AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 20, 2000
REGISTRATION NO. 333-71927
------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 5
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MERRILL LYNCH MUNICIPAL ABS, INC.
(Sponsor of the trusts described herein)
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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
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(Name and address of agent for service)
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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.
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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 PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING PRICE OFFERING REGISTRATION
BEING REGISTERED REGISTERED* PER UNIT PRICE FEE
<S> <C> <C> <C> <C>
Pass Through Floating
Rate Municipal
Certificates $1,000,000.00 100% $1,000,000.00 $278
</TABLE>
The proposed maximum offering price per unit is estimated solely for purposes of
calculating the registration fee.
The amount being registered includes any resales of the securities in
market-making transactions that may be made by the remarketing agent, an
affiliate of the registrant.
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>
SUBJECT TO COMPLETION DATED [ ]
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED ____________)
PASS THROUGH FLOATING RATE MUNICIPAL TRUST ____
ISSUER
MERRILL LYNCH MUNICIPAL ABS, INC.
SPONSOR
$_ _ _ PASS THROUGH FLOATING
RATE MUNICIPAL CERTIFICATES
(P-FLOATSSM), SERIES R-
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE S-6 OF THIS
PROSPECTUS SUPPLEMENT.
No governmental agency or instrumentality will insure or guarantee the
certificates.
The offered certificates 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 certificates.
This prospectus supplement may be used to offer and sell any series of
certificates only if accompanied by the prospectus.
THE ISSUER--
o will issue a series of certificates, which consist of the P-FLOATs offered
for sale here and the Residual Interest Municipal Certificates which are
not offered for sale here; and
o will own a pool of municipal bonds of one or more maturities and credits
identified on Schedule A of this prospectus supplement.
THE P-FLOATS OF THIS SERIES--
o will be issued in book-entry form through the facilities of DTC. The
P-FLOATs will be sold in minimum denominations of $5,000 initial principal
balance and integral multiples of $5,000;
o will evidence an undivided beneficial interest in a trust holding the pool
of bonds; and
o will be subject to optional and mandatory tender at a purchase price equal
to the outstanding principal balance of the P-FLOATs plus accrued interest
at the floating rate.
--------------------------------------------------------------------------------
UNDERWRITING
DISCOUNTS
PRICE TO PUBLIC AND COMMISSIONS PROCEEDS TO
SELLER
--------------------------------------------------------------------------------
Per P-FLOATs 100% N/A 100%
--------------------------------------------------------------------------------
The price to public will also include any accrued interest.
The underwriter will not receive a discount or commission, but will receive a
remarketing fee in its capacity as remarketing agent. This prospectus relates to
the P-FLOATs and any resales of the P-FLOATs in market-making transactions that
may be made by the remarketing agent, an affiliate of the registrant.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------------------
MERRILL LYNCH & CO.
[SM] Service Mark of Merrill Lynch, Pierce, Fenner & Smith Incorporated
<PAGE>
IMPORTANT INFORMATION ABOUT INFORMATION PRESENTED IN
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
The offered P-FLOATs are described in two separate documents that
progressively provide more detail:
(1) the accompanying prospectus, which provides general information, some
of which may not apply to a particular series of certificates, such as
your certificates; and
(2) this prospectus supplement, which describes the specific terms of your
certificates.
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.
<PAGE>
i
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
Summary....................................................................S-1
Risk Factors...............................................................S-6
The Liquidity Provider.....................................................S-6
Description of Liquidity Provider.......................................S-6
Financial Information of Liquidity Provider.............................S-6
Limitations of the Liquidity Facility...................................S-7
Plan of Distribution.......................................................S-7
Ratings....................................................................S-7
Legal Matters..............................................................S-8
Reports to Certificateholders..............................................S-8
Year 2000 Problem [TO BE UPDATED]..........................................S-8
Additional Information.....................................................S-9
ii
<PAGE>
SUMMARY
This summary contains only a brief description of the basic structure of
Series R-[ ]. To fully understand the structure of these securities and
determine whether to invest, you must read carefully the entire prospectus
supplement and the accompanying prospectus.
SECURITIES DESIGNATION
Certificates consist of Pass Through Floating Rate Municipal Certificates,
or P-FLOATsSM, offered for sale in this prospectus supplement and Residual
Interest Municipal Certificates, or RITESSM, which are not offered for sale in
this prospectus supplement. The certificates represent an undivided beneficial
ownership interest in a pool of 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 initial issuance date of certificates, [ ]. The
P-FLOATs will be designated as Series R-[ ] and issued in denominations of
$5,000 initial principal balance 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 certificates are initially
issued, the aggregate principal balances of the bonds will be $[ ], and the
aggregate market value of the bonds will be $[ ].
THE TRUSTEE AND TENDER AGENT AND THE CO-TRUSTEE
[ ] will act as the trustee and tender agent and [ ] will act as the
co-trustee for the issuer. The corporate office of the trustee and tender agent
is at [ ] and the corporate office of the co-trustee is at [ ]. The trustee fee
will be [ ]% when the interest mode is the weekly or term mode and [ ]% when the
interest mode is the daily mode.
THE BONDS
The bonds underlying the certificates will consist of general obligation
bonds and revenue bonds issued by states, municipalities and public authorities.
In the opinion of bond counsel referred to in the "Schedule of Bonds" on page
S-11 of this prospectus supplement, the bonds were tax-exempt at the time of
their issuance. For bonds subject to Rule 15c2-12 of the Securities Exchange Act
of 1934, notice of any adverse tax opinions or events affecting their tax-exempt
status is required to be filed with a NRMSIR or appropriate state information
depository. Before the initial issuance date of certificates, the sponsor will
determine whether any such notice has been filed. A list of NRMSIRs is set forth
in Exhibit B to the prospectus. If a bond is designated in the schedule of bonds
attached to this prospectus supplement as a "private activity bond," then
interest income on that bond will be included in the computation of the federal
alternative minimum tax.
The coupons on the bonds range from __% to __% per annum. No bond has a
principal maturity date later than [________]. All of the bonds are rated [__]
or higher. All of the bonds have been purchased in the secondary market.
Specific information with respect to each bond is contained in the schedule of
bonds attached to this prospectus supplement.
THE SPONSOR
The sponsor, Merrill Lynch Municipal ABS, Inc., a Delaware corporation, will
deposit the bonds with the issuer, Pass Through Floating Rate Municipal Trust, a
Delaware statutory business trust established by the sponsor. [Some bonds will
have been underwritten by an affiliate of the sponsor at the time of their
initial issuance.]
S-1
<PAGE>
THE CERTIFICATES
After purchasing the bonds from the seller, the issuer will hold the bonds
and issue certificates, 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 certificates
will be available for purchase in book-entry form through the securities
depository and initially registered in the name of Cede & Co., the nominee for
the securities depository.
RATINGS
As a condition to issuance, the certificates must be rated [ ] by the rating
agency, [ ], on the initial issuance date of certificates. 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 mandatory disposition events.
THE REMARKETING AGENT
The remarketing agent, Merrill Lynch Pierce Fenner & Smith Incorporated, a
Delaware corporation d/b/a Merrill Lynch & Co., will determine the interest rate
payable to investors either daily, weekly, or for term periods of up to one
year. The remarketing agent will initially determine this interest rate
[weekly]. The P-FLOATs interest rate will reflect the minimum rate of interest
that the remarketing agent determines would result in a sale of each P-FLOATs at
a price equal to the outstanding principal balance of the P-FLOATs plus accrued
interest under prevailing market conditions. However, this amount shall not
exceed the aggregate interest payable on the bonds minus the trustee fees. The
trustee fee will be [ ]% when the remarketing agent determines the interest rate
weekly or for a term period and [ ]% when the remarketing agent determines the
interest rate monthly.
PRINCIPAL AND INTEREST DISTRIBUTIONS
Upon issuance of the certificates, the bonds will be deposited by the
sponsor with the trustee, [ ]. Principal and interest will be distributable on
each bond held by the trustee on the payment dates specified on the schedule of
bonds. The trustee will distribute principal and interest to investors on the
business day following the date on which the trustee receives payment on the
bonds. The trustee may, but is not obligated to, advance its own funds to
distribute interest on the P-FLOATs monthly. Any trustee advance will be based
on the amount of interest accrued on the bonds, whether or not this interest is
then payable by the bond issuers. The trustee is not responsible for delays in
receipt of payments on the bonds.
OPTIONAL AND MANDATORY TENDER
P-FLOATs are subject to tender to the tender agent either at the option of
the investors or pursuant to a mandatory tender. An optional tender occurs when
an investor decides to tender a P-FLOATs at a price equal to that P-FLOATs'
outstanding principal balance plus accrued interest at the floating rate. A
mandatory tender occurs upon designated events and requires an investor to
exchange P-FLOATs for a purchase price equal to the outstanding principal
balance of the P-FLOATs plus accrued interest at the floating rate. An investor
will have the right to retain its P-FLOATs upon the occurrence of a mandatory
tender event. After either an
S-2
<PAGE>
optional or mandatory tender, the remarketing agent will attempt to remarket any
tendered P-FLOATs.
MANDATORY DISPOSITION OF BONDS
The trustee will dispose of a bond held by the issuer upon the occurrence of
certain events. If one of these events occurs, the trustee will direct the
remarketing agent to sell the affected bond for the highest bid.
In some cases when there is a mandatory disposition of a bond, the liquidity
provider will be obligated to bid the bond price, an amount equal to the
outstanding principal balance of the bond (which, in the case of a bond
deposited with market discount or original issue discount, will equal the
initial deposit price of the bond minus any principal payments on that bond
previously allocated to investors) plus accrued interest at the P-FLOATs
floating rate. The proceeds from the disposition will be distributed to
investors.
However, in other cases when a mandatory disposition of a bond occurs, the
liquidity provider is not obligated to bid for the affected bond. For those
cases,
(1) if the market value of the affected bond is less than the bond price,
the trustee will distribute the affected bond, in whole, to investors to the
extent possible based on minimum denominations; or
(2) if the market value of the bond is greater than or equal to the bond
price, or if whole bonds cannot be distributed based on minimum
denominations, direct the remarketing agent to sell the bond and use the
proceeds to pay, first, to the trustee, the proportionate amount of
outstanding trustee fees and trustee advances, second, to P-FLOAT holders, to
the extent accrued interest is received on the sale of the bond, accrued
interest at the P-FLOATs floating rate, third, to the RITES holder, the
remainder of any accrued interest received, fourth, pro rata to all
investors, an amount up to the outstanding principal balance of the
certificates, fifth, to the P-FLOATs holders, 10% of any net gain on the
affected bond, and sixth, to the RITES holder, the balance of the proceeds.
THE LIQUIDITY FACILITY
The sponsor and issuer have established a liquidity facility with respect to
this series. Under the terms specified in this liquidity facility, the liquidity
provider will purchase P-FLOATs at a purchase price equal to the outstanding
principal balance of the P-FLOATs plus accrued interest if the remarketing agent
is either unable to remarket, or is prohibited from remarketing, any P-FLOATs
that has been tendered either (1) at the option of the investor, or (2) pursuant
to a mandatory tender. The liquidity provider will become the holder of any
certificate that it purchases. The liquidity provider will also act as the
purchaser of last resort (i.e., will be obligated to bid an amount equal to the
outstanding principal balance of the bond (which, in the case of a market
discount bond, will equal the initial deposit price of the bond minus any
principal payments on that bond previously allocated to investors) plus accrued
interest at the P-FLOATs floating rate) when bonds are disposed of by the
trustee pursuant to a mandatory disposition with liquidity support. 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 certificates,
the payment of any net gain upon a mandatory disposition of bonds, or the
purchase of fixed rate certificates. The liquidity facility agreement for this
series will be filed with the
S-3
<PAGE>
Securities and Exchange Commission under cover of Form 8-K.
FEDERAL INCOME TAX CONSEQUENCES
The sponsor has received an opinion from Cadwalader, Wickersham & Taft,
counsel to the sponsor, that the issuer will be classified as a partnership for
federal income tax purposes. Cadwalader, Wickersham & Taft has also opined that
amounts distributed to you that are attributable to payments of interest on the
bonds which are excludable from federal gross income will be excludable from
your federal gross income. A more complete discussion of material tax
consequences can be found on page 43 of the prospectus. We suggest that you
consult your own tax advisor on the income tax considerations applicable to your
purchase of P-FLOATs.
S-4
<PAGE>
P-FLOATS RIGHTS, OBLIGATIONS AND OWNERSHIP INTERESTS
----------------------------------------------------
Investors have undivided beneficial ownership interest in the issuer holding
all bonds
Trustee advancing interest monthly?
IF YES: Investors receive bond interest then accrued
IF NO: Investors receive bond interest on business day following its receipt
by Trustee
Optional Tender
Investor's beneficial ownership interest in the bonds terminates
Remarketing Agent remarkets to new P-FLOATs investor or Liquidity Provider
Investor receives par plus accrued interest
Mandatory Tender to Liquidity Provider due to:
-Mode Change Date
-Liquidity Facility Replaced
-Term Period End
-Fixed Rate Conversion Event
Investors choose whether to retain at new:
- Interest Mode
- Fixed Rate
- Liquidity Facility Terms
IF YES: Retain
IF NO: Investor's beneficial ownership interest in the bonds terminates
Remarketing Agent remarkets to new P-FLOATs investor or Liquidity
Provider
Investor receives par plus accrued interest
Mandatory Disposition of a Bond with Liquidity Support due to:
- Diversification Requirement Violated
- Liquidity Facility not extended for a bond
- Residual Ownership Date of a bond
- Rating of a bond withdrawn or reduced,
but above investment grade
Trustee sells affected bond. Liquidity Provider is obligated to bid an amount
equal to at least the outstanding principal balance of the bond plus accrued
interest. Investors receive an amount up to the outstanding principal balance of
the bond plus accrued interest at the P-FLOATs floating rate plus 10% of any net
gain on the affected bond
Mandatory Disposition of Bonds without Liquidity Support due to:
- Bond issuer or insurer fails to pay any amount due on a bond
- Bankruptcy or insolvency of the bond issuer or insurer
- Rating on a bond downgraded to below investment grade
- Change in tax exempt status of a bond
Trustee sells or distributes the affected bond. Investors receive an amount up
to the outstanding principal balance of the bond plus accrued interest at the
P-FLOATs floating rate plus 10% of any net gain on the affected bond
Bond Withdrawn
Sponsor pays to Trustee, f/b/o P-FLOATs, any:
- the market value of the bond withdrawn
- accrued by not advanced bond interest
- any taxes or government charges withheld
- any net gain
Trustee distributes:
- to the liquidity provider, the outstanding principal balance of the P-FLOATs
held by the liquidity provider plus accrued interest;
- to all other P-FLOATs holders, pro rata, 10% of any net gain
S-5
<PAGE>
RISK FACTORS
With respect to this series, you should carefully consider the following risk
factors and other information in this prospectus supplement, as well as in the
prospectus, in deciding whether to invest:
[List additional risk factors.]
THE LIQUIDITY PROVIDER
DESCRIPTION OF LIQUIDITY PROVIDER
The liquidity provider will be [ ]. [ ] is a [diversified financial services
holding company] [commercial banking institution], which is subject to the
information requirements of the [Securities Exchange Act of 1934, as amended]
[bank regulatory statute]. [In accordance with this act, [ ] files reports and
other information with the [SEC] [bank regulatory authority]. Copies of such
reports and other information may be obtained by contacting [ ], Attention: [ ],
telephone [ ].
The liquidity provider was originally incorporated in [ ]. [Insert brief
corporate history of liquidity provider]. [Insert relevant description of
structure of liquidity provider]. The liquidity provider is engaged in a broad
range of [banking and] [financial services] activities, including
[deposit-taking, lending and leasing, securities brokerage services, investment
management, investment banking, capital markets activities and foreign exchange
transactions].
[This prospectus supplement incorporates by reference and makes a part of
this prospectus all financial statements of the liquidity provider included in
documents 4. SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as of the date of this prospectus
supplement and before termination of the certificates. In the event the
liquidity provider ceases to file reports pursuant to the Securities Exchange
Act of 1934, the issuer will include the audited financial statements of the
liquidity provider in the periodic reports that it is required to file with the
SEC.][ATTACHED AS EXHIBIT A TO THIS PROSPECTUS SUPPLEMENT ARE THE AUDITED
FINANCIAL STATEMENTS OF THE LIQUIDITY PROVIDER.]
As of [ ], the liquidity provider had total consolidated assets of [ ]. The
foregoing figure has been derived from reference to the liquidity provider's
audited consolidated financial statements and notes. These financial statements
and notes may contain a discussion of the significant accounting principles
applied.
FINANCIAL INFORMATION OF LIQUIDITY PROVIDER
TYPE OF YEAR TO
INFORMATION DATE
1. Total Assets:................................ $[ ] 2000__
2. Net Worth:................................... $[ ] 2000__
3. Long-Term Debt Rating:....................... [ ] 2000__
4. Short-Term Rating:........................... [ ] 2000__
S-6
<PAGE>
The liquidity provider has provided the above information. The information
appearing in the documents and financial statements referenced above is more
detailed.
LIMITATIONS OF THE LIQUIDITY FACILITY
Under the liquidity facility, the liquidity provider's commitment to purchase
P-FLOATs is limited as follows: [Insert liquidity facility limitations].
Registration of Liquidity Facility
[The liquidity facility is exempt from registration under Section _____ of the
Securities Act.][The liquidity facility is registered under the Securities Act
under Registration Statement No. _________. A liquidity facility prospectus will
be delivered along with the P-FLOATs prospectus.]
PLAN OF DISTRIBUTION
The sponsor has entered into an underwriting agreement with the underwriter
Merrill Lynch, Pierce, Fenner & Smith Incorporated. The underwriting agreement
provides that the obligations of the underwriter are subject to conditions
precedent, and that the underwriter will be obligated to purchase all of the
certificates if they are issued.
The underwriter has advised the sponsor that the underwriter proposes to
offer the certificates 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 certificates may be deemed to be underwriters, and any discounts
or commissions received by them and any profit on the resale of certificates by
them may be deemed to be underwriting discounts or commissions under the
Securities Act of 1933, as amended.
The sponsor has agreed to indemnify the underwriter against civil
liabilities, including liabilities under the Securities Act of 1933 or
contributions to payments the underwriter may be required to make.
The underwriter is an affiliate of the sponsor and is a registered
broker/dealer. Any obligations of the underwriter are the sole responsibility of
the underwriter and do not create any obligation or guarantee on the part of any
affiliate of the underwriter. This prospectus supplement and the prospectus may
be used by the underwriter in connection with offers and sales related to market
making transactions in the certificates. The underwriter may act as principal or
agent in these market making transactions.
RATINGS
If a bond is not insured, the long-term rating of the certificates is based
on the credit rating of the bond issuer. If a bond is insured, the long-term
rating of the certificates is based on the credit rating of the bond insurer in
connection with its
S-7
<PAGE>
issuance of the financial guaranty policy guaranteeing the payment of principal
and interest on the related bond. The short-term rating of the certificates is
based on the credit rating of the liquidity provider in connection with its
issuance of the related liquidity facility. The short-term rating assigned to
the certificates will apply for only as long as the certificates benefit from
the liquidity facility. The ratings on the certificates do not reflect any
advances made by the trustee.
The ratings are not recommendations to buy, sell or hold the certificates.
The ratings of such certificates reflect only the views of the rating agency. An
explanation of the significance of such ratings may be obtained from the rating
agency. There is no assurance that any ratings will continue for any period of
time or will not be revised downward or withdrawn entirely by the rating agency
if in its judgment circumstances so warrant. The ratings are based on current
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 certificates and the material
federal income tax consequences of the purchase, ownership and disposition of
the certificates. The opinion of counsel to the sponsor relating to the material
federal income tax consequences of the purchase, ownership and disposition of
the certificates is attached to the prospectus as Exhibit A [ ], counsel for the
trustee and tender agent has opined as to certain corporate matters relating to
the trustee and tender agent [ ], counsel for the co-trustee has opined as to
certain corporate matters relating to the co-trustee [ ], counsel for the
liquidity provider has opined as to certain corporate matters relating to the
liquidity provider.
