AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1999
REGISTRATION NO. 333-71927
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
PRE-EFFECTIVE AMENDMENT NO. 1
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
MERRILL LYNCH MUNICIPAL ABS, INC.
(Sponsor of the trusts described herein)
------------------------------
DELAWARE 133698229
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
WORLD FINANCIAL CENTER
NORTH TOWER, 9TH FLOOR
250 VESEY STREET
NEW YORK, NEW YORK 10281-1309
(212) 415-7400
----------------------------------------
(Address of principal executive offices)
EDWARD SISK
WORLD FINANCIAL CENTER
NORTH TOWER, 9TH FLOOR
250 VESEY STREET
NEW YORK, NEW YORK 10281-1309
(212) 415-7400
---------------------------------------
(Name and address of agent for service)
------------------------------
COPIES TO:
LARY STROMFELD, ESQ.
CADWALADER, WICKERSHAM & TAFT
100 MAIDEN LANE
NEW YORK, NEW YORK 10038
(212) 504-6000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [x]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED BEING REGISTERED PER UNIT (1) OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Pass Through Floating Tax-Exempt Receipts $ 1,000,000.00 100% $1,000,000.00 $278
====================================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<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.
PRELIMINARY PROSPECTUS SUPPLEMENT, SUBJECT TO COMPLETION, DATED [ ], 1999
(To Prospectus Dated , 1999
PROSPECTUS SUPPLEMENT
(to Prospectus dated , 1999)
Pass Through Floating Tax-Exempt Receipt Trust 199_
Issuer
Merrill Lynch Municipal ABS, Inc.
Sponsor
$ Pass Through Floating Tax-Exempt Receipts
("P-FLOATs"(SM)), Series R-
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
The Issuer --
o will issue a series of Pass Through Floating Tax-Exempt Receipts (which are
offered for sale here) ("P-FLOATs"(SM)) and Residual Interest Tax-Exempt
Securities Receipts (which are not offered for sale here) ("RITES"(SM) and,
together with the P-FLOATs, the "Receipts"); and
o will own --
o municipal securities of one or more maturities and credits identified
on Schedule A of this prospectus supplement (the "Bonds");
o principal and interest payments received on the Bonds pending their
distribution to investors; and
o any third-party insurance policies on the Bonds.
The P-FLOATs of this Series --
o will be issued in book-entry form through the facilities of The Depository
Trust Company. 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 principal payments,
any redemption premium and the interest payable on Bonds held by the
Issuer;
o will be entitled to receive certain future payments of principal, interest
and any redemption premium on the Bonds;
o will be paid only from the assets held by the Issuer; and
o will be subject to optional and mandatory tender at a purchase price of par
plus accrued interest.
- --------------------------------------------------------------------------------
Price to Public(1) Underwriting Discounts Proceeds to Seller
and Commissions(2)
- --------------------------------------------------------------------------------
[Per P-FLOATs] 100% N/A 100%
- --------------------------------------------------------------------------------
- --------------------
[(1) Plus accrued interest, if any.
(2) Underwriter will not receive a discount or commission, but will receive a
Remarketing Fee in its capacity as Remarketing Agent.]
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: (i) the accompanying Prospectus, which
provides general information, some of which may not apply to a particular series
of Receipts such as your Receipts; and (ii) 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.
The Index to Significant Prospectus Supplement Definitions on page S-6 of
this Prospectus Supplement and the Index to Significant Prospectus Definitions
on page 38 of the Prospectus direct you to the locations of the definitions of
capitalized terms used in each of the documents. The Prospectus defines any
capitalized terms that are not defined in this Prospectus Supplement and that do
not have obvious meanings.
i
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
SUMMARY.....................................................................S-1
RISK FACTORS................................................................S-3
Limited Information.....................................................S-3
Tax Exempt Status.......................................................S-3
Limited Secondary Market................................................S-3
Timing of Interest and Principal Payments...............................S-3
Termination of Option to Tender.........................................S-3
Tender Option Termination Events........................................S-3
Change in Determining Floating Rate.....................................S-3
Sources of Payment......................................................S-3
Purchase Price of Tendered Receipts.....................................S-4
RITES Holder Consent....................................................S-4
Trustee Advance of Funds................................................S-5
Year 2000 Problem.......................................................S-5
THE LIQUIDITY PROVIDER......................................................S-6
Description of Liquidity Provider.......................................S-6
Financial Information of Liquidity Provider.............................S-6
PLAN OF DISTRIBUTION........................................................S-6
RATINGS.....................................................................S-6
LEGAL MATTERS...............................................................S-7
REPORTS TO RECEIPTHOLDERS...................................................S-7
YEAR 2000 PROBLEM...........................................................S-7
ADDITIONAL INFORMATION......................................................S-8
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.
The Pass Through Floating Tax-Exempt Receipts offered for sale in this
Prospectus Supplement ("P-FLOATs" (SM)) and Residual Interest Tax-Exempt
Securities Receipts, which are not offered for sale in this Prospectus
Supplement ("RITES" (SM) and, together with the P-FLOATs, the "receipts")
represent an undivided beneficial ownership interest in tax-exempt municipal
bonds deposited with the trustee. One hundred percent of the principal amount of
P-FLOATs for this Series initially will be offered on the date of original
issue, [ , 1999]. 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 originally issued, the
aggregate principal balances of the bonds will be $[ ], and the aggregate market
value of the bonds will be $[ ].
The bonds underlying the receipts will consist of [AMT][Non-AMT] general
obligation bonds and revenue bonds issued by states, municipalities and public
authorities. 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. Specific information with respect to each bond is contained in
the schedule of bonds attached to this Prospectus Supplement.
The sponsor, Merrill Lynch Municipal ABS, Inc., a Delaware corporation,
has arranged for the purchase of the bonds. The seller, Merrill Lynch Pierce
Fenner & Smith Incorporated, a Delaware corporation d/b/a Merrill Lynch & Co.,
will sell the bonds to the issuer, Pass Through Floating Tax Exempt Receipt
Trust 1999[ ], a Delaware statutory business trust established by the sponsor.
[Certain bonds will have been underwritten by the seller at the time of their
initial issuance.]
After purchasing the bonds from the seller, the issuer will hold the
bonds and issue receipts, which will consist of both the 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.
As a condition to issuance, the receipts must be rated [ ] by the rating
agency, [ ], on the date of original issue. 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.
S-1
<PAGE>
The remarketing agent, Merrill Lynch Pierce Fenner & Smith Incorporated,
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.
Upon issuance of the receipts, the bonds will be deposited by the issuer
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 (but not principal) on the P-FLOATs monthly, 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.
P-FLOATs are subject to tender to the remarketing agent either at the
option of the investors or pursuant to a mandatory tender. An optional tender
occurs when a investor decides to tender a P-FLOATs in exchange for that
P-FLOATs' par value. A mandatory tender occurs upon certain designated events
and may be either partial (i.e., requiring the tender of certain affected
P-FLOATs) or complete (i.e., requiring 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 resell any tendered
P-FLOATs.
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 sell, or is prohibited from
remarketing, any P-FLOATs that has been tendered either (i) at the option of the
investor, or (ii) 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.
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 and 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. You are
advised to consult your own tax advisor on the income tax considerations
applicable to your purchase of P-FLOATs.
S-2
<PAGE>
RISK FACTORS
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:
LIMITED INFORMATION IS PROVIDED REGARDING THE BONDS AND ANY BOND ISSUER
This Prospectus Supplement and the accompanying Prospectus do 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 investigate the payment and
credit characteristics of the Bonds before purchasing Receipts.
The Sponsor will update Schedule A through periodic reports filed under
the Securities Exchange Act.
THE TAX-EXEMPT STATUS OF THE BONDS HAS NOT BEEN UPDATED
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 Depository identified on Schedule A
to this Prospectus. Prior to the Date of Original Issue, the Sponsor will
determine whether notice of any such event is on file with any such Nationally
Recognized Municipal Securities Depository. However, certain of the Bonds may
not be subject to such 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. If a secondary market does develop, it may be
temporary or may not foster circumstances that permit you to resell your
P-FLOATs.
THE TIMING OF INTEREST AND PRINCIPAL PAYMENTS ON P-FLOATs DEPENDS ON THE
TIMING OF PAYMENTS ON BONDS
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. The Trustee may, but is not obligated to, advance
its own funds to distribute interest (but not principal) on P-FLOATs monthly,
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.
CERTAIN EVENTS COULD RESULT IN THE TERMINATION OF YOUR OPTION TO TENDER
YOUR P-FLOATs
P-FLOATs will be converted to Fixed Rate Receipts if certain events
occur. 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. Under many circumstances, 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 REPRESENTING
A BOND WILL TERMINATE, WITHOUT NOTICE, IF CERTAIN EVENTS CALLED "TENDER OPTION
TERMINATION EVENTS" OCCUR
Your right to optionally tender the portion of a P-FLOATs representing a
particular Bond will terminate, without notice, if certain 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 to you. Under some circumstances, 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
S-3
<PAGE>
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.
