<PAGE>
As filed with the Securities and Exchange Commission on August 21, 1996
Registration No. 33-83818
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________
CS FIRST BOSTON STRUCTURED PRODUCTS CORPORATION
(Exact name of Registrant as specified in its charter)
on behalf of itself and trusts with respect to which it is the depositor
<TABLE>
<S> <C> <C>
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
Delaware (212) 909-2000 13-3752880
(State or other jurisdiction of (Address, including zip code, and telephone (I.R.S. Employer
incorporation or organization) number, including area code, of registrant's Identification No.)
principal executive offices)
</TABLE>
Gina Hubbell
President and Chief Executive Officer
CS First Boston Structured Products Corporation
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
(212) 909-2000
(Name, address, including zip code,
and telephone number, including area code, of agent for service)
__________________
Copy to:
James D. Johnson
Sidley & Austin
875 Third Avenue
New York, New York 10022
__________________
Approximate date of commencement of proposed sale to the public: From time
to time after this Registration Statement becomes effective.
__________________
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
________________________
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Per Aggregate Registration
Securities to be Registered (1) Registered (2) Unit (2) Offering Price (2) Fee (3)
<S> <C> <C> <C> <C>
Collateralized Bond Obligations, and
Trust Certificates $1,000,000 100% $1,000,000 $345
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The securities are also being registered for the purpose of market making.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Previously paid.
__________________
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 this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST ___, 1996
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PROSPECTUS
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CS FIRST BOSTON STRUCTURED PRODUCTS CORPORATION
COLLATERALIZED BOND OBLIGATIONS AND TRUST CERTIFICATES
BACKED BY CERTAIN UNDERLYING SECURITIES
AND OTHER UNDERLYING ASSETS DESCRIBED HEREIN
(ISSUABLE IN SERIES)
This Prospectus relates to Collateralized Bond Obligations (the
"Bonds") and Trust Certificates (the "Trust Certificates") (collectively, the
"Securities") that may be issued from time to time in one or more series (each
a "Series") under this Prospectus and the related Prospectus Supplement. The
Securities of each Series will be (i) Bonds representing indebtedness of CS
First Boston Structured Products Corporation (the "Company") or of a trust (a
"Trust") established or controlled by the Company, (ii) certificates ("Trust
Certificates") evidencing beneficial ownership interests in the Underlying
Assets (as defined below) deposited into a Trust by the Company or an
affiliate thereof or (iii) a combination of Bonds and Trust Certificates.
Certain assets (the "Underlying Assets") will secure or otherwise
underlie the Securities of each Series. The Underlying Assets will consist of
any combination of one or more of (i) (a) bonds, debentures, notes and other
debt securities ("Underlying Debt Securities") issued by corporations,
partnerships, trusts, limited liability companies and other types of domestic
entities (each an "Underlying Debt Issuer") that, in each case, (1) are
eligible to issue securities registered on a registration statement on Form S-
3 by the Securities and Exchange Commission under the Securities Act of 1933,
as amended, and (2) file periodic reports with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended, as of the
closing date for the Securities offered pursuant to the related Prospectus
Supplement and (b) Governmental Securities (as such term is defined herein)
described under "The Underlying Assets - Government Securities" and the
related Prospectus Supplement (such Government Securities, if any, and the
Underlying Debt Securities are referred to herein, collectively, as
"Underlying Securities"), (ii) credit or liquidity enhancement ("Underlying
Enhancement") consisting of surety bonds or insurance policies issued by one
or more insurance companies ("Financial Guaranty Insurance"), letters of
credit ("Letters of Credit"), other credit enhancement and/or liquidity
facilities (in addition to any overcollateralization, senior/subordinated
structures and other structural elements of Securities of a Series
("Structural Enhancement")), (iii) interest rate swap agreements, interest
rate cap agreements and interest rate floor agreements ("Swap Agreements"),
(iv) cash or guaranteed investment contracts ("Guaranteed Investment
Contracts") and/or (v) proceeds of any of the foregoing, all as described in
the related Prospectus Supplement.
The Securities will be sold from time to time under this Prospectus on
terms established for each Series at the time of sale and described in the
related Prospectus Supplement. See "Certain Information To Be Set Forth In
The Prospectus Supplement".
The Bonds of a Series will be non-recourse obligations of the issuer
thereof (the "Issuer") and Trust Certificates of a Series will evidence an
interest in the related Trust only. The Securities will not be insured or
guaranteed by any governmental agency or instrumentality or by any person
affiliated with the Company or the Issuer thereof, unless otherwise specified
in the related Prospectus Supplement. It is not expected that the Issuer will
have any significant assets other than the Underlying Assets and other assets
backing the issuance of other securities. The Securities are different from,
and should not be deemed to be a substitute for, direct ownership of the
Underlying Assets.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET
FORTH UNDER "RISK FACTORS" BEGINNING ON PAGE 22 HEREIN.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE LIMITATIONS DISCUSSED UNDER
"ERISA CONSIDERATIONS" HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
The Securities offered by this Prospectus and by the related
Prospectus Supplement may be sold to or through underwriters, through dealers
or agents or directly to purchasers. This Prospectus may not be used to
consummate sales of Securities offered hereby unless accompanied by the
related Prospectus Supplement.
CS FIRST BOSTON
- --------------------------------------------------------------------------------
The date of this Prospectus is ___________, 1996.
<PAGE>
AVAILABLE INFORMATION
This Prospectus, together with the Prospectus Supplement for each
Series of Securities contains a summary of the material terms of the documents
referred to herein and therein, but neither contains nor will contain all of the
information set forth in the Registration Statement of which this Prospectus and
the related Prospectus Supplement is a part. For further information, reference
is made to such registration statement (the "Registration Statement") and the
exhibits thereto which the Company has filed with the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Securities. The Company will become
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith will file
reports and other information with the SEC. This Prospectus, which forms a part
of the Registration Statement, omits certain information contained in such
Registration Statement pursuant to the rules and regulations of the SEC. The
Registration Statement and the exhibits thereto can be inspected and copied at
the public reference facilities maintained by the SEC at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at certain regional offices of
the SEC located as follows: Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661; and Seven World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material can also be obtained from the
Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of such site is (http://www.sec.gov). It is not intended that any
Issuer will send any financial or other reports to Holders of Securities (other
than as described under "The Indenture -- Reports to Bondholders" and "The Trust
Agreement -- Reports to Trust Certificateholders").
Upon receipt of a request by an investor who has received an
electronic Prospectus Supplement and Prospectus from the Underwriter or a
request by such investor's representative within the period during which there
is an obligation to deliver a Prospectus Supplement and Prospectus, the
Underwriter will promptly deliver, or cause to be delivered, without charge, to
such investor a paper copy of the Prospectus Supplement and Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Securities offered hereby shall
be deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed incorporated by reference herein shall be deemed
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which is
or is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so
-2-
<PAGE>
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy
of this Prospectus is delivered, on the written or oral request of any such
person, a copy of any or all of the documents incorporated herein by reference,
except the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to the Secretary of CS First Boston Structured Products
Corporation, Park Avenue Plaza, 55 East 52nd Street, New York, New York 10055.
Telephone requests for such copies should be directed to the Secretary of CS
First Boston Structured Products Corporation at (212) 909-2000.
CERTAIN INFORMATION TO BE SET FORTH
IN THE PROSPECTUS SUPPLEMENT
GENERAL
The Prospectus Supplement relating to a Series will, among other
things, set forth certain terms of such Securities and will describe certain
aspects of the Underlying Assets. In addition, the Prospectus Supplement may
contain statements that supplement or modify the related provisions of this
Prospectus with respect to such Series; accordingly, the Prospectus should be
read in conjunction with, and may with respect to such Series be supplemented
by, the Prospectus Supplement. For definitions of certain capitalized terms, see
"Glossary".
TERMS OF SERIES
The Prospectus Supplement relating to a Series will set forth the
following terms of such Series: (i) whether such Securities are Bonds, Trust
Certificates or a combination thereof; (ii) the initial aggregate principal
amount and the Bond Interest Rate or Trust Certificate Interest Rate (or method
for determining such rate) and authorized denominations of each Class of such
Series; (iii) the circumstances, if any, in which the Securities of such Series
are subject to redemption or to an Optional Call Right or other retirement prior
to maturity or repurchase; (iv) the Final Scheduled Payment Date of each Class
of such Series; (v) the method used to calculate the aggregate amount of
principal, if any, available and required to be applied to the Securities of
such Series on each Payment Date, the timing of the application of principal, if
any, and the order of priority of the application of such principal to the
various Classes and the allocation of the principal to be so applied; (vi)
whether such Securities are to be issued in Classes, describing the relationship
between/among such Classes, including the extent and terms of subordination of
any Subordinated Securities, and the specific terms of each; (vii) the identity
of each Class of Accrual Securities, Variable Interest Securities, Subordinated
Securities, Retail Securities, Zero Coupon Securities, Principal-Only
Securities, Interest-Only Securities and Participating Securities included in
such Series, if any, or other type of Class of Securities, if any, included in
such Series; (viii) the Payment Dates for the various Classes of Bonds or Trust
-3-
<PAGE>
Certificates; (ix) the Assumed Reinvestment Rate, if any, and (if applicable)
the percentage of Excess Cash Flow to be applied to payments of principal of the
Series; (x) the plan of distribution of such Series; (xi) whether the Securities
are to be issuable in registered form or bearer form or both, and if Securities
in bearer form are issued, whether bearer Securities may be exchanged for
registered securities and the circumstances and places for such exchange, if
permitted; (xiii) with respect to the federal income tax consequences of such
Series, certain elections or intended treatment thereof; (xiv) the currency or
currency unit in which the Securities are denominated, if other than U.S.
dollars; (xv) if applicable, the terms on which the Trust may issue any
indebtedness; (xvi) whether all or any portion of the Underlying Assets may be
loaned or pledged to the Company, any affiliate of the Company or any other
person (and, if so, the terms or conditions of any such loan or pledge); (xvii)
the restrictions on the transferability of Securities; (xviii) whether such
Series may be held through CEDEL and/or Euroclear and, if so, how such Series
will be held with such clearing agencies; and (xix) any other material terms of
such Series or material information relating to the offering thereof.
UNDERLYING ASSETS
The Prospectus Supplement (or, if such information is not available in
advance as of the date of such Prospectus Supplement, a Current Report on Form
8-K to be filed with the SEC) relating to a Series will set forth the following
aspects of the Underlying Assets, to the extent applicable: (i) with respect to
the Underlying Debt Securities included therein, (A) the title of each
Underlying Debt Security, (B) the aggregate principal amount and type of such
Underlying Debt Securities, (C) the stated interest rate, if any, borne by each
of such Underlying Debt Securities and the timing of, and manner of determining,
any adjustments to such stated interest rate, (D) the weighted average of such
interest rates, (E) the stated maturity date of each of such Underlying Debt
Securities, (F) the weighted average stated maturity date of such Underlying
Debt Securities, (G) the identity of each Underlying Debt Issuer (including any
guarantor and any provider of credit support), (H) certain credit
characteristics of such Underlying Debt Issuer, including such Underlying Debt
Issuer's rating, if any, and any special risk factors, (I) the existence and
extent of any guaranty of or credit support with respect to such Underlying Debt
Securities, (J) the conditions under which, and the terms on which, such
Underlying Debt Securities may be prepaid or redeemed prior to the stated
maturity thereof, (K) the terms, if any, on which the Trustee or its agent may
exchange or sell any Underlying Debt Security and (L) the type of information
that is made publicly available by each Underlying Debt Issuer, including how
purchasers of Securities may obtain such publicly available information with
respect to each Underlying Debt Issuer; (ii) for each Series the Underlying
Assets with respect to which contains Government Securities (as such term is
defined herein), certain information with respect to such Government Securities
described herein under "The Underlying Assets-Government Securities", (iii)
certain terms of any Underlying Enhancement included therein, including certain
contractual terms of the Underlying Enhancement and the identity and rating, if
available, of each issuer thereof; (iv) certain terms of any Swap Agreements
included therein, including certain contractual terms of the Swap Agreements and
the identity and rating (if such rating is available) of each counterparty
thereto and any guarantor thereof; (v) certain characteristics
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<PAGE>
of any other Underlying Assets and (vi) the terms, if any, on which the Trustee
or its agent may exchange or sell any Underlying Asset.
-5-
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and in the
Prospectus Supplement with respect to the Series offered thereby and to the
Indenture or the Trust Agreement relating thereto (the material terms of which
are described in this Prospectus and the Prospectus Supplement), together with
any other agreements or instruments related thereto. For definitions of certain
capitalized terms, see "Glossary".
SECURITIES OFFERED The Securities of each Series will be
(i) Bonds representing indebtedness
of the Company or a Trust established
or controlled by the Company, (ii)
Trust Certificates evidencing
beneficial ownership interests in
assets deposited into a Trust by the
Company or an affiliate thereof or
(iii) a combination of Bonds and
Trust Certificates. Certain
"Underlying Assets", described below,
will secure or otherwise underlie the
Securities.
Bonds The Bonds may be issued from time to
time in separately secured Series
pursuant to the Indenture. Each
Series will consist of one or more
Classes, one or more of which may be
Classes of Accrual Bonds, Variable
Interest Bonds, Retail Bonds, Zero
Coupon Bonds, Principal-Only Bonds,
Interest-Only Bonds, Participating
Bonds, Senior Bonds or Subordinated
Bonds. The respective Classes may
differ with respect to, among other
things, the amounts allocated to,
timing and the priority of principal
and interest payments, if any, Final
Scheduled Payment Date, Payment Dates
and Bond Interest Rates. The
Prospectus Supplement will describe
the forms in which the Bonds will be
issued and maintained (i.e., in fully
registered form, in book-entry form
through the facilities of DTC or
another depository or in bearer form
or a combination thereof) and the
authorized denominations thereof.
Bonds in bearer form will be offered
only outside the United States to
non-United States persons and to
offices located outside the United
States of certain United States
financial institutions.
Trust Certificates The Trust Certificates are issuable
from time to time in separate Series
pursuant to the Trust Agreement.
Each Trust Certificate of a Series
will evidence a beneficial ownership
interest in the Trust for such
Series. Each
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<PAGE>
Series of Trust Certificates will
consist of one or more Classes of
Trust Certificates, one or more of
which may be Classes of Accrual Trust
Certificates, Variable Interest Trust
Certificates, Zero Coupon Trust
Certificates, Principal-Only Trust
Certificates, Interest-Only Trust
Certificates, Participating Trust
Certificates, Subordinated Trust
Certificates or Senior Trust
Certificates. The respective Classes
may differ with respect to, among
other things, the amount, percentage
and timing of distributions of
principal, interest or both. The
Prospectus Supplement will describe
the form in which the Trust
Certificates will be issued and
maintained (i.e., in fully registered
form, in book-entry form through the
facilities of DTC or another
depository or in bearer form or a
combination thereof). Holders of
Trust Certificates will have the
right to receive distributions based
on their pro rata interests in the
related Trust. Such distributions
will be scheduled in the manner of
payments of interest and/or principal
on a debt security and, accordingly,
the discussion in this Prospectus and
the related Prospectus Supplement
will use the terms interest and
principal to describe such
distributions on Trust Certificates
even though such distributions may
not constitute principal or interest
on debt securities.
CERTAIN TERMS OF THE
SECURITIES
Available Funds Interest and principal payments on a
Series of Securities are payable
solely from Available Funds on each
Payment Date in the amounts and
priorities described in the related
Prospectus Supplement. If Available
Funds are insufficient on any Payment
Date to make required interest and
principal payments, Securityholders
will not be paid the full amount of
such payments and will suffer losses,
unless the related Prospectus
Supplement provides that such
shortfalls will be carried over and
sufficient Available Funds exist on a
subsequent Payment Date to pay such
shortfalls. There can be no
assurance that Available Funds on any
Payment Date will be sufficient to
make all required interest and
principal payments to
Securityholders. Except to the
extent otherwise provided in the
related Prospectus Supplement, no
amount of Available Funds (including
Reinvestment Income, if any, on
distributions
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<PAGE>
received by the Issuer in respect of the
Underlying Securities) will be payable
to the Issuer.
Interest Each Class of a Series of Securities
(other than a Class of Zero Coupon
Securities or Principal-Only
Securities and other than as set
forth in the following paragraph)
will accrue interest at the interest
rate set forth in the related
Prospectus Supplement (or, in the
case of Variable Interest Securities,
as determined by the method described
therein). The interest rate will be
fixed or variable. If the interest
rate is variable, the interest rate
may be based on an Index or otherwise
may change by reference to the
Underlying Assets or as otherwise
specified in the related Prospectus
Supplement. The Index may be, among
other things, LIBOR, a Prime Rate,
COFI, a Commercial Paper Rate, a
Federal Funds Rate or an index based
on the price of certain commodities
(such as crude oil, natural gas,
gold, silver or coffee) or the value
of certain intangibles (such as stock
indices, bond indices, foreign
exchange rates or the Consumer Price
Index).
In the case of certain Trust
Certificates, distributions will be
based on distributions and other
payments in respect of the related
Underlying Assets so that such Trust
Certificates may not be entitled to
any specified fixed or variable rate
of interest or specified principal
amount.
Interest on all Securities which bear
interest, other than Accrual
Securities, will be due and payable
on the Payment Dates specified in the
related Prospectus Supplement.
However, to the extent set forth in
the related Prospectus Supplement,
failure to pay interest on a current
basis may not necessarily be an Event
of Default with respect to a
particular Series of Securities.
Payments of interest on a Class of
Variable Interest Securities will be
made on the Variable Interest Payment
Dates set forth in the related
Prospectus Supplement. Interest on
any Class of Accrual Securities will
not be paid currently, but will
accrue and the amount of interest so
accrued will be added to the
principal thereof on each Payment
Date through the Accrual Termination
Date specified in the related
Prospectus Supplement. Following the
applicable Accrual
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<PAGE>
Termination Date, interest payments
on such Securities will be made on
the Compound Value thereof.
Interest-Only Securities may be
assigned a "Notional Principal
Amount" that is used for convenience
in expressing the calculation of
interest and not to indicate any
entitlement to payment of such
Notional Principal Amount. The
Notional Principal Amount will be
determined at the time of issuance of
such Securities based on the
principal balances or Discounted
Amounts of the Underlying Assets
attributable to the Securities of a
Series entitled to receive principal
and will be adjusted periodically
over the life of the Securities based
on adjustments to the principal
balances or Discounted Amounts of
such Underlying Assets.
Principal-Only Securities will not
accrue interest and will not be
entitled to receive any distributions
in respect of interest. Holders of
Zero Coupon Securities will not
receive payment of interest prior to
the Final Scheduled Payment Date of
such Securities.
Additionally, if so specified in the
related Prospectus Supplement,
interest accrued for an Interest
Accrual Period for one or more
Classes may be calculated on the
assumption that principal payments
(and additions to principal of the
Securities), and allocations of
losses on the Underlying Assets (if
so specified in the related
Prospectus Supplement), are made on
the first day of the preceding
Interest Accrual Period and not on
the Payment Date for such preceding
Interest Accrual Period when actually
made or added. Such method would
produce a lower effective yield than
if interest were calculated on the
basis of the actual principal amount
outstanding.
With respect to any Class of Variable
Interest Securities, the related
Prospectus Supplement will set forth:
(i) the initial Bond Rate or Trust
Certificate Interest Rate (or the
manner of determining such rate);
(ii) the method by which the Bond
Rate or Trust Certificate Interest
Rate will be determined from time to
time, including any related Index;
(iii) the periodic intervals at which
such determination will be made; (iv)
the Maximum Variable Interest Rate or
the
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<PAGE>
Minimum Variable Interest Rate, if
any, for such Variable Interest
Securities; (v) the Variable Interest
Period and (vi) any other material
terms relevant to such Class of
Securities.
Principal Except with respect to Zero Coupon
Securities, Accrual Securities and
Interest-Only Securities and as
described in the second paragraph
under "-Interest" above, on each
Payment Date, principal payments will
be made from Available Funds on the
Securities of each Series in the
amount and as specified in the
related Prospectus Supplement. If
the Series of Securities has a Class
of Accrual Securities, additional
principal payments on the Securities
of other Classes will be made on each
Payment Date in an amount equal to
the interest accrued, but not then
payable, on such Accrual Securities
for the related Interest Accrual
Period. All payments of principal of
a Series of Securities will be
allocated among the Classes of such
Series at the times, in the manner
and in the priority (which may, in
certain cases, include allocation by
random lot) set forth in the related
Prospectus Supplement.
Final Scheduled Payment The Final Scheduled Payment Date for
Date each Class of Securities of a Series
is the date after which no Securities
of such Class are scheduled to remain
outstanding, assuming timely payments
or distributions are made on the
Underlying Securities in accordance
with their terms. The Final
Scheduled Payment Date of a Class may
correspond to the maturity date of
the Underlying Securities that have
the latest stated maturity or will be
determined as described herein and in
the related Prospectus Supplement.
The actual final payment date for
each Class of Securities of a Series
will depend primarily upon the rate
of payments (including redemptions
and prepayments) of the Underlying
Securities. The rate of payments of
the Underlying Securities for a Class
will depend on a variety of factors,
including the terms of the Underlying
Securities and the prevailing level
of interest rates from time to time
and other factors. No assurance can
be given as to the actual payment
(including redemption or prepayment)
experience with respect to a Class.
See "Risk Factors -- Certain Yield,
Redemption and Prepayment
Considerations".
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<PAGE>
Redemption of Bonds If specified in the related
Prospectus Supplement, Bonds of a
Series will be subject to special
redemption, in whole or in part, if,
as a result of principal payments, if
any, on, and/or redemptions, if any,
of, the related Underlying Securities
or low reinvestment yields, or both,
the Trustee determines (based on
assumptions, if any, specified in the
Indenture and after giving effect to
the amounts, if any, available to be
withdrawn from any Reserve Fund and
any other Underlying Enhancement for
such Series) that the amount
anticipated to be available in the
Collection Account, if any, assuming
minimum reinvestment rates, for such
Series on the date specified in the
related Prospectus Supplement will be
insufficient to meet debt service
requirements on any portion of the
Bonds. Any such redemption would be
limited to the aggregate amount of
all principal payments on (and/or
redemption payments with respect to)
the Underlying Securities received
since the last Payment Date or
Special Redemption Date, whichever is
later, and may shorten the maturity
of any Bond so redeemed by no more
than the period between the date of
such special redemption and the next
Payment Date for such Bonds. Special
redemptions of Bonds of a Series will
be made in the same priority and
manner as principal payments are made
on a Payment Date. Except to the
extent otherwise provided in the
related Prospectus Supplement, Bonds
subject to special redemption will be
redeemed on the applicable Special
Redemption Date at a Redemption Price
equal to 100% of their unpaid
principal amount plus accrued
interest on such principal, or on the
Notional Principal Amount, if
applicable, to the date specified in
such Prospectus Supplement. To the
extent described in such Prospectus
Supplement, Bonds of a Series may be
subject to special redemption in
whole or in part following certain
defaults under the related Underlying
Enhancement Agreement or in certain
other circumstances.
To the extent, if any, specified in
the related Prospectus Supplement,
one or more Classes of any Series of
Bonds may be redeemed in whole or in
part, at the Issuer's option, on any
Payment Date on or after the date(s)
and at
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the Redemption Price(s) specified in the
related Prospectus Supplement.
If specified in the related
Prospectus Supplement for a Series,
the Bonds of one or more Classes of
Retail Bonds may be subject to
mandatory redemptions by lot or by
such other method set forth in the
Prospectus Supplement. The related
Prospectus Supplement relating to a
Series of Bonds with Retail Bonds
will set forth Class priorities, if
any, and conditions with respect to
redemptions. Retail Bonds to be
redeemed will be selected by random
lot in $1,000 units, after making all
permitted redemptions requested by
Holders of Retail Bonds or by such
other method as may be set forth in
the Prospectus Supplement.
Optional Call Right If specified in the related
With Respect to Bonds Prospectus Supplement, any Class of
Bonds may be subject to the right of
the Optionholder, at the time or
times specified in such Prospectus
Supplement, upon 30 days' written
notice to the Trustee, to purchase
all, but not less than all, of such
Bonds for a cash purchase price equal
to the Aggregate Outstanding
Principal of such Bonds, together
with that portion, if any, of the
next scheduled distribution (other
than any amount of such distribution
representing principal) on such Bonds
that is then accrued and unpaid.
Optional Call Right If specified in the related
With Respect to Trust Prospectus Supplement, any Class of
Certificates Trust Certificates may be subject to
the right of the Optionholder, at the
time or times specified in such
Prospectus Supplement, upon 30 days'
written notice to the Trustee, to
purchase all, but not less than all,
of such Trust Certificates or the
Underlying Assets of the related
Trust for a cash purchase price equal
to, unless otherwise specified in the
related Prospectus Supplement, the
Aggregate Outstanding Principal of
such Trust Certificates together with
that portion, if any, of the next
scheduled distribution (other than
any amount of such distribution
representing principal) on such Trust
Certificates that is then accrued and
unpaid.
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Optional and Special If so specified in the Prospectus
Termination of Trust Supplement related to a Series of
Trust Certificates, the Company, or
such other entity that is specified
in the related Prospectus Supplement,
may, at its option, cause an early
termination of the related Trust by
repurchasing all of the Underlying
Securities remaining in the Trust, at
a purchase price of not less than par
(unless otherwise specified in such
Prospectus Supplement), on or after a
specified date, or on or after such
time as the aggregate principal
balance of the Trust Certificates of
any Class of the Series is less than
the amount or percentage specified in
the related Prospectus Supplement.
If specified in the related
Prospectus Supplement, any Class of
the Trust Certificates may be subject
to repurchase at the request of the
Holders of such Class or to mandatory
repurchase by the Company (including
by random lot) upon the terms and
conditions so specified.
RISK FACTORS For discussion of risk factors that
should be considered with respect to
an investment in the Securities, see
"Risk Factors" herein and in the
related Prospectus Supplement.
UNDERLYING ASSETS The Prospectus Supplement will
describe the Underlying Securities,
any Underlying Enhancements and any
Swap Agreements, as well as any
miscellaneous assets, that will
constitute the Underlying Assets with
respect to the related Series.
Underlying Debt Securities Underlying Debt Securities for a
Series will consist of any
combination of bonds, debentures,
notes and other debt securities
issued by Underlying Debt Issuers.
Each Underlying Debt Issuer will, as
of the date of issuance of the
Securities of a Series, be (i)
eligible to issue securities
registered on a registration
statement on Form S-3 promulgated by
the SEC under the Securities Act and
(ii) a reporting person under Section
12 or Section 15(d) of the Exchange
Act. Each of the Underlying Debt
Securities will as of such date have
been (i) originally issued in a
transaction either (x) registered
pursuant to the Securities
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<PAGE>
Act or (y) not registered pursuant
thereto, if such unregistered Underlying
Debt Security is freely transferable by
the Issuer of such Series under
paragraph (k) of Rule 144 promulgated by
the SEC under the Securities Act, and
(ii) previously purchased by the Company
or any of its affiliates in the
secondary market (i.e., not from the
Underlying Debt Issuer or any of its
affiliates, and not as part of the
initial distribution thereof).
The Prospectus Supplement will
specify, to the extent applicable:
(i) the title of each Underlying Debt
Security; (ii) the aggregate
principal amount of the Underlying
Debt Securities; (iii) the stated
interest rate, if any, of such
Underlying Debt Securities and the
timing of, and manner of determining,
any adjustments to such stated
interest rate; (iv) the weighted
average of such interest rates; (v)
the stated maturity date of each of
the Underlying Debt Securities; (vi)
the weighted average stated maturity
date of such Underlying Debt
Securities; (vii) the identity of
each Underlying Debt Issuer
(including any guarantor or provider
of credit support); (viii) certain
credit characteristics of such
Underlying Debt Issuer, including
such Underlying Debt Issuer's rating,
if any, and any special risk factors;
(ix) the existence and extent of any
guaranty or credit support with
respect to the Underlying Debt
Securities; (x) the conditions under
which, and the terms on which, any
Underlying Debt Security may be
prepaid or redeemed prior to its
stated maturity date; (xi) the terms,
if any, on which the Trustee or its
agent may exchange or sell any
Underlying Debt Securities; and (xii)
the type of information that is made
publicly available by each Underlying
Debt Issuer, including how purchasers
of Securities may obtain such
publicly available information with
respect to each Underlying Debt
Issuer.
Government Securities If so specified in the applicable
Prospectus Supplement, the Underlying
Assets for a Series may include any
combination of (i) receipts or other
instruments evidencing ownership of
specific interest and/or principal
payments to be made on certain United
States Treasury Bonds ("Treasury
Bonds") held by a custodian, which
may include interest and/or principal
strips of Treasury Bonds created
under the Department
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of the Treasury's Separate Trading of
Registered Interest and Principal of
Securities, or STRIPS, program
("Treasury Strips"), (ii) receipts or
other instruments evidencing ownership
of specific interest and/or principal
payments to be made on certain
Resolution Funding Corporation ("REFCO")
bonds ("REFCO Strips"), (iii) certain
Treasury Bonds or other debt securities
the payment of principal and interest
due thereon is guaranteed by the full
faith and credit of the United States of
America ("FCC Bonds") and (iv) certain
other debt securities ("GSE Bonds") of
United States government sponsored
entities ("GSEs") or other debt
securities the payment of principal and
interest due thereon is guaranteed by
one or more GSEs ("GSE Guaranteed
Bonds", together with Treasury Strips,
REFCO Strips, Treasury Bonds, FFC Bonds
and GSE Bonds, collectively, "Government
Securities") (the issuer of any
Government Securities is referred to
herein as an "Underlying Government
Issuer"; and the Underlying Debt Issuers
and the Underlying Government Issuers,
if any, are referred to, collectively,
as the "Underlying Issuers"). The
specific terms of the Government
Securities, if any, included in a Trust
will be set forth in the applicable
Prospectus Supplement.
Underlying Enhancements Underlying Enhancements for a Series
may consist of Reserve Funds,
Financial Guaranty Insurance, Letters
of Credit or other types of credit
support or liquidity facilities that
are intended to enhance the cash
flows derived from the Underlying
Debt Securities. Structural
Enhancements, discussed below, are
not considered part of the Underlying
Assets but are enhancements resulting
from the structural elements of the
Securities of the applicable Series,
such as overcollateralization or
senior/subordinated structures.
- - Reserve Funds Reserve Funds may consist of cash,
Letters of Credit, Eligible
Investments, demand notes or a
combination thereof in the aggregate
amount, if any, specified in the
related Prospectus Supplement. Any
Reserve Funds for a Series may also
be funded over time through
application of a specified amount of
cash flow, to the extent described in
the related Prospectus Supplement.
Such a Reserve Fund may be
established to increase the
likelihood of the timely
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distributions on the Securities of
such Series or to reduce the
likelihood of a special redemption
with respect to any Series. Reserve
Funds may be established to provide
protection against certain losses or
delinquencies in addition to or in
lieu of other credit support.
Additional information concerning any
Reserve Funds, including the
circumstances under which moneys
therein will be applied with respect
to Securities, the balance required
to be maintained in such Reserve
Funds, the manner in which such
required balance will decrease over
time and the manner of funding any
such Reserve Fund, will be set forth
in the related Prospectus Supplement.
- - Financial Guaranty If so specified in the related
Insurance Prospectus Supplement, credit support
for a Series may be provided by
Financial Guaranty Insurance issued
by one or more insurance companies.
Such Financial Guaranty Insurance may
guarantee timely payments of
interest, principal and other amounts
on the basis of a schedule of
principal distributions to the extent
set forth in or determined in the
manner specified in the related
Prospectus Supplement.
- - Letters of Credit A Letter of Credit may provide
limited protection against certain
losses in addition to or in lieu of
other credit support. The Letter of
Credit Issuer will be obligated to
honor demands with respect to such
Letter of Credit, to the extent of
the amount available thereunder, to
provide funds under the circumstances
and subject to such conditions as are
specified in the related Prospectus
Supplement. The liability of the
Letter of Credit Issuer under its
Letter of Credit may be reduced by
the amount of unreimbursed payments
thereunder.
The maximum liability of a Letter of
Credit Issuer under its letter of
credit will generally be an amount
equal to the Letter of Credit
Percentage specified in the related
Prospectus Supplement. The maximum
amount available at any time to be
paid under a Letter of Credit will be
determined in the manner specified in
the related Prospectus Supplement.
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<PAGE>
- - Other Underlying Certain terms of any other Underlying
Enhancements Enhancements, which may include
guaranties, credit support or
liquidity facilities, will be set forth
in the related Prospectus
Supplement.
Swap Agreements The Underlying Assets with respect to
a Series may include Swap Agreements
consisting of interest rate swap
agreements, interest rate cap
agreements, interest rate floor
agreements and other instruments
relating to interest rates of the
Underlying Securities or the
Securities of such Series. The
related Prospectus Supplement will
specify the means by which each
counterparty to a Swap Agreement
receives consideration for its
obligations (for example, cash flows
from other Underlying Assets, in
specified amounts, may be payable to
such counterparty or a single upfront
payment may be made to such
counterparty at the time of issuance
of such Series).
Guaranteed Investment The Issuer may obtain and deliver to
Contracts the Trustee Guaranteed Investment
Contracts pursuant to which moneys
held in the funds and accounts
established for such Series will be
invested at a specified rate for the
Series. The principal terms of any
such Guaranteed Investment Contract,
including provisions relating to the
timing, manner and amount of payments
thereunder and provisions relating to
the termination thereof, will be
described in the Prospectus
Supplement for the related Series.
Additionally, the related Prospectus
Supplement may provide certain
information with respect to the
issuer of such Guaranteed Investment
Contract.
Other Underlying Assets If so specified in the related
Prospectus Supplement, the Trust will
own other Underlying Assets described
therein.
STRUCTURAL Structural Enhancements for a Series
ENHANCEMENTS may consist of overcollateralization,
senior/subordinated structures,
groupings of Underlying Assets and
other structural elements of the
Series.
Overcollateralization To the extent specified in the
related Prospectus Supplement, a
Series may be structured such that
the outstanding principal balances or
Aggregate Discounted Amount of the
Underlying Assets relating to a
Series may
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<PAGE>
exceed the Aggregate Outstanding
Principal of such Series, thereby
resulting in intended
overcollateralization. See "Underlying
Assets -- Discounted Amount" below.
Senior/Subordinated A Series of Securities may include one
Structures or more Classes of Subordinated
Securities. The rights of Holders of
such Subordinated Securities to receive
distributions on any Payment Date will
be subordinated in right and priority to
the rights of Holders of Senior
Securities of the Series to the extent
described in the related Prospectus
Supplement. If so specified in the
related Prospectus Supplement,
subordination may apply only in the
event of certain types of losses not
covered by Underlying Enhancement or
other Structural Enhancement. Such
subordination may be in lieu of
providing Underlying Enhancement with
respect to losses arising from such
events.
The related Prospectus Supplement will
set forth information concerning the
amount of subordination of a Class or
Classes of Subordinated Securities in a
Series, the circumstances in which such
subordination will be applicable, the
manner, if any, in which the amount of
subordination will decrease over time,
the manner of funding any related
Reserve Fund and the conditions under
which amounts in any related Reserve
Fund will be used to make payments to
Holders of Senior Securities and/or to
Holders of Subordinated Securities or be
released.
Groupings of Underlying If the Underlying Assets are divided
Assets into separate Groups, each securing or
supporting a separate Class or Classes
of a Series, credit support may be
provided by a cross-support feature or
cross-collateralization, as specified in
the related Prospectus Supplement.
Pursuant to a cross-support feature, on
any Payment Date, distributions will be
made with respect to Senior Securities
relating to one Group prior to
distributions to Subordinated Securities
relating to another Group. Pursuant to
cross-collateralization, Subordinated
Securities will be allocated losses and
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<PAGE>
shortfalls from one or more Groups
before such losses are allocated to the
Senior Securities relating to such Group
or Groups, and Subordinated Securities
will be subordinated in right of payment
to one or more Classes of Securities
relating to one or more Groups .
Discounted Amount If provided in the related Prospectus
Supplement, each Underlying Security
will be assigned an initial
Discounted Amount. The initial
Aggregate Discounted Amount will not
be less than the original Aggregate
Outstanding Principal of such Series.
The Aggregate Discounted Amount of
Underlying Securities relating to any
Series of Securities is intended to
represent the principal amount of
Securities of such Series that, based
on certain assumptions stated in the
related Prospectus Supplement, can be
supported by payments on such
Underlying Securities, together with,
depending on the type of Underlying
Securities and the method used to
determine their Aggregate Discounted
Amount, Reinvestment Income, if any,
at the related Assumed Reinvestment
Rate, if any, and amounts in any
Reserve Fund established for that
Series and any values ascribed to any
other Underlying Assets relating to
such Series. No assurance can be
given that such Aggregate Discounted
Amount will in fact represent such
principal amount of Securities of
such Series and no third party will
pass upon the validity of the
assumptions referred to above.
Other Structural The Prospectus Supplement will
Enhancements specify any additional Structural
Enhancement applicable to Securities
of a Series with respect to, for
example, shortfalls arising due to
cross-collateralization, differences
in the Indices on the Securities of a
Series and the interest rates on the
Underlying Assets, insufficient cash
flows from the Underlying Assets or
for other reasons.
CERTAIN RISK FACTORS For a discussion of certain risk
factors that should be considered in
connection with an investment in the
Securities, including those relating
to the limited liquidity of an
investment in the Securities, the
limited obligations evidenced by the
Securities, the limited amount and
nature of credit support, if any, and
the
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<PAGE>
credit and other risks with respect to
the Underlying Assets, see "Risk
Factors".
THE ISSUER; LIMITED It is not expected that the Issuer of
RECOURSE any Series of Securities will have any
assets available for payments on such
Series, other than the related
Underlying Assets. The Bonds will be
non-recourse obligations of such Issuer.
The Indenture for a particular Series of
Bonds may permit the Underlying Assets
pledged to secure such Bonds to be
transferred by the Issuer to a trust or
other limited purpose affiliate of the
Company, subject to the obligations of
such Bonds, thereby relieving the Issuer
of its obligations with respect to such
Bonds. The Trust Certificates will
represent a beneficial ownership
interest in the Underlying Assets of the
related Trust. Each Series of Bonds will
be separately secured, and no Series of
Bonds will have any claim against or
security interest in the Underlying
Assets relating to any other Series of
Securities (other than with respect to
Underlying Enhancement in the case of a
Covered Series). Similarly, no Series of
Trust Certificates will have a
beneficial ownership interest in
Underlying Assets relating to any other
Series of Securities (other than with
respect to Underlying Enhancement in the
case of a Covered Series).
THE COMPANY The Company is a special-purpose
Delaware corporation organized for
the purpose of (i) acting as
originator, settlor or depositor with
respect to Trusts formed to issue
Securities, (ii) issuing securities
(including the Securities and other
securities backed by underlying
obligations of various types) and
(iii) acting as settlor or depositor
with respect to trusts, custody
accounts or similar arrangements or
as general or limited partner in
partnerships formed to issue
securities. It is not expected that
the Company will have any significant
assets other than the Underlying
Assets and other assets backing the
issuance of other securities. The
Company is an affiliate of CSFB.
Neither CSFB nor any of its
affiliates (other than, to the extent
specified in the related Prospectus
Supplement with respect to any
Series, the Company) has guaranteed,
will guarantee or is
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<PAGE>
or will be otherwise obligated with
respect to any Series of Securities.
The Company's principal executive
office is located at Park Avenue
Plaza, 55 East 52nd Street, New York,
New York 10055, and its telephone
number is (212) 909-2000.
CERTAIN FEDERAL INCOME The federal income tax consequences
TAX CONSIDERATIONS; of an investment in a Security of any
CERTAIN OTHER TAX Series will depend on the
CONSIDERATIONS characterization of that Security
(such as a debt obligation, an
interest in a grantor trust or an
equity interest in a trust
characterized as a partnership for
federal income tax purposes) and the
nature of the related Underlying
Assets. Prospective investors should
read "Certain Federal Income Tax
Consequences" herein and any
comparable information in the
Prospectus Supplement and consult
their own tax advisors regarding the
federal income tax consequences to
them of investing in the Securities,
and should also consider any other
tax consequences applicable to them.
CERTAIN ERISA Persons investing assets of employee
CONSIDERATIONS benefit plans subject to ERISA or of
plans as defined in Section 4975 of
the Code should read "Certain ERISA
Considerations" and consult their own
legal advisors to determine whether
and to what extent the Securities of
any Series constitute permissible
investments for such employee benefit
plans.
LEGAL INVESTMENT Investors the investment authority of
which is subject to legal
restrictions should consult their own
legal advisors to determine whether
and to what extent the Securities of
any Series constitute legal
investments for them.
USE OF PROCEEDS The Issuer will use the net proceeds
from the sale of each Series (i) to
purchase the related Underlying
Assets, (ii) to repay indebtedness
that has been incurred to acquire
Underlying Assets, (iii) to establish
any Reserve Funds described in the
related Prospectus Supplement, (iv)
to pay costs of structuring,
guaranteeing and issuing such
Securities or (v) for other purposes
set forth in the Prospectus
Supplement.
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RATINGS It will be a condition to the
issuance of any Securities offered by
this Prospectus and the related
Prospectus Supplement that they be
rated in one of the four highest
applicable rating categories by at
least one Rating Agency. The rating
or ratings applicable to Securities
of each Series will be as set forth
in the related Prospectus Supplement.
A security rating should be evaluated
independently of similar ratings of
different types of securities. A
security
rating does not address the effect of
redemption, prepayment or
reinvestment rates on investors'
yields. A rating is not a
recommendation to buy, sell or hold
securities and may be subject to
revision or withdrawal at any time by
the assigning rating organization.
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RISK FACTORS
Prospective investors should consider, together with the other
information contained in this Prospectus and the related Prospectus Supplement,
the following risk factors in connection with the purchase of the Securities.
Certain risk factors relating to Underlying Debt Securities and the related
Underlying Issuers and the Government Securities, if any, may also apply in
various respects to other Underlying Assets (such as Underlying Enhancement and
Swap Agreements) and the related obligors or counterparties with respect
thereto.
PASSIVE HOLDING AND DEFICIENCY ON SALE OF UNDERLYING ASSETS
The Issuer or Trustee will generally hold to maturity and not dispose of
any Underlying Securities, regardless of adverse events, financial or otherwise,
that may affect the value of the Underlying Securities or the related Underlying
Issuer. If there is a payment default on any Underlying Securities or any other
default that may result in acceleration of the Underlying Securities, the
defaulted Underlying Securities will be disposed of or otherwise dealt with in
the manner provided in the related Governing Document. Such arrangements may
not result in full payment of principal or interest or full distributions to
Holders of Securities and may affect the weighted average life of the
Securities. If the Underlying Securities were sold upon an Event of Default
with respect to the related Series of Securities or upon other conditions
specified in the related Prospectus Supplement, there is no assurance that the
proceeds of the sale would pay in full the principal of or interest on or
amounts distributable with respect to the Securities of such Series or would
otherwise recoup investors' investments therein. The value of the Underlying
Securities upon such a sale would depend on their credit quality, prevailing
interest rates and other factors.
CONCENTRATION OF CREDIT RISK
A Series of Securities with respect to which there are only a limited
number of Underlying Issuers will be subject to credit risks greater than those
incurred by investing in many other asset-backed securities, because the
reduction of credit risk relating to the underlying assets through
diversification generally present in such transactions will not exist. Such
Series will be subject particularly to the credit risk of each such Underlying
Issuer. In particular, the Securities may be subject to greater risk with
respect to such factors as the industry type or geographic location of such
Underlying Issuer, including any special local economic or business
characteristics of the Underlying Issuer as well as economic factors relevant to
its industry generally. These risks may be particularly acute in the case of
Underlying Securities that have low ratings or that are unrated. The related
Prospectus Supplement will contain certain information relating to such credit
risk and will provide or incorporate by reference financial information with
respect to each Underlying Issuer the Underlying Securities of which comprise
10% or more of the pool of Underlying Securities of the Series.
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<PAGE>
If an Underlying Issuer were to become a debtor in a Bankruptcy Case, a
delay or substantial reduction in payments on the related obligation may occur,
and the Underlying Issuer might have insufficient funds to make all required
payments on such obligation. Such event would likely delay or impair payments
on the related Securities.
LIMITED AVAILABLE INFORMATION REGARDING THE UNDERLYING ISSUERS AND UNDERLYING
SECURITIES
This Prospectus relates only to the Securities offered hereby and does
not relate to the Underlying Securities. All disclosures contained in this
Prospectus regarding the Underlying Securities are derived from (i) information
delivered to the Issuer as holder of the Underlying Securities and (ii) publicly
available documents. Neither the Issuer nor any of the underwriters of the
Securities has participated in the preparation of such information or documents,
or made any due diligence inquiry with respect to the information provided
therein. There can be no assurance that all events occurring prior to the date
hereof (including events that would affect the accuracy or completeness of the
publicly available documents described above) that would affect the Underlying
Securities or the Underlying Issuers have been publicly disclosed or disclosed
in information delivered to the Issuer as holder of the Underlying Securities.
In addition, there can be no assurance that an Underlying Debt Issuer
will not elect to suspend its Exchange Act reporting after the date hereof if
such Underlying Debt Issuer no longer has a class of security listed on a
national securities exchange or held of record by 300 or more holders. In such
event, information (including financial information) then available to the
Issuer with respect to such Underlying Debt Issuer will not be as extensive,
timely or readily available as that previously made available under the Exchange
Act. Accordingly, in such event, the information with respect to any such
Underlying Debt Issuer that the Issuer can include in its Exchange Act reports
will be similarly limited. Notwithstanding the foregoing to the extent
specified in the applicable Prospectus Supplement, the Issuer will make
available, or cause to be made available, certain periodic trustee or similar
reports relating to the Underlying Securities and the Underlying Issuers to the
extent such reports are delivered to holders of the Underlying Securities.
SUBSTANTIAL LEVERAGE
The Underlying Debt Issuers may be highly leveraged. This could
adversely affect Holders of the Securities because under such circumstances (i)
an Underlying Debt Issuer's ability to obtain additional financing in the future
for working capital, capital expenditures, acquisitions, general corporate
purposes or other purposes will be restricted; (ii) a significant portion of an
Underlying Debt Issuer's cash flow from operations must be dedicated to the
payment of principal and interest on its indebtedness, thereby reducing the
funds available to the Underlying Debt Issuer for such operations; (iii) certain
of an Underlying Debt Issuer's borrowings may be at variable rates of interest,
which could result in higher interest expense in the event of an increase in
interest rates; and (iv) if such indebtedness contains financial and restrictive
covenants, the failure to comply may result in events of default which, if not
cured or waived, could have a material adverse effect on the Underlying Debt
Issuer's ability to make
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<PAGE>
payments to holders of the Underlying Debt Securities such as the Issuer,
thereby having a material adverse effect on Holders of Securities.
UNSECURED AND SUBORDINATED STATUS OF UNDERLYING SECURITIES
The Underlying Securities may be general unsecured obligations of the
Underlying Issuers and may be subordinated in right of payment to the individual
Underlying Issuer's existing and future senior indebtedness. In the event of a
bankruptcy involving an Underlying Issuer or any default in the payment of any
secured indebtedness of the Underlying Issuer, Holders of such secured
indebtedness will be entitled to payment in full from all assets (and proceeds
thereof) of the Underlying Issuer pledged to secure such indebtedness prior to
any payment of such assets (or proceeds) to Holders of the Underlying Securities
such as the Issuer, thereby having a material adverse effect on Holders of
Securities. In addition, in the event of such bankruptcy of an Underlying
Issuer or any default of any senior indebtedness of the Underlying Issuer to
which the Underlying Securities may be subordinated, holders of such senior
indebtedness may be entitled to payment in full prior to any payments to holders
of the Underlying Securities, with a material adverse effect on Holders of
Securities.
STRUCTURAL SUBORDINATION OF UNDERLYING SECURITIES
Direct creditors or preferred stockholders of any subsidiary of a
particular Underlying Issuer, although not Holders of senior indebtedness of the
Underlying Issuer, will have a direct claim on the assets and cash flows of such
subsidiary, prior to the claims of holders of the Underlying Securities.
Therefore, all existing and future liabilities (if any) of the Underlying
Issuer's subsidiaries will be effectively senior to the Underlying Securities.
To the extent that assets of such an Underlying Issuer, which would otherwise be
available to pay holders of the related Underlying Securities, are owned by the
Underlying Issuer's subsidiary, such structural subordination may adversely
affect the holders of such Underlying Securities, including the Issuer and
thereby the Holders of Securities.
ABSENCE OR INEFFECTIVENESS OF CONTRACTUAL PROTECTIONS
The Underlying Securities may not contain any significant contractual
protections (such as financial covenants, restrictions on changes of control of
the Underlying Issuer or rights of redemption upon changes of control of the
Underlying Issuer, restrictions on sales of assets or dividends, limitations on
incurrence of secured indebtedness or of indebtedness by subsidiaries of the
Underlying Issuer (with concomitant structural subordination of the Underlying
Securities) or, in the case of subordinated Underlying Securities, against
subordination of such Underlying Securities to additional senior indebtedness)
against actions by or events affecting the Underlying Issuer. The occurrence of
such actions or events could materially adversely affect the value and
likelihood of repayment of the Underlying Securities. Such actions or events
could include significant changes in the debt-to-equity ratio or capitalization
of the Underlying Issuer caused by a change of control, a sale of assets,
extraordinary dividend or other restructuring, the incurrence of significant
amounts of debt secured by existing assets of the Underlying Issuer or
structural or other subordination of the Underlying Securities.