REPORTS TO CERTIFICATEHOLDERS
The issuer will prepare periodic reports that will contain audited financial
statements. Unless and until certificated certificates are issued, the reports
will be sent to Cede & Co. as nominee for the securities depository and the
registered holder of the certificates. You will not receive financial reports
directly from the issuer.
YEAR 2000 PROBLEM [TO BE UPDATED]
The issuer does not have a computer system. However, the issuer relies on the
computer systems of others, including the sponsor, seller, remarketing agent and
liquidity provider. The sponsor, seller and remarketing agent [and liquidity
provider] are all Merrill Lynch entities that share a computer system. Merrill
Lynch identified and evaluated its internal Year 2000 problem and devoted
sufficient resources to renovating technology systems that were not already Year
2000 compliant.
In 1995, Merrill Lynch established the Year 2000 Compliance Initiative, which
was 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 were
organized into six phases: planning, pre-renovation, renovation, production
testing, certification, and integration testing.
S-8
<PAGE>
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 was accomplished by
Merrill Lynch employees, with the assistance of consultants where necessary.
As part of the production testing and certification phases, Merrill Lynch
performed both internal and external Year 2000 testing intended to address the
risks from the Year 2000 problem. As of April 16, 1999, production testing was
approximately 99.1% completed and the resource-intensive renovation phase was
approximately 99.7% completed. In March and April 1999, Merrill Lynch continued
its participation in U.S. industrywide testing sponsored by the Securities
Industry Association.
Merrill Lynch also continuously surveyed and communicated with third parties
whose Year 2000 readiness was important to the company. Information technology
and non-information technology vendors and service providers were 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
determined if additional testing was needed. The results of these efforts were
maintained in a database that was accessible throughout the firm. This
information, as well as other Year 2000 readiness information on particular
countries and their political subdivisions, was used by Merrill Lynch to manage
risk resulting from the Year 2000 problem.
In January 2000, Merrill Lynch reported that it had not suffered any systems
failures or other Y2K-related problems. The total expenditures for the entire
Year 2000 Compliance Initiative were approximately $520 million.
ADDITIONAL INFORMATION
The sponsor filed a registration statement relating to the certificates with
the SEC. This prospectus supplement is part of the registration statement, but
the registration statement also includes additional information.
The trustee or its designee 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 certificates at the SEC's public reference room in
Washington, D.C. You can request copies of these documents, upon payment of a
duplicating fee, by writing to the SEC. Please call the SEC at (800) SEC-0330
for further information on the operation of the public reference rooms. SEC
filings are also available to the public on the SEC Internet site
(http://www.sec.gov).
You may obtain the Official Statements for bonds that are subject to Rule
15c2-12 of the Securities Exchange Act of 1934 from a NRMSIR identified on
Exhibit B to the prospectus, the Municipal Securities Rulemaking Board or an
appropriate state information depository. You may also obtain from a NRMSIR
identified on Exhibit B to the prospectus, at a charge for non-subscribers of
approximately $25, the annual reports and event notices required under Rule
15c2-12 contracts. A Rule 15c2-12 contract is an agreement between the
underwriter and the
S-9
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issuer that requires the issuer to provide annual financial information and
specific material event notices for the benefit of bondholders.
S-10
<PAGE>
SCHEDULE OF BONDS
INFORMATION TO BE PROVIDED WITH RESPECT TO EACH BOND:
ISSUER:
ISSUE:
CUSIP NO.:
PRINCIPAL AMOUNT:
DATED DATE:
COUPON:
INTEREST PAYMENT DATES:
OPTIONAL REDEMPTION DATES/PRICES:
OFFICIAL STATEMENT DATED:
RATINGS:
INSURER:
PRINCIPAL MATURITY:
ORIGINAL ISSUE PRICE:
INITIAL DEPOSIT PRICE:
ADJUSTED ISSUE PRICE:
RESIDUAL OWNERSHIP DATE:
ACCRUAL COMMENCEMENT DATE:
FIRST BOND INTEREST PAYMENT DATE SUBSEQUENT TO DATE OF ORIGINAL ISSUE:
FIRST BOND PRINCIPAL PAYMENT DATE:
PRIVATE ACTIVITY BONDS [YES/NO]:
DENOMINATION OF BONDS:
BOND COUNSEL:
NATURE OF BOND OBLIGATION: [GENERAL OBLIGATION-FULL FAITH AND
CREDIT][GENERAL OBLIGATION] [REVENUE]
This bond is a [premium bond] [de minimis market discount bond] [market
discount bond]. If this is a premium bond, attach a schedule of the unamortized
premium percentage.
S-11
<PAGE>
SUBJECT TO COMPLETION DATED [ ]
PRELIMINARY PROSPECTUS
MERRILL LYNCH MUNICIPAL ABS, INC.
Sponsor
PASS THROUGH FLOATING
RATE MUNICIPAL CERTIFICATES
(P-FLOATSSM)
(ISSUABLE IN SERIES)
------------------------------------------------
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 10 OF THIS
PROSPECTUS.
The certificates of any series will not be insured or guaranteed by any
governmental agency or instrumentality.
The certificates of each series will represent interests in the assets held by
the related issuer only and will not represent interests in or obligations of
the sponsor nor any affiliate of the sponsor. No investor will have any claim
or recourse to the sponsor's assets for payment of any principal or interest on
the certificates.
This prospectus may be used to offer and sell any series of certificates only
if accompanied by the prospectus supplement for that series.
EACH ISSUER--
o will issue a series of certificates, which consist of the P-FLOATs offered
for sale here and the Residual Interest Municipal Certificates, which are
not offered for sale here; and
o will own a pool of municipal bonds of one or more maturities and credits.
P-FLOATS OF EACH SERIES--
o will be issued in book-entry form through the facilities of DTC. The
P-FLOATs will be sold in minimum denominations of $5,000 initial principal
balance and integral multiples of $5,000;
o will evidence an undivided beneficial interest in a trust holding the pool
of bonds; and
o will be subject to optional and mandatory tender at a purchase price equal
to the outstanding principal balance of the P-FLOATs plus accrued interest
at the floating rate.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------------------
THE DATE OF THIS PRELIMINARY PROSPECTUS IS _________
MERRILL LYNCH & CO.
[SM] Service Mark of Merrill Lynch, Pierce, Fenner & Smith Incorporated
<PAGE>
TABLE OF CONTENTS
Summary......................................................................1
Risk Factors.................................................................9
Introduction................................................................13
Interest and Principal......................................................14
Description of Interest Modes............................................14
Distribution of Interest.................................................14
Priority in Distribution of Interest.....................................15
Period that Floating Rate is in Effect...................................15
Method of Determining the Interest Rate..................................15
Conversion of Interest Mode..............................................16
Distribution of Principal................................................16
Optional Tender of P-FLOATs.................................................17
Right of Optional Tender in Daily and Weekly Mode........................17
Exercise of Tender Option................................................17
Mandatory Tender of P-FLOATs................................................18
Mandatory Tender.........................................................18
Mandatory Tender Events..................................................18
Procedures for Mandatory Tender..........................................18
Remarketing and Source of Funds for Purchase.............................19
Fixed Rate Conversion.......................................................19
Fixed Rate Conversion Events.............................................19
Procedures for Fixed Rate Conversion.....................................20
Mandatory Disposition of Bonds..............................................20
Mandatory Disposition of Bonds with Liquidity Support....................20
Mandatory Disposition of Bonds without Liquidity Support.................21
Withdrawal of Bonds.........................................................23
Withdrawal Requirements..................................................23
Procedures for Withdrawal................................................24
Procedures for Purchase and Remarketing.....................................25
Remarketing of P-FLOATs..................................................25
Funds for Purchases on Purchase Dates....................................25
Procedures for Optional Tender when P-FLOATs Deposited with the
Securities Depository.................................................26
Investors to Comply with Tender and Election Procedures..................27
Details of the Certificates.................................................27
Voting on Bonds..........................................................27
Pro Rata Distribution....................................................28
Book-Entry Only System for Certificates..................................28
Registration, Transfer and Payments......................................30
Prior Accrued Bond Interest..............................................31
Designated Office of the Trustee.........................................31
Redemption Upon Redemption of Underlying Bonds..............................31
Redemption of Certificates...............................................31
Notice of Redemption.....................................................32
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Effect of Call for Redemption............................................32
Material Terms of the Trust Agreement.......................................33
Purposes and Powers......................................................33
No Additional Liabilities or Indebtedness................................33
The Trustee..............................................................33
The Co-Trustee...........................................................34
Trustee Advances.........................................................34
Limited Liability........................................................35
Resignation and Replacement of Trustee...................................35
Amendments to the Trust Agreement........................................36
Termination of the Trust Agreement.......................................37
Default on Bonds.........................................................37
Miscellaneous...............................................................38
Fees and Expenses........................................................38
Information for Investors................................................38
Investors Not Liable for Claims Against Issuer...........................38
The Bonds...................................................................39
Information About the Bonds..............................................39
Residual Ownership Date..................................................39
Diversification Requirement..............................................39
The Sponsor.................................................................40
The Remarketing Agreement...................................................40
The Liquidity Facility......................................................41
Description of Liquidity Facility........................................41
Termination of Obligations of Liquidity Provider.........................42
Substitution of Successor Liquidity Provider.............................42
Liquidity Provider Default...............................................43
Income Tax Considerations...................................................43
Federal Income Tax Consequences..........................................43
Tax Exemption of the Bonds...............................................44
Taxation of Investors....................................................44
Additional Tax Considerations............................................48
State and Local Tax Consequences.........................................49
Plan Of Distribution........................................................50
Use Of Proceeds.............................................................50
Rating......................................................................51
Legal Matters...............................................................51
Reports to Certificateholders...............................................51
Incorporation of Information by Reference...................................51
Additional Information......................................................52
Glossary....................................................................53
Exhibit A--Opinion of Special Counsel as to Tax Matters.....................A-1
Exhibit B--Nationally Recognized Municipal Securities Repositories..........B-1
Exhibit C--Audited Financial Statement......................................C-1
ii
<PAGE>
SUMMARY
This summary contains only some of the information that may be important to
you. You should read the entire prospectus and related prospectus supplement for
information about each series of certificates before you decide whether to
invest.
SECURITIES DESIGNATION
Certificates, comprised of P-FLOATsSM and RITESSM, will be issued in series.
The certificates will evidence an undivided beneficial interest in the pool of
underlying bonds for that series, the principal payments, any redemption premium
and the interest payable on bonds held by the issuer for that series.
The initial RITES holder will most likely be an affiliate of either the
sponsor or the liquidity provider. However, the initial RITES holder may
transfer the RITES in a private transaction to another holder.
The RITES are not being offered through this prospectus. Information about
the RITES is presented in this prospectus solely for its relevance to
prospective P-FLOATs investors.
THE ISSUER
The issuer will be a master Delaware statutory business trust established by
the sponsor pursuant to a series trust agreement among the sponsor, the trustee
and the co-trustee. The issuer then will issue the certificates in series. The
issuer will acquire municipal bonds of one or more maturities and credits for
the benefit of investors. The diversification requirement will relate to each
discrete series and will not affect other series issued under the same master
trust. The related prospectus supplement will specify the issuer's principal
office.
The RITES holder will be responsible for paying the fees, expenses and
liabilities incurred by the issuer in connection with the Trust Agreement. The
RITES holder will not be responsible for paying trustee fees, trustee advances
and principal or interest paid on P-FLOATS.
THE SPONSOR
Merrill Lynch Municipal ABS, Inc., a Delaware corporation, will act as
sponsor and will deposit the bonds with the issuer. The sponsor will not be
liable for any debts and obligations of, or claims against, the issuer. The
sponsor will not guarantee any payments to investors and no investor will have
any claim or recourse to the sponsor's assets for payment of any principal or
interest on the certificates. The issuer will pay the principal of, and interest
on, the certificates solely from the funds and financial assets the issuer
holds, as described below.
The sponsor may assign its right to withdraw bonds to the liquidity provider
or to any person who certifies that it does not then own any P-FLOATs.
THE TRUSTEE AND TENDER AGENT AND THE CO-TRUSTEE
The related prospectus supplement will specify the trustee and tender agent
and the co-trustee for each series of certificates. The sponsor may remove the
trustee and tender agent and the co-trustee with the consent of either the RITES
holder or a majority of P-FLOATs investors. If there is more than one RITES
holder, 100% of the RITES holders must consent to the removal. See "Material
Terms of the Trust Agreement --The Trustee" on page 33 of this prospectus
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and "--The Co-Trustee" on page 34 of this prospectus.
THE BONDS
The bonds underlying each series of certificates will consist of general
obligation bonds and revenue bonds. General obligation bonds are bonds issued by
states, municipalities and public authorities to finance their general
operations. These bonds are repaid with general revenue and borrowings and may
be backed by the full faith and credit, including the taxing and further
borrowing power, of the municipality issuing the bonds. Revenue bonds are bonds
issued by states, municipalities and public authorities to finance the cost of
buying, building, or improving various projects intended to generate revenue,
such as airports, healthcare facilities, housing and municipal electric, water
and sewer utilities. Generally, payments on revenue bonds depend solely on the
revenues generated by the projects, excise taxes or state appropriations, and
are not backed by the government's taxing power. You should refer to the
Official Statement of a bond for a description of the precise nature of the
obligation.
The related prospectus supplement will specify the bonds underlying each
series of certificates and will contain summary information about the bonds.
There is no limit on the percentage of any one bond offering that the trust may
hold. This prospectus and the prospectus supplement will not contain detailed
information about the bonds, any bond issuer, any bond insurer or any legal,
financial or other rights or obligations in connection with the bonds. The
sponsor has not investigated the financial condition or creditworthiness of any
bond issuer or bond insurer. However, before the initial issuance date of
certificates, the sponsor will determine whether notice of any material event
affecting the bonds is on file with any NRMSIR. If a bond defaults, investors
will bear the entire risk of loss.
For additional information about the bonds, you should consult the Official
Statements available from either a NRMSIR, identified on Exhibit B of this
prospectus, or an appropriate state information depository. The sponsor also
will provide Official Statements upon request.
DENOMINATIONS
The issuer will issue certificates in book-entry form through the facilities
of DTC. The certificates will be sold in minimum denominations of $5,000 initial
principal balance and integral multiples of $5,000.
PRINCIPAL AND INTEREST DISTRIBUTIONS
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. The prospectus supplement will specify the dates
on which principal and interest are payable on each bond. The bonds held by the
issuer will likely pay principal and interest on many different payment dates.
Accordingly, the trustee may, but is not obligated to, advance its own funds to
distribute interest on P-FLOATs monthly. Any trustee advance will be based on
the amount of interest accrued on the bonds, whether or not this interest is
then payable by the bond issuers. See "Interest and Principal--Distribution of
Interest" on page 14 of this prospectus and "--Distribution of Principal" on
page 16 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
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<PAGE>
and trustee advances from payments received on the bonds. If the trustee elects
to make an advance, it will be reimbursed the advance plus interest. This
interest component will be equal to the outstanding advances multiplied by the
trustee's prime rate for the number of days the advances were outstanding. The
RITES holder will pay all of the interest on trustee advances. See "Material
Terms of the Trust Agreement--Trustee Advances" on page 34 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.
Principal will be distributed on the certificates until the outstanding
principal balance of the certificates is reduced to zero.
THE REMARKETING AGENT
Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation
d/b/a Merrill Lynch & Co., will act as the P-FLOATs remarketing agent pursuant
to the Trust Agreement and a remarketing agreement. The liquidity provider may
remove the remarketing agent with the consent of 100% of the RITES holders or a
majority of the P-FLOATs holders. See "The Remarketing Agreement" on page 40 of
this prospectus.
P-FLOATS INTEREST RATE
The remarketing agent will determine the interest rate at which interest
payable on the underlying bonds will be distributed to P-FLOATs holders either
daily, weekly or for term periods of up to one year. Each of these periods will
constitute an interest mode. See "Interest and Principal--Period That Floating
Rate is in Effect" on page 15 of this prospectus. The interest rate at which
interest payable on the underlying bonds will be distributed on P-FLOATs, or
floating rate, will be the minimum rate of interest that the remarketing agent
determines would result in a sale of each P-FLOATs at a price equal to the
outstanding principal balance of the P-FLOATs plus accrued interest under
prevailing market conditions. This amount will 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 15 of this prospectus. The interest
rate at which interest is distributable on the P-FLOATs also may be converted to
a fixed rate, as described below.
If the floating rate for a series of P-FLOATs is determined for a term period
of up to one year, then the P-FLOATs will be subject to mandatory tender on the
last day of the interest rate period. Investors, however,
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<PAGE>
may elect to retain the P-FLOATs at the new interest rate and for the new term
designated by the remarketing agent. P-FLOATs not retained by the investor will
be remarketed by the remarketing agent to a new investor or to the liquidity
provider. See "Mandatory Tender of P-FLOATs" on page 18 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.
If the frequency for determining the floating rate for the P-FLOATs is
changed or the P-FLOATs are converted to fixed rate certificates, then the
P-FLOATs will be subject to mandatory tender on the day the change is effective.
Investors, however, may elect to retain the P-FLOATs at the new floating rate or
fixed rate designated by the remarketing agent. P-FLOATs not retained by the
investor will be remarketed by the remarketing agent to a new investor or to the
liquidity provider. See "Interest and Principal--Conversion of Interest Mode" on
page 16 of this prospectus.
OPTIONAL TENDER
If the remarketing agent determines the floating rate for P-FLOATs daily or
weekly, then an investor may tender those P-FLOATs to the tender agent by giving
notice to the remarketing agent and the tender agent prior to the purchase date.
The notice period for daily periods is one business day. The notice period for
weekly periods is five business days. The remarketing agent will remarket
tendered P-FLOATs to a new investor or to the liquidity provider at the purchase
price, an amount equal to the outstanding principal balance of the P-FLOATs plus
accrued interest at the floating rate. See "Optional Tender of P-FLOATs" on page
17 of this prospectus.
Investors may not optionally tender P-FLOATs for which the floating rate is
determined for a term period of up to one year (i.e., longer than weekly);
however, those P-FLOATs are subject to mandatory tender as described below. See
"Mandatory Tender of P-FLOATs" on page 18 of this prospectus.
MANDATORY TENDER
All P-FLOATs will be subject to mandatory tender to the tender agent if any
of the following events occurs:
(1) the liquidity facility is replaced;
(2) the interest rate mode is converted to another mode or to a fixed rate
at the discretion of the remarketing agent;
(3) a term period expires; or
(4) any fixed rate conversion event occurs.
If an event described above occurs, then investors may elect to retain their
P-FLOATs, subject to the terms of the replacement liquidity facility, the new
interest rate mode or the fixed rate. The remarketing agent will remarket
P-FLOATs that have not been retained by investors, to a new investor or the
liquidity provider at a purchase price equal to the outstanding principal
balance of the remarketed P-FLOATs plus accrued interest. See "Mandatory Tender
of P-FLOATs" on page 18 of this prospectus and "Procedures for Purchase and
Remarketing" on page 25.
FIXED RATE CONVERSION EVENTS
All P-FLOATs will be converted to fixed rate certificates if any of the
following fixed rate conversion events occurs:
(1) the liquidity facility expires, unless it is extended or replaced for
some of the bonds;
(2) an event of default occurs under the liquidity facility and the
liquidity provider elects to convert to a fixed rate;
(3) five business days elapse after at least 25% of P-FLOATs were tendered
without remarketing and the liquidity provider elects to convert to a fixed
rate;
(4) some events occur that would adversely affect the tax status of the
issuer and are disadvantageous to the investors, and the RITES holder elects
to convert to a fixed rate; or
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(5) the trustee receives notice that the liquidity provider elects to convert
the P-FLOATs to the fixed rate on a specified date because the fixed rate
determined for that date would be greater than the Maximum Fixed Rate.
