optional tender may change. If you are affected by this change, you
will be required to tender your P-FLOATs for purchase at the purchase price
unless you elect to retain the P-FLOATs at the new floating rate.
YOUR RIGHT TO RECEIVE THE FULL PURCHASE PRICE OF YOUR TENDERED P-FLOATS MAY
BE LIMITED IF THE LIQUIDITY FACILITY IS SUSPENDED OR TERMINATED
The purchase price of P-FLOATs tendered by investors for purchase will be
payable solely from the proceeds of remarketing the tendered P-FLOATs to new
investors. If the remarketing agent is unable to remarket all tendered P-FLOATs
to new investors, it will remarket them to the liquidity provider, who will
purchase the P-FLOATs with funds drawn under the liquidity facility described in
this prospectus supplement. The liquidity facility may
11
<PAGE>
be suspended or terminated without notice. In this case, your right to receive
the full purchase price of your tendered P-FLOATs may be limited.
THE RITES HOLDER IS AUTHORIZED TO PROVIDE CONSENT FOR ACTIONS THAT COULD
POTENTIALLY AFFECT ALL RECEIPTHOLDERS EVEN THOUGH THE INTERESTS OF THE RITES
HOLDER MAY NOT COINCIDE WITH YOUR RIGHTS
In general, the RITES represent the portion of the beneficial ownership of
the bonds that is not represented by the P-FLOATs. Therefore, the holder of the
RITES is affected by the terms of the P-FLOATs. The interest rate on the
P-FLOATs will be adjusted periodically to reflect then-current market
conditions. That interest rate is inversely correlated to the interest rate paid
to the RITES holders; as the rate paid to the P-FLOATs holders goes up, the rate
paid to the RITES holder goes down, and vice versa. Accordingly, the RITES
holder prefers that the P-FLOATs interest rate is the lowest rate available
under then-current market conditions.
Under the series trust agreement, actions that could affect the level of
the P-FLOATs interest rate may require the consent of the RITES holder. In
particular, the RITES holder's consent is required for: (1) the replacement of
the liquidity provider; (2) a change in frequency for determining the floating
rate; and (3) the conversion of a P-FLOATs to a fixed rate Receipt.
In some of these circumstances, the RITES holder's interests may be
different than the P-FLOATs holders' interests. For example, the interest rate
on the P-FLOATs is determined on the basis of then-current market conditions,
which will reflect the provider of the liquidity facility. Although a
replacement liquidity facility must meet criteria set forth in the Series Trust
Agreement, a particular P-FLOATs holder may prefer one liquidity provider over
another. Similarly, a P-FLOATs holder may prefer to have its interest rate reset
at a particular frequency or may prefer not to have its interest rate converted
to a fixed rate for a specific reason that is unique to that investor.
THE TRUSTEE IS NOT OBLIGATED TO ADVANCE ITS OWN FUNDS TO DISTRIBUTE MONTHLY
INTEREST ON YOUR P-FLOATS BEFORE THE TRUSTEE RECEIVES INTEREST PAYMENTS ON THE
BONDS
The bonds held by the issuer will likely pay interest on many different
payment dates. However, the trustee may advance its own funds to distribute
interest to P-FLOATs holders monthly, even though interest may not then be
payable on the bonds. The trustee's decision to advance its own funds for this
purpose is at the sole discretion of the trustee, based on the trustee's
determination that the advanced funds will be recoverable through either
principal or interest payments on the bonds, liquidation proceeds, or insurance
proceeds.
IF A BANKRUPTCY COURT DETERMINES THAT THE SALE OF THE BONDS BY THE SPONSOR
TO THE TRUST IS NOT A TRUE SALE, THEN YOU MIGHT EXPERIENCE DELAYS IN PAYMENT OR,
POSSIBLY, LOSSES ON YOUR INVESTMENT
The trust and sponsor intend that the transfer of bonds from the sponsor
to the trust will constitute a "true sale" and that it would be respected as
such if the sponsor became the
12
<PAGE>
subject of a case under the Bankruptcy Code. The trust has taken steps in
structuring its purchases of bonds from the sponsor to increase the likelihood
that each of these purchases will be deemed a true sale. In particular, the
sponsor will have no recourse for credit losses. Further, the bonds will be
transferred to the trust at a purchase price the trust and sponsor each believe
represents the fair market value of the bonds. As a condition to the offering of
P-FLOATs, the trust will receive an opinion of counsel that, subject to certain
facts, assumptions and qualifications, the transfer of the bonds by the sponsor
to the trust will be characterized as a true sale. This opinion, however, is not
binding on any court.
If the transfer constitutes a true sale, the bonds and the bond proceeds
would not be part of the sponsor's bankruptcy estate under Section 541 of the
Bankruptcy Code if the sponsor became the subject of a bankruptcy case after the
transfer of bonds to the trust. However, if a court determines that the transfer
does not constitute a true sale, the bonds and the bond proceeds would be part
of the sponsor's bankruptcy estate. In this event, this transaction has been
structured so that the trust would hold a perfected security interest in the
bonds and the bond proceeds. As a secured creditor of the sponsor, the trust
would be subject to various provisions of the Bankruptcy Code which affect and
limit the contractual rights and remedies of secured creditors, including the
ability to access collateral on a timely basis. As a result, you might
experience delays in payment or, possibly, losses on your investment in the
P-FLOATs.
ALTHOUGH THE ISSUER DOES NOT OPERATE COMPUTER SYSTEMS OF ITS OWN, IT IS
CURRENTLY IMPOSSIBLE TO DETERMINE HOW VULNERABLE THE ISSUER IS TO ANY FAILURE OF
THIRD PARTIES TO SOLVE THEIR YEAR 2000 PROBLEMS
The Year 2000 problem is the result of a widespread programming technique
that causes computer systems to identify a date based on the last two numbers of
a year, with the assumption that the first two numbers of the year are "19." As
a result, the Year 2000 would be stored as "00," causing computers to
incorrectly interpret the year as 1900. Left uncorrected, the Year 2000 problem
may cause information technology systems and non-information technology systems
to produce incorrect data or cease operating completely.
Although the issuer does not operate any computer systems of its own, it
relies on the computer systems of the bond issuers, the trustee, the co-trustee,
the remarketing agent, the liquidity provider and the securities depository, all
of which may indirectly rely on computer systems of other third parties. It is
currently impossible to determine how vulnerable the issuer is to any failure of
third parties to solve their Year 2000 problems. There can be no assurance that
the computer systems of entities the issuer directly or indirectly relies upon
will be timely modified or converted to address Year 2000 problems. If the Year
2000 problems are not timely resolved by these third parties, then there could
be an interruption in payments due on the receipts or a delay or failure in the
delivery of notices to investors.
Please refer to the Glossary on page 56 for the definition of capitalized
terms.
13
<PAGE>
INTRODUCTION
The P-FLOATs offered by this prospectus relate to the pool of municipal
bonds described in a given prospectus supplement. The P-FLOATs will be delivered
under a Series Trust Agreement among Merrill Lynch Municipal ABS, Inc., as
sponsor, the entity identified as trustee and tender agent in the prospectus
supplement and the entity identified as co-trustee in the prospectus supplement.
The sponsor will deposit the bonds. Merrill Lynch, Pierce, Fenner & Smith
Incorporated also will serve as remarketing agent. The initial issuance date of
receipts for each series will be stated in the related prospectus supplement as
the first date on which the trustee issues Receipts related to that series.
Each Series Trust Agreement incorporates by reference the Standard Terms
and Provisions. This prospectus will refer to the Series Trust Agreement, the
Standard Terms and Provisions and all exhibits, appendices, schedules and
amendments to both documents as the "Trust Agreement."
The issuer will acquire the bonds for the benefit of the investors. The
property held by the issuer will consist of:
(1) the bonds described in the prospectus supplement;
(2) all distributions of principal, any premium or interest on the bonds
received by the trustee after the initial issuance date of receipts;
(3) all right, title and interest in and to the distributions; and
(4) any third-party insurance policies on the bonds.
Each P-FLOATs evidences an undivided beneficial interest in, and the right
to receive future payments of, principal, interest and any redemption premium on
all of the bonds. Each P-FLOATs further evidences the right to receive the
purchase price of the P-FLOATs from amounts available under the liquidity
facility on any purchase date under the terms of the Trust Agreement. Purchase
price is an amount equal to par plus any interest accrued at the floating rate.
Each RITES evidences an undivided beneficial interest in the right to receive
future payments of principal, interest and any redemption premium on the bonds.
The trustee will distribute principal and/or interest to P-FLOATs holders
on the business day following the date on which the trustee receives a principal
or interest payment on each bond. While the P-FLOATs are registered in the name
of a securities depository or its nominee, these payments will be made to the
nominee. See "Details of the Receipts--Book Entry Only System for Receipts" on
page 29 of this prospectus.
INTEREST AND PRINCIPAL
DESCRIPTION OF INTEREST MODES
The P-FLOATs will accrue interest at the floating rate, an interest rate
that is reset either daily, weekly or for term periods of up to one year,
depending on the Interest Mode in effect. The P-FLOATs will be issued in the
Interest Mode identified in the prospectus supplement.
14
<PAGE>
The P-FLOATs also will initially bear interest at the floating rate identified
in the prospectus supplement. The remarketing agent may convert the Interest
Mode for any series of P-FLOATs to a daily mode, weekly mode, term mode or a
fixed rate as described under "Conversion of Interest Mode" on page 17 of this
prospectus. The P-FLOATs are also subject to conversion to a fixed rate if
specified events occur. See "Fixed Rate Conversion" on page 24 of this
prospectus. Following a conversion, the converted P-FLOATs will bear interest at
the corresponding daily rate, weekly rate, term rate or fixed rate, as described
below. Any conversion of Interest Mode will result in the mandatory tender of
the P-FLOATs for purchase. However, investors may elect to retain the P-FLOATs
at the new floating rate or fixed rate, as applicable.
When the P-FLOATs bear interest at the daily or weekly rate, the trustee
will compute interest on the basis of a 365-day year, or 366 days in a leap
year, for actual days elapsed. When the P-FLOATs bear interest at a term or
fixed rate, the trustee will compute interest on the basis of a 360-day year
comprised of twelve 30-day months. The trustee will distribute interest to
investors on the dates described below. Interest due on each distribution date
will include interest accrued during the accrual period, the period beginning on
and including the previous date interest was paid on the bonds and ending on and
excluding the current date interest is paid on the bonds.
DISTRIBUTION OF INTEREST
The trustee will distribute interest to P-FLOATs investors on the business
day following the date on which the trustee receives an interest payment, in
immediately available funds, on each bond. The prospectus supplement will
specify the dates on which interest is payable on each bond. The bonds held by
the issuer will likely pay interest on many different payment dates.
Accordingly, the trustee may, but is not obligated to, advance its own funds to
distribute interest on P-FLOATs monthly. Any trustee advance will be based on
the amount of interest accrued on the bonds, whether or not the interest is then
payable by the bond issuers. If the trustee elects to make an advance, then it
will be entitled to reimbursement of the advance plus interest. This interest
component will be equal to the outstanding advances multiplied by the trustee's
prime rate for the number of days the advances were outstanding. Trustee
advances will be reimbursed from payments received on the bonds before P-FLOATs
distributions. The RITES holder will pay interest on trustee advances under a
fee agreement between the trustee and the RITES holder. The trustee is not
responsible for delays in receipt of payments on the bonds. See "Some Provisions
of the Trust Agreement--Trustee Advances" on page 36 of this prospectus.
The trustee will distribute to the RITES holder its pro rata share of
interest on the bonds, subject to the priority for distribution of interest
described below, following each date on which the trustee receives an interest
payment on a bond.
PRIORITY IN DISTRIBUTION OF INTEREST
The trustee will distribute interest on the bonds in the following order
of priority:
(1) to pay trustee fees and to reimburse the trustee for any advances;
15
<PAGE>
(2) to distribute interest on the P-FLOATs; and
(3) to distribute interest on the RITES.
PERIOD THAT FLOATING RATE IS IN EFFECT
The remarketing agent will determine the floating rate for the P-FLOATs
under the procedures and standards set forth below. Each floating rate will be
in effect for the entire interest period.
The remarketing agent will determine the floating rate as follows:
Daily Mode. On each day during which P-FLOATs are in a daily mode, they
will bear interest at the daily rate for that day. The remarketing agent
will determine the daily rate for any day by 10:00 a.m., New York City
time. If that day is not a business day, the remarketing agent will
determine the daily rate on the immediately preceding business day. The
daily rate may not be more than the Maximum Floating Rate described below.
See "Method of Determining Interest Rate" below.
Weekly Mode. On each day during which P-FLOATs are in a weekly mode, they
will bear interest at the weekly rate for each one-week period beginning
on Thursday of each week. The remarketing agent must determine the weekly
rate by 12:00 p.m., New York City time, on or before the start of the
weekly mode and on or before each following Thursday. The weekly rate may
not be more than the Maximum Floating Rate described below. See "Method of
Determining Interest Rate" below.
Term Mode. On each day during which P-FLOATs are in a term mode, they will
bear interest at the "term rate" for that term period. The floating rate
for P-FLOATs in term mode is the floating rate and interest period
determined by the remarketing agent. The remarketing agent must determine
the term rate by 1:30 p.m., New York City time, on the sixth business day
before the start of each term period. The fixed rate may not be more than
the Maximum Floating Rate described below. See "Method of Determining
Interest Rate" below. The interest period in each term mode must be one
year or less.
METHOD OF DETERMINING THE INTEREST RATE
Determination of Floating Rate. The remarketing agent must establish the
floating rate for each series of P-FLOATs by determining the minimum rate of
interest that would result in a sale of each P-FLOATs, or P-FLOATs portion, at
the purchase price under prevailing market conditions. If the remarketing agent
does not determine the floating rate as required, then the floating rate will be
the floating rate in effect for the preceding interest period. The remarketing
agent will immediately inform the trustee of the floating rate by telephone.
Unless there is an obvious error, the floating rate determined by the
remarketing agent will be conclusive and binding upon the trustee, the tender
agent, the liquidity provider and the
16
<PAGE>
investors. Notwithstanding any higher determination of the floating rate by the
remarketing agent, the floating rate for any P-FLOATs for any interest period
and in any Interest Mode may not exceed the Maximum Floating Rate. The Maximum
Floating Rate is the weighted average coupon of the bonds minus trustee fees.
The prospectus supplement specifies the initial floating rate and initial
floating rate interest period.
Determination of Fixed Rate. The fixed rate will be equal to the weighted
average for all bonds calculated for each bond as the lesser of the Maximum
Fixed Rate and the Index Rate. The Maximum Fixed Rate is the coupon rate for a
bond minus trustee fees. The Index Rate is the Municipal Market Data insured
bond rate in effect on the conversion date for the term closest to the "average
life" of that bond, as determined by the remarketing agent. Once the interest
rate is converted to a fixed rate, the remarketing agent will no longer
establish the interest rate on the Receipts based on changes in market
conditions or in the Municipal Market Data index. However, the fixed rate on the
Receipts will be re-calculated from time to time whenever principal payments are
made on the bonds or bonds are withdrawn as described below. See "Fixed Rate
Conversion" on page 24 of this prospectus.