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In addition, any contractual protection provided with respect to the
Underlying Securities may not effectively provide significant protection for the
Holders of Securities if, for instance, the enforcement of such protections
requires the affirmative vote of Holders of a majority in outstanding amount of
such Underlying Securities or other joint vote requirement and such affirmative
vote requirement is not satisfied. To the extent that the Underlying Securities
of a Series represent a small portion of the class of such Underlying
Securities, the Issuer's ability to influence any such vote will be
correspondingly limited.
LIMITED OBLIGATIONS AND INTERESTS
The Securities will not represent a recourse obligation of or interest
in the Company or any of its affiliates. The Securities of each Series will not
be insured or guaranteed by any government agency or instrumentality, the
Company, any person affiliated with the Company or the Issuer, or any other
Person. The obligations, if any, of the Company with respect to the Securities
of any Series will only be pursuant to certain limited representations and
warranties, which will relate primarily to the transfer of the Underlying Assets
to the Issuer free and clear of liens and encumbrances. The Company does not
have, and is not expected in the future to have, any significant assets with
which to satisfy any claims arising from a breach of any representation or
warranty. If, for example, the Company were required to repurchase an
Underlying Asset with respect to which the Company has breached a representation
or warranty, its only sources of funds to make such repurchase would be from
funds obtained from the enforcement of a corresponding obligation, if any, on
the part of the seller of such Underlying Asset to the Company, or from a
reserve fund established to provide funds for such repurchases. The Company has
no obligation to establish or maintain any such reserve fund.
LIMITED UNDERLYING ASSETS
Holders of Securities of each Series must rely solely upon distributions
on the Underlying Assets with respect to such Series. If such Underlying Assets
are insufficient to make required payments or distributions with respect to such
Securities, no other assets of the Company or the Issuer will be available for
payment of the deficiency. The Securities of one Series will generally not have
any claim against or security interest in the Underlying Assets relating to the
Securities of any other Series.
In addition, certain amounts held for the benefit of Securities of any
Series remaining in one or more funds or accounts, including any Collection
Account and any Reserve Fund, may be withdrawn under certain specified
conditions and circumstances described in the related Prospectus Supplement. In
the event of such withdrawal, these amounts will not be pledged to, or available
for, future payment of principal of or interest on or distribution of amounts
with respect to the Securities of such Series. Because payments of principal
and interest and distributions with respect to the Underlying Securities may, if
so provided in the related Prospectus Supplement, be applied to Classes of
Securities of a Series in the priority specified in the related Prospectus
Supplement, a deficiency that arises after Securities of any such Series having
higher priority in payment have been fully or partially repaid will have a
disproportionately greater effect on the Securities of Classes having lower
priority in payment.
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LIMITED LIQUIDITY
There will be no market for the Securities of any Series prior to the
issuance thereof, and there can be no assurance that a secondary market for the
Securities of any Series will develop or, if it does develop, that it will
provide Holders with liquidity of investment or will continue for the life of
the Securities of such Series. The Securities will not be redeemable unless
otherwise provided in the Prospectus Supplement. Although CS First Boston
Corporation, directly or through one or more affiliates, may make a secondary
market in the Securities of a Series, it has no obligation to do so and any such
market making, if commenced, may be discontinued at any time without notice.
CERTAIN YIELD, REDEMPTION AND PREPAYMENT CONSIDERATIONS
Underlying Securities with respect to a Series may be redeemable and the
Securities may be subject to special, optional or mandatory redemption or
prepayment or an Optional Call Right, all as specified in the related Prospectus
Supplement. Such redemptions, prepayments or Optional Call Right would shorten
the average life and could adversely affect the yield of any Securities of such
Series. The rate of redemptions or prepayments of Underlying Securities may be
dependent on the financial or other condition of the related Underlying Issuer,
from time to time may be influenced by a variety of economic, tax, legal and
other factors and may not be measurable against any readily available model of
prepayments. There can be no assurance as to the rate of redemptions or
prepayments on the Underlying Securities, or as to when exercise of any Optional
Call Right will occur. As a result, the actual maturity of or final
distribution on any Security could occur significantly earlier than its Final
Scheduled Payment Date. The actual maturity of or final distribution on the
Securities of any Series also will be affected by the extent to which Excess
Cash Flow is applied to payments or distributions of principal on the
Securities. A Series of Securities may include Classes of Securities with
priorities of payment and, as a result, yields on other Classes of Securities of
such Series may be more sensitive to redemptions or prepayments of Underlying
Securities.
A Series may include a Class offered at a significant premium or
discount. Yields on such Class of Securities will be sensitive, and in some
cases extremely sensitive, to redemptions or prepayments of Underlying
Securities or exercise of any Optional Call Right and, in the case of a Class
sold at a premium, where the amount of interest payable with respect to such
Class is extremely disproportionate to principal, a holder might, in some
redemption, prepayment or call scenarios, fail to recoup its original
investment. If the purchaser of a Security offered at a discount calculates its
anticipated yield to maturity or final distribution based on an assumed rate of
distributions of principal that is faster than that actually experienced on the
related Underlying Securities, the actual yield to maturity or final
distribution will be lower than that so calculated. Conversely, if the
purchaser of a Security offered at a premium calculates its anticipated yield to
maturity or final distribution based on an assumed rate of distributions of
principal that is slower than that actually experienced on the Underlying
Securities, the actual yield to maturity or final distribution will be lower
than that so calculated. See "Certain Yield and Redemption Considerations".
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INTEREST AND EXCHANGE RATE RISKS
Securities of certain Series will be particularly subject to interest or
exchange rate risk. Fluctuations in interest or exchange rates will have a
significant effect on the yield to maturity of such Securities and may, under
certain circumstances, result in a negative yield. Such reduced or negative
yields would adversely affect the yields to maturity of Holders of such
Securities.
BASIS RISK; RATE DIFFERENCES BETWEEN SECURITIES AND UNDERLYING SECURITIES
With respect to certain Series of Securities, the Underlying Securities
may have interest rates based on an Index specified in the related Prospectus
Supplement. Such Underlying Securities may bear interest at rates which also
vary inversely with respect to one or more Indices. However, such Securities
and such Underlying Securities may bear interest based on different interest
rates, commodities or intangibles. It is possible that the rate borne by the
Underlying Securities will be below the rate borne by the Securities. Such a
situation might continue to exist indefinitely, and could adversely affect the
yield on the Securities. The related Prospectus Supplement will describe the
extent of any such rate differences.
LIMITED REMEDIES FOLLOWING DEFAULT
The market value of the Underlying Securities of any Series may
fluctuate as general interest rates fluctuate or otherwise. Following an Event
of Default with respect to a Series of Securities, there is no assurance that
the market value of such Underlying Securities, giving effect to related
Enhancements and Swap Agreements, if any, will be equal to or greater than the
unpaid principal and accrued interest due on such Securities, together with any
other expenses or liabilities payable thereon. If such Underlying Securities
are sold following an Event of Default, the proceeds of such sale may be
insufficient to pay in full the principal of and interest on such Securities.
In addition, in certain events there may be restrictions on selling the
Underlying Securities securing a Series. See "The Indenture - Events of
Default".
In addition, upon an Event of Default with respect to a Series and a
resulting sale of the Underlying Securities securing such Series, the proceeds
of such sale will be applied to the payment of certain amounts due to the
Trustee and certain other administrative and other expenses prior to the payment
of accrued interest on, and then to the payment of the then principal balance
of, such Series. Consequently, in the event of any such Event of Default and
sale of Underlying Securities, any Classes on which principal payments have
previously been made may have, in the aggregate, a greater proportion of their
principal repaid than will Classes on which principal payments have not
previously been made.
If the principal of the Securities of a Series is declared due and
payable, the Holders of any such Securities issued at a discount from par
("original issue discount") may be entitled, under applicable provisions of the
Federal Bankruptcy Code, to receive no more than an amount equal to the unpaid
principal amount thereof less unamortized original issue discount
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("accreted value"). There is no assurance as to how such accreted value would be
determined if such event occurred.
INTERMEDIATE OWNERSHIP ARRANGEMENTS; RELATED BANKRUPTCY AND INSOLVENCY
RISKS
If any Underlying Securities of any Series consist of interests in
trust, custodial or other arrangements for the holding of other Underlying
Securities, the rights of the Issuer or Trustee with respect to such Series to
receive payments on such Underlying Securities and to take possession of such
Underlying Securities may be affected by various factors, including any claims
arising in relation to the transfer of such Underlying Securities into such
trust, custodial or other arrangement, any bankruptcy, receivership or similar
risks relating to such trust, custodial or other arrangement and the contractual
terms of such trust, custodial or other arrangement (which may, for instance,
restrict the withdrawability of the Underlying Securities or impose majority
other joint voting requirements with respect to decisions made by Holders of
such interests in such trust, custodial or other arrangements).
SWAP AGREEMENTS AND RELATED RISKS
The Underlying Assets may include various Swap Agreements, such as
interest rate swaps, interest rate caps and interest rate floors. Interest rate
swaps involve the exchange by one party with another party of their respective
commitments to pay or receive amounts computed by reference to a fixed rate or a
floating rate index and a notional principal amount (the reference amount with
respect to which such obligations are determined, although no actual exchange of
such amount occurs), e.g., an exchange of floating rate payments for fixed rate
payments. An interest rate cap entitles the purchaser thereof, to the extent
that a specified index exceeds a predetermined interest rate, to receive
payments computed by reference to a fixed rate or a floating rate index and a
notional principal amount from the party selling such interest rate cap. An
interest rate floor entitles the purchaser thereof, to the extent that a
specified index falls below a predetermined interest rate, to receive payments
computed by reference to a fixed rate or a floating rate index and a notional
principal amount from the party selling such interest rate floor. Fluctuations
in interest rates may have a significant effect on the yield to maturity of such
Swap Agreements or the levels of support that Swap Agreements can provide to the
Securities. In addition, the protection provided by such Swap Agreements may be
limited to cover only certain interest rate or other risks to which the
Securities may be subject. Continued payments on the Swap Agreements may be
affected by the financial condition of the counterparties thereto (or, in some
instances, the guarantor thereunder). There can be no assurance that such
counterparties will be able to perform their obligations thereunder (or that any
related obligations of the Issuer to dedicate any portion of the cash flow from
other Underlying Assets will necessarily be effectively terminated or that any
such termination will be on a basis that is economically equivalent to the
counterparty's continuing performance). Such counterparties will generally not
provide any significant contractual protection (such as financial covenants,
change of control provisions or restrictions on sales of assets, dividends or
incurrence of secured indebtedness) in connection with their obligations under
the Swap Agreements and, accordingly, the financial condition of such
counterparties may be subject to adverse changes. Failure by a counterparty (or
the related guarantor, if any) to make the payments required under the Swap
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Agreements may result in the delay or failure to make payments on the related
Securities. Such failure might result from generalized marketplace defaults
resulting from the substantial amount of Swap Agreements entered into by each
participant in the marketplace therefor. In addition, the notional amounts on
which payments are made may vary under certain circumstances and may not bear
any correlation to principal amounts of the related Securities.
REGULATORY UNCERTAINTY RELATING TO CERTAIN SWAP AGREEMENTS
Although the Company will not include as Underlying Assets securing or
underlying the Securities of any Series any Swap Agreements that it believes
will be subject in any material respect to CFTC regulations, there may be
regulatory uncertainty with respect to certain types of Swap Agreements. Among
other matters, it is sometimes uncertain whether a Swap Agreement is subject to
regulation at all, and if it is, whether the appropriate regulatory authority is
the SEC or the CFTC. Criteria promulgated by the CFTC that provide a safe
harbor from CFTC regulation can be ambiguous in certain circumstances.
Furthermore, the scope of the exemption from CFTC regulation outside the safe
harbor is unclear in some situations. In addition, Congress, the SEC and the
CFTC are currently examining the regulation of Swap Agreements generally and may
impose additional adverse requirements. There can be no assurance of the
correctness of any assessment of the regulatory status of any Swap Agreement or
that such regulations and exemptions will not be modified in the future.
LIMITED NATURE OF RATING
Any rating assigned to the Securities by a Rating Agency will reflect
such Rating Agency's assessment solely of the likelihood that Holders of such
Securities will receive payments required to be made to them. In the case of
Series of Securities secured by Underlying Securities, such rating will not
constitute an assessment of the likelihood that prepayments or redemptions of
the Underlying Securities will be made by the related obligors, or of the degree
to which the rate of such prepayments or redemptions might differ from that
originally anticipated. Such rating will not address the possibility that
prepayments or redemptions at higher or lower rates than anticipated by an
investor may cause such investor to experience a lower than anticipated yield or
that investors purchasing a Security at a significant premium might fail to
recoup their initial investment under certain prepayment or redemption
scenarios.
The amount of Underlying Assets required to support a Series of
Securities will be determined on the basis of criteria established by each
Rating Agency rating such Series. Such criteria are sometimes based on actuarial
analysis of the behavior of assets in a group that is larger than the pool
securing the Series. There can be no assurance that the historical data
supporting such actuarial analysis will accurately reflect future experience
generally or that the data derived from a large pool of assets will accurately
predict the delinquency or loss experience of any particular pool of Underlying
Securities. In most cases, such analysis may be based on the value of the
property underlying the Underlying Securities. There can be no assurance that
such value will accurately reflect the future value of the property and,
therefore, whether or not the Securities will be paid in full.
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ENHANCEMENT LIMITATIONS
The amount, type and nature of Underlying Enhancement and Structural
Enhancement required with respect to the Securities of any Series will be
determined on the basis of criteria established by each Rating Agency rating
such Series. Such criteria are sometimes based on an actuarial analysis of the
behavior of assets in a group that is larger than the pool securing the Series.
Such analysis is often the basis on which each Rating Agency determines the
amount of Enhancement required with respect to each Series of Securities. There
can be no assurance that the historical data supporting any such actuarial
analysis will accurately reflect future experience or that the data derived from
a large pool of assets accurately predicts the delinquency or loss experience of
any particular pool of Underlying Securities.
In addition, if principal payments on or with respect to the Securities
of a Series are made in a specified order of priority, any limits with respect
to the aggregate amount of available Enhancement may be exhausted before the
principal of the lower priority Classes has been repaid. As a result, the
impact of significant losses may bear primarily on the Securities of the later
maturing Classes.
Moreover, Enhancement may not cover all potential losses or risks; for
example, Underlying Enhancement may or may not cover fraud or negligence by the
Underlying Issuers or other parties. Also, if a form of Underlying Enhancement
covers more than one Series of Securities, Holders of Securities of each Covered
Series will be subject to the risk that such Underlying Enhancement will be
exhausted by the claims of other Covered Series before such Covered Series
receives any coverage. The obligations of the issuers of any credit support
will not be guaranteed or insured by the United States, or by any agency or
instrumentality thereof. A Series of Securities may include a Class or multiple
Classes of Subordinated Securities to the extent described in the related
Prospectus Supplement. Although such subordination is intended to reduce the
risk of delinquent distributions or ultimate losses to Holders of Senior
Securities the amount of subordination will be limited and will decline under
certain circumstances, and any related Reserve Fund could be depleted in certain
circumstances.
OVERCOLLATERALIZATION AND SUBORDINATION LIMITATIONS
To provide Holders of Securities of each Series with a degree of
protection against loss, the related Underlying Securities may have an Aggregate
Discounted Amount in excess of the principal amount or stated amount of the
Securities or Excess Cash Flow may be applied to create overcollateralization.
Alternatively, a Series of Securities may include one or more Classes of
Subordinated Securities. Such overcollateralization or subordination will be at
amounts established in consultation with the Rating Agency rating the Series
based on an assumed level of defaults, delinquencies, other losses, application
of Excess Cash Flow or other factors. However, there can be no assurance that
the loss experience on such Underlying Securities will not exceed such assumed
levels, adversely affecting the ability of the Issuer to meet debt service or
distribution requirements on the Securities. Although overcollateralization and
subordination are intended to reduce the risk of delinquent payments or losses
to Holders of Senior Securities, the amount of overcollateralization or
subordination, as the case may be,
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will be limited and will decline under certain circumstances and any related
Reserve Fund could be depleted in certain circumstances.
THE SECURITIES
The following summaries describe certain provisions common to each
Series. Certain terms used below are used with the meanings ascribed to them in
the Indenture or the Trust Agreement.
THE BONDS - GENERAL
The Bonds will be issued in separate Series pursuant to the Indenture.
A copy of a form of Indenture has been filed with the SEC as an exhibit to the
Registration Statement. A copy of the Series Supplement for a Series, if any,
will be filed with the SEC as an exhibit to a Current Report on Form 8-K to be
filed with the SEC within 15 days of issuance of the Bonds of the related
Series.
The Indenture will not limit the amount of Bonds that can be issued
thereunder and provides that any Series may be issued thereunder up to the
aggregate principal amount specified in the related Series Supplement that may
be authorized from time to time by the Issuer. Each Series will consist of one
or more Classes, one or more of which may be Accrual Bonds, Variable Interest
Bonds, Retail Bonds, Zero Coupon Bonds, Principal-Only Bonds, Interest-Only
Bonds or Participating Bonds. A Series may also include one or more Classes of
Subordinated Securities. If so specified in the related Prospectus Supplement,
such Subordinated Securities may be offered hereby and by the related Prospectus
Supplement. Each Class of a Series will be issued in registered or bearer form,
as designated in the related Prospectus Supplement for a Series, in the minimum
denominations specified in the related Prospectus Supplement. See "Registered
Securities and Bearer Securities". Bonds of a Series may be issued in whole or
part in book-entry form.
Except to the extent otherwise provided in the related Prospectus
Supplement, commencing on the date specified in the related Prospectus
Supplement payments of principal of and interest on the Bonds will be made on
each Payment Date as set forth in the related Prospectus Supplement.
To the extent applicable to a Series of Securities, the Trustee will
include with each payment on a Bond a statement showing, among other things, the
allocation of such payment to interest, if any, and principal, if any, and the
remaining unpaid principal amount of a Bond of each Class having the minimum
denomination for Bonds of such Class, any realized losses on the Underlying
Assets, and on each Payment Date prior to the commencement of principal payments
on a Class of Accrual Bonds, the aggregate unpaid principal amount of each Class
of Bonds, the interest accrued since the prior Payment Date and added to the
principal of an Accrual Bond having the minimum denomination for Bonds of such
Class and the new principal of such Bond.
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THE TRUST CERTIFICATES - GENERAL
The Trust Certificates will be issued in separate Series pursuant to
separate Series Supplements to the Master Trust Agreement between the Company
and Trustee named in the related Prospectus Supplement (the "Trust Agreement").
A form of Trust Agreement has been filed as an exhibit to the Registration
Statement. The Series Supplement relating to each Series of Trust Certificates
will be filed as an exhibit to a report on Form 8-K to be filed with the SEC
within 15 days following the issuance of such Series of Trust Certificates. The
following summaries describe certain provisions common to each Series of Trust
Certificates.
Each Series of Trust Certificates will consist of one or more Classes,
one or more of which may consist of Accrual Trust Certificates, Variable
Interest Trust Certificates, Interest-Only Trust Certificates, Principal-Only
Trust Certificates and Zero Coupon Trust Certificates. A Series of Trust
Certificates may also include one or more Classes of Subordinated Trust
Certificates. Trust Certificates are not debt securities and Holders of Trust
Certificates are not entitled to payments of interest and principal as such.
Rather, Holders of Trust Certificates will have the right to receive
distributions based on their pro rata interests in the related Trust. Such
distributions may be scheduled in the manner of payments of interest and/or
principal on a debt security and, accordingly, the discussion in this Prospectus
and the related Prospectus Supplement will use the terms interest and principal
to describe distributions on Trust Certificates. In the case of certain Trust
Certificates, distributions generally will be based on the distributions and
other payments in respect of the Underlying Assets, and such Trust Certificates
may not be entitled to any specified rate of interest and may not have any
specified principal amount.
Each Series will be issued in fully registered form or bearer form, in
the minimum original amount or notional amount for Trust Certificates of each
Class specified in the related Prospectus Supplement. The transfer of the
Securities may be registered, and the Securities may be exchanged, upon the
payment of a reasonable service charge to the Trustee, together with any tax or
governmental charge payable in connection with such registration of transfer or
exchange, except as otherwise provided in the Prospectus Supplement. If
specified in the related Prospectus Supplement, one or more Classes of a Series
may be available in book-entry form only. See "Registered Securities and Bearer
Securities".
Except to the extent otherwise provided in the related Prospectus
Supplement, commencing on the date specified in the related Prospectus
Supplement, distributions of principal and interest on the Trust Certificates
will be made on each Payment Date as set forth in the related Prospectus
Supplement.
To the extent applicable to a Series of Securities, the Trustee will
include with each distribution on a Trust Certificate a statement showing, among
other things, the allocation of such payment to interest, if any, and principal,
if any, and the remaining unpaid principal amount of a Trust Certificate of each
Class having the minimum denomination for Trust Certificates of such Class, any
realized losses on the Underlying Assets, if applicable, and on each Payment
Date prior to the commencement of principal payments on a Class of Accrual
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Securities, the aggregate unpaid principal amount of each Class of Trust
Certificates, the interest accrued since the prior Payment Date and added to the
principal of an Accrual Trust Certificate having the minimum denomination for
Trust Certificates of such Class and the new principal balance of such Trust
Certificate. See "The Trust Agreement - Reports to Trust Certificateholders".
REGISTERED SECURITIES AND BEARER SECURITIES
The Prospectus Supplement will specify whether the Securities of the
related Series will be issuable as registered Securities without coupons, as
bearer Securities with coupons attached or as both registered Securities without
coupons and bearer Securities with coupons. It is not currently contemplated
that Trust Certificates of any Series will be issuable as bearer Securities. If
any Trust Certificates of any Series are to be issuable as bearer Securities,
the terms and limitations relating to issuance of such Trust Certificates as
bearer Securities will be set forth in the applicable Prospectus Supplement.
Unless otherwise provided under applicable law at the time of issuance
of any bearer Securities, in connection with the sale during the restricted
period described below under "Limitations on Issuance of Bearer Securities", no
bearer Security will be mailed or otherwise delivered to any location in the
United States (as defined under "Limitations on Issuance of Bearer Securities").
A bearer Security in definitive form may be delivered to a location in the
United States only if, prior to such delivery, the owner of such Security or a
financial institution or clearing organization through which the owner holds
such Security, directly or indirectly, provides a written certificate in the
form required by the Indenture to the effect that: (a) such Security is owned by
a Person (other than a financial institution for purposes of resale during the
restricted period) who is not a United States Person (as defined below under
"Limitations on Issuance of Bearer Securities"); (b) such Security is owned by a
United States Person (other than a financial institution for purposes of resale
during the restricted period) who is (i) a foreign branch of a United States
financial institution or (ii) a United States Person who acquired such Security
through the foreign branch of a United States financial institution and who for
purposes of such certification holds such security through such financial
institution on the date of certification and, in either case, such United States
financial institution has agreed, by execution and delivery of the appropriate
certificate or certificates, to comply with the requirements of Section
165(j)(3)(A), (B) or (C) of the Code and the regulations thereunder; or (c) such
Security is owned by a financial institution for purposes of resale during the
restricted period and such financial institution certifies that it has not
acquired such Security for purposes of resale directly or indirectly to a United
States Person or to a Person within the United States. See "Limitations on
Issuance of Bearer Securities".
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EXCHANGE, REGISTRATION AND TRANSFER
Registered Securities
Registered Securities of any Series will be exchangeable for other
registered Securities of the same Series of any authorized denominations and of
a like aggregate principal amount and tenor. Registered Securities may be
presented for exchange and registration of transfer (with the form of transfer
thereon duly endorsed) at the office of the transfer agent designated by the
Issuer in the applicable Prospectus Supplement (or any duly appointed successor
to such transfer agent). Except as otherwise described herein or in the
applicable Prospectus Supplement, such exchange or transfer of registered
Securities will be effected upon payment of a reasonable service charge to the
Trustee (or such transfer agent), together with any applicable taxes and other
governmental charges and upon the Trustee (or such transfer agent) being
satisfied with the documents of title and identity of the Person making the
request.
The Trustee (or such transfer agent) will maintain a register (the
"Security Register") for the exchange and transfer of registered Securities and
the Trustee (or such transfer agent) and the Issuer will treat the person in
whose name a registered Security is registered on the Security Register as the
Holder of such registered Security for all purposes, including for purposes of
making payments or distributions with respect to such Security and effecting the
exchange or transfer of such Security. Holders ("Beneficial Owners") of
beneficial interests in registered Securities (including Beneficial Owners of
Book-Entry Securities of which DTC is the Holder, as described below under
"Book-Entry Registration") that are not Holders of record on the Security
Register will not be recognized as Holders, and Beneficial Owners will only be
permitted to exercise the rights of Holders indirectly through the Holders.
Bearer Securities
Bearer Securities of any Series will be exchangeable for other bearer
Securities of the same Series of any authorized denominations and of a like
aggregate principal amount and tenor. If Securities of any Series are issuable
as both registered Securities and as bearer Securities, at the option of the
Holder, on request confirmed in writing, and subject to the terms of the
relevant Governing Document, bearer Securities (with all unmatured coupons,
except as provided below, and all matured coupons in default) of such Series
will be exchangeable into registered Securities of the same Series of any
authorized denominations and of a like aggregate principal amount and tenor.
Registered Securities (including registered Securities received in exchange for
bearer Securities) may not be exchanged for bearer Securities.
Any bearer Security surrendered in exchange for a registered or bearer
Security between the relevant record date and the relevant Payment Date with
respect to any payment of interest shall be surrendered without the coupon
relating to such Payment Date and interest represented by such coupon will not
be payable in respect of the registered Security issued in exchange for such
bearer Security, but will be payable only to the holder of such coupon when due
in accordance with the terms of the relevant Governing Document.
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Bearer Securities may be presented for exchange at the office of the
Trustee (or another transfer agent designated in the applicable Prospectus
Supplement (or any duly appointed successor to such transfer agent)), without a
service charge and upon payment of any applicable taxes and other governmental
charges.
PAYMENT AND PAYING AGENTS
Registered Securities
Except to the extent otherwise provided in the applicable Prospectus
Supplement, distributions of principal of and interest on or amounts
distributable with respect to Securities of a Series in registered form will be
made by transfer of immediately available funds to the respective accounts in
the United States of Securityholders of such Series registered as such on the
close of business on the record date specified in the related Prospectus
Supplement, except that (i) with respect to any Securityholder other than DTC,
if such Securityholder as not provided to the Trustee, at least 15 days prior to
the date of such distribution, information as to an account in the United States
to which such distribution may be wire transferred, such distribution will be
made by check mailed to such Securityholder at the most recent address of such
Securityholder appearing in the Register and (ii) the final distribution in
retirement of a Security will be made only upon presentation and surrender of
such Security at the corporate trust office of the Trustee for such Series or
such other office of the Trustee as specified in the Prospectus Supplement.
Bearer Securities
Provided that the certificate described above under "Registered
Securities and Bearer Securities" has been received, principal of and interest
on Bonds issued as bearer Securities will be payable, subject to any applicable
laws and regulations, at the offices of such Paying Agent or Paying Agents
outside the United States and its possessions as the Issuer may designate from
time to time, to the applicable holder, by check or by transfer to an account
maintained by such holder with a financial institution located outside the
United States and its possessions. Payment of interest on bearer Securities on
any Payment Date will be made only against surrender of the coupon relating to
such Payment Date.
No payment with respect to any bearer Security will be made at any
office or agency in the United States or by check mailed to any address in the
United States or by transfer to an account maintained with a bank located in the
United States. Notwithstanding the foregoing, payment or distribution of
principal of and interest on bearer Securities denominated and payable in U.S.
dollars will be made at the office of the Paying Agent or Paying Agents
designated by the Issuer in the Borough of Manhattan, The City of New York if,
and only if, payment of the full amount thereof in U.S. dollars at all offices
or agencies outside the United States is illegal or effectively precluded by
exchange controls or other similar restrictions.
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BOOK-ENTRY REGISTRATION
Book-Entry Securities
If so provided in the applicable Prospectus Supplement, securities of
any Series will be eligible, but will not be required, to be held by the Persons
acquiring such Securities through DTC in the United States or through CEDEL or
Euroclear in Europe (any such Securities, "Book-Entry Eligible Securities"). In
addition, if so provided in the applicable Prospectus Supplement, Securities of
any Series may be issuable on a book-entry only basis and will be required to be
held by the Person acquiring such Securities through DTC in the United States
(any such securities, "Book-Entry Only Securities" and, together with Book-Entry
Eligible Securities, "Book-Entry Securities"). Persons acquiring Book-Entry
Securities may hold such Securities directly through DTC, CEDEL or Euroclear if
such Persons are Participants in such systems or indirectly through Persons that
are Participants in such systems.
Any Holder of a Book-Entry Eligible Security (and any initial purchaser
of a Book-Entry Eligible Security entitled to become a Holder thereof) may elect
for such Security to be transferred to or issued in the name of, and held by,
DTC, CEDEL or Euroclear. Any Beneficial Owner of a Book-Entry Eligible Security
held by DTC, CEDEL or Euroclear may elect to hold such Security directly as
Holder by causing such system to transfer such Security to such Beneficial
Owner. Any such issuance or transfer shall be subject to and effected in
accordance with the applicable rules of DTC, CEDEL or Euroclear and the
applicable provisions relating to issuance and transfer of such Security set
forth in the applicable Governing Document.
Except in the limited circumstances described below under "Issuance of
Definitive Securities for Book-Entry Only Securities", Book-Entry Only
Securities will be held only through DTC, CEDEL or Euroclear and Beneficial
Owners of such Securities will not be entitled to receive certificates
representing such Securities. Bonds will be issued as Book-Entry Only
Securities. See "Global Clearance, Settlement and Tax Documentation
Procedures".
The DTC System
Book-Entry Securities held by DTC will be held in certificated form in
the name of Cede & Co., as nominee for DTC. Book-Entry Securities held by CEDEL
or Euroclear will be held in CEDEL's and Euroclear's names on the books of their
respective depositories which in turn will hold such positions in the
Depositories' names on the books of DTC. Citibank, N.A. will act as depository
for CEDEL, and Morgan Guaranty Trust Company of New York will act as depository
for Euroclear (in such capacities, the "Depositories").
Transfers of Book-Entry Securities between DTC Participants will occur
in the ordinary way in accordance with DTC's rules and operating procedures.
Transfers of Book-Entry Securities between CEDEL Participants and Euroclear
Participants will occur in the ordinary way in accordance with their applicable
rules and operating procedures.
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Transfers between DTC Participants, on the one hand, and CEDEL or
Euroclear Participants, on the other hand, will be effected by DTC in accordance
with DTC's rules and operating procedures on behalf of the relevant European
international clearing system by its Depository. Such cross-market transactions
will require delivery of instructions to the relevant European international
clearing system by the Participants in such system in accordance with such
clearing system's rules and procedures and within its established deadlines
(European time). The relevant European international clearing system will, if
the transaction meets its settlement requirements, deliver instructions to its
Depository to take action to effect final settlement on its behalf by delivering
or receiving securities in DTC, and making or receiving payment in accordance
with normal procedures for same-day funds settlement applicable to DTC. CEDEL
Participants and Euroclear Participants may not deliver instructions directly to
the Depositories.
Because of time-zone differences, credits of Securities received by
CEDEL or Euroclear as a result of a transaction with a DTC Participant will be
made during the subsequent securities settlement processing day and dated the
business day following the DTC settlement date. Such credits or any
transactions in such Securities settled during such processing will be reported
to the relevant Euroclear or CEDEL Participant on such business day. Cash
received in CEDEL or Euroclear as a result of sales of Securities by or through
a CEDEL Participant or a Euroclear Participant to a DTC Participant will be
received with value on the DTC settlement date but will be available in the
relevant CEDEL or Euroclear cash account only as of the business day following
settlement in DTC. For additional information regarding clearance and
settlement procedures for Book-Entry Only Securities constituting Bonds, and tax
documentation procedures relating to such Securities, see "Global Clearance,
Settlement and Tax Documentation Procedures".
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a "banking organization" within the meaning of the laws of
the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. 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 and clearing
corporations and may include certain other organizations (including the
underwriters of any Securities). DTC is owned by a number of its direct
Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others, such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a direct Participant, either directly or indirectly. The rules
applicable to DTC and its Participants are on file with the SEC.
Beneficial Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Book-Entry Securities held by DTC may do so only through Participants and
Indirect Participants. In addition,
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Beneficial Owners will receive all distributions of principal of and interest on
the Securities from the Paying Agent through the Participants, who in turn will
receive them from DTC. Under the book-entry format, Beneficial Owners may
experience some delay in their receipt of payments, since such payments will be
forwarded by the Paying Agent to Cede & Co., as nominee for DTC. DTC will
forward such payments to its Participants which thereafter will forward them to
Indirect Participants or Beneficial Owners.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Book-Entry Securities
held by DTC and is required to transmit payments of principal of and interest on
and distributions of amounts with respect to such Securities that are actually
received by DTC. Participants and Indirect Participants with which Beneficial
Owners have accounts with respect to such Book-Entry Securities are similarly
required to make book-entry transfers and receive and transmit such payments on
behalf of their respective Beneficial Owners. Accordingly, although Beneficial
Owners of Book-Entry Securities held by DTC will not possess Securities,
Beneficial Owners will receive payments and will be able to transfer their
interests in such Securities.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Beneficial
Owner of Book-Entry Securities held by DTC to pledge such Securities to persons
or entities that do not participate in the DTC system, or otherwise take actions
in respect of such Securities may be limited due to the lack of a physical
certificate for such Securities.
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of Book-Entry Securities held by DTC under the applicable
Governing Document only at the direction of one or more Participants to whose
account with DTC such Securities are credited. Additionally, DTC has advised
the Company that it will take such actions with respect to specified percentages
of the Beneficial Owners only at the direction of and on behalf of Participants
whose holdings include undivided interests that satisfy such specified
percentages. DTC may take conflicting actions with respect to other undivided
interests to the extent that such actions are taken on behalf of Participants
whose holdings include such undivided interests.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL was founded in 1970 to hold securities for CEDEL Participants
and to facilitate the clearance and settlement of securities transactions
between CEDEL Participants through electronic book-entry changes in accounts of
CEDEL Participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in CEDEL in any of 28 currencies,
including United States dollars. CEDEL provides to its Participants, among
other things, services for safekeeping, administration, clearance and settlement
of internationally traded securities and securities lending and borrowing. As a
professional depository, CEDEL is subject to regulation by the Luxembourg
Monetary Institute. Internally, CEDEL is overseen by a Board of Directors
comprising the Chairman, the Chief Executive Officer and senior executives drawn
from among its shareholders. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust
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companies, clearing corporations and certain other organizations and may include
the underwriters of any securities. Indirect access to CEDEL is also available
to others, such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a CEDEL Participant, either
directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
Euroclear Participants and to clear and settle transactions between Euroclear
Participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of certificates and
any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in any of 30 currencies, including United States
dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers with
DTC described above. The Euroclear System is operated by the Euroclear
Operator, under contract with the Cooperative. All operations are conducted by
the Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for the Euroclear System on
behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other professional
financial intermediaries and may include the underwriters of any Securities.
Indirect access to the Euroclear System is also available to other firms that
clear through or maintain a custodial relationship with a Euroclear Participant,
either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Federal Reserve Board and the New York State
Banking Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions. The Terms and Conditions
govern transfers of securities and cash within the Euroclear System, withdrawals
of securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under
the Terms and Conditions only on behalf of Euroclear Participants, and has no
record of or relationship with persons holding through Euroclear Participants.
Distributions with respect to Securities held thorough CEDEL or
Euroclear will be credited to the cash accounts of CEDEL Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depository. Such distributions will
be subject to tax reporting in accordance with relevant United States tax laws
and regulations. The CEDEL or the Euroclear Operator, as the case may be, will
take any other action permitted to be taken by a Holder of Book-Entry Securities
under the applicable Governing Document on behalf of a CEDEL Participant or
Euroclear Participant only in accordance with its relevant rules and procedures
and subject to its Depository's ability to effect such action on its behalf
through DTC.
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Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Securities among participants of
DTC, CEDEL and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
Neither the Issuer nor any Paying Agent will have any responsibility for the
performance by DTC, CEDEL or Euroclear or their respective Participants or
Indirect Participants of their respective obligations under the rules and
procedures governing their operations.
Issuance of Definitive Securities for Book-Entry Only Securities
Book-Entry Only Securities of any Series will be issued as Definitive
Securities to Persons other than DTC only if (i) the Issuer advises the Trustee
in writing that DTC (or its successor) is no longer willing or able properly to
discharge its responsibilities as Depository with respect to the Securities, and
the Trustee, the Issuer and the Company are unable to locate a qualified
successor, (ii) the Issuer at its option elects to terminate the book-entry
system through DTC or (iii) after the occurrence of an Event of Default,
Securityholders representing not less than 50% of the aggregate outstanding
principal amount of the Securities of such Series advise the Trustee, the Issuer
and DTC through Participants in writing that the continuation of a book-entry
system through DTC is no longer in the best interests of the Securityholders.
Upon the occurrence of any of such events and surrender by DTC of the
certificate or certificates representing the Securities of such Series and
provision of instruction for re-registration, the Trustee will issue the
Securities in the form of Definitive Securities, and thereafter the Issuer and
the Trustee will recognize the Holders of such Definitive Securities as Holders
under the applicable Governing Document.
DISCOUNTED AMOUNT OF UNDERLYING ASSETS
If stated in the applicable Prospectus Supplement, each Underlying
Security securing a Series or comprising a Trust, as the case may be, will be
assigned an initial Discounted Amount determined in the manner and subject to
the assumptions specified in the related Prospectus Supplement. The initial
Aggregate Discounted Amount of the Underlying Securities pledged to secure a
Series or comprising a Trust, as the case may be, will not be less than the
initial Aggregate Outstanding Principal of the related Series at the date of
issuance thereof.
Except to the extent otherwise provided in the related Prospectus
Supplement, the Discounted Amount of each Underlying Security securing a Series
or comprising a Trust is the principal amount of the related Securities which,
based upon certain assumptions that will be set forth in the related Prospectus
Supplement, can be supported by distributions of principal and interest on such
Underlying Security, together with Reinvestment Income thereon, if any, at the
Assumed Reinvestment Rate, if any, which may be a contractually specified
interest rate pursuant to a Guaranteed Investment Contract, and amounts
available to be withdrawn (if applicable) from any Pledged Fund or Account, all
as specified in the related Prospectus Supplement. Except to the extent
otherwise provided in the related Prospectus Supplement, the Discounted Amount
at any time of an Underlying Security included
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in the Underlying Assets securing a Series or comprising a Trust will be equal
to the lesser of (i) the present value of an assumed stream of payments of
principal and interest on such Underlying Security together with Reinvestment
Income thereon, if any, discounted with the same frequency as payments are made
on Securities of such Series at the highest interest rate borne by such
Securities and (ii) the product of any collateral value cap set forth in the
related Governing Document and the then outstanding principal amount thereof.
The Assumed Reinvestment Rate, if any, for a Series will be the rate on
which amounts deposited in the Collection Account will be assumed to accrue
interest or a rate insured or guaranteed by means of a surety bond, Guaranteed
Investment Contract, or similar arrangement. If the Assumed Reinvestment Rate
is insured or guaranteed, the related Prospectus Supplement will set forth the
terms of such arrangement.
To the extent, if any, that a Discounted Amount is associated with an
Underlying Asset other than an Underlying Security, the Prospectus Supplement
will describe such Discounted Amount and the method by which it is determined.
No assurance can be given that such Aggregate Discounted Amount will in
fact represent such principal amount of Securities of such Series and no third
party will pass upon the validity of the assumptions referred to above.
INTEREST AND PRINCIPAL PAYMENTS - GENERAL
Interest and/or principal payments on a Series of Securities are payable
solely from Available Funds on each Payment Date in the amounts and priorities
described in the related Prospectus Supplement. If Available Funds are
insufficient on any Payment Date to make required interest and principal
payments, Securityholders will not be paid the full amount of such payments and
will suffer losses, unless the related Prospectus Supplement provides that such
shortfalls will be carried over and sufficient Available Funds exist on some
subsequent Payment Date to pay such shortfalls. There can be no assurance that
Available Funds on any Payment Date will be sufficient to make all required
interest and/or principal payments to Securityholders. Except to the extent
otherwise provided in the related Prospectus Supplement, no amount of Available
Funds (including Reinvestment Income, if any, on distributions received by the
Issuer in respect of the Underlying Securities) will be payable to the Issuer.
The Prospectus Supplement will describe the procedures for collecting payments
on the Underlying Securities, paying any fees for administrative service and
Underlying Enhancement, and making principal and interest payments to Holders of
Securities.
PAYMENTS OF INTEREST
Each Class of a Series (other than a Class of Zero Coupon Securities or
Principal-Only Securities) will accrue interest at the rate per annum specified,
or in the manner determined and set forth, in the related Prospectus Supplement
(calculated on the basis of a 360-day year of twelve 30-day months). Interest
on all Securities that accrue interest, other than Accrual Securities, will be
due and payable on the Payment Dates specified in the related Prospectus
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Supplement. However, failure to pay interest on a current basis may not
necessarily be an Event of Default with respect to a particular Series of
Securities.
Payment of interest on a Class of Accrual Securities will commence only
following the Accrual Termination Date. Prior to such time, interest on such
Class of Accrual Securities will accrue and the amount of interest so accrued
will be added to the principal thereof on each Payment Date. Following the
applicable Accrual Termination Date, interest payments will be made on such
Class on the Compound Value of such Class. The Compound Value of a Class of
Accrual Securities equals the original principal amount of the Class, plus
accrued and unpaid interest added to such principal amount through the
immediately preceding Payment Date, less any principal payments previously made
on that Class and, if specified in the related Prospectus Supplement, losses
allocable thereto. Each payment of interest on each Class of Securities (or
addition to principal in the case of a Class of Accrual Securities) on a Payment
Date will include all interest accrued during the related Interest Accrual
Period preceding such Payment Date, which Interest Accrual Period will end on
the day preceding each Payment Date or such earlier date as may be specified in
the related Prospectus Supplement. If the Interest Accrual Period for a Series
ends on a date other than a Payment Date for such Series, the yield realized by
the Holders of such Securities may be lower than the yield that would result if
the Interest Accrual Period ended on such Payment Date. Additionally, if so
specified in the related Prospectus Supplement, interest accrued during an
Interest Accrual Period for one or more Classes may be calculated on the
assumption that principal payments (and additions to principal of the
Securities) and allocations of losses on the Underlying Assets (if so specified
in the related Prospectus Supplement) are made on the first day of the preceding
Interest Accrual Period and not on the Payment Date for such preceding Interest
Accrual Period when actually made or added. Such method would produce a lower
effective yield than if interest were calculated on the basis of the actual
principal amount outstanding.
A Series may include one or more Classes of Variable Interest
Securities. The Variable Interest Rate of Variable Interest Securities will be
a variable or adjustable rate, subject to a Maximum Variable Interest Rate and a
Minimum Variable Interest Rate (which Variable Interest Rate, Maximum Variable
Interest Rate or Minimum Variable Interest Rate may be based on an Index). The
Variable Interest Payment Dates or Variable Interest Distribution Dates, as
applicable, for Variable Interest Securities will be set forth in the related
Prospectus Supplement and need not be the same as the Payment Dates for other
Securities in such Series, but may be either more or less frequent. Unless
otherwise specified in the related Prospectus Supplement or herein, references
to Payment Dates include Variable Interest Payment Dates. For each Class of
Variable Interest Securities, the related Prospectus Supplement will set forth
the initial Bond Interest Rate or Trust Certificate Interest Rate (or the method
of determining it), the Variable Interest Period and the formula, index or other
method by which the Bond Interest Rate or Trust Certificate Interest Rate for
each Variable Interest Period will be determined.
Interest-Only Securities or interest weighted securities, among others,
may be assigned a "Notional Principal Amount", which is used for convenience in
expressing the calculation of interest and not to indicate any entitlement to
payment of such Notional Principal Amount. The Notional Principal Amount will
be determined at the time of issuance of such
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Securities based on the principal balances or Discounted Amounts of the
Underlying Assets attributable to the Securities of a Series entitled to receive
principal, and will be adjusted monthly over the life of the Securities based on
adjustments to the principal balances or Discounted Amounts of such Underlying
Assets.
If so specified in the related Prospectus Supplement, if funds in the
Collection Account are insufficient to make required payments of interest on any
Payment Date, amounts available for payment to the Securityholders of each Class
will be allocated pro rata in the proportion in which the outstanding principal
balance of each Security bears to the aggregate outstanding principal balance of
all Securities of such Class, except that Subordinated Securityholders, if any,
will not receive any payments of interest on the Subordinated Securities until
Senior Securityholders receive payment of interest due them (in each case as
described in the related Prospectus Supplement).
PAYMENTS OF PRINCIPAL
On each Payment Date for a Series, the Issuer will make principal
payments to the Holders of the Securities of such Series on which principal is
then due and payable. Payments of principal on a Series will be allocated among
Classes of such Series in the order of priority and amounts specified in the
related Prospectus Supplement. All payments of principal of Securities of a
Class will be applied either on a pro rata or random-lot basis, as specified in
the related Prospectus Supplement. In the case of certain Trust Certificates,
distributions generally will be based on the distributions and other payments in
respect of the Underlying Securities, and such Trust Certificates may not have
any specified principal amount.
The Principal Payment Amount will be determined as specified on the
related Prospectus Supplement.
If so specified in the related Prospectus Supplement, on any Payment
Date on which the principal balance of the Underlying Assets is reduced due to
losses on the Underlying Assets, (i) the amount of such losses will be allocated
first to reduce the Aggregate Outstanding Principal of the Subordinated
Securities or otherwise to implement the specified terms of subordination, if
any, and, thereafter, to reduce the Aggregate Outstanding Principal of the
remaining Securities in the priority and manner specified in such Prospectus
Supplement until the Aggregate Outstanding Principal of each Class of Securities
so specified has been reduced to zero or paid in full, thus reducing the amount
of principal payable on each such Class of Securities or (ii) such losses may be
allocated in any other manner set forth in the related Prospectus Supplement.
Such reductions of principal of a Class or Classes of Securities ranking pari
passu will be allocated to the Holders of the Securities of such Class or
Classes pro rata in the proportion which the outstanding principal of each
Security of such Class or Classes bears to the Aggregate Outstanding Principal
of all Securities of such Class.
One or more Classes of a Series may consist of Subordinated Securities.
Subordinated Securities may be included in a Series to provide credit support to
Senior Securities as described under "Structural Enhancement" in lieu of or in
addition to other forms of credit
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support. The extent of subordination of a Class of Subordinated Securities may
be limited as described in the related Prospectus Supplement. If the Underlying
Assets are divided into separate Groups securing separate Classes of a Series,
credit support may be provided by a cross-support feature pursuant to which
distributions will be made to Senior Securities relating to one Group prior to
distributions on Subordinated Securities relating to another Group.
SPECIAL REDEMPTION OF BONDS
If specified in the related Prospectus Supplement, the Bonds of a Series
may be subject to special redemption on the day of any month specified therein
if, as a result of the redemption of the Underlying Assets securing such Bonds
or the low yield available for reinvestment, or both, the Trustee determines
(based on assumptions specified in the Indenture and after giving effect to the
amounts, if any, available to be withdrawn from any Reserve Fund for such
Series) that the amount anticipated to be available in the Collection Account,
on the date specified in the related Prospectus Supplement for such Series, is
anticipated to be insufficient to pay debt service on the Bonds of such Series
on such Payment Date. The principal amount of Bonds of such Series required to
be so redeemed will not exceed the principal amount otherwise required to be
paid on the next Payment Date. Therefore, the primary result of such a special
redemption of Bonds is payment of principal prior to the next scheduled Payment
Date with respect to principal of the Bonds.
To the extent described in the related Prospectus Supplement, Bonds of a
Series may be subject to special redemption in whole or in part following
certain defaults under an Underlying Enhancement, and in certain other
circumstances.
All payments of principal pursuant to any special redemption will be
made in the order of priority and in the manner specified in the related
Prospectus Supplement. Notice of any special redemption will be mailed by the
Issuer or the Trustee prior to the Special Redemption Date. The Redemption
Price for any Bonds so redeemed will be equal to 100% of the principal amount of
such Bonds (or 100% of the Compound Value of any Accrual Bonds) or portions
thereof so redeemed, together with interest accrued thereon to the date
specified in the related Prospectus Supplement.