Upon their conversion to fixed rate certificates, the P-FLOATs will be
subject to mandatory tender at the purchase price. Investors, however, may elect
to retain the fixed rate certificates. Upon a fixed rate conversion event, the
remarketing agent will remarket P-FLOATs that have not been retained by
investors, to a new investor or the liquidity provider, at the purchase price.
The remarketing agent will remarket those P-FLOATs as fixed rate certificates.
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 certificates will be equal to the
weighted average for all bonds, calculated for each bond as the lesser of the
maximum fixed rate and the index rate. The maximum fixed rate is the bond's
coupon rate minus trustee fees. The index rate is the Municipal Market Data
insured bond rate in effect on the conversion date for the term closest to the
"average life" of that bond, as determined by the remarketing agent. Once the
interest rate is converted to the fixed rate, the remarketing agent will no
longer establish the interest rate on the receipts based on changes in market
conditions or in the Municipal Market Data index. However, the fixed rate on the
receipts will be re-calculated from time to time whenever principal payments are
made on the bonds or bonds are withdrawn as described below. See "Fixed Rate
Conversion" on page 19 of the prospectus.
MANDATORY DISPOSITION OF BONDS WITH LIQUIDITY SUPPORT
The trustee will dispose of a bond held by the issuer if any of the following
events occurs with respect to that bond:
(1) the diversification requirement is violated, as described on page 39 of
this prospectus;
(2) the rating on the bond is withdrawn or downgraded such that it would cause
the rating on the P-FLOATs to be withdrawn or downgraded, but remains at or
above investment grade;
(3) the trustee receives notice from the liquidity provider that the liquidity
facility will not be extended upon its expiration with respect to the bond; or
(4) a sale of the bond when approximately 80% of the average life of the bond
expires would result in a net gain. See "The Bonds--Residual Ownership Date" on
page 39 of this prospectus.
Net gain is the amount (if any) by which the weighted average of gains and
losses on the bonds in the trust including the affected bond exceeds such
calculation after withdrawing the affected bond. For purposes of calculating net
gain, "gain" (or loss) on a bond means, in general, the amount by which the
bid-side value of the bond, as determined by the issuer, is greater than (or
less than, in the case of a loss) the price at which the issuer acquired the
bond. The price at which the issuer acquired the bond will be adjusted for any
accrued original issue discount, any accrued market discount or any amortized
premium.
With respect to the violation of the diversification requirement as described
in clause (1) above, all bonds held by the issuer will be considered affected
bonds.
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If one of the events described above occurs, the trustee will direct the
remarketing agent to sell the affected bond for the highest bid. The liquidity
provider will be obligated to bid the bond price, an amount equal to the
outstanding principal balance of the bond (which, in the case of a bond
deposited with market discount or original issue discount, will equal the
initial deposit price of the bond minus any principal payments on that bond
previously allocated to investors) plus accrued interest at the P-FLOATs
floating rate.
The trustee will apply the proceeds received from the sale of the bond to
pay, first, to the trustee, the proportionate amount of outstanding trustee fees
and trustee advances, second, to P-FLOAT holders, an amount up to the bond price
plus 10% of any net gain on the affected bond, and third, to the RITES holder,
the balance of the proceeds. See "Mandatory Disposition of Bonds--Mandatory
Disposition of Bonds with Liquidity Support" on page 20 of this prospectus.
MANDATORY DISPOSITION OF BONDS WITHOUT LIQUIDITY SUPPORT
The trustee will dispose of a bond held by the issuer if any of the following
events occurs with respect to that bond:
(1) the bond issuer or bond insurer fails to pay any installment of
principal of, or any premium or interest on, a bond;
(2) some events of bankruptcy or insolvency of the bond issuer or the bond
insurer of a bond;
(3) the rating on any bond is downgraded to below investment grade, "BBB-"
or the equivalent; or
(4) a determination by the Internal Revenue Service or the Department of the
Treasury adversely affecting the tax exempt status of a bond.
If one of the events described above occurs, the trustee will:
(1) if the market value of the affected bond is less than the bond price,
distribute the affected bond, in whole, to investors to the extent possible
based on minimum denominations; or
(2) if the market value of the bond is greater than or equal to the bond
price, or if whole bonds cannot be distributed based on minimum
denominations, direct the remarketing agent to sell the bond and use the
proceeds to pay, first, to the trustee, the proportionate amount of
outstanding trustee fees and trustee advances, second, to P-FLOAT holders, to
the extent accrued interest is received on the sale of the bond, accrued
interest at the P-FLOATs floating rate, third, to the RITES holder, the
remainder of any accrued interest received, fourth, pro rata to all
investors, an amount up to the up to the bond price, fifth, to the P-FLOATs
holders, 10% of any net gain on the affected bond, and sixth, to the RITES
holder, the balance of the proceeds.
See "Mandatory Disposition of Bonds--Mandatory Disposition of Bonds without
Liquidity Support" on page 21 of this prospectus.
THE LIQUIDITY FACILITY
Before receipts of a series are issued, the sponsor and the issuer will
establish a standby purchase agreement, a liquidity letter of credit or other
similar arrangement with the liquidity provider designated by the sponsor and
identified in the prospectus supplement. The liquidity provider may or may not
be affiliated with the sponsor. The
6
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liquidity facility for each series of receipts will expire on the date specified
in the prospectus supplement, unless the liquidity provider chooses to extend
its facility with respect to all or a portion of the bonds. The RITES holder may
remove and replace the liquidity provider on behalf of P-FLOATs investors with
the consent of the trustee.
Under the liquidity facility, the liquidity provider will purchase P-FLOATs
at the purchase price, an amount equal to the outstanding principal balance of
the P-FLOATs plus accrued interest if the remarketing agent is unable to
remarket to another investor any P-FLOATs that has been tendered (1) at the
option of its owner or (2) pursuant to a mandatory tender event. The liquidity
provider will become the holder of any P-FLOATs that it purchases. The liquidity
provider will also act as the purchaser of last resort (i.e., will be obligated
to bid the bond price, an amount equal to the outstanding principal balance of
the bond (which, in the case of a bond deposited with market discount or
original issue discount, will equal the initial deposit price of the bond minus
any principal payments on that bond previously allocated to investors) plus
accrued interest at the P-FLOATs floating rate), when bonds are disposed of by
the trustee pursuant to a mandatory disposition of bonds with liquidity support.
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
certificates, the payment of any net gain upon a mandatory disposition of bonds
or the purchase of fixed rate certificates.
If the liquidity facility expires and is not extended or replaced, the
P-FLOATs will be converted to fixed rate certificates and be subject to
mandatory tender in whole unless investors elect to retain the fixed rate
certificates. If the liquidity facility is replaced, then the P-FLOATs will be
subject to mandatory tender in whole five business days before the last day of
the then-current liquidity facility, unless investors elect to retain the
P-FLOATs under the new liquidity facility. If the liquidity facility expires and
is extended for only a portion of the bonds, then the portion of P-FLOATs
proportionate to the bonds for which the facility is not extended will be
subject to mandatory tender in part without the right of investors to retain
that portion of their P-FLOATs. See "The Liquidity Facility" on page 41 of this
prospectus.
WITHDRAWAL OF BONDS
Subject to the limitations under this heading, the sponsor may withdraw bonds
held by the issuer at any time at which the liquidity provider owns P-FLOATs. To
exercise this right, the sponsor must pay the trustee the following:
(1) a proportionate amount of outstanding trustee fees and trustee
advances; and
(2) for the benefit of the P-FLOATs and RITES, a price equal to the market
value of the bond withdrawn (including any interest not previously advanced
by the trustee that has accrued on the bond withdrawn and that is payable to
investors) and any taxes or other governmental charges that are typically
withheld by the trustee.
Upon a withdrawal of bonds, the trustee will distribute amounts it receives
from the sponsor in the following order of priority, each priority being fully
paid before any lower priority is paid:
(1) to the liquidity provider, an amount equal to the outstanding principal
balance of the P-FLOATs held by the liquidity provider plus accrued interest;
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(2) to all other P-FLOATs holders, pro rata, an amount equal to 10% of any
net gain on the bond withdrawn; and
(3) to the RITES holder, the balance remaining.
The sponsor's right to withdraw bonds is subject to the following conditions:
(1) the sponsor must notify the trustee of its irrevocable intention to
withdraw a bond at least 30 days before withdrawal;
(2) withdrawals may only occur once per month;
(3) no more than 25% of the initial amount of bonds held by the issuer may
be withdrawn in a single withdrawal;
(4) withdrawals may only be made in the minimum principal amount of $5
million and the maximum principal amount equal to the outstanding principal
balance of the P-FLOATs held by the liquidity provider;
(5) there may be no withdrawal if the withdrawal will cause a rating
agency to downgrade the rating of the P-FLOATs; and
(6) there may be no withdrawal if the withdrawal will violate the
diversification requirement.
See "Withdrawal of Bonds" on page 23 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 "Material Terms of the Trust Agreement--Termination of the Trust Agreement"
on page 37 of this prospectus.
FEDERAL INCOME TAX CONSEQUENCES
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
and will not be subject to federal income tax. Amounts distributed to investors
that are attributable to payments of interest on the bonds which are excludable
from federal gross income will be excludable from the federal gross income of
the investors. See "Income Tax Considerations" on page 43 of this prospectus. We
suggest that you consult your own tax advisor on the income tax considerations
applicable to your purchase of P-FLOATs.
RATINGS
The P-FLOATs will be rated by one or more nationally-recognized statistical
rating organizations. The long-term rating of the P-FLOATs represents the
likelihood of P-FLOATs receiving scheduled principal and interest at the
floating rate. This rating is based upon the credit rating of the bonds or, if
the bonds are insured, the bond insurer. The short-term rating of the receipts
is based on the credit rating of the liquidity provider in connection with its
issuance of the related liquidity facility. This credit rating will apply for
only as long as the receipts benefit from the liquidity facility.
A series of P-FLOATs will only be issued if the series is rated in one of the
three highest categories by the nationally-recognized rating agency or agencies
specified in the prospectus supplement. P-FLOATs ratings are not recommendations
to buy, sell or hold the P-FLOATs; ratings reflect only the view of the rating
agency issuing them. See "Rating" on page 51 of this prospectus and in the
prospectus supplement.
8
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The following information will be supplemented in the prospectus supplement
of any series. You must read the prospectus together with the prospectus
supplement.
The following descriptions in this prospectus of the series trust agreement
address the material aspects of the certificates. However, the descriptions in
this prospectus and its related documents are not complete. Additional
information about the certificates is set forth in the series trust agreement.
We suggest that you read the entire series trust agreement, which may be
obtained from the sponsor.
RISK FACTORS
You should carefully consider the following risk factors and other
information in this prospectus, as well as in the prospectus supplement, in
deciding whether to invest:
THIS PROSPECTUS MAY NOT PROVIDE ENOUGH INFORMATION ABOUT THE BONDS AND ANY
BOND ISSUER AND YOU MAY NEED TO FURTHER INVESTIGATE THE PAYMENT AND CREDIT
CHARACTERISTICS OF THE BONDS
This prospectus does not provide detailed information with respect to the
bonds or any bond issuer, or with respect to any rights or obligations, legal,
financial or otherwise, arising under or related to the bonds. You should
therefore investigate the payment and credit characteristics of the bonds before
purchasing certificates.
The sponsor will update Exhibit B through periodic reports filed under the
Securities Exchange Act of 1934.
THIS PROSPECTUS DOES NOT UPDATE THE ORIGINAL OPINION OF BOND COUNSEL AND
YOU MAY NEED TO INVESTIGATE THE CONTINUING TAX EXEMPT STATUS OF THE BONDS
When the bonds were originally issued, an opinion of bond counsel was
rendered as to their tax-exempt status. The sponsor has not, and will not,
update the original opinion of bond counsel. Notice of any adverse tax opinions
or events affecting the tax-exempt status of the bonds may be available from a
Nationally Recognized Municipal Securities Repository identified on Exhibit B to
this prospectus. Prior to the initial issuance date of certificates, the sponsor
will determine whether notice of any such event is on file with any such
Nationally Recognized Municipal Securities Repository. However, some of the
bonds may not be subject to these filing requirements.
YOUR ABILITY TO RESELL P-FLOATS IN THE SECONDARY MARKET IS LIMITED
There is currently no active secondary market for P-FLOATs and it is not
expected that one will develop. Consequently, your ability to resell your
P-FLOATs in the secondary market is limited. Even if a secondary market does
develop, it may be temporary or may not foster circumstances that permit you to
resell your P-FLOATs.
YOUR RECEIPT OF INTEREST AND PRINCIPAL PAYMENTS ON P-FLOATS MAY BE DELAYED
IF THERE ARE DELAYS IN PAYMENTS ON THE BONDS
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The trustee will distribute principal and/or interest to you on the business
day following the date on which the trustee receives a principal or interest
payment on each bond. Consequently, your receipts of interest and principal
payments on your P-FLOATs may be delayed if there are delays in the trustee's
receipt of payments on the bonds. The trustee may, but is not obligated to,
advance its own funds to distribute interest on P-FLOATs monthly. Any trustee
advance will be based on the amount of interest accrued on the bonds. The
trustee may make these advances whether or not the interest accrued on the bonds
is then payable by the bond issuers. The trustee is not responsible for delays
in receipt of payments on the bonds.
FIXED RATE P-FLOATS ARE NOT SUBJECT TO OPTIONAL TENDER
P-FLOATs may be converted to fixed rate certificates. 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 certificate, it will retain a long term investment for which there is
currently no secondary market. The quality of the long term investment may be
adversely affected by the event that caused the fixed rate conversion.
EVENTS COULD RESULT IN THE DISPOSITION OF CERTAIN BONDS WITHOUT LIQUIDITY
SUPPORT
Events could result in the disposition of certain bonds without liquidity
support. If any of these events occurs, the trustee will sell the affected bonds
and use the proceeds to pay you the outstanding principal balance of the
affected bonds (which, in the case of a market discount bond, will equal to the
initial deposit price of the bond minus any principal payments on that bond
previously allocated to investors) plus interest accrued at the P-FLOATs
floating rate plus 10% of any net gain on the affected bonds. However, if the
proceeds from selling the bonds would not be sufficient to pay you that amount,
instead of selling the bonds, the trustee will distribute them, in whole, to you
to the extent possible based on minimum denominations. The quality of the long
term investment may be adversely affected by the event causing the disposition
of bonds.
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 a purchase price equal
to the outstanding principal balance of the P-FLOATs plus accrued interest
unless you elect to retain the P-FLOATs at the new floating rate.
YOUR RIGHT TO RECEIVE THE FULL PURCHASE PRICE OF YOUR TENDERED P-FLOATS
MAY BE LIMITED IF THE LIQUIDITY FACILITY IS SUSPENDED OR TERMINATED
The purchase price of P-FLOATs tendered by investors for purchase (or subject
to mandatory tender) will be payable solely from the proceeds of remarketing the
tendered P-FLOATs. If the remarketing agent is unable to remarket all tendered
P-FLOATs to new investors, it will remarket them to the liquidity provider, who
will purchase the P-FLOATs with funds drawn under the liquidity facility
described in this prospectus supplement. Under certain circumstances, the
liquidity facility may be suspended or terminated without notice. In this case,
your right to receive the full purchase price of your tendered P-FLOATs may be
limited.
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YOUR RIGHT TO RECEIVE THE FULL PRINCIPAL OUTSTANDING BALANCE OF AFFECTED
BONDS UPON A MANDATORY DISPOSITION MAY BE LIMITED IF THE LIQUIDITY FACILITY
IS SUSPENDED OR TERMINATED
Upon a mandatory disposition of bonds, the principal outstanding balance of
the affected bonds plus interest accrued at the P-FLOATs floating rate will be
payable from the proceeds of the sale of the bonds. In some cases when there is
a mandatory disposition of a bond, the liquidity provider will be obligated to
bid an amount equal to the outstanding principal balance of the bond (or, in the
case of a market discount bond, an amount equal to the initial deposit price of
the bond minus any principal payments on that bond previously allocated to
investors) plus accrued interest at the P-FLOATs floating rate. In other cases,
the liquidity facility may be suspended or terminated without notice and the
liquidity provider will not be obligated to bid for the affected bond. In these
cases, you may receive the affected bonds in whole. The quality of the long term
investment may be adversely affected by the event that caused the disposition of
bonds.
THE RITES HOLDER IS AUTHORIZED TO PROVIDE CONSENT FOR ACTIONS THAT COULD
POTENTIALLY AFFECT ALL CERTIFICATEHOLDERS EVEN THOUGH THE INTERESTS OF THE
RITES HOLDER MAY NOT COINCIDE WITH YOUR RIGHTS
In general, the RITES represent the portion of the beneficial ownership of
the bonds that is not represented by the P-FLOATs. Therefore, the holder of the
RITES is affected by the terms of the P-FLOATs. The interest rate on the
P-FLOATs will be adjusted periodically to reflect then-current market
conditions. That interest rate is inversely correlated to the interest rate paid
to the RITES holder; as the rate paid to the P-FLOATs holders goes up, the rate
paid to the RITES holder goes down, and vice versa. Accordingly, the RITES
holder prefers that the P-FLOATs interest rate is the lowest rate available
under then-current market conditions.
Under the Series Trust Agreement, actions that could affect the level of the
P-FLOATs interest rate may require the consent of the RITES holder. In
particular, the RITES holder's consent is required for: (1) the replacement of
the liquidity provider; (2) a change in frequency for determining the floating
rate; and (3) the conversion of a P-FLOATs to a fixed rate certificate.
In some of these circumstances, the RITES holder's interests may be different
than the P-FLOATs holders' interests. For example, the interest rate on the
P-FLOATs is determined on the basis of then-current market conditions, which
will reflect the provider of the liquidity facility. Although a replacement
liquidity facility must meet criteria set forth in the Series Trust Agreement, a
particular P-FLOATs holder may prefer one liquidity provider over another.
Similarly, a P-FLOATs holder may prefer to have its interest rate reset at a
particular frequency or may prefer not to have its interest rate converted to a
fixed rate for a specific reason that is unique to that investor.
THE TRUSTEE IS NOT OBLIGATED TO ADVANCE ITS OWN FUNDS TO DISTRIBUTE
MONTHLY INTEREST ON YOUR P-FLOATS BEFORE THE TRUSTEE RECEIVES INTEREST
PAYMENTS ON THE BONDS
The bonds held by the issuer will likely pay interest on many different
payment dates. However, the trustee may advance its own funds to distribute
interest to P-FLOATs holders
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<PAGE>
monthly, even though interest may not then be payable on the bonds. The
trustee's decision to advance its own funds for this purpose is at the sole
discretion of the trustee, based on the trustee's determination that the
advanced funds will be recoverable through either principal or interest payments
on the bonds, liquidation proceeds, or insurance proceeds.
IF A BANKRUPTCY COURT DETERMINES THAT THE SALE OF THE BONDS BY THE SPONSOR
TO THE TRUST IS NOT A TRUE SALE, THEN YOU MIGHT EXPERIENCE DELAYS IN PAYMENT
OR, POSSIBLY, LOSSES ON YOUR INVESTMENT
The trust and sponsor intend that the transfer of bonds from the sponsor to
the trust will constitute a "true sale" and that it would be respected as such
if the sponsor became the subject of a case under the Bankruptcy Code. The trust
has taken steps in structuring its purchases of bonds from the sponsor to
increase the likelihood that each of these purchases will be deemed a true sale.
In particular, the sponsor will have no recourse for credit losses. Further, the
bonds will be transferred to the trust at a purchase price the trust and sponsor
each believe represents the fair market value of the bonds.