THE PURCHASE PRICE OF RECEIPTS TENDERED BY INVESTORS FOR PURCHASE WILL
BE PAYABLE SOLELY FROM THE PROCEEDS OF REMARKETING TO NEW INVESTORS OR TO THE
LIQUIDITY PROVIDER
The purchase price of Receipts tendered by investors for purchase will
be payable solely from the proceeds of remarketing the tendered Receipts to new
investors. If the Remarketing Agent is unable to remarket all tendered Receipts
to new investors, it will remarket them to the Liquidity Provider, who will
purchase the Receipts with funds drawn under the Liquidity Facility described in
this Prospectus Supplement. Under certain circumstances, the Liquidity Facility
may be suspended or terminated without notice.
THE RITES HOLDER IS AUTHORIZED TO PROVIDE CONSENT FOR CERTAIN ACTIONS
THAT COULD POTENTIALLY AFFECT ALL RECEIPTHOLDERS EVEN THOUGH THE INTERESTS OF
THE RITES HOLDER MAY NOT COINCIDE WITH THE RIGHTS OF P-FLOATs HOLDERS
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 (i.e., 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, certain actions that could affect the
level of the P-FLOATs interest rate 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 (among other things) the provider of the Liquidity Facility.
Although a replacement Liquidity Facility must meet certain 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.
S-4
<PAGE>
THE TRUSTEE'S DECISION TO ADVANCE FUNDS TO DISTRIBUTE INTEREST ON
P-FLOATs MONTHLY IS AT TRUSTEE'S SOLE DISCRETION
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. 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.
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 (e.g., computer databases) and
non-information technology systems (e.g., elevators) 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.
S-5
<PAGE>
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.] [In accordance with this act, [ ] files reports and other information
with the Securities and Exchange Commission.] 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 and is qualified by reference to the
Liquidity Provider's audited consolidated financial statements and notes (which
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. Such information
is qualified in its entirety by the more detailed information appearing in the
documents and financial statements referenced above.
PLAN OF DISTRIBUTION
The Sponsor has entered into an underwriting agreement (the "Underwriting
Agreement") with Merrill Lynch, Pierce, Fenner & Smith Incorporated (the
"Underwriter"), as underwriter. The Underwriting Agreement provides that the
obligations of the Underwriter are subject to certain 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 "Act").
The Sponsor has agreed to indemnify the Underwriter against civil
liabilities, including liabilities under the Act or contributions to payments
the Underwriter may be required to make.
RATINGS
The long-term rating of the Receipts is based upon the credit rating of the
Bond issuers or, if a Bond is insured, 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
upon the
S-6
<PAGE>
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 so long as such Receipts benefit from the Liquidity Facility. The
ratings on the Receipts do not reflect Advances, if any, 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 and 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 upon current
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 certain tax
aspects of the Receipts. The form of opinion of Counsel to the Sponsor relating
to certain tax aspects 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 information
about the Issuer. The financial information contained in the reports will not be
prepared in accordance with generally accepted accounting principles. 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 Sponsor, Seller and Remarketing Agent [and Liquidity Provider]
(collectively, "Merrill Lynch" entities) 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 (as
further discussed) of Merrill Lynch's Year 2000 efforts was approximately 95%
completed as of January 31, 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 certain 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.
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 (windowing is used on
an exception basis only), test data is prepared, and each system or application
is tested using a variety of Year 2000 scenarios. 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 January 31, 1999, production testing was approximately 93% completed. In July
1998, Merrill Lynch participated in an industry-wide Year 2000 systems test
sponsored by the Securities Industry Association ("SIA"), in which selected
firms tested their computer systems in mock stock trades that simulated dates in
December 1999 and January 2000. Merrill Lynch will participate in further
industry-wide testing sponsored by the SIA, which will involve an expanded
number of firms, transactions, and conditions. Merrill Lynch also participated
in various other domestic and international industry tests during 1998.
S-7
<PAGE>
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 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.
At year-end 1998, the total estimated expenditures for the entire Year
2000 Compliance Initiative were approximately $425 million, of which
approximately $125 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 Nationally Recognized
Municipal Securities Information Repository ("NRMSIR") identified on Schedule A
to the Prospectus or an appropriate state information depository. You may also
obtain from a NRMSIR identified on Schedule A to the Prospectus (at a charge for
non-subscribers) the annual reports and event notices required under Rule
15c2-12 contracts. The Sponsor will update Schedule A through periodic reports
filed under the Securities Exchange Act of 1934.
S-8
<PAGE>
INDEX OF SIGNIFICANT
PROSPECTUS SUPPLEMENT DEFINITIONS
Page
----
Bonds..................................................................... cover
Daily Mode.................................................................. S-2
Date of Original Issue...................................................... S-1
Interest Mode............................................................... S-2
Issuer...................................................................... S-1
Liquidity Facility.......................................................... S-2
Liquidity Provider...........................................................S-2
NRMSIR...................................................................... S-8
P-FLOATs..............................................................cover, S-1
Rating Agency............................................................... S-1
Receipts..............................................................cover, S-1
RITES.................................................................cover, S-1
Schedule of Bonds........................................................... S-1
Securities Act of 1933...................................................... S-6
Seller...................................................................... S-1
SID ........................................................................ S-8
Sponsor..................................................................... S-1
Term Mode................................................................... S-2
Trustee..................................................................... S-2
Underwriter................................................................. S-6
Underwriting Agreement...................................................... S-6
Weekly Mode................................................................. S-2
S-9
<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:(1)
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:
- ----------
(1) This Bond is a [Premium Bond] [DeMinimis Market Discount Bond] [Market
Discount Bond]. If this is a Premium Bond, attach a schedule of the
Unamortized Premium Percentage.
A-1
<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.
PRELIMINARY PROSPECTUS, SUBJECT TO COMPLETION, DATED [ ], 1999
Merrill Lynch Municipal ABS, Inc.
Sponsor
Pass Through Floating Tax-Exempt Receipts
("P-FLOATs" (SM))
(Issuable in Series)
----------
- --------------------------------------------------------------------------------
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 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 may be used to offer and sell any series of receipts only if
accompanied by the prospectus supplement for that series.
- --------------------------------------------------------------------------------
Each Issuer --
o will issue a series of Pass Through Floating Tax-Exempt Receipts (which are
offered for sale here) ("P-FLOATs"(SM)) and Residual Interest Tax-Exempt
Securities Receipts (which are not offered for sale here) ("RITES"(SM))
and, together with the P-FLOATs, the "Receipts"); and
o will own --
o municipal securities of one or more maturities and credits (the
"Bonds");
o principal and interest payments received on the Bonds pending their
distributions to investors; and
o any third-party insurance policies on the Bonds.
P-FLOATs of each Series --
o will be issued in book-entry form through the facilities of The Depository
Trust Company. 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 principal payments,
any redemption premium and the interest payable on Bonds held by the
related Issuer;
o will be entitled to receive certain future payments of principal, interest
and any redemption premium on the Bonds;
o will be paid only from the assets held by the related Issuer; 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 _________, 199
Merrill Lynch & Co.