CONVERSION OF INTEREST MODE
The remarketing agent, with the consent of the RITES holder, may designate
a new Interest Mode to which to convert all of the P-FLOATs of a series and, in
the case of a term mode, to designate the duration of the initial or any
successive interest rate period. The remarketing agent may convert P-FLOATs to a
new Interest Mode on (1) any business day, when the change is from daily or
weekly mode, and (2) the day after the last day of the term period, when the
change is from term mode. The P-FLOATs are also subject to conversion to a fixed
rate if specified events occur. See "Fixed Rate Conversion--Fixed Rate
Conversion Events" on page 24 of this prospectus. P-FLOATs that have been
converted to fixed rate receipts may not thereafter be converted to another
Interest Mode.
The trustee must notify investors of the conversion not less than 20 days
before the effective date of any conversion of Interest Mode. While the P-FLOATs
are registered in the name of a securities depository or its nominee, the
trustee will notify the nominee which will be responsible for providing the
necessary notice to investors. See "Details of the Receipts--Book-Entry Only
System for Receipts" on page 29 of this prospectus.
P-FLOATs will be subject to mandatory tender on the Mode Change Date.
Investors, however, may elect to retain the P-FLOATs in the new Interest Mode
designated by the remarketing agent. If a P-FLOATs' Interest Mode is converted
or a P-FLOATs is converted to a fixed rate receipt, and the P-FLOATs is not
retained by the investor, then it will be remarketed by the remarketing agent or
purchased by the liquidity provider. See "Mandatory Tender of P-FLOATs" on page
19 of this prospectus.
DISTRIBUTION OF PRINCIPAL
The trustee will distribute principal to investors on the business day
following the date on which the trustee receives a principal payment, in
immediately available funds, on each bond. The prospectus supplement will
specify the dates principal is payable on each bond.
17
<PAGE>
The bonds held by the issuer will likely pay principal on many different payment
dates; however, the trustee will not advance its own funds to distribute
principal on the Receipts. The trustee is not responsible for delays in receipt
of payments on the bonds.
OPTIONAL TENDER OF P-FLOATS
RIGHT OF OPTIONAL TENDER IN DAILY AND WEEKLY MODE
If the floating rate is reset daily or weekly, then P-FLOATs investors
will have the right to tender their P-FLOATs before the earliest of the
following events:
(1) the related Trust Agreement terminates;
(2) a tender option termination event occurs, including any applicable
grace period;
(3) a mandatory tender event occurs, unless an investor is permitted to,
and does, retain his or her P-FLOATs; or
(4) a fixed rate conversion event occurs.
While the P-FLOATs are registered in the name of the securities
depository, investors may tender their P-FLOATs to the tender agent by giving
the securities depository or any participant sufficient instructions to transfer
beneficial ownership of the P-FLOATs to the account of the tender agent against
payment for the P-FLOATs.
EXERCISE OF TENDER OPTION
To exercise the right to optionally tender P-FLOATs, an investor must
deliver an irrevocable notice of tender to the remarketing agent and the tender
agent specifying:
(1) the principal amount of that investor's P-FLOATs to be tendered, which
must be in authorized denominations; and
(2) the date of tender, known as the Optional Purchase Date.
The investor's tender notice may be given in writing or by telephone,
promptly confirmed in writing, and given during business hours on any business
day before the applicable times set forth below:
Daily Mode. For P-FLOATs in daily mode, notice of tender must be given
before 10:30 a.m., New York City time, on the Optional Purchase Date.
Weekly Mode. For P-FLOATs in weekly mode, notice of tender must be given
before 3:00 p.m., New York City time, on the business day five business days
before the Optional Purchase Date.
P-FLOATs investors in term mode or fixed rate receipts are not entitled to
give notice of an optional tender or to exercise the optional tender of those
P-FLOATs or fixed rate receipts.
18
<PAGE>
Each investor exercising the right to optionally tender P-FLOATs must
notify its participant at the same time as it notifies the remarketing agent and
the tender agent, and must act through its participant to transfer ownership of
the tendered P-FLOATs to the account of the tender agent against payment for the
P-FLOATs on the Optional Purchase Date, as described in "Procedures for Purchase
and Remarketing--Procedures for Optional Tender when P-FLOATs Deposited with a
Securities Depository" on page 27 of this prospectus. The liquidity provider
will purchase any P-FLOATs appropriately tendered and not remarketed with funds
drawn under the liquidity facility.
MANDATORY TENDER OF P-FLOATS
MANDATORY TENDER
Each investor must tender, and will be deemed to have tendered, its
P-FLOATs, or P-FLOATs portions, to the tender agent for purchase at the purchase
price if a "mandatory tender event" occurs. Under some circumstances, investors
may retain their P-FLOATs, subject to the characteristics of the P-FLOATs in
effect after the mandatory tender.
COMPLETE MANDATORY TENDER WITH RIGHT TO RETAIN
P-FLOATs will be subject to mandatory tender, in whole, to the tender
agent on the following dates if any of the following events occurs:
<TABLE>
<CAPTION>
- ---------------------------------------- -----------------------------------------------
<S> <C>
DESCRIPTION OF MANDATORY TENDER EVENT RELATED MANDATORY TENDER DATE
- ------------------------------------- -----------------------------
(1) the liquidity facility is replaced The fifth business day before the expiration
of the existing liquidity facility
- ---------------------------------------- -----------------------------------------------
(2) the Interest Mode is converted to The first business day of the new Interest
another Interest Mode or to a fixed rate Mode or fixed rate
- ---------------------------------------- -----------------------------------------------
(3) a term period expires The first business day following the
expiration of the term period
- ---------------------------------------- -----------------------------------------------
(4) a fixed rate conversion event occurs The first business day that the fixed rate is
(as described below) in effect
- ---------------------------------------- -----------------------------------------------
</TABLE>
If an event described above occurs, then investors may retain their
P-FLOATs, subject to the terms of the replacement liquidity facility, at the new
Interest Mode or the fixed rate in effect after the mandatory tender date.
Investors who elect to retain their P-FLOATs must notify the tender agent and
the remarketing agent by facsimile transmission to their designated facsimile
numbers not later than 10:00 a.m., New York City time, on the business day after
the day on which the trustee gives notice that the mandatory tender occurred.
P-FLOATs will not share in any profit on the bonds as the result of a
complete mandatory tender, as described under this subheading. P-FLOATs
purchased on a mandatory tender date will receive only the purchase price.
19
<PAGE>
COMPLETE MANDATORY TENDER WITH NO RIGHT TO RETAIN
P-FLOATs will be subject to mandatory tender, in whole, to the tender
agent if the diversification requirement as described on page 33 of this
prospectus is violated. Investors may not elect to retain P-FLOATs subject to
mandatory tender pursuant to this paragraph.
P-FLOATs purchased on a mandatory tender date as described under this
subheading will receive the purchase price plus 10% of any gain for those
P-FLOATs.
PARTIAL MANDATORY TENDER WITH NO RIGHT TO RETAIN
A portion of the P-FLOATs proportionate to each investor's pro rata
interest in the affected bond will be subject to mandatory tender to the tender
agent if any of the following events occurs with respect to that bond:
(1) the rating on the bond is withdrawn or downgraded such that it would
cause the rating on the P-FLOATs to be withdrawn or downgraded, but
remains at or above investment grade, and the liquidity provider elects to
require a partial mandatory tender;
(2) the trustee receives notice from the liquidity provider that the
liquidity facility will not be extended upon its expiration with respect
to the affected bond; or
(3) the Residual Ownership Date of the bond.
If an event described above occurs, then the trustee will segregate the
affected bond and investors will no longer have a beneficial interest in that
bond. Investors may not elect to retain the portion of their P-FLOATs subject to
mandatory tender under this paragraph. However, investors will receive the
purchase price plus 10% of any net gain on the affected bond, as described
below.
PROCEDURES FOR MANDATORY TENDER
Notice of Mandatory Tender. The remarketing agent will notify the trustee,
the tender agent and the liquidity provider electronically of the mandatory
tender no later than twenty days before investors will be required to tender
their P-FLOATs, or specified P-FLOATs portions. Concurrently with the notice
described above, the remarketing agent will also provide the trustee with a form
of notice to be used by the trustee for electronic delivery to the securities
depository for transmission to investors. The trustee will transmit that notice
to the securities depository at or before the close of business on the business
day immediately following the business day on which it receives notice from the
remarketing agent. The notice will be in the form required by the securities
depository and will contain the following items of information:
(1) the date the P-FLOATs will be subject to mandatory tender and the
reason for the mandatory tender;
(2) whether the mandatory tender will be in whole or in part;
20
<PAGE>
(3) whether investors have the right to retain P-FLOATs and, if so:
(a) that the right to retain P-FLOATs must be exercised in
compliance with securities depository procedures so that such
response will be received by the securities depository not later
than ten business days before the mandatory tender date; and
(b) that upon electing to retain, each retaining investor will
continue to hold P-FLOATs subject to the terms of the new liquidity
facility, Interest Mode or fixed rate, as the case may be; and
(4) if the mandatory tender is due to:
(a) replacement of the liquidity facility, the material terms of the
successor liquidity facility; or
(b) conversion of the Interest Mode, expiration of a term period, or
a fixed rate conversion event, the terms of the new Interest Mode
and interest period or fixed rate.
P-FLOATs Purchased Regardless of Delivery. Failure to deliver P-FLOATs
that investors did not retain will not prevent the mandatory tender of the
P-FLOATs, or specified P-FLOATs portions. The P-FLOATs, or specified P-FLOATs
portions, will be deemed tendered and purchased whether or not they are
delivered to the trustee.
REMARKETING AND SOURCE OF FUNDS FOR PURCHASE
Source of Funds. P-FLOATs, or specified P-FLOATs portions, subject to
purchase on any mandatory tender date will be purchased at the purchase price.
The remarketing agent will remarket P-FLOATs that are not retained, if
permitted, to a new investor or to the liquidity provider. The liquidity
provider will become the holder of all P-FLOATs it purchases. See "Procedures
for Purchase and Remarketing" on page 26 of this prospectus.
The remarketing agent, the trustee, the tender agent, the issuer and the
sponsor will not be obligated to pay the purchase price of any P-FLOATs tendered
by investors from any of their own funds or from any sources other than those
described above.
Issuer to Determine Net Gain. P-FLOATs subject to partial mandatory tender
will receive 10% of any excess of any gain on the affected bond over the
weighted-average of any gain on the bonds remaining. This difference is the net
gain. For purposes of calculating net gain, "gain" on a bond generally means the
bid-side value of the bond, as determined by the issuer or its designee on the
mandatory tender date, over the price at which the issuer acquired the bond,
adjusted for any accrued original issue discount or any amortized premium. Any
net gain will be paid to investors if and when the affected bond is withdrawn as
described under "Withdrawal of Bonds" on page 25 of this prospectus.
The issuer or its designee will determine the net gain for the affected
bond by soliciting bids from broker-dealers located in New York City, selected
by the issuer or its designee in its absolute discretion, and any other
potential purchasers that the issuer or its designee
21
<PAGE>
chooses to approach, including the RITES holder. The issuer or its designee will
calculate the net gain based on the highest bid at which issuer or its designee
reasonably believes the principal amount of all of the bonds could be sold.
IMMEDIATE TERMINATION OF OPTIONAL AND
MANDATORY TENDER RIGHTS
TENDER OPTION TERMINATION EVENTS
An investor's right to optionally tender the portion of its P-FLOATs
proportionate to a particular bond will terminate immediately, without notice,
if any tender option termination event occurs. Similarly, an investor's right to
have the portion of its P-FLOATs proportionate to a particular bond purchased
upon a mandatory tender event also will terminate immediately, without notice,
if any tender option termination event occurs. The following are tender option
termination events:
(1) the bond issuer or bond insurer fails to pay any installment of
principal of, or any premium or interest on any bond, whether by scheduled
maturity, regular repayment, acceleration, demand or otherwise, and this
failure continues unremedied for five days;
(2) some events of bankruptcy or insolvency of the bond issuer or the bond
insurer of a bond;
(3) the rating on any bond is downgraded to below investment grade, "BBB-"
or the equivalent; or
(4) some events that would adversely affect the tax exempt status of a
bond.
If one of the above-described events occurs, the trustee will:
(1) if the market value of the affected bond is less than the purchase
price of the aggregate P-FLOATs portions proportionate to that bond,
distribute the affected bond, in whole, to investors to the extent
possible based on minimum denominations; or
(2) if the market value of the affected bond is greater than or equal to
the purchase price of the aggregate P-FLOATs portions proportionate to
that bond, or if whole bonds cannot be distributed based on minimum
denominations, sell the bonds and use the proceeds to pay the purchase
price plus 10% of any net gain on the affected bonds to the P-FLOATs
investors and the balance of any proceeds to the RITES holder.
PROCEDURES FOR TENDER OPTION TERMINATION
Trustee to Provide Notice. On the first business day after the trustee
learns that a tender option termination event has occurred, the trustee will
electronically notify the tender agent, the remarketing agent, the liquidity
provider and the securities depository and specify
22
<PAGE>
the type of event. The trustee will direct the remarketing agent to obtain, by
11:00 a.m. on the following business day, a "price quote" for each affected bond
as of the next following business day under the procedures described below.
Remarketing Agent to Obtain Quotation of Bond Price. The remarketing agent
will obtain the price quote, including accrued and unpaid interest, for each
affected bond by soliciting bids from at least three broker-dealers located in
New York City, selected by the remarketing agent in its absolute discretion, and
any other potential purchasers that the remarketing agent chooses to approach,
including the RITES holder. The price quote will be the highest bid received at
which the remarketing agent reasonably believes the principal amount of all
affected bonds can be sold.
Procedures when Quotation of Bond Price not Sufficient. If the price
quote, including any accrued and unpaid interest, with respect to the affected
bond, is less than the purchase price of the aggregate P-FLOATs portions
proportionate to that bond, then, to the extent possible based on minimum
denominations, on the business day following the day on which the notice
required above is given, the trustee will:
(1) transfer the affected bonds as promptly as practicable through the
facilities of the securities depository to P-FLOATs investors such that
each investor receives a principal amount of bonds proportionate to the
amount of P-FLOATs held by that investor; and
(2) distribute any affected bonds remaining to the RITES holder.
The distribution to P-FLOATs investors discussed in (1) above will be
performed as nearly as may be practicable taking into account the minimum
authorized denomination of the bonds.