If Underlying Assets having an Aggregate Value at least equal to the
original Aggregate Outstanding Principal of a Series are not pledged and
delivered to the Trustee on the related Closing Date, the Company or one of its
affiliates will deposit cash or Eligible Investments on an interim basis with
the Trustee on such Closing Date in lieu of such Undelivered Assets. If
Underlying Assets are not subsequently delivered within 90 days of issuance of
the Bonds, the amount of such deposit corresponding to principal may be used to
pay a corresponding amount of principal of the Bonds to the extent set forth,
and on the Payment Dates specified, in the Prospectus Supplement.
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OPTIONAL REDEMPTION OF BONDS
If so specified in the related Prospectus Supplement, the Issuer may, at
its option, redeem, in whole or in part, one or more Classes of any Series on
any Payment Date for such Series of Bonds on or after the dates, if any,
specified in such Prospectus Supplement. Notice of such redemption will be
given by the Issuer or Trustee prior to the Redemption Date. The Redemption
Price for any Bond so redeemed will be specified in the related Prospectus
Supplement.
MANDATORY REDEMPTION OF RETAIL BONDS
If specified in the related Prospectus Supplement, Bonds of one or more
Classes of a Series of Retail Bonds may be subject to mandatory redemption by
lot or by such other method set forth in the Prospectus Supplement. No Bonds of
a particular Class will be redeemed until all Bonds in each Class having a
higher priority of redemption have been paid in full.
Retail Bonds within a Class will be selected for redemption by random
lot in $1,000 units after all redemptions requested by Holders of Retail Bonds
in the Class have been made or by such other method set forth in the Prospectus
Supplement. Procedures relating to optional redemptions requested by Holders of
Retail Bonds and to mandatory redemptions by the Issuer of Retail Bonds and the
Class priorities, if any, and conditions with respect to such redemptions, will
be described in the related Prospectus Supplement.
OPTIONAL TERMINATION OF TRUST
If so specified in the related Prospectus Supplement for a Series, the
Company, or another entity designated in the related Prospectus Supplement, may,
at its option, cause an early termination of a Trust by repurchasing all the
Underlying Assets from such Trust on or after a date specified in the related
Prospectus Supplement, or on or after such time as the aggregate outstanding
principal amount of the Trust Certificates is less than a specified percentage
of their initial aggregate principal amount. See "The Trust Agreement -
Termination".
OTHER REPURCHASES OF TRUST CERTIFICATES
If so specified in the related Prospectus Supplement for a Series, any
Class of the Trust Certificates of such Series may be subject to repurchase at
the request of the Holders of such Class. Any such redemption right at the
request of Holders with respect to a Class of a Series of the Trust Certificates
will be described in the related Prospectus Supplement and will be on terms and
conditions described therein.
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OPTIONAL CALL RIGHT
If specified in the applicable Prospectus Supplement relating to a
Series of Securities, the Optionholder will have an Optional Call Right, at the
time or times specified therein, upon 30 days' written notice to the Trustee
(which will promptly give notice thereof to all affected Securityholders), to
purchase all, but not less than all, the Securities of such Series or, in the
case of Trust Certificates, the Underlying Assets of the related Trust (as
specified in such Prospectus Supplement), in either case at a cash purchase
price equal to, unless otherwise specified in such Prospectus Supplement, the
Aggregate Outstanding Principal of such Securities, together with that portion,
if any, of the next scheduled periodic distribution (other than any amount of
such distribution representing principal) on such Securities that is then
accrued and unpaid. Upon the exercise of an Optional Call Right with respect to
any Series of Securities, the Optionholder will transfer to the Trustee an
amount in cash equal to such purchase price. Such Trustee shall promptly
distribute such cash purchase price received by it to the Holders of such
Securities. Such distribution shall be deemed made in full satisfaction of all
rights pertaining to the Securities of such Series held by such Holders and,
immediately after such distribution has been effected, such Securities shall no
longer evidence an obligation of the related Issuer. Concurrently with such
distribution, the Trustee will (i) if the Optional Call Right applies to
Securities rather than the Underlying Assets of a Trust, issue to the
Optionholder a new certificate of such Series of Securities representing either
all the Bonds of such Series then outstanding or the entire beneficial interest
in the related Trust or (ii) if the Optional Call Right applies to the
Underlying Assets of a Trust, transfer to the Optionholder all such Underlying
Assets and terminate the related Trust and Series Supplement.
WITHDRAWAL OF UNDERLYING ASSETS BY THE COMPANY AND THE TRUSTEE
The Company and the Trustee may own and deal in securities of the same
issue and maturity as any of the Underlying Assets and may own and deal in
Securities of any Series and withdraw from the lien or custody of the Trustee
Underlying Assets in an amount equal to the interest in the Underlying Assets
represented by Securities of any Series owned by the Company or the Trustee, as
applicable, and, upon effecting such withdrawal, may own and deal in such
Underlying Assets. Profits realized in connection with any such withdrawal
shall be for the exclusive benefit of the Company or the Trustee, as applicable.
RATINGS
It will be a condition to the issuance of any Securities offered by this
Prospectus and the related Prospectus Supplement that they be rated in one of
the four highest applicable rating categories by at least one Rating Agency.
The rating or ratings applicable to Securities of each Series will be as set
forth in the related Prospectus Supplement.
A security rating should be evaluated independently of similar ratings
of different types of securities. A security rating does not address the effect
of redemption, prepayment or reinvestment rates on investors' yields. A rating
is not a recommendation to buy, sell or hold
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securities and may be subject to revision or withdrawal at any time by the
assigning rating organization.
See "Risk Factors - Limited Nature of Rating". Pursuant to the terms of
the Indenture or Trust Agreement, as applicable, the Company may not issue any
Securities which would result in the lowering of the then current ratings of the
outstanding Securities of any Series issued thereunder.
CERTAIN YIELD, REDEMPTION AND PREPAYMENT CONSIDERATIONS
TIMING OF PAYMENT OF INTEREST AND PRINCIPAL
If so specified in the related Prospectus Supplement, interest accrued
for an Interest Accrual Period for one or more Classes may be calculated on the
assumption that principal payments or distributions (and additions to principal
of the Securities) and allocations of losses on the Underlying Assets are made
on the first day of the preceding Interest Accrual Period and not on the Payment
Date with respect to such preceding Interest Accrual Period. Such method would
produce a lower effective yield than if interest were calculated on the basis of
the actual principal amount outstanding during such Interest Accrual Period.
REDEMPTIONS AND PREPAYMENTS
The following discussion and related disclosure herein are of particular
relevance to Securities the related Underlying Securities of which are
redeemable or subject to prepayment at the option of the Underlying Issuer
thereof.
The yield to maturity or final distribution on the Securities will be
affected by the rate of redemptions or prepayments of Underlying Securities.
The rate at which redemptions or prepayments occur on such Underlying Securities
will be affected by a variety of factors, including the terms of the Underlying
Securities, the level of prevailing interest rates, the availability of credit
and economic, tax, legal and other factors. The rate of principal payments or
distributions on Securities generally will correspond to the rate of principal
payments, including redemptions or prepayments, on the Underlying Securities.
If the purchaser of a Security offered at a discount calculates its
anticipated yield to maturity or final distribution based on an assumed rate of
distributions of principal that is faster than that actually experienced on the
Underlying Securities, the actual yield to maturity or final distribution will
be lower than that so calculated. Conversely, if the purchaser of a Security
offered at a premium calculates its anticipated yield to maturity or final
distribution based on an assumed rate of distributions of principal that is
slower than that actually experienced on the Underlying Securities, the actual
yield to maturity or final distribution will be lower than that so calculated.
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Changes in the timing of redemptions or prepayments of the Underlying
Securities may significantly affect the actual yield to maturity of an investor
in the Securities even if the average rate of redemptions or prepayments is
consistent with the investor's expectation. In general, the earlier a
redemption payment or prepayment is received on the Underlying Securities and
paid on an investor's Securities, the greater the effect on such investor's
yield to maturity or final distribution. The effect on an investor's yield of
principal payments or distributions occurring at a rate higher (or lower) than
the rate anticipated by the investor during a given period may not be offset by
a subsequent like decrease (or increase) in the rate of principal payments or
distributions.
Redemptions or prepayments of Securities will affect the weighted
average life of and the yield on the Securities. Such redemptions or
prepayments may occur in a declining interest rate environment, during which
investors may be unable to invest proceeds received in such a redemption or
prepayment in comparable instruments at rates similar to those received on the
Securities.
INTEREST RATE RISK
Certain Securities, including Interest-Only Securities and Principal-
Only Securities may exhibit special sensitivity to interest rate fluctuations.
Fluctuations in interest rates will have a significant effect on the yield to
maturity of such Securities and may, in certain circumstances, result in a
negative yield. Such reduced or negative yields would adversely affect the
yields to maturity of Holders of Securities issued hereunder. The related
Prospectus Supplement for such a Series may specify the percentage of the pool
of Underlying Assets that are expected to be especially sensitive to interest
rate fluctuations and may list expected yields to maturity of Securityholders
under a variety of interest rate scenarios.
REDEMPTIONS, PREPAYMENTS AND WEIGHTED AVERAGE LIFE
The Final Scheduled Payment Date for a Class is the date specified in
the related Prospectus Supplement, calculated on the basis of the assumptions
applicable to such Series set forth therein, no later than which the entire
Aggregate Outstanding Principal thereof will be fully paid.
The rate on reinvestment of distributions of principal and interest on
the Underlying Securities for a Series, the rates at which principal payments
are received on such Underlying Securities and the rate at which payments are
made from any Reserve Fund or other Underlying Enhancement for such Series may
affect the ultimate maturity of each Class of such Series. Redemptions or
prepayments of the Underlying Securities will accelerate the rate at which
principal is paid or distributed on the Securities, and slower payment rates on
the Underlying Securities will slow the rate at which principal is paid or
distributed on the Securities. High reinvestment rates tend to increase the
amount of Excess Cash Flow, which, to the extent applied to principal payments
or distributions on the Securities, will accelerate principal payments or
distributions on such Securities.
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Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of the
Securities of a Series will be influenced by the rate at which principal on the
Underlying Securities is paid.
In addition, the weighted average life of the Securities may be affected
by the varying maturities of the Underlying Securities. If any Underlying
Securities of a Series have actual terms to maturity of less than those assumed
in calculating the Final Scheduled Payment Date, one or more Classes of the
Series may be fully paid prior to their respective Final Scheduled Payment
Dates, even in the absence of a reinvestment return higher than the Assumed
Reinvestment Rate, if any. Conversely, if any Underlying Securities of a Series
have actual terms to maturity that are greater than those assumed in calculating
the Final Scheduled Payment Date, one or more Classes of the Series may not be
fully paid by their respective Final Scheduled Payment Dates. Accordingly, the
redemption or prepayment experience of the Underlying Securities will, to some
extent, be a function of the mix of interest rates and maturities of the
Underlying Securities.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
Fixed or Adjustable Rate Obligation
The Underlying Securities may consist of fixed or adjustable rate
obligations. The rate of redemptions and prepayments with respect to adjustable
rate obligations has fluctuated in recent years. No assurance can be given as
to the rate of redemptions or prepayments of the Underlying Securities in stable
or changing interest rate environments.
Underlying Issuer Default
If an Underlying Issuer defaults on the related Underlying Securities,
payments to Holders of Securities would be impaired. If the default is not
cured, it may effectively shorten the weighted average life of the Securities.
If the default is cured, it may lengthen the weighted average life of the
Securities. Partial cures will either shorten or lengthen weighted average
life, depending on how much of the defaulted amount was ultimately repaid. No
assurance can be given that no Underlying Issuer will default. If an Underlying
Issuer does default, no assurance can be given as to when such default will
occur and how much of the defaulted amount will ultimately be repaid.
Underlying Enhancements may be intended to mitigate some of the foregoing
effects, but there can be no assurance as to the degree of such mitigation.
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THE UNDERLYING ASSETS
GENERAL
The Prospectus Supplement will describe the Underlying Assets that will
(i) secure the related Series of Bonds (pursuant to a pledge by the Issuer to
the Trustee of all right, title and interest of the Issuer in such Underlying
Assets) and/or (ii) constitute the Trust for the related Series of Trust
Certificates, transferred to the Trustee by the Company or one of its
affiliates. The Underlying Assets will include the Underlying Debt Securities
and may also include Government Securities, Underlying Enhancements, Swap
Agreements and miscellaneous other Underlying Assets, all as specified in the
related Prospectus Supplement.
The Trustee or its agents or nominees will have possession of any
Underlying Assets in which a security interest may be perfected by possession,
and will be the registered owner of any registered security that is an
Underlying Asset.
The Underlying Assets for a Series will equally and ratably secure or
underlie each Class of such Series, without priority of one Class over the other
(subject to any subordination of Subordinated Securities of a Series), and the
Underlying Assets with respect to each Series will serve as Underlying Assets
only for that Series.
UNDERLYING DEBT SECURITIES
Underlying Debt Securities for a Series will consist of any combination
of bonds, debentures, notes and other debt securities issued by Underlying Debt
Issuers. Each Underlying Debt Issuer will, as of the date of issuance of the
Securities of a Series, be (i) eligible to issue securities registered on a
registration statement on Form S-3 promulgated by the SEC under the Securities
Act and (ii) a reporting person under Section 12 or Section 15(d) of the
Exchange Act. Each of the Underlying Debt Securities will as of such date have
been (i) originally issued in a transaction either (x) registered pursuant to
the Securities Act or (y) not registered pursuant thereto, if such unregistered
Underlying Debt Security is freely transferable by the Issuer of such Series
under paragraph (k) of Rule 144 promulgated by the SEC under the Securities Act,
and (ii) previously purchased by the Company or any of its affiliates in the
secondary market (i.e., not from the Underlying Debt Issuer or any of its
affiliates, and not as part of the initial distribution thereof).
Each Underlying Debt Security will be identified in a schedule attached
as an exhibit to the applicable Governing Document and amended from time to time
upon any additions or deletions of Underlying Debt Securities. Such schedule
will include the outstanding principal amount, interest rate, payment terms,
maturity, rating, if any, and certain other information with respect to the
Underlying Debt Securities.
Each Underlying Debt Security (i) will be issued by an Underlying Debt
Issuer satisfying the criteria set forth in the second paragraph preceding this
paragraph; (ii) may bear interest, if any, at a fixed or variable rate (which
variable may be based on an Index specified
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in the related Prospectus Supplement); (iii) will mature on the date set forth
in the related Prospectus Supplement; (iv) may benefit from credit support such
as reserve funds, financial guaranty insurance, letters of credit or other types
of credit support or liquidity facilities that are intended to enhance the cash
flows derived from the assets underlying the Underlying Debt Security; (v) may
benefit from (or be subject to additional risks as a result of) structural
enhancements such as overcollateralization and senior/subordinate structures;
(vi) may be subject to redemption or prepayment prior to the stated maturity
thereof; and (vii) may have such other material terms as are described in the
related Prospectus Supplement.
The Prospectus Supplement will specify, to the extent applicable: (i)
title of each Underlying Debt Security; (ii) the aggregate principal amount of
the Underlying Debt Securities; (iii) the stated interest rate, if any, borne by
such Underlying Debt Security and the timing of, and manner of determining, any
adjustments to such stated interest rate; (iv) the weighted average of such
interest rates; (v) the stated maturity of each Underlying Debt Security; (vi)
the weighted average stated maturity of such Underlying Debt Securities; (vii)
the identity of each Underlying Debt Issuer, including any guarantor or provider
of credit support; (viii) certain credit characteristics of such Underlying Debt
Issuer, including such Underlying Debt Issuer's rating, if any, and any special
risk factors; (ix) the existence and extent of any guaranty or credit support
with respect to the Underlying Debt Securities; (x) the conditions under which,
and the terms on which, any Underlying Debt Security may be redeemed prior to
the stated maturity thereof; (xi) the percentage of the Underlying Debt
Securities that are subject to redemption or prepayment; (xii) the terms, if
any, on which the Trustee or its agent may exchange or sell any Underlying Debt
Security; (xiii) the existence and type of information that is made publicly
available by each Underlying Debt Issuer, including where and how purchasers of
Securities may obtain such publicly available information with respect to each
Underlying Debt Issuer; and (xiv) certain financial information with respect to
Underlying Debt Issuers, the Underlying Securities of which comprise a material
part of the related Underlying Assets.
GOVERNMENT SECURITIES
General
If so specified in the applicable Prospectus Supplement, the Underlying
Assets for a Series may include any combination of (i) receipts or other
instruments evidencing ownership of specific interest and/or principal payments
to be made on certain United States Treasury Bonds ("Treasury Bonds") held by a
custodian, which may include interest and/or principal strips of Treasury Bonds
created under the Department of the Treasury's Separate Trading of Registered
Interest and Principal of Securities, or STRIPS, program ("Treasury Strips"),
(ii) receipts or other instruments evidencing ownership of specific interest
and/or principal payments to be made on certain Resolution Funding Corporation
("REFCO") bonds ("REFCO Strips"), (iii) certain Treasury Bonds or other debt
securities the payment of principal and interest due thereon is guaranteed by
the full faith and credit of the United States of America ("FFC Bonds") and (iv)
certain other debt securities ("GSE Bonds") of United States government
sponsored entities ("GSEs") or other debt securities
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the payment of principal and interest due thereon is guaranteed by one or more
GSEs ("GSE Guaranteed Bonds", together with Treasury Strips, REFCO Strips,
Treasury Bonds, FFC Bonds and GSE Bonds, collectively, "Government Securities")
(such Government Securities, if any, and the Underlying Debt Securities are
referred to herein, collectively, as the "Underlying Securities"). A description
of the respective general features of Treasury strips, REFCO Strips, Treasury
Bonds, FFC Bonds, GSE Bonds and GSE Guaranteed Bonds is set forth below.
The Prospectus Supplement (or, if such information is not available in
advance of the date of such Prospectus Supplement, a Current Report on Form 8-K
to be filed with the Commission) for each Series of Certificates the Underlying
Assets with respect to which contains Government Securities will contain
information as to: (i) the title and series of each such Government Security,
the aggregate principal amount, denomination and form thereof; (ii) whether each
such Government Security is senior or subordinated to any other obligations of
the issuer thereof; (iii) whether any of the obligations are secured or
unsecured and the nature of any collateral; (iv) the limit, if any, upon the
aggregate principal amount of such Government Security; (v) the dates on which,
or the range of dates within which, the principal of (and premium, if any, on)
such Government Security will be payable; (vi) the rate or rates, or the method
of determination thereof, at which such Government Security will bear interest,
if any, the date or dates from which such interest will accrue; and the dates on
which such interest will be payable; (vii) the obligation, if any, of the issuer
thereof to redeem such Government Security pursuant to any sinking fund or
analogous provisions, or at the option of a holder thereof, and the periods
within which or the dates on which, the prices at which and the terms and
conditions upon which, such Government Security may be redeemed or repurchased,
in whole or in part, pursuant to such obligation; (viii) the periods within
which or the dates on which, the prices at which and terms and conditions upon
which, such Government Security may be redeemed, if any, in whole or in part, at
the option of the issuer thereof; (ix) whether such Government Security was
issued at a price lower than the principal amount thereof; (x) if other than
United States dollars, the foreign or composite currency in which such
Government Security is denominated, or in which payment of the principal of (and
premium, if any) or any interest on such Government Security will be made; and
the circumstances, if any, when such currency of payment may be changed; (xi)
material events of default or restrictive covenants provided for with respect to
such Government Security; (xii) the rating thereof, if any; and (xiii) any other
material terms of such Government Security. With respect to a Trust which
includes a pool of Government Securities, the related Prospectus Supplement
will, to the extent applicable, describe the composition of the Government
Securities' pool, certain material events of default or restrictive covenants
common to the Government Securities, and, on an aggregate, percentage or
weighted average basis, as applicable, the characteristics of the pool with
respect to the terms set forth in (ii), (iii), (v), (vi), (vii), (viii) and (ix)
of the preceding sentence and any other material terms regarding such pool.
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The inclusion of Government Securities in a Trust with respect to a Series of
Securities is conditioned upon their characteristics being in form and substance
satisfactory to the Rating Agency rating the related Series of Securities.
Treasury Strips
In general, Treasury Strips are created by separating, or "stripping", the
principal and interest components of Treasury Bonds that have an original
maturity of 10 or more years from the date of issue. A particular Treasury
Strip evidences ownership of the principal payment or one of the periodic
interest payments (generally semiannual) due on the Treasury Bond to which such
Treasury Strip relates.
The first "stripping" of Treasury Bonds occurred in the 1970s when government
securities dealers physically separated coupons from definitive certificates and
offered them to investors as tax-deferred investments. Investors were able to
purchase the "strip" at a deep discount and pay no federal income tax until
resale or maturity. This tax treatment was limited in 1982 by the Tax Equity
and Fiscal Responsibility Act ("TEFRA") which required holders of such strips to
accrue a portion of the discount toward par annually and report such accrual,
even though unrealized, as taxable income. TEFRA also required that all new
Treasury issues be made available only in book-entry form.
The shift to "book-entry only" Treasury Bonds created a shortage of the
physical certificates needed for stripping. In response, various dealers
created custodial receipt programs in which Treasury Bonds in book-entry form
were deposited with custodians who would thereupon issue certificates evidencing
rights in principal and interest payments. Some of the better known programs
first came to market in 1982 and 1983. Although available eventually in
denominations as small as $1,000, these custodial receipts lacked the liquidity
of the physical strips. While physical strips had multiple market-makers,
custodial receipts were proprietary and, as such, the sole market-maker would
usually be an affiliate of the program's sponsor. As a result, the market that
developed for such receipts was segmented.
In early 1984, a group of dealers sought to enhance the liquidity of
custodial receipts by developing a generic, multiple market-maker security known
as a TR (Treasury Receipt). A large secondary market quickly developed in these
generic Treasury Strips, and in 1985 the Department of the Treasury, based on
indications that the demand for Treasury Strips was resulting in lower interest
rates, announced that all new issues of Treasury Bonds with maturities of 10
years or more would be transferable in their component pieces on the Federal
Reserve wire system. In so doing, the Treasury created a generic, book-entry
Treasury Strip named STRIPS (Separate Trading of Registered Interest and
Principal of Securities) which, unlike the private label Treasury Strips, can be
issued without the need for a custodial arrangement. The STRIPS program has
since eclipsed the private sector programs, and investment banks no longer
sponsor new issues of custodial receipts. TRs, physical strips and the
proprietary receipts trade at varying
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discounts from STRIPS which reflect, among other things, lower levels of
liquidity and the structuring difference discussed above.
Treasury Strips may be either "serial" or "callable". A serial Treasury
Strip evidences ownership of one of the periodic interest payments to be made on
a Treasury Bond. No payments are made on such Treasury Strip, nor is it
redeemable, prior to its maturity, at which time the holder becomes entitled to
receive a single payment of the face amount thereof. Callable Treasury Strips
relate to payments scheduled to be made after the related Treasury Bonds have
become subject to redemption. Such Treasury Strips evidence ownership of both
principal of the related Treasury Bonds and each of the related interest
payments commencing, typically, on the first interest payment date following the
first optional redemption date. If the underlying Treasury Bonds are actually
redeemed, holders of callable Treasury Strips generally receive a payment equal
to the principal portion of the total face amount of such Treasury Strips plus
the interest payment represented by the Treasury Strips maturing on the
redemption date. The face amount of any Treasury Strip is the aggregate of all
payments scheduled to be received thereon. Treasury Strips are available in
registered form and generally may be transferred and exchanged by the holders
thereof in accordance with procedures applicable to the particular issue of such
Treasury Strips.
A holder of a private label Treasury Strip (as opposed to a STRIP) cannot
enforce payment on such Treasury Strip against the Treasury; instead, such
holder must look to the custodian for payment. Such custodian (and such holder
of a Treasury Strip that obtains ownership of the underlying Treasury Bond) can
enforce payment of the underlying Treasury Bond against the Treasury. In the
event any private label Treasury Strips are included in the Underlying Assets
with respect to any Series of Securities, the Prospectus Supplement for such
Series will include the identity and a brief description of each custodian that
issued such Treasury Strips. In the event the Company knows that the depositor
of the Treasury Bonds underlying such Treasury Strips is the Company or any of
its affiliates, the Company will disclose such fact in such Prospectus
Supplement.
REFCO Strips
A REFCO Bond may be divided into its separate components, consisting of: (i)
each future semi-annual interest distribution (an "Interest Component"); and
(ii) the principal payment (the "Principal Component") (each component
individually hereinafter referred to as a "REFCO Strip"). REFCO Strips are not
created by REFCO; instead, third parties such as investment banking firms create
them. Each REFCO Strip has an identifying designation and CUSIP number. REFCO
Strips generally trade in the market for Treasury Strips at yields of a few
basis points over Treasury Strips of similar maturities. REFCO Strips are
viewed generally by the market as liquid investments.
For a REFCO Bond to be separated into its components, the par amount of the
REFCO Bond must be in an amount which, based on the stated interest rate of the
REFCO Bond, will produce a semi-annual interest payment of $1,000 or an integral
multiple
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thereof. REFCO Bonds may be separated into their components at any time from the
issue date until maturity. Once created, REFCO Strips are maintained and
transferred in integral multiples of $1,000.
A holder of a REFCO Strip cannot enforce payment on such REFCO Strip against
REFCO; instead, such holder must look to the custodian for payment. Such
custodian (and such holder of a REFCO Strip that obtains ownership of the
underlying REFCO Bond) can force payment of the underlying REFCO Bond against
REFCO. The identity and a brief description of each custodian that has issued
any REFCO Strip included in the Underlying Assets will be set forth in the
related Prospectus Supplement. In the event the Company knows that the
depositor of the REFCO Bonds underlying the REFCO Strips included in the
Underlying Assets is the Company or any of its affiliates, the Company will
disclose such fact in such Prospectus Supplement.
Treasury Bonds; FFC Bonds
Treasury Bonds are issued by and are the obligations of The United States of
America. Interest is typically payable on the Bonds semiannually. Treasury
Bonds may be made subject to redemption, in whole or in part, by the United
States pursuant to the terms of the issue. No Treasury Bonds issued since 1984,
however, have been redeemable. Treasury Bonds are issued in registered form in
denominations of $1,000, $5,000, $10,000 $100,000 and $1,000,000 and in book-
entry form in integral multiples thereof. The payment of principal and interest
on each FFC Bond will be guaranteed by the full faith and credit of the United
States of America.
GSE Bonds; GSE Guaranteed Bonds
As specified in the applicable Prospectus Supplement, the obligations of one
or more of the following GSEs may be included as Underlying Assets of a Trust.
The Federal National Mortgage Association ("Fannie Mae"), The Federal Home Loan
Mortgage Association ("Freddie Mac"), The Student Loan Marketing Association
("Sallie Mae"), REFCO, Tennessee Valley Authority ("TVA"), The Federal Home Loan
Banks ("FHLB") (to the extent such obligations represent the joint and several
obligations of the twelve Federal Home Loan Banks), and The Federal Farm Credit
Banks ("FFCB"). GSE debt securities are exempt from registration under the
Securities Act pursuant to Section 3(a)(2) of the Securities Act (or are deemed
by statute to be so exempt) and are not required to be registered under the
Exchange Act. The securities of any GSE will be included in the Underlying
Assets with respect to a Series of Securities only to the extent that (i) its
obligations are supported by the full faith and credit of the United States
government or (ii) such organization makes publicly available its annual report
which shall include financial statements or similar financial information with
respect to such organization. Unless otherwise specified in the related
Prospectus Supplement, the GSE Bonds(and the GSE Guaranteed Bonds) will not be
guaranteed by the United States and do not constitute a debt or obligation of
the United States or of any agency or instrumentality thereof other
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than the related GSE. The payment of principal and interest on each GSE
Guaranteed Bond will be guaranteed by one or more GSEs.
Unless otherwise specified in the related Prospectus Supplement, none of the
GSE Bonds will have been issued pursuant to an indenture, and no trustee is
provided for with respect to any GSE Bonds. There will generally be a fiscal
agent ("Fiscal Agent") for an issuer of GSE Bonds whose actions will be governed
by a fiscal agency agreement. A Fiscal Agent is not a trustee for the holders
of the GSE Bonds and does not have the same responsibilities or duties to act
for the holders as would a trustee.
GSE Bonds may be subject to certain contractual and statutory restrictions
which may provide some protection to securityholders against the occurrence or
effects of certain specified events. Unless otherwise specified in the related
Prospectus Supplement, each GSE is limited to such activities as will promote
its statutory purposes as set forth in the publicly available information with
respect to such issuer. A GSEs promotion of its statutory purposes, as well as
its statutory, structural and regulatory relationships with the federal
government, may cause or require such GSE to conduct its business in a manner
that differs from what an enterprise which is not a GSE might employ.
The Federal National Mortgage Association
Fannie Mae is a federally chartered and stockholder owned corporation
organized and exiting under the Federal National Mortgage Association Charter
Act. It is the largest investor in home mortgage loans in the United States.
Fannie Mae originally was established in 1938 as a corporation wholly owned by
the United States government to provide supplemental liquidity to the mortgage
market and was transformed into a stockholder owned and privately managed
corporation by legislation enacted in 1968 and 1970. Fannie Mae provided funds
to the mortgage market by purchasing mortgage loans from lenders, thereby
replenishing their funds for additional lending. Fannie Mae acquires funds to
purchase loans from many capital market investors that ordinarily may not invest
in mortgage loans, thereby expanding the total amount of funds available for
housing. Operating nationwide, Fannie Mae helps to redistribute mortgage funds
from capital-surplus to capital-short areas. Fannie Mae also issues mortgage-
backed securities ("MBS"). Fannie Mae receives guaranty fees for its guaranty
of timely payment of principal of and interest on MBS. Fannie Mae issues MBS
primarily in exchange for pools of mortgage loans from lenders. The issuance of
MBS enables Fannie Mae to further its statutory purpose of increasing the
liquidity of residential mortgage loans.
Fannie Mae prepares an Information Statement annually which describes Fannie
Mae, its business and operations and contains Fannie Mae's audited financial
statements. From time to time Fannie Mae prepares supplements to its
Information Statement which include certain unaudited financial data and other
information concerning the business and operations of Fannie Mae. Unless
otherwise specified in the applicable Prospectus Supplement, these documents can
be obtained without charge from the Office of Investor Relations, Fannie Mae,
3900 Wisconsin Avenue, N.W., Washington, D.C. 20016; telephone
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(202) 752-7115. Fannie Mae is not subject to the periodic reporting requirements
of the Exchange Act.
The Federal Home Loan Mortgage Corporation
Freddie Mac is a publicly held government-sponsored enterprise created on
July 24, 1970 pursuant to the Federal Home Loan Mortgage Corporation Act, Title
III of the Emergency Home Finance Act of 1970, as amended. Freddie Mac's
statutory mission is to provide stability in the secondary market for home
mortgages, to respond appropriately to the private capital market and to provide
ongoing assistance to the secondary market for home mortgages (including
mortgages secured by housing for low- and moderate-income families involving a
reasonable economic return to Freddie Mac) by increasing the liquidity of
mortgage investments and improving the distribution of investment capital
available for home mortgage financing. The principal activity of Freddie Mac
consists of the purchase of conventional residential mortgages and participation
interests in such mortgages from mortgage lending institutions and the sale of
guaranteed mortgage securities backed by the mortgages so purchased. Freddie
Mac generally matches and finances its purchases of mortgages with sales of
guaranteed securities. Mortgages retained by Freddie Mac are financed with
short-term and long-term debt, cash temporarily held pending disbursement to
security holders, and equity capital.
Freddie Mac prepares an Information Statement annually which describes
Freddie Mac, its business and operations and contains Freddie Mac's audited
financial statements. From time to time Freddie Mac prepares supplements to its
Information Statement which include certain unaudited financial data and other
information concerning the business and operations of Freddie Mac. Unless
otherwise specified in the applicable Prospectus Supplement, these documents can
be obtained from Freddie Mac by writing or calling Freddie Mac's Investor
Inquiry Department at 8200 Jones Branch Drive, McLean, Virginia, 22102, outside
Washington, D.C. metropolitan area, telephone (800) 336-3672; within Washington,
D.C. metropolitan area, telephone (703) 759-8160. Freddie Mac is not subject to
the periodic reporting requirements of the Exchange Act.
The Student Loan Marketing Association
Sallie Mae is a stockholder-owned corporation established by the 1972
amendments to the Higher Education Act of 1965, as amended, to provide
liquidity, primarily thorough secondary market and warehousing activities, for
lenders participating in federally sponsored student loan programs, primarily
the Federal Family Education Loan ("FFEL") program and the Health Education
Assistance Loan Program. Under the Higher Education Act, Sallie Mae is
authorized to purchase, warehouse, sell and offer participations or pooled
interests in, or otherwise deal in, student loans, including, but not limited
to, loans insured under the FFEL program, and to make commitments of any of the
foregoing. Sallie Mae is also authorized to buy, sell, hold, underwrite and
otherwise deal in obligations of eligible lenders, if such obligations are
issued by such eligible lenders for the purpose of making or purchasing
federally guaranteed student loans under the
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Higher Education Act. As a federally chartered corporation, Sallie Mae's
structure and operational authorities are subject to revision by amendments to
the Higher Education Act or other federal enactments.
Sallie Mae prepares an Information Statement annually which describes
Sallie Mae, its business and operations and contains Sallie Mae's audited
financial statements. From time to time Sallie Mae prepares supplements to its
Information Statement which include certain unaudited financial data and other
information concerning the business and operations of Sallie Mae. Unless
otherwise specified in the applicable Prospectus Supplement, these documents can
be obtained without charge upon written request to the Corporate and Investor
Relations Division of Sallie Mae at 1050 Thomas Jefferson Street, N.W.,
Washington, D.C. 20007; telephone (202) 298-3010. Sallie Mae is not subject to
the periodic reporting requirements of the Exchange Act.
The Resolution Funding Corporation
REFCO is a mixed-ownership government corporation established by Title V
of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA"). The sole purpose of REFCO is to provide financing for the
Resolution Trust Corporation (the "RTC"). REFCO is to be dissolved, as soon as
practicable, after the maturity and full payment of all obligations issued by
it. REFCO is subject to the general oversight and direction of the Oversight
Board, which is comprised of the Secretary of the Treasury, the Chairman of the
Board of Governors of the Federal Reserve System, the Secretary of Housing and
Urban Development and two independent members to be appointed by the President
with the advice and consent of the Senate. The day-to-day operations of REFCO
are under the management of a three-member Directorate comprised of the Director
of the Office of Finance of the FHLB and two members selected by the Oversight
Board from among the presidents of the twelve FHLB.
The RTC was established by FIRREA to manage and resolve cases involving
failed savings and loan institutions pursuant to policies established by the
Oversight Board. The RTC was granted authority to issue nonvoting capital
certificates to REFCO in exchange for the funds transferred from REFCO to the
RTC. Pursuant to FIRREA, the net proceeds of these obligations are used to
purchase nonvoting capital certificates issued by the RTC or to retire
previously issued REFCO obligations.
Information concerning REFCO may be obtained from the
Secretary/Treasurer, Resolution Funding Corporation, Suite 1000, 11921 Freedom
Drive, Reston, Virginia 22090; telephone (703) 487-9517. REFCO is not subject
to the periodic reporting requirements of the Exchange Act.
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The Federal Home Loan Banks
The Federal Home Loan Banks constitute a system of twelve federally
chartered corporations (collectively, the "FHLB"), each wholly owned by its
member institutions. The mission of the FHLB is to enhance the availability of
residential mortgage credit by providing a readily available, low-cost source of
funds to their member institutions. A primary source of funds for the FHLB is
the proceeds from the sale to the public of debt instruments issued as
consolidated obligations, which are the joint and several obligations of all the
FHLB. The FHLB are supervised and regulated by the Federal Housing Finance
Board, which is an independent federal agency in the executive branch of the
United States government, but obligations of the FHLB are not obligations of the
United States government.
The Federal Home Loan Bank System produces annual and quarterly
financial reports in connection with the original offering and issuance by the
Federal Housing Finance Board of consolidated bonds and consolidated notes of
the FHLB. Unless otherwise specified in the applicable Prospectus Supplement,
questions regarding such financial reports should be directed to the Deputy
Director, Financial Reporting and Operations Division, Federal Housing Finance
Board, 1777 F Street, N.W., Washington, D.C. 20006; telephone (202) 408-2901.
Unless otherwise specified in the applicable Prospectus Supplement, copies of
such reports may be obtained by written request to Capital Markets Division,
Office of Finance, Federal Home Loan Banks, Suite 1000, 11921 Freedom Drive,
Reston, Virginia 22090, telephone (703) 487-9500. The FHLB are not subject to
the periodic reporting requirements of the Exchange Act.
Tennessee Valley Authority
TVA is a wholly owned corporate agency and instrumentality of the United
States of America established pursuant to the Tennessee Valley Authority Act of
1933, as amended (the "TVA Act"). TVA's objective is to develop the resources
of the Tennessee Valley region in order to strengthen the regional and national
economy and the national defense. The programs of TVA consist of power and
nonpower programs. For the fiscal year ending September 30, 1995, TVA received
$139 million in congressional appropriations from the federal government for the
nonpower programs. The power program is required to be self-supporting from
revenues it produces. The TVA Act authorizes TVA to issue evidences of
indebtedness that may be serviced only from proceeds of its power program. TVA
bonds are not obligations of or guaranteed by the United States government.
TVA prepares an Information Statement annually which describes TVA, its
business and operations and contains TVA's audited financial statements. From
time to time TVA prepares supplements to its Information Statement which include
certain unaudited financial data and other information concerning the business
and operations of TVA. Unless otherwise specified in the applicable Prospectus
Supplement, these documents can be obtained by writing or calling Tennessee
Valley Authority, 400 West Summit Hill Drive, Knoxville, Tennessee 37902-1499,
Attention: Vice President and Treasurer,
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telephone (423) 632-3366. TVA is not subject to the periodic reporting
requirements of the Exchange Act.
Federal Farm Credit Banks
The Farm Credit System is a nationwide system of lending institutions
and affiliated service and other entities (the "System"). Through its Banks
("FCBs") and related associations, the System provides credit and related
services to farmers, ranchers, producers and harvesters of aquatic products,
rural homeowners, certain farm-related businesses, agricultural and aquatic
cooperatives and rural utilities. System institutions are federally chartered
under the Farm Credit Act of 1971, as amended (the "Farm Credit Act"), and are
subject to regulation by a Federal agency, the Farm Credit Administration (the
"FCA"). The FCBs and associations are not commonly owned or controlled. They
are cooperatively owned, directly or indirectly, by their respective borrowers.
Unlike commercial banks and other financial institutions that lend to the
agricultural sector in addition to other sectors of the economy, under the Farm
Credit Act the System institutions are restricted solely to making loans to
qualified borrowers in the agricultural sector, to certain related businesses
and to rural homeowners. Moreover, the System is required to make credit and
other services available in all areas of the nation. In order to fulfill its
broad statutory mandate, the System maintains lending units in all 50 states and
the Commonwealth of Puerto Rico.
The System obtains funds for its lending operations primarily from the
sale of debt securities issued under Section 4.2(d) of the Farm Credit Act
("Systemwide Debt Securities"). The FCBs are jointly and severally liable on all
Systemwide Debt Securities. Systemwide Debt Securities are issued by the FCBs
through the Federal Farm Credit Banks Funding Corporation, as agent for the FCBs
(the "Funding Corporation").
Information regarding the FCBs and the Farm Credit System, including
combined financial information, is contained in disclosure information made
available by the Funding Corporation. This information consists of the most
recent Farm Credit System Annual Information Statement and any Quarterly
Information Statements issued subsequent thereto and certain press releases
issued from time to time by the Funding Corporation. Unless otherwise specified
in the applicable Prospectus Supplement, such information and the Farm Credit
System Annual Report to Investors for the current and two preceding fiscal years
are available for inspection at the Federal Farm Credit Banks Funding
Corporation, Investment Banking Services Department, 10 Exchange Place, Suite
1401, Jersey City, New Jersey 07302; telephone (201) 200-8000. Upon request,
the Funding Corporation will furnish, without charge, copies of the above
information. The FCBs are not subject to the periodic reporting requirements of
the Exchange Act.
UNDERLYING ENHANCEMENT
General
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For any Series, Underlying Enhancement may be provided with respect to
one or more Classes thereof. Underlying Enhancements for a Series may consist
of Reserve Funds, Financial Guaranty Insurance, Letters of Credit or other types
of credit support or liquidity facilities that are intended to enhance the cash
flows derived from the Underlying Securities. If so specified in the related
Prospectus Supplement, any form of Underlying Enhancement may be structured so
as to be drawn on by more than one Series to the extent described therein.
Structural Enhancements, discussed below, are not considered part of the
Underlying Assets but are enhancements resulting from the structural elements of
the Securities of the applicable Series.
Underlying Enhancement will not provide protection against all risks of
loss and will not guarantee repayment of the entire principal balance of the
Securities and interest thereon. If losses occur which exceed the amount
covered by Underlying Enhancement or which are not covered by the Underlying
Enhancement, Securityholders, as applicable, will bear their allocable share of
deficiencies. Moreover, if a form of Underlying Enhancement covers more than
one Series of Securities (each, an "Enhanced Series"), Holders of Securities of
another Enhanced Series covered by the same Underlying Enhancement will be
subject to the risk that such Underlying Enhancement will be exhausted by the
claims of such other Enhanced Series before such Enhanced Series receives any of
its intended share of such coverage.
If Underlying Enhancement is provided with respect to a Series, the
related Prospectus Supplement will include a description of (i) the amount
payable under such Underlying Enhancement, (ii) any conditions to payment
thereunder not otherwise described herein, (iii) the conditions (if any) under
which the amount payable under such Underlying Enhancement may be reduced and
under which such Underlying Enhancement may be terminated or replaced and (iv)
the material provisions of any agreement relating to such Underlying
Enhancement. Additionally, the related Prospectus Supplement will set forth
certain information with respect to the issuer of any Underlying Enhancement,
including the identity and rating, if any, of such issuer.
Reserve Funds
One or more Reserve Funds may be established with respect to a Series,
in which cash, a letter of credit, Eligible Investments, a demand note or a
combination thereof, in the amounts, if any, so specified in the related
Prospectus Supplement may be deposited. The Reserve Funds for a Series also may
be funded over time by depositing therein a specified amount of the
distributions received on the related Underlying Assets as specified in the
related Prospectus Supplement.
Amounts on deposit in any Reserve Fund for a Series, together with the
reinvestment income thereon, if any, will be applied for the purposes, in the
manner and to the extent specified in the related Prospectus Supplement. A
Reserve Fund may be provided to increase the likelihood of timely payments or
distributions of principal of or interest on the Securities, if required as a
condition to the rating of such Series by each Rating Agency, or to reduce the
likelihood of special redemptions with respect to any Series. If so specified
in the related Prospectus Supplement, Reserve Funds may be established to
provide limited protection,
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in an amount satisfactory to each Rating Agency, against certain types of losses
not covered by insurance policies or other credit support, such as losses
arising from damage not covered by standard hazard insurance policies. Following
each Payment Date amounts in such Reserve Fund in excess of any amount required
to be maintained therein may be released from the Reserve Fund under the
conditions and to the extent specified in the related Prospectus Supplement and
will not be available for further application.
Moneys deposited in any Reserve Funds will be invested in Eligible
Investments. Any reinvestment income or other gain from such investments will be
credited to the related Reserve Fund for such Series, and any loss resulting
from such investments will be charged to such Reserve Fund.
Additional information concerning any Reserve Fund will be set forth in
the related Prospectus Supplement, including the initial balance of such Reserve
Fund, the balance required to be maintained in the Reserve Fund, the manner in
which such required balance will decrease over time, the manner of funding such
Reserve Fund, the purposes for which funds in the Reserve Fund may be applied to
make payments or distributions to Securityholders and use of investment earnings
from the Reserve Fund, if any.
Financial Guaranty Insurance
If so specified in the related Prospectus Supplement, Financial Guaranty
Insurance in the form of an insurance policy or surety bond with respect to a
Series of Securities will be provided by one or more insurance companies. Such
Financial Guaranty Insurance, if any, will guarantee, with respect to one or
more Classes of Securities of the related Series, timely distributions of
interest and full distributions of principal on the basis of a schedule of
principal distributions set forth or determined in the manner specified in the
related Prospectus Supplement. If so specified in the related Prospectus
Supplement, Financial Guaranty Insurance will also guarantee against any payment
made to a Securityholder which is subsequently recovered as a "voidable
preference" payment under the Bankruptcy Code. A copy of the Financial Guaranty
Insurance for a Series, if any, will be filed with the SEC as an exhibit to a
Current Report on Form 8-K to be filed with the SEC within 15 days of issuance
of the Securities of the related Series.
Letter of Credit
If so specified in the related Prospectus Supplement, the Letter of
Credit with respect to a Series of Securities will be issued by the Letter of
Credit Issuer specified in such related Prospectus Supplement. Under the Letter
of Credit, the Letter of Credit Issuer will be obligated to honor drawings
thereunder in an aggregate fixed dollar amount, net of unreimbursed prior
payments thereunder, equal to the Letter of Credit Percentage specified in the
related Prospectus Supplement. If so specified in the related Prospectus
Supplement, the Letter of Credit may permit drawings in the event of losses not
covered by insurance policies or other credit support, such as losses arising
from damage not covered by standard hazard insurance policies. The obligations
of the Letter of Credit Issuer under the Letter of Credit for each Series
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of Securities will expire at the earlier of the date specified in the related
Prospectus Supplement and the termination of the applicable Governing Document,
as the case may be. A copy of the Letter of Credit for a Series, if any, will be
filed with the SEC as an exhibit to a Current Report on Form 8-K to be filed
within 15 days of issuance of the Securities of the related Series.
SWAP AGREEMENTS
A Series may include one or more Swap Agreements as Underlying Assets.
Swap Agreements may include interest rate swaps, interest rate caps and interest
rate floors relating to the interest rates of the Underlying Securities and the
Securities of the related Series.
Interest rate swaps involve the exchange by the Issuer with another
party of their respective commitments to pay or receive amounts computed by
reference to a fixed rate or a floating rate index and a notional principal
amount (the reference amount with respect to which such obligations are
determined, although no actual exchange of such amount occurs), such as an
exchange of floating rate payments for fixed rate payments. The payments
exchanged by the parties are the product of the rate commitments of each
multiplied by the notional principal amount, however, no payments of principal
are ever made. An interest rate cap entitles the purchaser thereof, to the
extent that a specified index exceeds a predetermined interest rate, to receive
payments computed by reference to a fixed rate or a floating rate index and a
notional principal amount from the party selling such interest rate cap. An
interest rate floor entitles the purchaser thereof, to the extent that a
specified index falls below a predetermined interest rate, to receive payments
computed by reference to a fixed rate or a floating rate index and a notional
principal amount from the party selling such interest rate floor. Certain of
the Swap Agreements may be contracted with and/or guaranteed by specified
affiliates of the Company.
The Issuer will usually enter into Swap Agreements on a net basis: that
is, where the two parties are each required to make a payment, the Issuer will
receive or pay, as the case may be, only the net amount of the two payments.
The Issuer may enter into Swap Agreements with affiliates of the Company, member
banks of the Federal Reserve System, affiliates of members of the New York Stock
Exchange or other entities. The Issuer will therefore be subject to the credit
risk of its counterparties. If such a counterparty should default, the Issuer
will have contractual remedies pursuant to the agreements related to the
transaction but such remedies may be subject to bankruptcy and insolvency laws
which could affect the Issuer's rights as a creditor. The swap market has grown
substantially in recent years, with a large number of banks and financial
services firms acting both as principals and as agents using standardized swap
documentation. As a result, the market for certain common interest rate swaps
has become relatively liquid. Caps and floors are more recent innovations and
are less liquid than swaps. There can be no assurance, however, that the Issuer
will be able to enter into interest rate swaps or to purchase interest rate caps
or floors at prices or on terms that are advantageous to the Issuer. In
addition, although the terms of interest rate swaps, caps and floors may provide
for termination, there can be no assurance that the Issuer will be able to
terminate an interest rate swap or to sell or offset interest rate caps or
floors that it has purchased.
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The Swap Agreements to be included in any Series will be contracts that
are expected not to be subject to the Securities Act or the Commodity Exchange
Act, and therefore to be unregulated by the SEC and the CFTC. In addition, it
is not expected that such Swap Agreements will be regulated by the Comptroller
of the Currency or the Federal Reserve Board. However, no assurance can be given
that none of the SEC, the CFTC, the Comptroller of the Currency and the Federal
Reserve Board will assert jurisdiction over such contracts. If the CFTC were to
assert jurisdiction successfully, such contracts could be characterized as
illegal off-exchange futures contracts. In such case, the right to receive
payments under the contracts would be limited or extinguished.