(SM) Service Mark of Merrill Lynch, Pierce, Fenner & Smith Incorporated
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SUMMARY........................................................................................... 1
RISK FACTORS...................................................................................... 7
INTRODUCTION...................................................................................... 10
INTEREST AND PRINCIPAL............................................................................ 10
Description of Interest Modes................................................................. 10
Distribution of Interest...................................................................... 11
Priority in Distribution of Interest.......................................................... 11
Period that Floating Rate is in Effect........................................................ 11
Method of Determining the Interest Rate....................................................... 12
Conversion of Interest Mode................................................................... 12
Distribution of Principal..................................................................... 12
OPTIONAL TENDER OF P-FLOATs....................................................................... 13
Right of Optional Tender in Daily and Weekly Mode............................................. 13
Exercise of Tender Option..................................................................... 13
MANDATORY TENDER OF P-FLOATs...................................................................... 13
Mandatory Tender.............................................................................. 13
Complete Mandatory Tender with Right to Retain................................................ 13
Complete Mandatory Tender with No Right to Retain............................................. 14
Partial Mandatory Tender with No Right to Retain.............................................. 14
Procedures for Mandatory Tender............................................................... 14
Remarketing and Source of Funds for Purchase.................................................. 15
IMMEDIATE TERMINATION OF OPTIONAL AND MANDATORY TENDER RIGHTS..................................... 15
Tender Option Termination Events.............................................................. 15
Procedures for Tender Option Termination...................................................... 16
FIXED RATE CONVERSION............................................................................. 17
Fixed Rate Conversion Events.................................................................. 17
Procedures for Fixed Rate Conversion.......................................................... 17
WITHDRAWAL OF BONDS............................................................................... 17
Withdrawal Requirements....................................................................... 17
Procedures for Withdrawal..................................................................... 18
PROCEDURES FOR PURCHASE AND REMARKETING........................................................... 18
Remarketing of P-FLOATs....................................................................... 18
Funds for Purchases on Purchase Dates......................................................... 18
Procedures for Optional Tender when P-FLOATs Deposited with the Securities Depository......... 19
Investors to Comply with Tender and Election Procedures....................................... 20
DETAILS OF THE RECEIPTS........................................................................... 20
Voting on Bonds............................................................................... 20
Pro Rata Distribution......................................................................... 20
Book-Entry Only System for Receipts........................................................... 20
Registration, Transfer and Payments........................................................... 22
Prior Accrued Bond Interest................................................................... 23
Designated Office of the Trustee.............................................................. 23
REDEMPTION UPON REDEMPTION OF UNDERLYING BONDS.................................................... 23
Redemption of Receipts........................................................................ 23
Notice of Redemption.......................................................................... 23
Selection of Receipts to be Redeemed.......................................................... 24
Effect of Call for Redemption................................................................. 24
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
CERTAIN PROVISIONS OF THE TRUST AGREEMENT......................................................... 24
Purposes and Powers........................................................................... 24
No Additional Liabilities or Indebtedness..................................................... 24
The Trustee................................................................................... 24
The Co-Trustee................................................................................ 25
Trustee Advances.............................................................................. 25
Limited Liability............................................................................. 25
Resignation and Replacement of Trustee........................................................ 26
Amendments to the Trust Agreement............................................................. 26
Termination of the Trust Agreement............................................................ 27
Default on Bonds.............................................................................. 27
MISCELLANEOUS..................................................................................... 27
Fees and Expenses............................................................................. 27
Information for Investors..................................................................... 27
Certain Liabilities........................................................................... 28
THE BONDS......................................................................................... 28
Information About the Bonds................................................................... 28
Residual Ownership Date....................................................................... 28
Diversification Requirement................................................................... 28
THE SPONSOR....................................................................................... 29
THE REMARKETING AGREEMENT......................................................................... 29
THE LIQUIDITY FACILITY............................................................................ 30
Description of Liquidity Facility............................................................. 30
Termination of Obligations of Liquidity Provider.............................................. 30
Substitution of Successor Liquidity Provider.................................................. 31
Liquidity Provider Default.................................................................... 31
CERTAIN INCOME TAX CONSIDERATIONS................................................................. 31
Federal Income Tax Consequences............................................................... 31
Tax Exemption of the Bonds.................................................................... 32
Taxation of Investors......................................................................... 32
Additional Tax Considerations................................................................. 35
State and Local Tax Consequences.............................................................. 35
PLAN OF DISTRIBUTION.............................................................................. 36
USE OF PROCEEDS................................................................................... 36
RATING............................................................................................ 36
LEGAL MATTERS..................................................................................... 36
REPORTS TO RECEIPTHOLDERS......................................................................... 36
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE................................................. 37
ADDITIONAL INFORMATION............................................................................ 37
INDEX OF SIGNIFICANT PROSPECTUS DEFINITIONS....................................................... 38
EXHIBIT A--FORM OF OPINION OF SPECIAL COUNSEL AS TO CERTAIN TAX MATTERS
</TABLE>
ii
<PAGE>
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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
Pass Through Floating Tax-Exempt Receipts ("P-FLOATs"(SM)) and Residual Interest
Tax-Exempt Securities Receipts ("RITES"(SM) and, together with the P-FLOATs, the
"Receipts") will be issued in Series (each, a "Series"). The Receipts will
evidence an undivided beneficial interest in the principal payments, any
redemption premium and the interest payable on Bonds held by the Issuer.
The initial RITES holder is expected to 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 with respect to each Series will be a Delaware statutory business
trust established by the Sponsor (the "Issuer"). The Issuer will acquire
municipal securities of one or more maturities and credits (the "Bonds") for the
benefit of investors pursuant to a Series Trust Agreement (the "Trust
Agreement") among the Sponsor, the Trustee and the Co-Trustee. The related
Prospectus Supplement will specify the Issuer's principal office.
The RITES holder will be responsible for paying the fees, expenses and
liabilities (other than Trustee fees, Trustee advances and principal or interest
paid to P-FLOATs) incurred by the Issuer in connection with the Trust Agreement.
The Sponsor
Merrill Lynch Municipal ABS, Inc., a Delaware corporation, will act as sponsor
(the "Sponsor"). 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 (as described below) to the
Liquidity Provider or any Person that certifies that it does not then own any
P-FLOATs.
The Trustee
The related Prospectus Supplement will specify the trustee (the "Trustee") and
the co-trustee (the "Co-Trustee") for each Series of Receipts. The Sponsor may
remove the Trustee and Co-Trustee with the consent of either the RITES holder
(or, if there is more than one RITES holder, 100% of the RITES holders) or a
majority of P-FLOATs investors. See "CERTAIN PROVISIONS OF THE TRUST
AGREEMENT--The Trustee" on page 24 of this Prospectus and "--The Co-Trustee" on
page 25 of this Prospectus.
The Seller
Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation d/b/a
Merrill Lynch & Co., will act as seller (the "Seller"). The Seller will sell the
Bonds to the Issuer under a "Bond Sale Agreement" between the Seller and the
Issuer. The Seller will not be liable for any debts and obligations of, or
claims against, the Issuer. The Seller will not guarantee any payments to
investors and no investor will have any claim or recourse to the Seller's assets
for payment of any principal or interest on the Receipts.
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 are backed by the full
faith and credit (which includes 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.
The related Prospectus Supplement will specify the Bonds underlying each Series
of Receipts and will contain summary information about the Bonds. 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 and the
Seller have not investigated the financial condition or creditworthiness of any
bond issuer or bond insurer. 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 Nationally Recognized Municipal Securities
Information Repository ("NRMSIR"), identified on Schedule A of this Prospectus,
or an appropriate state information depository ("SID").
- --------------------------------------------------------------------------------
1
<PAGE>
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Denominations
The Issuer will issue Receipts in book-entry form through the facilities of The
Depository Trust Company. 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 holders of P-FLOATs on
the 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 (but not principal) on P-FLOATs monthly, 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 11 of this Prospectus and "--Distribution of Principal" on page 12 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
(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 "CERTAIN PROVISIONS OF THE TRUST
AGREEMENT -- Trustee Advances" on page 25 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 will act as the P-FLOATs
Remarketing Agent pursuant to the Trust Agreement and a Remarketing Agreement.
The Remarketing Agent may be removed by the Liquidity Provider with the consent
of either the RITES holder or a majority of the P-FLOATs holders. See "THE
REMARKETING AGREEMENT" on page 29 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, an
"Interest Mode"). See "INTEREST AND PRINCIPAL--Period that Floating Rate is in
Effect" on page 11 of this Prospectus. The interest rate on P-FLOATs (the
"Floating Rate") will be the minimum rate of interest that the Remarketing Agent
determines would result in a sale of each P-FLOATs (or 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 12 of
this Prospectus. The interest rate on the P-FLOATs also may be converted to a
Fixed Rate, as described below.
P-FLOATs for which the interest rate is determined for a term period 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 rate
and for the new term designated by the Remarketing Agent. If a P-FLOATs for
which the Floating Rate is determined for a term period is not retained by the
investor, then it will be remarketed by the Remarketing Agent to a new investor
or to the Liquidity Provider. See "MANDATORY TENDER OF P-FLOATs" on page 13 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.
P-FLOATs for which the frequency for determining the Floating Rate is changed,
or which are converted to Fixed Rate Receipts, 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. If the frequency for determining a P-FLOATs' Floating Rate is
changed 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 to a
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
new investor or to the Liquidity Provider. See "INTEREST AND PRINCIPAL --
Conversion of Interest Mode" on page 12 of this Prospectus.
Tender Option
Investors holding P-FLOATs for which the Remarketing Agent determines the
Floating Rate daily or weekly may tender their P-FLOATs for purchase by the
Tender Agent by giving notice to the Remarketing Agent and the Tender Agent
prior to the purchase date. The notice period is one Business Day for daily
periods or five Business Days for weekly periods. The Remarketing Agent will
remarket tendered P-FLOATs to a new investor or to the Liquidity Provider at a
price equal to par plus interest accrued at the Floating Rate (the "Purchase
Price"). See "OPTIONAL TENDER OF P-FLOATs" on page 13 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 13 of this
Prospectus.