Procedures when a Quotation of Bond Price is Sufficient. If the price
quote, including accrued and unpaid interest, with respect to the affected bond
is greater than or equal to the purchase price of the portion of P-FLOATs
corresponding to that bond, or if the whole bond cannot be distributed based on
minimum denominations, the trustee will direct the remarketing agent to use its
best efforts to sell the affected bonds at the highest obtainable price under
current market conditions, on the day for which the price quote is obtained. The
trustee will apply the proceeds received from the sale of the affected bonds
described above separately in the following order of priority:
(1) to the trustee, the proportionate amount of outstanding trustee fees
and trustee advances;
(2) to P-FLOATs investors, pro rata, an amount up to, but not exceeding,
the purchase price of the P-FLOATs portions proportionate to that bond and
to the RITES holder an amount up to but not exceeding par plus accrued
interest for the principal outstanding balance of RITES;
(3) to P-FLOATs investors, 10% of any net gain on the sale of the affected
bonds; and
23
<PAGE>
(4) to the RITES holder, the balance of any proceeds of the sale of the
affected bonds.
Each priority must be fully paid before proceeds are used to pay any lower
priority and no payment may be made on any priority if the proceeds have been
exhausted in the payment of higher priorities. Upon the completion of all
distributions and payments for all affected bonds, the proportionate amounts of
P-FLOATs and RITES will be canceled.
FIXED RATE CONVERSION
FIXED RATE CONVERSION EVENTS
The remarketing agent, with the consent of the RITES holder, may convert a
series of P-FLOATs to a fixed rate on any Mode Change Date, as described under
"Interest and Principal--Conversion of Interest Mode" on page 17 of this
prospectus. In addition, all P-FLOATs will be converted to fixed rate receipts
if any of the following fixed rate conversion events occurs:
(1) the liquidity facility expires, unless it is extended or replaced with
respect to at least a portion of the bonds;
(2) an event of default under the liquidity facility, and the liquidity
provider elects to convert to a fixed rate;
(3) five business days elapse after at least 25% of P-FLOATs have been
tendered and not remarketed, and the liquidity provider elects to convert
to a fixed rate;
(4) some events that would adversely affect the tax status of the issuer
and are disadvantageous to the investors, and the RITES holder elects to
convert to a fixed rate; or
(5) the trustee receives notice that the liquidity provider elects to
convert the P-FLOATs to the fixed rate as of a specified date because the
fixed rate determined as of that date would be greater than the Maximum
Fixed Rate.
PROCEDURES FOR FIXED RATE CONVERSION
Mandatory Tender and Purchase of P-FLOATs. Upon their conversion to fixed
rate receipts, the outstanding P-FLOATs will be subject to mandatory tender at
the purchase price. Investors, however, may elect to retain the fixed rate
receipts. See "Mandatory Tender of P-FLOATs--Complete Mandatory Tender with
Right to Retain" on page 19 of this prospectus. After conversion, the P-FLOATs
will no longer be subject to tender at the option of their owners or mandatory
tender and the liquidity facility will expire.
Determination of Fixed Rate and P-FLOATs Ownership Percentage. The
remarketing agent will determine the fixed rate on the converted fixed rate
receipts on the conversion date in accordance with the procedures set forth
under "Interest and Principal--Method of Determining the Interest Rate" on page
16 of this prospectus.
24
<PAGE>
WITHDRAWAL OF BONDS
WITHDRAWAL REQUIREMENTS
Subject to the limitations described below, the sponsor may at any time
withdraw bonds held by the issuer in exchange for:
(1) a proportionate amount of P-FLOATs and RITES;
(2) payment to the trustee of a proportionate amount of outstanding trustee
fees and trustee advances; and
(3) payment to the trustee for the benefit of the P-FLOATs and RITES of:
(a) any interest not previously advanced by the trustee that has
accrued on the bond withdrawn and is payable to investors;
(b) any taxes or other governmental charges that are typically
withheld by the trustee; and
(c) except in the case of a bond previously segregated upon a partial
mandatory tender, any net gain.
Net gain is the excess of any gain on the bond withdrawn over the
weighted-average of any gain on the bonds remaining. For purposes of clause
(3)(c) above, "gain" on a bond generally means the bid-side value of the bond
over the price at which the issuer acquired the bond, adjusted for any accrued
original issue discount or any amortized premium.
The sponsor may acquire the necessary P-FLOATs and RITES in the secondary
market or from the liquidity provider but may not cause a mandatory tender to
purchase Receipts to allow the withdrawal of bonds. The sponsor must hold the
requisite P-FLOATs and RITES for 30 days before withdrawing bonds and will
receive any payments of principal of, and interest on, its Receipts during the
holding period. The sponsor may not assign its right to withdraw bonds to any
person other than the liquidity provider unless such person certifies that it
does not then own any P-FLOATs. The sponsor's right to withdraw bonds is subject
to the following conditions:
(1) withdrawals may only occur once per month;
(2) no more than 25% of the initial amount of bonds held by the issuer may
be withdrawn in a single withdrawal;
(3) withdrawals may only be made in the minimum principal amount of $5
million or more;
(4) there may be no withdrawal if it will cause a rating agency to
downgrade the rating of the P-FLOATs; and
(5) there may be no withdrawal if it will violate the diversification
requirement.
25
<PAGE>
PROCEDURES FOR WITHDRAWAL
Distribution to P-FLOATs holders. Upon a withdrawal of bonds, the trustee
will distribute to the P-FLOATs holders their pro rata share of the principal
payment received, accrued interest, plus, in the case of P-FLOATs in daily,
weekly or term mode, 10% of the payments with respect to any net gain received
in the case of a bond segregated upon a partial mandatory tender. The trustee
will distribute the balance of the amounts received from the sponsor to the
RITES holder. The sponsor will keep the portion of these amounts attributable to
its P-FLOATs and RITES.
Issuer to Determine Net Gain. The issuer or its designee will determine the
net gain for the withdrawn bond by soliciting bids from broker-dealers located
in New York City, selected by the issuer in its absolute discretion, and any
other potential purchasers that the issuer chooses to approach, including the
RITES holder. The issuer will calculate the net gain based on the highest bid at
which the issuer reasonably believes the principal amount of all of the bonds
can be sold.
Trustee to Provide Notice. On the business day after receiving a written
request from the sponsor, the trustee will notify the securities depository, the
tender agent, the remarketing agent and the liquidity provider that the sponsor
intends to withdraw bonds. The notice will set forth:
(1) a description of the bonds withdrawn;
(2) the principal amount of bonds withdrawn;
(3) the amounts to be distributed to investors as described above; and
(4) the bonds remaining after giving effect to the withdrawal.
PROCEDURES FOR PURCHASE AND REMARKETING
REMARKETING OF P-FLOATS
Unless otherwise prohibited, the remarketing agent will remarket any
P-FLOATs (1) that is optionally tendered by an investor or (2) that is subject
to a complete mandatory tender with the right to retain and that an investor has
elected not to retain. On each business day on which the remarketing agent is
notified of an optional tender and on each business day preceding a mandatory
tender, the remarketing agent will remarket the tendered P-FLOATs to a new
investor or the liquidity provider, at the purchase price. The remarketing agent
will deliver the remarketed P-FLOATs in exchange for payment of the purchase
price on the Optional Purchase Date or mandatory tender date. The remarketing
agent may not remarket any P-FLOATs which is subject to a complete or partial
mandatory tender with no right to retain.
FUNDS FOR PURCHASES ON PURCHASE DATES
Source of Funds. The remarketing agent will pay the purchase price of
tendered P-FLOATs on each purchase date from the following sources in the
sequence indicated:
26
<PAGE>
(1) proceeds received by the tender agent from the remarketing agent from
the P-FLOATs remarketing, if permitted; and
(2) money received by the tender agent from funds provided by the liquidity
provider under the liquidity facility.
Notwithstanding any other provision of the Trust Agreement, the liquidity
facility and remarketing proceeds may not be used for any purpose other than to
pay the purchase price of tendered P-FLOATs.
The remarketing agent, the trustee, the tender agent, the issuer and the
sponsor have no obligation to investors to pay the purchase price of P-FLOATs
from any of their own funds or from any sources other than as described above.
Funds to be Held Uninvested. The tender agent and remarketing agent will
hold all moneys received from the remarketing of P-FLOATs to investors or to the
liquidity provider separate from each other and from any other money in their
respective possession. The tender agent and remarketing agent will not invest
these funds, but will hold the funds in trust for the benefit of the purchaser
until the P-FLOATs purchased is delivered to or for the account of the
purchaser. Neither the sponsor nor the issuer will have any right, title or
interest in or to any of such moneys.
PROCEDURES FOR OPTIONAL TENDER WHEN P-FLOATS DEPOSITED WITH THE SECURITIES
DEPOSITORY
When P-FLOATs are deposited with the securities depository, an investor
tendering P-FLOATs must notify its participant at the same time as it notifies
the remarketing agent and the tender agent. The investor must act through its
participant to cause the securities depository to transfer ownership of tendered
P-FLOATs to the account of the tender agent against payment on the purchase
date. The tender agent will hold the tendered P-FLOATs in trust for the benefit
of the tendering investor pending payment of the purchase price unless the
tendered P-FLOATs are remarketed as described in the following paragraph.
If the remarketing agent has successfully remarketed the tendered P-FLOATs,
then it will arrange for the tendered P-FLOATs to be purchased from the
tendering investor as follows:
(1) if the remarketing agent is the participant through which the investor
holds tendered P-FLOATs, it will remit the purchase price to the investor
in immediately available funds and debit the interest of the investor in
the tendered P-FLOATs on its books; and
(2) if the remarketing agent is not the participant through which the
investor holds tendered P-FLOATs, the remarketing agent will give
appropriate instructions to the investor and will arrange for the purchaser
of the tendered P-FLOATs to purchase the tendered P-FLOATs on the purchase
date at the purchase price using the securities depository book entry
system.
27
<PAGE>
If the remarketing agent has not successfully remarketed the tendered
P-FLOATs to a new investor, or is prohibited from remarketing the tendered
P-FLOATs, then it will notify the tender agent, the liquidity provider and the
tendering investor by telephone or telecopy not later than 10:45 a.m., New York
City time. The notice will instruct the investor to cause its participant to
transfer the tendered P-FLOATs to the tender agent against payment using the
securities depository book-entry system upon payment of the purchase price by
the liquidity provider.
The tender agent will transfer tendered P-FLOATs to the liquidity provider
as provided in the Trust Agreement. The liquidity provider will pay the purchase
price to the tender agent pursuant to the terms of the liquidity facility in
immediately available funds by 2:00 p.m., New York City time, and the tender
agent will forward the purchase price through the securities depository to each
participant of a tendering investor in immediately available funds by 4:30 p.m.,
New York City time. The securities depository will deliver the P-FLOATs against
payment of the purchase price by book-entry transfer on the purchase date to the
account of the participant of the liquidity provider without any action on the
part of, or on behalf of, the tendering investors. If the liquidity provider
holds P-FLOATs, the trustee will pay to the liquidity provider any principal
and/or interest that is payable to any other P-FLOATs investor. Upon a
remarketing of liquidity provider P-FLOATs, the liquidity provider or the tender
agent, as applicable, will transfer the remarketed P-FLOATs to or for the
benefit of the purchaser of the P-FLOATs in accordance with the securities
depository procedures. However, the transfer will only occur upon reimbursement
to the liquidity provider of the purchase price with respect to the remarketed
P-FLOATs.
INVESTORS TO COMPLY WITH TENDER AND ELECTION PROCEDURES
In consideration of the liquidity provider and the trustee and tender agent
entering into the liquidity facility, each investor agrees to comply with the
requirements established in the Trust Agreement for the tender of P-FLOATs and
the election to retain P-FLOATs. An investor may only tender P-FLOATs to the
tender agent and only as provided in the Trust Agreement. Any tender of P-FLOATs
or election to retain not made in substantial compliance with the terms of the
Trust Agreement will be invalid and will be rejected; however, the tender agent
may waive any defect, irregularity or informality in any notice of tender or
election to retain with the consent of the liquidity provider. The determination
by the tender agent as to whether a tender of P-FLOATs or election to retain is
made under the terms of the Trust Agreement will be binding upon investors, the
liquidity provider, the remarketing agent and the trustee. If a tender of
P-FLOATs to the tender agent is rejected under this paragraph, then the tender
agent will notify the investor electronically of the rejection, and the P-FLOATs
will be:
(1) transferred by the securities depository to the participant of that
investor; or
(2) if the Receipts are not deposited with a securities depository:
(a) held for delivery to that investor at the principal office of the
tender agent; or
28
<PAGE>
(b) sent by registered mail to that investor at the investor's
request, risk and expense.
If an investor elects not to retain any P-FLOATs, then the P-FLOATs not
retained will be subject to purchase on the mandatory tender date.
DETAILS OF THE RECEIPTS
VOTING ON BONDS
If any action or consent including any action or consent to enforce rights
or remedies upon default, requires the vote of the owners of any bonds, the
trustee will deliver to each investor its proxies for the vote. The trustee will
deliver the proxies within three business days of being informed of any action
or consent. The proxies will be returnable to the trustee. Investors will vote
solely by proxy, weighted by the principal balance of the Receipts held by each
investor. If the action or consent will result in a decision to retain bonds
that otherwise would be redeemed or tendered or a decision to accept or reject a
tender at or above both market and par value for cash of the bonds, no proxies
will be delivered and the trustee will vote in favor of the redemption or tender
for cash of the bonds.
The trustee will not take any action as the nominal holder or owner of any
of the bonds, either alone or as part of a group of holders or owners of bonds,
except under the affirmative direction of a majority of investors after
notifying investors of the action. The trustee will not be liable for any
failure to act resulting from the late return of, or failure to return, any
proxy sent by the trustee to investors.
PRO RATA DISTRIBUTION
Except when this prospectus or other relevant documents require or permit
other means, whenever an amount is to be distributed to investors of P-FLOATs or
RITES, that amount will be distributed to each investor pro rata, based on the
principal balance of each investor's P-FLOATs or RITES, compared to the
aggregate outstanding amount of all P-FLOATs or RITES.
BOOK-ENTRY ONLY SYSTEM FOR RECEIPTS
Description of Securities Depository. DTC will act as securities depository
for the P-FLOATs. Fully-registered P-FLOATs certificates will be issued in the
name of Cede & Co., as the nominee of DTC. One fully-registered certificate will
be issued for the aggregate amount of P-FLOATs of each series and will be
deposited with DTC.
DTC is a limited-purpose trust company organized under, and 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 Securities Exchange Act of 1934. DTC holds
securities that its 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
29
<PAGE>
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 other
organizations. A number of direct participants of DTC and the New York Stock
Exchange, Inc., the American Stock Exchange, Inc., and the National Association
of Securities Dealers, Inc. own DTC. Access to the DTC system is also available
to others known as indirect participants. Indirect participants include
securities brokers and dealers, banks, and trust companies that clear 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 Securities and Exchange Commission.