In a bankruptcy proceeding, however, the transfer may not be treated as a
sale, but as the creation of a security interest in the bonds. Furthermore, a
bankruptcy trustee or a creditor may attempt to cause a predecessor in interest
of the bonds or the sponsor to be substantively consolidated with the sponsor or
the trust, respectively. In this event, this transaction has been structured so
that the trust would hold a perfected security interest in the bonds and the
bond proceeds. As a secured creditor of the sponsor, the trust would be subject
to various provisions of the Bankruptcy Code which affect and limit the
contractual rights and remedies of secured creditors, including the ability to
access collateral on a timely basis. As a result, you might experience delays in
payment or, possibly, losses on your investment in the P-FLOATs.
As a condition to the offering of P-FLOATs, the trust will receive an opinion
of counsel that, subject to certain facts, assumptions and qualifications, the
transfer of the bonds by the sponsor to the trust will be characterized either
as a true sale or a grant of a security interest. This opinion, however, is not
binding on any court.
ALTHOUGH THE ISSUER DOES NOT OPERATE COMPUTER SYSTEMS OF ITS OWN, IT IS
CURRENTLY IMPOSSIBLE TO DETERMINE WITH CERTAINTY WHETHER THE ISSUER IS
VULNERABLE TO ANY FAILURE OF THIRD PARTIES TO SOLVE THEIR YEAR 2000 PROBLEMS
The Year 2000 problem is the result of a widespread programming technique
that causes computer systems to identify a date based on the last two numbers of
a year, with the assumption that the first two numbers of the year are "19." As
a result, the Year 2000 would be stored as "00," causing computers to
incorrectly interpret the year as 1900. Left uncorrected, the Year 2000 problem
may cause information technology systems and non-information technology systems
to produce incorrect data or cease operating completely.
Although the issuer does not operate any computer systems of its own, it
relies on the computer systems of the bond issuers, the trustee, the co-trustee,
the remarketing agent, the liquidity provider and the securities depository, all
of which may indirectly rely on computer systems of other third parties. As of
January 2000, there is no indication that any computer system upon which the
issuer relies has failed to resolve its Year 2000 problem. Nevertheless, it is
currently impossible to determine with certainty whether the issuer is
vulnerable to any failure of third parties to solve their Year 2000 problems. If
the Year 2000 problems were not timely resolved by these third parties, then
there could be an interruption in payments due on the certificates or a delay or
failure in the delivery of notices to investors.
Please refer to the Glossary on page 53 for the definition of capitalized
terms.
INTRODUCTION
The P-FLOATs offered by this prospectus relate to the pool of municipal bonds
described in a given prospectus supplement. The P-FLOATs will be delivered under
a Series Trust Agreement among Merrill Lynch Municipal ABS, Inc., as sponsor,
the entity identified as trustee and tender agent in the prospectus supplement
and the entity identified as co-trustee in the prospectus supplement. The
sponsor will deposit the bonds. Merrill Lynch, Pierce, Fenner & Smith
Incorporated also will serve as remarketing agent. The initial issuance date of
Certificates for each series will be stated in the related prospectus supplement
as the first date on which the trustee issues Certificates related to that
series.
Each Series Trust Agreement incorporates by reference the Standard Terms and
Provisions. This prospectus will refer to the Series Trust Agreement, the
Standard Terms and Provisions and all exhibits, appendices, schedules and
amendments to both documents as the "Trust Agreement."
The issuer will acquire the bonds for the benefit of the investors. The
property held by the issuer will consist of:
(1) the bonds described in the prospectus supplement;
(2) all distributions of principal, any premium or interest on the bonds
received by the trustee after the initial issuance date of Certificates;
(3) all right, title and interest in and to the distributions; and
(4) any third-party insurance policies on the bonds.
Each P-FLOATs evidences an undivided beneficial interest in the issuer, and
the right to receive future payments of, principal, interest and any redemption
premium on all of the bonds held by the issuer. Each P-FLOATs further evidences
the right to receive the purchase price of the P-FLOATs from amounts available
under the liquidity facility on any purchase date under the terms of the Trust
Agreement. Purchase price is an amount equal to the outstanding principal
balance of the P-FLOATs plus accrued interest at the floating rate. Each RITES
evidences an undivided beneficial interest in the right to receive future
payments of principal, interest and any redemption premium on the bonds.
The trustee will distribute principal and/or interest to P-FLOATs holders on
the business day following the date on which the trustee receives a principal or
interest payment on each bond. While the P-FLOATs are registered in the name of
a securities depository or its nominee, these payments will be made to the
nominee. See "Details of the Certificates--Book Entry Only System for
Certificates" on page 28 of this prospectus.
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INTEREST AND PRINCIPAL
DESCRIPTION OF INTEREST MODES
The P-FLOATs will distribute interest payable on the underlying bonds at the
floating rate, an interest rate that is reset either daily, weekly or for term
periods of up to one year, depending on the Interest Mode in effect. The
P-FLOATs will be issued in the Interest Mode identified in the prospectus
supplement. The P-FLOATs also will initially distribute 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 16
of this prospectus. The P-FLOATs are also subject to conversion to a fixed rate
if specified events occur. See "Fixed Rate Conversion" on page 19 of this
prospectus. Following a conversion, the converted P-FLOATs will distribute
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 distribute interest at the daily or weekly rate, the
trustee will compute interest on the basis of a 365-day year, or 366 days in a
leap year, for actual days elapsed. When the P-FLOATs bear interest at a term or
fixed rate, the trustee will compute interest on the basis of a 360-day year
comprised of twelve 30-day months. The trustee will distribute interest to
investors on the dates described below. Interest due on each distribution date
will include interest accrued during the accrual period, the period beginning on
and including the previous date interest was paid on the bonds and ending on and
excluding the current date interest is paid on the bonds.
DISTRIBUTION OF INTEREST
The trustee will distribute interest to P-FLOATs investors on the business
day following the date on which the trustee receives an interest payment, in
immediately available funds, on each bond. The prospectus supplement will
specify the dates on which interest is payable on each bond. The bonds held by
the issuer will likely pay interest on many different payment dates.
Accordingly, the trustee may, but is not obligated to, advance its own funds to
distribute interest on P-FLOATs monthly. Any trustee advance will be based on
the amount of interest accrued on the bonds, whether or not the interest is then
payable by the bond issuers. If the trustee elects to make an advance, then it
will be entitled to reimbursement of the advance plus interest. This interest
component will be equal to the outstanding advances multiplied by the trustee's
prime rate for the number of days the advances were outstanding. Trustee
advances will be reimbursed from payments received on the bonds before P-FLOATs
distributions. The RITES holder will pay interest on trustee advances under a
fee agreement between the trustee and the RITES holder. The trustee is not
responsible for delays in receipt of payments on the bonds. See "Material Terms
of the Trust Agreement--Trustee Advances" on page 34 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.
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PRIORITY IN DISTRIBUTION OF INTEREST
The trustee will distribute interest on the bonds in the following order of
priority:
(1) to pay trustee fees and to reimburse the trustee for any advances;
(2) to distribute interest on the P-FLOATs; and
(3) to distribute interest on the RITES.
PERIOD THAT FLOATING RATE IS IN EFFECT
The remarketing agent will determine the floating rate for the P-FLOATs under
the procedures and standards set forth below. Each floating rate will be in
effect for the entire interest period.
The remarketing agent will determine the floating rate as follows:
Daily Mode. On each day during which P-FLOATs are in a daily mode, they will
bear interest at the daily rate for that day. The remarketing agent will
determine the daily rate for any day by 10:00 a.m., New York City time. If
that day is not a business day, the remarketing agent will determine the
daily rate on the immediately preceding business day. The daily rate may not
be more than the Maximum Floating Rate described below. See "Method of
Determining Interest Rate" below.
Weekly Mode. On each day during which P-FLOATs are in a weekly mode, they
will bear interest at the weekly rate for each one-week period beginning on
Thursday of each week. The remarketing agent must determine the weekly rate
by 12:00 p.m., New York City time, on or before the start of the weekly mode
and on or before each following Thursday. The weekly rate may not be more
than the Maximum Floating Rate described below. See "Method of Determining
Interest Rate" below.
Term Mode. On each day during which P-FLOATs are in a term mode, they will
bear interest at the "term rate" for that term period. The floating rate for
P-FLOATs in term mode is the floating rate and interest period determined by
the remarketing agent. The remarketing agent must determine the term rate by
1:30 p.m., New York City time, on the sixth business day before the start of
each term period. The fixed rate may not be more than the Maximum Floating
Rate described below. See "Method of Determining Interest Rate" below. The
interest period in each term mode must be one year or less.
METHOD OF DETERMINING THE INTEREST RATE
Determination of Floating Rate. The remarketing agent must establish the
floating rate for each series of P-FLOATs by determining the minimum rate of
interest that would result in a sale of each P-FLOATs at the purchase price
under prevailing market conditions. If the remarketing agent does not determine
the floating rate as required, then the floating rate will be the floating rate
in effect for the preceding interest period. The remarketing agent will
immediately inform the trustee of the floating rate by telephone. Unless there
is an obvious error, the floating rate determined by the remarketing agent will
be conclusive and binding upon the trustee, the tender
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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 Maximum Floating Rate. The Maximum Floating Rate is the weighted average
coupon of the bonds minus trustee fees. The prospectus supplement specifies the
initial floating rate and initial floating rate interest period.
Determination of Fixed Rate. The fixed rate will be equal to the weighted
average for all bonds calculated for each bond as the lesser of the Maximum
Fixed Rate and the Index Rate. The Maximum Fixed Rate is the coupon rate for a
bond minus trustee fees. The Index Rate is the Municipal Market Data insured
bond rate in effect on the conversion date for the term closest to the "average
life" of that bond, as determined by the remarketing agent. Once the interest
rate is converted to a fixed rate, the remarketing agent will no longer
establish the interest rate on the Certificates based on changes in market
conditions or in the Municipal Market Data index. However, the fixed rate on the
Certificates will be re-calculated from time to time whenever principal payments
are made on the bonds or bonds are withdrawn as described under "Withdrawal of
Bonds" on page 23 of this prospectus. See "Fixed Rate Conversion" on page 19 of
this prospectus.
CONVERSION OF INTEREST MODE
The remarketing agent, with the consent of the RITES holder, may designate a
new Interest Mode to which to convert all of the P-FLOATs of a series and, in
the case of a term mode, to designate the duration of the initial or any
successive interest rate period. The remarketing agent may convert P-FLOATs to a
new Interest Mode on (1) any business day, when the change is from daily or
weekly mode, and (2) the day after the last day of the term period, when the
change is from term mode. The P-FLOATs are also subject to conversion to a fixed
rate if specified events occur. See "Fixed Rate Conversion--Fixed Rate
Conversion Events" on page 19 of this prospectus. P-FLOATs that have been
converted to fixed rate certificates 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 Certificates--Book-Entry Only
System for Certificates" on page 28 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 certificate, and the P-FLOATs is not
retained by the investor, then it will be remarketed by the remarketing agent to
a new investor or the liquidity provider. See "Mandatory Tender of P-FLOATs" on
page 18 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
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held by the issuer will likely pay principal on many different payment dates;
however, the trustee will not advance its own funds to distribute principal on
the Certificates. The trustee is not responsible for delays in receipt of
payments on the bonds.
Principal will be distributed on the Certificates until the outstanding
principal balance of the Certificates is reduced to zero.
OPTIONAL TENDER OF P-FLOATS
RIGHT OF OPTIONAL TENDER IN DAILY AND WEEKLY MODE
If the floating rate is reset daily or weekly, then P-FLOATs investors will
have the right to tender their P-FLOATs before the earliest of the following
events:
(1) the related Trust Agreement terminates;
(2) a mandatory tender event occurs, unless an investor retains his or
her P-FLOATs; or
(3) a fixed rate conversion event occurs.
While the P-FLOATs are registered in the name of the securities depository,
investors may tender their P-FLOATs to the tender agent by giving the securities
depository or any participant sufficient instructions to transfer beneficial
ownership of the P-FLOATs to the account of the tender agent against payment for
the P-FLOATs.
EXERCISE OF TENDER OPTION
To exercise the right to optionally tender P-FLOATs, an investor must deliver
an irrevocable notice of tender to the remarketing agent and the tender agent
specifying:
(1) the principal amount of that investor's P-FLOATs to be tendered,
which must be in authorized denominations; and
(2) the date of tender, known as the Optional Purchase Date.
The investor's tender notice may be given in writing or by telephone,
promptly confirmed in writing, and given during business hours on any business
day before the applicable times set forth below:
Daily Mode. For P-FLOATs in daily mode, notice of tender must be given
before 10:30 a.m., New York City time, on the Optional Purchase Date.
Weekly Mode. For P-FLOATs in weekly mode, notice of tender must be given
before 3:00 p.m., New York City time, on the business day five business days
before the Optional Purchase Date.
P-FLOATs investors in term mode or fixed rate certificates are not entitled
to give notice of an optional tender or to exercise the optional tender of those
P-FLOATs or fixed rate certificates.
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Each investor exercising the right to optionally tender P-FLOATs must notify
its participant at the same time as it notifies the remarketing agent and the
tender agent, and must act through its participant to transfer ownership of the
tendered P-FLOATs to the account of the tender agent against payment for the
P-FLOATs on the Optional Purchase Date, as described in "Procedures for Purchase
and Remarketing--Procedures for Optional Tender when P-FLOATs Deposited with a
Securities Depository" on page 26 of this prospectus. The liquidity provider
will purchase any P-FLOATs appropriately tendered and not remarketed with funds
drawn under the liquidity facility.
MANDATORY TENDER OF P-FLOATS
MANDATORY TENDER
Each investor must tender, and will be deemed to have tendered, its P-FLOATs
to the tender agent for purchase at the purchase price if a "mandatory tender
event" occurs. Investors may retain their P-FLOATs, subject to the
characteristics of the P-FLOATs in effect after the mandatory tender.
MANDATORY TENDER EVENTS
P-FLOATs will be subject to mandatory tender to the tender agent on the
following dates if any of the following events occurs:
-----------------------------------------------------------------------------
DESCRIPTION OF MANDATORY RELATED MANDATORY
TENDER EVENT TENDER DATE
(1) the liquidity facility is The fifth business day before the
replaced expiration of the existing
liquidity facility
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
(2) the Interest Mode is The first business day of the new
converted to another Interest Interest Mode or fixed rate
Mode or to a fixed rate
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
(3) a term period expires The first business day following the
expiration of the term period
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
(4) a fixed rate conversion The first business day that the
event occurs (as described fixed rate is in effect
below)
-----------------------------------------------------------------------------
If an event described above occurs, then investors may retain their P-FLOATs,
subject to the terms of the replacement liquidity facility, at the new Interest
Mode or the fixed rate in effect after the mandatory tender date. Investors who
elect to retain their P-FLOATs must notify the tender agent and the remarketing
agent by facsimile transmission to their designated facsimile numbers not later
than 10:00 a.m., New York City time, on the business day after the day on which
the trustee gives notice that the mandatory tender occurred.
------------------------------------------------------------------------------
P-FLOATs will not share in any profit on the bonds as the result of mandatory
tender. P-FLOATs purchased on a mandatory tender date will receive only the
purchase price.
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
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investors will be required to tender their P-FLOATs. Concurrently with the
notice described above, the remarketing agent will also provide the trustee with
a form of notice to be used by the trustee for electronic delivery to the
securities depository for transmission to investors. The trustee will transmit
that notice to the securities depository at or before the close of business on
the business day immediately following the business day on which it receives
notice from the remarketing agent. The notice will be in the form required by
the securities depository and will contain the following items of information:
(1) the date the P-FLOATs will be subject to mandatory tender and the
reason for the mandatory tender;
(2) that the right to retain P-FLOATs must be exercised in compliance with
securities depository procedures so that such response will be received by
the securities depository not later than ten business days before the
mandatory tender date;
(3) that upon electing to retain, each retaining investor will continue to
hold P-FLOATs subject to the terms of the new liquidity facility, Interest
Mode or fixed rate, as the case may be; and
(4) if the mandatory tender is due to:
(a) replacement of the liquidity facility, the material terms of the
successor liquidity facility; or
(b) conversion of the Interest Mode, expiration of a term period, or a
fixed rate conversion event, the terms of the new Interest Mode and
interest period or fixed rate.
P-FLOATs Purchased Regardless of Delivery. Failure to deliver P-FLOATs that
investors did not retain will not prevent the mandatory tender of the P-FLOATs.
The P-FLOATs 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 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 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 25 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.
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
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Principal--Conversion of Interest Mode" on page 16 of this prospectus. In
addition, all P-FLOATs will be converted to fixed rate certificates if any of
the following fixed rate conversion events occurs:
(1) the liquidity facility expires, unless it is extended or replaced
with respect to at least a portion of the bonds;
(2) an event of default under the liquidity facility, and the liquidity
provider elects to convert to a fixed rate;
(3) five business days elapse after at least 25% of P-FLOATs have been
tendered and not remarketed, and the liquidity provider elects to convert to
a fixed rate;
(4) some events that would adversely affect the tax status of the issuer and
are disadvantageous to the investors, and the RITES holder elects to convert
to a fixed rate; or
(5) the trustee receives notice that the liquidity provider elects to convert
the P-FLOATs to the fixed rate as of a specified date because the fixed rate
determined as of that date would be greater than the Maximum Fixed Rate.
PROCEDURES FOR FIXED RATE CONVERSION
Mandatory Tender and Purchase of P-FLOATs. Immediately following their
conversion to fixed rate certificates, the outstanding P-FLOATs will be subject
to mandatory tender at the purchase price. Investors, however, may elect to
retain the fixed rate certificates. See "Mandatory Tender of P-FLOATs" on page
18 of this prospectus. Following the mandatory tender, 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
certificates on the conversion date in accordance with the procedures set forth
under "Interest and Principal--Method of Determining the Interest Rate" on page
15 of this prospectus.
MANDATORY DISPOSITION OF BONDS
MANDATORY DISPOSITION OF BONDS WITH LIQUIDITY SUPPORT
Disposition Events. The trustee will dispose of a bond held by the issuer
if any of the following events occurs with respect to that bond:
(1) the diversification requirement is violated;
(2) the rating on the bond is withdrawn or downgraded such that it would
cause the rating on the P-FLOATs to be withdrawn or downgraded, but remains
at or above investment grade;
(3) the trustee receives notice from the liquidity provider that the
liquidity facility will not be extended upon its expiration with respect to
the bond; or
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(4) a sale of the bond when approximately 80% of the average life of the bond
expires would result in a net gain.
Net gain is the amount (if any) by which the weighted average of gains and
losses on the bonds in the trust including the affected bond exceeds such
calculation after withdrawing the affected bond. For purposes of calculating net
gain, "gain" (or loss) on a bond means, in general, the amount by which the
bid-side value of the bond, as determined by the issuer, is greater than (or
less than, in the case of a loss) the price at which the issuer acquired the
bond. The price at which the issuer acquired the bond will be adjusted for any
accrued original issue discount, any accrued market discount or any amortized
premium.
With respect to the violation of the diversification requirement as described
in clause (1) above, all bonds held by the issuer will be considered affected
bonds.
Trustee to Provide Notice. On the first business day after the trustee learns
that a disposition event has occurred, the trustee will electronically notify
the tender agent, the remarketing agent, the liquidity provider and the
securities depository. The notice will set forth:
(1) a description of the mandatory disposition event;
(2) a description of the affected bond;
(3) the principal amount of the affected bond;
(4) the amounts to be distributed to investors as described below; and
(5) the bonds remaining after giving effect to the disposition.
Sale of Bond. The trustee will direct the remarketing agent to sell the
affected bond for the highest bid by soliciting bids from broker-dealers located
in New York City, selected by the issuer in its absolute discretion, and any
other potential purchasers that the issuer chooses to approach, including the
RITES holder. The liquidity provider will be obligated to bid an amount equal to
the bond price. Bond price is an amount equal to the outstanding principal
balance of the bond (or, in the case of a market discount bond, an amount equal
to the initial deposit price of the bond minus any principal payments on that
bond previously allocated to investors) plus accrued interest at the P-FLOATs
floating rate.