Tender Option Termination Events
An investor's right to optionally tender the portion of P-FLOATs corresponding
to a particular Bond (or to have the portion of its P-FLOATs represented by that
Bond purchased upon a Mandatory Tender Event) will terminate immediately,
without notice, if any of the following events occurs with respect to that Bond:
(i) the bond issuer or bond insurer fails to pay any installment of
principal of, or any premium or interest on, the Bond;
(ii) certain events of bankruptcy or insolvency of the bond issuer or the
bond insurer of the Bond;
(iii) the bond rating is downgraded to below investment grade (i.e., "BBB-"
or the equivalent); or
(iv) certain events that would adversely affect the tax exempt status of
the Bond.
If one of the events described above occurs, the Trustee will:
(i) distribute the affected Bond to investors; or
(ii) if the market value of the Bond is greater than the Purchase Price of
the portion of P-FLOATs corresponding to that Bond, sell the Bond and use the
proceeds to pay first the Purchase Price plus 10% of any 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 15 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 28 of this Prospectus.
If the sale of a Bond on its Residual Ownership Date would result in a net gain
(as defined under "Withdrawal of Bonds" below), then the P-FLOATs represented by
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 14 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:
(i) the Liquidity Facility is replaced;
(ii) the interest rate mode is converted to another mode or to a Fixed Rate
at the discretion of the Remarketing Agent;
(iii) a term period expires;
(iv) any Fixed Rate Conversion Event occurs (as described below); or
(v) the Diversification Requirement is violated, as described on page 33 of
this Prospectus.
If an event described in clauses (i), (ii), (iii) or (iv) 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
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3
<PAGE>
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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 (v)
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 18 of this
Prospectus.
Mandatory Tender in Part
A portion of an investor's P-FLOATs corresponding to the affected Bond will be
subject to mandatory tender to the Liquidity Provider if any of the following
events occurs with respect to that Bond:
(i) 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 not below
investment grade, in which case a Tender Option Termination Event will occur)
and the Liquidity Provider elects to require a partial mandatory tender;
(ii) the Trustee receives notice from the Liquidity Provider that the
Liquidity Facility will be extended upon its expiration except with respect to
the affected Bond (i.e., the Liquidity Facility is not renewed for the affected
Bond or Bonds); or
(iii) the Residual Ownership Date of the Bond occurs and a sale of the
Bonds on such date would result in a net gain (as defined under "Withdrawal of
Bonds" below).
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 (as defined under
"Withdrawal of Bonds" below) 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 13 of this Prospectus.
Fixed Rate Conversion Events
All P-FLOATs will be converted to Fixed Rate Receipts if any of the following
events occurs (each, a "Fixed Rate Conversion Event"):
(i) the Liquidity Facility expires, unless it is extended or replaced for
some of the Bonds;
(ii) an event of default occurs under the Liquidity Facility and the
Liquidity Provider elects to convert to a Fixed Rate;
(iii) five business days elapse after at least 25% of P-FLOATs were
tendered without remarketing and the Liquidity Provider elects to convert to a
Fixed Rate;
(iv) certain 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
(v) 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
(described below).
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 (as Fixed Rate Receipts) that have not been
retained by investors, to a new investor or the Liquidity Provider, at the
Purchase Price. 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 (i)
the coupon rate for that Bond minus Trustee fees (the "Maximum Fixed Rate") and
(ii) the Municipal Market Data insured bond rate in effect on the conversion
date for the term closest to the "average life" (the "index rate") 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 17 of the
Prospectus.
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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 (the "Liquidity Facility") with the liquidity provider
designated by the Sponsor and identified in the Prospectus Supplement (the
"Liquidity Provider"). 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 Liquidity Provider may be removed by the RITES holder and replaced with the
consent of the Trustee on behalf of P-FLOATs investors.
Under the Liquidity Facility, the Liquidity Provider will purchase P-FLOATs at
the Purchase Price if the Remarketing Agent is unable to sell to another
investor or is prohibited from remarketing any P-FLOATs that has been tendered
(i) at the option of its owner or (ii) pursuant to a Mandatory Tender Event. The
Liquidity Provider will become the holder of any P-FLOATs that it purchases (as
described under "Mandatory Tender Events" above). 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.
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 representing 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 30 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: (i) a proportionate amount of outstanding
Trustee fees and Trustee advances; and (ii) 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 excess
of any gain on the Bond withdrawn over the weighted-average of any gain on the
Bonds remaining (such difference, the "net gain").
For purposes of the preceding clause (ii), "gain" on a Bond means, in general,
the bid-side value of the Bond, as determined by the Liquidity Provider, over
the price at which the Issuer acquired the Bond (adjusted for any accrued
original issue discount or any amortized premium). Upon a withdrawal of Bonds,
the Trustee will distribute from amounts it receives from the Sponsor to the
P-FLOATs holders their pro rata share of the principal payment received,
interest accrued thereon, plus 10% of the payment of any net gain received under
the preceding clause (ii). 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 and, during the holding period, 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:
(i) withdrawals may only occur once per month;
(ii) no more than 25% of the initial amount of Bonds held by the Issuer may
be withdrawn in a single withdrawal;
(iii) withdrawals may only be made in the minimum principal amount of $5
million;
(iv) there may be no withdrawal if the withdrawal will cause a rating
agency to downgrade the rating of the P-FLOATs; and
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(v) there may be no withdrawal if the withdrawal will violate the
Diversification Requirement.
See "WITHDRAWAL OF BONDS" on page 17 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 "CERTAIN
PROVISIONS OF THE TRUST AGREEMENT--Termination of the Trust Agreement" on page
27 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 and attributable to payments of interest on the
Bonds that are excludable from federal gross income will be excludable from the
federal gross income of the investors. See "CERTAIN INCOME TAX CONSIDERATIONS"
on page 31 of this Prospectus. You are advised to 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 (representing the
likelihood of receiving scheduled principal and interest at the Floating Rate)
is based upon the credit rating of the Bonds or, if the Bonds are insured, the
bond insurer.
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 36 of this Prospectus and in the
Prospectus Supplement.
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The following information will be supplemented in the Prospectus
Supplement (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 and
do not contain all the information that may be important to you. Additional
information about the Receipts is set forth in the Series Trust Agreement. You
are urged to 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:
LIMITED INFORMATION IS PROVIDED REGARDING THE BONDS AND ANY BOND ISSUER
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
investigate the payment and credit characteristics of the Bonds before
purchasing Receipts.
The Sponsor will update Schedule A through periodic reports filed under
the Securities Exchange Act.
THE TAX-EXEMPT STATUS OF THE BONDS HAS NOT BEEN UPDATED
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 Depository identified on Schedule A
to this Prospectus. Prior to the Date of Original Issue, the Sponsor will
determine whether notice of any such event is on file with any such Nationally
Recognized Municipal Securities Depository. However, certain of the Bonds may
not be subject to such 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. If a secondary market does develop, it may be
temporary or may not foster circumstances that permit you to resell your
P-FLOATs.
THE TIMING OF INTEREST AND PRINCIPAL PAYMENTS ON P-FLOATs DEPENDS ON THE
TIMING OF PAYMENTS ON BONDS
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. The Trustee may, but is not obligated to, advance
its own funds to distribute interest (but not principal) on P-FLOATs monthly,
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.
CERTAIN EVENTS COULD RESULT IN THE TERMINATION OF YOUR OPTION TO TENDER
YOUR P-FLOATs
P-FLOATs will be converted to Fixed Rate Receipts if certain events
occur. 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
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there is currently no secondary market. Under many circumstances, 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 REPRESENTING
A BOND WILL TERMINATE, WITHOUT NOTICE, IF CERTAIN EVENTS CALLED "TENDER OPTION
TERMINATION EVENTS" OCCUR
Your right to optionally tender the portion of a P-FLOATs representing a
particular Bond will terminate, without notice, if certain 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 to you. Under some circumstances, 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.
THE PURCHASE PRICE OF RECEIPTS TENDERED BY INVESTORS FOR PURCHASE WILL
BE PAYABLE SOLELY FROM THE PROCEEDS OF REMARKETING TO NEW INVESTORS OR TO THE
LIQUIDITY PROVIDER
The purchase price of Receipts tendered by investors for purchase will
be payable solely from the proceeds of remarketing the tendered Receipts to new
investors. If the Remarketing Agent is unable to remarket all tendered Receipts
to new investors, it will remarket them to the Liquidity Provider, who will
purchase the Receipts with funds drawn under the Liquidity Facility described in
this Prospectus Supplement. Under certain circumstances, the Liquidity Facility
may be suspended or terminated without notice.
THE RITES HOLDER IS AUTHORIZED TO PROVIDE CONSENT FOR CERTAIN ACTIONS
THAT COULD POTENTIALLY AFFECT ALL RECEIPTHOLDERS EVEN THOUGH THE INTERESTS OF
THE RITES HOLDER MAY NOT COINCIDE WITH THE RIGHTS OF P-FLOATs HOLDERS
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 (i.e., 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, certain actions that could affect the
level of the P-FLOATs interest rate 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 holders is determined on the basis of then-current market
conditions, which will reflect (among other things) the provider of the
Liquidity
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Facility. Although a replacement Liquidity Facility must meet certain 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.