Purchases of Receipts under the DTC system must be made by or through
participants, which will receive a credit for the Receipts on DTC's records. The
ownership interest of each actual purchaser of each Receipt, or investor, is
recorded on the direct participants' and indirect participants' records.
Investors will not receive written confirmation from DTC of their purchase, but
investors are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the Direct
or Indirect participant through which the investor entered into the transaction.
Transfers of ownership interests in the Receipts will be entered on the books of
participants acting on behalf of investors. Investors will only receive
certificates representing their ownership interests in Receipts if the trustee
discontinues the book-entry system for the Receipts.
To facilitate subsequent transfers, DTC registers all Receipts deposited by
participants in the name of DTC's partnership nominee, Cede & Co. The deposit of
Receipts with DTC and their registration in the name of Cede & Co. effect no
change in ownership. DTC has no knowledge of the actual investors; DTC's records
reflect only the identity of the participants to whose accounts such Receipts
are credited and which may or may not be the investors. The direct participants
and indirect participants will remain responsible for keeping account of their
holdings on behalf of their clients.
As long as the Receipts are registered in the name of DTC or its nominee,
Cede & Co., the trustee will recognize only DTC or its nominee, Cede & Co., as
the registered owner of the Receipts for all purposes, including payments,
notices and voting. Conveyance of notices and other communications by DTC to
direct participants, by direct participants to indirect DTC participants and by
direct participants and indirect DTC participants to investors will be governed
by arrangements among DTC, direct participants, indirect participants and
investors, subject to any statutory and regulatory requirements as may be in
effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to Receipts.
Under its usual procedure, DTC mails an Omnibus Proxy to the trustee as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those direct participants to whose accounts the
Receipts are credited on the record date. The accounts are identified in a
listing attached to the Omnibus Proxy.
The trustee will distribute principal and interest payments on the bonds to
DTC. DTC's practice is to credit direct participants' accounts on payable date
based on their respective holdings shown on DTC's records unless DTC has reason
to believe that it will not receive
30
<PAGE>
payment on payable date. Payments by direct participants to investors is
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of each direct participant and not
of DTC or the trustee, subject to any statutory or regulatory requirements that
may be in effect from time to time. Payment of principal and interest to DTC is
the responsibility of the trustee, disbursement of payments to direct
participants will be the responsibility of DTC, and disbursement of payments to
investors will be the responsibility of the direct and indirect DTC
participants.
Neither the sponsor, the issuer, the trustee, the co-trustee, the tender
agent, the remarketing agent nor any of their respective affiliates will have
any responsibility or obligation for:
(1) the accuracy of DTC records or participant of any investment in the
Receipts;
(2) the delivery to any participant, any investor or any other person,
other than DTC, of any notice with respect to the Receipts;
(3) the payment to any participant, any investor or any other person, other
than DTC, of any amount with respect to the Receipts; or
(4) the failure of DTC to effect any transfer.
As long as the Receipts are not issued in certificated form as described
below under "Discontinuation of Book-Entry Only System for Receipts," the
trustee may treat DTC as, and deem DTC to be, the absolute owner of the P-FLOATs
for all purposes including, without limitation:
(1) paying distributions to investors;
(2) giving notices of redemption, tender and other matters with respect to
the Receipts;
(3) registering transfers with respect to the Receipts; or
(4) selecting P-FLOATs for redemption or tender.
One or more fully-registered RITES for each series, each in an authorized
denomination, will be registered in the name of the investor in the RITES or its
nominee, and DTC will maintain ownership of the RITES.
Discontinuation of Book-Entry Only System for Receipts. If at any time DTC
notifies the trustee that it is unwilling or unable to continue as securities
depository with respect to Receipts, or if at any time DTC is no longer
registered or in good standing under the Securities Exchange Act of 1934 or
other applicable statute or regulations and a successor securities depository is
not appointed by the trustee within 90 days after the trustee is notified or
becomes aware of such condition, as the case may be, or if the sponsor
determines that it is in the best interest of investors that they be able to
obtain P-FLOATs in certificated form, then the trustee will execute and deliver
certificates representing the P-FLOATs in exchange for the certificates held by
DTC. The new certificates will be registered in investors' names
31
<PAGE>
and in authorized denominations as DTC will instruct the trustee under
instructions from the direct participants or otherwise. The trustee will deliver
the new certificates representing the P-FLOATs to the investors to whom the
Receipts are registered.
Information about DTC. The information concerning DTC and DTC's book-entry
system has been obtained from DTC. The sponsor, the trustee, the tender agent or
the remarketing agent do not guarantee the accuracy or completeness of the
information concerning DTC. The sponsor, the trustee, the tender agent and the
remarketing agent make no assurances that DTC, direct participants, indirect
participants or other nominees of investors will act in accordance with the
procedures described above or in a timely manner.
REGISTRATION, TRANSFER AND PAYMENTS
Registration. If the book-entry system for the Receipts is discontinued,
then ownership of the Receipts (and any Receipts delivered upon a registration
of transfer or exchange described below) will be registered in the receipt
register to be kept by the trustee at its principal corporate trust office in
New York, New York. The trustee, the sponsor, the issuer, the tender agent, the
remarketing agent and the liquidity provider and any of their agents, will be
entitled to treat the person or other entity in whose name any receipt is
registered, including, without limitation, any securities depository or its
nominee, as the owners for all purposes described in this prospectus and in the
Trust Agreement.
Transfers. If the book-entry system for the Receipts is discontinued, then
the transfer of any Receipt may be registered only upon the books kept for the
registration and registration of transfer of Receipts upon surrender of the
Receipts to the trustee together with an assignment duly executed by the
registered owner or the owner's attorney or legal representative in a form that
is satisfactory to the trustee. Upon any registration of transfer, the trustee
will execute and deliver a new registered Receipt or Receipts in exchange for
the transferred Receipt. The new Receipt or Receipts will be registered in the
name of the transferee, of any denomination or denominations authorized by the
Trust Agreement in the aggregate principal amount equal to the principal amount
of the Receipt surrendered or exchanged.
There will be no service charge for any registration, transfer or exchange
of a Receipt, but the trustee may require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection with any
transfer or exchange of Receipts.
Payments. During any period in which the Receipts are held in the name of
any securities depository or its nominee, the trustee will distribute interest
on the bonds (other than at maturity) to the securities depository under the
securities depository's procedures for distribution to investors. If the
Receipts are not held by a securities depository, the trustee will distribute
interest by check to the person or other entity in whose name each Receipt is
registered at the close of business on the relevant record date. The trustee
will distribute interest by wire transfer of immediately available funds as
follows:
32
<PAGE>
(1) to any investor of not less than $1,000,000 in aggregate principal
amount of Receipts, at its option, according to wire instructions given to
the trustee in writing for such purpose, and
(2) to the liquidity provider, if it holds P-FLOATs.
If any interest payment on a bond is payable, but is not punctually paid or
provided for with respect to that bond's scheduled interest payment date, then
the trustee will distribute that interest payment to current investors when the
trustee receives that interest payment. See "Interest and
Principal--Distribution of Interest" on page 15 of this prospectus.
PRIOR ACCRUED BOND INTEREST
The trustee is likely to receive interest that accrued on each bond before
the initial issuance date of receipts on the first date after the initial
issuance date of receipts on which interest is scheduled to be paid on that
bond. The trustee will pay this "prior accrued interest" to the person or other
entity and in the amounts indicated in the prospectus supplement, in accordance
with the procedures defined in the Trust Agreement.
The prospectus supplement specifies the CUSIP numbers for the Receipts.
DESIGNATED OFFICE OF THE TRUSTEE
The prospectus supplement specifies the designated office of the trustee
for all actions with respect to the Receipts.
REDEMPTION UPON REDEMPTION OF UNDERLYING BONDS
REDEMPTION OF RECEIPTS
The Receipts of each series are redeemable, in whole or in part, at any
time from proceeds of the redemption of any related bonds received by the
trustee. The trustee will distribute the redemption proceeds to investors on the
Bond Redemption Date. The Bond Redemption Date is the business day following the
day on which the proceeds are payable on the bonds in accordance with their
terms and available, in immediately available funds, to the trustee. The trustee
will apply any moneys received as proceeds of a redemption in whole or in part
of the bonds to the redemption of P-FLOATs and RITES as follows:
(1) any payment of accrued interest on the redeemed bonds to the date of
redemption will be applied:
(a) first, to the payment of any accrued and outstanding trustee fees
and unreimbursed trustee advances allocable to the Receipts being
redeemed,
(b) second, to the payment of any accrued and unpaid interest to the
Bond Redemption Date due on the P-FLOATs then being redeemed at the
applicable floating rate, and
33
<PAGE>
(c) third, to the RITES holders, the balance of the accrued interest;
(2) the principal of the redeemed bonds will be applied pro rata to the
payment of principal on the P-FLOATs and RITES then being redeemed; and
(3) any redemption premium paid on the bonds will be distributed
(a) first, pro rata to P-FLOATs investors, in an amount equal to 10%
of the redemption premium, and
(b) second, to the RITES holder, the remaining redemption premium.
The trustee expects to distribute to investors all redemption proceeds on
the business day following the Bond Redemption Date. If the trustee has not
received the expected amounts in immediately available funds on the Bond
Redemption Date, the trustee may delay distribution to investors until the
business day on which the trustee holds immediately available funds.
NOTICE OF REDEMPTION
If any Receipts are deposited with a securities depository, then notice of
any redemption of bonds will be given in accordance with the securities
depository's applicable procedures. If the Receipts are not deposited with a
securities depository, the trustee will mail, postage prepaid, notice of
redemption, to all investors to be redeemed in whole or in part at least 30 days
before the date fixed for redemption. If notice of redemption of the bonds is
received by the trustee less than 30 days before the date fixed for redemption
of the bonds, the trustee will mail the notice of redemption on the business day
following receipt by the trustee of such notice of redemption of the bonds, but
in no case more than 60 days before a redemption date.
SELECTION OF RECEIPTS TO BE REDEEMED
If any bonds held are redeemed in part before maturity, then the trustee
will redeem P-FLOATs and RITES in authorized denominations which would result,
as nearly as possible, in P-FLOATs and RITES being redeemed in proportional
amounts equal to the principal amount of the bonds being redeemed. If fewer than
all Receipts of a series are to be redeemed, then the trustee will select the
Receipts to be redeemed in a manner it deems to be fair and equitable.
EFFECT OF CALL FOR REDEMPTION
If at any time the trustee holds sufficient funds to pay the redemption
price of Receipts called for redemption and any accrued interest on those
Receipts, then the Receipts to be redeemed will be considered no longer
outstanding. These Receipts will cease to be entitled to any rights under the
Trust Agreement, other than rights to receive payment of the redemption price
and accrued interest to the Bond Redemption Date, to be given notice of
redemption in the manner provided in the Trust Agreement, and to receive
Receipts for any unredeemed portions of Receipts.
34
<PAGE>
MATERIAL TERMS OF THE TRUST AGREEMENT
The material terms of the Trust Agreement are set forth below.
PURPOSES AND POWERS
The issuer has been formed as a Delaware statutory business trust in
accordance with the laws of the State of Delaware pursuant to the Trust
Agreement. The purpose of the issuer is to engage solely in the following
activities:
(1) purchasing, owning, holding and selling, whether itself or through
agents, the assets of the issuer;
(2) issuing and selling Receipts as provided in the Trust Agreement; and
(3) other activities as may be required by the express terms of the Trust
Agreement in connection with the conservation and administration of the
assets of the issuer and distributions to investors.
The issuer will engage only in the activities listed above.
NO ADDITIONAL LIABILITIES OR INDEBTEDNESS
The issuer will not, and the parties to the Trust Agreement and investors
will not cause the issuer to, incur, assume or guarantee any liability or
indebtedness except according to the express terms of the Trust Agreement.
THE TRUSTEE
The bonds relating to a particular series will be held by the trustee
identified in the prospectus supplement for that series, on behalf of the issuer
for the benefit of investors of that series pursuant to the Trust Agreement. The
trustee will establish a separate trust account for the bonds and Receipts of
each series. The trustee will be entitled to receive a fee on each interest
payment date for all services it rendered under the Trust Agreement for the
preceding accrual period. The trustee fee will be an annualized rate equal to a
percentage of the average daily balance of Receipts during the accrual period
and will be deducted from proceeds received on the bonds prior to distribution
to investors.
The trust accounts established for the Receipts will be separate from the
general assets of the trustee and will not be subject to any right, charge,
security interest, lien or claim of any kind in favor of the trustee or any
person claiming through it, except to secure the reimbursement of trustee
advances. The trustee will not have the power or authority to assign, transfer,
pledge or otherwise dispose of any of the assets of the trust accounts to any
person except as otherwise permitted by the Trust Agreement.
The Trust Agreement provides that the trustee must keep at its designated
office in New York City a receipt register in which, subject to the reasonable
regulations as it may prescribe, the trustee will provide for the registration
of Receipts and for the registration of transfers or exchanges of Receipts.
35
<PAGE>
The Trust Agreement requires the trustee to maintain a fidelity bond for
the protection of investors in customary amounts against losses resulting from
the trust arrangement due to dishonest or fraudulent action by its employees.
THE CO-TRUSTEE
One or more co-trustees may be appointed under the Trust Agreement for the
limited purposes of executing and delivering documents, and maintaining all
records necessary to form and maintain the existence of the issuer under
Delaware law. The co-trustee will have no power or authority to assign,
transfer, pledge or otherwise dispose of any of the assets of the Trust to any
person except as otherwise permitted by the Trust Agreement.
The co-trustee may at any time resign as co-trustee and the sponsor may
remove the co-trustee at any time by giving written notice to the trustee, the
remarketing agent and the liquidity provider. The co-trustee's resignation or
removal will take effect upon the appointment by the sponsor, with the consent
of the RITES holder, of a successor co-trustee meeting the qualifications of,
and agreeing to comply with, the terms and conditions of the Trust Agreement,
including that such successor shall be Delaware entity or person.
TRUSTEE ADVANCES
The trustee may, but is not obligated to, advance to investors on each
interest payment date an amount up to interest accrued on the P-FLOATs for the
prior accrual period. The trustee's decision to advance its own funds for this
purpose is at the sole discretion of the trustee, based on the trustee's
determination that the advanced funds will be recoverable through either
principal or interest payments on the bonds, liquidation proceeds, or insurance
proceeds. No decision to advance funds will impose any obligation to advance any
further amount. Whenever the trustee does not advance funds, the trustee will
notify the tender agent, the remarketing agent and the liquidity provider by
12:00 noon, New York City time, on the business day before the date interest
would otherwise be distributed.
If the trustee elects not to advance funds for any reason, the trustee will
distribute interest on the first business day following each date on which the
trustee receives an interest payment in immediately available funds on each
bond. Interest on the Receipts will continue to accrue for each accrual period
and there will not be any additional interest payable due to the absence of an
advance. Advances will be reimbursed from interest received on the bonds and as
otherwise provided upon the withdrawal, sale or redemption of bonds.