Distribution to P-FLOATs Holders. The trustee will apply the proceeds
received from the sale of the bond in the following order of priority, each
priority being fully paid before proceeds are used to pay any lower priority and
no payment being made on any priority if the proceeds have been exhausted in the
payment of higher priorities:
(1) to the trustee, the proportionate amount of outstanding trustee fees
and trustee advances;
(2) to P-FLOATs investors, pro rata, an amount up to, but not exceeding, the
bond price plus 10% of any net gain on the sale of the affected bond; and
(3) to the RITES holder, the balance of the proceeds.
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MANDATORY DISPOSITION OF BONDS WITHOUT LIQUIDITY SUPPORT
Disposition Events. The trustee will dispose of a bond held by the issuer
if any of the following events occurs with respect to that bond:
(1) the bond issuer or bond insurer fails to pay any installment of principal
of, or any premium or interest on any bond, whether by scheduled maturity,
regular repayment, acceleration, demand or otherwise, and this failure
continues unremedied for five days;
(2) some events of bankruptcy or insolvency of the bond issuer or the
bond insurer of a bond;
(3) the rating on any bond is downgraded to below investment grade,
"BBB-" or the equivalent; or
(4) a determination by the Internal Revenue Service of the Department of the
Treasury adversely affecting the tax exempt status of a bond.
If one of the above-described events occurs, the trustee will:
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(1) if the market value of the affected bond is less than the bond price,
distribute the affected bond, in whole, to investors to the extent possible
based on minimum denominations; or
(2) if the market value of the affected bond is greater than or equal to the
bond price, or if whole bonds cannot be distributed based on minimum
denominations, sell the bond and distribute the proceeds as described below
under "Procedures when the Quotation of Bond Price is Sufficient."
Trustee to Provide Notice. On the first business day after the trustee learns
that a disposition event has occurred, the trustee will electronically notify
the tender agent, the remarketing agent, the liquidity provider and the
securities depository and specify the mandatory disposition event and a
description of the affected bond. The trustee will direct the remarketing agent
to obtain, by 11:00 a.m. on the following business day, a "price quote" for each
affected bond as of the next following business day under the procedures
described below.
Remarketing Agent to Obtain Quotation of Bond Price. The remarketing agent
will obtain the price quote, including accrued and unpaid interest, for each
affected bond by soliciting bids from at least three broker-dealers located in
New York City, selected by the remarketing agent in its absolute discretion, and
any other potential purchasers that the remarketing agent chooses to approach,
including the RITES holder. The price quote will be the highest bid received at
which the remarketing agent reasonably believes the principal amount of all
affected bonds can be sold.
Procedures when Quotation of Bond Price is not Sufficient. If the price
quote, including any accrued and unpaid interest, with respect to the affected
bond, is less than the bond price, then, to the extent possible based on minimum
denominations, on the business day following the day on which the notice
required above is given, the trustee will:
(1) transfer the affected bonds as promptly as practicable through the
facilities of the securities depository to P-FLOATs investors such that each
investor receives a principal amount of bonds proportionate to the amount of
P-FLOATs held by that investor; and
(2) distribute any affected bonds remaining to the RITES holder.
The distribution to P-FLOATs investors discussed in (1) above will be
performed as nearly as may be practicable taking into account the minimum
authorized denomination of the bonds.
Procedures when the Quotation of Bond Price is Sufficient. If the price
quote, including accrued and unpaid interest, with respect to the affected bond
is greater than or equal to the bond price, or if the whole bond cannot be
distributed based on minimum denominations, the trustee will direct the
remarketing agent to use its best efforts to sell the affected bonds at the
highest obtainable price under current market conditions, on the day for which
the price quote is obtained. The trustee will apply the proceeds received from
the sale of the affected bonds described above separately in the following order
of priority:
(1) to the trustee, the proportionate amount of outstanding trustee fees
and trustee advances;
(2) to P-FLOAT holders, to the extent accrued interest is received on the
sale of the bond, accrued interest at the P-FLOATs floating rate;
(3) to the RITES holder, the remainder of any accrued interest received;
(4) pro rata to all investors, an amount up to the bond price;
(5) to the P-FLOATs holders, 10% of any net gain on the affected bond;
and
(6) to the RITES holder, the balance of the proceeds.
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.
WITHDRAWAL OF BONDS
WITHDRAWAL REQUIREMENTS
Subject to the limitations described below, the sponsor may withdraw bonds
held by the issuer at any time at which the liquidity provider owns P-FLOATs. To
exercise this right, the sponsor must pay the trustee the following:
(1) a proportionate amount of outstanding trustee fees and trustee
advances; and
(2) for the benefit of the P-FLOATs and RITES:
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(a) the market value of the bond withdrawn (including, any interest not
previously advanced by the trustee that has accrued on the bond withdrawn
and is payable to investors); and
(b) any taxes or other governmental charges that are typically withheld by
the trustee. The sponsor may not assign its right to withdraw bonds to any
person other than the liquidity provider unless such person certifies that
it does not then own any P-FLOATs. The sponsor's right to withdraw bonds
is subject to the following conditions:
(1) the sponsor must notify the trustee of its irrevocable intention
to withdraw a bond at least 30 days before withdrawal;
(2) withdrawals may only occur once per month;
(3) no more than 25% of the initial amount of bonds held by the
issuer may be withdrawn in a single withdrawal;
(4) withdrawals may only be made in the minimum principal amount of $5
million and the maximum principal amount equal to the outstanding principal
balance of the P-FLOATs held by the liquidity provider;
(5) there may be no withdrawal if it will cause a rating agency to
downgrade the rating of the P-FLOATs; and
(6) there may be no withdrawal if it will violate the diversification
requirement.
PROCEDURES FOR WITHDRAWAL
Trustee to Provide Notice. On the business day after receiving a written
request from the sponsor, the trustee will electronically notify the tender
agent, the remarketing agent, the liquidity provider and the securities
depository that the sponsor intends to withdraw bonds. The notice will set
forth:
(1) a description of the bonds withdrawn;
(2) the principal amount of bonds withdrawn;
(3) the amounts to be distributed to investors as described above; and
(4) the bonds remaining after giving effect to the withdrawal.
Issuer to Determine Market Value and Net Gain. The issuer or its designee
will determine the market value for the withdrawn bond, and gain for all the
bonds, by soliciting bids from broker-dealers located in New York City, selected
by the issuer in its absolute discretion, and any other potential purchasers
that the issuer chooses to approach, including the RITES holder. The issuer will
calculate the market value and net gain based on the highest bid at which the
issuer reasonably believes the principal amount of all of the bonds can be sold.
Net gain is the amount (if any) by which the weighted average of gains and
losses on the bonds in the trust including the affected bond exceeds such
calculation after withdrawing the
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affected bond. For purposes of clause (2) above, "gain" (or loss) on a bond
means, in general, the amount by which the bid-side value of the bond, as
determined by the issuer, is greater than (or less than, in the case of a loss)
the price at which the issuer acquired the bond. The price at which the issuer
acquired the bond will be adjusted for any accrued original issue discount, any
accrued market discount or any amortized premium.
Distribution to P-FLOATs holders. Upon a withdrawal of bonds, the trustee
will distribute amounts it receives from the sponsor in the following order of
priority, each priority being fully paid before any lower priority is paid:
(1) to the liquidity provider, an amount equal to the outstanding
principal balance of the P-FLOATs held by the liquidity provider plus
accrued interest;
(2) to all other P-FLOATs holders, pro rata, 10% of any net gain; and
(3) to the RITES holder, the balance remaining.
Upon receipt by the liquidity provider of the purchase price for its
P-FLOATs, the liquidity provider P-FLOATs will be canceled.
PROCEDURES FOR PURCHASE AND REMARKETING
REMARKETING OF P-FLOATS
Unless otherwise prohibited, the remarketing agent will remarket any P-FLOATs
(1) that is optionally tendered by an investor or (2) that is subject to
mandatory tender that an investor has elected not to retain. On each business
day on which the remarketing agent is notified of an optional tender and on each
business day preceding a mandatory tender, the remarketing agent will remarket
the tendered P-FLOATs to a new investor or the liquidity provider, at the
purchase price. The remarketing agent will deliver the remarketed P-FLOATs in
exchange for payment of the purchase price on the Optional Purchase Date or
mandatory tender date.
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:
(1) proceeds received by the tender agent from the remarketing agent from
the P-FLOATs remarketing; and
(2) money received by the tender agent from funds provided by the liquidity
provider under the liquidity facility.
Notwithstanding any other provision of the Trust Agreement, the liquidity
facility and remarketing proceeds may not be used for any purpose other than to
pay the purchase price of tendered P-FLOATs.
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The remarketing agent, the trustee, the tender agent, the issuer and the
sponsor have no obligation to investors to pay the purchase price of P-FLOATs
from any of their own funds or from any sources other than as described above.
Funds to be Held Uninvested. The tender agent and remarketing agent will hold
all moneys received from the remarketing of P-FLOATs to investors or to the
liquidity provider separate from each other and from any other money in their
respective possession. The tender agent and remarketing agent will not invest
these funds, but will hold the funds in trust for the benefit of the purchaser
until the P-FLOATs purchased is delivered to or for the account of the
purchaser. Neither the sponsor nor the issuer will have any right, title or
interest in or to any of such moneys.
PROCEDURES FOR OPTIONAL TENDER WHEN P-FLOATS DEPOSITED WITH THE SECURITIES
DEPOSITORY
When P-FLOATs are deposited with the securities depository, an investor
tendering P-FLOATs must notify its participant at the same time as it notifies
the remarketing agent and the tender agent. The investor must act through its
participant to cause the securities depository to transfer ownership of tendered
P-FLOATs to the account of the tender agent against payment on the purchase
date. The tender agent will hold the tendered P-FLOATs in trust for the benefit
of the tendering investor pending payment of the purchase price unless the
tendered P-FLOATs are remarketed as described in the following paragraph.
If the remarketing agent has successfully remarketed the tendered P-FLOATs,
then it will arrange for the tendered P-FLOATs to be purchased from the
tendering investor as follows:
(1) if the remarketing agent is the participant through which the investor
holds tendered P-FLOATs, it will remit the purchase price to the investor in
immediately available funds and debit the interest of the investor in the
tendered P-FLOATs on its books; and
(2) if the remarketing agent is not the participant through which the
investor holds tendered P-FLOATs, the remarketing agent will give appropriate
instructions to the investor and will arrange for the purchaser of the
tendered P-FLOATs to purchase the tendered P-FLOATs on the purchase date at
the purchase price using the securities depository book entry system.
If the remarketing agent has not successfully remarketed the tendered
P-FLOATs to a new investor, or is prohibited from remarketing the tendered
P-FLOATs, then it will notify the tender agent, the liquidity provider and the
tendering investor by telephone or telecopy not later than 10:45 a.m., New York
City time. The notice will instruct the investor to cause its participant to
transfer the tendered P-FLOATs to the tender agent against payment using the
securities depository book-entry system upon payment of the purchase price by
the liquidity provider.
The tender agent will transfer tendered P-FLOATs to the liquidity provider as
provided in the Trust Agreement. The liquidity provider will pay the purchase
price to the tender agent pursuant to the terms of the liquidity facility in
immediately available funds by 2:00 p.m., New York City time, and the tender
agent will forward the purchase price through the securities depository to each
participant of a tendering investor in immediately available funds by 4:30 p.m.,
New York City time. The securities depository will deliver the P-FLOATs against
payment of the purchase price by book-entry transfer on the purchase date to the
account of the participant of the liquidity provider without any action on the
part of, or on behalf of, the tendering investors. If the
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liquidity provider holds P-FLOATs, the trustee will pay to the liquidity
provider any principal and/or interest that is payable to any other P-FLOATs
investor. Upon a remarketing of liquidity provider P-FLOATs, the liquidity
provider or the tender agent, as applicable, will transfer the remarketed
P-FLOATs to or for the benefit of the purchaser of the P-FLOATs in accordance
with the securities depository procedures. However, the transfer will only occur
upon reimbursement to the liquidity provider of the purchase price with respect
to the remarketed P-FLOATs.
INVESTORS TO COMPLY WITH TENDER AND ELECTION PROCEDURES
In consideration of the liquidity provider and the trustee and tender agent
entering into the liquidity facility, each investor agrees to comply with the
requirements established in the Trust Agreement for the tender of P-FLOATs and
the election to retain P-FLOATs. An investor may only tender P-FLOATs to the
tender agent and only as provided in the Trust Agreement. Any tender of P-FLOATs
or election to retain not made in substantial compliance with the terms of the
Trust Agreement will be invalid and will be rejected; however, the tender agent
may waive any defect, irregularity or informality in any notice of tender or
election to retain with the consent of the liquidity provider. The determination
by the tender agent as to whether a tender of P-FLOATs or election to retain is
made under the terms of the Trust Agreement will be binding upon investors, the
liquidity provider, the remarketing agent and the trustee. If a tender of
P-FLOATs to the tender agent is rejected under this paragraph, then the tender
agent will notify the investor electronically of the rejection, and the P-FLOATs
will be:
(1) transferred by the securities depository to the participant of that
investor; or
(2) if the Certificates 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 the investor's
request, risk and expense.
If an investor elects not to retain any P-FLOATs, then the P-FLOATs not
retained will be subject to purchase on the mandatory tender date.
DETAILS OF THE CERTIFICATES
VOTING ON BONDS
If any action or consent including any action or consent to enforce rights or
remedies upon default, requires the vote of the owners of any bonds, the trustee
will deliver to each investor its proxies for the vote. The trustee will deliver
the proxies within three business days of being informed of any action or
consent. The proxies will be returnable to the trustee. Investors will vote
solely by proxy, weighted by the principal balance of the Certificates held by
each investor. If the action or consent will result in a decision to retain
bonds that otherwise would be redeemed or tendered or a decision to accept or
reject a tender at or above both market and par value for cash of the bonds, no
proxies will be delivered and the trustee will vote in favor of the redemption
or tender for cash of the bonds.
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The trustee will not take any action as the nominal holder or owner of any of
the bonds, either alone or as part of a group of holders or owners of bonds,
except under the affirmative direction of a majority of investors after
notifying investors of the action. The trustee will not be liable for any
failure to act resulting from the late return of, or failure to return, any
proxy sent by the trustee to investors.
PRO RATA DISTRIBUTION
Except when this prospectus or other relevant documents require or permit
other means, whenever an amount is to be distributed to investors of P-FLOATs or
RITES, that amount will be distributed to each investor pro rata, based on the
principal balance of each investor's P-FLOATs or RITES, compared to the
aggregate outstanding amount of all P-FLOATs or RITES.
BOOK-ENTRY ONLY SYSTEM FOR CERTIFICATES
Description of Securities Depository. DTC will act as securities
depository for the P-FLOATs. Fully-registered P-FLOATs certificates will be
issued in the name of Cede & Co., as the nominee of DTC. One
fully-registered certificate will be issued for the aggregate amount of
P-FLOATs of each series and will be deposited with DTC.
DTC is a limited-purpose trust company organized under, and a "banking
organization" within the meaning of, the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds
securities that its participants deposit with DTC. DTC also facilitates the
settlement among participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct participants include securities
brokers and dealers, banks, trust companies, clearing corporations and other
organizations. A number of direct participants of DTC and the New York Stock
Exchange, Inc., the American Stock Exchange, Inc., and the National Association
of Securities Dealers, Inc. own DTC. Access to the DTC system is also available
to others known as indirect participants. Indirect participants include
securities brokers and dealers, banks, and trust companies that clear through or
maintain a custodial relationship with a Direct participant, either directly or
indirectly. The Rules applicable to DTC and its participants are on file with
the Securities and Exchange Commission.
Purchases of Certificates under the DTC system must be made by or through
participants, which will receive a credit for the Certificates on DTC's records.
The ownership interest of each actual purchaser of each Certificate, or
investor, is recorded on the direct participants' and indirect participants'
records. Investors will not receive written confirmation from DTC of their
purchase, but investors are expected to receive written confirmations providing
details of the transaction, as well as periodic statements of their holdings,
from the Direct or Indirect participant through which the investor entered into
the transaction. Transfers of ownership interests in the Certificates will be
entered on the books of participants acting on behalf of investors. Investors
will only receive certificates representing their ownership interests in
Certificates if the trustee discontinues the book-entry system for the
Certificates.
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To facilitate subsequent transfers, DTC registers all Certificates deposited
by participants in the name of DTC's partnership nominee, Cede & Co. The deposit
of Certificates 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
Certificates 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 Certificates 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 Certificates 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 Certificates.
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
Certificates are credited on the record date. The accounts are identified in a
listing attached to the Omnibus Proxy.
The trustee will distribute principal and interest payments on the bonds to
DTC. DTC's practice is to credit direct participants' accounts on payable date
based on their respective holdings shown on DTC's records unless DTC has reason
to believe that it will not receive payment on payable date. Payments by direct
participants to investors is governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name," and will be the responsibility of
each direct participant and not of DTC or the trustee, subject to any statutory
or regulatory requirements that may be in effect from time to time. Payment of
principal and interest to DTC is the responsibility of the trustee, disbursement
of payments to direct participants will be the responsibility of DTC, and
disbursement of payments to investors will be the responsibility of the direct
and indirect DTC participants.
Neither the sponsor, the issuer, the trustee, the co-trustee, the tender
agent, the remarketing agent nor any of their respective affiliates will have
any responsibility or obligation for:
(1) the accuracy of DTC records or participant of any investment in the
Certificates;
(2) the delivery to any participant, any investor or any other person,
other than DTC, of any notice with respect to the Certificates;
(3) the payment to any participant, any investor or any other person,
other than DTC, of any amount with respect to the Certificates; or
(4) the failure of DTC to effect any transfer.
As long as the Certificates are not issued in certificated form as described
below under "Discontinuation of Book-Entry Only System for Certificates," the
trustee may treat DTC as, and
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deem DTC to be, the absolute owner of the P-FLOATs for all purposes including,
without limitation:
(1) paying distributions to investors;
(2) giving notices of redemption, tender and other matters with respect to
the Certificates;
(3) registering transfers with respect to the Certificates; or
(4) selecting P-FLOATs for redemption or tender.
One or more fully-registered RITES for each series, each in an authorized
denomination, will be registered in the name of the investor in the RITES or its
nominee, and DTC will maintain ownership of the RITES.
Discontinuation of Book-Entry Only System for Certificates. If at any time
DTC notifies the trustee that it is unwilling or unable to continue as
securities depository with respect to Certificates, or if at any time DTC is no
longer registered or in good standing under the Securities Exchange Act of 1934
or other applicable statute or regulations and a successor securities depository
is not appointed by the trustee within 90 days after the trustee is notified or
becomes aware of such condition, as the case may be, or if the sponsor
determines that it is in the best interest of investors that they be able to
obtain P-FLOATs in certificated form, then the trustee will execute and deliver
certificates representing the P-FLOATs in exchange for the certificates held by
DTC. The new certificates will be registered in investors' names 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 Certificates
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 Certificates is discontinued,
then ownership of the Certificates (and any Certificates delivered upon a
registration of transfer or exchange described below) will be registered in the
certificate register to be kept by the trustee at its principal corporate trust
office in New York, New York. The trustee, the sponsor, the issuer, the tender
agent, the remarketing agent and the liquidity provider and any of their agents,
will be entitled to treat the person or other entity in whose name any
certificate 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 Certificates is discontinued,
then the transfer of any Certificate may be registered only upon the books kept
for the registration and registration of transfer of Certificates upon surrender
of the Certificates to the trustee together with an
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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
Certificate or Certificates in exchange for the transferred Certificate. The new
Certificate or Certificates 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 Certificate
surrendered or exchanged.