TRUSTEE'S DECISION TO ADVANCE FUNDS TO DISTRIBUTE INTEREST ON P-FLOATs
MONTHLY IS AT TRUSTEE'S SOLE DISCRETION
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. 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.
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 (e.g., computer databases) and
non-information technology systems (e.g., elevators) 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.
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INTRODUCTION
The P-FLOATs offered by this Prospectus (collectively with the RITES, the
"Receipts") relate to the municipal securities described in a given Prospectus
Supplement (the "Bonds") and will be delivered under a Series Trust Agreement
among Merrill Lynch Municipal ABS, Inc., as Sponsor (the "Sponsor"), the entity
identified as Trustee and Tender Agent in the Prospectus Supplement (the
"Trustee" or the "Tender Agent") and the entity identified as Co-Trustee in the
Prospectus Supplement (the "Co-Trustee"). The Bonds will be sold to the Issuer
under a "Bond Sale Agreement" between Merrill Lynch, Pierce, Fenner & Smith
Incorporated as seller (the "Seller") and the Issuer. Merrill Lynch, Pierce,
Fenner & Smith Incorporated also will serve as Remarketing Agent (the
"Remarketing Agent"). The "Date of Original Issue" 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 (the "Standard Terms"). This Prospectus will refer to the Series
Trust Agreement, the Standard Terms 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:
(i) the Bonds described in the Prospectus Supplement;
(ii) all distributions of principal, any premium or interest on the Bonds
received by the Trustee after the Date of Original Issue;
(iii) all right, title and interest in and to the distributions; and
(iv) any third-party insurance policies on the Bonds.
Each P-FLOATs evidences an undivided beneficial interest in, and the right
to receive certain future payments of, principal, interest and any redemption
premium on all of the Bonds and 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. Each RITES evidences an undivided
beneficial interest in the right to receive certain 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 20 of this Prospectus.
INTEREST AND PRINCIPAL
Description of Interest Modes
The P-FLOATs will accrue interest at an interest rate (the "Floating Rate")
that is reset either daily, weekly or for term periods of up to one year (each,
an "Interest Mode"). The P-FLOATs will be issued in the Interest Mode and 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 12 of this Prospectus. The P-FLOATs
are also subject to conversion to a Fixed Rate if certain events occur. See
"FIXED RATE CONVERSION" on page 17 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 (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
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months. The Trustee will distribute interest to investors on the dates described
below. Interest due on each distribution date will include interest accrued for
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
(each, an "accrual period").
Distribution of Interest
The Trustee will distribute interest to P-Floats investors (each, an
"Interest Payment Date") 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, 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 (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. Interest on
Trustee advances will be paid by the RITES holder 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 "CERTAIN PROVISIONS OF THE TRUST
AGREEMENT--Trustee Advances" on page 25 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: (i) to pay Trustee fees and to reimburse the Trustee for any advances;
(ii) to distribute interest on the related P-FLOATs; and (iii) to distribute
interest on the related 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, (or, if that day is not a Business Day, 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.
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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 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 and each investor requesting to be informed
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 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 weighted average coupon of the Bonds minus
Trustee fees (as specified in the Prospectus Supplement) (the "Maximum Floating
Rate"). 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 (i) the coupon
rate for that Bond minus Trustee fees (the "Maximum Fixed Rate") and (ii) the
Municipal Market Data insured bond rate in effect on the conversion date for the
term closest to the "average life" (the "index rate") 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 17 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 (i) any Business Day, when the change is from Daily or
Weekly Mode and (ii) the day after the last day of the Term Period, when the
change is from Term Mode (each, a "Mode Change Date"). The P-FLOATs are also
subject to conversion to a Fixed Rate if certain events occur. See "FIXED RATE
CONVERSION--Fixed Rate Conversion Events" on page 17 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 20 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
13 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. The Bonds held by the
Issuer will likely pay principal on many different payment dates; however, the
Trustee may 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.
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<PAGE>
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:
(i) the related Trust Agreement terminates;
(ii) a Tender Option Termination Event (or during any applicable grace
period) occurs;
(iii) a Mandatory Tender Event occurs (unless an investor is permitted
to, and does, retain his or her P-FLOATs); or
(iv) 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 irrevocable notice of tender to the Remarketing Agent and the Tender
Agent specifying (i) the principal amount of that investor's P-FLOATs to be
tendered, which must be in Authorized Denominations, and (ii) the date of tender
(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.
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 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 19 of this Prospectus. Any P-FLOATs appropriately
tendered and not remarketed will be purchased by the Liquidity Provider 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, P-FLOATs
(or portions) to the Tender Agent for purchase at the Purchase Price if a
"Mandatory Tender Event" occurs. Under certain 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
Liquidity Provider on the following dates if any of the following events occurs:
<TABLE>
DESCRIPTION OF MANDATORY TENDER EVENT RELATED MANDATORY TENDER DATE
- ------------------------------------- -----------------------------
<S> <C>
(i) the Liquidity Facility is replaced The fifth Business Day before the expiration
of the existing Liquidity Facility
(ii) the Interest Rate Mode is converted to The first Business Day of the new Interest
another Interest Rate Mode or to a Fixed Rate Rate Mode or Fixed Rate
(iii) a Term Period expires The first Business Day following the
expiration of the Term Period
(iv) a Fixed Rate Conversion Event occurs The first Business Day that
(as described below) the Fixed Rate is in effect
</TABLE>
13
<PAGE>
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 Trustee 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 above. P-FLOATs purchased on a Mandatory
Tender Date will receive only the Purchase Price.
Complete Mandatory Tender with No Right to Retain
P-FLOATs will be subject to mandatory tender, in whole, to the Liquidity
Provider 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 will not share in any profit on the Bonds as the result of a
complete mandatory tender, as described above. P-FLOATs purchased on a Mandatory
Tender Date will receive only the Purchase Price.
Partial Mandatory Tender with No Right to Retain
A portion of the P-FLOATs corresponding to each investor's pro rata
interest in the affected Bond will be subject to mandatory tender to the
Liquidity Provider if any of the following events occurs with respect to that
Bond:
(i) 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
not below investment grade, in which case a Tender Option Termination Event
will occur), and the Liquidity Provider elects to require a partial
mandatory tender;
(ii) the Trustee receives notice from the Liquidity Provider that the
Liquidity Facility will be extended upon its expiration except with respect
to the affected Bond; or
(iii) 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 portion) (the "Mandatory Tender Date").
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:
(i) the date the P-FLOATs will be subject to mandatory tender and the
reason for the mandatory tender;
(ii) whether the mandatory tender will be in whole or in part;
(iii) 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
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<PAGE>
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
(iv) if the mandatory tender is due to:
(a) replacement of the Liquidity Facility, the provisions 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 portion). The P-FLOATs (or specified portion) 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 portion) 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 18 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.
Liquidity Provider 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 (such difference,
the "net gain"). 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 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 17
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 chooses to approach
(including the RITES holder). The Issuer or its designee will calculate the net
gain based on the highest bid at which the 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
The investors' right to optionally tender the portion of a P-FLOATs
corresponding to a particular Bond (or to have the portion of its P-FLOATs
represented by that Bond purchased upon a Mandatory Tender Event) will terminate
immediately, without notice, if any of the following events occurs with respect
to that Bond (herein called "Tender Option Termination Events"):
(i) 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;
(ii) certain events of bankruptcy or insolvency of the bond issuer or
the bond insurer of the Bond;
(iii) the rating on any Bond is downgraded to below investment grade
(i.e., "BBB-" or the equivalent); or
(iv) certain events that would adversely affect the tax exempt status
of the Bond.
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<PAGE>
If one of the above-described events occurs, the Trustee will:
(i) if the market value of the affected Bonds is lower than the
Purchase Price, distribute the affected Bonds to investors; or
(ii) if the market value of the affected Bonds is greater than the
Purchase Price, sell the Bonds and use the proceeds to pay the Purchase
Price plus 10% of any gain on the affected Bonds to the P-FLOATs investors
and the balance of any proceeds to the RITES holder, as described below.
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 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 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
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 portion of P-FLOATs corresponding to that
Bond, then, on the Business Day following the day on which the notice required
above is given, the Trustee will:
(i) transfer a portion of 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 (as
nearly as may be practicable taking into account the minimum authorized
denomination of the Bonds) proportionate to the amount of P-FLOATs held by
that investor; and
(ii) distribute any affected Bonds remaining to the RITES holder.
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 the Purchase Price of the portion of P-FLOATs corresponding to that
Bond, 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. 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:
(i) to the Trustee, the proportionate amount of outstanding Trustee
fees and Trustee advances;
(ii) to P-FLOATs investors pro rata, an amount up to but not exceeding
the Purchase Price of the portion of P-FLOATs corresponding 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;
(iii) to P-FLOATs investors, 10% of any gain on the sale of the
affected Bonds; and
(iv) to the RITES holder, the balance of any proceeds of the sale of
Bonds.