By purchasing Receipts, the investors will grant to the trustee a perfected
first priority security interest in the bonds of the related series and any
payments on those bonds as security for any unreimbursed advances owed to the
trustee. This lien will apply to all bonds of the related series regardless of
the bond with respect to which a given advance was made.
36
<PAGE>
By purchasing any Receipt, each investor will be deemed to:
(1) authorize the trustee to deduct from interest payments on the bonds,
trustee fees and any unreimbursed advances;
(2) acknowledge that the bonds and any payments thereon are subject to a
perfected first priority security interest granted to the trustee as
security for any unreimbursed advances; and
(3) thereby reaffirm and ratify the granting of that perfected first
priority security interest.
The trustee will be entitled to receive interest on advances equal to the
outstanding advances multiplied by the trustee's prime rate for the number of
days the advances are outstanding. The RITES holder will be responsible for
paying any interest accrued on trustee advances pursuant to a fee agreement
between the trustee and the RITES holder.
LIMITED LIABILITY
The trustee, the co-trustee and the tender agent will only be responsible
for performing the duties specifically set forth in the Trust Agreement. No
party should read any implied covenants, duties or obligations whether of a
fiduciary nature or otherwise, into the Trust Agreement or implied in law
against the trustee, the co-trustee or the tender agent.
The trustee, the co-trustee and the tender agent will incur no liability to
any investor if, by reason of any provision of any present or future law or
regulation thereunder of any governmental authority or by reason of any natural
disaster or war or other circumstance beyond its control, the trustee, the
co-trustee or the tender agent is prevented from doing or performing any act or
thing which the terms of the Trust Agreement provide should be done or
performed.
The trustee, the co-trustee and the tender agent will only be charged with
knowledge of any event or condition if an officer assigned to the department
administering the Trust Agreement has actual knowledge of the event or
condition.
The trustee, the co-trustee and the tender agent assume no obligation and
will not be liable to investors for the performance of their respective duties,
other than by reason of willful misconduct, bad faith or negligence. Neither the
trustee, the co-trustee nor the tender agent is under any obligation to take any
action which may create any expense or liability, unless the recovery or payment
of the expense or liability is assured to it within a reasonable time. The
trustee, the co-trustee and the tender agent may own and deal in bonds, in
obligations of the same issue and maturity as the bonds and in the Receipts, as
though they were not the trustee, the co-trustee or the tender agent under the
Trust Agreement.
37
<PAGE>
RESIGNATION AND REPLACEMENT OF TRUSTEE
The trustee and tender agent may at any time resign as trustee and tender
agent by giving written notice of its election to do so to the sponsor, the
remarketing agent and the liquidity provider. The resignation will take effect
upon the appointment by the sponsor with the consent of the RITES holder, of a
successor trustee and tender agent subject to, and agreeing to comply with, the
terms and conditions of the Trust Agreement.
The sponsor may remove the trustee and tender agent by giving written
notice to the remarketing agent and the liquidity provider. Replacement of the
trustee and tender agent will take effect upon the sponsor's appointment, with
the consent of the RITES holder, of a successor trustee and tender agent subject
to, and agreeing to comply with, the terms and conditions of the Trust
Agreement. If at any time the trustee and tender agent becomes incapable of
acting or is adjudged bankrupt or insolvent, or a receiver of the trustee and
tender agent or of its property is appointed, or any public officer takes charge
or control of the trustee and tender agent or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation, then any investor may,
on behalf of itself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the trustee and tender agent and the
appointment of a successor trustee and tender agent.
If at any time the trustee and tender agent notifies the sponsor that it
will resign as trustee and tender agent or the sponsor elects to remove the
trustee and tender agent, then the sponsor will, with the consent of the RITES
holder, appoint a successor trustee and tender agent within 45 days after
receiving notice of the resignation or removal. The successor trustee and tender
agent will be a commercial bank with trust powers or trust company having its
principal office in the United States of America and having a combined capital
and surplus of at least $50,000,000 or whose obligations are guaranteed by a
person or other entity whose capital and surplus or net worth is at least that
amount. If no successor trustee and tender agent is appointed within the 45-day
period, then the trustee and tender agent may petition any court of competent
jurisdiction to appoint a successor trustee and tender agent. If the tender
agent resigns or is removed, then the tender agent will pay over, assign and
deliver any money and P-FLOATs held by it in its capacity as tender agent to its
successor.
AMENDMENTS TO THE TRUST AGREEMENT
The sponsor, the trustee and the tender agent may amend the Trust Agreement
at any time by agreement among the parties for the purpose of:
(1) obtaining or maintaining any rating on the P-FLOATs and/or the RITES by
any nationally recognized securities rating agency;
(2) providing for a qualified securities depository to replace DTC; or
(3) curing any formal defect, omission or inconsistency or for any other
purpose and in any respect which they may deem necessary or desirable, with
the consent of the RITES holder but without the consent of any of the
P-FLOATs investors, if:
38
<PAGE>
(a) the trustee determines that the proposed amendment will not
adversely affect the interests of any P-FLOATs investors; and
(b) the trustee receives an opinion of appropriate special tax and
securities counsel to the effect that the proposed amendment will not
result in the withdrawal of, or modification of the conclusions of,
any opinion previously delivered regarding tax and securities law
treatment of the Receipts.
The sponsor, the trustee and the tender agent may also amend the Trust
Agreement at any time and from time to time, with the consent of a majority of
the P-FLOATs investors and the consent of the RITES holder, for the purpose of
adding any provisions to, changing in any manner or eliminating any of the
provisions of, the Trust Agreement or modifying in any manner the rights of such
holders. The trustee must also receive an opinion of appropriate special tax and
securities counsel to the effect that the proposed amendment will not result in
the withdrawal of, or modification of the conclusions of, any opinion previously
delivered regarding tax and securities law treatment of the Receipts. No
amendment may change the stated maturity or reduce the principal or interest
payable on any Receipt or reduce the principal amount of the Receipts required
to consent to any amendment without the consent of each investor affected.
No amendment will become effective unless the liquidity provider has
consented to the amendment. This consent may not be unreasonably withheld.
Promptly following the execution of any amendment, the trustee will furnish
written notice of the substance of the amendment to each investor of the
affected series.
TERMINATION OF THE TRUST AGREEMENT
The Trust Agreement related to a series, will terminate if any of the
following events occurs:
(1) mandatory tender of all P-FLOATs due to violation of the
diversification requirement;
(2) distribution of all of the bonds (or the proceeds thereof) upon the
occurrence of a tender option termination event; or
(3) redemption at maturity of all of the bonds held by the issuer.
However, the discharge of any indenture or other document related to any of
the bonds will not result in a termination of the Trust Agreement. Further, the
Trust Agreement will remain in effect until the date upon which the bonds or the
proceeds thereof have been distributed to investors in accordance with the
provisions of the Trust Agreement.
DEFAULT ON BONDS
If the trustee receives notice of any default, other than a payment default
which constitutes a tender option termination event, on a bond from the bond
issuer's trustee or
39
<PAGE>
other applicable fiduciary, then the trustee will promptly notify the tender
agent, the remarketing agent, the liquidity provider and the investors. The
trustee also will notify these parties if an officer of the trustee assigned to
the department administering the Trust Agreement has actual knowledge of any
such default on a bond. The trustee's notice will specify:
(1) the name and other relevant designation of the issuer and the bond;
(2) the date and nature of the default; and
(3) any other information which the trustee deems appropriate, including a
copy of any notice or description of bondholder rights and remedies
received by the trustee.
If the bond documents for that bond provide a remedy or otherwise permit
action with respect to such default upon the direction or consent of the
bondholders, the trustee will exercise the rights of a bondholder at the
direction of a majority of investors. See "Details of the Receipts--Voting on
Bonds" on page 29 of this prospectus.
MISCELLANEOUS
FEES AND EXPENSES
The RITES holder will be responsible for paying to the remarketing agent
and liquidity provider reasonable compensation and reimbursement for such
expenses as may be set forth in a written instrument executed by the RITES
holder, remarketing agent and liquidity provider, respectively. The RITES holder
will also be responsible for reimbursing the trustee for interest accrued on any
advances. The trustee, remarketing agent and liquidity provider will each look
solely to the RITES holder for any payments, reimbursements or indemnifications
and will waive any and all rights, claims, recourse and liens against the issuer
for the payment of such amounts.
INFORMATION FOR INVESTORS
The trustee will maintain an investor list upon which any investor may
enter its name and address upon proof satisfactory to the trustee of its status
as an investor. The trustee will furnish by first class mail, postage prepaid,
to investors registered on its list notice of occurrences, including:
(1) any amendment of, or supplement to, the Trust Agreement;
(2) any resignation and removal of the trustee, tender agent or remarketing
agent and the appointment of a successor trustee, tender agent or
remarketing agent;
(3) any redemption of Receipts;
(4) any fixed rate conversion event or a mandatory tender event;
(5) any tender option termination event;
40
<PAGE>
(6) the Receipts no longer being registered solely in the name of DTC or
its nominee;
(7) any withdrawal of bonds or redemption of bonds; or
(8) the expiration or the extension of the liquidity facility under the
Trust Agreement.
The trustee will also forward to investors copies of all communications
from the bond issuer to holders of the bonds.
INVESTORS NOT LIABLE FOR CLAIMS AGAINST ISSUER
Investors, as beneficiaries of the trust established under the law of the
State of Delaware, are not responsible for any debt, obligation, or liability
of, or claim against, the issuer. The sponsor has agreed to pay on behalf of the
issuer any penalties and interest on any penalties imposed on the issuer in the
event the election under Section 761(a) of the Internal Revenue Code of 1986 for
the issuer to be excluded from the application of Subchapter K of the Code is
not effective. The sponsor shall also be liable for trustee fees and other
expenses of the issuer to the extent not paid out of the RITES share of bond
interest.
THE BONDS
INFORMATION ABOUT THE BONDS
The issuer will acquire the bonds identified in the prospectus supplement
simultaneously with the sale of the Receipts on the initial issuance date of
receipts. The trustee will accept the bonds delivered to the issuer for the
benefit of the investors. The trustee, on behalf of the issuer, will hold all
bonds delivered to it in trust and will not take any action, or consent to any
action, which would result in the placement of any lien on the bonds. The
trustee lacks the authority to transfer, assign, hypothecate, pledge or
otherwise dispose of any of the bonds except as provided in the Trust Agreement
or as required by law.
Neither this prospectus nor the related prospectus supplement will contain
detailed information about the bonds, any bond issuer or any bond insurer or any
rights or obligations, legal, financial or otherwise, in connection with the
bonds. The sponsor has not investigated the financial condition or
creditworthiness of any bond issuer or bond insurer. However, before the initial
issuance date of receipts, the sponsor will determine whether notice of any
material event affecting the bonds is on file with any NRMSIR. If a bond
defaults, investors will bear the entire risk of loss. An investor should read
the same information about the bond issuer as it would if it were investing
directly in the bonds.
RESIDUAL OWNERSHIP DATE
The Residual Ownership Date for a bond specified in the related prospectus
supplement is calculated as occurring approximately when 80% of the "average
life," beginning on the initial issuance date of receipts of the Receipts, of
that bond has lapsed. The determination of
41
<PAGE>
"average life" will take into account sinking funds for discount bonds and any
early call date for premium bonds. For example, the determination of average
life will take into account the premium call date for bonds with large premiums
and the par call date for bonds with small or no premiums.
The P-FLOATs will be subject to partial mandatory tender with respect to
each bond on the Residual Ownership Date of that bond only if the sale of the
bond on that date would result in net gain. If the P-FLOATs are not called for
partial mandatory tender on a Residual Ownership Date, then the related bond
will remain in the Trust and will not be segregated. See "Mandatory Tender of
P-FLOATs--Partial Mandatory Tender With No Right to Retain" on page 20 of this
prospectus.
DIVERSIFICATION REQUIREMENT
The sponsor will select the bonds to be acquired by the issuer before the
initial issuance date of receipts. At no time may any individual bond or group
of bonds issued by a single bond issuer or two or more affiliated bond issuers
comprise more than 10% of the bonds held by the issuer. This restriction is
known as the diversification requirement. Bonds that have been segregated upon a
partial mandatory tender will not be used to satisfy the diversification
requirement.
If the diversification requirement is violated, then the Receipts will be
subject to mandatory tender and they will be purchased by the liquidity provider
from funds drawn under the liquidity facility. The obligation of the liquidity
provider to purchase Receipts on the mandatory tender date is a limited,
non-recourse obligation payable solely from funds drawn under the liquidity
facility. If the Receipts are not delivered upon violation of the
diversification requirement, this will not prevent the mandatory tender of the
Receipts and the Receipts will be deemed tendered and purchased whether or not
delivered to the trustee. See "Mandatory Tender of P-FLOATs" on page 19 of this
prospectus.
On the mandatory tender date, the trustee will direct the remarketing agent
to use its best efforts to sell the bonds in such manner as the remarketing
agent deems advisable at the highest obtainable price under current market
conditions. The trustee will apply the proceeds received from the sale of the
bonds in the following order of priority, each priority being fully paid before
proceeds are used to pay any lower priority and no payment being made on any
priority if the proceeds have been exhausted in the payment of higher
priorities:
(1) to the trustee, any accrued and outstanding trustee fee and any
unreimbursed trustee advances;
(2) to the liquidity provider, to the extent accrued interest is received
on the sale of the bonds, accrued interest on the P-FLOATs at the floating
rate, the remainder of any such accrued interest, less the amounts payable
under priority (1) above, to be paid to the RITES holder;
(3) to the liquidity provider, an amount equal to the principal amount of
the P-FLOATs purchased with funds provided under the liquidity facility by
the liquidity provider;
42
<PAGE>
(4) to the P-FLOATs investors tendered on the mandatory tender date, an
amount equal to 10% of any gain; and
(5) to the RITES holder, the balance of the proceeds of the sale of bonds
remaining.
THE SPONSOR
The sponsor is an indirect wholly-owned limited purpose subsidiary of
Merrill Lynch Group, Inc., which is a wholly-owned subsidiary of Merrill Lynch &
Co., Inc. Merrill Lynch, Pierce, Fenner & Smith Incorporated d/b/a Merrill Lynch
& Co., the remarketing agent, is also a wholly-owned subsidiary of Merrill Lynch
& Co., Inc. The sponsor was incorporated in the State of Delaware on December
23, 1992. The sponsor was organized for the principal purpose of acting as the
sponsor of trusts formed to issue certificates such as the P-FLOATs. The
principal executive office of the sponsor is located at World Financial Center,
North Tower, New York, New York 10281-1323, and its telephone number is (212)
449-0670.
THE REMARKETING AGREEMENT
Under the remarketing agreement, the sponsor has appointed Merrill Lynch,
Pierce, Fenner & Smith Incorporated as the remarketing agent in connection with
the remarketing of tendered P-FLOATs. The remarketing agent is obligated to use
its best efforts to remarket tendered P-FLOATs, subject to some conditions, in
consideration for the RITES holder payment of a fee based upon the principal
amount of P-FLOATs outstanding from time to time. The remarketing agent has also
agreed to perform all of the functions of "rate-setting agent" under the Trust
Agreement.