The 1992 Act amended the CEA to authorize the CFTC to exempt any
agreement, contract or transaction that otherwise would be subject to the CEA,
either unconditionally or on stated terms or conditions or for stated periods,
from the substantive requirements of the CEA. In particular, the CFTC was
authorized to exempt certain derivative instruments from the requirement that
they be traded on exchanges designated by the CFTC (the "exchange-traded
requirement"). The CFTC has promulgated rules exempting from all provisions of
the CEA, including the exchange-traded requirement, certain swap transactions
and certain so-called "hybrid instruments", which have features of both debt or
equity securities and futures or options contracts, except that certain swap
transactions remain subject to certain antifraud provisions. To be exempt from
the CEA under this regulatory safe harbor: (i) the swap must be entered into
solely between eligible swap participants (as defined in the CFTC rules); (ii)
the swap must not be part of a fungible class of agreements that are
standardized as to their material economic terms; (iii) the creditworthiness of
the parties must be a material consideration in entering into or determining the
terms of the swap agreement, including price; and (iv) the swap must not be
entered into and traded on or through a multilateral transaction execution
facility. The regulatory safe harbor is non-exclusive; thus, derivative
instruments falling outside its scope may be exempt from CEA provisions by
virtue of other, potentially broader, safe harbors.
Each Swap Agreement (i) unless otherwise set forth in the related
Prospectus Supplement, will be based upon the standard forms prepared by the
International Swaps and Derivatives Association, Inc., (ii) will provide that
the related counterparty will be obligated to make such payments and the Trust
will be obligated to make such payments, each as are described in the related
Prospectus Supplement, (iii) may be subject to termination by either party
thereto upon the occurrence of certain events, which events, if applicable, will
be described in the related Prospectus Supplement, (iv) may provide for the
payment of certain amounts by the Trust or the counterparty upon the termination
thereof, which amounts, if applicable, will be described in the related
Prospectus Supplement and (v) may include other provisions which, to the extent
applicable and material, will be described in the related Prospectus Supplement.
In addition, the Prospectus Supplement for a Series including one or
more Swap Agreements as Underlying Assets will specify, to the extent
applicable: (i) the types of Swap Agreements included; (ii) a description of
each Swap Agreement; (iii) the aggregate amount, notional or otherwise, of each
Swap Agreement; (iv) the identity of all counterparties and guarantors; (v) the
credit characteristics of any such counterparty or guarantor, including any
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special risk factors; (vi) the types of interest rate fluctuations to which each
Swap Agreement is expected to be most sensitive; (vii) the term of each Swap
Agreement; (viii) the means by which each counterparty to a Swap Agreement
receives consideration for its obligations with respect to such Swap Agreement
(for example, a single upfront payment may be made to such counterparty at the
time of issuance of such Series, or cash flows from other Underlying Assets, in
specified amounts, may be payable to such counterparty); (ix) the effect of
inclusion of such Swap Agreements in the Underlying Assets; (x) the existence
and type of information that is made publicly available by certain
counterparties or guarantors, including where and how purchasers of Securities
may obtain such publicly available information with respect to such
counterparties or guarantors; (xi) any special risk factors associated with a
novel or unique Swap Agreement; and (xii) certain summary financial information
or audited financial statements (or reference to filings with the SEC containing
such information or statements, if such counterparty or guarantor is eligible to
issue securities pursuant to Instruction I.B.1 of Form S-3 at the time of
issuance of such Series) with respect to a counterparty or guarantor, if the
Swap Agreement to which such counterparty or guarantor is a party comprises more
than 10% or more than 20% respectively, of the value of the Underlying Assets
with respect to such Series (based on the then discounted present value of all
expected cash flows, on a net basis). The calculation of the discounted present
value of the expected cash flows, on a net basis, with respect to any Swap
Agreement will be calculated by the Company in good faith, based on the terms of
the Swap Agreement, using customary methodologies and market practices (e.g.,
with respect to the applicable discount rate, discount period, and other
applicable variables). For the proposes of the foregoing, the Company will
assume that the Swap Agreement is not terminated prior to the expiration of the
term thereof. The Prospectus Supplement also may disclose certain information
relating to the availability of financial information on counterparties and
guarantors, if any.
GUARANTEED INVESTMENT CONTRACT
If specified in the related Prospectus Supplement, on or prior to the
Delivery Date the Issuer will obtain a Guaranteed Investment Contract with a
guarantor acceptable to the Rating Agencies rating the Securities (the
"Guarantor"), pursuant to which certain distributions on the Underlying Assets
will be invested by the Trustee with the Guarantor, and the Guarantor will pay
interest at the rate per annum set forth in such Guaranteed Investment Contract
on amounts invested. Whenever funds are required to be paid to the
Securityholders, the Guarantor will remit such funds to the Trustee.
OTHER UNDERLYING ENHANCEMENTS
Certain terms of any other Underlying Enhancements, which may include
guaranties, credit support and liquidity facilities, will be set forth in the
related Prospectus Supplement.
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COLLECTION ACCOUNT
A separate Collection Account for each Series will be established by the
Trustee, or if the Trustee is not also the Paying Agent by the Paying Agent, for
receipt of all monthly principal and interest payments on the Underlying
Securities with respect to such Series and the amount of cash, if any, to be
initially deposited therein by the Issuer, Reinvestment Income, if any, thereon
and any amounts withdrawn from any Reserve Funds for such Series. If specified
in the related Prospectus Supplement, Reinvestment Income, if any, or other gain
from investments of moneys in the Collection Account will be credited to the
Collection Account for such Series and any loss resulting from such investments
will be charged to such Collection Account. See "Investment of Funds" below.
Funds on deposit in the Collection Account will be available for application to
the payment of principal of and interest on the Securities of the related Series
and for certain other payments to the extent provided for in the Indenture or
Trust Agreement and described in the related Prospectus Supplement. Unless
otherwise provided in the Prospectus Supplement, no amount of Available Funds
will be payable to the Issuer.
OTHER FUNDS OR ACCOUNTS
A Series may also be secured by certain other funds and accounts for the
purpose of, among other things, paying certain administrative fees and operating
expenses and accumulating funds that are credited to the Issuer's account
pending their distribution to the Issuer.
INVESTMENT OF FUNDS
Except to the extent otherwise provided in the related Prospectus
Supplement, moneys in the Collection Account and certain other funds and
accounts for a Series are to be invested by the Trustee, as directed by the
Company, in certain Eligible Investments acceptable to each Rating Agency rating
such Series, which will consist of one or more of the following: (i) obligations
of, or guaranteed as to both full and timely payment of principal and interest
by, the United States or any agency or instrumentality thereof when such
obligations are backed by the full faith and credit of the United States and
repurchase agreements with respect to any such obligations entered into with an
Eligible Institution; (ii) federal funds, certificates of deposit, time deposits
and bankers' acceptances, each of which shall not have an original maturity of
more than 90 days, of any depository institution or trust company incorporated
under the laws of the United States or any state; provided that the short-term
obligations of such depository institution or trust company shall be (a) rated
at least A-1+/P-1 by S&P and Moody's, respectively, (b) if Fitch is a Rating
Agency under the Governing Document, rated at least F-1 (for investments having
an original maturity of 30 days or less) or F-1+ (for investments having an
original maturity of more than 30 days) by Fitch and (c) if Duff & Phelps is a
Rating Agency under the Governing Document, and if Duff & Phelps rates such
obligations, rated at least D-1 by Duff & Phelps; and (iii) commercial paper
(having original maturities of not more than 180 days) of any corporation
incorporated under the laws of the United States or any state thereof; provided
that such commercial paper shall be (a) rated at least A-1+/P-1 by S&P and
Moody's, respectively, (b) if Fitch is a Rating Agency under the
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Governing Document, rated at least F-1 (for investments having an original
maturity of 30 days or less) or F-1 + (for investments having an original
maturity of more than 30 days) by Fitch and (c) if Duff & Phelps is a Rating
Agency under the Governing Document, and if Duff & Phelps rates such commercial
paper, rated at least D-1 by Duff & Phelps; provided, however, that (x) no
instrument will be an Eligible Investment if such instrument evidences a right
to receive only interest payments with respect to the obligations underlying
such instrument or if such instrument has a maturity date after the next
scheduled Payment Date and (y) no overnight instrument will be an Eligible
Investment unless it is an investment in overnight federal funds or in an
overnight repurchase agreement described in clause (i) above.
Any net income and gain (or loss) from such investments for a Series
will be deemed added to (or deducted from) the Collection Account for such
Series and the Trustee will have no liability therefor.
STRUCTURAL ENHANCEMENT
GENERAL
Structural Enhancements for a Series may consist of
overcollateralization, senior/subordinated structures, groupings of Underlying
Assets and other structural elements of the Series.
OVERCOLLATERALIZATION
To the extent specified in the related Prospectus Supplement, a Series
may be structured such that the Aggregate Discounted Amount of the Underlying
Assets relating to a Series may exceed the Aggregate Outstanding Principal of
such Series, thereby resulting in overcollateralization.
SENIOR/SUBORDINATED STRUCTURES
One or more Classes of a Series may be Subordinated Securities. The
rights of the Holders of Subordinated Securities to receive distributions of
principal and interest from the Collection Account on any Payment Date will be
subordinated to such rights of the Holders of Senior Securities to the extent
specified in the related Prospectus Supplement. The amount of subordination
will decrease whenever amounts otherwise payable to the Holder of Subordinated
Securities are paid to the Holders of Senior Securities (including amounts
withdrawn from any related Reserve Fund and paid to the Holders of Senior
Securities), and will increase whenever there is distributed to the Holders of
Subordinated Securities amounts in respect of which subordination payments have
previously been paid to the Holders of Senior Securities. The related Governing
Document may require a trustee that is not the Trustee to be appointed to act on
behalf of Holders of Subordinated Securities.
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A Series may include one or more Classes of Subordinated Securities
entitled to receive cash flows remaining after distributions are made to all
other Classes designated as being senior thereto. Such right will effectively
be subordinate to the rights of other Holders of Senior Securities, but will not
be limited to a specified dollar amount of subordination. If so specified in
the related Prospectus Supplement, the subordination of a Class may apply only
in the event of (or may be limited to) certain types of losses not covered by
insurance policies or other credit support.
The related Prospectus Supplement will set forth information concerning
the amount of subordination of a Class or Classes of Subordinated Securities in
a Series, the circumstances in which such subordination will be applicable, the
manner, if any, in which the amount of subordination will decrease over time,
the manner of funding any related Reserve Fund and the conditions under which
amounts in any related Reserve Fund will be used to make distributions to
Holders of Senior Securities and/or to Holders of Subordinated Securities or be
released. If cash flows otherwise distributable to Holders of Subordinated
Securities secured by a Group will be used as credit support for Senior
Securities secured by another Group, the related Prospectus Supplement will
specify the manner and conditions for applying such a cross-support feature.
GROUPINGS OF UNDERLYING ASSETS
If the Underlying Assets are divided into separate Groups, each securing
or supporting a separate Class or Classes of a Series, and the related
Prospectus Supplement so provides, credit support may be provided by a cross-
support feature or cross-collateralization. Pursuant to a cross-support feature,
on any Payment Date, distributions will be made with respect to Senior
Securities relating to one Group prior to distributions to Subordinated
Securities secured by another Group. Pursuant to cross-collateralization,
Securities are allocated losses and shortfalls from one or more Groups before
such losses are allocated to the Senior Securities relating to such Group or
Groups and are subordinate in right of payment to one or more Classes of
Securities relating to one or more Groups.
OTHER STRUCTURAL ENHANCEMENTS
The Prospectus Supplement will specify any additional enhancement
applicable to Securities of a Series, with respect to, for example, shortfalls
arising due to cross-collateralization, differences in the Indices on the
Securities of a Series and the interest rates on the Underlying Assets,
insufficient cash flows from the Underlying Assets or for other reasons.
THE INDENTURE
The following summaries describe various material provisions of the
Indenture. Certain terms used below are used with the meanings ascribed to them
in the Indenture.
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CERTAIN COVENANTS
The Issuer may not liquidate or dissolve, without the consent of the
Holders of at least 66 2/3% of the Voting Rights of each Series of Bonds. The
Issuer also may not consolidate or merge with or into any other Person or convey
or transfer its properties and assets substantially as an entirety unless (i)
such consolidation or merger shall have been consented to by Holders of at least
66 2/3% of the Voting Rights of each Series of Bonds, (ii) the Person (if other
than the Issuer) formed or surviving such transaction or acquiring such assets
is a Person organized under the laws of the United States of America or any
State and shall have expressly assumed, by supplemental indenture in form
satisfactory to the Trustee, the due and punctual payment of principal of and
interest on all Bonds and the performance of every applicable covenant of the
Indenture to be performed by the Issuer, (iii) immediately after giving effect
to such transaction, no Default or Event of Default shall have occurred and be
continuing, (iv) the Trustee shall have received a letter from each Rating
Agency rating any outstanding Bonds to the effect that the rating issued with
respect to such Bonds is confirmed notwithstanding the consummation of such
transaction and (v) the Trustee shall have received from the Issuer an Officers'
Certificate and an Opinion of Counsel, each to the effect that, among other
things, such transaction complies with the foregoing requirements.
The Issuer may not incur, assume, have outstanding or guarantee any
indebtedness except pursuant to the Indenture and subject to the conditions and
limitations set forth therein. No such indebtedness will be secured by any
Underlying Assets of any Series.
MODIFICATION OF INDENTURE
Except as set forth below, with the consent of the Holders of not less
than a majority of the Voting Rights of each Series or Class of such Series of
Bonds to be affected, the Trustee and the Issuer may amend the Indenture or
execute a supplemental indenture to add provisions to or change or eliminate any
provisions of the Indenture relating to such Series or modify the rights of the
Holders of the Bonds of that Series.
Without the consent of the holder of each outstanding Bond affected,
except as provided below, no such amendment or supplemental indenture may (i)
change any Payment Date or the Final Scheduled Payment Date of any Bond or
reduce the principal amount thereof, the Bond Interest Rate for any Bond or the
Redemption Price with respect thereto, or change the provisions of the Indenture
relating to the application of the Trust Estate to payment of principal of or
interest on the affected Bonds, or change any place of payment where, or the
coin or currency in which, any affected Bond or any interest thereon is payable,
or impair the right to institute suit for the enforcement of the provisions of
the Indenture regarding payment, (ii) reduce the percentage of Voting Rights of
the Bonds of the affected Series (or Class of such Series), the consent of the
Holders of which is required for the authorization of any amendment or
supplemental indenture or for any waiver of compliance with certain provisions
of the Indenture or certain defaults thereunder and their consequences, (iii)
modify or alter the provisions of the Indenture defining the term "Outstanding",
(iv) permit the creation of any lien ranking prior to or on a parity with the
lien of the Indenture with respect to any part of the
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property subject to the lien of the Indenture or terminate the lien of the
Indenture on any property at any time subject thereto or deprive the holder of
any Bond of the security afforded by the lien of the Indenture, (v) reduce the
percentage of the Voting Rights of the Bonds of any Series (or Class of such
Series), the consent of the Holders of which is required to direct the Trustee
to liquidate the Underlying Assets for such Series (or Class of such Series),
(vi) modify any of the provisions of the Indenture if such modification affects
the calculation of the amount of any payment of interest or principal due and
payable on any Bond on any Payment Date or to affect the rights of the Holders
of Bonds of any Series (or Class of such Series) to the benefit of any
provisions for the mandatory redemption of Bonds of such Series (or Class of
such Series) contained therein or in the related Series Supplement, or (vii)
modify the provisions of the Indenture regarding any modifications of such
Indenture requiring consent of the Holders of Bonds, except to increase the
percentage or number of Holders required to consent to such modification of such
Indenture or to provide that additional provisions of the Indenture cannot be
modified or waived without the consent of the holder of each Bond affected
thereby.
The Issuer and the Trustee may also amend the Indenture or enter into
supplemental indentures, without obtaining the consent of Holders of any Series,
(i) to cure any ambiguity, (ii) to correct or supplement any provision of the
Indenture or any supplemental indenture which may be defective or inconsistent
with any other provision therein or in the Prospectus Supplement, (iii), to make
or to amend any other provisions with respect to matters or questions arising
under the Indenture or any supplemental indenture or (iv) to comply with any
requirements of the Securities Act, the TIA, the Investment Company Act or the
Code provided that any such amendment pursuant to clause (iii) will not
materially adversely affect the interests of the Holders of the Bonds. Any such
amendment pursuant to clause (iii) of the preceding sentence will be deemed not
to adversely affect in any material respect the interests of any Holder of any
Bonds if the Trustee receives written confirmation from each Rating Agency
rating such Bonds that such amendment will not cause such Rating Agency to
reduce the then current rating thereof. Such amendments may also be made and
such supplemental indenture may also be entered into without the consent of
Bondholders to set forth the terms of and security for additional Series, to
evidence the succession of another person to the Issuer, to add to the
conditions, limitations and restrictions on certain terms of any Series and to
covenants of the Issuer, to surrender any right or power conferred on the
Issuer, to convey, transfer, assign, mortgage or pledge any property to the
Trustee, to correct or amplify the description of any property subject to the
lien of the Indenture to modify the Indenture to the extent necessary to effect
the Trustee's qualification under the TIA or comply with the requirements of the
TIA, to provide for the issuance of Bonds of any Series, to make any amendment
necessary or desirable to maintain the federal income tax status of the Issuer
or the Trust and to amend the provisions of the Indenture relating to
authentication and delivery of a Series with respect to which a supplemental
indenture has not theretofore been authorized or to evidence and provide for the
acceptance of appointment by a successor trustee.
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EVENTS OF DEFAULT
An "Event of Default" with respect to any Series is defined in the
Indenture as being: (i) a continuing default for five days in the payment of
interest on any Bond of such Series; (ii) a continuing default for five days in
the payment of principal when due of any Bond of such Series; (iii) the
impairment of the validity or effectiveness of the Indenture or any Grant
thereunder, or the subordination, termination or discharge of the lien of the
Indenture with respect to such Series, or the release of any Person from any
covenants or obligations under the Indenture with respect to such Series, unless
otherwise expressly permitted, or the creation of any lien, charge, security
interest, mortgage or other encumbrance with respect to any part of the property
subject to the lien of the Indenture, or any interest in or proceeds of such
property, unless otherwise expressly permitted, or the failure of the lien of
the Indenture to constitute a valid first priority security interest in the
property subject to the lien of the Indenture and the continuation of any of
such defaults for a period of 30 days after notice to the Issuer by the Trustee
or to the Issuer and the Trustee by the Holders of at least 25% of the Voting
Rights of such Series; (iv) a default in the observance of, or breach of, any
covenant or negative covenant of the Issuer made in the Indenture, or a material
breach of any representation or warranty of the Issuer made in the Indenture or
in any certificate or other document delivered pursuant thereto or in connection
therewith as of the time when the same shall have been made, and the
continuation of any such default or breach for a period of 60 days after notice
to the Issuer by the Trustee or to the Issuer and the Trustee by the Holders of
at least 25% of the Voting Rights of such Series (unless the default or breach
is with respect to certain covenants specified in the Indenture not requiring
such continuation or notice); and (v) certain events of bankruptcy, insolvency,
receivership or reorganization of the Issuer. Notwithstanding the foregoing, if
a Series includes a Class of Subordinated Bonds, the Indenture for such a Series
may provide that certain defaults which relate only to such Subordinated
Securities will not constitute an Event of Default with respect to the Bonds,
under certain circumstances, and it may limit the rights of Holders of
Subordinated Bonds to direct the Trustee to pursue remedies with respect to such
defaults, or other Events of Default. Such limitations, if any, will be
specified in the related Prospectus Supplement.
If an Event of Default with respect to any Series occurs and is
continuing, the Trustee may, and on the written request of the Holders of at
least 25% of the Voting Rights of such Series shall, declare all Bonds of such
Series to be due and payable, together with accrued and unpaid interest thereon.
Such declaration may in certain circumstances be rescinded by the Holders of a
majority of the Voting Rights of such Series.
The Indenture provides that the Trustee shall, within 90 days after the
occurrence of an Event of Default with respect to a Series, mail to the Holders
of such Series notice of all uncured or unwaived defaults known to it; provided,
however, that, (a) except in the case of an Event of Default in the payment of
the principal or purchase price of or interest on any Bond, the Trustee shall be
protected in withholding such notice if it determines in good faith that the
withholding of such notice is in the interest of the Bondholders of such Series,
and (b) in the case of a default specified in clause (iv) of the first paragraph
of this "Events of Default" subsection, the Trustee is not required to give such
notice until at least 30 days after the
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occurrence of such default or breach and that, in the case of any default or
breach specified in clause (v) of the first paragraph of this "Events of
Default" subsection, the Trustee is not required to give such notice until at
least 60 days after the occurrence of such default or breach.
An Event of Default with respect to one Series will not necessarily be
an Event of Default with respect to any other Series, but an Event of Default
with respect to one Class of a Series shall be an Event of Default with respect
to all Classes of such Series.
If, following an Event of Default with respect to any Series, the Bonds
of such Series have been declared to be due and payable, the Trustee in its sole
discretion may, but shall not be obligated to refrain from liquidating the
related Underlying Assets if (i) the Trustee determines that the amounts
receivable with respect to such Underlying Assets will be sufficient to pay (a)
all principal of and interest on the Bonds in accordance with their terms
without regard to the declaration of acceleration and (b) all sums due the
Trustee and any other administrative amounts required to be paid under the
Indenture and (ii) Holders of the requisite percentage of the Bonds of such
Series have not directed the Trustee to sell the related Underlying Assets as so
specified in the Indenture. In addition, the Trustee is prohibited from selling
the Trust Estate following certain Events of Default unless (a) the amounts
receivable with respect to the Underlying Assets are not sufficient to pay in
full the principal of and accrued interest on the Bonds of such Series, and to
pay sums due the Trustee and other administrative expenses specified in the
Indenture and the Trustee obtains the consent of Holders of 66 2/3% of the
Voting Rights of such Series or (b) the Trustee obtains the consent of 100% of
the Voting Rights of such Series. The terms of an Underlying Enhancement or Swap
Agreement may also grant to the provider thereof certain rights that may
restrict or prevent the Trustee from selling Underlying Assets. The proceeds of
a sale of assets will be applied to the payment of amounts due the Trustee and
other administrative expenses specified in the Indenture and then distributed
pro rata among the Bondholders of such Series (without regard to Class, provided
that Subordinated Securities will be subordinate to Senior Securities of the
Series to the extent provided in the related Prospectus Supplement) according to
the amounts due and payable on the Bonds for principal and interest at the time
such proceeds are distributed by the Trustee.
The Trustee will not be deemed to have knowledge of any Event of Default
or default described in clauses (iv) through (vi) of the first paragraph of this
"Events of Default" subsection unless an officer in the Trustee's corporate
trust department has actual knowledge thereof. Subject to the provisions of the
Indenture relating to the duties of the Trustee, in case an Event of Default
shall occur and be continuing, the Trustee will be under no obligation to
exercise any of the rights or powers under the Indenture at the request or
direction of any of the Bondholders of a Series, unless such Bondholders shall
have offered to the Trustee reasonable security or indemnity. Subject to such
provisions for indemnification and certain limitations contained in the
Indenture the Holders of a majority of the Voting Rights of a Series (or of such
Classes specified in the related Prospectus Supplement) will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee with respect to the Series. In addition, the Holders of a majority of
the Voting Rights of a Series (or of such Classes specified in the related
Prospectus Supplement) may, in certain cases, waive any default with respect to
such
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Series, except a default in payment of principal or interest or in respect of a
covenant or provision which cannot be modified without the consent of all
Bondholders affected.
No holder of Bonds of a Series will have the right to institute any
Proceeding with respect to the Indenture, unless (i) such Holder previously has
given to the Trustee written notice of a continuing Event of Default with
respect to such Series, (ii) the Holders of not less than 25% of the Voting
Rights of such Series have made written request on the Trustee to institute such
Proceeding and have offered satisfactory indemnity, (iii) the Trustee has, for
60 days after receipt of such notice, request and offer of indemnity, failed to
institute any such Proceeding, and (iv) no direction inconsistent with such
written request has been given to the Trustee during such 60-day period by the
Holders of a majority of the Voting Rights of such Series; provided, however,
that, if the Trustee receives conflicting requests and indemnities from two or
more groups of Bondholders each representing less than a majority of the Voting
Rights of such Series, the Trustee may in its sole discretion determine what
action with respect to the Proceeding, if any, shall be taken.
REPORTS TO BONDHOLDERS
Except to the extent otherwise provided in the Prospectus Supplement
related to a Series, the Trustee will prepare and forward to each Bondholder on
each Payment Date (whether or not such Bondholder receives a payment on such
date), or as soon thereafter as is practicable, a statement setting forth, to
the extent applicable to any Series, among other things:
(i) with respect to a Series, the amount of such distribution
allocable to principal on the Underlying Assets, separately identifying the
aggregate amount of any redemptions or prepayments included therein;
(ii) with respect to a Series, the amount of such distribution
allocable to interest on the Underlying Assets;
(iii) the aggregate outstanding principal balance of the
Underlying Securities as of the opening of business on the immediately
following Due Date, after giving effect to distributions allocated to
principal reported under (i) above and the payment made on the Due Date
immediately preceding such Payment Date;
(iv) the aggregate outstanding principal amount of the Bonds of
such Series as of the immediately following Due Date, after giving effect to
distributions allocated to principal reported under (i) above and the payment
made on the Due Date immediately preceding such Payment Date;
(v) in the case of Variable Rate Bonds, the Variable Interest Rate
applicable to the distribution being made;
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(vi) with respect to Accrual Bonds prior to the Accrual Termination
Date, in addition to the information specified in (i) above, the amount of
interest accrued on such Bonds during the related Interest Accrual Period and
added to the Compound Value thereof;
(vii) if applicable, the amount of any shortfall (i.e., the
difference between the aggregate amounts of principal and interest which
Bondholders would have received if there were sufficient Available Funds to
distribute and the amounts actually distributed);
(viii) if applicable, the number and aggregate principal balances
of Underlying Assets delinquent for (a) two consecutive payments and (b)
three or more consecutive payments, as of the close of the business on the
Determination Date to which such distribution relates;
(ix) in the case of any Underlying Enhancement described in the
related Prospectus Supplement, the amount of coverage of such credit support
as of the close of business on the applicable Payment Date;
(x) in the case of any Series which includes Subordinated Bonds,
the subordinated amount, if any, determined as of the related Payment Date
and if the distribution to the Holders of Senior Bonds is less than their
required distribution, the amount of the shortfall;
(xi) the amount of any withdrawal from any applicable Reserve Fund
included in amounts actually distributed to Bondholders and the remaining
balance of each Reserve Fund, if any, on such Payment Date, after giving
effect to distributions made on such date; and
(xii) such other information as may be specified in the Indenture.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee will furnish to each Bondholder of record at any time
during such calendar year: (A) the aggregate of amounts reported pursuant to (i)
through (iii), (vi), (vii) and (xi) above for such calendar year and (B) such
information specified in the Indenture to enable Bondholders to prepare their
tax returns, including the amount of original issue discount accrued on the
Bonds, if applicable. Information in the Payment Date reports and annual
reports provided to the Bondholders will not have been examined and reported
upon by an independent public accountant.
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AUTHENTICATION AND DELIVERY OF BONDS
The Issuer may from time to time deliver Bonds executed by it to the
Trustee and order that the Trustee authenticate such Bonds. On the receipt of
such Bonds and such order and subject to the Issuer's compliance with certain
conditions specified in the Indenture, the Trustee will authenticate and deliver
such Bonds as the Issuer may direct. The Trustee will be authorized to appoint
an Authenticating Agent for purposes of authenticating and delivering any Series
of Bonds.
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture will be discharged as to a Series (except with respect
to certain continuing rights specified in the Indenture), (i)(a) on the delivery
to the Trustee for cancellation of all the Bonds of such Series other than Bonds
which have been mutilated, lost or stolen and have been replaced or paid and
Bonds for which money has been deposited in trust for the full payment thereof
(and thereafter repaid to the Issuer and discharged from such trust) as provided
in the Indenture, or (b) at such time as all Bonds of such Series not previously
cancelled by the Trustee have become, or within one year will become, due and
payable or called for redemption and the Issuer shall have deposited with the
Trustee an amount sufficient to repay all of the Bonds and (ii) when the Issuer
shall have paid all other amounts payable under the Indenture with respect to
such Series.
ISSUER'S ANNUAL COMPLIANCE STATEMENT
The Issuer will be required to file annually with the Trustee a
written statement as to fulfillment of its obligations under the Indenture.
PASS THROUGH OF VOTING RIGHTS
The Trustee shall seek instructions from Bondholders of a Series in
connection with any vote, consent or waiver required in respect of any related
Underlying Asset. Except as otherwise provided in the Prospectus Supplement,
the Trustee shall direct any action or cast any vote as the holder of such
Underlying Asset in proportion to the Aggregate Outstanding Principal of Bonds
held by Bondholders of such Series taking the corresponding position. The
Prospectus Supplement will specify whether and under what circumstances voting
in such cases will be by Class.
LIST OF BONDHOLDERS
Three or more Holders of a Series that have each owned the Bonds for
at least six months may, by written application to the Trustee, request access
to the list maintained by the Trustee of all Holders of the same Series or of
all Bonds, as specified in the request, for the purpose of communicating with
other Bondholders with respect to their rights under the Indenture. The Trustee
may choose not to give such Bondholders access to the list of Bondholders if it
wishes to mail the communication on behalf of the requesting Bondholders, at
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their expense, to all Bondholders. If the Trustee objects to the proposed
mailing on the grounds that it would be contrary to the best interests of the
Bondholders or a violation of applicable law, it may request permission from the
SEC not to make the proposed mailing.
MEETINGS OF BONDHOLDERS
Meetings of Bondholders may be called at any time and from time to
time to (i) give any notice to the Issuer or to the Trustee, give directions to
the Trustee, consent to the waiver of any Default or Event of Default under the
Indenture, or to take any other action authorized to be taken by Bondholders in
connection therewith, (ii) remove the Trustee and to appoint a successor
Trustee, (iii) consent to the execution of supplemental indentures or (iv) take
any other action authorized to be taken by or on behalf of the Bondholders of
any specified percentage of the Voting Rights of the Bonds. Such meetings may
be called by the Trustee, the Issuer or by the Holders of 10% in Voting Rights
of any such Series.
TRUSTEE'S ANNUAL REPORT
The Trustee will be required to mail each year to all Bondholders a
brief report relating to its eligibility and qualification to continue as the
Trustee under the Indenture, any amounts advanced by it under the Indenture
which remain unpaid on the date of the report, the amount, interest rate and
maturity date of certain indebtedness owing by the Issuer (or any other obligor
on such Series) to the Trustee in its individual capacity, the property and
funds physically held by the Trustee as such, any release or releases and
substitution of property subject to the lien of the Indenture which has not been
previously reported, any additional issuance of Bonds not previously reported
and any action taken by it which materially affects the Bonds and which has not
been previously reported.
THE TRUSTEE
The Trustee will be a bank or trust company qualified under the TIA
and named in the Prospectus Supplement related to a Series. The Issuer may
maintain other banking relationships in the ordinary course of business with the
Trustee. The Trustee's "Corporate Trust Office" will be specified in the
Prospectus Supplement, or at such other addresses as the Trustee may designate
from time to time by notice to the Bondholders and the Issuer. With respect to
the presentment and surrender of Bonds for final payment of principal in
retirement thereof on any Payment Date, Redemption Date, Special Payment Date or
Special Redemption Date, and with respect to any other presentment and surrender
of such Bonds and for all other purposes, such Bonds may be presented at the
Corporate Trust Office of the Trustee or at the office of the Issuer's Paying
Agent, which will be specified in the Prospectus Supplement.
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THE TRUST AGREEMENT
The following summaries describe various material provisions of the
Trust Agreement. Certain terms used below are used with the meanings ascribed
to them in the Trust Agreement.
ASSIGNMENT OF ASSETS
The Company will organize each Trust by causing the Trustee to file a
certificate of trust with respect to such Trust in the appropriate offices in
the State of Delaware. Thereafter, the Company or one of its affiliates will
sell, transfer, convey and assign to the Trustee all right, title and interest
of the Company or such affiliate in the Underlying Assets to be included in the
Trust for a Series (other than any of the Underlying Assets to be acquired by
the Trust directly from third parties (e.g., Swap Agreements) ("Directly
Acquired Assets")). Such sale, transfer, conveyance and assignment will include
all principal and interest due on or with respect to the Underlying Securities
after the date specified in the related Series Supplement. Such sale, transfer,
conveyance and assignment will be in consideration either for the Trust
Certificates or for cash in an amount equal to the net proceeds realized by the
Trust upon the sale of the Trust Certificates to investors, less any amounts
paid by the Trust for Directly Acquired Assets. The Trustee will, concurrently
with such assignment, execute and deliver the Trust Certificates. Each
Underlying Asset will be identified in an Asset Schedule in the related Series
Supplement. Such Asset Schedule will specify with respect to each Underlying
Security: the original principal amount and unpaid principal balance; the
current interest rate; the scheduled payments of principal and interest; the
maturity date of the related obligation; if the Underlying Security is an
adjustable rate Underlying Security, the lifetime interest rate cap, if any, and
the Index; and, if the related obligation has other than fixed scheduled
payments and level amortization, the terms thereof.
The Company or one of its affiliates or designees shall, in connection
with each sale, transfer, conveyance and assignment of Underlying Assets to a
Trust, be deemed to have represented to the Trustee that the Underlying Assets
transferred by it in connection therewith are transferred free and clear of any
right, charge, security interest, lien, pledge, encumbrance or claim of it
(other than the right to have such Underlying Assets held in trust by the
Trustee under the Trust Agreement and to have one or more Trust Certificates
issued to evidence ownership of such Underlying Assets and the other rights and
claims with respect to such Underlying Assets, the proceeds thereof and such
Trust Certificates as provided for in the Trust Agreement).
The Company's only source of funds to effect any cure, repurchase or
substitution will be through the enforcement of the corresponding obligations of
the seller of such Underlying Assets. See "Risk Factors".
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REPORTS TO TRUST CERTIFICATEHOLDERS
Except to the extent otherwise provided in the Prospectus Supplement
related to a Series, the Trustee will prepare and forward to each Trust
Certificateholder on each Payment Date (whether or not such Trust
Certificateholder receives a payment on such date), or as soon thereafter as is
practicable, a statement setting forth, to the extent applicable to any Series,
among other things:
(i) with respect to a Series, the amount of such distribution
allocable to principal on the Underlying Assets, separately identifying the
aggregate amount of any redemptions or prepayments included therein;
(ii) with respect to a Series, the amount of such distribution
allocable to interest on the Underlying Assets;
(iii) the aggregate outstanding principal balance of the
Underlying Securities as of the opening of business on the immediately
following Due Date, after giving effect to distributions allocated to
principal reported under (i) above and the payment made on the Due Date
immediately preceding such Payment Date;
(iv) the aggregate outstanding principal amount of the Trust
Certificates of such Series as of the immediately following Due Date, after
giving effect to distributions allocated to principal reported under (i)
above and the payment made on the Due Date immediately preceding such Payment
Date;
(v) in the case of Variable Rate Trust Certificates, the Variable
Interest Rate applicable to the distribution being made;
(vi) with respect to Accrual Trust Certificates prior to the
Accrual Termination Date, in addition to the information specified in (i)
above, the amount of interest accrued on such Trust Certificates during the
related Interest Accrual Period and added to the Compound Value thereof;
(vii) if applicable, the amount of any shortfall (i.e., the
difference between the aggregate amounts of principal and interest which
Trust Certificateholders would have received if there were sufficient
Available Funds to distribute and the amounts actually distributed);
(viii) if applicable, the number and aggregate principal balances
of Underlying Assets delinquent for (a) two consecutive payments and (b)
three or more consecutive payments, as of the close of the business on the
Determination Date to which such distribution relates;
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(ix) in the case of any Underlying Enhancement described in the
related Prospectus Supplement, the amount of coverage of such credit support
as of the close of business on the applicable Payment Date;
(x) in the case of any Series which includes Subordinated Trust
Certificates, the subordinated amount, if any, determined as of the related
Payment Date and if the distribution to the Holders of Senior Trust
Certificates is less than their required distribution, the amount of the
shortfall;
(xi) the amount of any withdrawal from any applicable Reserve Fund
included in amounts actually distributed to Trust Certificateholders and the
remaining balance of each Reserve Fund, if any, on such Payment Date, after
giving effect to distributions made on such date; and
(xii) such other information as may be specified in the Trust
Agreement.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee will furnish to each Trust Certificateholder of
record at any time during such calendar year: (A) the aggregate of amounts
reported pursuant to (i) through (iii), (vi), (vii) and (xi) above for such
calendar year and (B) such other information specified in the Trust Agreement to
enable Trust Certificateholders to prepare their tax returns, including the
amount of original issue discount accrued on the Trust Certificates, if
applicable. Information in the Payment Date and annual reports provided to the
Trust Certificateholders will not have been examined and reported upon by an
independent public accountant.
EVENT OF DEFAULT
An Event of Default under the Trust Agreement for each Series occurs
if an Underlying Issuer, provider of Underlying Enhancement or a Swap Agreement
counterparty defaults on a payment required to be made by it with respect to any
Underlying Asset.
RIGHTS UPON EVENT OF DEFAULT
If an Event of Default occurs under the Trust Agreement for a Series,
the Trustee for such Series will have the right to take action to enforce its
rights and remedies and to protect and enforce the rights and remedies of the
Trust Certificateholders of such Series, and Holders of Trust Certificates
evidencing not less than a majority of the Aggregate Outstanding Principal of
the Trust Certificates for such Series (subject to any applicable terms of
subordination among the Classes thereof) may direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee. However,
the Trustee will not be under any obligation to pursue any such remedy unless
such Trust Certificateholders have offered the Trustee satisfactory security or
indemnity against the cost, expenses and liabilities which may be incurred by
the Trustee therein or thereby. Also, the Trustee may decline to follow any
such direction if the Trustee determines that the action or proceeding so
directed may not lawfully be taken or is in conflict with the Trust Agreement.
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No Trust Certificateholder of a Series, solely by virtue of such
Holder's status as a Trust Certificateholder, will have any right under the
Trust Agreement for such Series to institute any proceeding with respect to the
Trust Agreement, unless (i) the Holders of Trust Certificates evidencing not
less than 25% of the Aggregate Outstanding Principal of the Trust Certificates
for such Series have made written request upon the Trustee to institute such
proceeding in its own name as Trustee thereunder and have offered to the Trustee
reasonable indemnity, (ii) the Trustee for 60 days has neglected or refused to
institute any such proceeding and (iii) no direction inconsistent with such
written request has been given by Holders of a majority of the aggregate
outstanding principal amount of the Securities of such Series.
THE TRUSTEE
The identity of the commercial bank, savings and loan association or
trust company named as the Trustee for each Series of Trust Certificates will be
set forth in the related Prospectus Supplement. The entity serving as Trustee
may have normal banking relationships with the Company. In addition, for the
purpose of meeting the legal requirements of certain local jurisdictions, the
Trustee will have the power to appoint co-trustees or separate trustees of all
or any part of the Trust relating to a Series of Trust Certificates. In the
event of such appointment, all rights, powers, duties and obligations conferred
or imposed upon the Trustee by the Trust Agreement relating to such Series will
be conferred or imposed upon the Trustee and each such separate trustee or co-
trustee jointly, or, in any jurisdiction in which the Trustee shall be
incompetent or unqualified to perform certain acts, singly upon such separate
trustee or co-trustee who shall exercise and perform such rights, powers, duties
and obligations solely at the direction of the Trustee. The Trustee may also
appoint agents to perform any of the responsibilities of the Trustee, which
agents shall have the rights, powers, duties and obligations of the Trustee
conferred on them by such appointment; provided, however, that the Trustee will
continue to be responsible for its duties and obligations under the Trust
Agreement.
DUTIES OF THE TRUSTEE
The Trustee makes no representations as to the validity or sufficiency
of the Trust Agreement, the Trust Certificates or any Underlying Asset or
related documents. If no Event of Default (as defined in the related Trust
Agreement) has occurred, the Trustee is required to perform only those duties
specifically required of it under the Trust Agreement.
The Trustee may be held liable for its own negligent action or failure
to act, or for its own willful misconduct or bad faith; provided, however, that
the Trustee will not be liable for any action or any failure to act by it in
reliance upon the advice of or information from legal counsel or accountants or
any other person believed by it in good faith to be competent to give such
advice or information. The Trustee may rely and shall be protected in acting
upon any written notice, request, direction or other document believed by it to
be genuine and to have been signed or presented by the proper party or parties.
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RESIGNATION OF THE TRUSTEE
The Trustee may, upon written notice to the Company, resign at any
time, in which event the Company may appoint a successor Trustee. If no
successor Trustee has been appointed and has accepted the appointment within 90
days after the Trustee has given such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for appointment of a
successor Trustee. The Trustee may at any time be removed with respect to one
or more Series by the Company with or without cause, or by Holders of a majority
of the Aggregate Outstanding Principal of the Certificates of any Series with
cause, upon 30 days' written notice of such removal delivered to the Trustee
(and in the case of removal by Holders, to the Company), such removal to take
effect only upon the appointment of a qualified successor Trustee and its
acceptance of such appointment. Any resignation or removal of the Trustee and
appointment of a successor Trustee will not become effective until acceptance of
the appointment by the successor Trustee.
AMENDMENT OF TRUST AGREEMENT
The Trust Agreement for each Series of Trust Certificates may be
amended by the Company and the Trustee with respect to such Series, without
notice to or consent of the Trust Certificateholders (i) to cure any defect,
omission, inconsistency or ambiguity in the Trust Agreement or in the
Certificates of any Series, (ii) add to the covenants and agreements of the
Trustee or the Company or to surrender any right or power therein conferred upon
the Company, (iii) effectuate the assignment of the Trustee's rights and duties
to a qualified successor as provided therein, (iv) comply with the Securities
Act, the Trust Indenture Act of 1939, the Investment Company Act or the Code, or
(v) modify, alter, amend or supplement the Trust Agreement in any other respect
which is not adverse in any material respect to any Certificateholders of any
Series. Any such amendment pursuant to clause (v) of the preceding sentence
will be deemed not to adversely affect in any material respect the interests of
any Trust Certificateholder if the Trustee receives written confirmation from
each Rating Agency rating such Trust Certificates that such amendment will not
cause such Rating Agency to reduce the then current rating thereof. The Trust
Agreement for each Series also may be amended by the Trustee and the Company
with respect to such Series with the consent of the Holders possessing not less
than a majority of the Aggregate Outstanding Principal of the Trust Certificates
of such Series affected thereby, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of such Trust
Agreement with respect to such Series or modifying in any manner the rights of
Trust Certificateholders of such Series; provided, however, that no such
amendment may (a) reduce the amount or delay the timing of payments on any Trust
Certificate or (b) reduce the aforesaid percentage of aggregate outstanding
principal amount of Trust Certificates of each Class, the Holders of which are
required to consent to any such amendment, without the consent of the Holders of
100% of the aggregate outstanding principal amount of each Class of Trust
Certificates affected thereby.
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PASS THROUGH OF VOTING RIGHTS
The Trustee shall seek instructions from Trust Certificateholders of a
Series in connection with any vote, consent or waiver required in respect of any
related Underlying Asset. Except as otherwise provided in the Prospectus
Supplement, the Trustee shall direct any action or cast any vote as a holder of
such Underlying Asset in proportion to the Aggregate Outstanding Principal of
Trust Certificates held by Trust Certificateholders of such Series taking the
corresponding position. If applicable, the Prospectus Supplement will specify
whether and under what circumstances voting in such cases will be by Class.
LIST OF TRUST CERTIFICATEHOLDERS
Three or more Trust Certificateholders of record of a Series may, by
written application to the Trustee, request access to the list maintained by the
Trustee of Trust Certificateholders of such Series for purposes of communicating
with other Trust Certificateholders with respect to their rights under the Trust
Agreement or under the Trust Certificates for such Series, which request shall
be accompanied by a copy of the communication which such Trust
Certificateholders propose to transmit. The Trustee may choose not to give such
Trust Certificateholders access to the list of Trust Certificateholders if it
agrees to mail the communication on behalf of the requesting Trust
Certificateholders, at their expense, to all Trust Certificateholders. If the
Trustee objects to the proposed mailing on the grounds that it would be contrary
to the best interests of the Trust Certificateholders or a violation of
applicable law, it may decline to make the proposed mailing.
MEETINGS OF TRUST CERTIFICATEHOLDERS
The Trust Agreement will not provide for the holding of any annual or
other meeting of Trust Certificateholders.
TERMINATION
Unless otherwise specified in the related Prospectus Supplement, the
obligations created by the Trust Agreement for a Series will terminate upon the
distribution to Trust Certificateholders of all amounts distributable to them
pursuant to such Trust Agreement after the later of (i) the final payment or
other liquidation of the last Underlying Asset remaining in the Trust for such
Series and (ii) the date specified by the Optionholder in its notice to the
Trustee as the date upon which it will exercise the Optional Call Right. In no
event, however, will the trust created by the Trust Agreement continue beyond
the expiration of 21 years from the death of the last survivor of certain
persons identified in the Trust Agreement. For each Series, the Trustee will
give written notice of termination of the Trust Agreement to each Trust
Certificateholder, and the final distribution will be made only upon surrender
and cancellation of the Trust Certificates at an office or agency specified in
the notice of termination. If so provided in the related Prospectus Supplement
for a Series, the Company or another entity may effect an optional termination
of the Trust or repurchase all or certain Classes of Trust Certificates of a
Series under circumstances described in such Prospectus Supplement. See
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"The Securities - Optional Termination of Trust", "- Optional Repurchases of
Trust Certificates", "- Optional Call Right" and "- Other Repurchases of Trust
Certificates".
THE ISSUER
GENERAL
The Issuer of a Series of Securities will be either the Company or a
Trust.
THE COMPANY
The Company is a special-purpose Delaware corporation organized for
the purpose of (i) acting as originator, settlor or depositor with respect to
Trusts formed to issue Securities, (ii) issuing securities (including the
Securities and other securities backed by underlying obligations of various
types) and (iii) acting as settlor or depositor with respect to trusts, custody
accounts or similar arrangements or as general or limited partner in
partnerships formed to issue securities. It is not expected that the Company
will have any significant assets other than the Underlying Assets and other
assets backing the issuance of other securities. The Company is an affiliate of
CSFB. Neither CSFB nor any of their affiliates (other than, to the extent
specified in the related Prospectus Supplement with respect to any Series, the
Company) has guaranteed, will guarantee or is or will be otherwise obligated
with respect to any Series of Securities. The principal office of the Company
is located in 55 East 52nd Street, New York, New York 10055. Its telephone
number is (212) 909-2000.
The Certificate of Incorporation of the Company provides that the
Company may conduct any lawful activities necessary or incidental to the
issuance and sale of one or more Series of Bonds and to serve as depositor of
one or more trusts that may issue and sell Bonds or Trust Certificates.
If so specified in the related Prospectus Supplement for a Series of
Bonds, the related Underlying Assets may be transferred by the Issuer to a
trust, subject to the obligations of the Bonds of such Series, thereby relieving
the Issuer of its obligations with respect to such Bonds.
TRUSTS
Each Trust will be a Delaware business trust created pursuant to a
Series Supplement to the Trust Agreement. Under the terms of each Series
Supplement, the Company or one of its affiliates will convey to the Trustee
Underlying Assets to secure one or more Series in return for certificates or
other instruments evidencing beneficial ownership of the Trust. The Company or
such affiliate may in turn sell or assign the certificates of beneficial
interest to another entity or entities, including affiliates of the Company.
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The Trust will pledge the Underlying Assets to the Trustee under the
related Indenture as security for a Series of Bonds. The Trustee will hold such
Underlying Assets as security only for that Series, and Holders of such Series
will be entitled to the equal and proportionate benefits of such security,
subject to the express subordination of certain Classes thereof, as if the same
had been granted by a corporate issuer.
Each Trust Agreement will provide that the related Trust may not
conduct any activities other than those related to the issuance and sale of the
particular Series and ownership of Underlying Securities.
ADMINISTRATOR
If so specified in the related Prospectus Supplement, the Issuer will
enter into an administration agreement with an Administrator acceptable to the
Rating Agencies rating the applicable Series of Securities pursuant to which
advisory, administrative, accounting and clerical services will be provided to
the Issuer. The Trustee may serve as the Administrator. In addition, under the
Indenture or Trust Agreement, as applicable, the Issuer is responsible for
certain administrative and accounting matters relating to the Securities. It is
intended that the Administrator will perform these services on behalf of the
Issuer, and amounts payable with respect to such services will be subordinated
to the Issuer's obligations to pay principal and interest to the Bondholders or
Trust Certificateholders.
FISCAL YEAR
The fiscal year of each Issuer will end on December 31, unless
otherwise specified in the applicable Prospectus Supplement.
USE OF PROCEEDS
The Issuer will apply all or substantially all the net proceeds from
the sale of each Series offered hereby and by the related Prospectus Supplement
to purchase from the Company or one of its affiliates the Underlying Assets
underlying such Series simultaneously with the issuance and sale of such
Securities. The proceeds may also be used to repay indebtedness that has been
incurred to acquire Underlying Assets to be pledged by the Issuer as security
for the Securities, to establish the Reserve Funds, if any, for the Series and
to pay costs of structuring, guaranteeing and issuing the Securities or for
other purposes set forth in the related Prospectus Supplement.