Upon the completion of all distributions and payments for all affected
Bonds, the proportionate amounts of P-FLOATs and RITES will be canceled.
16
<PAGE>
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 10 of this
Prospectus. In addition, all P-FLOATs will be converted to Fixed Rate Receipts
if any of the following events occurs (each, a "Fixed Rate Conversion Event"):
(i) the Liquidity Facility expires, unless it is extended or replaced
with respect to at least a portion of the Bonds;
(ii) an event of default under the Liquidity Facility, and the
Liquidity Provider elects to convert to a Fixed Rate;
(iii) 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;
(iv) certain 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
(v) 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 (described below).
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 13 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
12 of this Prospectus.
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:
(i) a proportionate amount of P-FLOATs and RITES;
(ii) payment to the Trustee of a proportionate amount of outstanding
Trustee fees and Trustee advances; and
(iii) 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, an amount equal to any excess of any gain on
the Bond withdrawn over any weighted-average gain on the Bonds
remaining (such difference, the "net gain"). For purposes of this
clause, "gain" on a Bond generally means the bid-side value of the
Bond over the price at which the Bond was acquired by the Issuer
(adjusted for any accrued original issue discount or any amortized
premium).
17
<PAGE>
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 currently own any P-FLOATs. The Sponsor's right to withdraw Bonds is
subject to the following conditions:
(i) withdrawals may only occur once per month;
(ii) no more than 25% of the initial amount of Bonds held by the
Issuer may be withdrawn in a single withdrawal;
(iii) withdrawals may only be made in the minimum principal amount of
$5 million or more;
(iv) there may be no withdrawal if it will cause a rating agency to
downgrade the rating of the P-FLOATs; and
(v) there may be no withdrawal if it will violate the Diversification
Requirement.
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
under the preceding clause (iii)(c). 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.
Liquidity Provider to Determine Net Gain. The Liquidity Provider will
determine the net gain for the withdrawn Bond by soliciting bids from
broker-dealers located in New York City, selected by the Liquidity Provider in
its absolute discretion, and any other potential purchasers that the Liquidity
Provider chooses to approach (including the RITES holder). The Liquidity
Provider will calculate the net gain based on the highest bid at which the
Liquidity Provider 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: (i) a description of the
Bonds withdrawn; (ii) the principal amount of Bonds withdrawn; (iii) the amounts
to be distributed to investors as described above; and (iv) 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 (i) that is optionally tendered by an investor or (ii) 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 sell 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 (each, a "Purchase 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:
(i) proceeds received by the Tender Agent from the Remarketing Agent
from the P-FLOATs remarketing (if permitted); and
18
<PAGE>
(ii) 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. 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:
(i) 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
(ii) 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.
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 pursuant to the terms of the Liquidity Facility to the Tender Agent 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.
19
<PAGE>
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 (i) transferred by the Securities Depository to the Participant of that
investor or (ii) 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 (b) sent by registered mail to that investor at its 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 requires the vote of the owners of any Bonds
(including, without limitation, any action or consent to enforce rights or
remedies upon default), the Trustee will deliver to each investor its proxies
for the vote, returnable to the Trustee, within three Business Days of its being
informed of any action or consent. 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 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 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. The Depository Trust Company ("DTC")
will act as securities depository for the P-FLOATs (the "Securities
Depository"). 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 (the "Participants") deposit with DTC. DTC also
facilitates the settlement among Participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations (the "Direct Participants"). A
number of Direct Participants of DTC and the New
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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 such as 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 "Indirect Participants").
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 (the "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 (identified in a listing attached to
the Omnibus Proxy).
Principal and interest payments on the Bonds will be distributed by the
Trustee 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 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:
(i) the accuracy of DTC records or Participant of any investment in
the Receipts;
(ii) the delivery to any Participant, any investor or any other
person, other than DTC, of any notice with respect to the Receipts;
(iii) the payment to any Participant, any investor or any other
person, other than DTC, of any amount with respect to the Receipts; or
(iv) the failure of DTC to effect any transfer.
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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:
(i) paying distributions to investors;
(ii) giving notices of redemption, tender and other matters with
respect to the Receipts;
(iii) registering transfers with respect to the Receipts; or
(iv) 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 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 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 and
the Remarketing Agent, 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 (i) to
any investor of not less than $1,000,000 in aggregate
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principal amount of Receipts, at its option, according to wire instructions
given to the Trustee in writing for such purpose and (ii) to the Liquidity
Provider, if it holds P-FLOATs. The Trustee will distribute to the current
investors any interest payment on a Bond which is payable, but is not punctually
paid or provided for with respect to that Bond's scheduled interest payment
date, when the Trustee receives that interest payment, as provided in "INTEREST
AND PRINCIPAL--Distribution of Interest" on page 11 of this Prospectus.
Prior Accrued Bond Interest
The Trustee is likely to receive interest that accrued on each Bond before
the Date of Original Issue on the first date after the Date of the Original
Issue 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
(the "Designated Office") 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
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 "Bond Redemption Date"). 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:
(i) 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 (C) third, to the RITES
holders, the balance of the accrued interest;
(ii) 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
(iii) 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 (or, 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, 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.
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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.
CERTAIN PROVISIONS OF THE TRUST AGREEMENT
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: (a) purchasing, owning, holding and selling (whether itself or
through agents) the assets of the Issuer; (b) issuing and selling Receipts as
provided in the Trust Agreement; and (c) other activities as may be required by
the express term 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 foregoing activities.
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 (as discussed under "Trustee Advances" below). 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.
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.
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The Co-Trustee
One or more co-trustees (each a "Co-Trustee") 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 Bank 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 the
Bonds. 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 shall 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.
By purchasing any Receipt, each investor will be deemed to (i) authorize
the Trustee to deduct from interest payments on the Bonds Trustee fees and any
unreimbursed advances, (ii) 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 (iii) 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 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.
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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.
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 (i) obtaining or
maintaining any rating on the P-FLOATs and/or the RITES by any nationally
recognized securities rating agency, (ii) providing for a qualified Securities
Depository to replace DTC, or (iii) 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 (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
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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 (such consent not to 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:
(i) mandatory tender of all P-FLOATs due to violation of the
Diversification Requirement;
(ii) distribution of all of the Bonds (or the proceeds thereof) upon
the occurrence of a Tender Option Termination Event; or
(iii) redemption at maturity of all of the Bonds held by the Issuer;
provided, however, that in any event:
(i) discharge of any indenture or other document related to any of the
Bonds will not result in a termination of the Trust Agreement; and
(ii) 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 as described under "Tender
Option Termination Events" in this Prospectus) on a Bond from the bond issuer's
trustee or other applicable fiduciary or if an officer of the Trustee assigned
to the department administering the Trust Agreement has actual knowledge of any
such default on a Bond, then the Trustee will promptly notify the Tender Agent,
the Remarketing Agent, the Liquidity Provider and the investors. The Trustee's
notice will specify (i) the name and other relevant designation of the issuer
and the Bond, (ii) the date and nature of the default, and (iii) 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 investors.
See "DETAILS OF THE RECEIPTS--Voting on Bonds" on page 20 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 certain occurrences including:
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(i) any amendment of, or Prospectus Supplement to, the Trust
Agreement;
(ii) any resignation and removal of the Trustee, Tender Agent or
Remarketing Agent and the appointment of a successor Trustee, Tender Agent
or Remarketing Agent;
(iii) any redemption of Receipts;
(iv) any Fixed Rate Conversion Event or a Mandatory Tender Event;
(v) any Tender Option Termination Event;
(vi) the Receipts no longer being registered solely in the name of DTC
or its nominee;
(vii) any withdrawal of Bonds or redemption of Bonds; or
(viii) 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.
Certain Liabilities
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
(the "Code") 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 Date of Original Issue. 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. Neither the Sponsor nor the Seller has investigated the financial
condition or creditworthiness of any bond issuer or bond insurer However, before
the Date of Original Issue, 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 Date of Original Issue, of that Bond has
lapsed. The determination of "average life" will take into account sinking funds
for discount bonds and any early call date for premium bonds (e.g., 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 14 of this
Prospectus.
Diversification Requirement
Selection of Bonds held by the Issuer will be made by the Sponsor before
the Date of Original Issue. 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 (the "Diversification
Requirement"). Bonds that have been segregated upon a partial mandatory tender
will not be used to satisfy the Diversification Requirement.