When an investor notifies the tender agent and the remarketing agent of the
investor's optional tender of P-FLOATs, the remarketing agent is required to
offer for sale and use its best efforts to market the tendered P-FLOATs at the
purchase price. If a tender option termination event occurs, then the
remarketing agent will no longer be required to remarket P-FLOATs and will cease
efforts to do so.
Under the remarketing agreement, the remarketing agent has agreed to do
each of the following:
(1) receive and hold any P-FLOATs or moneys delivered to it in connection
with the sale and purchase of P-FLOATs in trust for the benefit of the
person who delivered the moneys or P-FLOATs, and not commingle the money or
P-FLOATs with other funds or securities of the remarketing agent;
(2) keep books and records consistent with prudent industry practice and
make its books and records available for inspection by the tender agent at
all reasonable times; and
(3) perform its duties and comply with the provisions of the remarketing
agreement.
43
<PAGE>
Under the remarketing agreement, the remarketing agent is not liable for
any act or omission except as a result of the remarketing agent's gross
negligence or willful misconduct. The remarketing agent may at any time resign
and be discharged of the duties and obligations created by the remarketing
agreement by giving at least 60 days' notice to the liquidity provider and the
trustee. When the trustee receives notice of resignation from the remarketing
agent, the trustee will notify investors. The sponsor may remove the remarketing
agent at any time with the consent of the RITES holder or a majority of P-FLOATs
investors by delivering notice of its intention to investors. If neither a
majority of P-FLOATs investors nor any RITES holder objects to the removal
within 15 days after receiving notice, the sponsor is required to notify the
remarketing agent and the trustee. No resignation or removal of the remarketing
agent will be effective until a successor remarketing agent is appointed as
provided in the remarketing agreement.
If the remarketing agent resigns or is removed or dissolved, or if the
properties or affairs of the remarketing agent are taken under the control of
any state or federal court or administrative body because of bankruptcy or
insolvency, or for any other reason, then the trustee is required to appoint a
successor remarketing agent meeting the requirements of the remarketing
agreement and acceptable to the RITES holder. If the trustee has not appointed a
successor within 60 days, the remarketing agent will have the right to petition
a court of competent jurisdiction to appoint a successor. Any successor
remarketing agent is required to be an institution authorized by law to perform
all the duties imposed upon it under the remarketing agreement.
THE LIQUIDITY FACILITY
DESCRIPTION OF LIQUIDITY FACILITY
Before Receipts of a series are issued, the sponsor and the issuer will
establish a standby purchase agreement, a liquidity letter of credit or other
similar arrangement with the liquidity provider specified in the prospectus
supplement. The liquidity provider may be an affiliate of the sponsor or an
unaffiliated entity. The liquidity facility for each series of Receipts will
expire on the date specified in the related prospectus supplement unless the
liquidity provider chooses to extend its facility with respect to all or a
portion of the bonds. The RITES holder may remove and replace the liquidity
provider on behalf of the P-FLOATs investors with the consent of the trustee.
The liquidity provider is not obligated to pay the principal or redemption
price of, or the interest on, the Receipts under any circumstances. The
liquidity provider is obligated only to purchase tendered Receipts on and
subject to the terms, provisions and conditions of the liquidity facility.
The liquidity provider's commitment to purchase P-FLOATs under the
liquidity facility on any day is limited to a principal amount of P-FLOATs equal
to the initial principal amount of P-FLOATs issued, less the amount of P-FLOATs
previously redeemed or purchased by the liquidity provider under the liquidity
facility, but not subsequently remarketed. The aggregate purchase price of
P-FLOATs committed to be purchased by the liquidity provider may not exceed the
principal amount of P-FLOATs outstanding plus 35 days interest at a per annum
44
<PAGE>
rate equal to the Maximum Floating Rate for the P-FLOATs of the applicable
series. The liquidity provider is not obligated to pay any net gain due to
investors upon a mandatory tender. Additionally, the liquidity provider is not
obligated to purchase tendered P-FLOATs under the liquidity facility unless it
receives proper demand from the tender agent in accordance with the liquidity
facility.
Investors should refer to the prospectus supplement for information about
the liquidity provider for a particular series.
TERMINATION OF OBLIGATIONS OF LIQUIDITY PROVIDER
The liquidity facility for each series will expire on the earlier of:
(1) the date specified in the prospectus supplement, unless extended by the
liquidity provider, or
(2) the date on which investors may no longer tender Receipts due to a
tender option termination event or a fixed rate conversion event.
A successor liquidity provider may also assume the obligations of the
liquidity provider under the terms of the Trust Agreement, as described below.
If the liquidity facility expires and is not extended or replaced, the
P-FLOATs will be converted to fixed rate receipts and be subject to mandatory
tender in whole unless investors elect to retain the fixed rate receipts. If the
liquidity facility is replaced, then the P-FLOATs will be subject to mandatory
tender in whole five business days before the last day of the then-current
liquidity facility, unless investors elect to retain the P-FLOATs under the new
liquidity facility. If the liquidity facility expires but is extended for some
of the bonds, then the P-FLOATs portions proportionate to the bonds for which
the facility is not extended will be subject to mandatory tender in part without
the right of investors to retain those portions of their P-FLOATs. See
"Mandatory Tender of P-FLOATs" on page 19 of this prospectus.
SUBSTITUTION OF SUCCESSOR LIQUIDITY PROVIDER
On or before the 25th day before the liquidity facility is scheduled to
expire, the trustee, with the prior written consent of the RITES holder, may
accept a successor liquidity facility. The successor liquidity provider will
issue an agreement in form and substance identical to the current liquidity
facility and the successor liquidity provider will succeed to all of the rights,
duties and obligations of the previous liquidity provider. The new liquidity
facility will be effective on the date specified in the new agreement only upon
satisfaction of the following:
(1) the rating agencies have issued written confirmation that any ratings
of the rating agencies on the P-FLOATs will not, as a result of the
substitution or succession, be withdrawn or reduced below the ratings
before the succession;
(2) the trustee has received an opinion of counsel to the successor
liquidity provider that the liquidity facility by the successor liquidity
provider has been duly
45
<PAGE>
authorized, executed and delivered and constitutes a valid and binding
obligation of the successor liquidity provider;
(3) the sponsor and the trustee have received an opinion of appropriate
special tax and securities counsel that the substitution or succession will
not result in the withdrawal of, or modification of the conclusions of, the
opinion delivered by the counsel in connection with the original delivery
of the P-FLOATs and RITES;
(4) the trustee has received an opinion of counsel that all conditions
precedent listed in the Trust Agreement and the liquidity facility have
been complied with; and
(5) all obligations owing to the liquidity provider under the liquidity
facility have been paid in full and the trustee and the tender agent have
tendered the liquidity facility then in effect to the liquidity provider
for cancellation.
LIQUIDITY PROVIDER DEFAULT
If the liquidity provider becomes bankrupt or insolvent, or if the
liquidity provider fails to honor a properly-made drawing or other demand in
accordance with the liquidity facility, then the liquidity provider will be in
default. Upon a liquidity provider default, the tender agent will notify the
RITES holder in writing. Upon receiving notice, the RITES holder will have the
right, in its sole and absolute discretion, but not the obligation, to:
(1) provide a successor liquidity facility as a replacement for the
liquidity facility then in effect for the affected series, in accordance
with the conditions described above; and
(2) act as the interim liquidity provider until the successor liquidity
provider is provided, in accordance with the conditions described above.
Within five business days of receiving written notice of the liquidity
provider default, the RITES holder will notify the tender agent of its intention
to obtain a successor liquidity facility and act as interim liquidity provider.
If the RITES holder fails to notify the tender agent, then that fifth business
day will be deemed to be an "exchange date" and the trustee will exchange the
affected Receipts for cash or the related bonds as if a tender option
termination event had occurred in accordance with the procedures described in
"Immediate Termination of Optional and Mandatory Tender Rights--Tender Option
Termination Events" on page 22 of this prospectus.
INCOME TAX CONSIDERATIONS
FEDERAL INCOME TAX CONSEQUENCES
This is a summary of the material United States federal income tax
consequences of the purchase, ownership and disposition of the P-FLOATs and the
RITES. This discussion is based on the Code, as well as final, temporary and
proposed Treasury regulations and administrative and judicial decisions, all of
which are subject to change or possible differing interpretation. The sponsor
will not seek or obtain any rulings from the IRS regarding the
46
<PAGE>
classification of the issuer as a partnership for federal income tax purposes or
any other aspect of the tax consequences described in this prospectus, and there
is no assurance that the IRS will agree with the conclusions expressed here.
This discussion is directed solely to investors that hold the Receipts as
capital assets within the meaning of Section 1221 of the Code. This discussion
does not purport to address all federal income tax matters that may be relevant
to particular types of investors, such as banks and insurance companies which
may be subject to special rules. References to "investors" or "holders" are to
the beneficial owners of the P-FLOATs or RITES. The opinions described here are
based on the assumption that the terms of the Trust Agreement and other
instruments will be complied with and the accuracy of representations and
certifications. Upon delivery of the Receipts of each series, Cadwalader,
Wickersham & Taft, special counsel to the sponsor, will deliver the opinion
reproduced as Exhibit A to this prospectus. The opinion reproduced as Exhibit A
constitutes an integral part of this prospectus.
In the opinion of Cadwalader, Wickersham & Taft, a P-FLOATs investor's
share of the interest that accrued during the period that the investor held its
P-FLOATs will be excludable from gross income for federal income tax purposes to
the same extent that interest on the underlying bonds is excludable. This is
true whether or not the P-FLOATs have accrued interest at the floating rate or,
if a fixed rate conversion event has occurred, at the applicable fixed rate.
Similar to a P-FLOATs investor, a RITES holder's share of the interest that
accrued during the period that the RITES holder held its RITES will also be
excludable. This opinion is subject to the discussion below, entitled "Taxation
of Investors."
Prospective investors of P-FLOATs and RITES should consult their own tax
advisors concerning the tax consequences to them of the purchase, ownership and
disposition of P-FLOATs or RITES under federal income tax law, as well as the
tax law of any relevant state or local jurisdiction.
TAX EXEMPTION OF THE BONDS
On the date each bond is initially issued and delivered, bond counsel for
each bond will render its opinion generally to the effect that, under existing
laws, interest on the bonds is excluded from gross income for federal income tax
purposes and from any applicable state and local taxes. Special counsel has not
passed upon, has not independently verified, and will not verify, the
tax-exemption of interest on any bond. Further, special counsel has assumed the
following, without any inquiry:
(1) the continuing correctness of the related opinion of bond counsel; and
(2) that no events or circumstances have occurred since the original
issuance of the bonds that would adversely affect the exemption from
federal income tax and any applicable state and local taxes of interest on
the bonds.
TAXATION OF INVESTORS
Classification of the Issuer. With respect to each series of P-FLOATs and
RITES, special counsel will deliver its opinion to the effect that the related
issuer will be classified as
47
<PAGE>
a partnership, rather than an association or publicly traded partnership taxable
as a corporation, and each investor will be treated as a partner in such
partnership for federal income tax purposes. In rendering its opinion, special
counsel has concluded that:
(1) the passive nature of the income of the issuer will exempt it from the
rule that publicly traded partnerships are taxable as corporations; and
(2) the P-FLOATs will not be treated as indebtedness of the issuer or the
RITES holder.
Investors must be treated as members of the tax partnership constituted by
the issuer for distributions to investors to be treated as tax-exempt interest.
This treatment therefore requires that the P-FLOATs and RITES constitute equity
ownership interests in the issuer. Special counsel has concluded that, for
federal income tax purposes, the P-FLOATs will not be treated as indebtedness of
the issuer or of the RITES holder. Further, special counsel has concluded that
distributions on the P-FLOATs will not be treated as taxable "guaranteed
payments." Special counsel has also concluded that the RITES holder will be
treated as a member of the tax partnership constituted by the issuer, rather
than merely as the provider of a put to the P-FLOATs investors.
A partnership anti-abuse regulation authorizes the IRS to recast
transactions involving partnerships that inappropriately exploit the partnership
provisions of the Code in an attempt to avoid tax. As the language of the
regulation is exceedingly broad, there is substantial uncertainty as to its
potential application. Special counsel has concluded that structuring the
P-FLOATs and RITES to be partnership interests in the tax partnership
constituted by the issuer is consistent with the economic substance of the
transaction and is not inconsistent with the intent of the partnership
provisions of the Code, and therefore the anti-abuse regulation will not apply
to the P-FLOATs and RITES. Prospective investors should consult with their tax
advisors regarding the possible application of the anti-abuse regulation to the
P-FLOATs and RITES.
The opinion of special counsel represents only that counsel's best legal
judgment and, unlike a tax ruling, does not have binding effect on the IRS or
official status of any kind. There is no authority that addresses instruments
similar to the P-FLOATs and RITES. Thus, there can be no absolute assurance that
the IRS or a court will agree with the opinion of special counsel. If the issuer
were treated as an association taxable as a corporation, or as a publicly-traded
partnership treated as a corporation for Federal income tax purposes, rather
than as a partnership, all or a portion of any payments by the trustee to
holders of Receipts would be taxed to them as dividends to the extent of the
current and accumulated earnings and profits of the issuer. If the P-FLOATs were
characterized as debt, or if distributions on P-FLOATs were classified as
"guaranteed payments", then interest distributions on the P-FLOATs would be
fully includable in gross income. If the Receipts were treated as stripped bonds
and the bonds were issued with original issue discount, then distributions to
the Receipt holders would not be tax exempt to the extent that the Receipt
holder's yield on the Receipts exceeds the original yield to maturity of the
bonds. If the Receipts were treated as stripped bonds and the bonds were not
issued with the original issue discount, then distributions to the Receipt
holders would not be tax exempt to the extent that the Receipt holder's yield on
the
48
<PAGE>
Receipts exceeds the coupon rate of interest. Moreover, if the RITES holder were
characterized merely as provider of a put to the P-FLOATs investors, and not as
a member of the partnership constituted by the issuer, then the "put fee" may
not be treated as an ordinary deduction and distributions on the RITES would be
fully includable in gross income. The remainder of this discussion assumes that
the issuer will be taxable as a partnership, and the P-FLOATs and RITES
constitute equity interests in such partnership.
Income and Expense; Election Out of Partnership Provisions. As a
partnership for federal income tax purposes, the issuer will not be subject to
federal income tax. The trustee will elect, on behalf of the issuer, to exclude
the issuer from Subchapter K of Chapter 1 of the Code (the partnership tax
accounting provisions of the Code). By purchasing P-FLOATs or RITES, each
investor consents to that election. Special counsel has concluded that, although
subject to uncertainty, the issuer should be eligible for this election.