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LIMITATIONS ON ISSUANCE OF BEARER SECURITIES
Any bearer Securities will be issued in compliance with United States
federal income tax laws and Treasury Regulations applicable at the time of
issuance. Under current law, bearer Securities may not be offered or sold
during a restricted period specified under the Treasury Regulations (generally,
a 40 day period beginning on the closing date of a Security) in the United
States or its possessions or to United States Persons other than to (a) the
United States office of (i) an international organization (as defined in Section
7701(a)(18) of the Code), (ii) a foreign central bank (as defined in Section 895
of the Code), or (iii) any person offering or selling bearer securities during
the restricted period that is a "Distributor" within the meaning of Treasury
Regulations Section 1.163-5(c)(2)(i)(D)(4) pursuant to a written contract with
the Issuer or with another Distributor, that purchases bearer Securities for
resale or for its own account and agrees to comply with the requirements of
Section 165(j)(3)(A), (B) or (C) of the Code, or (b) the foreign branch of a
United States financial institution purchasing for its own account or for
resale, which institution agrees to comply with the requirements of Section
165(j)(3)(A), (B) or (C) of the Code. In addition, a sale of a bearer Security
may be made during the restricted period to a United States Person who acquired
and holds the bearer Security on the certification date (as described below)
through a foreign branch of a United States financial institution that agrees to
comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the Code.
Any Distributor offering or selling bearer Securities during the restricted
period must agree not to offer or sell bearer Securities in the United States or
its possessions or to United States Persons (except as discussed above) and must
employ procedures reasonably designed to ensure that its employees or agents
directly engaged in selling bearer Securities are aware of these restrictions.
In addition, on the earlier of the date of the first actual payment of interest
or the date of delivery in definitive form (the "certification date"), the owner
of a Security must provide a written certificate to the related Issuer to the
effect that on the certificate date, such Security is owned by (i) a person that
is not a United States Person, (ii) a United States Person described in Treasury
Regulation Section 1.163-5(c)(2)(i)(D)(6), or (iii) a financial institution for
purposes of resale during the restricted period. A financial institution
described in clause (iii) of the preceding sentence must certify in addition
that it has not acquired the Certificate for purpose of resale directly or
indirectly to a United States Person or to a person within the United States or
its possessions.
Bearer Securities and their interest coupons will bear the following
legend: "Any United States person who holds this obligation will be subject to
limitations under the United States income tax laws, including the limitations
provided in sections 165(j) and 1287(a) of the Internal Revenue Code".
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OVERVIEW
The following is a general discussion of certain of the anticipated
material United States federal income tax consequences of the purchase,
ownership and disposition of Securities. Because the income tax consequences of
an investment in any Security will depend on the terms of the Security, the
characterization of the Issuer for federal income tax purposes and the
Underlying Assets relating to such Security, the discussion herein is limited to
a discussion of certain tax consequences of several common types of
transactions. The Prospectus Supplement for each Series of Securities will
describe additional consequences that relate to the specific Securities issued
pursuant thereto. Accordingly, this discussion should only be read in
connection with the discussion under "Certain Federal Income Tax Consequences"
in the Prospectus Supplement to which investors are referred. The discussion
below does not apply to bearer Securities or Securities denominated in (or
representing interests in assets denominated in) a currency other than the
United States dollar. Further, because of the transaction-specific nature of
investing in Securities that represent interests in Notional Principal
Contracts, other hedging instruments or other Swap Agreements this discussion
addresses only certain of the consequences arising from such an investment.
Certain federal income tax consequences of investing in these types of
Securities will be addressed in the related Prospectus Supplement.
The discussion below does not purport to address all federal income
tax consequences that may be applicable to particular categories of investors,
some of which may be subject to special rules (including pension plans or other
tax-exempt investors, banks, thrifts, insurance companies, real estate
investment trusts, regulated investment companies, investors that are not United
States Persons, dealers in securities or currencies and persons so treated for
federal income tax purposes, persons whose functional currency (as defined in
Section 985 of the Code) is other than the United States dollar, and persons who
hold Securities as part of a straddle, hedging or conversion transaction). The
discussion is subject to the requirement that a taxpayer obtain the consent of
the IRS before changing a method of accounting. The discussion is based on the
Code, legislative history, Treasury Regulations, cases, administrative rulings
and other authorities that are currently in effect, or in the case of certain
Treasury Regulations, proposed or temporary, all of which, particularly proposed
Treasury Regulations, are subject to change or differing interpretations. Any
such change (or differing interpretations) may apply retroactively.
Furthermore, the discussion does not address any of the state, local and foreign
tax consequences of the purchase, ownership and disposition of the Securities.
Investors should consult their own tax advisors in determining the federal,
state and local income and other tax consequences to them of the purchase,
ownership, and disposition of Securities.
Each Trust will be provided with an opinion of Sidley & Austin
("Federal Tax Counsel") regarding certain federal income tax matters. An
opinion of Federal Tax Counsel, however, is not binding on the IRS or the
courts. No ruling on any of the issues discussed below will be sought from the
IRS.
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In addition to the federal income tax consequences described herein,
potential investors should consider the state, local and foreign income tax
consequences of the acquisition, ownership and disposition of the Securities.
State, local and foreign income tax laws may differ substantially from the
corresponding federal income tax law, and this discussion does not purport to
describe any aspect of the income tax laws of any state, local or foreign
jurisdictions. Therefore, potential investors should consult their own tax
advisers with respect to the various state, local and foreign tax consequences
of an investment in Securities.
References in this section to a "Securityholder" and "Holder" are
references to the beneficial owner of a Security.
TAXATION OF INCOME FROM BONDS
Treatment of the Bonds as Indebtedness.
The Issuer will agree, and the Bondholders will agree by their
purchase of Bonds, to treat the Bonds as debt for federal tax purposes. Counsel
to the Issuer specified in the related Prospectus Supplement will advise the
Issuer that the Bonds will be classified as debt for federal income tax
purposes. If, contrary to the opinion of such counsel the IRS successfully
asserted that one or more of the Bonds did not represent debt for federal income
tax purposes, the Bonds might be treated as equity interests in the Issuer. If
so treated, in the case of Bonds issued by a Trust, the Issuer might be taxable
as a corporation, and the resulting taxable corporation would not be able to
reduce its taxable income by deductions for interest expense on Bonds
recharacterized as equity. Alternatively, in the case of Bonds issued by a
Trust, the Trust might be treated as a publicly traded partnership that would be
taxable as a corporation unless it met certain qualifying income tests.
Treatment of Bonds issued by a Trust as equity interests in a partnership could
have adverse tax consequences to certain holders, even if the Trust were not
treated as a publicly traded partnership taxable as a corporation. For example,
income allocable to certain tax-exempt entities (including pension funds) may be
"unrelated business taxable income", income to foreign holders generally would
be subject to U.S. federal income tax and U.S. federal tax return filing and
withholding requirements, and individual holders might be subject to certain
limitations on their ability to deduct their share of Trust expenses. The
discussion below assumes that the Bonds will be characterized as debt for
federal income tax purposes.
Interest Income on the Bonds.
The taxation of interest on a Bond will depend on whether the interest
constitutes "qualified stated interest" (as defined below). Interest on a Bond
that constitutes qualified stated interest is includible in a Bondholder's
income as ordinary interest income when actually or constructively received, if
such Bondholder uses the cash method of accounting for federal income tax
purposes, or when accrued, if such Bondholder uses an accrual method of
accounting for federal income tax purposes. Interest that does not constitute
qualified stated interest is included in a Bondholder's income under the rules
described below under "--Original Issue Discount", regardless of such
Bondholder's method of accounting, or, in certain circumstances,
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under rules governing contingent payments which are set out regulations issued
in final form on June 11, 1996 (the "1996 Contingent Debt Regulations").
Notwithstanding the foregoing, interest that is payable on a Bond with a fixed
maturity of one year or less from its issue date is included in a Bondholder's
income under the rules described below under "--Short Term Bonds".
Definition of Qualified Stated Interest.
Qualified stated interest is stated interest that is unconditionally
payable, or that will be constructively received, in cash or in property (other
than debt instruments of the issuer) at least annually at a single fixed rate.
Qualified stated interest also includes stated interest that is
payable on a Bond at a variable interest rate, provided that the (i) Bond
qualifies as a "variable rate debt instrument" ("VRDI") and (ii) such stated
interest is at a single "qualified floating rate" or "objective rate" (each as
defined below) and is unconditionally payable, or will be constructively
received, in cash or in property (other than debt instruments of the issuer) at
least annually.
Definition of a Variable Rate Debt Instrument. A Bond is a VRDI if
all of the three following conditions are met.
First, the issue price of the Bond must not exceed the total
noncontingent principal payments by more than an amount equal to the lesser of
(i) .015 multiplied by the product of the total noncontingent principal payments
and the number of complete years to maturity from the issue date (or, in the
case of a Bond that is an "installment obligation", its weighted average
maturity) and (ii) 15% of the total noncontingent principal payments. An
installment obligation is, generally, a debt instrument that provides for
payment of any amount other than qualified stated interest before maturity. The
issue price and issue date of a Bond will be the first price and the first
settlement date, respectively, at which a substantial amount of the Bonds in the
issuance that includes such Bond is sold for money (excluding sales to bond
houses, brokers or similar persons or organizations acting in the capacity of
underwriters, placement agents or wholesalers).
Second, the Bond must provide for stated interest (compounded or paid
at least annually) at (a) one or more qualified floating rates, (b) a single
fixed rate and one or more qualified floating rates, (c) a single objective rate
or (d) a single fixed rate and a single objective rate that is a "qualified
inverse floating rate" (as defined below).
Third, the Bond must provide that a qualified floating rate or
objective rate in effect at any time during the term of the instrument is set at
the current value of that rate. A current value is the value of the rate on any
day that is no earlier than three months prior to the first day on which that
value is in effect and no later than one year following that first day.
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Definition of a Qualified Floating Rate. Subject to certain
exceptions, a variable rate of interest is a qualified floating rate if
variations in the value of the rate can reasonably be expected to measure
contemporaneous fluctuations in the cost of newly borrowed funds in the currency
in which the Bond is denominated. A variable rate will be considered a
qualified floating rate if the variable rate equals (i) the product of an
otherwise qualified floating rate and a fixed multiple that is greater than 0.65
but not more than 1.35 or (ii) an otherwise qualified floating rate (or the
product described in clause (i)) plus or minus a fixed rate. If the variable
rate equals the product of an otherwise qualified floating rate and a single
multiplier greater than 1.35 or less than or equal to 0.65, however, such rate
will generally constitute an objective rate, described more fully below. A
variable rate will not be considered a qualified floating rate if the variable
rate is subject to a cap, floor, governor (i.e., a restriction on the amount of
----
increase or decrease in the stated interest rate) or similar restriction that is
reasonably expected as of the issue date to cause the yield on the Bond to be
significantly more or less than the expected yield determined without the
restriction (other than a cap, floor or governor that is fixed throughout the
term of the Bond).
Definition of an Objective Rate. Stated interest qualifies as payable
at an "objective rate" if the rate is determined using a single fixed formula
and is based on objective financial information or economic information.
However, an objective rate does not include a rate based on information that is
in the control of the issuer or that is unique to the circumstances of the
issuer or a related party. Notwithstanding the first two sentences of this
paragraph, a rate on a debt instrument is not an objective rate if it is
reasonably expected that the average value of the rate during the first half of
the debt instrument's term will be either significantly less than or
significantly greater than the average value of the rate during the final half
of the debt instrument's term. The IRS may designate rates other than those
described in the first sentence of this paragraph that will be treated as
objective rates. As of the date hereof, no such other rates have been
designated.
An objective rate described in the preceding paragraph is a "qualified
inverse floating rate" if (a) the rate is equal to a fixed rate minus a
qualified floating rate and (b) the variations in the rate can reasonably be
expected to reflect inversely contemporaneous variations in the cost of newly
borrowed funds (disregarding any caps, floors, governors or similar restrictions
that would not, as described above, cause a rate to fail to be a qualified
floating rate). If interest on a Bond is stated at a fixed rate for an initial
period of less than one year, followed by a variable rate that is either a
qualified floating rate or an objective rate for a subsequent period, and the
value of the variable rate on the issue date is intended to approximate
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the fixed rate, the fixed rate and the variable rate together constitute a
single qualified floating rate or objective rate.
Taxation of Original Issue Discount - General Rules for Fixed Rate Bonds
Definition of OID. Original issue discount ("OID") is the excess of a
Bond's "stated redemption price at maturity" over its "issue price". A Bond's
stated redemption price at maturity is the sum of all payments provided by the
Bond other than payments of qualified stated interest. Thus, any payments
provided by a Bond that are not payments of qualified stated interest are
included in the Bond's stated redemption price at maturity, whether such
payments are designated as interest or as principal.
Holders of Bonds with OID that mature more than one year from their
issue date generally will be required to include such OID in income as it
accrues in accordance with the constant yield method described below, before the
receipt of the related cash payments. A Holder's tax basis in a Bond is
increased by each accrual of OID and decreased by each payment other than a
payment of qualified stated interest.
If the amount of OID with respect to a Bond is less than a specified
de minimis amount, the amount of OID is treated as zero. The de minimis amount
is an amount equal to one quarter of one percent multiplied by the product of
the stated redemption price at maturity and the number of complete years to
maturity. In the case of a Bond that is an installment obligation, the de
minimis amount is determined by reference to the weighted average maturity of
the Bond rather than the number of complete years to maturity.
Treatment of De Minimis OID. If a Bond has de minimis OID, all
payments of stated interest are treated as payments of qualified stated
interest. As discussed above, in general, qualified stated interest is
includible in a Holder's income according to such Holder's regular method of
accounting (i.e., the cash method or an accrual method). Any de minimis OID
----
that is not included in payments of stated interest is included in income as
capital gain as
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principal payments are made. The amount includible equals the product of the
total amount of de minimis OID and a fraction, the numerator of which is the
amount of the principal payment made and the denominator of which is the stated
principal amount of the Bond.
Inclusion of OID in Income. The general rules for including OID on a
Bond in the income of a Holder are as follows. These general rules apply to
Bonds bearing a fixed rate but do not apply to Bonds on which interest accrues
based on an Index. The special rules that apply to this type of Bonds are
described below under "Taxation of OID on Variable Interest Bonds".
The amount of OID includible in the income of a Holder for any taxable
year is determined under the constant yield method, in four steps.
In the first step, the "yield to maturity" of the Bond is computed.
The yield to maturity is the discount rate that, when used in computing the
present value of all interest and principal payments to be made under the Bond
(including payments of qualified stated interest) produces an amount equal to
the issue price of the Bond. The yield to maturity is constant over the term of
the Bond and, when expressed as a percentage, must be calculated to at least two
decimal places.
In the second step, the term of the Bond is divided into "accrual
periods". Accrual periods may be of any length and may vary in length over the
term of the Bond, provided that each accrual period is no longer than one year
and that each scheduled payment of principal or interest occurs either on the
final day of an accrual period or on the first day of an accrual period.
In the third step, the total amount of OID on the Bond is allocated
among accrual periods. In general, the OID allocable to an accrual period
equals the product of the "adjusted issue price" of the Bond at the beginning of
the accrual period and the yield to maturity of the Bond, less the amount of any
qualified stated interest allocable to the accrual period. The adjusted issue
price of a Bond at the beginning of the first accrual period is its issue price.
Thereafter, the adjusted issue price of the Bond is its issue price, increased
by the amount of OID previously includible in the gross income of any Bondholder
and decreased by the amount of any payment previously made on the Bond other
than a payment of qualified stated interest. For purposes of computing the
adjusted issue price of a Bond, the amount of OID previously includible in the
gross income of any Bondholder is determined without regard to "premium" and
"acquisition premium", as those terms are defined below.
In the fourth step, the "daily portions" of OID are determined. The
daily portions of OID are determined by allocating to each day in an accrual
period its ratable portion of the OID allocable to the accrual period.
A Bondholder includes in income in any taxable year the daily portions
of OID for each day during the taxable year that such Holder held Bonds. In
general, under the constant
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yield method described above, Bondholders generally will be required to include
in income increasingly greater amounts of OID in successive accrual periods.
Taxation of OID on Variable Interest Bonds
The taxation of OID on a Variable Interest Bond will depend on whether
the Bond is a VRDI, as that term is defined above. The applicable Prospectus
Supplement will state whether such a Bond qualifies as a VRDI.
Bonds that are VRDIs. The tax treatment of a Variable Interest Bond
that is a VRDI will depend on whether the VRDI provides for annual interest at a
single variable rate. A VRDI is considered to provide for annual interest at a
single variable rate if it provides for stated interest at a single qualified
floating rate or objective rate that is unconditionally payable in cash or in
property (other than debt instruments of the issuer), or that will be
constructively received under general principles of federal income tax law, at
least annually.
VRDIs that Provide for Interest at a Single Variable Rate. In the
case of a VRDI that provides for interest at a single variable rate, the amount
of OID includible in income during a taxable year, if any, is determined under
the rules applicable to fixed rate debt instruments by assuming that the
variable rate is a fixed rate. Those rules are set forth above under "Taxation
of Original Issue Discount -- General Rules for Fixed Rate Bonds". In the case
of a qualified floating rate or a qualified inverse floating rate, the assumed
fixed rate is the value, as of the issue date, of the qualified floating rate or
qualified inverse floating rate. In the case of an objective rate (other than a
qualified inverse floating rate), the assumed fixed rate is a fixed rate that
reflects the yield that is reasonably expected for the debt instrument.
The rules described in the preceding paragraph apply to the accrual of
qualified stated interest on a VRDI that provides for interest at a single
variable rate. Thus, the amount of qualified stated interest that accrues
during an accrual period on such a VRDI is determined by assuming that the VRDI
bears interest at a fixed rate determined in the manner described in the
preceding paragraph. Qualified stated interest allocable to an accrual period
is increased (or decreased) if the interest actually paid during an accrual
period exceeds (or is less than) the interest assumed to be paid during the
accrual period.
Other VRDIs. If a Variable Interest Bond that is a VRDI does not
provide for interest either at a single variable rate or at a fixed rate, the
amount of interest and OID accruals are determined by constructing an equivalent
fixed rate debt instrument, using the following four steps.
The first step is to determine the fixed rate substitute for each
variable rate provided by the Variable Interest Bond. The fixed rate substitute
for each qualified floating rate provided by the Variable Interest Bond is the
value of that qualified floating rate on the issue date. If the Bond provides
for two or more qualified floating rates with different intervals
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between interest adjustment dates (for example, the 30-day Commercial Paper Rate
and quarterly LIBOR), the fixed rate substitutes are based on intervals that are
equal in length (for example, the 90-day Commercial Paper Rate and quarterly
LIBOR, or the 30-day Commercial Paper Rate and monthly LIBOR). The fixed rate
substitute for an objective rate that is a qualified inverse floating rate is
the value of the qualified inverse floating rate on the issue date. The fixed
rate substitute for an objective rate that is not a qualified inverse floating
rate is a fixed rate that reflects the yield that is reasonably expected for the
Variable Interest Bond.
The second step is to construct an equivalent fixed rate debt
instrument that has terms that are identical to those provided under the
Variable Interest Bond, except that the equivalent fixed rate debt instrument
provides for the fixed rate substitutes determined in the first step, in lieu of
the qualified floating rates or objective rates provided by the Variable
Interest Bond.
The third step is to determine the amount of qualified stated interest
and OID for the equivalent fixed rate debt instrument under the rules described
above for fixed rate Bonds. These amounts are taken into account as if the
Bondholder held the equivalent fixed-rate debt instrument.
The fourth step is to make appropriate adjustments for the actual
values of the variable rates. In this step, qualified stated interest or OID
allocable to an accrual period is increased (or decreased) if the interest
actually accrued or paid during the accrual period exceeds (or is less than) the
interest assumed to be accrued or paid during the accrual period under the
equivalent fixed rate debt instrument.
Bonds that are not VRDIs. Set forth below are the rules that would
apply to Variable Interest Bonds that are not VRDIs ("contingent debt
instruments") under the 1996 Contingent Debt Regulations.
In the case of a contingent debt instrument issued for cash, the
issuer is required to project a yield, and, based on that yield, to construct a
projected schedule of payments under the instrument. The projected payments
consist of any noncontingent payments provided by the debt instrument and the
projected amounts of the contingent payments. Interest income is then accrued
on the debt instrument by the Bondholder under the general rules applicable to
OID obligations, on the assumption that the projected amounts will actually be
paid. Whenever a contingent payment is fixed at the projected amount, no
further adjustments are required. Whenever a contingent payment is fixed at an
amount that is above (or below) the projected amount, a positive (or negative)
adjustment must be made with respect to the interest income that has been
previously accrued by the Bondholder.
The 1996 Contingent Regulations refer to this method as the
"noncontingent bond method", because it is based on the construction of a
hypothetical noncontingent bond, the payments on which equal the expected amount
of the contingent
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payments provided for by the debt instrument in question. The projected payment
schedule established at the issuance of the instrument remains in place through
its life. Consequently, interest accruals with respect to contingent payments
that have not yet been fixed may be higher or lower at any point in time than
they would be if the projected values were to be revised to take into account
current information.
The 1996 Contingent Debt Regulations indicate that the projected yield
should be a reasonable rate for the debt instrument, taking into account not
only the terms of the instrument, but also market conditions and the
creditworthiness of the issuer. The issuer's determination of the projected
yield and the projected payment schedule will be respected unless they are
unreasonable. If the projected payment schedule set by the issuer is
unreasonable (or if the issuer does not provide a projected payment schedule),
the Bondholder must set the projected payment schedule. A Bondholder that uses
its own projected payment schedule must explicitly disclose this fact on its
income tax return and the reason why such Holder set its own schedule.
In general, any gain realized by a Bondholder on the sale, exchange or
retirement of a contingent debt instrument is interest income under the 1996
Contingent Debt Regulations. Any loss on a contingent debt instrument accounted
for under the method described in the preceding paragraph is ordinary loss to
the extent it does not exceed such Holder's prior interest inclusions on the
instrument (net of negative adjustments).
Market Discount
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A Bondholder may be subject to the market discount rules of the Code.
If a Bondholder acquires a Bond having a maturity date of more than one year
from the date of its issuance and has a tax basis in the Bond that is, in the
case of a Bond that does not have OID, less than its stated redemption price at
maturity, or, in the case of a Bond that has OID, less than its adjusted issue
price, the amount of such difference is treated as market discount for federal
income tax purposes, unless such difference is less than a specified de minimis
amount. The de minimis amount is 1/4 of one percent of the stated redemption
price at maturity multiplied by the number of complete years to maturity (from
the date of acquisition).
Under the market discount rules of the Code, a Bondholder is required
to treat any principal payment (or, in the case of a Bond that has OID, any
payment that does not constitute a payment of qualified stated interest) on, or
any gain on the sale, exchange, retirement or other disposition of, a Bond as
ordinary income to the extent of the market discount that has not previously
been included in income and is treated as having accrued on such Bond at the
time of such payment or disposition. Thus, partial principal payments are
treated as ordinary income to the extent of market discount that has not
previously been included in income and is treated as having accrued. If such
Bond is disposed of by the Bondholder in certain otherwise nontaxable
transactions, accrued market discount will be includible as ordinary income by
the Bondholder as if such Holder had sold the Bond at its then fair market
value.
In general, the amount of market discount that has accrued is
determined on a ratable basis. A Bondholder may, however, elect to determine
the amount of accrued market discount on a constant yield to maturity basis.
This election is made on a bond-by-bond basis and is irrevocable.
With respect to Bonds with market discount, a Bondholder may not be
allowed to deduct immediately a portion of the interest expense on any
indebtedness incurred or continued to purchase or to carry such Bonds. A
Bondholder may elect to include market discount in income currently as it
accrues, in which case the interest deferral rule set forth in the preceding
sentence will not apply. Such an election will apply to all debt instruments
acquired by the Bondholder on or after the first day of the first taxable year
to which such election applies and is irrevocable without the consent of IRS. A
Bondholder's tax basis in a Bond will be increased by the amount of market
discount included in such Holder's income under such an election.
Premium and Acquisition Premium
If a Bondholder purchases a Bond at a "premium", the Bondholder does
not include any OID in gross income. A Bond is purchased at a premium (or
"amortizable bond premium") if its adjusted basis, immediately after its
purchase by such Holder, exceeds the sum of all amounts payable on the Bond
after the purchase date other than payments of qualified stated interest.
Bondholders may elect to amortize the premium over the remaining term of the
Bond (where such Bond is not callable prior to its maturity date), as a
reduction in the amount of the interest payments otherwise includible in income.
If a Bondholder makes this election, the premium would be allocated among all
the interest payments on the Bond, on the basis of
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the Bondholder's yield to maturity, with compounding at the close of each
accrual period. A Bondholder who elects to amortize premium must reduce the tax
basis of the Bond by the amount of the premium amortized in any year. If this
election is made with respect to any Bond, it will also apply to all debt
instruments held by the Bondholder at the beginning of the first taxable year to
which the election applies and to all debt instruments acquired by the
Bondholder, and will be binding for all subsequent taxable years unless the
election is revoked with the consent of the IRS. If a Bond may be called by the
Trust prior to maturity after the Bondholder has acquired it, the amount of
amortizable bond premium is determined with reference to either the amount
payable at maturity, or, if it results in a smaller premium attributable to the
period through the earlier call date, with reference to the amount payable on
the earlier call date.
On June 27, 1996, the IRS published in the Federal Register proposed
regulations (the "Proposed Premium Regulations") on the amortization of bond
premium. The Proposed Premium Regulations describe the constant yield method
under which such premium is amortized and provide that the resulting offset to
interest income can be taken into account only as a Bondholder takes the
corresponding interest income into account under such holder's regular
accounting method. In the case of instruments that may be called or repaid
prior to maturity, the Proposed Premium Regulations provide that the premium is
calculated by assuming that the issuer will exercise or not exercise its
redemption rights in the manner that maximizes the Bondholder's yield and the
Bondholders will exercise or not exercise its option in a manner that maximizes
the Bondholder's Yield. The Proposed Premium Regulations are proposed to be
effective for debt instruments acquired on or after the date 60 days after the
date final regulations are published in the Federal Register. However, if a
Bondholder elects to amortize bond premium for the taxable year containing such
effective date, the Proposed Premium Regulations would apply to all the
Bondholder's debt instruments held on or after the first day of that taxable
year. It cannot be predicted at this time whether the Proposed Premium
Regulations will become effective or what, if any, modifications will be made to
them prior to their becoming effective.
If a Bondholder does not purchase a Bond at a premium, but instead
purchases such Bond at an "acquisition premium", the amount of OID that the
Bondholder includes in gross income is reduced to reflect the acquisition
premium. A Bond is purchased at an acquisition premium if its adjusted basis,
immediately after its purchase is (a) less than or equal to the sum of all
amounts payable on the Bond after the purchase date other than payments of
qualified stated interest and (b) greater than the Bond's adjusted issue price.
If a Bond is purchased at an acquisition premium, the Bondholder
reduces the amount of OID otherwise includible in income during an accrual
period by a fraction. The numerator of this fraction is the excess of the
adjusted basis of the Bond immediately after its acquisition by the purchaser
over the adjusted issue price of the Bond. The denominator of the fraction is
the excess of the sum of all amounts payable on the Bond after the purchase
date, other than payments of qualified stated interest, over the Bond's adjusted
issue price.
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As an alternative to reducing the amount of OID otherwise includible
in income by this fraction, the Bondholder may elect to compute OID accruals by
treating the purchase as a purchase at original issuance and applying the
constant yield method described under "Taxation of Original Issue Discount--
General Rules for Fixed Rate Bonds--Inclusion of OID in Income" above.
Election to Treat All Interest as OID
Treasury Regulations permit an election to accrue all interest,
discount (including de minimis market discount or OID) (reduced by any premium)
in income as interest, based on a constant yield method. If such an election
were to be made with respect to a Bond, the Bondholder would be deemed to have
made an election to include in income currently market discount with respect to
all other debt instruments having market discount that such Bondholder acquires
during the year of the election or thereafter. Similarly, a Bondholder that
makes this election for a Bond that is acquired at a premium will be deemed to
have made an election to amortize bond premium with respect to all debt
instruments having amortizable bond premium that such Bondholder owns or
acquires. See "-- Premium and Acquisition Premium", above. The election to
accrue interest, discount and premium on a constant yield method with respect to
a Bond is irrevocable.
Optional Call Rights Held by Person Other Than Issuer
If a Series of Bonds provides for an Optional Call Right to purchase
such Bonds, and the Optionholder is a person other than the Issuer of that
Series of Bonds, Holders of such Series should be treated as having sold a call
option with respect to the Bonds. The Holders should be treated for federal
income tax purposes as though they had received an option premium equal to the
fair market value of the call right (the "deemed option premium") and had paid
this amount (in addition to the amount actually paid) as consideration for the
Bonds. Accordingly, the Holders' tax basis in the Bonds should be increased by,
and reflect the deemed option premium. Thus, the amount of the OID otherwise
includible in income with respect to Bonds should be reduced to reflect the
portion of the deemed option premium allocable to them.
Upon exercise of the Optional Call Right, the portion of the deemed
option premium allocable to the Bonds should be taken into account as additional
amount realized upon the sale of the Bonds and thus should increase the amount
of gain or reduce the amount of loss recognized upon such sale. If the Optional
Call Right lapses without being exercised, the deemed option premium should be
included in income as short-term capital gain at the time of such lapse.
If a Holder sells or exchanges a Bond or Bonds prior to the exercise
or lapse of the Optional Call Right, the Holder should be deemed to have made a
payment to the purchaser of the Bond or Bonds equal to the fair market value of
the Optional Call Right, and the amount treated as the amount realized upon the
sale or exchange of the Bond or Bonds should be increased by this same amount.
The Holder should recognize gain (or loss) upon relief of its liability under
the Optional Call Right equal to (i) the deemed option premium over (or under)
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(ii) the fair market value of the Optional Call Right. Any such gain or loss
would be capital gain or loss.
The Bonds and the Optional Call Right should constitute positions in a
straddle, and thus the straddle rules of Section 1092 should apply. See
"Taxation of Income From Trust Certificates--Optional Call Right" below.
The foregoing discussion does not apply to an Optional Call Right to
purchase a Series of Bonds if that Optional Call Right is held by the Issuer of
that Series of Bonds. Such Optional Call Rights are not taken into account for
tax purposes separately from the Bonds to which they relate.
Gain or Loss on Disposition.
A Bondholder generally will recognize gain or loss upon the sale or
exchange of a Bond equal to the difference between the amount realized upon such
sale or exchange and the Bondholder's adjusted basis in the Bond. Such adjusted
basis in the Bond generally will equal the cost of the Bond, increased by OID,
acquisition discount or market discount previously included in respect thereof,
and reduced (but not below zero) by any payments on the Bond other than payments
of qualified stated interest and by any premium that the Bondholder has taken
into account. To the extent attributable to accrued but unpaid interest, the
amount realized by the Bondholder will be treated as a payment of interest. Any
gain or loss will be capital gain or loss if the Bond was held as a capital
asset, except as provided under "Market Discount" above and "Short-Term
Bonds"below. The excess of net long-term capital gains over net short-term
capital losses is taxed at a lower rate than ordinary income for certain non-
corporate taxpayers. The distinction between capital gain or loss and ordinary
income or loss is also relevant for purposes of, among other things, limitations
on the deductibility of capital losses.
Short-Term Bonds.
In the case of a Bond with a maturity of one year or less from its
issue date (a "Short-Term Bond"), no interest is treated as qualified stated
interest, and therefore all interest is included in OID. Bondholders that
report income for federal income tax purposes on an accrual method and certain
other Bondholders, including banks and dealers in securities, are required to
include OID in income on such Short-Term Bonds on a straight-line basis, unless
an election is made to accrue the OID according to a constant yield method
based on daily compounding.
Any other Bondholder of a Short-Term Bond is not required to accrue
OID for United States federal income tax purposes, unless it elects to do so.
In the case of a Bondholder that is not required, and does not elect, to include
OID in income currently, any gain realized on the sale, exchange or retirement
of a Short-Term Bond is ordinary income to the extent of the OID accrued on a
straight-line basis (or, if elected, according to a constant yield method based
on daily compounding) through the date of sale, exchange or retirement. In
addition, Bondholders that are not required, and do not elect, to include OID
on a Short-Term Bond in
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income currently are required to defer deductions for any interest paid on
indebtedness incurred or continued to purchase or carry such Short-Term Bond in
an amount not exceeding the deferred interest income with respect to such Short-
Term Bond (which includes both the accrued OID and accrued interest that are
payable but that have not been included in gross income), until such deferred
interest income is realized. Such a Bondholder may elect to apply the foregoing
rules (except for the rule characterizing gain on sale, exchange or retirement
as ordinary) with respect to "acquisition discount" rather than OID. Acquisition
discount is the excess of the stated redemption price at maturity of the Short-
Term Bond over the Bondholder's basis in the Short-Term Bond. This election
applies to all obligations acquired by the taxpayer on or after the first day of
the first taxable year to which such election applies, unless revoked with the
consent of the IRS. A Bondholder's tax basis in a Short-Term Bond is increased
by the amount included in such Owner's income on such a Bond.
Taxation of Certain Foreign Bondholders.
As used herein, the term "Non-United States Holder" means a Bondholder
that is, for United States federal income tax purposes, (i) a nonresident alien
individual, (ii) a foreign corporation, (iii) a nonresident alien or foreign
fiduciary of an estate or trust or (iv) a foreign partnership.
In general, Non-United States Holders will not be subject to United
States federal withholding tax with respect to payments of principal and
interest on Bonds (including OID), provided that certain conditions are met.
Under United States federal income tax law now in effect, and subject to the
discussion of backup withholding in the following section, payments of principal
and interest (including OID) with respect to a Bond to any Non-United States
Holder will not be subject to United States federal withholding tax, provided,
in the case of interest (including OID), that (i) such Holder does not actually
or constructively own 10% or more of the equity of the Trust, (ii) such Holder
is not for United States federal income tax purposes a controlled foreign
corporation related, directly or indirectly, to the Trust through equity
ownership, (iii) such Holder is not a bank receiving interest described in
Section 881(c)(3)(A) of the Code and (iv) either (A) the Non-United States
Holder certifies, under penalties of perjury, to the Trust or paying agent, as
the case may be, that such Holder is a Non-United States Holder and provides
such Holder's name and address, or (B) a securities clearing organization, bank
or other financial institution that holds customers' securities in the ordinary
course of its trade or business (a "financial institution") and holds the Bond,
certifies, under penalties of perjury, to the Trust or paying agent, as the case
may be, that such certificate has been received from the beneficial owner by it
or by a financial institution between it and the beneficial owner and furnishes
the payor with a copy thereof. A certificate described in this paragraph is
effective only with respect to payments of interest (including OID) made to the
certifying Non-United States Holder after the issuance of the certificate in the
calendar year of its issuance and the two immediately succeeding calendar years.
On April 15, 1996, the IRS issued proposed regulations that provide
optional documentation procedures designed to simplify compliance by withholding
agents. These regulations would not affect the documentation rules described in
the preceding paragraph, but
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would add "intermediary certification" options for certain qualifying
withholding agents. Under one such option, a withholding agent would be allowed
to rely on Form W-8 furnished by a financial institution or other intermediary
on behalf of one or more beneficial owners (or other intermediaries) without
having to obtain the beneficial owner certificate described in the preceding
paragraph, provided that the financial institution or intermediary has entered
into a withholding agreement with the IRS and thus, is a "qualified
intermediary". Under another option, an authorized foreign agent of a U.S.
withholding agent would be permitted to act on behalf of the U.S. withholding
agent, provided that certain conditions are met. These regulations are proposed
to be effective for payments made after December 31, 1997.
Notwithstanding the foregoing, interest described in Section 871(h)(4)
of the Code will be subject to United States withholding tax at a 30% rate (or
such lower rate as may be provided by an applicable treaty). In general,
interest described in Section 871(h)(4) of the Code includes (subject to certain
exceptions) any interest the amount of which is determined by reference to
receipts, sales or other cash flow of the issuer or a related person, any income
or profits of the issuer or a related person, any change in the value of any
property of the issuer or a related person or any dividends, partnership
distributions or similar payments made by the issuer or a related person.
Interest described in Section 871(h)(4) of the Code may include other types of
contingent interest identified by the IRS in future Treasury Regulations.
If a Non-United States Holder is engaged in a trade or business in the
United States and interest (including OID) on the Bond is effectively connected
with the conduct of such trade or business, the Non-United States Holder,
although exempt from the withholding tax discussed in the three preceding
paragraphs, will be subject to United States federal income tax on such interest
(including OID) in the same manner as if it were a United States person (as
defined below). In lieu of the certificate described above, such Holder will be
required to provide a properly executed IRS Form 4224 annually (every three
years under the regulations issued on April 15, 1996) in order to claim an
exemption from withholding tax. In addition, if such Holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% (or such
lower rate as may be specified by an applicable treaty) of its effectively
connected earnings and profits for the taxable year, subject to adjustments.
For this purpose, interest (including OID) on a Bond will be included in the
earnings and profits of such Holder if such interest (including OID) is
effectively connected with the conduct by such Holder of a trade or business in
the United States.
Generally, any gain or income (other than that attributable to accrued
interest, market discount or OID in certain circumstances) realized upon the
sale, exchange, retirement or other disposition of a Bond by a Non-United States
Holder will not be subject to United States federal income tax unless (i) such
gain or income is effectively connected with a trade or business in the United
States of the Non-United States Holder or (ii) in the case of a Non-United
States Holder who is a nonresident alien individual, the Non-United States
Holder is present in the United States for 183 days or more in the taxable year
of such sale, exchange, retirement or other disposition and either (a) such
individual has a "tax home" (as defined in Section 911(d)(3) of the Code) in the
United States or (b) the gain is attributable to an office or other fixed place
of business maintained by such individual in the United States.
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Backup Withholding and Information Reporting.
Under current United States federal income tax law, information
reporting requirements apply to interest (including OID) and principal payments
made to, and to the proceeds of sales before maturity by, certain Bondholders
that are United States persons. "United States person" means a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, or an estate or trust the income of which is includible in
gross income for United States federal income tax purposes, without regard to
its source.
In addition, a 31% backup withholding tax will apply if such
Bondholder (i) fails to furnish its Taxpayer Identification Number ("TIN")
(which, for an individual, would be his or her Social Security Number) to the
payor in the manner required, (ii) furnishes an incorrect TIN and the payor is
so notified by the IRS, (iii) is notified by the IRS that it has failed properly
to report payments of interest and dividends or (iv) in certain circumstances,
fails to certify, under penalties of perjury, that it has not been notified by
the IRS that it is subject to backup withholding for failure properly to report
interest and dividend payments. Backup withholding will not apply with respect
to payments made to certain exempt recipients, such as corporations (within the
meaning of Section 7701(a) of the Code) and tax-exempt organizations.
In the case of a Non-United States Holder, under Treasury Regulations,
backup withholding and information reporting will not apply to payments of
principal and interest made by the Trust or any paying agent thereof on a Bond
with respect to which such holder has provided the required certification under
penalties of perjury that it is a Non-United States Holder or has otherwise
established an exemption, provided that (i) the Trust or paying agent, as the
case may be, does not have actual knowledge that the payee is a United States
person and (ii) certain other conditions are satisfied.
Subject to the discussion below, payments to or through the United
States office of a broker will be subject to backup withholding and information
reporting unless the holder certifies under penalties of perjury as to its
status as a Non-United States Holder and certain other qualifications (and no
agent of the broker who is responsible for receiving or reviewing such statement
has actual knowledge that it is incorrect) and provides his or her name and
address or the holder otherwise establishes an exemption.
In general, if principal or interest payments on a Bond are collected
outside the United States by a foreign office of a custodian, nominee or other
agent acting on behalf of a Bondholder, such custodian, nominee or other agent
will not be required to apply backup withholding to such payments made to such
owner and will not be subject to information reporting. However, if such
custodian, nominee or other agent is a United States person for United States
federal income tax purposes, a controlled foreign corporation for United States
tax purposes, or a foreign person 50% or more of whose gross income is
effectively connected with its conduct of a United States trade or business for
a specified three-year period, such custodian, nominee or other agent may be
subject to certain information reporting (but not backup withholding)
requirements with respect to such payment unless such custodian, nominee or
other
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agent has in its records documentary evidence that the Bondholder is not a
United States person and certain conditions are met or the Bondholder otherwise
establishes an exemption. Under proposed Treasury Regulations, backup
withholding may apply to any payment which such custodian, nominee or other
agent is required to report if such custodian, nominee or other agent has actual
knowledge that the payee is a United States person.
Under Treasury Regulations, payments on the sale, exchange or
retirement of a Bond to or through a foreign office of a broker will not be
subject to backup withholding. However, if such broker is a United States
person, a controlled foreign corporation for United States tax purposes, or a
foreign person 50% or more of whose gross income is effectively connected with
its conduct of a United States trade or business for a specified three-year
period, information reporting (but not backup withholding) will be required
unless such broker has in its records documentary evidence that the Bondholder
is not a United States person and certain other conditions are met or the
Bondholder otherwise establishes an exemption. Under proposed Treasury
Regulations, backup withholding may apply to any payment which such broker is
required to report if such broker has actual knowledge that the payee is a
United States person.
Backup withholding tax is not an additional tax. Rather, any amounts
withheld from a payment to a Bondholder under the backup withholding rules will
be allowed as a refund or a credit against such owner's United States federal
income tax, provided that the required information is furnished to the IRS.
Bondholders should consult their tax advisors regarding the
application of information reporting and backup withholding to their particular
situations, the availability of an exemption therefrom, and the procedure for
obtaining such an exemption, if available.
TAXATION OF INCOME FROM TRUST CERTIFICATES
For a discussion of the tax consequences of holding Trust Certificates
treated as interests in a partnership, see "Taxation of Partnership-Taxed Trust
Certificates" below. The remainder of this subsection addresses only the tax
consequences of holding Trust Certificates issued by a Trust treated as a
grantor trust for federal income tax purposes.
Each Certificateholder will be considered to own an undivided interest
in the Underlying Assets of the Trust. A Certificateholder will be deemed to
purchase an interest in each Underlying Asset in the Trust at a price determined
by allocating the purchase price paid for the Trust Certificate among all the
Underlying Assets in proportion to their fair market values at the time of the
purchase of the Trust Certificate. Accordingly, each Certificateholder must
include in its gross income its pro rata share of the interest and other income
attributable to the Underlying Assets (subject to the discussion below of
servicing fees treated as exceeding reasonable compensation for services) and
any other income of the Trust. Payments received on the Underlying Assets may
be reinvested by the Trustee for a short time period prior to their distribution
to Certificateholders. Each Certificateholder will be required to include in
its income its pro rata share of the income earned on such interim reinvestment.
In the case of any payment received in respect of a Financial Guaranty
Insurance, the character of such payment
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will be the same as the character of the payments under the Underlying Security
to which such Financial Guaranty Insurance relates. Each Certificateholder may
deduct (subject to any limitation applicable to such Certificateholder) its pro
rata share of the fees and other deductible expenses paid or deemed paid by the
Trust.
In general, each Certificateholder should calculate income separately
for its interest in each Underlying Asset of the Trust (first by allocating to
each such Underlying Asset a portion of the Certificateholder's basis in the
Certificate based on each such Underlying Asset's relative fair market value on
the date the Certificate is purchased). It is possible that the IRS may permit
or require that Certificateholders report their income by aggregating their
interests in all of the Underlying Securities. However, interests in the
Underlying Securities will not, in any circumstances, be aggregated if each of
the Underlying Securities either (i) is part of an issue a substantial portion
of which is traded on an established market or (ii) is part of an issue a
substantial portion of which is issued for money to parties who are not related
to the Underlying Issuer or Certificateholder and who do not purchase other debt
instruments of the same Underlying Issuer in connection with the same underlying
transaction or related transactions.
In computing the income arising from the Trust's Underlying Assets,
all income on these Underlying Assets allocable to the Trust Certificates,
including income effectively paid over to the Administrator and the Trustee (or
otherwise used to pay expenses), but not including income effectively paid over
to the Administrator that is treated as in excess of reasonable compensation for
services, is taken into account. However, each Certificateholder will be
allowed to deduct, consistent with its method of accounting, any fees paid or
deemed paid by the Trust allocable to that Trust Certificate. Prospective
investors should be aware that under the Code, for non-corporate
Certificateholders which itemize deductions when computing taxable income,
expenses of producing income (including the Certificateholder's allocable share
of the servicing fees) are aggregated with other expenses of producing income
and certain other deductions, and that the aggregate amount of such expenses is
deductible only to the extent such amount exceeds two percent of the non-
corporate Certificateholder's adjusted gross income. In addition, such expenses
in excess of the two percent threshold, when combined with the
Certificateholder's deductions for items such as taxes, certain other investment
expenses and charitable deductions, are subject to a reduction equal to,
generally, three percent of the Certificateholder's adjusted gross income in
excess of a statutory threshold amount. Furthermore, no deduction will be
allowed in respect of such fees for alternative minimum tax purposes.
Prospective investors should consult their own tax advisors regarding the
deductibility of expenses before purchasing Certificates.
The following discussion does not address Trust Certificates backed by
Underlying Securities that constitute "applicable high yield discount
obligations" within the meaning of Section 163(i) of the Code. Where
applicable, the Prospectus Supplement for each Series of such Trust Certificates
will describe certain federal income tax consequences that relate to such Trust
Certificates.
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INCOME ALLOCABLE TO UNDERLYING SECURITIES THAT ARE STRIPPED BONDS OR STRIPPED
COUPONS
As noted above, a Certificateholder will be deemed to purchase an
interest in each Underlying Security held by the Trust at a price determined by
allocating the purchase price paid for the Trust Certificate among all the
Underlying Securities in proportion to their fair market values at the time of
the purchase of the Trust Certificate. The consequences to a Certificateholder
of such a deemed purchase will depend on whether the Underlying Security is
either a "Stripped Bond" or "Stripped Coupon" within the meaning of Section 1286
of the Code. As these terms are defined in Section 1286 of the Code, a Stripped
Bond is, in general, a debt instrument issued at any time with interest coupons
where there is a separation in ownership between the debt instrument and any
coupon which has not yet become payable, and a Stripped Coupon is any coupon
relating to a Stripped Bond. Some or all of the Underlying Securities may be
treated as Stripped Bonds or Stripped Coupons under these definitions.
In general, Certificateholders of Interest Only Certificates,
Principal Only Certificates and Zero Coupon Certificates will be subject to the
Stripped Coupon and Stripped Bond rules of Section 1286 of the Code, as
discussed below. In addition, if the fees paid to the Administrator (the
"servicing fee") were considered to exceed reasonable compensation for services,
the Administrator would be considered to own an interest in each Underlying
Security. Accordingly, all of the Underlying Securities would be treated as
Stripped Bonds or Stripped Coupons. Interest from the Underlying Securities
used to pay that portion of the servicing fee that exceeds reasonable
compensation for services would not be included in the income of
Certificateholders, and no deduction would be allowed for that portion of the
servicing fee.
In the case of Underlying Securities that are Stripped Bonds or
Stripped Coupons, on the date on which a Certificate is purchased, each such
Underlying Security will be treated as newly issued with OID for federal income
tax purposes. Each such Underlying Security will be treated as having an issue
price equal to the price at which it is deemed purchased by Certificateholders.
For a discussion of OID, see "Taxation of Income From Bonds --Taxation of
Original Issue Discount" above.
Market Discount and Premium
Because the purchase by a Certificateholder of a Certificate generally
will be treated as an original issuance of such Certificateholder's share of
each of the Underlying Securities that are Stripped Bonds or Stripped Coupons on
the purchase date, the purchase of a Certificate will not result in market
discount or acquisition premium with respect to any Certificate.
INCOME ALLOCABLE TO UNDERLYING SECURITIES THAT ARE NEITHER STRIPPED BONDS NOR
STRIPPED COUPONS
In the case of Certificates the Underlying Securities for which are
neither Stripped Coupons nor Stripped Bonds, to the extent that the portion of
the purchase price of a Trust Certificate allocated to an Underlying Security is
less than the portion of the principal balance
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of the Underlying Security that is allocable to the Trust Certificate, the
interest in the Underlying Security will have been acquired at a discount, that
will represent OID or Market Discount (as defined below). To the extent that the
portion of the purchase price of a Certificate allocated to an Underlying
Security is greater than the portion of the principal balance of the Underlying
Security which is allocable to the Trust Certificate, the interest in the
Underlying Security will have been acquired at a premium (as described below
under "-- Premium and Acquisition Premium").
The treatment of any discount on an Underlying Security will depend on
whether the discount represents OID or Market Discount. To the extent the
Underlying Security will have OID, a Certificateholder will be subject to the
tax rules applicable to OID. In the case of Underlying Securities issued on or
after August 13, 1996, the rules set forth above in "Taxation of Income From
Bonds" will apply. In the case of Underlying Securities issued before August
13, 1996, those same rules will apply with the following modifications.