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If the Diversification Requirement is violated, then the Receipts will be
subject to mandatory tender and they will be purchased from funds drawn under
the Liquidity Facility by the Tender Agent. The obligation of the Tender Agent
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 13 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:
(i) to the Trustee, any accrued and outstanding Trustee Fee and any
unreimbursed Trustee advances;
(ii) 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 (i) above, to be paid to the RITES holder;
(iii) 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;
(iv) to the P-FLOATs investors tendered on the Mandatory Tender Date,
an amount equal to 10% of any gain; and
(v) 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 Seller and 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 certain 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 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. The
Remarketing Agent will act as the agent of the tendering party who delivered the
notice of tender, and not as principal, in any such remarketing. 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: (a) act as agent for tendering investors in remarketing
P-FLOATs, (b) 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, (c) 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 (d) perform its duties and comply with the provisions of the Remarketing
Agreement.
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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 (the "Liquidity Facility") with the liquidity provider
specified in the Prospectus Supplement (the "Liquidity Provider"). 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 Liquidity
Provider may be removed by the RITES holder and replaced with the consent of the
Trustee on behalf of the P-FLOATs investors.
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 pursuant to the
Liquidity Facility (unless 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 [
]% per annum. The Liquidity Provider is not obligated to pay any net gain due to
investors upon a partial 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 (i)
the date specified in the Prospectus Supplement, unless extended by the
Liquidity Provider or (ii) 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
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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
representing 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 "MANDATORY TENDER OF P-FLOATs" on page 13 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:
(i) 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;
(ii) 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 authorized, executed and delivered and constitutes a
valid and binding obligation of the successor Liquidity Provider;
(iii) 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;
(iv) 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
(v) 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 (either event, a "Liquidity Provider
Default"), then 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 (i) 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 (ii) 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
15 of this Prospectus.
CERTAIN INCOME TAX CONSIDERATIONS
Federal Income Tax Consequences
The following 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
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administrative and judicial decisions as of the date of this Prospectus, all of
which are subject to change or possible differing interpretation. The Sponsor
will not seek or obtain any rulings from the Internal Revenue Service ("IRS")
regarding the 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 herein. The following discussion is directed solely to
investors that hold the Receipts as capital assets within the meaning of Section
1221 of the Code and 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 herein are based on the assumption that the terms of the
Trust Agreement and other instruments will be complied with and the accuracy of
certain representations and certifications. Upon delivery of the Receipts of
each Series, Cadwalader, Wickersham & Taft, special counsel to the Sponsor
("Special Counsel") will deliver its opinion in substantially the form of
opinion that is reproduced as Exhibit A to this Prospectus.
In the opinion of Special Counsel, subject to the discussion below under
"Taxation of Investors," assuming interest on the underlying Bonds is excludable
from gross income for federal income tax purposes, (i) a P-FLOATs investor's
share of the interest which accrued during the period (at the Floating Rate or,
if a Fixed Rate Conversion Event has occurred, the applicable Fixed Rate) that
the investor held its P-FLOATs will also be excludable and (ii) a RITES holder's
share of the interest which accrued during the period that such investor held
its RITES will also be so excludable.
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 of initial issuance and delivery of each Bond, bond counsel for
each Bond will have rendered 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 so
verify, the tax-exemption of interest on any Bond and has assumed, without any
inquiry, (i) the continuing correctness of the related opinion of Bond Counsel
and (ii) 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 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 (i) the passive nature
of the income of the Issuer will exempt it from the rule that publicly traded
partnerships are taxable as corporations and (ii) the P-FLOATs will not be
treated as indebtedness of the Issuer or the RITES holder.
Treatment of distributions to investors as tax-exempt interest requires
that investors be treated as members of the tax partnership constituted by the
Issuer. 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 (and distributions on the P-FLOATs will not be
treated as taxable "guaranteed payments") and 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
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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 be
inapplicable 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, has neither binding effect on the IRS nor
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 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 thereon 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, then distributions to the holders of Receipts would not be tax-exempt to
the extent that such holders' yield with respect to the Receipts exceeds the
coupon rate of interest on the Bonds (or the original yield to maturity of the
Bonds if issued with original issue discount). 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, (i) 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 (ii) 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 and, therefore, P-FLOATs
investors should not be allocated any deduction with respect thereto). An
investor would take into account its distributive share of Issuer income and
deductions for each taxable year of the Issuer in the investor's 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 such exclusion election is not effective, the Issuer (but
not any of the P-FLOATs investors) might be liable for certain penalties for
failure to file partnership returns (which 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 such Bonds are treated as
having been issued with original issue discount ("OID"). OID is excludable from
gross income for Federal income tax purposes to the same extent as interest on
tax-exempt obligations. The Code provides that OID on a tax-exempt obligation is
deemed to accrue over the 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 OID equals or exceeds the
adjusted issue price of a Bond but is less than the par amount of the Bond, then
such Bond will be acquired by the Trust with OID. Such OID will be allocated to
investors in P-FLOATs or RITES as described below.
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Market Discount and Premium. The purchase price paid by the Issuer for
Bonds may be greater or less than the Bonds' stated redemption price (or, in the
case of Bonds issued with original issue discount, the "revised issue price"),
in which case the Bonds will have amortizable bond premium or market discount,
respectively. The market discount will be considered to be zero if it is less
than a statutorily defined de minimis amount. Generally, the aggregate price
paid by initial investors in the P-FLOATs (i) allocable to a Bond acquired by
the Issuer at a market discount will equal the Issuer's purchase price for such
Bond, and (ii) allocable to a Bond acquired by the Issuer at a premium 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; the amortization will reduce
the owner's basis therein, but will not result in any deduction from income. Any
such premium amortization will be allocable to the RITES holder, as described
below.
Partnership Allocations; Sale of P-FLOATs. Under the Trust Agreement, any
OID on a Bond generally will be allocated to the RITES, except that any
acquisition premium upon purchase of a Bond by the Issuer (i.e., the excess of
the Issuer's purchase price for the Bond over the adjusted issue price thereof),
together with a corresponding amount of OID, will be allocated to the P-FLOATs.
In addition, under the Trust Agreement, any market discount on a Bond that
exceeds the de minimis threshold will be allocated to the RITES holder, because
such market discount will economically accrue to such holder (i.e., the excess
of the par amount (or adjusted issue price) of the Bond over the Issuer's
purchase price). Furthermore, under the Trust Agreement, any amortizable bond
premium on the Bonds at the time of acquisition by the Issuer will be allocated
and will economically accrue entirely to the RITES and none will be allocated or
will economically accrue to the P-FLOATs. Thus, the tax effect thereof 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:
(i) 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;
(ii) in the case of an initial investor of P-FLOATs which sells its
P-FLOATs for a gain, the gain generally will be taxable as capital gain;
and
(iii) in the case of a secondary market purchaser of P-FLOATs which
purchases its P-FLOATs for a price equal to the principal balance of the
P-FLOATs thereof (plus any accrued interest) and sells them for a gain, the
gain will be taxable as capital gain; provided that where the Bonds were
originally acquired by the Issuer at a market discount in excess of the
permitted de minimis amount, in certain circumstances, if at the time the
investor purchases its P-FLOATs, the market value of the Bonds exceeds the
price at which the Bonds were acquired by the Issuer, while the gain should
be taxable as capital gain, it is possible that it might be taxable as
ordinary income.
There are, however, no authorities addressing facts substantially similar
to the facts involved (or potentially involved) in this transaction, so there
can be no absolute assurance that the IRS or a court will agree with these
conclusions. If the IRS were successfully to challenge 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, and, 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. Although not free from doubt, 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. Investors should
consult their own tax advisors regarding the tax consequences of a Fixed Rate
Conversion Event (including application of the coupon stripping rules).
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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 which 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. Potential investors should 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. The interest expense of
investors for indebtedness deemed incurred or continued to purchase or carry
P-FLOATs or RITES will be non-deductible. Other expenses allocable to tax-exempt
interest are not deductible by individual and other non-corporate investors. 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 certain taxpayers, including, without
limitation, financial institutions, property and casualty insurance companies,
certain foreign corporations engaged in business in the United States, certain S
Corporations with excess passive income, individual recipients of Social
Security or Railroad Retirement benefits. Prospective investors should contact
their tax advisors as to the applicability of collateral tax consequences.
Employee Benefit Plans, Exempt Organizations and Foreign Investors.
Inasmuch as the interest on the Bonds is expected to be excluded from gross
income for purposes of federal income tax, 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.
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 certain 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, nor can any prediction be made 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.
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 (i)
income or franchise taxation by the State of New York or (ii) the New York City
general corporation or unincorporated business taxes.
35
<PAGE>
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in an underwriting agreement
(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:
(i) the name of the underwriter;
(ii) the principal amount of P-FLOATs for the Series set forth in that
agreement;
(iii) 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
(iv) the place and time of delivery for the Series of Receipts.