Assuming this election is effective, for federal income tax purposes, each
investor will be treated as an owner of an undivided interest in the underlying
bonds. Accordingly, each investor will be required to directly take into account
its share of income from the bonds for the period during which it owns P-FLOATs
or RITES, generally under such investor's method of accounting and any tax
elections made by such investor.
If the election to be excluded from Subchapter K of Chapter 1 of the Code
is not effective, then the following would occur:
(1) the issuer would be required to account for its income and deductions
at the trust level and to use a taxable year for reporting purposes; and
(2) each investor would be required to separately take into account that
investor's distributive share of income and deductions of the issuer.
All expenses of the issuer are allocated to the RITES. Therefore, P-FLOATs
investors should not be allocated any deduction for these expenses. An investor
would take into account in its taxable year that investor's distributive share
of issuer income and deductions for each issuer taxable year with or within
which ends the issuer's taxable year. If the issuer's taxable year is different
than that of an investor, then a portion of the investor's share of trust income
and deductions with respect to the bonds would be shifted to the investor's
taxable year following the year in which the income and expense accrues. If the
exclusion election is not effective, the issuer, but not any of the P-FLOATs
investors, might be liable for penalties for failure to file partnership
returns. Partnership returns are not required if the exclusion election is
effective. Under the Trust Agreement, the sponsor has agreed to pay any such
penalties on behalf of the issuer. Potential purchasers of P-FLOATs and RITES
should consult with their own tax advisors regarding the consequences if the
election out with respect to the issuer is not valid. The discussion below
assumes that the issuer will be subject to an effective election out of
Subchapter K of Chapter 1 of the Code.
Original Issue Discount. If the initial public offering price of any bonds
was less than the amount payable at maturity, then those bonds are treated as
having been issued with original issue discount. Original issue discount is
excludable from gross income for Federal income tax purposes to the same extent
as interest on tax-exempt obligations. The Code provides that original issue
discount on a tax-exempt obligation is deemed to accrue over the
49
<PAGE>
life of the obligation on the basis of either a straight-line or a constant
interest method of accrual, depending on the date of issuance of the obligation.
If the aggregate price paid by initial investors in the P-FLOATs allocable to a
bond that was issued with original issue discount equals or exceeds the adjusted
issue price of a bond but is less than the par amount of the bond, then that
bond will be acquired by the Trust with original issue discount. This original
issue discount will be allocated to investors in P-FLOATs or RITES, as described
below.
Market Discount and Premium. If the purchase price the issuer paid for
bonds is greater than the bonds' stated redemption price, then the bonds will
have amortizable bond premium. If the purchase price the issuer paid for bonds
is less than the bonds' stated redemption price, then the bonds will have market
discount. For bonds issued with original issue discount, if the purchase price
the issuer paid is greater than the bonds' revised issue price, then the bonds
will have acquisition premium. Also, for bonds issued with original issue
discount, if the purchase price the issuer paid is less than the bonds' revised
issue price, then the bonds will have market discount. This market discount will
be considered to be zero if it is less than a statutorily defined de minimis
amount. The aggregate price paid by initial P-FLOATs investors allocable to a
bond acquired by the issuer at a market discount generally will equal the
issuer's purchase price for the bond. The aggregate price paid by initial
P-FLOATs investors allocable to a bond acquired by the issuer at a premium
generally will equal the par amount of the bond, with the RITES holder supplying
the premium portion of the purchase price. Generally, gain on the sale or
disposition of tax-exempt bonds acquired at a market discount will be ordinary
income, instead of capital gain, to the extent of the accrued market discount
thereon. Any such market discount will be allocable to the RITES holder, as
described below. Amortizable bond premium on tax-exempt bonds will be amortized
over the remaining term of the bonds, or to an earlier call date if it produces
greater annual amortization, on a constant yield method. This amortization will
reduce the owner's basis therein, but will not result in any deduction from
income. Any premium amortization will be allocable to the RITES holder, as
described below.
Partnership Allocations; Sale of P-FLOATs. Under the Trust Agreement, any
original issue discount on a bond generally will be allocated to the RITES.
However, any acquisition premium that results when the issuer purchases a bond,
plus a corresponding amount of original issue discount, will be allocated to the
P-FLOATs. Acquisition premium is the excess of the issuer's purchase price for a
bond over the adjusted issue price for that bond.
In addition, any market discount on a bond that exceeds the de minimis
threshold will economically accrue to the RITES holder and, therefore, will be
allocated to the RITES holder. Market discount is the excess of the par amount,
or adjusted issue price, of a bond over the issuer's purchase price.
Furthermore any amortizable bond premium on the bonds at the time of the
issuer's acquisition will be allocated and will economically accrue entirely to
the RITES. The resulting tax effect therefore would be borne entirely by the
RITES holder. Accordingly, in the opinion of special counsel, as a consequence
of market discount or amortizable bond premium on the bonds, the following is
true:
50
<PAGE>
(1) an investor purchasing and selling P-FLOATs for a price equal to the
principal balance of the P-FLOATs (plus any accrued interest) will not
recognize any taxable income;
(2) if an initial P-FLOATs investor sells its P-FLOATs for a gain, then
that gain generally will be taxable as capital gain; and
(3) if a secondary market P-FLOATs purchaser purchases its P-FLOATs for a
price equal to the principal balance of the P-FLOATs plus any accrued
interest and sells them for a gain, then that gain will be taxable as
capital gain.
With respect to item (3) above, if the issuer originally acquired the bonds
at a market discount in excess of the de minimis amount, it is possible that any
gain would be taxable as ordinary income, and not capital gain. This possibility
would arise if, at the time the investor purchased the P-FLOATs, the market
value of the bonds exceeded the price at which the issuer acquired the bonds.
There are, however, no authorities addressing facts substantially similar
to the facts involved, or potentially involved, in this transaction. Thus, there
can be no absolute assurance that the IRS or a court will agree with these
conclusions. If the IRS successfully challenged the allocation in the Trust
Agreement of market discount entirely to the RITES, then a P-FLOATs investor
might recognize ordinary income upon the sale of the bonds or, possibly, upon
the sale of its P-FLOATs.
Effect of Fixed Rate Conversion Events. The arrangement that results in the
issuance of the fixed rate receipts could be treated as a trust for federal
income tax purposes. In that event, the issuance of fixed rate receipts could be
considered a coupon stripping transaction subject to the rules of Section 1286
of the Code. It is possible that a fixed rate conversion event may result in a
taxable exchange of Receipts for fixed rate receipts. In such event, there may
be circumstances in which investors that received fixed rate receipts as a
result of a fixed rate conversion event may recognize taxable income, gain or
loss. We suggest that prospective investors consult their own tax advisors
regarding the tax consequences of a fixed rate conversion event, including
application of the coupon stripping rules.
ADDITIONAL TAX CONSIDERATIONS
Alternative Minimum Tax. An investor is required to include as an item of
tax preference for purposes of the federal individual and corporate alternative
minimum taxes all tax-exempt interest on "specified private activity" bonds.
Moreover, interest on bonds that are not specified private activity bonds will
be included in "adjusted current earnings" in calculating federal corporate
alternative minimum taxable income. The calculation of alternative minimum tax
liability is complex. We suggest that prospective investors consult their tax
advisors regarding the alternative minimum tax. The prospectus supplement will
indicate if any of the bonds are specified private activity bonds.
Disallowance of Interest and Other Expenses. Investors' interest expense
for indebtedness deemed to be incurred, or continued, to purchase or carry
P-FLOATs or RITES will be non-deductible. Individual and other non-corporate
investors may not deduct other
51
<PAGE>
expenses allocable to tax-exempt interest. The expenses of a regulated
investment company that distributes tax-exempt dividends are disallowed in the
same proportion that its tax-exempt income bears to its total income, other than
net capital gains.
Collateral Tax Consequences. Ownership of tax-exempt obligations may result
in collateral tax consequences to some taxpayers, including, without limitation,
financial institutions, property and casualty insurance companies, some foreign
corporations engaged in business in the United States, some S Corporations with
excess passive income, and individual recipients of Social Security or Railroad
Retirement benefits. We suggest that prospective investors contact their tax
advisors as to the applicability of collateral tax consequences.
Employee Benefit Plans, Exempt Organizations and Foreign Investors.
P-FLOATs and RITES should not be purchased by employee benefit plans, other
tax-exempt organizations and foreign investors not subject to United States tax,
because the interest on the bonds is expected to be excluded from gross income
for purposes of federal income tax.
Allocation of Bond Premium. Section 171 of the Code provides that, in the
case of a taxable bond, the amount of any premium allocated to any interest
payment shall be applied against, and operate to reduce, the amount of that
interest payment. A recent regulation issued by the IRS provides that this rule
applies to tax-exempt bonds, such as the bonds held by the issuer. Under the
Trust Agreement, the amount of any premium on a bond and amortization of the
premium is allocable to the RITES holder and not to the P-FLOATs. The sponsor
has been advised by Cadwalader, Wickersham & Taft that the allocation under the
Trust Agreement would be upheld. If the allocation were not upheld, however,
that excess could be treated as a return of capital rather than as tax-exempt
interest to the extent that interest is distributed to holders of P-FLOATs at a
yield in excess of the yield at which the bond was acquired by the trust. In
this event, an investor may have a capital gain upon a payment of principal with
respect to the bond or upon disposition of the P-FLOATs.
Future Legislation. Various proposals have been, and in the future may be,
introduced before Congress to restrict or eliminate the federal income tax
exemption or to impose some collateral tax consequences on the ownership of
municipal obligations such as the bonds. In addition, various proposals have
been made and bills introduced that would substantially alter the federal tax
base or the rate structure or both, which could affect the value of the bonds.
No prediction can be made regarding any additional legislation that may be
proposed and enacted with respect to the tax-exempt status of interest on
municipal obligations. Further, no prediction can be made as to whether any such
proposed legislation, if enacted, would apply to the bonds or the P-FLOATs and
RITES.
STATE AND LOCAL TAX CONSEQUENCES
The exclusion from gross income for federal income tax purposes of the
P-FLOATs and RITES income does not necessarily result in a similar exclusion of
that income for state or local income tax purposes.
52
<PAGE>
Depending on where an investor lives, P-FLOATs and RITES income may be
subject to state and local tax. Generally, interest received on municipal bonds
by a resident of a state will be exempt from personal income tax in that state
to the extent it is derived from bond issuers located in that state. In most,
but not all, states, interest received on P-FLOATs or RITES by a resident of a
state will be exempt from personal income tax in that state to the same extent
that interest on the bonds is exempt from personal income tax in that state. The
laws of the several states and local taxing authorities vary with respect to the
taxation of such obligations and investors should consult their own tax advisors
about state and local matters.
In the opinion of special counsel, the issuer will not be subject to (1)
income or franchise taxation by the State of New York, or (2) the New York City
general corporation or unincorporated business taxes.
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in an underwriting agreement
to be entered into with respect to each series of Receipts, the issuer will sell
to the underwriter the principal amount of P-FLOATs set forth in that agreement.
The prospectus supplement for each series will specify:
(1) the name of the underwriter;
(2) the principal amount of P-FLOATs for the series set forth in that
agreement;
(3) the price at which the series of Receipts will be offered to the public
and any concessions that may be offered to the underwriter; and
(4) the place and time of delivery for the series of Receipts.
Copies of any documents incorporated into this prospectus by reference will
be provided to each person to whom a prospectus is delivered upon written or
oral request directed to Merrill Lynch, Pierce, Fenner & Smith Incorporated,
World Financial Center, North Tower, New York, New York 10281-1323, Attention:
Capital Markets Desk (telephone no. (212) 449-7358).
USE OF PROCEEDS
The issuer will use substantially all of the proceeds from the sale of the
Receipts to:
(1) purchase the bonds and pay the cost of carrying the bonds until the
sale of the Receipts; and
(2) pay other expenses connected with the execution and delivery of the
Trust Agreement and the issuance and delivery of the Receipts.
RATING
The issuer has applied for a rating on the P-FLOATs from the rating agency
or agencies identified in the prospectus supplement and has provided the rating
agency or rating agencies with materials relating to the P-FLOATs and other
relevant information. The rating or ratings
53
<PAGE>
reflect only the views of the applicable rating agency and investors should
obtain an explanation of the significance of any rating from the applicable
rating agency.
The issuer has not applied to any other rating agency to obtain a rating on
the P-FLOATs.
There is no assurance that any rating will remain in effect for any given
period of time. If circumstances change, then the rating agency or rating
agencies may revise a rating downward or withdraw a rating entirely. Any
downward revision or withdrawal of a rating may adversely effect the market
price of the P-FLOATs. The rating or ratings issued will not address the
likelihood that the P-FLOATs may be redeemed early due to a mandatory tender
event or that the bonds or the proceeds of the bonds will be distributed due to
a tender option termination event.
LEGAL MATTERS
Cadwalader, Wickersham & Taft, New York, New York, special counsel, will
give a legal opinion on the offering of the Receipts and some tax aspects of the
Receipts. The opinion of special counsel relating to some tax aspects of the
Receipts is attached to this prospectus as Exhibit A. Counsel for the trustee
and tender agent will give a legal opinion relating to the trustee and tender
agent; counsel for the co-trustee will give a legal opinion relating to the
co-trustee; and counsel for the liquidity provider will give a legal opinion
relating to the liquidity provider.
REPORTS TO RECEIPTHOLDERS
The remarketing agent will prepare periodic reports that will contain
audited financial statements. Unless and until certificated Receipts are issued,
the reports will be sent to Cede & Co. as nominee for the securities depository
and the registered holder of the Receipts. No financial reports will be sent to
investors.
INCORPORATION OF INFORMATION BY REFERENCE
The SEC allows the sponsor to "incorporate by reference" information it
files with the SEC, which means that the sponsor can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus.
Information that the sponsor files later with the SEC will automatically update
the information in this prospectus. In all cases, you should rely on the later
information rather than on any different information included in this prospectus
or the accompanying prospectus supplement. The sponsor incorporates by reference
any future annual, monthly and special SEC reports filed by or on behalf of any
issuer until the termination of the offering of the Receipts.
As a recipient of this prospectus, you may request a copy of any document
the sponsor incorporates by reference, except exhibits to the documents (unless
the exhibits are specifically incorporated by reference), at no cost, by writing
or calling the sponsor at World
54
<PAGE>
Financial Center, North Tower, 9th Floor, 250 Vesey Street, New York, New York,
10281-1309, Attention: [ ], telephone number [ ].
ADDITIONAL INFORMATION
The sponsor filed a registration statement relating to the Receipts with
the SEC. This prospectus is part of the registration statement, but the
registration statement includes additional information.
The issuer will file with the SEC all required annual, monthly and special
SEC reports and other information about the issuer.