First, a variable rate will be considered to be a "qualified floating
rate" if the variable rate equals (i) the product of an otherwise qualified
floating rate and a fixed multiple that is greater than zero but not more than
1.35 or (ii) an otherwise qualified floating rate (or the product described in
clause (i)) plus or minus a fixed rate. If the variable rate equals the product
of an otherwise qualified floating rate and a single multiplier greater than
1.35, however, such a rate will generally constitute an objective rate. The
second modification is that a rate will be considered to be an "objective rate"
if it is a rate (other than a qualified floating rate) that is determined using
a single fixed formula and is based on (i) one or more qualified floating rates,
(ii) one or more rates where each rate would be a qualified floating rate for a
debt instrument denominated in a currency other than the currency in which the
debt instrument is denominated, (iii) the yield or changes in the price of one
or more items of personal property that are actively traded (other than the
stock or the debt of the issuer or certain related parties) or (iv) a
combination of the rates described in the three forgoing clauses.
The third modification is that different rules apply to Underlying
Securities that are contingent debt instruments. In general, for contingent
debt instruments issued before August 13, 1996, the preamble to the 1996
Contingent Debt Regulations states that a taxpayer may use any reasonable method
to account for contingent payments. Holders of certificates that represent an
interest in Underlying Securities that are contingent debt instruments issued
before August 13, 1996 should consult their tax advisors as to the methods that
may be available to them.
In the case of Underlying Securities that constitute short-term
Government Securities the rules set out above dealing with short-term
obligations (see "Taxation of Income from Bonds -- Short-Term Bonds" above) are
applied with reference to acquisition discount rather than OID, if such
obligations constitute "short-term Government obligations" within the meaning of
Section 1271(a)(3)(B) of the Code.
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Market Discount
A Certificateholder of a Trust Certificate the Underlying Securities
for which are neither Stripped Coupons nor Stripped Bonds may be subject to the
market discount rules of Sections 1276 through 1278 of the Code. If a
Certificateholder that acquires such Certificate with Underlying Securities
having a maturity date of more than one year from the date of their issuance has
a tax basis in the Underlying Security that is, in the case of an Underlying
Security that does not have OID, less than its stated redemption price at
maturity, or, in the case of an Underlying Security that has OID, less than its
adjusted issue price, the amount of the difference is treated as market discount
for federal income tax purposes, unless such difference is less than a specified
de minimis amount. For a discussion of the market discount rules, see "Taxation
of Income From Bonds -- Market Discount" above.
Premium and Acquisition Premium
If a Certificateholder purchases an interest in Underlying Securities
at a premium, the Certificateholder does not include any OID in gross income.
An Underlying Security is purchased at a premium if its adjusted basis,
immediately after its purchase by the Certificateholder, exceeds the sum of all
amounts payable on the instrument after the purchase date other than payments of
qualified stated interest. For a discussion of the rules applicable to premium,
see "Taxation of Income From Bonds -- Premium and Acquisition Premium" above.
If a Certificateholder does not purchase an Underlying Security at a
premium, but instead purchases such interest at an acquisition premium, the
amount of OID that the Certificateholder includes in gross income is reduced to
reflect the acquisition premium. See "Taxation of Income From Bonds -- Premium
and Acquisition Premium" above.
OPTIONAL CALL RIGHT
If a Series of Trust Certificates provides for an Optional Call Right
to purchase such Certificates or the Underlying Securities, Holders of such
Series should be treated as having sold a call option with respect to the
Underlying Securities. The Holders should be treated for federal income tax
purposes as though they had received an option premium equal to the fair market
value of the call right (the "deemed option premium") and had paid this amount
(in addition to the amount actually paid) as consideration for the Certificates.
Accordingly, the Holders' tax basis in the Underlying Securities should reflect
the deemed option premium. Thus, the amount of the OID otherwise includible in
income with respect to each of the Underlying Securities should be reduced to
reflect the portion of the deemed option premium allocable to each of them.
Holders should not recognize any income or gain as a result of being treated as
receiving the deemed option premium.
Upon exercise of the Optional Call Right, the portion of the deemed
option premium allocable to the Underlying Securities should be taken into
account as additional amount realized upon the sale of the Underlying Securities
and thus should increase the amount of gain or reduce the amount of loss
recognized upon such sale. If the Optional Call Right
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lapses without being exercised, the deemed option premium should be included in
income as short-term capital gain at the time of such lapse.
If a Holder sells or exchanges a Trust Certificate or Certificates
prior to the exercise or lapse of the Optional Call Right, the Holder should be
deemed to have made a payment to the purchaser of the Certificate or
Certificates equal to the fair market value of the Optional Call Right, and the
amount treated as the amount realized upon the sale or exchange of the Trust
Certificate or Certificates should be increased by this same amount. The Holder
should recognize gain (or loss) upon relief of its liability under the Optional
Call Right equal to (i) the deemed option premium over (or under) (ii) the fair
market value of the Optional Call Right. Any such gain or loss would be capital
gain or loss.
The Underlying Securities and the Optional Call Right should
constitute positions in a straddle, and thus the straddle rules of Section 1092
should apply. Holders should consider identifying their interests in the
Underlying Securities and the Optional Call Right as constituting an "identified
straddle" under Section 1092(a)(2)(B). Such an identification must be made on a
Holder's records before the close of the day on which any Trust Certificate is
acquired. Failure to make such an identification may result in deferral of any
loss recognized on disposition of a Holder's interest in the Underlying
Securities or the Optional Call Right that is deemed to occur on disposition of
Certificates. Whether such deferral would occur, and its consequences, would
depend on the specific circumstances of each Holder. Consequently, Holders
should consult their tax advisors as to whether and how to identify their
interests in the Underlying Securities and the Optional Call Right as an
identified straddle. Because a Holder's interest in the Underlying Securities
and the Optional Call Right will constitute positions in a straddle within the
meaning of Section 1092(c), any gain recognized on disposition of a Holder's
interest in the Underlying Securities or the Optional Call Right will be short-
term capital gain. In addition, under Section 263(g), interest expense and
carrying charges allocable to a straddle are deductible only to the extent of
interest (including original issue discount and certain market discount) and
dividend income from the property constituting the straddle, and the
nondeductible portions are added to the taxpayer's adjusted basis for such
property.
Foreign Certificateholders
Certificateholders that are not United States Persons ("non-United
States Certificateholders") will not, in general, be subject to United States
federal withholding tax with respect to payments of principal and interest on
Underlying Securities issued by United States Persons, provided that certain
conditions are met. Under United States federal income tax law now in effect
and subject to the discussion of backup withholding in the following section,
payments of principal and interest (including OID) by the Trust with respect to
an Underlying Security or any paying agent to any non-United States
Certificateholder will not be subject to United States federal withholding tax,
provided, in the case of interest, that (i) such Certificateholder does not
actually or constructively own 10% or more of the total combined voting power of
all classes of stock of the Underlying Issuer entitled to vote, (ii) such
Certificateholder is not for United States federal income tax purposes a
controlled foreign corporation related, directly or indirectly, to the
Underlying Issuer through stock ownership, (iii)
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such Certificateholder is not a bank receiving interest described in Section
881(c)(3)(A) of the Code and (iv) either (A) the beneficial owner of the
Certificate certifies, under penalties of perjury, to the Trust or paying agent,
as the case may be, that such Certificateholder is a non-United States
Certificateholder and provides such Certificateholder's name and address, if
any, or (B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business (a "financial institution") and holds the Certificate, certifies,
under penalties of perjury, to the Issuer or paying agent, as the case may be,
that such certificate has been received from the beneficial owner by it or by a
financial institution between it and the beneficial owner and furnishes the
payor with a copy thereof. A certificate described in this paragraph is
effective only with respect to payments of interest (including OID) made to the
certifying non-United States Certificateholder after the issuance of the
certificate in the calendar year of its issuance and the two immediately
succeeding calendar years.
On April 15, 1996, the IRS issued proposed regulations that provide
optional documentation procedures designed to simplify compliance by withholding
agents. These regulations would not affect the documentation rules described in
the preceding paragraph, but would add "intermediary certification" options for
certain qualifying withholding agents. Under one such option, a withholding
agent would be allowed to rely on Form W-8 furnished by a financial institution
or other intermediary on behalf of one or more beneficial owners (or other
intermediaries) without having to obtain the beneficial owner certificate
described in the preceding paragraph, provided that the financial institution or
intermediary has entered into a withholding agreement with the IRS and thus, is
a "qualified intermediary". Under another option, an authorized foreign agent
of a U.S. withholding agent would be permitted to act on behalf of the U.S.
withholding agent, provided that certain conditions are met. These regulations
are proposed to be effective for payments made after December 31, 1997.
Notwithstanding the foregoing, interest described in Section 871(h)(4)
of the Code will be subject to United States withholding tax at a 30% rate (or
such lower rate as may be provided by an applicable treaty). In general,
interest described in Section 871(h)(4) of the Code includes (subject to certain
exceptions) any interest the amount of which is determined by reference to
receipts, sales or other cash flow of the Underlying Issuer or a related person,
any income or profits of the Underlying Issuer or a related person, any change
in the value of any property of the Issuer or a related person or any dividend,
partnership distributions or similar payments made by the Underlying Issuer or a
related person. Interest described in Section 871(h)(4) of the Code may include
other types of contingent interest identified by the IRS in future Treasury
Regulations. If the Trust issues Certificates that represent interests in
Underlying Assets, the interest on which is described in Section 871(h)(4) of
the Code, the United States withholding tax consequences of any such
Certificates will be described in the applicable Prospectus Supplement.
If a non-United States Certificateholder is engaged in a trade or
business in the United States and interest (including OID) on the Underlying
Securities deemed owned by such non-United States Certificateholder is
effectively connected with the conduct of such trade or business, the non-United
States Certificateholder, although exempt from the withholding tax
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discussed in the two preceding paragraphs, will be subject to United States
federal income tax on such interest (including OID) in the same manner as if it
were a United States Certificateholder. In lieu of the certificate described
above, such a Certificateholder will be required to provide to the Trust a
properly executed IRS Form 4224 in order to claim an exemption from withholding
tax. In addition, if such a Certificateholder is a foreign corporation, it may
be subject to a branch profits tax equal to 30% (or such lower rate as may be
specified by an applicable treaty) of its effectively connected earnings and
profits for the taxable year, subject to adjustments. For this purpose, interest
(including OID) on an Underlying Security will be included in the earnings and
profits of such a Certificateholder if such interest (including OID) is
effectively connected with the conduct by the non-United States
Certificateholder of a trade or business in the United States.
Generally, any gain or income (other than that attributable to accrued
interest or OID) realized upon the sale, exchange, retirement or other
disposition of a Trust Certificate will not be subject to federal income tax
unless (i) such gain or income is effectively connected with a trade or business
in the United States of the non-United States Certificateholder or (ii) in the
case of a non-United States Certificateholder who is an individual, the non-
United States Certificateholder is present in the United States for 183 days or
more in the taxable year of such sale, exchange, retirement or other disposition
and either (a) such individual has a "tax home" (as defined in Section 911(d)(3)
of the Code) in the United States or (b) the gain is attributable to an office
or other fixed place of business maintained by such individual in the United
States.
A non-United States Certificateholder generally will not be subject to
United States withholding tax with respect to payments of principal and interest
on Underlying Securities that are issued by foreign Underlying Issuers.
However, such payments may be subject to United States federal income tax at
graduated rates (subject to credit for foreign income taxes) if such payments
are either derived in the active conduct of banking, financing or similar
business within the United States or received by a corporation the principal
business of which is trading in stocks or securities for its own account. If
subject to United States federal income taxation at graduated rates, such
payments may also give rise to the branch profits tax, as discussed above.
A Trust Certificate held by an individual who is a non-United States
Certificateholder at the time of death will not be subject to United States
federal estate tax with respect to an Underlying Security if the
Certificateholder does not own, actually or constructively, 10% or more of the
total combined voting power of all classes of stock of the Underlying Issuer
entitled to vote and the interest payments with respect to the Underlying
Security are not effectively connected with a United States trade or business of
such Certificateholder.
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Backup Withholding and Information Reporting
Information reporting requirements apply to interest (including OID)
and principal payments made to, and to the proceeds of sales before maturity by,
certain non-corporate United States Certificateholders. In addition, a 31%
backup withholding tax will apply if the non-corporate United States
Certificateholder (i) fails to furnish its TIN (which, for an individual, would
be his or her Social Security Number) to the payor in the manner required, (ii)
furnishes an incorrect TIN and the payor is so notified by the IRS, (iii) is
notified by the IRS that it has failed properly to report payments of interest
and dividends or (iv) in certain circumstances, fails to certify, under
penalties of perjury, that it has not been notified by the IRS that it is
subject to backup withholding for failure properly to report interest and
dividend payments. Backup withholding will not apply with respect to payments
made to certain exempt recipients, such as corporations (within the meaning of
Section 7701(a) of the Code) and tax-exempt organizations. For a discussion of
the rules relating to backup withholding and information reporting, see
"Taxation of Income From Bonds -- Backup Withholding and Information Reporting"
above.
Sale or Exchange of the Certificates
A Certificateholder generally will recognize gain or loss upon the
sale or exchange of a Trust Certificate equal to the difference between the
amount received and the Certificateholder's adjusted basis in its interest in
the Underlying Assets. Such adjusted basis in its interest in the Underlying
Assets generally will equal the cost of the Trust Certificates, increased by
income previously included in respect thereof, and reduced (but not below zero)
by previous distributions, if any. Any gain or loss will be capital gain or
loss if the interests in the Underlying Securities were held as capital assets,
except as provided under "Taxation of Income From Bonds -- Market Discount" and
"--Short-Term Bonds" above.
INCOME ALLOCABLE TO CERTAIN UNDERLYING ASSETS THAT ARE SWAP AGREEMENTS
Notional Principal Contracts
The tax treatment of a Swap Agreement depends on whether that Swap
Agreement is classified as a Notional Principal Contract for federal income tax
purposes. A Notional Principal Contract is defined for federal income tax
purposes as a financial instrument that provides for the payment of amounts by
one party to another at specified intervals calculated by reference to a
specified index applied to a notional principal amount in exchange for either
(a) a promise to pay similar amounts or (b) specified consideration such as, for
example, a cash payment made at the time that the contract is entered into.
Swap Agreements classified as Notional Principal Contracts for federal income
tax purposes include interest rate swaps, interest rate caps, interest rate
floors and basis swaps.
The net income or net deduction from a Notional Principal Contract for
a taxable year is included in or deducted from gross income for that taxable
year. The net income or expense from a Notional Principal Contract should be
treated as ordinary income or expense. The net income or net deduction from a
Notional Principal Contract for a taxable year equals
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the total of (a) all of the Periodic Payments that are recognized from that
Contract for the taxable year and (b) all of the Nonperiodic Payments that are
recognized from that Contract for the taxable year. If, for any taxable year,
there is a net expense from the Notional Principal Contract, noncorporate
Certificateholders that itemize deductions may not be allowed to deduct part or
all of the amount of such net expense. Section 67 of the Code will allow a
deduction for such net expense only to the extent that such net expense, along
with certain other miscellaneous itemized deductions, exceeds two percent of
such Certificateholder's adjusted gross income. In addition, such expenses in
excess of the two percent threshold, when combined with the Certificateholder's
deductions for items such as taxes, certain other investment expenses and
charitable deductions, are subject to a reduction equal to, generally, three
percent of the Certificateholder's adjusted gross income in excess of a
statutory amount. Also, such net expense may not be deductible for purposes of
the alternative minimum tax. A noncorporate Certificateholder that itemizes
deductions should consult its tax advisor regarding the application of Section
67 of the Code and the alternative minimum tax to an investment in the
Certificates.
"Periodic Payments" are payments made or received pursuant to a
Notional Principal Contract that are payable at intervals of one year or less
during the entire term of the Contract, that are based on a Specified Index
(appropriately adjusted for the length of the interval) and that are based on
either a single notional principal amount or a notional principal amount that
varies over the term of the contract in the same proportion as the notional
principal amount that measures the payments made by the other party varies. The
term Specified Index includes a single fixed interest rate or a floating rate
index such as LIBOR or COFI.
All taxpayers, regardless of whether they use an accrual method of
accounting or the cash method of accounting, must recognize the ratable daily
portion of a Periodic Payment that they make or receive for the taxable year to
which that portion relates. A portion of a Periodic Payment may be considered
to relate to a taxable year ending prior to the date that the amount of the
Periodic Payment is fixed because the value of the Specified Index is not fixed
until after the end of the taxable year. In such a case, the ratable daily
portion of the Periodic Payment that relates to that taxable year is generally
based on the amount that would have been the amount of the Periodic Payment
using the value of the Specified Index as of the last day of that taxable year.
Similar rules apply if the amount of a Periodic Payment relating to a taxable
year is not known as of the end of the taxable year because the notional
principal amount to be used in computing the payment is not fixed until after
the end of the taxable year.
A "Nonperiodic Payment" is any payment made or received pursuant to a
Notional Principal Contract that is not a Periodic Payment or a termination
payment. Examples of Nonperiodic Payments include the premium that is made to
purchase an interest rate cap, the payment that is received for selling an
interest rate floor and the yield adjustment fee that is made or received when a
taxpayer enters into an "off-market" interest rate swap contract. The rules
governing the time at which Nonperiodic Payments made or received are to be
taken into account are the same regardless of whether the taxpayer uses an
accrual method of accounting or the cash method of accounting. Regardless of
the taxpayer's method of accounting, the taxpayer must recognize in each taxable
year of the contract the portion of the Nonperiodic Payment allocable to that
taxable year.
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Generally, a Nonperiodic Payment is allocated among the years of the
contract in a way that reflects the economic substance of the contract. For
this purpose, an interest rate swap contract is considered to be, in economic
substance, a series of cash-settled forward contracts. Accordingly, a yield
adjustment fee paid to enter into an off-market interest rate swap contract
would not be deductible by the payor, and would not be includible in the income
of the payee, when made. Instead, the yield adjustment fee would be allocated
among the settlement dates provided by the contract in a way that would reflect
the premiums that would be paid to enter into a series of cash-settled off-
market forward contracts. Only the portion of the yield adjustment fee that is
allocable to the forward contracts that settle during a particular period is
recognized for that period.
Similarly, a premium paid for an interest rate cap contract would not
be deductible by the purchaser or includible in the income of the seller when
such premium is paid. Instead, it would be allocated among the settlement dates
provided by the cap contract in a way that would reflect the premiums that would
be paid to enter into a series of cash-settled option contracts. Only the
portion of the premium that is allocable to the option contract or contracts
that expire during a particular period is recognized for that period.
Treasury Regulations provide that a taxpayer generally may elect to
amortize a yield adjustment fee or a cap or floor premium paid when a contract
is entered into using a simplified method referred to as the "level payment
method". Under this method, the fee or premium is assumed to represent a self-
amortizing installment loan that is repaid through equal payments, each
consisting of a principal component and a time value component, over the term of
the contract. The principal component of each hypothetical payment is treated
as a Periodic Payment that is deemed to be made on each of the dates that the
contract provides for Periodic Payments by the payor of the Nonperiodic Payment
or, if there are no such Periodic Payments, on each of the dates that the
contract provides for Periodic Payments by the recipient of the Nonperiodic
Payment.
Treasury Regulations contain rules which apply to Notional Principal
Contracts entered into as "hedging transactions" within the meaning of Treasury
Regulations. For this purpose, hedging transactions include Swap Agreements
entered into to reduce the risk of price changes or currency fluctuations with
respect to ordinary property held or to be held by a taxpayer. Under these
rules, Nonperiodic Payments made or received with respect to such Notional
Principal Contracts generally would be required to be taken into account under
the rules in the preceding paragraph.
The purchase price paid for the Trust Certificates by the
Certificateholders would be allocated among the Underlying Securities owned by
the Trust and any Swap Agreements entered into by the Trust. If a
Certificateholder sells or exchanges a Trust Certificate prior to the maturity
of the Swap Agreements, the Certificateholder should be deemed to have either
received an amount equal to the fair market value of rights under the Swap
Agreements (if the Swap Agreements were an asset at the time of the sale or
exchange) or paid an amount to the purchaser equal to the present value of
liability under the Swap Agreements (if the Swap Agreements were a liability at
the time of the sale or exchange). If the Swap Agreements were
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an asset at the time of the sale or exchange, the Certificateholder should
recognize gain (or loss) on the Swap Agreements equal to the excess (or the
deficit) of (i) the fair market value of the rights under the Swap Agreements
(adjusted to reflect any portion of such amount already taken into account under
the rules for Nonperiodic Payments) over (or under) (ii) the amount of the
original purchase price allocable to the Swap Agreements (adjusted to reflect
any portion of such amount already taken into account under the rules for
Nonperiodic Payments). If the Swap Agreements were a liability at the time of
the sale or exchange, the Certificateholder should recognize loss on the Swap
Agreements equal to the sum of the present value of the liability and the amount
of the original purchase price allocable to the Swap Agreements.
The foregoing discussion of the treatment of Notional Principal
Contracts considers only the tax consequences of Contracts that are held to
maturity and does not consider the consequences of sale, exchange, assignment or
termination of such contracts or of defaults with respect to such Contracts.
Options, Including Options to Enter Into Notional Principal Contracts
A taxpayer does not recognize any income, expense, gain or loss as a
result of making or receiving a payment to enter into an option contract.
If an option contract expires without being exercised, the payment
that was received or made to enter into the option contract is recognized as
gain or loss, respectively. The character of such gain or loss will depend on
whether the option contract is a hedging transaction within the meaning of
Treasury Regulations. If the option contract is a hedging transaction, and if
certain identification requirements are met, gain or loss on the expiration of
the option contract will be treated as ordinary. If the option contract is not
a hedging transaction within the meaning of Treasury Regulations because, for
example, the property to which the option relates is or would be a capital asset
in the taxpayer's hands, any such gain or loss will be treated as capital.
The time at which such gain or loss is taken into account may also
depend on whether the option contract is a hedging transaction with the meaning
of Treasury Regulations. If the option contract is not a hedging transaction, it
is taken into account when recognized. If it is a hedging transaction, Treasury
Regulations may require deferral of such gain or loss.
If an option contract entitling or obligating the taxpayer to purchase
or sell property is exercised, the payment that was made or received when the
option contract was entered into is treated as an adjustment to basis, if the
taxpayer purchases property pursuant to the exercise of the option, and is
treated as an adjustment to amount realized, if the taxpayer sells property
pursuant to the exercise of the option. If an option contract entitling or
obligating the taxpayer to enter into a Notional Principal Contract is
exercised, the payment that was made or received when the option contract was
entered into is treated as a Nonperiodic Payment made or received when the
Notional Principal Contract is entered into pursuant to the exercise of the
option. See "Notional Principal Contracts" above for a discussion of the
treatment of Nonperiodic Payments made or received when a Notional Principal
Contract is entered into.
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Option contracts that are "listed options" within the meaning of
Section 1256 of the Code are subject to different rules, provided that they do
not constitute hedging transactions. Changes in the market value of listed
options generally are taken into account on a mark-to-market basis prior to
disposition or exercise. Such gain or loss is treated as 40% short-term capital
gain or loss and 60% long-term capital gain or loss. In general, a listed
option is one that is traded on, or subject to the rules of a board or exchange
registered with the SEC or designated by the CFTC.
TAXATION OF INCOME FROM PARTNERSHIP-TAXED TRUST CERTIFICATES
With respect to certain of the Series of Trust Certificates, Trust
Certificates may be issued by a Trust treated as a partnership for federal
income tax purposes ("Partnership-Taxed Certificates"). In such a case, the
Trustee will agree or will be deemed to have agreed, for purposes of federal,
state and local income and franchise tax purposes, to treat the Trust as a
partnership and the Holders of the Partnership-Taxed Certificates as partners.
Any references to "Partnership-Taxed Trusts" in the remainder of the discussion
in this subsection are to Trusts treated as partnerships for federal income tax
purposes.
Partnership Taxation
Pass-through of Income, Gain, Loss and Deductions. The Partnership-
Taxed Trust will not be subject to federal income tax, but each Holder of a
Partnership-Taxed Certificate will be required separately to take into account
such Holder's allocable share of income, gains, losses, deductions and credits
of the Partnership-Taxed Trust on its own federal income tax return. Income,
gains, losses, deductions and credits of the Partnership-Taxed Trust will be
calculated at the Trust level and elections will be made at the Trust level.
Under the Trust Agreement, Holders of Partnership-Taxed Certificates will not be
permitted to participate in the preparation of the Partnership-Taxed Trust's tax
returns, and any particular election made or not made by the Partnership-Taxed
Trust may be adverse to any particular Holder. Alternatively, in certain
circumstances, a Holder of a Partnership-Taxed Certificate may be deemed to earn
guaranteed payments, rather than a share of the Partnership-Tax Trust's income.
It should be noted that if the servicing fees paid to the
Administrator were considered to exceed reasonable compensation for services,
the Administrator would be considered to own an interest in each of the
Underlying Securities held by the Partnership-Taxed Trust and all such
Underlying Securities therefore would be treated as Stripped Bonds or Stripped
Coupons. Interest from the Underlying Securities used to pay that portion of
the servicing fee that exceeds reasonable compensation would not be included in
the income of the Partnership-Taxed Trust, and no deduction would be allowed to
the Partnership-Taxed Trust for that portion of the servicing fee.
The tax items of a Partnership-Taxed Trust are allocable to the
Holders in accordance with the Code, Treasury Regulations, and the Trust
Agreement. The Trust Agreement will provide that the Partnership-Taxed Trust
will allocate items of income, gain, loss or deduction among the Holders so that
such items so allocated will have "substantial economic
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effect" or will be in accordance with the Holder's interest in the Partnership-
Taxed Trust. There can be no assurance that the net amount of income so
allocated will equal the amounts distributed as income on the Partnership-Taxed
Certificates. Further, while such an allocation will be made in manner that the
Issuer believes will be given effect for federal income tax purposes, no
assurance can be given that the IRS will not require a greater amount of income
to be allocated to certain Holders of Partnership-Taxed Certificates.
The Code provides that, for non-corporate Holders who itemize
deductions when computing taxable income, expenses of producing income are
aggregated with other expenses of producing income and certain other deductions,
and that the aggregate amount of such expenses is deductible only to the extent
such amount exceeds two percent of the non-corporate Holder's adjusted gross
income. In addition, such expenses in excess of the two percent threshold, when
combined with the noncorporate Holder's deductions for items such as taxes,
certain other investment expenses and charitable deductions, are subject to a
reduction equal to, generally, three percent of the Holder's adjusted gross
income in excess of a statutory threshold amount. Furthermore, no deduction
will be allowed for such expenses for alternative minimum tax purposes.
Prospective investors should consult their own tax advisors regarding the
deductibility of expenses before purchasing Partnership-Taxed Certificates.
Cash distributions to a Holder of a Partnership-Taxed Certificate by
the Partnership-Taxed Trust will constitute a return of capital to the extent of
such Holder's basis in the Partnership-Taxed Certificates and will reduce the
tax basis of such Holder's Partnership-Taxed Certificates (but not below zero).
If a Holder's tax basis in his Partnership-Taxed Certificate should be reduced
to zero, its share of any subsequent cash distributions for any year in excess
of its share of taxable income will be taxable to such Holder as though such
excess were a gain on the sale or exchange of its interest in the Partnership-
Taxed Trust.
The Partnership-Taxed Trust currently intends to make all tax
calculations relating to income and allocations to Holders on an aggregate basis
(except that items of income, gains, losses and deductions allocable to Swap
Agreements will be determined separately). If the IRS were to require that such
calculations be made separately for each asset held by the Partnership-Taxed
Trust, the Partnership-Taxed Trust might be required to incur additional
expenses; it is believed, but there can be no assurances, that these additional
expenses would not have a material adverse effect on Holders.
The foregoing discussion applies only to Holders of Partnership-Taxed
Certificates that acquire Partnership-Taxed Certificates in exchange for money
and does not apply to Holders of Partnership-Taxed Certificates that acquire
Partnership-Taxed Certificates in exchange for property.
Disposition of Partnership-Taxed Certificates. Generally, capital gain or
loss will be recognized on a sale or exchange of Partnership-Taxed Certificates
in an amount equal to the difference between the amount realized and the
Holder's tax basis in the Partnership-Taxed Certificates sold. Any gain on the
sale of a Partnership-Taxed Certificate attributable to the Holder's share of
unrealized receivables or unrecognized accrued Market Discount of the
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Partnership-Taxed Trust would generally be treated as ordinary income to the
Holder and such ordinary income may not be offset by any capital loss from the
sale. A Holder's tax basis in a Partnership-Taxed Certificate will generally
equal its cost therefor, increased by such Holder's allocable share of the
Partnership-Taxed Trust's income that has been includible in such Holder's
income and decreased by such Holder's allocable share of the Partnership Trust's
loss and any distributions received with respect to such Certificate. In
addition, both tax basis in the Partnership-Taxed Certificates and the amount
realized on a sale of a Partnership-Taxed Certificate will generally include the
Holder's share of any other liabilities of the Partnership-Taxed Trust. A
Holder acquiring Partnership-Taxed Certificates of the same Series at different
prices will be required to maintain a single aggregate adjusted tax basis in
such Partnership-Taxed Certificates and, upon sale or other disposition of some
of the Partnership-Taxed Certificates, allocate a pro rata portion of such
aggregate tax basis to the Partnership-Taxed Certificates sold (rather than
maintaining a separate tax basis in each Partnership-Taxed Certificate for
purposes of computing gain or loss on a sale of that particular Partnership-
Taxed Certificate).
If a Holder of a Partnership-Taxed Certificate is required to
recognize an aggregate amount of income (not including income attributable to
disallowed itemized deductions described above) over the life of the
Partnership-Taxed Certificates that exceeds the aggregate cash distributions
with respect thereto, such excess will generally give rise to a loss upon the
retirement of the Partnership-Taxed Certificates. Any such loss will be a
capital loss.
Allocations of Income or Loss Among Holders. In general, the
Partnership-Taxed Trust's taxable income and losses will be determined monthly
and the tax items for a particular calendar month will be allocated among the
Holders in proportion to the proportionate interest in the Partnership-Taxed
Trust owned by them as of a particular day of each month. As a result, a Holder
purchasing Partnership-Taxed Certificates during any month may be allocated tax
items (which will affect its tax liability and tax basis) attributable to
periods before such Holder actually held the Partnership-Taxed Certificates.
The use of such a monthly convention may not be permitted by existing
Treasury Regulations. If a monthly convention is not allowed (or only applies
to transfers of less than all of the Holder's interest), taxable income or
losses of the Partnership-Taxed Trust might be reallocated among the Holders of
Partnership-Taxed Certificates. The Partnership-Taxed Trust will be authorized
to revise the Partnership-Taxed Trust's method of allocation between
transferrers and transferees to conform to a method permitted by future Treasury
Regulations.
Section 754 Election. If a Holder of a Partnership-Taxed Certificate
sells its Partnership-Taxed Certificate at a profit (or loss), the purchaser
will have a higher (or lower) basis in the Partnership-Taxed Certificates than
the Holder had. The tax basis of the assets of the Partnership-Taxed Trust will
not be adjusted to reflect that higher (or lower) basis unless the Partnership-
Taxed Trust were to file an election under Section 754 of the Code. In order to
avoid the administrative complexities that would be involved in keeping accurate
accounting records, as well as potentially onerous information reporting
requirements, the Partnership-Taxed Trust likely will not (and will not required
to) make such election. As a result, Holders of
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Partnership-Taxed Certificates might be allocated a greater or lesser amount of
the Partnership-Taxed Trust's income than they would had they purchased directly
the Partnership's assets. If the Partnership-Taxed Trust does make an election
under Section 754 of the Code, such an election will apply to all subsequent
transferees, which may be adverse to certain transferees.
Partnership Terminations. In general terms, if 50% or more of the
interests in the Partnership-Taxed Trust are transferred within a 12 month
period, the Partnership-Taxed Trust will be considered to terminate for federal
income tax purposes, and a new Partnership-Taxed Trust will be deemed to be
established. In such a case, the assets will be considered to be distributed to
each of the Holders of the Partnership-Taxed Certificates and then recontributed
by them to the "new" Partnership-Taxed Trust. Each Holder may be subject to tax
to the extent the amount of money and value of marketable securities deemed
distributed to such Holder exceeds its adjusted basis in the Partnership-Taxed
Certificates. Such a termination could have further adverse effect on some or
all of the Holders, including the possibility of "bunching" of income from more
than one taxable year of any Holder with a taxable year other than the calendar
year.
On May 10, 1996, proposed Treasury Regulations were issued that would
change the rules relating to terminations. Those regulations are effective for
terminations occurring on or after the date those regulations are
finalized.
Certain Administrative Matters. The Partnership-Taxed Trust will be
required to keep complete and accurate books and records. Such books will be
maintained for tax purposes on an accrual basis and calendar year. The Company
(or an affiliate of the Company), the Trustee or the Administrator will file a
partnership information return (IRS Form 1065) with the IRS for each taxable
year of the Partnership-Taxed Trust and will report each Holder's allocable
share of items of the Partnership's income and expense to Holders and the IRS on
Schedule K-1 based upon the above described allocation methods and conventions.
The Partnership-Taxed Trust will provide the Schedule K-1 information to
nominees that fail to provide the Partnership-Taxed Trust with the information
statement described below and such nominees will be required to forward such
information to the beneficial owners of the related Partnership-Taxed
Certificates. Generally, a Holder must file tax returns that are consistent
with the information return filed by the Partnership-Taxed Trust or be subject
to penalties unless the Holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Partnership-
Taxed Certificates as a nominee at any time during a calendar year is required
to furnish the Partnership-Taxed Trust at least annually with a statement
containing certain information on the nominee, the beneficial owners and the
Partnership-Taxed Certificates so held. Such information includes (i) the name,
address and TIN of the nominee and (ii) as to each beneficial owner (x) the
name, address and TIN of such person, (y) whether such person is a United States
Person, a tax-exempt entity or a foreign government, an international
organization or any wholly owned agency or instrumentality of either of the
foregoing, and (z) certain information on Partnership-Taxed Certificates that
were held, bought or sold on behalf of such person throughout the year
(including the method, cost and date of acquisition of the Partnership-Taxed
Certificates). In
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case of a Partnership-Taxed Trust not making a Section 754 election (as
discussed above), Holders may not be required to provide certain of the
information referred to in (z) of the immediately preceding sentence. In
addition, brokers and financial institutions that hold Partnership-Taxed
Certificates through a nominee are required to furnish directly to the
Partnership-Taxed Trust information as to themselves and their ownership of
Partnership-Taxed Certificates. The information referred to above for any
calendar year must be furnished to the Trustee on or before the following
January 31. Nominees, brokers and financial institutions that fail to provide
the Trustee with the information described above may be subject to penalties.
The Partnership-Taxed Trust will designate the Company (or an
affiliate of the Company), the Trustee or the Administrator as the "tax matters
partner". The tax matters partner will be responsible for representing the
Holders in any dispute with the IRS that relates to the Partnership-Taxed Trust.
The Code provides for administrative examination of a Partnership-Taxed Trust as
if the Partnership-Taxed Trust were a separate and distinct taxpayer. Generally,
the statute of limitations for Partnership-Taxed Trust items does not expire
before three years after the date on which the information return is filed by
the Partnership-Taxed Trust. Any adverse determination following an audit of
the return of the Partnership-Taxed Trust by the appropriate taxing authorities
could result in an adjustment of the returns of the Holders and, in certain
circumstances, a Holder may be precluded from separately litigating a proposed
adjustment to the items of the Partnership-Taxed Trust. An adjustment could
result in an audit of a Holder's returns and adjustments of items not related to
the income and losses of the Partnership-Taxed Trust.
Tax Treatment of Certain Swap Agreements. Because each Holder of
Partnership-Taxed Certificates will be required to take into account separately
such Holder's allocable share of the Partnership-Taxed Trust's income, gains,
losses and deductions on such Holder's federal income tax return, the rules set
forth above in "Taxation of Income From Certificates - Income Allocable to
Certain Underlying Assets That Are Swap Agreements" will generally be applicable
to a Holder of a Partnership-Taxed Certificate if the Partnership-Taxed Trust
holds the Swap Agreements discussed above in "Taxation of Income From
Certificates - Income Allocable to Certain Underlying Assets That Are Swap
Agreements".
State and Local Taxes
The laws of the states and localities in which any Partnership-Taxed
Trust will be formed and where it will do business or own property will differ.
Thus, any Partnership-Taxed Trust may be subject to tax in one or more states or
localities. Further, a Holder of a Partnership-Taxed Certificate by virtue of
holding that Trust Certificate may be subject to the tax laws of any state where
the Partnership-Taxed Trust does business or owns property or under whose laws
it was established. Prospective investors are urged to consult their own tax
advisors regarding state and local tax consequences when investing in
Partnership-Taxed Certificates.
Foreign Investors
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Partnership-Taxed Certificates may not be suitable instruments for
investors that are not United States Persons. Prospective investors that are
not United States Persons are urged to consult their own tax advisors regarding
the federal income tax consequences of the purchase and ownership of
Partnership-Taxed Certificates.
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Unless otherwise specified in the related Prospectus Supplement, the
Securities will be available only in book-entry form. Investors in the
Securities may hold such Securities through any of DTC, CEDEL or Euroclear. The
Securities will be tradeable as home market instruments in both the European and
U.S. domestic markets. Initial settlement and all secondary trades will settle
in same-day funds.
Secondary market trading between investors holding Securities through
CEDEL and Euroclear will be conducted in the ordinary way in accordance with
their normal rules and operating procedures and in accordance with conventional
Eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Securities through
DTC will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
participants holding Securities will be effected on a delivery-against-payment
basis through the respective Depositories of CEDEL and Euroclear and as
participants in DTC.
INITIAL SETTLEMENT
All Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Securities will be
represented through financial institutions acting on their behalf as direct or
indirect participants in DTC. As a result, CEDEL and Euroclear will hold
positions on behalf of their participants through their respective Depositories,
which in turn will hold such positions in accounts as participants of DTC.
Investors electing to hold their Securities through DTC will follow
the settlement practices applicable to United States corporate debt obligations.
Investor securities custody accounts will be credited with their holdings
against payment in the same-day funds on the settlement date.
Investors electing to hold their Securities through CEDEL or Euroclear
accounts will follow the settlement procedures applicable to conventional
eurobonds, except that there will be no temporary global security and no "lock-
up" or restricted period. Securities will be credited to the securities custody
accounts on the settlement date against payment in same-day funds.
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SECONDARY MARKET TRADING
General
Because the purchase determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
account are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants
Secondary market trading between DTC Participants will be settled
using the procedures applicable to United States corporate debt issues in same-
day funds.
Trading between CEDEL and/or Euroclear Participants
Secondary market trading between CEDEL Participants and/or Euroclear
Participants will be settled using the procedures applicable to conventional
eurobonds in same-day funds.
Trading between DTC Seller and CEDEL or Euroclear Purchaser
When Securities are to be transferred from the account of a DTC
Participant to the account of a CEDEL Participant or a Euroclear Participant,
the purchaser will send instructions to CEDEL or Euroclear through a Participant
at least one business day prior to settlement. CEDEL or Euroclear will instruct
the respective Depository to receive the Securities against payment. Payment
will include interest accrued on the Securities from and including the last
coupon payment date to and excluding the settlement date, on the basis of a
calendar year consisting of twelve 30-day calendar months. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
respective Depository to the DTC Participant's account against delivery of the
Securities. After settlement has been completed, the Securities will be
credited to the respective clearing system and by the clearing system, in
accordance with its usual procedures, to the CEDEL Participant's or Euroclear
Participant's account. The Securities' credit will appear the next day
(European time) and the cash debit will be back-valued to, and the interest on
the Securities will accrue from, the value date (which would be the preceding
day when settlement occurred in New York). If settlement is not completed on
the intended value date (i.e., the trade fails), the CEDEL or Euroclear cash
debit will be valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
Securities are credited to their accounts one day later.
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As an alternative, if CEDEL or Euroclear has extended a line of credit
to them, Participants can elect not to preposition funds and allow the credit
line to be drawn on to finance settlement. Under this procedure, CEDEL
Participants or Euroclear Participants purchasing Securities would incur
overdraft charges for one day, assuming they cleared the overdraft when the
Securities were credited to their accounts. However, interest on the Securities
would accrue from the value date. Therefore, in many cases the investment
income on the Securities earned during that one-day period may substantially
reduce or offset the amount of such overdraft charges, although this result will
depend on each Participant's particular cost of funds.
Because the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for sending Securities to the
respective Depository for the benefit of CEDEL Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle like a trade between two DTC Participants.
Trading between CEDEL or Euroclear Seller and DTC Purchaser
Due to time zone differences in their favor, CEDEL and Euroclear
Participants may employ their customary procedures for transactions in which
Securities are to be transferred by the respective clearing system, through the
respective Depository, to a DTC Participant. The seller will send instructions
to CEDEL or Euroclear through a Participant at least one business day prior to
settlement. In this case, CEDEL or Euroclear will instruct the respective
Depository to deliver the bonds to the DTC Participant's account against
payment. Payment will include interest accrued on the Securities from the
including the last coupon payment date to and excluding the settlement date on
the basis of a calendar year consisting of twelve 30-day calendar months. For
transactions settling on the 31st of the month, payment will include interest
accrued to and excluding the first day of the following month. The payment will
then be reflected in the account of the CEDEL or Euroclear Participant the
following day, and receipt of the cash proceeds in the CEDEL or Euroclear
Participant's account would be back-valued to the value date (which would be the
preceding day, when settlement occurred in New York). Should the CEDEL or
Euroclear Participant have a line of credit with its respective clearing system
and elect to be in debit in anticipation of receipt of the sale proceeds in its
account, the back-valuation will extinguish any overdraft charges incurred over
that one-day period. If settlement is not completed on the intended value date
(i.e., the trade fails), receipt of the cash proceeds in the CEDEL or Euroclear
Participant's account would instead be valued as of the actual settlement date.
Day traders that use CEDEL or Euroclear and that purchase Securities
from DTC Participants for delivery to CEDEL Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(i) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the day trade is reflected in their CEDEL or Euroclear
accounts) in accordance with the clearing system's customary procedures;
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(ii) borrowing the Securities in the United States from a DTC
Participant no later than one day prior to settlement, which would give the
Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
(iii) staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the CEDEL Participant
or Euroclear Participant.
CERTAIN UNITED STATES FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A Certificateholder holding securities through CEDEL, Euroclear or DTC
may be subject to United States withholding tax at a rate of 30%, unless each
clearing system, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business in the chain of
intermediaries between such beneficial owner and the U.S. entity or required to
withhold tax complies with applicable certification requirements, and
(i) the Certificateholder provides a statement signed by the beneficial
owner under penalties of perjury that the owner is not a United States
Person, or in the case of an individual, that he or she is not a resident or
citizen of the United States and that provides the name and address of the
beneficial owner; this statement should be made on a Form W-8 (Certificate of
Foreign Status);
(ii) interest is paid to the Certificateholder at an address inside the
United States and the Certificateholder is a United States Person that is
exempt from withholding and complies with the appropriate certification
requirements. if any;
(iii) provides a properly executed Form 1001 (Exemption or Reduced Rate
Certificate);
(iv) provides a properly executed Form 4224 (Exemption from Withholding of
Tax on Income Effectively Connected with the Conduct of Trade or Business in
the United States); or
(v) interest is paid at an address inside the United States and backup
withholding is required.
A Certificateholder holding such securities through DTC, CEDEL or
Euroclear may be subject to backup withholding at a rate of 31% unless the
holder:
(i) provides a properly executed Form W-8 or W-9; or
(ii) is a corporation (within the meaning of Section 7701(a) of the Code)
or otherwise establishes that it is a recipient exempt from United States
backup withholding.
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The global security holder or, in the case of a Form 1001 or a Form
4224 Filer, his agent, files by submitting the appropriate form to the person
through which he holds (the clearing agency, in the case of persons holding
directly on the books of the clearing agency) a Certificate. Form W-8 and Form
1001 are effective after the issuance of the certificate in the calendar year of
its issuance and the two immediately succeeding calendar years and Form 4224 is
effective for one calendar year. If the information on the forms change, the
beneficial owner must inform the person through which he holds within 30 days of
such change.
On April 15, 1996, proposed Treasury Regulations (the "1996 Proposed
Regulations") were issued which, if adopted in final form, could affect the
documentation required from non-U.S. persons holding global securities. The
1996 Proposed Regulations are generally proposed to be effective for payments
after December 31, 1997, regardless of the issue date of the global security
with respect to which such payments are made, subject to certain transition
rules. The 1996 Proposed Regulations would, if adopted, replace a number of
current tax certification forms (including IRS Form W-8, IRS Form 1001 and IRS
Form 4224, discussed above) with a single, restated form and standardize the
period of time for which withholding agents could rely on such certifications.
It cannot be predicted at this time whether the 1996 Proposed Regulations will
become effective as proposed, or what, if any, modifications may be made to
them. Prospective investors are urged to consult their tax advisors with
respect to the effect the 1996 Proposed Regulations may have.
This summary does not deal with all aspects of federal income tax
withholding that may be relevant to Certificateholders that are not United
States Persons. Such investors are advised to consult their own tax advisors
for specific tax advice concerning their holding and disposing of Certificates.
CERTAIN ERISA CONSIDERATIONS
GENERAL
Set forth below are certain consequences under ERISA and the Code that
a fiduciary (a "Plan Fiduciary") of an "employee benefit plan" (as defined in
and subject to ERISA) or of a "plan" (as defined in Section 4975 of the Code)
who has investment discretion should consider before deciding to invest the
plan's assets in Securities. The following summary is intended to be a summary
of certain relevant ERISA issues and does not purport to address all ERISA
considerations that may be applicable to a particular plan.
In general, the terms "employee benefit plan" as defined in ERISA and
"plan" as defined in Section 4975 of the Code (a "Plan") refer to any plan or
account of various types which provide retirement benefits or welfare benefits
to an individual or to an employer's employees and their beneficiaries. Plans
include corporate pension and profit-sharing plans, "simplified employee pension
plans", Keogh plans for self-employed individuals (including partners in a
partnership), individual retirement accounts described in Section 408 of the
Code
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and health insurance plans. For the purposes of the following discussion, the
term "Plan" also includes any entity whose assets constitute assets of any
"Plan" under the provisions of ERISA discussed in the "Plan Assets" section of
this summary, below, and "Plan Fiduciary" includes any person who is a fiduciary
with respect to any such Plan.
Each Plan Fiduciary must give appropriate consideration to the facts
and circumstances that are relevant to an investment in the Securities,
including the role that an investment in the Securities plays in the Plan's
investment portfolio. Each Plan Fiduciary, before deciding to invest in the
Securities, must be satisfied that investment in the Securities is a prudent
investment for the Plan, that the investments of the Plan, including the
investment in the Securities, are diversified so as to minimize the risks of
large losses and that an investment in the Securities complies with the Plan and
related trust documents.
Each Plan considering acquiring a Security should consult its own
legal and tax advisors before doing so.
EXEMPT PLANS
ERISA and Section 4975 of the Code do not apply to governmental plans
and certain church plans, each as defined in Section 3 of ERISA and Section
4975(g) of the Code. However, fiduciaries with respect to these plans may be
subject to federal, state or other laws similar in effect to ERISA and Section
4975 of the Code. The discussion below does not purport to address
considerations under such federal, state or other laws.
INELIGIBLE PURCHASERS
Securities may not be purchased with the assets of a Plan that is
sponsored by or maintained by the Company, the Trustee, the Issuer or any of
their respective affiliates. Securities may not be purchased with the assets of
a Plan if the Company, the Trustee, Issuer or any of their respective affiliates
or any employees thereof: (i) exercises any discretionary authority or
discretionary control respecting management of a Plan or exercises any authority
or control respecting the management or disposition of its assets, (ii) renders
investment advice for a fee or other compensation, direct or indirect, with
respect to any moneys or other property of a Plan, or has any authority or
responsibility to do so, or (iii) has any discretionary authority or
discretionary responsibility in the administration of a Plan. A party that is
described in clause (i), (ii) or (iii) of the preceding sentence is a fiduciary
under ERISA and the Code with respect to the Plan, and any such purchase might
result in a "prohibited transaction" under ERISA and the Code.
PLAN ASSETS
When a Plan purchases a Security not only does the Security become an
asset of the Plan, but it is possible that the purchase of a Security by a Plan
will cause, for purposes of Title I of ERISA and Section 4975 of the Code, the
related Underlying Assets to be treated as assets of that Plan. A regulation
(the "DOL Regulation") issued under ERISA by the United
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States Department of Labor (the "DOL") contains rules for determining when an
investment by a Plan in an entity will result in the underlying assets of the
entity being plan assets. The DOL Regulation provides that the assets of an
entity will not be "plan assets" of a Plan that purchases an interest therein if
such interest is not an "equity interest". The DOL Regulation defines an equity
interest as an interest other than an instrument that is treated as indebtedness
under applicable local law and that has no substantial equity features. The DOL
Regulation provides, with respect to the purchase of an equity interest by a
Plan, that the assets of an entity will be plan assets of a Plan that purchases
an interest therein unless the investment by all "benefit plan investors" is not
"significant" or certain other exceptions apply. The Prospectus Supplement will
specify whether any of the exceptions set forth in the regulation under ERISA
may apply with respect to a Series of Securities.