The Sponsor and the Trustee offer each prospective investor the opportunity
to ask questions and receive answers concerning the terms and conditions of this
offering and to obtain additional relevant information to the extent the Sponsor
or the Trustee has or can acquire that additional information without
unreasonable effort or expense. Prospective investors should direct inquiries
concerning additional information 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 (i) purchase the Bonds and pay the cost of carrying the Bonds until
the sale of the Receipts and (ii) pay certain 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 (the "Rating Agency(ies)")
and has provided the Rating Agency or Rating Agencies with materials relating to
the P-FLOATs and other relevant information. The rating or ratings 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 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 certain tax aspects of
the Receipts. The form of opinion of Special Counsel relating to certain tax
aspects of the Receipts is attached to this Prospectus as Exhibit A. Counsel for
the Trustee and Tender Agent (identified in the Prospectus Supplement) will give
a legal opinion relating to the Trustee and Tender Agent; counsel for the
Co-Trustee (identified in the Prospectus Supplement) will give a legal opinion
relating to the Co-Trustee; and counsel for the Liquidity Provider (identified
in the Prospectus Supplement) will give a legal opinion relating to the
Liquidity Provider.
REPORTS TO RECEIPTHOLDERS
The Remarketing Agent will prepare periodic reports about the Issuer. The
financial information contained in the reports will not be prepared in
accordance with generally accepted accounting principles. 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.
36
<PAGE>
INCORPORATION OF CERTAIN 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 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 Receipt 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 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. The Sponsor will update Schedule A through
periodic reports filed under the Securities Exchange Act of 1934.
37
<PAGE>
INDEX OF SIGNIFICANT PROSPECTUS DEFINITIONS
Accrual Period ............................................................ 11
Bond Redemption Date ...................................................... 23
Bonds ............................................................cover, 10, A-1
Code ....................................................................28, A-1
Co-Trustee .......................................................1, 10, 25, A-1
Daily Rate ................................................................ 11
Date of Original Issue .................................................... 10
Designated Office ......................................................... 23
Direct Participants ....................................................... 20
Diversification Requirement ............................................... 28
DTC ....................................................................... 20
Exchange Date ............................................................. 31
Fixed Rate Conversion Event ...............................................4, 17
Floating Rate .............................................................2, 10
gain ..................................................................5, 15, 17
index rate ................................................................4, 12
Indirect Participants ..................................................... 21
Interest Mode .............................................................2, 10
Interest Payment Date ..................................................... 11
IRS ....................................................................... 32
Issuer .................................................................... 1
Liquidity Facility ........................................................5, 30
Liquidity Provider ........................................................5, 30
Liquidity Provider Default ................................................ 31
mandatory tender ..........................................................3, 13
Mandatory Tender Date ..................................................... 14
Mandatory Tender Event .................................................... 13
Maximum Fixed Rate ........................................................4, 12
Maximum Floating Rate ..................................................... 12
Mode Change Date .......................................................... 12
net gain ..............................................................5, 15, 17
NRMSIR .................................................................... 1
OID ....................................................................... 33
Optional Purchase Date .................................................... 13
Participants .............................................................. 20
P-FLOATs ..........................................................cover, 1, A-1
Price Quote ............................................................... 16
prior accrued interest .................................................... 23
Prospectus ................................................................ A-1
Prospectus Supplement ..................................................... 10
Purchase Date ............................................................. 18
Purchase Price ............................................................ 3
Rating Agencies ........................................................... 36
Receipts .........................................................cover, 10, A-1
Remarketing Agent ......................................................... 10
Residual Ownership Date ...................................................3, 28
RITES ................................................................cover, A-1
Securities Depository ..................................................... 20
Seller ....................................................................1, 10
Series .................................................................... 1
Series Trust Agreement .................................................... A-1
SID ....................................................................... 1
Special Counsel ........................................................... 32
Sponsor ...................................................................1, 10
Standard Terms ..........................................................10, A-1
Tender Agent .............................................................. 10
Tender Option Termination Events .......................................... 15
Term Rate ................................................................. 11
Trust Agreement ......................................................1, 10, A-1
Trustee ..............................................................1, 10, A-1
Underwriting Agreement .................................................... 36
Weekly Rate ............................................................... 11
38
<PAGE>
EXHIBIT A
[Proposed form of Opinion of Special Counsel as to Certain 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 P-FLOATs 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 Prospectus Supplement, dated _____________, 199_ (as so
supplemented, the "Prospectus"), and for the sale as contemplated therein of
various series of Registered P-FLOATs 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.
Our opinion and the tax consequences described herein are based upon the
Internal Revenue Code of 1986, as amended (the "Code"). 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 the eventual issuance or
modification of such regulations and rulings.
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 opinions of bond counsel or tax 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 and that interest on the
Bonds is exempt from Federal income taxes or excludable from the gross income of
the holders thereof for Federal income tax purposes. We have assumed further,
without any investigation, that no events or circumstances have occurred or
intervened since the original issuance of the Bonds that would adversely affect
the exemption from Federal income taxes, or the exclusion from gross income of
the holders thereof for Federal income tax purposes, of interest on the Bonds.
We have examined and relied upon originals, or copies certified or
otherwise identified to our satisfaction, of the following: (i) the Prospectus;
(ii) the executed Trust Agreement to which the forms of the Receipts are
attached as exhibits; and (iii) such other documents, certificates, opinions and
letters as we have deemed
A-1
<PAGE>
necessary or relevant for the purpose of rendering this opinion. In addition, we
have participated in the preparation of the material under the heading "Federal
Income Tax Consequences" 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 at the related interest rate on the Receipts.
(2) The summary of Federal income tax consequences to the holders of
the Receipts set forth under "Federal Income Tax Consequences" in the
Prospectus is materially correct under the Code, the regulations
thereunder, published administrative rulings, and judicial decisions
published on or prior to the date of this opinion.
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-2
<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-3
The Liquidity Provider ................................................... S-6
Plan of Distribution ..................................................... S-6
Ratings .................................................................. S-6
Legal Matters ............................................................ S-7
Reports to Receiptholders ................................................ S-7
Year 200 Problem ......................................................... S-7
Additional Information ................................................... S-8
Prospectus
Summary .................................................................. 1
Risk Factors ............................................................. 7
Introduction ............................................................. 10
Interest and Principal ................................................... 10
Optional Tender of P-FLOATs .............................................. 13
Mandatory Tender of P-FLOATs ............................................. 13
Immediate Termination of Optional and
Mandatory Tender Rights ................................................ 15
Fixed Rate Conversion .................................................... 17
Withdrawal of Bonds ...................................................... 17
Procedures for Purchase And Remarketing .................................. 18
Details of the Receipts .................................................. 20
Redemption Upon Redemption of
Underlying Bonds ....................................................... 23
Certain Provisions of the Trust Agreement ................................ 24
Miscellaneous ............................................................ 27
The Bonds ................................................................ 28
The Sponsor .............................................................. 29
The Remarketing Agreement ................................................ 29
The Liquidity Facility ................................................... 30
Certain Income Tax Considerations ........................................ 31
Plan of Distribution ..................................................... 36
Use of Proceeds .......................................................... 36
Rating ................................................................... 36
Legal Matters ............................................................ 36
Reports to Receiptholders ................................................ 36
Incorporation of Certain Information
By Reference ........................................................... 37
Additional Information ................................................... 37
================================================================================
================================================================================
[$ ]
(Approximate)
Pass Through Floating
Tax-Exempt Receipt Trust 199_
Issuer
$ Pass Through
Floating
Tax-Exempt Receipts
("P-FLOATs"(SM))
Series R-
Merrill Lynch Municipal ABS, Inc.
Sponsor
--------------------------------
PROSPECTUS SUPPLEMENT
--------------------------------
Merrill Lynch & Co.
[ , 1999]
================================================================================
<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. provides for indemnification of officers and directors to
the full extent permitted by the Delaware General Corporation Law.
II-1
<PAGE>
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 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
II-2
<PAGE>
(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
(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. 1 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 May 14, 1999.
MERRILL LYNCH MUNICIPAL ABS, INC.
By: /s/ ROBERT C. BARBER
--------------------------------
Name: Robert C. Barber
Title: President and
Chairman of the Board
II-4
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Edward H. Curland and Edward J. Sisk, and each of
them, his true and lawful attorneys-in-fact and agents for him and in his name,
place and stead, in any and all capacities, to sign any and all post-effective
amendments to this Registration Statement and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agents may lawfully do or cause to
be done by virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ ROBERT C. BARBER President and Chairman
- ---------------------------- of the Board May 14, 1999
Robert C. Barber
*
- ---------------------------- Treasurer, Chief Financial May 14, 1999
Thomas Cassano Officer and Chief Accounting
Officer
*
- ---------------------------- Director May 14, 1999
John Lawlor
*
- ---------------------------- Director May 14, 1999
Donald J. Puglisi
(*)
By: /s/ ROBERT C. BARBER
-------------------------
Robert C. Barber
Attorney-in-Fact
- ----------
(*) Robert C. Barber, 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
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION PAGE
------- ----------- ------------
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.
II-6