You may read and copy any reports, statements or other information that is
filed in connection with the Receipts at the SEC's public reference room in
Washington, D.C. You can request copies of these documents, upon payment of a
duplicating fee, by writing to the SEC. Please call the SEC at (800) SEC-0330
for further information on the operation of the public reference rooms. SEC
filings are also available to the public on the SEC Internet site
(http://www.sec.gov.).
You may obtain the Official Statements for bonds that are subject to Rule
15c2-12 of the Securities Exchange Act of 1934 from a NRMSIR identified on
Schedule A to this prospectus, the Municipal Securities Rulemaking Board or an
appropriate state information depository. You may also obtain from a NRMSIR
identified on Schedule A to this prospectus, at a charge to non-subscribers, the
annual reports and events notices required under Rule 15c2-12 contracts. A Rule
15c2-12 contract is an agreement between the underwriter and the issuer that
requires the issuer to provide annual financial information and specific
material event notices for the benefit of bondholders. The sponsor will update
Schedule A through periodic reports filed under the Securities Exchange Act of
1934.
55
<PAGE>
GLOSSARY
Bond Redemption Date -- the business day following the day proceeds are payable
on redeemed bonds to the trustee, on which the trustee will distribute proceeds
from the redemption of any bonds to investors of P-FLOATs corresponding to those
bonds
Index Rate -- the Municipal Market Data insured bond rate in effect on the
conversion date for the term closest to the average rate of a bond
Interest Mode -- the period at which interest will be paid to P-FLOATs
investors, either daily, weekly, or at a term period of up to one year
Maximum Fixed Rate -- a bond's coupon rate minus trustee fees
Maximum Floating Rate -- the weighted average coupon of the bonds minus trustee
fees
Mode Change Date -- the date the remarketing agent converts the P-FLOATs
Interest Mode
NRMSIR -- Nationally Recognized Municipal Securities Repository
Optional Purchase Date -- the date a P-FLOATs investor optionally tenders
P-FLOATs
P-FLOATs(SM) -- Pass Through Floating Tax-Exempt Receipts, the securities
offered for purchase in the prospectus and prospectus supplement
Receipts -- P-FLOATs and RITES together
Residual Ownership Date -- the date, specified in the prospectus supplement,
upon which approximately 80% of the average life of a bond expires
RITES(SM) -- Residual Interest Tax-Exempt Securities Receipts, securities that
are not being offered for purchase in the prospectus and prospectus supplement
Trust Agreement -- the Series Trust Agreement, the Standard Terms and
Provisions, and all exhibits, appendices, schedules and amendments to both
documents
56
<PAGE>
EXHIBIT A
[OPINION OF SPECIAL COUNSEL AS TO TAX MATTERS]
__________ __, 199_
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch Municipal ABS, Inc.
Merrill Lynch & Co., Inc.
World Financial Center
North Tower, 9th Floor
250 Vesey Street
New York, New York 10281-1309
[Trustee and Tender Agent],
as Trustee on behalf of the
Holders of Receipts from time to time
[Liquidity Provider]
Re: Registered Pass Through Floating Tax-Exempts Receipts ("P-FLOATs"(SM)),
and Residual Interest Tax-Exempt Securities Receipts, Series RT-__
("RITES"(SM)), as more particularly described on Schedule A
attached hereto
Ladies and Gentlemen:
We have acted as counsel to the Sponsor and as special tax counsel in
connection with the issuance of the Receipts. Capitalized terms used but not
defined in this opinion have the meanings given them in the Trust Agreement and
the Prospectus (as defined below).
This opinion is rendered in connection with the Series Trust Agreement
relating to Series RT- __ , dated ____________, 199_ (the "Series Trust
Agreement"), incorporating by reference the Standard Terms and Provisions of
Trust Agreement (the "Standard Terms") attached as Exhibit B thereto (the Series
Trust Agreement and the Standard Terms are referred to together collectively as
the "Trust Agreement"), by and among Merrill Lynch Municipal ABS, Inc., as
sponsor (the "Sponsor"), _____________, as trustee and tender agent (the
"Trustee") and _____________, as co-trustee (the "Co-trustee"), and providing
for the custody of the bonds identified in Schedule 1 attached hereto (the
"Bonds"), referred to in the Prospectus, dated _____________, 1999, as
supplemented by a Supplement, dated _____________, 199_ (as so supplemented, the
"Prospectus"), and for the sale as contemplated therein of various series of
Registered Pass Through Floating Tax-Exempt Receipts ("P-FLOATs") and Residual
Interest Tax-Exempt Securities Receipts ("RITES," and collectively with the
P-FLOATs, the "Receipts") that represent beneficial interests in the Bonds. This
opinion constitutes an integral part of the Prospectus and must be read in
conjunction therewith.
A-1
<PAGE>
Our opinion and the tax consequences described herein are based upon the
Internal Revenue Code of 1986, as amended (the "Code"). Although we are not
aware of any proposed changes to the Code that are applicable, tax laws may
change after the date hereof. The Internal Revenue Service has not yet issued
any regulations or published any rulings which are directly applicable to the
Receipts. The opinion and tax consequences described herein are subject to and
may be modified by any change resulting from the issuance of any regulation or
publication of any ruling that is directly applicable to the Receipts.
In rendering our opinion, we have not passed upon, have not independently
verified and do not assume any responsibility for, but rather have assumed the
continuing correctness of, the opinion of bond counsel rendered at the date of
original issue of the Bonds to the effect that, on the basis of laws in effect
on the date of original issuance, the Bonds constitute the legal, valid and
binding obligation of the bond issuer thereof.
We have examined and relied upon originals, or copies certified or
otherwise identified to our satisfaction, of the following: (1) the Prospectus;
(2) the executed Trust Agreement to which the forms of the Receipts are attached
as exhibits; and (3) such other documents, certificates, opinions and letters as
we have deemed necessary or relevant for the purpose of rendering this opinion.
In addition, we have participated in the preparation of the material under the
heading "Income Tax Considerations" in the Prospectus. Capitalized terms used in
this opinion and not otherwise defined herein shall have the same meanings as
such terms are given in the Trust Agreement.
Based upon and subject to all of the foregoing and based upon our analysis
of existing statutes, we are of the opinion that:
(1) The arrangement evidenced by the P-FLOATs and the RITES of each
Series will be treated as a partnership (and not as an association
taxable as a corporation or a publicly traded partnership treated as a
corporation) for Federal tax purposes. The Receipts, however, provide
that all holders will elect to be excluded from the application of
Subchapter K of Chapter 1 of the Code (the Subchapter containing the
partnership tax accounting provisions of the Code) and in effect, be
treated as owners of undivided interests in the Bonds underlying the
Receipts. An investor of Receipts will be required to include its
share of the tax-exempt interest on the Bonds calculated at the
interest rate in effect on the Receipts.
(2) We hereby confirm and are of the opinion that the summary of
federal income tax consequences to the holders of the Receipts set
forth under "Federal Income Tax Consequences" in the Prospectus is
correct under the Code, the regulations thereunder, published
administrative rulings, and judicial decisions published on or prior
to the date of this opinion.
A-2
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the references to this firm under the
caption "Federal Income Tax Consequences" in the Prospectus forming a part of
the Registration Statement. In giving this consent, we do not admit that we are
in the category of persons whose consent is required to be filed with the
Registration Statement under the provisions of the Securities Exchange Act of
1933, as amended.
The foregoing is based on the Federal income tax laws in effect as of this
date and no assurance can be provided as to future administrative or judicial
interpretations of those laws. Further, no opinion is expressed with respect to
any effects of state or local income tax laws or any other Federal or state law,
except as expressly stated herein.
Very truly yours,
A-3
<PAGE>
EXHIBIT B
NATIONALLY RECOGNIZED MUNICIPAL
SECURITIES REPOSITORIES
B-1
<PAGE>
EXHIBIT C
AUDITED FINANCiAL STATEMENT
C-1
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED
OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE DIFFERENT INFORMATION TO
YOU.
THE P-FLOATS ARE NOT OFFERED IN ANY STATE WHERE
THEIR OFFER IS IMPERMISSIBLE.
DEALERS WILL DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS TO THE P-FLOATS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS. IN ADDITION, ALL DEALERS SELLING
P-FLOATS WILL DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS UNTIL [ ]
-----------------
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
Summary.......................................... S-1
Risk Factors..................................... S-4
The Liquidity Provider........................... S-4
Plan of Distribution............................. S-5
Ratings.......................................... S-5
Legal Matters.................................... S-6
Reports to Receiptholders........................ S-6
Year 2000 Problem................................ S-6
Additional Information........................... S-8
Schedule of Bonds................................ S-9
PROSPECTUS
Summary.......................................... 1
Risk Factors..................................... 10
Introduction..................................... 14
Interest and Principal........................... 14
Optional Tender of P-FLOATs...................... 18
Mandatory Tender of P-FLOATs..................... 19
Immediate Termination of Optional and
Mandatory Tender Rights......................... 22
Fixed Rate Conversion............................ 24
Withdrawal of Bonds.............................. 25
Procedures for Purchase And Remarketing.......... 26
Details of the Receipts.......................... 29
Redemption Upon Redemption of
Underlying Bonds................................ 33
Material Terms of the Trust Agreement............ 35
Miscellaneous.................................... 40
The Bonds........................................ 41
The Sponsor...................................... 43
The Remarketing Agreement........................ 43
The Liquidity Facility........................... 44
Income Tax Considerations........................ 46
Plan of Distribution............................. 53
Use of Proceeds.................................. 53
Rating........................................... 53
Legal Matters.................................... 54
Reports to Receiptholders........................ 54
Incorporation of Information
By Reference.................................... 54
Additional Information........................... 55
Glossary......................................... 56
Opinion of Special Counsel....................... A-1
Nationally Recognized Municipal Securities
Repositories.................................... B-1
Audited Financial Statement...................... C-1
======================================================
[$-------------]
(APPROXIMATE)
PASS THROUGH FLOATING
TAX-EXEMPT RECEIPT TRUST ____
ISSUER
$_________PASS THROUGH
FLOATING
TAX-EXEMPT RECEIPTS
(P-FLOATS (SM))
SERIES R-
MERRILL LYNCH MUNICIPAL ABS, INC.
SPONSOR
---------------------
PROSPECTUS SUPPLEMENT
---------------------
MERRILL LYNCH & CO.
[-------- ----]
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses expected to be incurred in connection with the issuance and
distribution of the securities being registered, other than underwriting
compensation, are as set forth below. All such expenses except for the
registration fees are estimated.
SEC Registration Fee............................................*
Legal Fees and Expenses.........................................*
Accounting Fees and Expenses....................................*
Trustee's Fees and Expenses (including counsel fees)............*
Printing and Engraving Fees.....................................*
Rating Agency Fees..............................................*
Miscellaneous...................................................*
Total....................................................*
* To be provided by amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides that a
Delaware corporation may indemnify any persons, including officers and
directors, who are made, or are threatened to be made, parties to any
threatened, pending or completed legal action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of such corporation), by reason of the fact that such person is or was
an officer or director of such corporation, or is or was serving at the request
of such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such officer or director acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's best
interests and, for criminal proceedings, had no reasonable cause to believe that
his conduct was illegal. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him
against the expenses which such officer or director actually and reasonably
incurred.
The Amended and Restated Certificate of Incorporation of Merrill Lynch
Municipal ABS, Inc. provide for indemnification of officers and directors to the
full extent permitted by the Delaware General Corporation Law.
The Series Trust Agreement for each Series of Receipts will provide either
that the Registrant and the partners, directors, officers, employees and agents
of the Registrant, or that the Trustee and the partners, directors, officers,
employees and agents of the Trustee, will be
II-1
<PAGE>
entitled to indemnification by the Trust Estate and will be held harmless
against any loss, liability or expense incurred in connection with any legal
action relating to the Series Trust Agreement or the Receipts, other than any
loss, liability or expense incurred by reason of willful misfeasance, bad faith
or gross negligence in the performance of his or its duties thereunder or by
reason of reckless disregard of his or its obligations and duties thereunder.
ITEM 16. EXHIBITS.
EXHIBIT
NO. DESCRIPTION
------- ------------
1.1 Form of Underwriting Agreement.*
4.1 Form of Series Trust Agreement.*
4.2 Form of Bond Sale Agreement.*
5.1 Opinion of Cadwalader, Wickersham & Taft with respect to
certain matters involving the Receipts.*
8.1 Opinion of Cadwalader, Wickersham & Taft as to tax matters.*
23.1 Consent of Cadwalader, Wickersham & Taft (included as part of
Exhibits 5.1 and 8.1).*
24.1 Power of Attorney (contained on page II-5 of this Registration
Statement).*
99.1 Additional Exhibits: Financial Information of Bond Insurers.*
[* To be filed by amendment.]
ITEM 17. UNDERTAKINGS.
(a) Undertaking pursuant to Rule 415.
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof; and
II-2
<PAGE>
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act of 1933 and will
be governed by the final adjudication of such issue.
(c) Filings incorporating subsequent Exchange Act documents by reference.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 (including the requirement that the
securities be rated investment grade at the time of sale) and has duly caused
this Pre-Effective Amendment No. 3 to Form S-3 Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in New York
City, State of New York, on November 30, 1999.
MERRILL LYNCH MUNICIPAL ABS, INC.
By: /s/ EDWARD J. SISK
-------------------------------------
Name: Edward J. Sisk
Title: Vice President
II-4
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS PRE-EFFECTIVE AMENDMENT NO. 3 TO FORM S-3 REGISTRATION STATEMENT HAS BEEN
SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES
INDICATED.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- -----
<S> <C> <C>
* President and Chairman of the Board November 30, 1999
- -----------------------------------------
Robert C. Barber
* Treasurer, Chief Financial Officer and November 30, 1999
- ----------------------------------------- Chief Accounting Officer
Thomas Cassano
* Director November 30, 1999
- -----------------------------------------
John Lawlor
* Director November 30, 1999
- -----------------------------------------
Donald J. Puglisi
By: /s/ EDWARD J. SISK
---------------------------------
Edward J. Sisk
Attorney-in-Fact
</TABLE>
(*) Edward J. Sisk, by signing his name hereto, does sign this document on
behalf of the person indicated above pursuant to a power of attorney duly
executed by such person and filed with the Securities and Exchange
Commission.
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT DESCRIPTION NUMBERED PAGE
------- ------------ ---------------
<S> <C> <C>
1.1 Form of Underwriting Agreement.*
4.1 Form of Series Trust Agreement.*
4.2 Form of Bond Sale Agreement.*
5.1 Opinion of Cadwalader, Wickersham & Taft with respect to certain
matters involving the Receipts.*
8.1 Opinion of Cadwalader, Wickersham & Taft as to tax matters.*
23.1 Consent of Cadwalader, Wickersham & Taft (included as part of
Exhibits 5.1 and 8.1).*
24.1 Power of Attorney (contained on page II-5 of this Registration
Statement).*
99.1 Additional Exhibits: Financial Information of Bond Insurers.*
* To be filed by amendment.
</TABLE>
II-6