There will be no service charge for any registration, transfer or exchange of
a Certificate, 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 Certificates.
Payments. During any period in which the Certificates 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
Certificates are not held by a securities depository, the trustee will
distribute interest by check to the person or other entity in whose name each
Certificate is registered at the close of business on the relevant record date.
The trustee will distribute interest by wire transfer of immediately available
funds as follows:
(1) to any investor of not less than $1,000,000 in aggregate principal amount
of Certificates, at its option, according to wire instructions given to the
trustee in writing for such purpose, and
(2) to the liquidity provider, if it holds P-FLOATs.
If any interest payment on a bond is payable, but is not punctually paid or
provided for with respect to that bond's scheduled interest payment date, then
the trustee will distribute that interest payment to current investors when the
trustee receives that interest payment. See "Interest and
Principal--Distribution of Interest" on page 14 of this prospectus.
PRIOR ACCRUED BOND INTEREST
The trustee is likely to receive interest that accrued on each bond before
the initial issuance date of certificates on the first date after the initial
issuance date of certificates 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 Certificates.
DESIGNATED OFFICE OF THE TRUSTEE
The prospectus supplement specifies the designated office of the trustee for
all actions with respect to the Certificates.
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REDEMPTION UPON REDEMPTION OF UNDERLYING BONDS
REDEMPTION OF CERTIFICATES
The Certificates of each series are redeemable, in whole or in part, at any
time from proceeds of the redemption of any related bonds received by the
trustee. The trustee will distribute the redemption proceeds to investors on the
Bond Redemption Date. The Bond Redemption Date is the business day following the
day on which the proceeds are payable on the bonds in accordance with their
terms and available, in immediately available funds, to the trustee. The trustee
will apply any moneys received as proceeds of a redemption in whole or in part
of the bonds to the redemption of P-FLOATs and RITES as follows:
(1) any payment of accrued interest on the redeemed bonds to the date of
redemption will be applied:
(a) first, to the payment of any accrued and outstanding trustee fees
and unreimbursed trustee advances allocable to the Certificates,
(b) second, to the payment of any accrued and unpaid interest to the
Bond Redemption Date due on the P-FLOATs at the applicable floating
rate, and
(c) third, to the RITES holders, the balance of the accrued interest;
(2) the principal of the redeemed bonds will be applied pro rata to the
payment of principal on the P-FLOATs and RITES; and
(3) any redemption premium paid on the bonds will be distributed
(a) first, pro rata to P-FLOATs investors, in an amount equal to 10%
of the redemption premium, and
(b) second, to the RITES holder, the remaining redemption premium.
The trustee expects to distribute to investors all redemption proceeds on the
business day following the Bond Redemption Date. If the trustee has not received
the expected amounts in immediately available funds on the Bond Redemption Date,
the trustee may delay distribution to investors until the business day on which
the trustee holds immediately available funds.
NOTICE OF REDEMPTION
If any Certificates 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 Certificates are not deposited with a
securities depository, the trustee will mail, postage prepaid, notice of
redemption, to all investors to be redeemed in whole or in part at least 30 days
before the date fixed for redemption. If notice of redemption of the bonds is
received by the trustee less than 30 days before the date fixed for redemption
of the bonds, the trustee will mail the notice of redemption on the business day
following receipt by the trustee of such notice of redemption of the bonds, but
in no case more than 60 days before a redemption date.
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EFFECT OF CALL FOR REDEMPTION
If at any time the trustee holds sufficient funds to pay the redemption price
of all Certificates of a series and any accrued interest on those Certificates,
then the Certificates will be redeemed and will be considered no longer
outstanding. These Certificates 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, and to be given notice
of redemption in the manner provided in the Trust Agreement.
MATERIAL TERMS OF THE TRUST AGREEMENT
The material terms of the Trust Agreement are set forth below.
PURPOSES AND POWERS
The issuer has been formed as a Delaware statutory business trust in
accordance with the laws of the State of Delaware pursuant to the Trust
Agreement. The purpose of the issuer is to engage solely in the following
activities:
(1) purchasing, owning, holding and selling, whether itself or through
agents, the assets of the issuer;
(2) issuing and selling Certificates as provided in the Trust Agreement;
and
(3) other activities as may be required by the express terms of the Trust
Agreement in connection with the conservation and administration of the
assets of the issuer and distributions to investors.
The issuer will engage only in the activities listed above.
NO ADDITIONAL LIABILITIES OR INDEBTEDNESS
The issuer will not, and the parties to the Trust Agreement and investors
will not cause the issuer to, incur, assume or guarantee any liability or
indebtedness except according to the express terms of the Trust Agreement.
THE TRUSTEE
The bonds relating to a particular series will be held by the trustee
identified in the prospectus supplement for that series, on behalf of the issuer
for the benefit of investors of that series pursuant to the Trust Agreement. The
trustee will establish a separate trust account for the bonds and Certificates
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 Certificates 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 Certificates 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
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in favor of the trustee or any person claiming through it, except to secure the
reimbursement of trustee advances. The trustee will not have the power or
authority to assign, transfer, pledge or otherwise dispose of any of the assets
of the trust accounts to any person except as otherwise permitted by the Trust
Agreement.
The Trust Agreement provides that the trustee must keep at its designated
office in New York City a receipt register in which, subject to the reasonable
regulations as it may prescribe, the trustee will provide for the registration
of Certificates and for the registration of transfers or exchanges of
Certificates.
The Trust Agreement requires the trustee to maintain a fidelity bond for the
protection of investors in customary amounts against losses resulting from the
trust arrangement due to dishonest or fraudulent action by its employees.
THE CO-TRUSTEE
One or more co-trustees may be appointed under the Trust Agreement for the
limited purposes of executing and delivering documents, and maintaining all
records necessary to form and maintain the existence of the issuer under
Delaware law. The co-trustee will have no power or authority to assign,
transfer, pledge or otherwise dispose of any of the assets of the Trust to any
person except as otherwise permitted by the Trust Agreement.
The co-trustee may at any time resign as co-trustee and the sponsor may
remove the co-trustee at any time by giving written notice to the trustee, the
remarketing agent and the liquidity provider. The co-trustee's resignation or
removal will take effect upon the appointment by the sponsor, with the consent
of the RITES holder, of a successor co-trustee meeting the qualifications of,
and agreeing to comply with, the terms and conditions of the Trust Agreement,
including that such successor shall be Delaware entity or person.
TRUSTEE ADVANCES
The trustee may, but is not obligated to, advance to investors on each
interest payment date an amount up to interest accrued on the P-FLOATs for the
prior accrual period. The trustee's decision to advance its own funds for this
purpose is at the sole discretion of the trustee, based on the trustee's
determination that the advanced funds will be recoverable through either
principal or interest payments on the bonds, liquidation proceeds, or insurance
proceeds. No decision to advance funds will impose any obligation to advance any
further amount. Whenever the trustee does not advance funds, the trustee will
notify the tender agent, the remarketing agent and the liquidity provider by
12:00 noon, New York City time, on the business day before the date interest
would otherwise be distributed.
If the trustee elects not to advance funds for any reason, the trustee will
distribute interest on the first business day following each date on which the
trustee receives an interest payment in immediately available funds on each
bond. Interest distributable on the Certificates 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.
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By purchasing Certificates, the investors will grant to the trustee a
perfected first priority security interest in the bonds of the related series
and any payments on those bonds as security for any unreimbursed advances owed
to the trustee. This lien will apply to all bonds of the related series
regardless of the bond with respect to which a given advance was made.
By purchasing any Certificate, each investor will be deemed to:
(1) authorize the trustee to deduct from interest payments on the bonds,
trustee fees and any unreimbursed advances;
(2) acknowledge that the bonds and any payments thereon are subject to a
perfected first priority security interest granted to the trustee as security
for any unreimbursed advances; and
(3) thereby reaffirm and ratify the granting of that perfected first priority
security interest.
The trustee will be entitled to receive interest on advances equal to the
outstanding advances multiplied by the trustee's prime rate for the number of
days the advances are outstanding. The RITES holder will be responsible for
paying any interest accrued on trustee advances pursuant to a fee agreement
between the trustee and the RITES holder.
LIMITED LIABILITY
The trustee, the co-trustee and the tender agent will only be responsible for
performing the duties specifically set forth in the Trust Agreement. No party
should read any implied covenants, duties or obligations whether of a fiduciary
nature or otherwise, into the Trust Agreement or implied in law against the
trustee, the co-trustee or the tender agent.
The trustee, the co-trustee and the tender agent will incur no liability to
any investor if, by reason of any provision of any present or future law or
regulation thereunder of any governmental authority or by reason of any natural
disaster or war or other circumstance beyond its control, the trustee, the
co-trustee or the tender agent is prevented from doing or performing any act or
thing which the terms of the Trust Agreement provide should be done or
performed.
The trustee, the co-trustee and the tender agent will only be charged with
knowledge of any event or condition if an officer assigned to the department
administering the Trust Agreement has actual knowledge of the event or
condition.
The trustee, the co-trustee and the tender agent assume no obligation and
will not be liable to investors for the performance of their respective duties,
other than by reason of willful misconduct, bad faith or negligence. Neither the
trustee, the co-trustee nor the tender agent is under any obligation to take any
action which may create any expense or liability, unless the recovery or payment
of the expense or liability is assured to it within a reasonable time. The
trustee, the co-trustee and the tender agent may own and deal in bonds, in
obligations of the same issue and maturity as the bonds and in the Certificates,
as though they were not the trustee, the co-trustee or the tender agent under
the Trust Agreement.
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RESIGNATION AND REPLACEMENT OF TRUSTEE
The trustee and tender agent may at any time resign as trustee and tender
agent by giving written notice of its election to do so to the sponsor, the
remarketing agent and the liquidity provider. The resignation will take effect
upon the appointment by the sponsor with the consent of the RITES holder, of a
successor trustee and tender agent subject to, and agreeing to comply with, the
terms and conditions of the Trust Agreement.
The sponsor may remove the trustee and tender agent by giving written notice
to the remarketing agent and the liquidity provider. Replacement of the trustee
and tender agent will take effect upon the sponsor's appointment, with the
consent of the RITES holder, of a successor trustee and tender agent subject to,
and agreeing to comply with, the terms and conditions of the Trust Agreement. If
at any time the trustee and tender agent becomes incapable of acting or is
adjudged bankrupt or insolvent, or a receiver of the trustee and tender agent or
of its property is appointed, or any public officer takes charge or control of
the trustee and tender agent or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then any investor may, on behalf of
itself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the trustee and tender agent and the appointment
of a successor trustee and tender agent.
If at any time the trustee and tender agent notifies the sponsor that it will
resign as trustee and tender agent or the sponsor elects to remove the trustee
and tender agent, then the sponsor will, with the consent of the RITES holder,
appoint a successor trustee and tender agent within 45 days after receiving
notice of the resignation or removal. The successor trustee and tender agent
will be a commercial bank with trust powers or trust company having its
principal office in the United States of America and having a combined capital
and surplus of at least $50,000,000 or whose obligations are guaranteed by a
person or other entity whose capital and surplus or net worth is at least that
amount. If no successor trustee and tender agent is appointed within the 45-day
period, then the trustee and tender agent may petition any court of competent
jurisdiction to appoint a successor trustee and tender agent. If the tender
agent resigns or is removed, then the tender agent will pay over, assign and
deliver any money and P-FLOATs held by it in its capacity as tender agent to its
successor.
AMENDMENTS TO THE TRUST AGREEMENT
The sponsor, the trustee and the tender agent may amend the Trust Agreement
at any time by agreement among the parties for the purpose of:
(1) obtaining or maintaining any rating on the P-FLOATs and/or the RITES
by any nationally recognized securities rating agency;
(2) providing for a qualified securities depository to replace DTC; or
(3) curing any formal defect, omission or inconsistency or for any other
purpose and in any respect which they may deem necessary or desirable, with
the consent of the RITES holder but without the consent of any of the
P-FLOATs investors, if:
(a) the trustee determines that the proposed amendment will not
adversely affect the interests of any P-FLOATs investors; and
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(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 Certificates.
The sponsor, the trustee and the tender agent may also amend the Trust
Agreement at any time and from time to time, with the consent of a majority of
the P-FLOATs investors and the consent of the RITES holder, for the purpose of
adding any provisions to, changing in any manner or eliminating any of the
provisions of, the Trust Agreement or modifying in any manner the rights of such
holders. The trustee must also receive an opinion of appropriate special tax and
securities counsel to the effect that the proposed amendment will not result in
the withdrawal of, or modification of the conclusions of, any opinion previously
delivered regarding tax and securities law treatment of the Certificates. No
amendment may change the stated maturity or reduce the principal or interest
payable on any Certificate or reduce the principal amount of the Certificates
required to consent to any amendment without the consent of each investor
affected.
No amendment will become effective unless the liquidity provider has
consented to the amendment. This consent may not be unreasonably withheld.
Promptly following the execution of any amendment, the trustee will furnish
written notice of the substance of the amendment to each investor of the
affected series.
TERMINATION OF THE TRUST AGREEMENT
The Trust Agreement related to a series, will terminate if any of the
following events occurs:
(1) distribution of all of the bonds (or the proceeds thereof) upon the
occurrence of a mandatory disposition event; or
(2) redemption at maturity of all of the bonds held by the issuer.
However, the discharge of any indenture or other document related to any of
the bonds will not result in a termination of the Trust Agreement. Further, the
Trust Agreement will remain in effect until the date upon which the bonds or the
proceeds thereof have been distributed to investors in accordance with the
provisions of the Trust Agreement.
DEFAULT ON BONDS
If the trustee receives notice of any default, other than a payment default
which constitutes a mandatory disposition event, on a bond from the bond
issuer's trustee or other applicable fiduciary, then the trustee will promptly
notify the tender agent, the remarketing agent, the liquidity provider and the
investors. The trustee also will notify these parties if an officer of the
trustee assigned to the department administering the Trust Agreement has actual
knowledge of any such default on a bond. The trustee's notice will specify:
(1) the name and other relevant designation of the issuer and the bond;
(2) the date and nature of the default; and
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(3) any other information which the trustee deems appropriate, including a
copy of any notice or description of bondholder rights and remedies received
by the trustee.
If the bond documents for that bond provide a remedy or otherwise permit
action with respect to such default upon the direction or consent of the
bondholders, the trustee will exercise the rights of a bondholder at the
direction of a majority of investors. See "Details of the Certificates--Voting
on Bonds" on page 27 of this prospectus.
MISCELLANEOUS
FEES AND EXPENSES
The RITES holder will be responsible for paying to the remarketing agent and
liquidity provider reasonable compensation and reimbursement for such expenses
as may be set forth in a written instrument executed by the RITES holder,
remarketing agent and liquidity provider, respectively. The RITES holder will
also be responsible for reimbursing the trustee for interest accrued on any
advances. The trustee, remarketing agent and liquidity provider will each look
solely to the RITES holder for any payments, reimbursements or indemnifications
and will waive any and all rights, claims, recourse and liens against the issuer
for the payment of such amounts.
INFORMATION FOR INVESTORS
The trustee will maintain an investor list upon which any investor may enter
its name and address upon proof satisfactory to the trustee of its status as an
investor. The trustee will furnish by first class mail, postage prepaid, to
investors registered on its list notice of occurrences, including:
(1) any amendment of, or supplement to, the Trust Agreement;
(2) any resignation and removal of the trustee, tender agent or remarketing
agent and the appointment of a successor trustee, tender agent or remarketing
agent;
(3) any redemption of Certificates;
(4) any fixed rate conversion event;
(5) a mandatory tender event;
(6) any mandatory disposition event;
(7) the Certificates no longer being registered solely in the name of DTC
or its nominee;
(8) any withdrawal of bonds or redemption of bonds; or
(9) 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.
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INVESTORS NOT LIABLE FOR CLAIMS AGAINST ISSUER
Investors, as beneficiaries of the trust established under the law of the
State of Delaware, are not responsible for any debt, obligation, or liability
of, or claim against, the issuer. The sponsor has agreed to pay on behalf of the
issuer any penalties and interest on any penalties imposed on the issuer in the
event the election under Section 761(a) of the Internal Revenue Code of 1986 for
the issuer to be excluded from the application of Subchapter K of the Code is
not effective. The sponsor shall also be liable for trustee fees and other
expenses of the issuer to the extent not paid out of the RITES share of bond
interest.
THE BONDS
INFORMATION ABOUT THE BONDS
The issuer will acquire the bonds identified in the prospectus supplement
simultaneously with the sale of the Certificates on the initial issuance date of
certificates. The trustee will accept the bonds delivered to the issuer for the
benefit of the investors. The trustee, on behalf of the issuer, will hold all
bonds delivered to it in trust and will not take any action, or consent to any
action, which would result in the placement of any lien on the bonds. The
trustee lacks the authority to transfer, assign, hypothecate, pledge or
otherwise dispose of any of the bonds except as provided in the Trust Agreement
or as required by law.
Neither this prospectus nor the related prospectus supplement will contain
detailed information about the bonds, any bond issuer or any bond insurer or any
rights or obligations, legal, financial or otherwise, in connection with the
bonds. The sponsor has not investigated the financial condition or
creditworthiness of any bond issuer or bond insurer. However, before the initial
issuance date of certificates, the sponsor will determine whether notice of any
material event affecting the bonds is on file with any NRMSIR. If a bond
defaults, investors will bear the entire risk of loss. An investor should read
the same information about the bond issuer as it would if it were investing
directly in the bonds.
RESIDUAL OWNERSHIP DATE
The Residual Ownership Date for a bond specified in the related prospectus
supplement is calculated as occurring approximately when 80% of the "average
life," beginning on the initial issuance date of the Certificates, 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. For example,
the determination of average life will take into account the premium call date
for bonds with large premiums and the par call date for bonds with small or no
premiums.
The P-FLOATs will be subject to mandatory disposition with liquidity support
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 sale of the
bond on the Residual Ownership Date will not result in net gain, the P-FLOATs
will not subject to mandatory disposition with respect to that bond and the bond
will remain in the trust. See "Mandatory Disposition of Bonds--Mandatory
Disposition of Bonds with Liquidity Support" on page 20 of this prospectus.
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DIVERSIFICATION REQUIREMENT
The sponsor will select the bonds to be acquired by the issuer before the
initial issuance date of the Certificates. 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 10% or more of the bonds held by the issuer. This restriction
is known as the diversification requirement.
If the diversification requirement is violated, then the Certificates will be
subject to mandatory disposition and the trustee will direct the remarketing
agent to sell all of the bonds for the highest bid. The liquidity provider will
be obligated to bid the bond price for the bonds. If the Certificates are not
delivered upon violation of the diversification requirement, this will not
prevent the mandatory disposition of the bonds and the Certificates will be
deemed canceled whether or not delivered to the trustee. The diversification
requirement will not apply to bond insurers. If at any time 10% or more of the
bonds are insured by a single insurer, the issuer will include material
information about that insurer in the periodic reports that it is required to
file with the SEC. See "Mandatory Disposition of Bonds--Mandatory Disposition of
Bonds with Liquidity Support" on page 20 of this prospectus.
THE SPONSOR
The sponsor is an indirect wholly-owned limited purpose subsidiary of Merrill
Lynch Group, Inc., which is a wholly-owned subsidiary of Merrill Lynch & Co.,
Inc. Merrill Lynch, Pierce, Fenner & Smith Incorporated d/b/a Merrill Lynch &
Co., the remarketing agent, is also a wholly-owned subsidiary of Merrill Lynch &
Co., Inc. The sponsor was incorporated in the State of Delaware on December 23,
1992. The sponsor was organized for the principal purpose of acting as the
sponsor of trusts formed to issue certificates such as the P-FLOATs. The
principal executive office of the sponsor is located at World Financial Center,
North Tower, New York, New York 10281-1323, and its telephone number is (212)
449-0670.