The term "benefit plan investors" includes all plans and accounts of
the types described above under "General" as employee benefit plans and
accounts, whether or not subject to ERISA, as well as entities that hold "plan
assets" due to investments made in such entities by any of such plans or
accounts. Investments by benefit plan investors will be deemed not significant
if benefit plan investors own, in the aggregate, less than a 25% interest in the
entity, determined without regard to the investments of persons with
discretionary authority or control over the assets of such entity, of any person
who provides investment advice for a fee (direct or indirect) with respect to
such assets and of "affiliates" of such persons (within the meaning of the DOL
Regulation) of such persons.
There is no restriction on the percentage of the value of the Trust
Certificates that may be owned by benefit plan investors and, thus, there is no
assurance that investment by benefit plan investors will not be significant.
Accordingly, it is not expected that an exception from the plan asset
regulations will apply and, therefore, it should be assumed that the Underlying
Securities will be treated as assets of Plans that purchase Trust Certificates.
If none of the exceptions set forth in the DOL Regulation (including
those discussed above) apply, the Underlying Assets will be deemed to be the
assets of each benefit plan investor for purposes of ERISA. In such a case, the
discussion set forth in the following sections will apply.
In addition, it should be noted that ERISA and the Code may place
restrictions on the purchase of Trust Certificates by certain investors that are
not Plans. In particular, insurance companies considering the purchase of
Certificates should consult their own counsel with respect to the United States
Supreme Court decision in John Hancock Mutual Life Insurance Co. v. Harris Trust
and Savings Bank (decided December 13, 1993), which held that assets held in an
insurance company's general account may be deemed to be "plan assets" under
certain circumstances. Based on the reasoning of the John Hancock case, it
could be argued that if the Company or CSFB or any of their affiliates is a
party in interest or a disqualified person with respect to a Plan that has
assets invested in the general account of an insurance company that acquires,
holds or invests in Trust Certificates using such general account funds, such
acquisition of, or holding of, or investment in, such Trust Certificates might
constitute a prohibited transaction for purposes of Section 4975 of the Code or
Section 406 or ERISA, as discussed
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below. Insurance company investors should analyze whether this decision may
adversely affect their ability to purchase Trust Certificates.
Consequences of Characterization as Plan Assets
If the Underlying Assets are plan assets, the Trustee, or, in the case
of Bonds, the Company or its affiliate will be a fiduciary under ERISA with
respect to Plan investors, and its duties and liabilities will be subject to the
provisions of ERISA. Generally, the fiduciary provisions of ERISA require Plan
Fiduciaries to act for the exclusive benefit of participants and beneficiaries
of the Plan, to employ the care, skill, prudence and diligence that a prudent
man acting in a like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like aims, to diversify
investments so as to minimize the risk of large losses and to comply with the
Plan and trust documents of the Plan.
Prohibited Transactions
If the Underlying Assets are plan assets, Section 406 of ERISA will
prohibit the Trustee, among others, from causing the assets of the Issuer to be
involved, directly or indirectly, in certain types of transactions with "parties
in interest" to investing Plans unless a statutory or administrative exemption
applies. If the prohibited transaction restrictions of Section 406 of ERISA are
violated, ERISA generally provides for criminal and civil penalties upon the
Plan Fiduciary and possibly other persons. Section 4975(c) of the Code
generally imposes an excise tax on "disqualified persons" who engage, directly
or indirectly, in similar types of transactions with the assets of Plans subject
to such Section (except that an IRA that engages in a prohibited transaction may
instead forfeit its tax-exempt status) and also requires recision of such
transaction.
The types of transactions subject to the prohibited transaction
restrictions of ERISA and Section 4975(c) of the Code include: (i) sales,
exchanges or leases of property (such as the Securities), (ii) loans or other
extensions of credit and (iii) the furnishing of goods and services. As
described in Section 406(b)(1) or Section 4975(c)(1)(E) of the Code, the use of
plan assets by or for the benefit of parties in interest or disqualified persons
may also constitute a prohibited type of transaction.
The Company, the Trustee, the Issuer and certain other persons and
certain affiliates thereof, might be considered or might become a party in
interest or disqualified person with respect to a Plan. If so, the acquisition,
holding or disposition of Securities by or on behalf of such Plan could give
rise to one or more "prohibited transactions" within the meaning of Section 406
ERISA and Section 4975(c) of the Code unless an exemption described below or
some other exemption is available. In particular, the sale of a Security by the
underwriters thereof or the services provided by the Trustee to such Plan would
appear in certain circumstances to be a prohibited transaction unless an
exemption applies.
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There are numerous exemptions to the prohibited transaction
restrictions of Section 406 of ERISA and Section 4975 of the Code, and the
applicability of any particular exemption depends upon the circumstances.
Certain exemptions are described below:
The prohibited transaction restrictions of Section 406(a) of ERISA and
Sections 4975(c)(1)(A) through (D) of the Code also do not apply to the purchase
or sale of Securities by a Plan from a party in interest that is a registered
broker-dealer if the conditions set forth in Prohibited Transaction Class
Exemption 75-1 ("PTCE 75-1") are satisfied. That exemption, however, does not
extend to violations of Section 406(b) of ERISA or Section 4975(c)(1)(E) of the
Code. The conditions that must be satisfied for PTCE 75-1 to apply as follows:
(i) the broker-dealer is registered under the Exchange Act and
customarily purchases and sells securities for its own account in the
ordinary course of its business as a broker-dealer;
(ii) the transaction is at least as favorable to the Plan as an
arm's-length transaction with an unrelated party and, at the time of the
transaction, was not a prohibited transaction within the meaning of Section
503(b) of the Code;
(iii) the broker dealer is not a fiduciary with respect to the Plan
and is a party in interest with respect to the Plan solely because it or an
affiliate provides services to the Plan; and
(iv) for a period of six years from the date of the transaction, the
Plan maintains or causes to be maintained such records as are necessary to
determine whether the foregoing conditions have been met, and such records
are unconditionally available for examination during normal business hours by
the DOL and certain other persons.
Section 408(b)(2) of ERISA and Section 4975(d)(2) of the Code permit
the payment of fees to parties in interest that perform services for a Plan if
(i) such services are appropriate and helpful for the establishment or operation
of the Plan, (ii) such services are provided under a reasonable arrangement
(including termination upon reasonably short notice without penalty); and (iii)
no more than reasonable compensation is paid therefor.
Before purchasing any Securities, a Plan Fiduciary should consult with
its counsel and determine whether there exists any prohibition to the
acquisition and holding of such Securities. In particular, a Plan Fiduciary
should determine whether the underwriters of the Securities, the Issuer, the
Trustee, the Company or the Servicer are parties in interest with respect to the
Plan and whether any prohibited transaction exemptions, such as the
Underwriter's Exemption PTCE 75-1, Section 408(b)(2) of ERISA or Section
4975(d)(2) of the Code, apply.
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Prohibited Transaction Class Exemptions
Certain prohibited transaction class exemptions ("PTCEs") issued by
DOL, including PTCE 84-14 (qualified professional asset managers), PTCE 90-1
(insurance company pooled separate accounts) and PTCE 91-38 (bank collective
investment fund), may apply to Plans purchasing Securities and to some or all
transactions involving the Securities if the conditions for an applicable
exemption are satisfied.
OTHER REQUIREMENTS
ERISA imposes a bonding requirement on the Trustee, or, in the case of
Bonds, the Company or its affiliate (if a fiduciary). This requirement may be
fulfilled by adding an agent's rider to the bond otherwise covering each Plan's
other assets. ERISA also imposes a requirement that all assets of a Plan be
held in trust. This requirement will be fulfilled by the trustee of any Plan
holding its Security in trust. ERISA does not require that the assets of the
Issuer be held in trust.
Except as otherwise set forth, the foregoing statements regarding the
consequences under ERISA of an investment in Securities are based on the
provisions of the Code and ERISA as currently in effect, and the existing
administrative and judicial interpretations thereunder. No assurance can be
given that administrative, judicial or legislative changes will not occur that
would not make the foregoing statements incorrect or incomplete.
Acceptance of subscriptions on behalf of individual retirement
accounts or other Plans is in no respect a representation by the Company, the
Issuer, the Trustee or any other party that this investment meets all relevant
legal requirements with respect to investments by any particular Plan or that
such investment is appropriate for any particular Plan. EACH PLAN FIDUCIARY
SHOULD CONSULT WITH ATTORNEYS AND FINANCIAL ADVISORS AS TO THE PROPRIETY OF SUCH
AN INVESTMENT IN LIGHT OF THE CIRCUMSTANCES OF THE PARTICULAR PLAN AND CURRENT
TAX LAW.
LEGAL INVESTMENT
Institutions whose investment activities are subject to regulation by
federal or state authorities should review policies and guidelines adopted from
time to time by such authorities before purchasing any of the Securities,
because certain Series or Classes may be deemed unsuitable investments, or may
otherwise be restricted, under such policies or guidelines.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not "interest-
bearing" or "income-paying" and, with regard to any Securities issued in book-
entry form, provisions which may restrict or prohibit investments in securities
which are issued in book-entry form.
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All investors should consult with their own legal advisors in
determining whether and to what extent the Securities constitute legal
investments for such investors.
PLAN OF DISTRIBUTION
The Issuer will apply all or substantially all the net proceeds from
the sale of each Series offered hereby and by the related Prospectus Supplement
to purchase from the Company or one of its affiliates the Underlying Assets
underlying such Series simultaneously with the issuance and sale of such
Securities. The difference between the aggregate price paid by the Company or
such affiliate for such Underlying Assets and such net proceeds represents
profit (or loss) to the Company or such affiliate. None of such profits or
losses will be disclosed in any Prospectus Supplement.
The Securities of any Series may be offered in any of three ways: (i)
through underwriters or dealers; (ii) directly to one or more purchasers; or
(iii) through agents. The related Prospectus Supplement will set forth the
terms of the offering of any Series of Securities, including the names of any
underwriters, the purchase price of such Securities and the proceeds to the
Issuer or such affiliate from such sale, any underwriting discounts and other
items constituting underwriters' compensation, any initial public offering
price, any discounts or concessions allowed or reallowed or paid to dealers, any
securities exchanges on which such Securities may be listed and the place and
time of delivery of the Securities to be offered thereby.
If underwriters are used in the sale, Securities will be acquired by
the underwriters for their own account and may be resold from time to time in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. Such
Securities may be offered to the public either through underwriting syndicates
represented by managing underwriters or by underwriters without a syndicate.
The obligations of the underwriters to purchase such Securities will be subject
to certain conditions precedent, and the underwriters will be obligated to
purchase all such Securities if any of such Securities are purchased. Any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
If so indicated in the related Prospectus Supplement, the Underwriting
Agreement relating to a particular Series of Securities will authorize agents,
underwriters or dealers to solicit offers by certain specified institutions to
purchase Securities at the public offering price set forth in such Prospectus
Supplement pursuant to Delayed Delivery Contracts. Delayed Delivery Contracts
provide for the payment of the public offering price by certain institutional
investors, and delivery of the related Securities, at a future date to be
specified in the Prospectus Supplement. If Delayed Delivery Contracts are used,
the Underwriting Agreement will establish (i) a contractual limit on the amount
of Securities that can be covered by such contracts and (ii) a minimum principal
amount of each Delayed Delivery Contract. Certain other conditions to the use
of Delayed Delivery Contracts may be set forth in the related Prospectus
Supplement and
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such Prospectus Supplement will set forth the commissions payable for
solicitations of such contracts.
Securities may also be sold through agents designated by the Issuer
from time to time. Any agent involved in the offer or sale of Securities will
be named, and any commissions payable by the Issuer to such agent will be set
forth, in the related Prospectus Supplement. Any such agent will act on a best
efforts basis for the period of its appointment.
Any underwriters, dealers or agents participating in the distribution
of Securities may be deemed to be underwriters and any discounts or commissions
received by them on the sale or resale of the Securities may be deemed to be
underwriting discounts and commissions under the Securities Act. Agents and
underwriters may be entitled under agreements entered into with the Issuer to
indemnification by the Issuer against certain civil liabilities, including
liabilities under the Securities Act, or to contribution with respect to
payments that the agents or underwriters may be required to make in respect
thereof. Agents and underwriters may be customers of, engage in transactions
with or perform services for the Issuer or its affiliates in the ordinary course
of business.
If and to the extent required by applicable law or regulation, this
Prospectus and the Prospectus Supplement will also be used by CSFB after the
completion of the offering in connection with offers and sales related to
market-making transactions in the Securities offered hereby in which CSFB acts
as principal. CSFB may also act as agent in such transactions. Sales will be
made at negotiated prices determined at the time of sale.
LEGAL MATTERS
Certain legal matters in connection with the Securities offered hereby
will be passed on for the Company by Sidley & Austin, New York, New York. Other
counsel may pass on legal matters involving the application of laws of any
jurisdictions other than the State of New York or the United States of America.
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GLOSSARY
The following are abbreviated definitions of certain capitalized terms
used in this Prospectus and the related Prospectus Supplement. Certain terms
used under "The Securities", "The Indenture" and "The Trust Agreement" are
defined more fully in the relevant Governing Document, to which reference is
made.
"Accrual Bond" means a Bond on which interest accrues and is added to
the principal of such Security periodically but with respect to which no
interest or principal is payable except during the period or periods specified
in the related Prospectus Supplement.
"Accrual Date" means, with respect to any Series, the date on which
interest begins accruing on the Securities of the Series, as specified in the
related Prospectus Supplement.
"Accrual Payment Amount" means, with respect to any Payment Date for a
Series occurring prior to or on the Accrual Termination Date, the aggregate
amount of interest accrued on the Accrual Securities of such Series during the
Interest Accrual Period relating to such Payment Date and which is not then
required to be paid.
"Accrual Securities" means a Class of Securities of a Series on which
interest accrues and is added to the principal of such Securities periodically
but with respect to which no interest or principal is payable except during the
period or periods specified in the related Prospectus Supplement.
"Accrual Termination Date" means, with respect to a Class of Accrual
Securities, the Payment Date on which all Securities of the related Series with
Final Scheduled Payment Dates earlier than that of such Class of Accrual
Securities have been fully paid, or such other date or period as may be
specified in the related Prospectus Supplement.
"Accrual Trust Certificate" means a Trust Certificate that is an
Accrual Security.
"Administration Agreement" means, with respect to a Series, an
agreement pursuant to which the Administrator agrees to perform certain
ministerial, administrative, accounting and clerical duties on behalf of the
Issuer with respect to such Series.
"Administration Fee" means the fee specified as such in the
Administration Agreement.
"Administrator" means the person that will perform certain
ministerial, administrative, accounting and clerical duties on behalf of the
Issuer with respect to certain Series of Securities pursuant to an
Administration Agreement.
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"Aggregate Discounted Amount" means, with respect to any Series, the
aggregate amount obtained by adding the Discounted Amount of each Underlying
Security for such Series, plus the Discounted Amount, as determined in the
related Prospectus Supplement, of any cash remaining in the Collection Account
or any other Pledged Fund or Account subsequent to an initial deposit therein by
the Issuer (together with, if applicable, the aggregate Discounted Amount of
each other Underlying Asset to which a Discounted Amount is assigned).
"Aggregate Outstanding Principal" means, with respect to any Series or
Class thereof, the principal amount of all Securities of such Series or Class
outstanding at the date of determination, including, in respect of any Class of
Accrual Securities of such Series (or other Class of Securities on which
interest accrues and is added to the outstanding principal amount thereof), the
Compound Value (or accreted value) of such Securities through the Payment Date
or Distribution Date immediately preceding the date of determination.
"Applicable Federal Rate" means the interest rate on Treasury
Securities.
"Asset Schedule" means a schedule appearing in the Trust Agreement
that will identify each Underlying Asset and other property to be included in
the Trust for a Series. The Asset Schedule will specify with respect to each
Underlying Security: the original principal amount and unpaid principal
balance, as of the date of such Trust Agreement; the current interest rate; the
scheduled payments of principal and interest; the maturity date of the related
obligation; if the Underlying Security is an adjustable rate Underlying
Security, the lifetime interest rate cap, if any, and the Index; and, if the
related obligation has other than fixed scheduled payments and level
amortization, the terms thereof.
"Assumed Deposit Date" means the date specified therefor in the
related Governing Document, on which distributions on the Underlying Securities
are assumed to be deposited in the Collection Account for purposes of
calculating Reinvestment Income thereon.
"Assumed Reinvestment Rate" means, with respect to a Series, the per
annum rate or rates specified in the related Prospectus Supplement or the
related Guaranteed Investment Contract for a particular period or periods as the
"Assumed Reinvestment Rate" for funds held in Pledged Funds and Accounts for the
Series.
"Authenticating Agent" means an agent appointed by the Trustee for
purposes of authenticating and delivering any Series of Bonds.
"Available Funds" means, except to the extent otherwise provided in
the Prospectus Supplement, with respect to each Payment Date for a Series, the
sum of the following amounts: (i) the aggregate amount received by the Issuer of
such Series on or prior to such Payment Date in respect of the Underlying
Securities with respect to such Series, the related Underlying Enhancement with
respect to such Series, if any, and Reinvestment Income with respect to such
Series, if any, plus or minus the net amount received or paid on any related
Swap Agreements with respect to such Series and the cash proceeds received upon
the exercise of the Optional Call Right, if any, with respect to such Series;
less (ii) any amounts theretofore
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paid by the Issuer to Holders of such Series to the Trustee with respect to such
Series, to the provider of any Underlying Enhancement with respect to such
Series or any other Person with respect to such Series and any amounts payable
on such Payment Date to the Trustee with respect to such Series, or the provider
of any Underlying Enhancement with respect to such Series or otherwise payable
on such Payment Date by the Issuer.
"Beneficial Owners" means holders of beneficial interests in
Securities that are not Holders of record on the Register for such Securities.
"Bondholder" means the Person in whose name a Bond is registered in
the Security Register.
"Bond Interest Rate" or "Bond Rate" means the interest rate on the
outstanding principal amount of a Bond payable on the applicable Payment Date
for such Bond, as specified in the related Prospectus Supplement.
"Bonds" means the Collateralized Bond Obligations sold by an Issuer
pursuant to this Prospectus and the related Prospectus Supplement.
"Book-Entry Bonds" means Bonds of a Series that are issued in whole or
in part in book-entry form.
"Book-Entry Eligible Securities" means Securities of any Series which
are eligible, but are not required to be held by persons acquiring such
Securities through DTC in the United States or though CEDEL or Euroclear in
Europe.
"Book-Entry Only Securities" means a Class of Securities which are
issued on a book-entry basis and are required to be held by the person acquiring
such Securities through DTC in the United States.
"Book-Entry Registration" means the registration of book-entry
securities.
"Book-Entry Securities" means Securities of a Series that are issued
in whole or in part in book-entry form.
"Book-Entry Trust Certificates" means Trust Certificates of a Series
that are issued in whole or in part in book-entry form.
"Business Day" means a day that is not a Saturday, Sunday, legal
holiday or a day on which banking institutions are authorized or obligated by
law, regulation or executive order to be closed in either New York City or in
the city in which the Corporate Trust Office is then located, or with respect to
any Series that includes any Class of Variable Interest Securities, London.
"CEA" means the Commodity Exchange Act, as amended.
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"CEDEL" means Centrale de Livraison de Valeurs MobiliSres S.A., or its
successor in interest.
"CEDEL Participants" means organizations for which CEDEL holds
securities.
"Certificateholder" or "Trust Certificateholder" means the Person in
whose name a Trust Certificate is registered in the Security Register.
"Certificate of Foreign Status" means a statement made on a form W-8
that is signed by the beneficial owner, under penalties of perjury, that the
owner is not a United States Person, or in the case of an individual, that he or
she is not a resident or citizen of the United States and that provides the name
and address of the beneficial owner.
"CFTC" means the Commodities Futures Trading Commission, or its
successor in interest.
"Class" means a class of Securities within a Series.
"Closing Date" means, with respect to a Series, the date on which
Securities of such Series are first issued.
"Code" means the Internal Revenue Code of 1986, as amended.
"COFI" means the Cost of Funds Index.
"Collection Account" means, with respect to a Series, the account
created pursuant to the Governing Document to collect payments on the Underlying
Assets for application as specified in such Governing Document.
"Company" means CS First Boston Structured Products Corporation, or
its successor in interest.
"Compound Value" means, with respect to a Class of Accrual Securities,
as of any determination date, the original principal amount of such Class, plus
all accrued and unpaid interest, if any, previously added to the principal
thereof and reduced by any payments of principal previously made on such Class
of Accrual Securities and by any losses allocated to such Class.
"Cooperative" means Euroclear Clearance System S.C., a Belgian
cooperative corporation, or its successor in interest.
"Corporate Trust Office" means the corporate trust office of the
Trustee, which shall be specified in the related Prospectus Supplement.
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"Covered Series" means a form of Underlying Enhancement that covers
more than one Series of Securities.
"CSFB" means CS First Boston Corporation, or its successor in
interest.
"Definitive Securities" means the Securities of a Series when and if
issued in definitive form to the record owners of such Series or their nominees.
"Delayed Delivery Contracts" means contracts which provide for the
payment of the public offering price by certain institutional investors, and
delivery of the related Securities, at a future date to be specified in the
Prospectus Supplement.
"Delivery Date" means with respect to a Series, the date on which the
Securities of such Series are to be delivered to the original purchasers
thereof.
"Designated Interest Accrual Date" means, as specified in the related
Prospectus Supplement, (i) the date preceding a Redemption Date or Special
Redemption Date as the date through which accrued interest is paid on redemption
or special redemption, or (ii) the date through which accrued interest is paid
on the occurrence of an Event of Default.
"Determination Date" means the date on which a determination is made
regarding the Holders to whom a payment is due and payable on any Underlying
Securities, and in certain cases, other Underlying Assets.
"Discounted Amount" means an amount equal to the lesser of (i) the
present value of an assumed stream of payments of principal and interest on
Underlying Securities included in the Underlying Assets securing a Series or
comprising a Trust together with Reinvestment Income thereon, if any, discounted
with the same frequency as payments are made on the Securities of such Series at
the highest interest rate borne by such Securities and (ii) the product of any
collateral value cap set forth in the related Governing Document and the then
outstanding principal amount thereof.
"Distributor" has the meaning specified in "Limitations on Issuance of
Bearer Certificates".
"DOL" means Department of Labor, or its successor in interest.
"DOL Regulation" means a regulation issued under ERISA by the United
States Department of Labor.
"DTC" means The Depository Trust Company, a limited purpose banking
corporation organized under the laws of the State of New York, or its successor
in interest.
"DTC Participants" means organizations for which DTC holds securities.
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"Due Date" means each date on which a payment is due and payable on
any Underlying Securities and, in certain cases, other Underlying Assets.
"Due Period" means, for each Payment Date, the period beginning on the
second day of the month preceding the month in which such Payment Date, as
applicable, occurs and ending on the first day of the month in which such
Payment Date occurs.
"Duff & Phelps" means Duff & Phelps Credit Rating Co., or its
successor in interest.
"Eligible Institution" means a depository institution the long-term
deposits or the long-term unsecured debt obligations of which (or in the case of
the principal bank in a bank holding company system, the long-term unsecured
debt obligations of such bank holding company) have been rated at least AAA/Aaa
by S&P and Moody's, respectively, AAA by Fitch, if such deposits and obligations
are rated by Fitch, and AAA by Duff & Phelps, if such deposits or obligations
are rated by Duff & Phelps, or maintained with a depository institution the
commercial paper of which (or, in the case of a principal bank in a bank holding
company system, the commercial paper of such bank holding company) is rated at
least A-1 + /P-1 by S&P and Moody's, respectively, F-1 by Fitch, if such
commercial paper is rated by Fitch, and D-1 by Duff & Phelps, if such commercial
paper is rated by Duff & Phelps.
"Eligible Investments" means any one or more of the obligations or
securities described herein under "The Underlying Assets -- Investment of
Funds".
"Enhanced Series" means a Series covered by an Underlying Enhancement.
"Enhancement Agreement" means the agreement or instrument pursuant to
which any Underlying Enhancement is issued or under which the terms of any
Underlying Enhancement are set forth.
"Enhancements" means Structural Enhancements or Underlying
Enhancements.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Plans" means employee benefit plans subject to Part 4 of Title
1 of ERISA.
"Euroclear" or "Euroclear Operator" means the organization which
operates the Euroclear System under contract with Euroclear Clearance System
S.C.
"Euroclear Participants" means organizations for which Euroclear holds
securities.
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"Event of Default" is defined herein under "The Indenture -- Events of
Default" and "The Trust Agreement -- Events of Default".
"Excess Cash Flow" shall have the meaning set forth in the related
Prospectus Supplement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System.
"Final Scheduled Payment Date" means the Payment Date on which
principal of and interest on a Series of Securities is scheduled to be paid in
full.
"Financial Guaranty Insurance" means a surety bond or insurance policy
included within the Underlying Enhancements with respect to a Series.
"Fitch" means Fitch Investors Service, L.P., or its successor in
interest.
"Fixed Rate" means a nonvariable interest rate that is assigned to a
Security.
"Governing Document" means the Indenture or the Trust Agreement
(including, unless the context otherwise requires, any related Series
Supplement) establishing the terms of a particular Series.
"Government Securities" means the securities identified as such in the
related Prospectus Supplement and that are transferred by the Company or one of
its affiliates to the related Trust on or before the Closing Date (or are used
by the Company to collateralize a Series of Bonds).
"Grant" means to mortgage, pledge, bargain, sell, warrant, alienate,
remise, convey, assign, transfer, deposit, set over, confirm, create and grant a
lien on and a security interest in and right of setoff against property.
"Group" means Assets grouped for the purpose of providing structural
Enhancement. See "Structural Enhancements -- Grouping of Underlying Assets."
"Guaranteed Investment Contract" means a guaranteed investment
contract providing for the investment of distributions on the Underlying Assets
guaranteeing a minimum of a fixed rate of return on the investment of moneys
deposited therein.
"Guarantor" means the person from whom the Issuer obtains a Guaranteed
Investment Contract.
"Holder" means each Person identified as a holder of a Security in the
Security Register.
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<PAGE>
"Indenture" means with respect to any Series of Bonds, the Trust
Indenture, together with any related Series Supplement.
"Index" means, among other things, LIBOR, a prime rate, COFI, a
commercial paper rate, a federal funds rate or an index based on the price of
certain commodities (such as crude oil, natural gas, gold, silver or coffee) or
the value of certain intangibles (such as stock indices, bond indices, foreign
exchange rates or the consumer price index).
"Indirect Participant" means a person such as a bank, broker, dealer
or trust company that clears through or maintains a custodial relationship with
a Participant either directly or indirectly.
"Installment Obligation" means a debt instrument that provides for
payment of any amount other than the qualified stated interest before maturity.
"Interest Accrual Period" means the period specified in the related
Prospectus Supplement for a Series, during which interest accrues on Securities
of the related Series with respect to any Payment Date, Redemption Date or
Special Redemption Date.
"Interest-Only Bond" means a Bond that is entitled to receive only
payments of interest based on the Notional Principal Amount of the Security.
"Interest-Only Securities" means a Class of Securities entitled to
receive only payments of interest based on the Notional Principal Amount of the
Security.
"Interest-Only Trust Certificate" means a Trust Certificate that is
entitled to receive only payments of interest based on the Notional Principal
Amount of the Security.
"Investment Company Act" means the Investment Company Act of 1940, as
amended.
"IRS" means the Internal Revenue Service.
"Issuer" means the Company or a Trust established as issuer of a
Series of Securities.
"Letter of Credit" means a Letter of Credit issued to enhance
securities as described under "Underlying Enhancements".
"Letter of Credit Issuer" means the issuer of a Letter of Credit
(which may be a syndicate of banks, financial institutions and/or other issuers,
including confirming issuers).
"Letter of Credit Percentage" means the maximum liability of a Letter
of Credit Issuer, expressed as a percentage of the initial aggregate outstanding
principal balance of the
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<PAGE>
Underlying Securities or one or more Classes of Securities of the related
Series, as specified in the related Prospectus Supplement.
"LIBOR" means the London Interbank Offered Rate, as determined in
accordance with the terms of the applicable Series Supplement.
"Maximum Variable Interest Rate" means the interest rate cap on the
Bond Interest Rate or Trust Certificate Interest Rate for Variable Interest
Securities.
"Minimum Variable Interest Rate" means the interest rate floor on the
Bond Interest Rate or Trust Certificate Interest Rate for Variable Interest
Securities.
"Moody's" means Moody's Investors Service, Inc., or its successor in
interest.
"1992 Act" means the Future Trading Practices Act of 1992, as amended.
"Nonperiodic Payment" means any payment made or received pursuant to a
Notional Principal Contract that is not a Periodic Payment or a termination
payment.
"Nonresidents" means a nonresident alien individual, foreign
partnership, foreign corporation, foreign estate or foreign trust.
"Notional Principal Amount" means the hypothetical principal amount
used in determining the interest payable on an Interest-Only Security.
"Notional Principal Contract" means a financial instrument that
provides for the payment of amounts by one party to another at specified
intervals calculated by reference to a specified index applied to a notional
principal amount in exchange for either (a) a promise to pay similar amounts or
(b) specified consideration such as, for example, a cash payment made at the
time that the contract is entered into.
"OID" means "original issue discount" within the meaning of Section
1273 of the Code.
"Optional Call Right" means the right of any Optionholder as described
under "The Securities -- Optional Call Right".
"Optionholder" means the Company and/or one or more of its affiliates
and/or one or more unrelated third persons who have an Optional Call Right as
described in the related Prospectus Supplement.
"OTS" means the Office of the Thrift Supervision.
"Participant" means a person that transfers Book-Entry Securities
through DTC, CEDEL or Euroclear including securities brokers and dealers, banks,
trust companies and
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<PAGE>
clearing corporations and may include certain other organizations such as the
underwriters of the Securities.
"Participating Bond" means a Bond that is entitled to receive payments
of principal and interest and an additional return on investment as described in
the related Prospectus Supplement.
"Participating Securities" means a Class of Securities entitled to
receive payments of principal and interest and an additional return on
investment as described in the related Prospectus Supplement.
"Participating Trust Certificate" means a Trust Certificate that is
entitled to receive payments of principal and interest and an additional return
on investment as described in the related Prospectus Supplement.
"Participation Agreement" means the agreement through which
participation interests in a Series will be acquired.
"Parties in Interest" means all persons described in Section 3(14) of
ERISA for purposes of Title I of ERISA and all persons described in Section
4975(e) of the Code for purposes of Section 4975 of the Code.
"Partnership-Taxed Security" means a Trust Certificate issued by a
Partnership-Taxed Trust.
"Partnership-Taxed Trust" means a Trust that is treated as a
partnership for federal income tax purposes.
"Paying Agent" means the Trustee or any other Person specified in a
Governing Document authorized and appointed pursuant to such Governing Document
to pay the principal or interest on any Securities on behalf of the Issuer.
"Payment Date" means the date on which payments of principal, interest
or any other amounts are payable on a Security.
"Periodic Payments" has the meaning specified in "Certain Federal
Income Tax Consequences -- Income Allocable to Certain Underlying Assets that
are Swap Agreements".
"Person" or "person" means any individual, corporation, partnership,
joint venture, association, joint stock company, limited liability company,
trust (including any beneficiary thereof), unincorporated organization,
government or any agency or political subdivision thereof.
"Plan Fiduciary" means a fiduciary of an employee benefit plan as
defined in and subject to ERISA or of a plan as defined in Section 4975 of the
Code.
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<PAGE>
"Plans" means ERISA Plans and plans within the meaning of Section
4975(e)(1) of the Code, and any person all or a portion of whose assets are
treated as if they were assets of such plans.
"Pledged Fund or Account" means any fund or account, including the
Collection Account or any Reserve Fund established with respect to, and granted
as security for, a Series of Securities.
"Principal Determination Date" means the day specified in the related
Prospectus Supplement.
"Principal-Only Bond" means a Bond that pays principal only and no
interest.
"Principal-Only Securities" means a Class of Zero Coupon Securities
that pay principal only and no interest.
"Principal-Only Trust Certificate" means a Trust Certificate entitled
to receive principal only and no interest.
"Principal Payment Dates" means, with respect to a Class, the dates
specified in the related Prospectus Supplement on which principal of the
Securities of such Class is to be paid.
"Proceeding" means any suit in equity, action at law or other judicial
or administrative proceeding.
"PTCEs" means Prohibited Transaction Class Exemptions that are issued
by the Department of Labor.
"Rating Agency" means a nationally recognized statistical rating
agency that is described as a Rating Agency in the applicable Prospectus
Supplement.
"Redemption Date" means, with respect to any Series, the Payment Date
specified by the Issuer for the redemption of Securities of such Series pursuant
to the Indenture.
"Redemption Price" means, with respect to any Bond of a Series or
Class to be redeemed, an amount equal to the percentage specified in the related
Prospectus Supplement of the principal amount (or of the Compound Value of any
Accrual Security) of such Security so redeemed, together with accrued and unpaid
interest thereon at the applicable Bond Interest Rate to the Designated Interest
Accrual Date for such Series.
"Reinvestment Income" means any interest or other earnings on Pledged
Funds or Accounts that are part of the Underlying Assets for a Series.
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<PAGE>
"Reserve Fund" means, with respect to a Series, any reserve fund
described in the applicable Prospectus Supplement, including a Subordination
Reserve Fund.
"Retail Bond" means each of the Bonds of a Class identified as such in
the related Prospectus Supplement. See "The Securities -- Mandatory Redemption
of Retail Bonds".
"Retail Securities" means a Class of Securities identified as such in
the Prospectus Supplement. See "The Securities-Mandatory Redemption of Retail
Bonds".
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., or its successor in interest.
"SEC" means the Securities and Exchange Commission, or its successor
in interest.
"Securities" means Bonds or Trust Certificates.
"Securities Act" means the Securities Act of 1933, as amended.
"Securityholder" means a Holder of an issued Security.
"Securities Owners" means the owners of the beneficial interests in a
Series of Securities.
"Security Register" means the register maintained pursuant to the
Governing Document for a Series, providing for the registration of the
Securities of such Series and the transfers and exchanges thereof.
"Senior Bond" means a Bond that has a claim upon the assets of the
Issuer prior to other Bonds.
"Senior Securityholders" means Holders of Senior Securities.
"Senior Trust Certificate" means a Trust Certificate that has a claim
upon the assets of the Issuer prior to other Trust Certificates.
"Series" means a separate series of Securities sold pursuant to this
Prospectus and the related Prospectus Supplement.
"Series Supplement" means a supplement relating to a Governing
Document establishing the terms of a particular Series.
"Servicer" means any entity which services loans contained in the
Underlying Assets relating to a Series.
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<PAGE>
"Special Redemption Date" means, with respect to a Series, the date of
each month (other than any month in which a Payment Date occurs) on which Bonds
of that Series may be redeemed pursuant to the Indenture for such Series; such
date will be the same day of the month as the day on which the Payment Date for
the Bonds of that Series occurs.
"Specified Index" means: (i) a fixed rate, price or amount; (ii) a
fixed rate, price or amount applicable in one or more specified periods followed
by one or more different fixed rates, prices or amounts applicable in other
periods; (iii) an index that is based on objective financial information; and
(iv) an interest rate index that is regularly used in normal lending
transactions between a party to the contract and unrelated persons.
"Stripped Bond" has the meaning specified in "Certain Federal Income
Tax Consequences--Income Allocable to Underlying Securities that are Stripped
Bonds or Stripped Coupons".
"Stripped Coupon" has the meaning specified in "Certain Federal Income
Tax Consequences -- Income Allocable to Underlying Securities that are Stripped
Bonds or Stripped Coupons".
"Structural Enhancement" means overcollateralization,
senior/subordinated structures and other structural elements of Securities
intended, for example, to ensure the timely payments or distributions of or on
Securities or Classes thereof and not constituting a part of the Underlying
Assets.
"Subordinated Bond" means a Bond which is subordinate in right of
payment or priority or otherwise to the extent described in the related
Prospectus Supplement to payment of principal and interest to any Senior Classes
of Securities of such Series.
"Subordinated Securities" means a Class of Securities which are
subordinate in right of payment or priority or otherwise to the extent described
in the related Prospectus Supplement to payment of principal and interest to any
Senior Classes of Securities of such Series.
"Subordinated Securityholders" means Holders of Subordinated
Securities.
"Subordinated Trust Certificate" means a Trust Certificate which is
subordinate in right of payment or priority or otherwise to the extent described
in the related Prospectus Supplement to payment of principal and interest or
otherwise to any Senior Classes of Securities of such Series.
"Swap Agreements" means interest rate swap agreements, interest rate
caps and/or interest rate floors relating to interest rates of the Underlying
Securities and the Securities of the related Series.
-144-
<PAGE>
"Terms and Conditions" means securities clearance accounts and cash
accounts with the Euroclear Operator that are governed by the Terms and
Conditions Governing Use of Euroclear and the related Operating Procedures of
the Euroclear System, and applicable Belgian Law.
"TIN" means Taxpayer Identification Number.
"Treasury Regulations" means the regulations promulgated under the
Code.
"Trust" means a trust established pursuant to the Trust Agreement into
which Underlying Assets are deposited for the purpose of issuing a Series of
Trust Certificates.
"Trust Agreement" means the Master Trust Agreement (including, unless
the context otherwise requires, any related Series Supplement) between the
Company and the Trustee pursuant to which a Series of Trust Certificates is
issued.
"Trust Certificateholder" or "Certificateholder" means the Holder of a
Trust Certificate.
"Trust Certificate Interest Rate" means the interest rate or rates on
the outstanding principal amount of a Trust Certificate payable on the
applicable Payment Date for such Trust Certificate, as specified in the related
Prospectus Supplement.
"Trust Certificates" means the Trust Certificates sold by the Issuer
pursuant to this Prospectus and a related Prospectus Supplement.
"Trustee" means the bank or trust company named in the Prospectus
Supplement for a Series as trustee under the related Indenture or Trust
Agreement.
"Trust Estate" means, with respect to any Series of Bonds, all money,
instruments, securities and other property, including all proceeds thereof,
which are subject or intended to be subject to the lien of the Indenture for the
benefit of the Series as of any particular time (including all property and
interests Granted to the Trustee pursuant to the Series Supplement for such
Series).
"Trust Indenture" means the trust indenture between the Company and
the Trustee or a Trust and the Trustee pursuant to which a Series of Bonds are
issued.
"Unavailable Amount" means, unless otherwise provided in the
Prospectus Supplement, with respect to a Series, the amount, if any, remaining
in the related Collection Account on a related Payment Date that represents (i)
scheduled payments of principal of and interest on the Underlying Assets due
subsequent to the Principal Determination Date immediately preceding the related
Payment Date, (ii) the amount of all related redemptions received or deemed
received subsequent to the Principal Determination Date immediately
-145-
<PAGE>
preceding such Payment Date or (iii) any investment income that has accrued
subsequent to the Principal Determination Date immediately preceding such
Payment Date.
"Undelivered Assets" means Underlying Assets that are not pledged and
delivered to the Trustee on the related Closing Date.
"Underlying Assets" means, with respect to any Series, the Underlying
Securities, any related Underlying Enhancement and/or Swap Agreements and any
cash or Guaranteed Investment Contracts and/or other assets underlying such
Series.
"Underlying Enhancement" means Reserve Funds, Financial Guaranty
Insurance, Letters of Credit and other credit enhancement and/or liquidity
facilities and other enhancements (other than Structural Enhancements) intended,
for example, to ensure the servicing or timely payments or distributions of or
on Securities or Classes thereof and constituting part of the Underlying Assets.
"Underlying Debt Issuer" means a corporation, partnership, trust,
limited liability company or other type of domestic entity that issues an
Underlying Debt Security.
"Underlying Debt Securities" means the securities identified as such
in the related Prospectus Supplement and that are transferred by the Company or
one of its affiliates to the related Trust on or before the Closing Date (or are
used by the Company to collateralize a Series of Bonds).
"Underlying Issuers" means the Persons that issue, guarantee or
provide credit support or are otherwise issuers with respect to Underlying
Securities.
"Underlying Securities" means the securities identified as such in the
related Prospectus Supplement and that are transferred by the Company or one of
its affiliates to the related Trust on or before the Closing Date (or are used
by the Company to collateralize a Series of Bonds).
"United States Person" means a person or entity that for United States
federal income tax purposes is either (i) a citizen or resident of the United
States, (ii) a corporation, or other entity created or organized in the United
States or under the laws of the United States or of any political subdivision
thereof or (iii) an estate or trust the income of which is subject to United
States federal income taxation regardless of its source.
"Variable Interest Bond" means a Bond that is a Variable Interest Rate
Security.
"Variable Interest Payment Date" means, with respect to any Class of
Variable Interest Bonds, the interest payment date specified in the related
Prospectus Supplement. Variable Interest Payment Dates may be monthly,
quarterly, semi-annual or annual.
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<PAGE>
"Variable Interest Period" means, with respect to any Class of
Variable Interest Securities, the period commencing immediately subsequent to
the preceding Variable Interest Period (or, in the case of the Variable Interest
Period applicable to the first Variable Interest Payment Date with respect to
such Class of Variable Interest Securities, commencing on the Accrual Date for
such Class) and ending on the date specified in the related Prospectus
Supplement, during which such Class of Variable Interest Securities will accrue
interest, payable on the immediately succeeding Variable Interest Payment Date,
at the Bond Interest Rate or Trust Certificate Interest Rate determined on the
immediately preceding Determination Date.
"Variable Interest Rate" means the interest rate in respect of a
Variable Interest Security.
"Variable Interest Securities" means a Class of Securities on which
interest accrues at a Bond Interest Rate or Trust Certificate Interest Rate that
is adjusted, based on a predetermined index, at periodic intervals, all as set
forth in the related Prospectus Supplement.
"Variable Interest Trust Certificate" means a Trust Certificate that
is a Variable Interest Security.
"Voting Rights" means Holders' rights to vote and give consents and
waivers in respect of any matter specified in the applicable Governing Document
as requiring such vote, consent or waiver, including any vote, consent or waiver
in respect of any related Underlying Asset. Unless otherwise specified in the
Prospectus Supplement, Voting Rights will be allocated to Holders of a Series of
Securities based on the Aggregate Outstanding Principal of the Security held.
"Zero Coupon Bond" means a Bond that is a Zero Coupon Security.
"Zero Coupon Securities" means a Class of Securities entitled to
receive payments or distributions of principal and interest, if any, only on the
maturity date thereof.
"Zero Coupon Trust Certificate" means a Trust Certificate that is a
Zero Coupon Security.
-147-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution*
-------------------------------------------
The following is an itemized list of the estimated expenses to be incurred in
connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions:
Registration Fee................... $ 345
Printing and Engraving Expenses.... *
Trustee's Fees and Expenses........ *
Legal Fees and Expenses............ *
Blue Sky Fees and Expenses......... *
Accountant's Fees and Expenses..... *
Rating Agency Fees................. *
Miscellaneous...................... *
-----------
Total.............................. $ *
===========
- ---------------------------
* To be completed by amendment.
Item 15. Indemnification of Directors and Officers
-----------------------------------------
The Company's Certificate of Incorporation and By-laws provide for
indemnification of directors and officers of the Company to the fullest extent
permitted by Delaware law.
Section 145 of the Delaware General Corporation Law provides, in substance,
that Delaware corporations shall have the power, under specified circumstances,
to indemnify their directors, officers, employees and agents in connection with
actions, suits or proceedings brought against them by a third party or in the
right of the corporation, by reason of the fact that they were or are such
directors, officers, employees or agents, against expenses incurred in any such
action, suit or proceeding.
CS First Boston, Inc. carries directors' and officers' liability insurance
that covers certain liabilities and expenses of the Company's directors and
officers and covers the Company for reimbursement of payments to directors and
officers in respect of such liabilities and expenses.
Item 16. Exhibits
--------
1.1 Form of proposed Underwriting Agreement.**
4.1 Form of Indenture, including form of Bond.**
II-1
<PAGE>
4.2.1 Form of Master Trust Agreement, including form of
Trust Certificate.**
4.2.2 Form of Trust Agreement Supplement (Certificates).**
4.2.3 Form of Trust Agreement Supplement (Certificates/Bonds).**
5.1 Opinion of Sidley & Austin.**
8.1 Opinion of Sidley & Austin with respect to tax matters.**
23.1 Consent of Sidley & Austin (included in the opinions
filed as Exhibits 5.1 and 8.1).**
24.1 Powers of Attorney of directors and officers of
CS First Boston Structured Products Corporation (included in the
signature pages to this Registration Statement).**
25.1 Statement of Eligibility of Trustee.*
99.1 Form of Prospectus Supplement for Trust Certificates.
__________________
* To be filed by Form 8-K.
** Previously filed.
Item 17. Undertakings
------------
(a) As to Rule 415:
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made of the securities registered hereby, 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 this registration statement (or the most
recent post-effective amendment hereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this registration statement; and
II-2
<PAGE>
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in this registration
statement or any material change to such information in this
registration statement;
provided, however, that the undertakings set forth in clauses (i) and
-------- -------
(ii) above do not apply if the information required to be included in a post-
effective amendment by those clauses is contained in periodic reports filed by
the registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this 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.
(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) As to documents subsequently filed that are incorporated 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 this
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) As to 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 provisions described under Item 15 above, or
otherwise, the registrant has been advised 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 director, 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.
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<PAGE>
(d) As to the Qualification of Trust Indentures under the Trust
Indenture Act of 1939:
The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the
Act.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on this 21st day of August, 1996.
CS First Boston Structured Products Corporation
By: \s\ Gina Hubbell
----------------------------------------
Name: Gina Hubbell
Title: President and Chief Executive Officer
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Gina Hubbell, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all further
amendments (including post-effective amendments) to the Registration Statement
to which this Amendment relates, and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or her substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment has
been signed below by the following persons in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gina Hubbell President, Chief Executive Officer August 21, 1996
- --------------------------- (Principal Executive Officer) and
Gina Hubbell Director
* Treasurer (Principal Financial August 21, 1996
- --------------------------- Officer) and Director
Lewis Wirshba
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C> <C>
* Controller (Principal August 21, 1996
- ------------------------ Accounting Officer)
Carlos Onis
* Director August 21, 1996
- ------------------------
Mark Patterson
* Vice President August 21, 1996
- ------------------------
Benjamin Cohen
* /s/ Gina Hubbell
- ------------------------
By: Gina Hubbell
Attorney-in-fact
</TABLE>
II-6
<PAGE>
As filed with the Securities and Exchange Commission on August 21, 1996
================================================================================
Registration No. 33-83818
MARKED
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
CS FIRST BOSTON STRUCTURED PRODUCTS CORPORATION
<PAGE>
EXHIBIT INDEX
-------------
Page Number
-----------
1.1 Form of proposed Underwriting Agreement.**
4.1 Form of Indenture, including form of Bond.**
4.2.1 Form of Master Trust Agreement, including form of
Trust Certificate.**
4.2.2 Form of Trust Agreement Supplement (Certificates).**
4.2.3 Form of Trust Supplement (Certificates/Bonds).**
5.1 Opinion of Sidley & Austin.**
8.1 Opinion of Sidley & Austin with respect to tax matters.**
23.1 Consent of Sidley & Austin (included in the opinions
filed as Exhibits 5.1 and 8.1).**
24.1 Powers of Attorney of directors and officers of
CS First Boston Structured Products Corporation (included in the
signature pages to this Registration Statement).**
25.1 Statement of Eligibility of Trustee.*
99.1 Form of Prospectus Supplement for Trust Certificates.
__________________
* To be filed by Form 8-K.
** Previously filed.
<PAGE>
Exhibit 99.1
[SUBJECT TO COMPLETION, DATED _______________, 199__]
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.
- --------------------------------------------------------------------------------
PROSPECTUS SUPPLEMENT
(To Prospectus Dated _______, 1996
- --------------------------------------------------------------------------------
CS FIRST BOSTON STRUCTURED PRODUCTS TRUST 199__
$_________________
AGGREGATE ORIGINAL PRINCIPAL AMOUNT OF
LINKED CERTIFICATES/SM/
SERIES 199__ - _____
CS First Boston Structured Products Trust 199__ (the "Issuer") is offering
$__________ aggregate original principal amount of Linked Certificates Series
199__ -_____ in the Classes and in the original principal amounts listed below
(collectively, the "Trust Certificates" or "LINCs/SM/"). The LINCs will
represent, in the aggregate, the entire beneficial ownership interest in the
following underlying assets (the "Underlying Assets"): [modify as appropriate]
[(i)] [[trust certificates] [receipts] representing a beneficial ownership
interest in] [bonds] [debentures] [notes] [describe other debt securities] (the
"Underlying [Debt] Securities") [specify currency denomination] of [identify
obligors or describe types of obligors] [and [Treasury Bonds] [Treasury Strips]
[REFCO Strips] [FCC Bonds] [GSE BONDS] [GSE GUARANTEED BONDS] (the "Government
Securities"; and the Government Securities and the Underlying Debt Securities,
collectively, the "Underlying Securities")] [specify currency denomination] of
[identify obligors] (the "Underlying Government Issuers"; and the Underlying
Government Issuers and the Underlying Debt Issuers, collectively, the
"Underlying Issuers")]; [(ii) enhancements (the "Underlying Enhancements")
consisting of [describe:] [financial guaranty insurance] [letter of credit]
[describe other credit enhancement and liquidity facilities];] [(iii) a swap
agreement (the "Swap Agreement") consisting of [describe:] [interest rate swap
agreement] [interest rate cap agreement] [interest rate floor agreement]; [(iv)
cash or guaranteed investment contracts ("Guaranteed Investment Contracts")];
and [(v) proceeds of any of the foregoing]. See the additional information set
forth [in the table below and] under "The Underlying Assets" herein.