THE REMARKETING AGREEMENT
Under the remarketing agreement, the sponsor has appointed Merrill Lynch,
Pierce, Fenner & Smith Incorporated as the remarketing agent in connection with
the remarketing of tendered P-FLOATs. The remarketing agent is obligated to use
its best efforts to remarket tendered P-FLOATs, subject to some conditions, for
which the RITES holder will pay a fee based upon the principal amount of
P-FLOATs outstanding from time to time. The remarketing agent has also agreed to
perform all of the functions of "rate-setting agent" under the Trust Agreement.
When an investor notifies the tender agent and the remarketing agent of the
investor's optional tender of P-FLOATs, the remarketing agent is required to
offer for sale and use its best efforts to market the tendered P-FLOATs at the
purchase price. If a fixed rate conversion event occurs, then the remarketing
agent will no longer be required to remarket P-FLOATs and will cease efforts to
do so.
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Under the remarketing agreement, the remarketing agent has agreed to do each
of the following:
(1) receive and hold any P-FLOATs or moneys delivered to it in connection
with the sale and purchase of P-FLOATs in trust for the benefit of the person
who delivered the moneys or P-FLOATs, and not commingle the money or P-FLOATs
with other funds or securities of the remarketing agent;
(2) keep books and records consistent with prudent industry practice and make
its books and records available for inspection by the tender agent at all
reasonable times; and
(3) perform its duties and comply with the provisions of the remarketing
agreement.
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 Certificates of a series are issued, the sponsor and the issuer will
establish a standby purchase agreement, a liquidity letter of credit or other
similar arrangement with the liquidity provider specified in the prospectus
supplement. The liquidity provider may be an affiliate of the sponsor or an
unaffiliated entity. The liquidity facility for each series of Certificates will
expire on the date specified in the related prospectus supplement unless the
liquidity provider chooses to extend its facility with respect to all or a
portion of the bonds. The RITES holder may remove and replace the liquidity
provider on behalf of the P-FLOATs investors with the consent of the trustee.
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The liquidity provider is not obligated to pay the principal or redemption
price of, or the interest on, the Certificates under any circumstances. The
liquidity provider is obligated only to purchase tendered Certificates on and
subject to the terms, provisions and conditions of the liquidity facility.
The liquidity provider's commitment to purchase P-FLOATs under the liquidity
facility on any day is limited to a principal amount of P-FLOATs equal to the
initial principal amount of P-FLOATs issued, less the amount of P-FLOATs
previously redeemed or purchased by the liquidity provider under the liquidity
facility, but not subsequently remarketed. The aggregate purchase price of
P-FLOATs committed to be purchased by the liquidity provider may not exceed the
principal amount of P-FLOATs outstanding plus 35 days interest at a per annum
rate equal to the Maximum Floating Rate for the P-FLOATs of the applicable
series. The liquidity provider is not obligated to pay any net gain due to
investors upon a mandatory tender. Additionally, the liquidity provider is not
obligated to purchase tendered P-FLOATs under the liquidity facility unless it
receives proper demand from the tender agent in accordance with the liquidity
facility.
The obligations of the liquidity provider under the liquidity facility will
either be exempt from registration under the Securities Act or registered and
offered and sold pursuant to a separate registration statement containing
disclosure about the liquidity provider.
Investors should refer to the prospectus supplement for information about the
liquidity provider for a particular series.
TERMINATION OF OBLIGATIONS OF LIQUIDITY PROVIDER
The liquidity facility for each series will expire on the earlier of:
(1) the date specified in the prospectus supplement, unless extended by
the liquidity provider, or
(2) the date on which investors may no longer tender Certificates 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 certificates and be subject to
mandatory tender unless investors elect to retain the fixed rate certificates.
If the liquidity facility is replaced, then the P-FLOATs will be subject to
mandatory tender five business days before the last day of the then-current
liquidity facility, unless investors elect to retain the P-FLOATs under the new
liquidity facility. If the liquidity facility expires but is extended for some
of the bonds, then the bonds for which the facility is not extended will be
subject to mandatory disposition with liquidity support. See "Mandatory
Disposition of Bonds--Mandatory Disposition of Bonds with Liquidity Support" on
page 20 of this prospectus.
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SUBSTITUTION OF SUCCESSOR LIQUIDITY PROVIDER
On or before the 25th day before the liquidity facility is scheduled to
expire, the trustee, with the prior written consent of the RITES holder, may
accept a successor liquidity facility. The successor liquidity provider will
issue an agreement in form and substance identical to the current liquidity
facility and the successor liquidity provider will succeed to all of the rights,
duties and obligations of the previous liquidity provider. The new liquidity
facility will be effective on the date specified in the new agreement only upon
satisfaction of the following:
(1) the rating agencies have issued written confirmation that any ratings of
the rating agencies on the P-FLOATs will not, as a result of the substitution
or succession, be withdrawn or reduced below the ratings before the
succession;
(2) the trustee has received an opinion of counsel to the successor liquidity
provider that the liquidity facility by the successor liquidity provider has
been duly authorized, executed and delivered and constitutes a valid and
binding obligation of the successor liquidity provider;
(3) the sponsor and the trustee have received an opinion of appropriate
special tax and securities counsel that the substitution or succession will
not result in the withdrawal of, or modification of the conclusions of, the
opinion delivered by the counsel in connection with the original delivery of
the P-FLOATs and RITES;
(4) the trustee has received an opinion of counsel that all conditions
precedent listed in the Trust Agreement and the liquidity facility have been
complied with; and
(5) all obligations owing to the liquidity provider under the liquidity
facility have been paid in full and the trustee and the tender agent have
tendered the liquidity facility then in effect to the liquidity provider for
cancellation.
LIQUIDITY PROVIDER DEFAULT
If the liquidity provider becomes bankrupt or insolvent, or if the liquidity
provider fails to honor a properly-made drawing or other demand in accordance
with the liquidity facility, then the liquidity provider will be in default.
Upon a liquidity provider default, the tender agent will notify the RITES holder
in writing. Upon receiving notice, the RITES holder will have the right, in its
sole and absolute discretion, but not the obligation, to:
(1) provide a successor liquidity facility as a replacement for the liquidity
facility then in effect for the affected series, in accordance with the
conditions described above; and
(2) act as the interim liquidity provider until the successor liquidity
provider is provided, in accordance with the conditions described above.
Within five business days of receiving written notice of the liquidity
provider default, the RITES holder will notify the tender agent of its intention
to obtain a successor liquidity facility and act as interim liquidity provider.
If the RITES holder fails to notify the tender agent, then that fifth business
day will be deemed to be an "exchange date" and the trustee will exchange the
affected Certificates for cash or the related bonds as if a tender option
termination event had
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occurred in accordance with the procedures described in "Mandatory Disposition
of Bonds--Mandatory Disposition of Bonds without Liquidity Support" on page 21
of this prospectus.
INCOME TAX CONSIDERATIONS
FEDERAL INCOME TAX CONSEQUENCES
This is a summary of the material United States federal income tax
consequences of the purchase, ownership and disposition of the P-FLOATs and the
RITES. This discussion is based on the Code, as well as final, temporary and
proposed Treasury regulations and administrative and judicial decisions, all of
which are subject to change or possible differing interpretation. The sponsor
will not seek or obtain any rulings from the IRS regarding the classification of
the issuer as a partnership for federal income tax purposes or any other aspect
of the tax consequences described in this prospectus, and there is no assurance
that the IRS will agree with the conclusions expressed here. This discussion is
directed solely to investors that hold the Certificates as capital assets within
the meaning of Section 1221 of the Code. This discussion does not purport to
address all federal income tax matters that may be relevant to particular types
of investors, such as banks and insurance companies which may be subject to
special rules. References to "investors" or "holders" are to the beneficial
owners of the P-FLOATs or RITES. The opinions described here are based on the
assumption that the terms of the Trust Agreement and other instruments will be
complied with and the accuracy of representations and certifications. Upon
delivery of the Certificates of each series, Cadwalader, Wickersham & Taft,
special counsel to the sponsor, will deliver the opinion reproduced as Exhibit A
to this prospectus. The opinion reproduced as Exhibit A constitutes an integral
part of this prospectus.
In the opinion of Cadwalader, Wickersham & Taft, the issuer will not be
subject to federal income tax and a P-FLOATs investor's share of the interest
that accrued during the period that the investor held its P-FLOATs will be
excludable from gross income for federal income tax purposes to the same extent
that interest on the underlying bonds is excludable. This is true whether or not
the P-FLOATs have accrued interest at the floating rate or, if a fixed rate
conversion event has occurred, at the applicable fixed rate. Similar to a
P-FLOATs investor, a RITES holder's share of the interest that accrued during
the period that the RITES holder held its RITES will also be excludable. This
opinion is subject to the discussion below, entitled "Taxation of Investors."
We suggest that prospective investors of P-FLOATs and RITES consult their own
tax advisors concerning the tax consequences to them of the purchase, ownership
and disposition of P-FLOATs or RITES under federal income tax law, as well as
the tax law of any relevant state or local jurisdiction.
TAX EXEMPTION OF THE BONDS
On the date each bond is initially issued and delivered, bond counsel for
each bond will render its opinion generally to the effect that, under existing
laws, interest on the bonds is excluded from gross income for federal income tax
purposes and from any applicable state and local taxes. Special counsel has not
passed upon, has not independently verified, and will not verify, the
tax-exemption of interest on any bond. Further, special counsel has assumed the
following, without any inquiry:
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(1) the continuing correctness of the related opinion of bond counsel;
and
(2) that no events or circumstances have occurred since the original issuance
of the bonds that would adversely affect the exemption from federal income
tax and any applicable state and local taxes of interest on the bonds.
TAXATION OF INVESTORS
Classification of the Issuer. With respect to each series of P-FLOATs and
RITES, special counsel will deliver its opinion to the effect that the related
issuer will be classified as a partnership, rather than an association or
publicly traded partnership taxable as a corporation, and each investor will be
treated as a partner in such partnership for federal income tax purposes. In
rendering its opinion, special counsel has concluded that:
(1) the passive nature of the income of the issuer will exempt it from the
rule that publicly traded partnerships are taxable as corporations; and
(2) the P-FLOATs will not be treated as indebtedness of the issuer or the
RITES holder.
Investors must be treated as members of the tax partnership constituted by
the issuer for distributions to investors to be treated as tax-exempt interest.
This treatment therefore requires that the P-FLOATs and RITES constitute equity
ownership interests in the issuer. Special counsel has concluded that, for
federal income tax purposes, the P-FLOATs will not be treated as indebtedness of
the issuer or of the RITES holder. Further, special counsel has concluded that
distributions on the P-FLOATs will not be treated as taxable "guaranteed
payments." Special counsel has also concluded that the RITES holder will be
treated as a member of the tax partnership constituted by the issuer, rather
than merely as the provider of a put to the P-FLOATs investors.
A partnership anti-abuse regulation authorizes the IRS to recast transactions
involving partnerships that inappropriately exploit the partnership provisions
of the Code in an attempt to avoid tax. As the language of the regulation is
exceedingly broad, there is substantial uncertainty as to its potential
application. Special counsel has concluded that structuring the P-FLOATs and
RITES to be partnership interests in the tax partnership constituted by the
issuer is consistent with the economic substance of the transaction and is not
inconsistent with the intent of the partnership provisions of the Code, and
therefore the anti-abuse regulation will not apply to the P-FLOATs and RITES.
Prospective investors should consult with their tax advisors regarding the
possible application of the anti-abuse regulation to the P-FLOATs and RITES.
The opinion of special counsel represents only counsel's best legal judgment
and, unlike a tax ruling, does not have binding effect on the IRS or official
status of any kind. There is no authority that addresses instruments similar to
the P-FLOATs and RITES. Thus, there can be no absolute assurance that the IRS or
a court will agree with the opinion of special counsel. If the issuer were
treated as an association taxable as a corporation, or as a publicly-traded
partnership treated as a corporation for Federal income tax purposes, rather
than as a partnership, all or a portion of any payments by the trustee to
holders of Certificates would be taxed to them as dividends to the extent of the
current and accumulated earnings and profits of the issuer. If the P-FLOATs were
characterized as debt, or if distributions on P-FLOATs were classified as
"guaranteed payments", then interest distributions on the P-FLOATs would be
fully includable
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in gross income. If the Certificates were treated as stripped bonds and the
bonds were issued with original issue discount, then distributions to the
Certificate holders would not be tax exempt to the extent that the Certificate
holder's yield on the Certificates exceeds the original yield to maturity of the
bonds. If the Certificates were treated as stripped bonds and the bonds were not
issued with the original issue discount, then distributions to the Certificate
holders would not be tax exempt to the extent that the Certificate holder's
yield on the Certificates exceeds the coupon rate of interest. Moreover, if the
RITES holder were characterized merely as provider of a put to the P-FLOATs
investors, and not as a member of the partnership constituted by the issuer,
then the "put fee" may not be treated as an ordinary deduction and distributions
on the RITES would be fully includable in gross income. The remainder of this
discussion assumes that the issuer will be taxable as a partnership, and the
P-FLOATs and RITES constitute equity interests in such partnership.
Income and Expense; Election Out of Partnership Provisions. As a partnership
for federal income tax purposes, the issuer will not be subject to federal
income tax. The trustee will elect, on behalf of the issuer, to exclude the
issuer from Subchapter K of Chapter 1 of the Code (the partnership tax
accounting provisions of the Code). By purchasing P-FLOATs or RITES, each
investor consents to that election. Special counsel has concluded that, although
subject to uncertainty, the issuer should be eligible for this election.
Assuming this election is effective, for federal income tax purposes, each
investor will be treated as an owner of an undivided interest in the underlying
bonds. Accordingly, each investor will be required to directly take into account
its share of income from the bonds for the period during which it owns P-FLOATs
or RITES, calculated at the rate at which interest is distributed in effect on
the P-FLOATs and 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
were not effective, then the following would occur:
(1) the issuer would be required to account for its income and deductions
at the trust level and to use a taxable year for reporting purposes; and
(2) each investor would be required to separately take into account that
investor's distributive share of income and deductions of the issuer.
All expenses of the issuer are allocated to the RITES. Therefore, P-FLOATs
investors should not be allocated any deduction for these expenses. Furthermore,
if the exclusion election were not effective, an investor would take into
account in its taxable year that investor's distributive share of issuer income
and deductions for each issuer taxable year which ends with or within the
investor'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, in the
case of a RITES holder, deductions with respect to the bonds would be shifted to
the investor's taxable year following the year in which the income and expense
accrues. If the exclusion election were not effective, the issuer, but not any
of the P-FLOATs investors, might be liable for penalties for failure to file
partnership returns. Partnership returns are not required if the exclusion
election is effective. Under the Trust Agreement, the sponsor has agreed to pay
any such penalties on behalf of the issuer. Potential purchasers of P-FLOATs and
RITES should consult with their own tax advisors regarding the consequences if
the exclusion election with respect to the issuer were not valid.
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The discussion below assumes that the issuer will be subject to an effective
election to be excluded from Subchapter K of Chapter 1 of the Code.
Original Issue Discount. If the initial public offering price of any bonds
was less than the amount payable at maturity, then those bonds are treated as
having been issued with original issue discount. Original issue discount is
excludable from gross income for Federal income tax purposes to the same extent
as interest on tax-exempt obligations. The Code provides that original issue
discount on a tax-exempt obligation is deemed to accrue over the life of the
obligation on the basis of either a straight-line or a constant interest method
of accrual, depending on the date of issuance of the obligation. If the
aggregate price paid by initial investors in the P-FLOATs allocable to a bond
that was issued with original issue discount equals or exceeds the adjusted
issue price of a bond but is less than the par amount of the bond, then that
bond will be acquired by the Trust with original issue discount. This original
issue discount will be allocated to investors in P-FLOATs or RITES, as described
below.
Market Discount and Premium. If the purchase price the issuer paid for bonds
is greater than the bonds' stated redemption price, then the bonds will have
amortizable bond premium. Except in the case of bonds issued with original issue
discount, if the purchase price the issuer paid for bonds is less than the
bonds' stated redemption price, then the bonds will have market discount. For
bonds issued with original issue discount, if the purchase price the issuer paid
is greater than the bonds' revised issue price, then the bonds will have
acquisition premium. Also, for bonds issued with original issue discount, if the
purchase price the issuer paid is less than the bonds' revised issue price, then
the bonds will have market discount. Market discount will be considered to be
zero if it is less than a statutorily defined de minimis amount. The aggregate
price paid by initial P-FLOATs investors allocable to a bond acquired by the
issuer at a market discount generally will equal the issuer's purchase price for
the bond. The aggregate price paid by initial P-FLOATs investors allocable to a
bond acquired by the issuer at a premium generally will equal the par amount of
the bond, with the RITES holder supplying the premium portion of the purchase
price. Generally, gain on the sale or disposition of tax-exempt bonds acquired
at a market discount that exceeds the de minimis threshold 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 generally will be
amortized over the remaining term of the bonds, or to an earlier call date if
the call would result in a lower yield to the holder of the bond, on a constant
yield method. This amortization will reduce the owner's basis therein, but will
not result in any deduction from income. Any premium amortization will be
allocable to the RITES holder, as described below.
Partnership Allocations; Sale of P-FLOATs. Under the Trust Agreement, any
original issue discount on a bond generally will be allocated to the RITES.
However, any acquisition premium that results when the issuer purchases a bond,
plus a corresponding amount of original issue discount, will be allocated to the
P-FLOATs. Acquisition premium is the excess of the issuer's purchase price for a
bond over the adjusted issue price for that bond.
In addition, any market discount on a bond that exceeds the de minimis
threshold will economically accrue to the RITES holder and, therefore, will be
allocated to the RITES holder.
Furthermore any amortizable bond premium on the bonds at the time of the
issuer's acquisition will be allocated and will economically accrue entirely to
the RITES. The resulting
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tax effect therefore would be borne entirely by the RITES holder. Accordingly,
in the opinion of special counsel, as a consequence of market discount or
amortizable bond premium on the bonds, the following is true:
(1) an investor purchasing and selling P-FLOATs for a price equal to the
principal balance of the P-FLOATs (plus any accrued interest) will not
recognize any taxable income;
(2) if an initial P-FLOATs investor sells its P-FLOATs for a gain, then that
gain generally will be taxable as capital gain; and
(3) if a secondary market P-FLOATs purchaser purchases its P-FLOATs for a
price equal to the principal balance of the P-FLOATs plus any accrued
interest and sells them for a gain, then that gain will be taxable as capital
gain.
With respect to item (3) above, if the issuer originally acquired the bonds
at a market discount in excess of the de minimis amount, it is possible that any
gain would be taxable as ordinary income, and not capital gain. This possibility
would arise if, at the time the investor purchased the P-FLOATs, the market
value of the bonds exceeded the price at which the issuer acquired the bonds.
There are, however, no authorities addressing facts substantially similar to
the facts involved, or potentially involved, in this transaction. Thus, there
can be no absolute assurance that the IRS or a court will agree with these
conclusions. If the IRS successfully challenged the allocation in the Trust
Agreement of market discount entirely to the RITES, then a P-FLOATs investor
might recognize ordinary income upon the sale of the bonds or, possibly, upon
the sale of its P-FLOATs.
Effect of Fixed Rate Conversion Events. The arrangement that results in the
issuance of the fixed rate certificates could be treated as a trust for federal
income tax purposes. In that event, the issuance of fixed rate certificates
could be considered a coupon stripping transaction subject to the rules of
Section 1286 of the Code. It is possible that a fixed rate conversion event may
result in a taxable exchange of Certificates for fixed rate certificates. In
such event, there may be circumstances in which investors that received fixed
rate certificates as a result of a fixed rate conversion event may recognize
taxable income, gain or loss. We suggest that prospective investors consult
their own tax advisors regarding the tax consequences of a fixed rate conversion
event, including application of the coupon stripping rules.
ADDITIONAL TAX CONSIDERATIONS
Alternative Minimum Tax. An investor is required to include as an item of tax
preference for purposes of the federal individual and corporate alternative
minimum taxes all tax-exempt interest on "specified private activity" bonds.
Moreover, interest on bonds that are not specified private activity bonds will
be included in "adjusted current earnings" in calculating federal corporate
alternative minimum taxable income. The calculation of alternative minimum tax
liability is complex and can result in payment of federal income tax on interest
that is otherwise tax-exempt. We suggest that prospective investors consult
their tax advisors regarding the alternative minimum tax. The prospectus
supplement will indicate if any of the bonds are specified private activity
bonds. The trustee will report separately the portion of the total interest
received by investors attributable to specified private activity bonds.
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Disallowance of Interest and Other Expenses. Investors' interest expense for
indebtedness deemed to be incurred, or continued, to purchase or carry P-FLOATs
or RITES will be non-deductible. Individual and other non-corporate investors
may not deduct other expenses allocable to tax-exempt interest. The expenses of
a regulated investment company that distributes tax-exempt dividends are
disallowed in the same proportion that its tax-exempt income bears to its total
income, other than net capital gains.
Collateral Tax Consequences. Ownership of tax-exempt obligations may result
in collateral tax consequences to some taxpayers, including, without limitation,
financial institutions, property and casualty insurance companies, some foreign
corporations engaged in business in the United States, some S Corporations with
excess passive income, and individual recipients of Social Security or Railroad
Retirement benefits. We suggest that prospective investors contact their tax
advisors as to the applicability of collateral tax consequences.
Employee Benefit Plans, Exempt Organizations and Foreign Investors. P-FLOATs
and RITES should not be purchased by employee benefit plans, other tax-exempt
organizations and foreign investors not subject to United States tax, because
the interest on the bonds is expected to be excluded from gross income for
purposes of federal income tax.
Allocation of Bond Premium. Section 171 of the Code provides that, in the
case of a taxable bond, the amount of any premium allocated to any interest
payment shall be applied against, and operate to reduce, the amount of that
interest payment. A recent regulation issued by the IRS provides that this rule
applies to tax-exempt bonds, such as the bonds held by the issuer. Under the
Trust Agreement, the amount of any premium on a bond and amortization of the
premium is allocable to the RITES holder and not to the P-FLOATs. The sponsor
has been advised by Cadwalader, Wickersham & Taft that the allocation under the
Trust Agreement would be upheld. If the allocation were not upheld, however,
that excess could be treated as a return of capital rather than as tax-exempt
interest to the extent that interest is distributed to holders of P-FLOATs at a
yield in excess of the yield at which the bond was acquired by the trust. In
this event, an investor may have a capital gain upon a payment of principal with
respect to the bond or upon disposition of the P-FLOATs.
Delegation of Authority under Section 761 of the Code. For purpose of Section
761 of the Code, upon each investor's acquisition of a Certificate, the investor
will be deemed to have delegated authority to the trustee with respect to the
disposition and withdrawal of bonds from the trust. This delegation will be
extended for an additional year upon each anniversary of the investor's
acquisition, unless on the last optional tender date prior to the anniversary
(or mandatory tender date in the case of a Certificate in term mode) the
investor chooses to tender its certificates.
Future Legislation. Various proposals have been, and in the future may be,
introduced before Congress to restrict or eliminate the federal income tax
exemption or to impose some collateral tax consequences on the ownership of
municipal obligations such as the bonds. In addition, various proposals have
been made and bills introduced that would substantially alter the federal tax
base or the rate structure or both, which could affect the value of the bonds.
No prediction can be made regarding any additional legislation that may be
proposed and enacted with respect to the tax-exempt status of interest on
municipal obligations. Further, no prediction
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can be made as to whether any such proposed legislation, if enacted, would apply
to the bonds or the P-FLOATs and RITES.
STATE AND LOCAL TAX CONSEQUENCES
The exclusion from gross income for federal income tax purposes of the
P-FLOATs and RITES income does not necessarily result in a similar exclusion of
that income for state or local income tax purposes.
Depending on where an investor lives, P-FLOATs and RITES income may be
subject to state and local tax. Generally, interest received on municipal bonds
by a resident of a state will be exempt from personal income tax in that state
to the extent it is derived from bond issuers located in that state. In most,
but not all, states, interest received on P-FLOATs or RITES by a resident of a
state will be exempt from personal income tax in that state to the same extent
that interest on the bonds is exempt from personal income tax in that state. The
laws of the several states and local taxing authorities vary with respect to the
taxation of such obligations and investors should consult their own tax advisors
about state and local matters.
In the opinion of special counsel, the issuer will not be subject to (1)
income or franchise taxation by the State of New York, or (2) the New York City
general corporation or unincorporated business taxes.
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in an underwriting agreement to
be entered into with respect to each series of Certificates, the issuer will
sell to the underwriter the principal amount of P-FLOATs set forth in that
agreement.
The prospectus supplement for each series will specify:
(1) the name of the underwriter;
(2) the principal amount of P-FLOATs for the series set forth in that
agreement;
(3) the price at which the series of Certificates will be offered to the
public and any concessions that may be offered to the underwriter; and
(4) the place and time of delivery for the series of Certificates.
The prospectus will be delivered to investors upon the sale of the P-FLOATs
and resale of the P-FLOATs in market making transactions that may be made by the
remarketing agent.
Copies of any documents incorporated into this prospectus by reference will
be provided to each person to whom a prospectus is delivered upon written or
oral request directed to Merrill Lynch, Pierce, Fenner & Smith Incorporated,
World Financial Center, North Tower, New York, New York 10281-1323, Attention:
Capital Markets Desk (telephone no. (212) 449-7358).
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USE OF PROCEEDS
The issuer will use substantially all of the proceeds from the sale of the
Certificates to:
(1) purchase the bonds and pay the cost of carrying the bonds until the
sale of the Certificates; and
(2) pay other expenses connected with the execution and delivery of the Trust
Agreement and the issuance and delivery of the Certificates.
RATING
The issuer has applied for a rating on the P-FLOATs from the rating agency or
agencies identified in the prospectus supplement and has provided the rating
agency or rating agencies with materials relating to the P-FLOATs and other
relevant information. The rating or ratings reflect only the views of the
applicable rating agency and investors should obtain an explanation of the
significance of any rating from the applicable rating agency.
The issuer has not applied to any other rating agency to obtain a rating on
the P-FLOATs.
There is no assurance that any rating will remain in effect for any given
period of time. If circumstances change, then the rating agency or rating
agencies may revise a rating downward or withdraw a rating entirely. Any
downward revision or withdrawal of a rating may adversely effect the market
price of the P-FLOATs. The rating or ratings issued will not address the
likelihood that the P-FLOATs may be redeemed early due to a mandatory tender
event or that the bonds or the proceeds of the bonds will be distributed due to
a tender option termination event.
LEGAL MATTERS
Cadwalader, Wickersham & Taft, New York, New York, special counsel, will give
a legal opinion on the offering of the Certificates and some tax aspects of the
Certificates. The opinion of special counsel relating to some tax aspects of the
Certificates is attached to this prospectus as Exhibit A. Counsel for the
trustee and tender agent will give a legal opinion relating to the trustee and
tender agent; counsel for the co-trustee will give a legal opinion relating to
the co-trustee; and counsel for the liquidity provider will give a legal opinion
relating to the liquidity provider.
REPORTS TO CERTIFICATEHOLDERS
The remarketing agent will prepare periodic reports that will contain audited
financial statements. Unless and until certificated Certificates are issued, the
reports will be sent to Cede & Co. as nominee for the securities depository and
the registered holder of the Certificates. No financial reports will be sent to
investors.
INCORPORATION OF INFORMATION BY REFERENCE
The SEC allows the sponsor to "incorporate by reference" information it files
with the SEC, which means that the sponsor can disclose important information to
you by referring you to those
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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 Certificates.
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 Certificates 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 Certificates at the SEC's public reference room in
Washington, D.C. You can request copies of these documents, upon payment of a
duplicating fee, by writing to the SEC. Please call the SEC at (800) SEC-0330
for further information on the operation of the public reference rooms. SEC
filings are also available to the public on the SEC Internet site
(http://www.sec.gov.).
You may obtain the Official Statements for bonds that are subject to Rule
15c2-12 of the Securities Exchange Act of 1934 from a NRMSIR identified on
Exhibit B to this prospectus, the Municipal Securities Rulemaking Board or an
appropriate state information depository. You may also obtain from a NRMSIR
identified on Exhibit B to this prospectus, at a charge to non-subscribers of
approximately $25, the annual reports and events notices required under Rule
15c2-12 contracts. A Rule 15c2-12 contract is an agreement between the
underwriter and the issuer that requires the issuer to provide annual financial
information and specific material event notices for the benefit of bondholders.
The sponsor will update Exhibit B through periodic reports filed under the
Securities Exchange Act of 1934.
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GLOSSARY
Bond Redemption Date--the business day following the day proceeds are payable on
redeemed bonds to the trustee, on which the trustee will distribute proceeds
from the redemption of any bonds to investors of P-FLOATs corresponding to those
bonds
Certificates--P-FLOATs and RITES together
Index Rate--the Municipal Market Data insured bond rate in effect on the
conversion date for the term closest to the average rate of a bond
Interest Mode--the period at which interest will be paid to P-FLOATs investors,
either daily, weekly, or at a term period of up to one year
Maximum Fixed Rate--a bond's coupon rate minus trustee fees
Maximum Floating Rate--the weighted average coupon of the bonds minus trustee
fees
Mode Change Date--the date the remarketing agent converts the P-FLOATs
Interest Mode
NRMSIR--Nationally Recognized Municipal Securities Repository
Optional Purchase Date--the date a P-FLOATs investor optionally tenders
P-FLOATs
P-FLOATsSM--Pass Through Floating Rate Municipal Certificates, the securities
offered for purchase in the prospectus and prospectus supplement
Residual Ownership Date--the date, specified in the prospectus supplement, upon
which approximately 80% of the average life of a bond expires
RITESSM--Residual Interest Municipal Certificates, securities that are not being
offered for purchase in the prospectus and prospectus supplement
Trust Agreement--the Series Trust Agreement, the Standard Terms and Provisions,
and all exhibits, appendices, schedules and amendments to both documents
53
<PAGE>
EXHIBIT A
[OPINION OF SPECIAL COUNSEL AS TO TAX MATTERS]
__________ __, 199_
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch Municipal ABS, Inc.
Merrill Lynch & Co., Inc.
World Financial Center
North Tower, 9th Floor
250 Vesey Street
New York, New York 10281-1309
[Trustee and Tender Agent],
as Trustee on behalf of the
Holders of Certificates from time to time
[Liquidity Provider]
Re: Pass Through Floating Rate Municipal Certificates ("P-FLOATs"SM),
--------
and Residual Interest Municipal Certificates, 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 Certificates. Capitalized terms used but not
defined in this opinion have the meanings given them in the Trust Agreement and
the Prospectus (as defined below).
This opinion is rendered in connection with the Series Trust Agreement
relating to Series RT- __ , dated ____________, 199_ (the "Series Trust
Agreement"), incorporating by reference the Standard Terms and Provisions of
Trust Agreement (the "Standard Terms") attached as Exhibit B thereto (the Series
Trust Agreement and the Standard Terms are referred to together collectively as
the "Trust Agreement"), by and among Merrill Lynch Municipal ABS, Inc., as
sponsor (the "Sponsor"), _____________, as trustee and tender agent (the
"Trustee") and _____________, as co-trustee (the "Co-trustee"), and providing
for the custody of the bonds identified in Schedule 1 attached hereto (the
"Bonds"), referred to in the Prospectus, dated _____________, 1999, as
supplemented by a Supplement, dated _____________, 199_ (as so supplemented, the
"Prospectus"), and for the sale as contemplated therein of various series of
Pass Through Floating Rate Municipal Certificates ("P-FLOATs") and Residual
Interest Municipal Certificates ("RITES," and collectively with the P-FLOATs,
the "Certificates") that represent beneficial interests in the Bonds. This
opinion constitutes an integral part of the Prospectus and must be read in
conjunction therewith.
Our opinion and the tax consequences described herein are based upon the
Internal Revenue Code of 1986, as amended (the "Code"). Although we are not
aware of any proposed changes to the Code that are applicable, tax laws may
change after the date hereof. The Internal Revenue
A-1
<PAGE>
Service has not yet issued any regulations or published any rulings which are
directly applicable to the Certificates. The opinion and tax consequences
described herein are subject to and may be modified by any change resulting from
the issuance of any regulation or publication of any ruling that is directly
applicable to the Certificates.
In rendering our opinion, we have not passed upon, have not independently
verified and do not assume any responsibility for, but rather have assumed the
continuing correctness of, the opinion of bond counsel rendered at the date of
original issue of the Bonds to the effect that, on the basis of laws in effect
on the date of original issuance, the Bonds constitute the legal, valid and
binding obligation of the bond issuer thereof.
We have examined and relied upon originals, or copies certified or otherwise
identified to our satisfaction, of the following: (1) the Prospectus; (2) the
executed Trust Agreement to which the forms of the Certificates are attached as
exhibits; and (3) such other documents, certificates, opinions and letters as we
have deemed necessary or relevant for the purpose of rendering this opinion. In
addition, we have participated in the preparation of the material under the
heading "Income Tax Considerations" in the Prospectus. Capitalized terms used in
this opinion and not otherwise defined herein shall have the same meanings as
such terms are given in the Trust Agreement.
Based upon and subject to all of the foregoing and based upon our analysis of
existing statutes, we are of the opinion that:
(1) The arrangement evidenced by the P-FLOATs and the RITES of each Series
will be treated as a partnership (and not as an association taxable as a
corporation or a publicly traded partnership treated as a corporation) for
Federal tax purposes. The Certificates, 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 Certificates.
(2) We hereby confirm and adopt as our opinion the opinions expressed in
the Prospectus as to "Federal Income Tax Consequences" under the Code, the
regulations thereunder, published administrative rulings, and judicial
decisions published on or prior to the date of this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the references to this firm under the
caption "Federal Income Tax Consequences" in the Prospectus forming a part of
the Registration Statement. In giving this consent, we do not admit that we are
in the category of persons whose consent is required to be filed with the
Registration Statement under the provisions of the Securities Exchange Act of
1933, as amended.
The foregoing is based on the Federal income tax laws in effect as of this
date and no assurance can be provided as to future administrative or judicial
interpretations of those laws. Further, no opinion is expressed with respect to
any effects of state or local income tax laws or any other Federal or state law,
except as expressly stated herein.
Very truly yours,
A-2
<PAGE>
EXHIBIT B
NATIONALLY RECOGNIZED MUNICIPAL
SECURITIES REPOSITORIES
B-1
<PAGE>
EXHIBIT C
AUDITED FINANCIAL STATEMENT
C-1
<PAGE>
===================================== ========================================
[$---------]
(APPROXIMATE)
YOU SHOULD RELY ONLY ON THE
INFORMATION CONTAINED OR INCORPORATED
BY REFERENCE IN THIS PROSPECTUS PASS THROUGH FLOATING
SUPPLEMENT AND THE ACCOMPANYING RATE MUNICIPAL TRUST ___
PROSPECTUS. WE HAVE NOT AUTHORIZED ISSUER
ANYONE TO PROVIDE DIFFERENT INFORMATION
TO YOU.
THE P-FLOATS ARE NOT OFFERED IN ANY
STATE WHERE THEIR OFFER IS $________ PASS THROUGH
IMPERMISSIBLE. FLOATING
DEALERS WILL DELIVER A PROSPECTUS RATE MUNICIPAL CERTIFICATES
SUPPLEMENT AND PROSPECTUS WHEN ACTING (P-FLOATSSM)
AS UNDERWRITERS TO THE P-FLOATS AND SERIES R-
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS
OR SUBSCRIPTIONS. IN ADDITION, ALL
DEALERS SELLING P-FLOATS WILL DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS MERRILL LYNCH MUNICIPAL ABS, INC.
UNTIL [ ] SPONSOR
------------------------------
TABLE OF CONTENTS
PAGE
PROSPECTUS SUPPLEMENT
Summary.............................S-1
Risk Factors........................S-5
The Liquidity Provider..............S-5
Plan of Distribution................S-6
Ratings.............................S-6
Legal Matters.......................S-7
Reports to Certificateholders.......S-7 ----------------------------------
Year 2000 Problem...................S-7 PROSPECTUS SUPPLEMENT
Additional Information..............S-8 ----------------------------------
PROSPECTUS
Summary...............................1
Risk Factors..........................9
Introduction.........................13 MERRILL LYNCH & CO.
Interest and Principal...............14 [________ ____]
Optional Tender of
P-FLOATs...........................17
Mandatory Tender of
P-FLOATs...........................18
Fixed Rate Conversion................19
Mandatory Disposition of
Bonds..............................20
Withdrawal of Bonds..................23
Procedures for Purchase
and Remarketing....................25
Details of the
Certificates.......................27
Redemption Upon
Redemption of
Underlying Bonds...................31
Material Terms of the
Trust Agreement....................33
Miscellaneous........................38
The Bonds............................39
The Sponsor..........................40
The Remarketing Agreement............40
The Liquidity Facility...............41
Income Tax Considerations............43
Plan Of Distribution.................50
Use Of Proceeds......................50
Rating...............................51
Legal Matters........................51
Reports to
Certificateholders.................51
Incorporation of
Information by
Reference..........................51
Additional Information...............52
Glossary.............................53
Opinion of Special
Counsel...........................A-1
Nationally Recognized
Municipal Securities
Repositories......................B-1
Audited Financial
Statement.........................C-1
===================================== ========================================
56
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses expected to be incurred in connection with the issuance
and distribution of the securities being registered, other than underwriting
compensation, are as set forth below. All such expenses except for the
registration fees are estimated.
SEC Registration Fee.......................*
Legal Fees and Expenses....................*
Accounting Fees and Expenses...............*
Trustee's Fees and Expenses (including
counsel fees)..............................*
Printing and Engraving Fees................*
Rating Agency Fees.........................*
Miscellaneous..............................*
Total.................................*
* To be provided by amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides that a
Delaware corporation may indemnify any persons, including officers and
directors, who are made, or are threatened to be made, parties to any
threatened, pending or completed legal action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of such corporation), by reason of the fact that such person is or was
an officer or director of such corporation, or is or was serving at the request
of such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such officer or director acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's best
interests and, for criminal proceedings, had no reasonable cause to believe that
his conduct was illegal. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him
against the expenses which such officer or director actually and reasonably
incurred.
The Amended and Restated Certificate of Incorporation of Merrill
Lynch Municipal ABS, Inc. provide for indemnification of officers and directors
to the full extent permitted by the Delaware General Corporation Law.
II-1
<PAGE>
The Series Trust Agreement for each Series of Certificates 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 Certificates, 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 Certificates.*
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. 5 to Form S-3 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in New York City, State of New York, on June 20, 2000.
MERRILL LYNCH MUNICIPAL ABS, INC.
By: /s/ Edward J. Sisk
-------------------------
Name: Edward J. Sisk
Title: Vice President
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS
AMENDED, THIS PRE-EFFECTIVE AMENDMENT NO. 5 TO FORM S-3 REGISTRATION STATEMENT
HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURE CAPACITY DATE
* President and Chairman of the June 20, 2000
Board
--------------------------------
Robert C. Barber
* Treasurer, Chief Financial June 20, 2000
Officer and
--------------------------------
Thomas Cassano Chief Accounting Officer
* Director June 20, 2000
--------------------------------
John Lawlor
* Director June 20, 2000
--------------------------------
Donald J. Puglisi
By: /s/ Edward J. Sisk
---------------------------------
Edward J. Sisk
Attorney-in-Fact
(*)Edward J. Sisk, by signing his name hereto, does sign this document on
behalf of the person indicated above pursuant to a power of attorney duly
executed by such person and filed with the Securities and Exchange
Commission.
<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
Certificates.*
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.