[Modify the following tabular description of the Securities as appropriate.]
================================================================================
Original Final
Class of Principal Interest Scheduled
Securities Amount Rate Payment Date
- --------------------------------------------------------------------------------
[Interest-Only Trust Certificates]
- --------------------------------------------------------------------------------
[Stripped Principal Trust Certificates]
================================================================================
LINCS ARE DIFFERENT FROM, AND SHOULD NOT BE DEEMED TO BE A SUBSTITUTE FOR,
AN INVESTMENT IN THE UNDERLYING SECURITIES.
This Prospectus Supplement provides certain information with respect to the
Underlying Issuers and other information with respect to the material terms of
the Underlying Securities, however, the information provided herein with respect
to the Underlying Issuers, the Underlying Securities, risk factors relating
thereto and the rights and obligations, legal, financial or otherwise, arising
thereunder or related thereto is not complete. In the event of a default on an
Underlying Security, the risk of loss lies entirely with the holders of the
LINCs. See "Risk Factors". An investor in the LINCs should consider the same
information concerning the Underlying Issuers as it would if it were purchasing
the Underlying Securities. See "The Underlying Assets -- Underlying
Securities".
[If appropriate, provide the following information with respect to the
Underlying Securities: (i) title; (ii) Underlying Issuer; (iii) outstanding
principal amount deposited; (iv) maturity date; (v) interest rate; (vi)
redeemability by Underlying Issuer; and (vii) other material provisions. If
appropriate, the information may be provided in the following tabular form, with
appropriate modifications.]
================================================================================
Outstanding
Title of Principal
Underlying Underlying Amount Maturity Interest Redeemability by
Securities Issuer Deposited Date Rate Underlying Issuer
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
[If appropriate, provide comparable information with respect to any Underlying
Enhancements and the Swap Agreement]
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH
UNDER "RISK FACTORS" BEGINNING ON PAGE S-9 HEREIN.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE LIMITATIONS DISCUSSED UNDER
"ERISA CONSIDERATIONS" HEREIN.
(Cover continued on next page)
<PAGE>
(Cover continued from previous page)
THE TRUST CERTIFICATES DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF CS
FIRST BOSTON STRUCTURED PRODUCTS CORPORATION, CS FIRST BOSTON CORPORATION, THE
TRUSTEE OR ANY OF THEIR AFFILIATES. NEITHER THE CERTIFICATES NOR THE UNDERLYING
[DEBT] SECURITIES ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY ANY OTHER PARTY.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------
AS MORE FULLY DESCRIBED UNDER "RISK FACTORS" BEGINNING ON PAGE 5-9 HEREIN
AND ON PAGE 28 OF THE PROSPECTUS, PROSPECTIVE INVESTORS SHOULD CAREFULLY
CONSIDER, AMONG OTHER THINGS, THE FOLLOWING FACTORS [IF APPROPRIATE, DESCRIBE
THE FOLLOWING AND CERTAIN OTHER SIGNIFICANT RISKS (INCLUDING CREDIT,
CONCENTRATION, PREPAYMENT, YIELD, SUBORDINATION AND STRUCTURAL RISKS)]:
. THE LINCS MAY NOT BE SUITABLE INVESTMENTS FOR ALL INVESTORS DUE
TO THEIR COMPLEX NATURE. NO INVESTOR SHOULD PURCHASE THE LINCS
UNLESS SUCH INVESTOR UNDERSTANDS AND IS ABLE TO BEAR THE CREDIT,
PREPAYMENT, YIELD, LIQUIDITY AND OTHER RISKS ASSOCIATED WITH THE
LINCS.
. HOLDERS OF LINCS WILL HAVE RECOURSE FOR PAYMENT ON THE
SECURITIES ONLY TO THE SPECIFIC UNDERLYING ASSETS RELATING TO
THE LINCS. THE LINCS WILL BE SUBJECT, AMONG OTHER THINGS, TO THE
CREDIT RISK OF THE OBLIGORS ON THE UNDERLYING SECURITIES [AND
CORRESPONDING RISKS WITH RESPECT TO THE UNDERLYING ENHANCEMENTS,
THE SWAP AGREEMENT AND MISCELLANEOUS ASSETS CONSTITUTING PARTY
OF THE UNDERLYING ASSETS].
. THE RATING[S] ASSIGNED TO THE LINCS BY [_______] REFLECT[S] SUCH
RATING [AGENCY'S] [AGENCIES'] ASSESSMENT SOLELY OF THE
LIKELIHOOD THAT HOLDERS OF LINCS WILL RECEIVE PAYMENTS REQUIRED
TO BE MADE WITH RESPECT TO LINCS. SUCH RATING[S] [DOES] [DO]
NOT CONSTITUTE AN ASSESSMENT OF THE LIKELIHOOD OF REDEMPTIONS OF
THE UNDERLYING ASSETS OR THE IMPACT THEREON ON THE YIELD ON THE
LINCS.
. [THE LINCS ARE ZERO COUPON OBLIGATIONS THAT WILL BE OFFERED AT
SUBSTANTIAL DISCOUNTS FROM THEIR NOTIONAL [OR FACE] AMOUNTS AND
WILL NOT ENTITLE THE HOLDERS THEREOF TO ANY PERIODIC PAYMENT OF
INTEREST. THE MARKET PRICES OF ZERO COUPON OBLIGATIONS ARE
PARTICULARLY SENSITIVE TO FLUCTUATIONS IN MARKET INTEREST RATES.
SEE "RISK FACTORS" HEREIN FOR A DISCUSSION OF PRICE VOLATILITY
OF THE LINCS AND "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN
THE PROSPECTUS FOR A DISCUSSION OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES, INCLUDING IMPLICATIONS OF ORIGINAL ISSUE DISCOUNT
AND POSSIBLE TAX WITHHOLDING.]
. [IN THE CASE OF THE INTEREST-ONLY TRUST CERTIFICATES, A FASTER
THAN ANTICIPATED RATE OF PRINCIPAL PAYMENTS ON THE UNDERLYING
SECURITIES IS LIKELY TO RESULT IN A LOWER THAN ANTICIPATED
YIELD, AND IN CERTAIN CASES, AN ACTUAL LOSS ON THE INVESTMENT.]
. THE YIELD ON ANY FLOATING RATE OR INVERSE FLOATING RATE CLASS
WILL BE SENSITIVE TO THE LEVEL OF THE INDEX RELATING TO SUCH
CLASS, PARTICULARLY IF THE INTEREST RATE THEREON FLUCTUATES AS A
MULTIPLE OF SUCH INDEX.]
[Interest will be paid [monthly] [quarterly] [semi-annually] on the [Class
__] Trust Certificates to the extent funds are available therefor as described
herein on [the __ day of each month] [each __, __, __ and __] [each __ and __]
or, if any such day is not a business day, on the next succeeding business day,
commencing on _________, 199__; provided, however, that if the distributions on
-------- -------
the Underlying Assets that relate to such interest payments have not been
received prior to 1:00 p.m. (New York City time) on such day, payments will be
made on the next succeeding business day (each a "Payment Date"). [To the
extent there are deficiencies in the interest available for payment on a Payment
Date, such deficiencies will be deferred to succeeding Payment Dates and will
bear interest at the rate or rates otherwise borne by the applicable Class of
Trust Certificates until paid.] [Describe alternative interest payment terms.]
See "The Trust Certificates -- Interest".] [Principal payments on the [Class __]
Trust Certificates will be made on each Payment Date to the extent funds are
available therefor as described herein until each such Class is paid in full.
[Describe alternative principal payment terms.] See "The Trust Certificates --
Principal".]
[The Interest-Only Trust Certificates are issued in __ Classes,
corresponding to the number of Interest Payment Dates remaining until and
including [_____199__, the first date on which the Underlying Issuers may redeem
the Underlying Securities (the "First Call Date")] [the maturity date of the
Underlying Securities]. Each Interest-Only Trust Certificate of a Class
represents the right to receive its pro rate share of a specified portion (equal
to [___ basis points] of the then outstanding principal amount of the Underlying
Securities) of an Interest Payment due on a single Interest Payment Date on the
Underlying Securities [on or before the First Call Date]. The Interest-Only
Trust Certificates are not entitled to any periodic payments of interest. Thus,
no payment will be made on any Class of Interest-Only Trust Certificates prior
to the corresponding Interest Payment Date on the Underlying Securities.]
[The Trust Certificates Principal Trust Certificates are issued in a single
Class. Each Stripped Principal Trust Certificate represents the right to
receive its pro rate share of [(1)] any payment of principal of the Underlying
Securities by the Underlying Issuers, whether at maturity or upon redemption,
including any redemption premium, [[and] (2) [prior to ________,____,] the
portion of the Interest Payments on the Underlying Securities not payable to any
Class of Interest-Only Trust Certificates, equivalent to interest on the
principal amount of the Stripped Principal Trust Certificates at a rate equal to
[describe rate] [, and (3) after the First Call Date, the entire amount of any
Interest Payments made on the Underlying Securities, equivalent to interest on
the principal amount of the Stripped Principal Trust Certificates at a rate
equal to __%].]]
[Describe payment characteristics of other Classes.]
(cover continued on next page)
<PAGE>
================================================================================
Price Underwriting Proceeds to
Public(1) Discount the [Issuer][Company](1)(2)
- --------------------------------------------------------------------------------
Linked Certificates $ % $
Series 199
- --------------------------------------------------------------------------------
Total $ % $
================================================================================
(1) Plus accrued interest from _____________, ____, 199__ .
(2) Before deducting expenses, estimated to be $__________.
___________________
It is a condition to the issuance of the LINCs that the LINCs be rated
"_____" [or better] by [_________] [and "________" [or better] by [__________]].
[Describe any unusual limitation of rating.] See "Rating of the Securities".
The LINCs will be offered from time to time by [CS First Boston Corporation]
(the "Underwriter") [at the prices set forth above] [in negotiated transactions
at varying prices to be determined at the time of sale]. The aggregate proceeds
to the [Issuer] [Company] from the sale of the LINCs, before deducting estimated
expenses of $______, will be approximately $______. The Underwriter may make a
market in the LINCs but is not obligated to do so. There is currently no
secondary market for the LINCs and there can be no assurance that such market
will develop or, if such market does develop, that it will continue for any
period of time.
The LINCs are offered by the Underwriter subject to prior sale, when, as
and if issued, delivered to an accepted by the Underwriter and subject to
certain other conditions. The Underwriter reserves the right to withdraw,
cancel or modify the offer and to reject orders in whole or in part. It is
excepted that delivery of the LINCs will be made in book-entry form only through
the same-day funds settlement system of The Depository Trust Company on or about
_________, 199__.
CS FIRST BOSTON
- --------------------------------------------------------------------------------
The Date of this Prospectus Supplement is _________, 199__.
<PAGE>
This Prospectus Supplement does not contain complete information about the
LINCs. Additional information is contained in the accompanying Prospectus dated
_______, 1996, and prospective investors should purchase LINCs only after
carefully reading this Prospectus Supplement and the accompanying Prospectus.
-------------------
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WILL ALSO BE USED BY THE UNDERWRITER
AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND SALES RELATED
TO MARKET-MAKING TRANSACTIONS IN THE SECURITIES OFFERED HEREBY IN WHICH THE
UNDERWRITER ACTS AS PRINCIPAL. THE UNDERWRITER MAY ALSO ACT AS AGENT IN SUCH
TRANSACTIONS. SALES WILL BE MADE AT NEGOTIATED PRICES DETERMINED AT THE TIME OF
SALE.]
UNTIL _________________________________________, 19_____, ALL DEALERS
EFFECTING TRANSACTIONS IN THE CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the Securities
and Exchange Commission (the "Commission"). Such reports and other information
filed by the Trust can be inspected and copied at the Public Reference Room of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. and
at the Commission's regional offices at Seven World Trade Center, Suite 1300,
New York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials can be obtained at
prescribed rates from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a Web site that contains reports, proxy and information statement and
other information regarding registrants that file electronically with the
Commission. The address of such site is (http;//www.sec.gov).
S-2
<PAGE>
SUMMARY
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
accompanying Prospectus and to the Trust Agreement and Series Supplement (the
material terms of which are described in the accompanying Prospectus and this
Prospectus Supplement), together with any other agreements or instruments
related thereto. For definitions of capitalized terms not defined herein, see
the accompanying Prospectus (including the Glossary contained therein).
TRUST CERTIFICATES OFFERED Linked Certificates Series 199__-___
(the "Trust Certificates" or
"Lincs/SM/") in the [Classes and]
aggregate original principal
amount[s] set forth on the cover page
hereof.
[The Trust Certificates will be
issued pursuant to a Series
Supplement to the Master Trust
Agreement dated as of
_________________, 199__
[(collectively, the "Trust
Agreement")], between CS First Boston
Structured Products Corporation (the
"Company") and [____________], as
trustee (the "Trustee").]
BOOK ENTRY; DENOMINATIONS The Trust Certificates will be issued
in fully registered, certificated
form and will be held by a nominee of
The Depository Trust Company ("DTC"),
and beneficial interests will be held
by investors through the book-entry
facilities of DTC in denominations of
$[1,000] and integral multiples
thereof. The Trust Certificates will
constitute Book-Entry Only Trust
Certificates within the meaning of
the Prospectus. No person acquiring
an interest in the Trust Certificates
will be entitled to receive a
definitive certificate representing
such person's interest, except in the
limited circumstances described in
the Prospectus under "The Securities
-- Book-Entry Registration --
Issuance of Definitive Securities for
Book-Entry Only Securities."
ISSUER The Issuer is a special purpose
Delaware business trust organized
pursuant to the Trust Agreement.
UNDERLYING ASSETS The Trust Certificates will
represent, in the aggregate, the
entire beneficial ownership interest
in the following Underlying Assets:
[modify as appropriate] [(i)]
Underlying [Debt] Securities
consisting of [bonds] [debentures]
[notes] [describe other debt
securities] [specify currency
denomination] of [identify Underlying
[Debt] Issuers] [and [Treasury Bonds]
[Treasury Strips] [REFCO Strips] [FFC
BONDS] [GSE BONDS] [GSE Guaranteed
Bonds] [specify currency
denomination] of [identify Underlying
Government Issuers]][; (ii)
Underlying Enhancements consisting of
[describe:] [financial guaranty
insurance] [letter of credit]
[describe other credit enhancement
and liquidity facilities];] [(iii)
the Swap Agreement consisting of
[describe:] [interest rate swap
agreement] [interest rate cap
agreement] [interest rate floor
agreement];] [(iv) or [guaranteed
investment contracts] and (v)
proceeds of the foregoing.].
COLLECTION ACCOUNT All distributions on the Underlying
Assets will be remitted directly to a
collection account (the "Collection
Account") to be established with the
Trustee on the closing date. Such
distributions will be
available
S-3
<PAGE>
for application to the payment of
principal of, and interest on, the Trust
Certificates [and for payment of certain
expenses].
NON-RECOURSE SECURITIES The sole assets from which payments
will be made with respect to the Trust
Certificates will be the Underlying
Assets and the Trust Certificateholders
will not have recourse for payment on
the Trust Certificates other than on the
basis of their beneficial ownership
interest in the Underlying Assets and
the Collection Account.
[STRUCTURAL ENHANCEMENT
As described herein, the rights of
the holders of Class ___ Trust
Certificates (the "Subordinated
Trust Certificates") to receive
distributions will be subordinated
to the rights of the holders of
Class ___ Trust Certificates (the
"Senior Trust Certificates") to
receive distributions. This
subordination provides the Senior
Trust Certificateholders the
preferential right to receive, prior
to distributions being made on the
Class ___ Trust Certificates, in
respect of the Subordinated Trust
Certificateholders, the amounts of
interest and principal due the
Senior Trust Certificateholders.
In addition, realized losses on the
Underlying Assets will be borne by
the Subordinated Trust
Certificateholders until the
aggregate unpaid principal balance
of such Subordinated Trust
Certificates has been reduced to
zero. Thereafter, such losses will
be borne by the Senior Trust
Certificateholders.]
INTEREST [Interest will be paid [monthly]
[quarterly] [semi-annually] on the
[Class ___] Trust Certificates to
the extent funds are available
therefor as described herein on [the
___ day of each month] [each ___,
___, ___ and ___] [each ___ and ___]
or, if any such day is not a
business day, on the next succeeding
business day, commencing on
_________________, 199__; provided,
however, that if the distributions
on the Underlying Assets that relate
to such interest payments have not
been received prior to 1:00 p.m.
(New York City time) on such day,
payments will be made on the next
succeeding business day (each a
"Payment Date"). [To the extent
there are deficiencies in the
interest available for payment on a
Payment Date, such deficiencies will
be deferred to succeeding Payment
Dates and will bear interest at the
rate or rates otherwise borne by the
applicable Class of Trust
Certificates until paid.]
[The Interest-Only Trust Certificates
are issued in ____ Classes,
corresponding to the number of
Interest Payment Dates remaining
until and including [_________
199__, the first date on which the
Underlying Issuers may redeem the
Underlying Securities (the "First
Call Date")] [the maturity date of
the Underlying Securities]. Each
Interest-Only Trust Certificate of a
Class represents the right to
receive its pro rata share of a
specified portion (equal to [______
basis points] of the then
outstanding principal amount of the
Underlying Securities) of an
Interest Payment due on a single
Interest Payment Date on the
Underlying Securities [on or before
the First Call Date]. The
Interest-Only Trust Certificates are
not entitled to any periodic
payments of interest. Thus, no
payment will be made on any Class of
Interest-Only Trust Certificates
prior to the corresponding Interest
Payment Date on the Underlying
Securities.]
PRINCIPAL [On each Payment Date, principal will
be paid to holders of the
S-4
<PAGE>
[Class ___] Trust Certificates in an
amount equal to the "Minimum Principal
Payment Amount". The "Minimum Principal
Payment Amount" for any Payment Date
will be an amount equal to the aggregate
distributions of principal made on the
Underlying Assets during the [one month]
[quarterly] [semi-annual] period ending
on the [day] [prior to the Payment Date]
[in the month in which such Payment Date
occurs]. On each Payment Date, the
Minimum Principal Payment Amount will be
allocated among the Classes of Trust
Certificates [other than the Class ___
Trust Certificates] in the manner set
forth herein. [Specify principal
allocations among Classes.]]
[The Stripped Principal Trust
Certificates are issued in a single
Class. Each Stripped Principal Trust
Certificate represents the right to
receive its pro rata share of [(1)]
any payment of principal of the
Underlying Securities by the
Underlying Issuers, whether at
maturity or upon redemption,
including any redemption premium,
[[and] (2) [prior to ______________,
______________,] the portion of the
Interest Payments on the Underlying
Securities not payable to any Class
of Interest-Only Trust Certificates,
equivalent to interest on the
principal amount of the Stripped
Principal Trust Certificates at a
rate equal to [describe rate] [, and
(3) after the First Call Date, the
entire amount of any Interest
Payments made on the Underlying
Securities, equivalent to interest on
the principal amount of the Stripped
Principal Trust Certificates at a
rate equal to ___%].]]
[Describe alternative principal
payment terms.]
PAYMENTS [As more fully described herein, on
each Payment Date while the Trust
Certificates are outstanding, [after
payment of certain expenses,] amounts
received on the Underlying Assets
during the period commencing on the
preceding Payment Date (or commencing
the closing date in the case of the
first Payment Date) and ending on
the day preceding the applicable
Payment Date, will be applied as
follows: (i) first, as interest on
the [Senior] Trust Certificates;
[and] (ii) second, as principal of
the [Senior] Trust Certificates [;
(iii) third, as interest on the
Subordinated Trust Certificates; and
(iv) fourth, as principal of the
Subordinated Trust Certificates].
[Any funds available after the Senior
and Subordinated Trust Certificates
have been paid in full [and all
expenses have been paid], will be
paid to the [Issuer].]]
FINAL SCHEDULED PAYMENT DATE The Final Scheduled Payment Date of
the [Class ___] Trust Certificates is
__________. The Final Scheduled
Payment Date is the Payment Date
[[one] [three] [six] month[s]] after
the Payment Date on or immediately
following the final scheduled
distribution on the last to mature of
the Underlying Securities. [As of
_________, 199__, the weighted
average final payment date of the
Underlying Securities will be
___________________.] [Because the
rate of payment of principal on the
Underlying Securities may
exceed the rate of payments used in
calculating such final scheduled
distribution, the date of the final
payment on the [Class ___] Trust
Certificates may be earlier, and
could be substantially earlier, than
the Final Scheduled Payment Date of
such Trust Certificates.]
RISK FACTORS For a discussion of certain risks
involved in an investment in
S-5
<PAGE>
LINCs, see "Risk Factors" herein and
in the accompanying Prospectus.
YIELD CONSIDERATIONS [The following discussion and the
General Considerations discussion contained elsewhere in
this Prospectus Supplement with
respect to yield and redemption
considerations would be modified to
reflect transaction structures that
do not involve material prepayment
risks.] The yield to maturity of
the Trust Certificates will be
affected by the amount and timing of
principal payments on and
redemptions of the Underlying
Securities, the payment priorities
and other characteristics of the
Underlying Securities [and the level
of the Index], the purchase price
paid for the Trust Certificates and
the allocations among the [Class
___] Securities. [If multiple
Classes of Trust Certificates are
issued, describe Class-specific
effects of principal payments and
redemptions.] No representation is
made as to the anticipated rate of
principal payments on or redemptions
of the Underlying Securities or as
to the anticipated yield to maturity
of the Trust Certificates.
Prospective investors are urged to
consider their own estimates of the
anticipated rate of principal
payments on and redemptions of the
Underlying Securities and the
suitability of the Trust
Certificates to their investment
objectives. [Describe any mitigating
or other effects Underlying
Enhancements or the Swap Agreement
on redemptions of Underlying
Securities.] In addition to the
discussion below, prospective
investors should review the
discussion under "Certain Yield and
Redemption Considerations" herein
and "Certain Yield and Redemption
Considerations" in the Prospectus.
[Redemptions If prevailing interest rates fall
significantly below the interest
rates on the Underlying Securities,
the Underlying [Debt] Securities are
likely to be subject to higher
redemption rates than if prevailing
rates remain at or above the
interest rates on the Underlying
[Debt] Securities. Other factors
affecting redemptions of Underlying
[Debt] Securities include the term
of the Underlying [Debt] Securities,
the availability of credit, the
general economic situation, tax,
legal and other factors.[Describe
redemption risk, if any, related to
Government Securities.]]
Timing of Payments The timing and amount of principal
payments on the Underlying Securities
may significantly affect an investor's
yield. In general, other things being
equal, the earlier the redemption of an
Underlying Securities, the greater will
be the effect on the investor's yield to
maturity. As a result, the effect on an
investor's yield of redemptions
occurring at a rate higher (or lower)
than the rate anticipated by the
investor during the period immediately
following the issuance of the Trust
Certificates may not be offset by a
subsequent like reduction (or increase)
in the rate of redemptions.
[Underlying Securities The Underlying Securities which were
issued at different times, have
different allocations of principal
and interest among various classes,
and will perform differently in
various interest and prepayment rate
environments. The performance
characteristics of the Trust
Certificates will reflect a
combination of the performance
characteristics of the various
Underlying Securities. As a result,
it may be more difficult to analyze
the likely yield and payment
experience of the Trust Certificates.]
S-6
<PAGE>
[The Index The Class ___ Trust Certificates will
be sensitive to changes in the level
of the Index. If the level of the
Index increases, there will be a
higher rate of interest accruing on
the Class ___ Trust Certificates, but
the amounts of interest received with
respect to certain Underlying
Securities will be reduced.]
[Discounts and Premiums In the case of any Class ___ Trust
Certificate purchased at a discount,
a slower than anticipated rate of
principal payments, other things
being equal, could result in an
actual yield that is lower than the
anticipated yield. In the case of
any Class ___ Trust Certificate
purchased at a premium, a faster than
anticipated rate of principal
payments, other things being equal,
could result in an actual yield that
is lower than the anticipated yield.]
[Reinvestment Risk Because prevailing interest rates are
subject to fluctuation, there can be
no assurance that investors in any
Class of Trust Certificates will be
able to reinvest the distributions
thereon at yields equaling or
exceeding the yields on the
respective Class of Trust
Certificates. Yields on any such
reinvestments may be significantly
lower than yields on the respective
Class of Trust Certificates.
Generally, when prevailing interest
rates increase, redemption rates on
debt obligations tend to decrease,
resulting in a reduced return of
principal to investors at a time when
reinvestment at such higher
prevailing rates would be desirable.
Conversely, when prevailing interest
rates decline, redemption rates on
debt obligations tend to increase,
resulting in a greater return of
principal to investors at a time when
reinvestment at comparable yields may
not be possible. Prospective
investors in each Class of Trust
Certificates should consider the
related reinvestment risks in light
of other investments that may be
available to such investors.]
LIQUIDITY There is currently no secondary
market for the Trust Certificates,
and there can be no assurance that
one will develop. There is no
assurance that any such market, if
developed, will continue for any
period of time. The Underwriter may
make a market in the Trust
Certificates, but it is not obligated
to do so and may discontinue such
market-making at any time without
notice.
CERTAIN FEDERAL INCOME TAX [The Trust Certificates [may] [will]
CONSEQUENCES be issued with original issue
discount for federal income tax
purposes.] [The Trust Certificates
will be Partnership-Taxed Securities
for federal income tax
purposes.] See "Certain Federal
Income Tax Consequences" in the
Prospectus.
CERTAIN ERISA CONSIDERATIONS A fiduciary of any employee benefit
or other retirement arrangement subject
to ERISA or Section 4975 of the Code
(each a "Plan") should review carefully
with its legal advisors as to whether
the purchase, transfer or holding of the
Trust Certificates could give rise to a
transaction prohibited under ERISA or
the Code or could subject the assets of
the Issuer to the fiduciary standards of
ERISA. [Describe any particular features
of the Trust Certificates or exemptions
relating to the Trust Certificates that
may affect the ERISA analysis.] For
additional information on certain
circumstances under which the holding of
the Trust Certificates by a Plan may
have ramifications under ERISA or
Section 4975 of the Code, see "Certain
ERISA Considerations" [herein and] in
the Prospectus.
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<PAGE>
LEGAL INVESTMENT Institutions the investment activities
of which are subject to legal investment
laws and regulations or to review by
certain regulatory authorities may be
subject to restrictions on investment in
the Trust Certificates. Any such
institution should consult its legal
advisors in determining whether and to
what extent there may be restrictions on
its ability to invest in the Trust
Certificates. See "Legal Investment" in
the Prospectus.
USE OF PROCEEDS The net proceeds of the offering of
the Trust Certificates will be used to
purchase the Underlying Assets
simultaneously with the issuance of the
Trust Certificates. See "Use of
Proceeds" in the Prospectus.
RATING As a condition of their issuance, the
Trust Certificates will be rated [[____]
by Standard & Poor's Corporation
("S&P")] [[____] by Moody's Investors
Service, Inc. ("Moody's)] [[___] by Duff
& Phelps Credit Rating Co. ("D&P")]
[[____] by Fitch Investors Service, Inc.
("Fitch")] ([each, a] [the] "Rating
Agency"). [The rating[s] assigned
address only the likelihood of return of
an invested amount, not the possibility
of full payment of interest on such
amount.] A securities rating is not a
recommendation to buy, sell or hold
securities and may be subject to
revision or withdrawal at any time by
the assigning rating agency. The
rating[s] assigned to the Trust
Certificates by the Rating [Agency]
[Agencies] reflects such Rating
[Agency's] [Agencies'] assessment solely
of the likelihood that Trust
Certificateholders will receive
principal [and interest] payments
required to be made with respect to
Trust Certificates. Such rating[s]
[does] [do] not represent an assessment
of the likelihood or rate of redemptions
of the Underlying Assets or the impact
thereon on the yield on the Trust
Certificates. In addition, if the
rating[s] initially assigned to the
Trust Certificates [is] [are]
subsequently lowered for any reason, no
person or entity is obligated to provide
any additional support or credit
enhancement with respect to the Trust
Certificates.
S-8
<PAGE>
RISK FACTORS
Prospective investors should consider, among other things, the following risk
factors in connection with the purchase of the Trust Certificates as well as the
risk factors described under "Risk Factors" in the Prospectus. Certain risk
factors described in the Prospectus that are applicable to the Trust
Certificates have not been restated in this Prospectus Supplement; however, the
risk factors described herein and in the Prospectus should be considered
collectively. [Certain risk factors relating to the Underlying Securities and
the Underlying Issuers may also apply in various respects to other Underlying
Assets (such as Underlying Enhancements and the Swap Agreement) and the related
obligors or counterparties with respect thereto, whether or not so expressed
herein.]
LIMITED OBLIGATIONS AND INTERESTS
The Trust Certificates do not represent an obligation of or interest in the
Company and represent the beneficial ownership interest in the Underlying Assets
and Collection Account, with respect to which recourse shall be available only
against the Underlying Assets and the Collection Account. The Trust
Certificates will not be insured or guaranteed by any government agency or
instrumentality, the Company, any Person affiliated with the Company [or the
Issuer], or any other Person. The obligations of the Company with respect to
the Trust Certificates will only be pursuant to certain limited representations
and warranties. The Company does not have, and is not expected in the future to
have, any significant assets with which to satisfy any claims arising from a
breach of any representation or warranty. If, for example, the Company were
required to repurchase an Underlying Asset with respect to which the Company has
breached a representation or warranty, its only sources of funds to make such
repurchase would be from funds obtained from the enforcement of a corresponding
obligation, if any, on the part of the seller of such Underlying Asset to the
Company.
LIMITED UNDERLYING ASSETS
Holders of Trust Certificates must rely solely upon distributions on the
Underlying Assets for distributions on the Trust Certificates. If such
Underlying Assets are insufficient to make required payments with respect to
such Trust Certificates, no other assets of the [Company or the] Issuer will be
available for payment of the deficiency, and holders of the Trust Certificates
will [likely] not be paid and will [likely] suffer losses. The Trust
Certificates will not have any claim against or security interest in the
underlying assets relating to the securities of any other series issued by the
Issuer. [Because payments of principal and interest with respect to the
Underlying Securities shall be applied first to the Class __ Trust
Certificates, a deficiency that arises after the Class ___ Trust Certificates
have been fully or partially repaid will have a disproportionately greater
effect on the Class ___ Trust Certificates.]
LIMITED LIQUIDITY
There will be no market for the Trust Certificates prior to the issuance
thereof and there can be no assurance that a secondary market for the Trust
Certificates will develop or, if it does develop, that it will provide holders
with liquidity of investment or will continue for the life of the Trust
Certificates. [The Trust Certificates will not be redeemable [except as
provided herein]]. Although the Underwriter, directly or through one or more
affiliates, may make a secondary market in the Trust Certificates, it has no
obligation to do so and any such market-making, if commenced, may be
discontinued at any time without notice.
[PRICE VOLATILITY OF TRUST CERTIFICATES AND POSSIBILITY OF LOSS
The purchase at a discount of a Trust Certificate will likely result in
greater percentage price volatility than the purchase of an obligation of a
similar maturity that pays interest periodically. The Interest-Only Trust
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<PAGE>
Certificates are zero coupon obligations. The market prices of zero coupon
obligations, such as those represented by the Interest-Only Trust Certificates,
are particularly sensitive to fluctuations in market interest rates. The stated
yield to maturity on an ordinary bond often deviates from its actual yield
because the stated rate presumes that the periodic payments on those bonds will
be reinvested at a constant interest rate. Zero coupon instruments, by
contrast, have a fixed yield to maturity if held to maturity because the
reinvestment rate of bond appreciation is embedded in the original issue
discount. Thus when market interest rates fall, absent other factors such as
changes in the perceived creditworthiness of the Underlying Securities, there
will be a significant rise in the market price of Interest-Only Trust
Certificates and, when market interest rates rise, there will be a corresponding
significant fall in the market price of Interest-Only Certificates, relative to
coupon bearing instruments of a similar maturity. Potential investors should
consider whether such secondary market price volatility is appropriate for
them.]
CERTAIN YIELD AND REDEMPTION CONSIDERATIONS
[The Underlying Securities are subject to redemption as described herein
under "The Underlying Assets -- Underlying Securities". The rate of redemptions
of Underlying Securities may be dependent on the financial or other condition of
the related Underlying Issuer and from time to time may be influenced by a
variety of economic, tax, legal and other factors. There can be no assurance
as to the rate of redemptions of the Underlying Securities [or that the rate of
redemptions will conform to any model described herein]. Redemptions of the
Underlying Securities generally will result in a faster rate of principal
payments on the Securities than if payments on such Underlying Securities were
made as scheduled. Thus, the redemption experience on the Underlying Securities
will affect the average life of each Class secured thereby and the extent to
which each such Class is paid prior to its Final Scheduled Payment Date. If a
Class is retired prior to its Final Scheduled Payment Date, investors in such
Class might be unable to reinvest the proceeds in instruments bearing similar
interest rates. [The Senior Trust Certificates are entitled to certain payments
before the Subordinated Trust Certificates and, as a result, yields on the
Subordinated Trust Certificates may be more sensitive to redemptions of the
Underlying Securities.] [The Class__ Trust Certificates will be offered at a
significant premium and the Class __ Trust Certificates will be offered at a
significant discount. Yields on such Classes will be sensitive, and in some
cases extremely sensitive, to redemptions of the Underlying Securities and, in
the case of the Class __ Trust Certificates, because the amount of interest
payable with respect to such Class is [extremely] disproportionate to principal,
a holder might, in some redemption scenarios, fail to recoup its original
investment.] If the purchaser of a Trust Certificate offered at a discount
calculates its anticipated yield to maturity based on an assumed rate of
distributions of principal that is faster than that actually experienced on the
Underlying Securities, the actual yield to maturity will be lower than that so
calculated. Conversely, if the purchaser of a Trust Certificate offered at a
premium calculates its anticipated yield to maturity based on an assumed rate of
distributions of principal that is slower than actually experienced on the
Underlying Securities, the actual yield to maturity or final distribution will
be lower than that so calculated. [Describe any mitigating or other effects of
Underlying Enhancements or the Swap Agreement on redemptions of Underlying
Securities.] [Describe yield concerns and redemption risks, if any, relating to
the Government Securities].
[Describe structural risks applicable to each Class, for example,
allocation of interest rate risk among classes.]
[Describe prepayment risks from events of default on Underlying
Securities.]
BASIS RISK; RATE DIFFERENCES BETWEEN TRUST CERTIFICATES AND UNDERLYING
SECURITIES
The Underlying Securities bear interest at rates (the "Underlying Rates")
that are based on the indices specified in Schedule 1. However, the Trust
Certificates bear interest based on the lesser of (i) the Index plus ____%[,
subject to a cap of __%] (the "Index Rate") and (ii) the weighted average of the
Underlying Rates on the Underlying Securities on the immediately preceding
Underlying Securities interest payment date (the "Available
S-10
<PAGE>
Funds Rate"). It will be possible for the Available Funds Rate to be less than
the Index Rate. For example, the Index Rate might remain the same (or rise)
during the periods in which the Available Funds Rate declined. Even if both the
Index Rate and the Available Funds Rate rise during the same period, the Index
Rate may rise more rapidly than the Available Funds. Rate. Such a situation
might continue to exist indefinitely, and would adversely affect the yield on
the [Class__] Trust Certificates, relative to the yield that would have been
produced had interest been paid at the Index rate.
[To protect Trust Certificateholders in such a situation, the Issuer will
enter into an interest rate cap that will entitle the Issuer, to the extent that
the Index Rate exceeds the Available Funds Rate, to receive payments of interest
on a notional principal amount from the party selling such interest rate cap.
The Issuer's obligations under the interest rate cap will be guaranteed by
[____________,] [an affiliate of the [Issuer] [Company]]. Because interest rate
caps are recent innovations, they are relatively illiquid. Although the terms
of interest rate caps may provide for termination, there can be no assurance
that the [Issuer, on instructions of the Trustee,] [Trustee] will be able to
sell or offset any interest rate cap that it purchases. Finally, the
Securityholders will be exposed to the credit risk of the counterparty to the
interest rate cap. Therefore, there can be no assurance that, should the Index
Rate exceed the Available Funds Rate, Trust Certificateholders will continue to
receive interest based on the Index Rate.]
LIMITED INVESTIGATION OF UNDERLYING ASSETS AND UNDERLYING ISSUERS; DESCRIPTIONS
BASED ON CERTAIN LIMITED MATERIALS
The Issuer's [and the Company's] investigation, if any, and the description
contained herein of any Underlying Asset and any Underlying Issuer [or obligor,
counterparty or guarantor with respect to any Underlying Enhancement, the Swap
Agreement or any miscellaneous asset included in the Underlying Assets] are
based entirely on publicly available information filed by the Underlying Issuers
[or by such obligor, counterparty or guarantor] with the SEC [or, in the case of
Underlying Government Issuers, made available to the general public] and such
information may not be adequate for purposes of an informed investment decision
relating thereto. The Issuer is under no obligation to verify any information
so filed. This Prospectus Supplement does not provide detailed information with
respect to the Underlying Securities or Underlying Issuers, any risk factors
relating thereto, or any rights or obligations, legal, financial or otherwise,
arising thereunder or related thereto. See "The Underlying Assets--Underlying
Securities" in this Prospectus Supplement.
[CONCENTRATION OF CREDIT RISK
Because the Trust Certificates relate [primarily] to Underlying Securities
issued by a limited number of Underlying Issuers, the Trust Certificates will be
subject to credit risk greater than that usually encountered in investments in
asset-backed securities, because the diversification of credit risk generally
present with such securities will not exist. In particular, the Trust
Certificates will be subject to greater risk with respect to such factors as the
geographic location of the Underlying Issuers, including any special local
economic or other risks, changes in interest rates, the availability of
financing for operating or capital needs, changes in tax rates and other
operating expenses, adverse changes in governmental rules and fiscal policies,
acts of God, condemnation and other factors.] [Further describe such credit
risk.]
[If an Underlying [Debt] Issuer were to become a debtor in a bankruptcy,
reorganization, insolvency, liquidation or similar proceeding (a "Bankruptcy
Case"), a delay or substantial reduction in payments on the related Underlying
[Debt] Securities would likely occur, and the Underlying [Debt] Issuer might
have insufficient funds to make all required payments on such Underlying [Debt]
Securities. Such events would also delay foreclosure on assets securing the
Underlying [Debt] Securities, delay payments on the Trust Certificates and delay
or prohibit application of amounts in any Reserve Fund or other Underlying
Enhancement to their
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<PAGE>
intended uses until the conclusion of such Bankruptcy Case.] [Describe
concentration and insolvency risks, if any, related to Government Securities.]
[Describe concentration of credit risk attributable to industries or
geographical locations of Underlying Issuers.]
[SUBSTANTIAL LEVERAGE
The Underlying [Debt] Issuers are highly leveraged. This could adversely
affect holders of the Trust Certificates because under such circumstances: (i)
an Underlying [Debt] Issuer's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, general
corporate purposes or other purposes will be restricted; (ii) a significant
portion of any Underlying [Debt] Issuer's cash flow from operations must be
dedicated to the payment of principal and interest on its indebtedness, thereby
reducing the funds available to the Underlying [Debt] Issuer for its operations;
(iii) certain of an Underlying [Debt] Issuer's borrowings are and will continue
to be at variable rates of interest, which could result in higher interest
expense in the event of an increase in interest rates; and (iv) such
indebtedness contains financial and restrictive covenants, the failure to comply
with which may result in an event of default which, if not cured or waived,
would likely have a material adverse effect on the Underlying [Debt] Issuer's
ability to make payments to holders of the Underlying [Debt] Securities, such as
the Issuer (with a concomitant material adverse effect on the Issuer's ability
to make payments on the Securities).]
[UNSECURED [AND SUBORDINATED] STATUS OF UNDERLYING [DEBT] SECURITIES
The Underlying [Debt] Securities are general unsecured obligations of the
Underlying [Debt] Issuers [and, in addition, are subordinate in right of payment
to the respective Underlying [Debt] Issuer's existing and future senior
indebtedness]. In the event of a Bankruptcy Case involving an Underlying [Debt]
Issuer or any default in the payment of any secured indebtedness of the
Underlying [Debt] Issuer, holders of such secured indebtedness will be entitled
to payment in full from all assets (and proceeds thereof) of the Underlying
[Debt] Issuer, pledged to secure such indebtedness prior to any payment of such
assets (or proceeds) to holders of the Underlying [Debt] Securities. [In
addition, in the event of a Bankruptcy Case involving an Underlying [Debt]
Issuer or any default of any indebtedness of the Underlying Issuer to which the
Underlying [Debt] Securities are subordinated, holders of such senior
indebtedness may be entitled to payment in full prior to any payments to holders
of the Underlying [Debt] Securities.] [Describe comparable risks, if any,
relating to Governmental Securities.]]
[STRUCTURAL SUBORDINATION OF UNDERLYING [DEBT] SECURITIES
Direct creditors or preferred stockholders of any subsidiary of an
Underlying [Debt] Issuer, although not holders of senior indebtedness of the
Underlying [Debt] Issuer, will have a direct claim on the assets and cash flows
of such subsidiary, prior to the claims of holders of the Underlying [Debt]
Securities. Therefore, all existing and future liabilities (if any) of the
Underlying [Debt] Issuer's subsidiaries will be effectively senior to the
Underlying Securities. To the extent that assets of an Underlying [Debt]
Issuer, which would otherwise be available to pay holders of the related
Underlying [Debt] Securities, are owned by the Underlying [Debt] Issuer's
subsidiary, such structural subordination may adversely affect the holders of
such Underlying [Debt] Securities.]
[ABSENCE OR INEFFECTIVENESS OF CONTRACTUAL PROTECTIONS
The Underlying Securities do not contain any significant contractual
protections (such as financial covenants, rights of redemption upon changes of
control of the Underlying [Debt] Issuer or restrictions on changes of control of
the Underlying [Debt] Issuer, restrictions on sales of assets or dividends,
limitations on incurrence of secured indebtedness and provisions protecting
against structural subordination [or, in the case of
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<PAGE>
subordinated Underlying [Debt] Securities, against additional subordination] of
the Underlying [Debt] Securities) against actions by or events affecting the
Underlying Issuer. The occurrence of such actions or events could materially
adversely affect the value and likelihood of repayment of the Underlying [Debt]
Securities. Such actions or events could include significant changes in the
debt-to-equity ratio or capitalization of the Underlying [Debt] Issuer caused
by a change of control, a sale of assets or extraordinary dividend, the
incurrence of significant amounts of debt secured by existing assets of the
Underlying [Debt] Issuer or structural or other subordination of the Underlying
[Debt] Securities.
In addition, any contractual protection provided with respect to the
Underlying [Debt] Securities may not effectively provide significant protection
for such Underlying [Debt] Securities because the enforcement of such
protections requires the affirmative vote of holders of a majority in
outstanding amount of such obligations. Because the Underlying [Debt]
Securities represent __% of such outstanding obligations, the Trustee's or
Securityholders' ability to influence any such vote is correspondingly limited.]
[Describe comparable risks, if any, for Government Securities.]
[SEASONALITY AND CYCLICALITY RISKS
Traditionally, the industries of the following Underlying [Debt] Issuers
have been seasonal: ______. The following Underlying Issuers have peak sales
seasons in ____: ____. In addition, downturns in consumer spending associated
with recessionary economic environments may adversely affect the ability of
Underlying [Debt] Issuers to make payments on the Underlying [Debt] Securities,
thus increasing the likelihood of a default on such Underlying [Debt]
Securities.] [Modify as appropriate to reflect particular characteristics of
Underlying [Debt] Securities.]
[RISK OF LOSS OF MATERIAL CUSTOMER
____'s largest customer accounted for __% of its gross sales in the
last fiscal year. A loss of such account (or a material portion thereof) would
have an adverse effect on _____'s business, which would increase the likelihood
of default on _______'s debt.] [Modify as appropriate to reflect particular
characteristics of Underlying Securities.]
[SWAP AGREEMENT RISKS
The Underlying Assets include a Swap Agreement consisting of an [interest
rate swap][interest rate cap][interest rate floor]. Fluctuations in interest or
exchange rates may have a significant effect on the yield to maturity of such
Swap Agreement or the levels of support that Swap Agreements can provide the
Trust Certificates. [In addition, the enhancement provided by such Swap
Agreement is limited to cover only certain interest rate or other risks to which
the Trust Certificates may be subject.] Payments on the Swap Agreement will be
dependent on the financial condition of the counterparty thereto [and the
guarantor thereof]. There can be no assurance that such counterparty [and the
guarantor] will be able to perform [its][their] obligations thereunder. Failure
of the counterparty [and the guarantor] to make required payments under the Swap
Agreement may result from the deterioration of such counterparty's [and
guarantor's] financial condition or a general disruption of the swap markets
that impairs the ability of such counterparty to make required payments [or
forces such counterparty to terminate prematurely the Swap Agreement in order
for such counterparty to settle its position under its other derivative
obligations]. The Swap Agreement does not provide any significant contractual
protection (such as financial covenants, change of control provisions or
restrictions on sales of assets, dividends or incurrence of secured
indebtedness) with respect to the financial condition of the counterparty [and
the guarantor], which condition may be subject to adverse changes. Failure by
the counterparty [and the guarantor] to make payments required under the Swap
Agreement may result in the delay or failure to make payments on the
Securities.]
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<PAGE>
LIMITED NATURE OF RATING
As a condition of their issuance, the Trust Certificates will be rated
[[__]by Standard & Poor's Rating Services, Inc. ("S&P")] [[__] by Moody's
Investors Service, Inc. ("Moody's)] [[__] by Duff & Phelps Credit Rating Co.
("D&P") [[__] by Fitch Investors Service, L.P. ("Fitch")] ([each, a] [the]
"Rating Agency"). [The rating[s] assigned address only the likelihood of return
of an invested amount, not the possibility of full payment of interest on such
amount.] A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
related rating agency. If the rating[s] initially assigned to the Trust
Certificates [is][are] subsequently lowered for any reason, no person or entity
is obligated to provide any additional support or credit enhancement with
respect to the Trust Certificates. In addition, the rating assigned to the
Trust Certificates by the Rating [Agency][Agencies] reflects such Rating
[Agency's [Agencies'] assessment solely of the likelihood that Trust
Certificateholders will receive principal [and interest] payments required to be
made with respect to Trust Certificates. Such rating[s] [does][do] not
constitute an assessment of the likelihood of redemptions of the Underlying
Assets or the impact thereon on the yield on the Trust Certificates.
[ENHANCEMENT LIMITATIONS
Because the Senior Trust Certificates will be paid certain amounts before
the Subordinated Trust Certificates, the impact of significant losses on the
Underlying Assets may primarily affect the Subordinated Trust Certificates.
Although such subordination is intended to reduce the risk of delinquent
distributions or ultimate losses to holders of Senior Trust Certificates, the
amount of subordination is limited and will decline under certain circumstances.
[Describe.]]
LIMITED REMEDIES FOLLOWING DEFAULT
The market value of the Underlying Assets may fluctuate based on changes in
interest rates, the credit rating of the Underlying Issuers and other factors.
Following an event of default with respect thereto, there is no assurance that
the market value of the Underlying Assets will be equal to or greater than then
unpaid principal and accrued interest due on the Trust Certificates, together
with any other expenses or liabilities payable thereon. If the Underlying
Assets are sold by the Trustee following such an event of default, the proceeds
of such sale may be insufficient to pay in full the principal of and interest on
such Trust Certificates. However, in certain events the Trustee may be
restricted from selling the Underlying Assets. See "The Trust Agreement -
Events of Default" in the Prospectus. In addition, upon the occurrence of such
an event of default and a resulting sale of the Underlying Assets, the proceeds
of such sale will be applied to the payment of certain amounts due to the
Trustee and certain other administrative and other expenses prior to the payment
of accrued interest on, and then to the payment of the then principal balance
of, such Trust Certificates. Consequently, in the event of any such event of
default and sale of Underlying Assets, any Classes of Trust Certificates on
which principal payments have previously been made may have, in the aggregate, a
greater proportion of their principal repaid than will Classes of Trust
Certificates on which principal payments have not previously been made.
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<PAGE>
THE TRUST CERTIFICATES
INTEREST
[Interest will be paid [monthly] [quarterly] [semi-annually] on the
[Class__] Trust Certificates to the extent funds are available therefor as
described herein on [the __day of each month] [each __, __, __, and ___] [each
__ and __] or, if any such day is not a business day, on the next succeeding
business day, commencing on _______________, 199__; provided, however, that if
-------- -------
the distributions on the Underlying Assets that relate to such interest payments
have not been received prior to 1:00 p.m. (New York City time) on such day,
payments will be made on the next succeeding business day (each a "Payment
Date"). The amount of interest payable on the [Class __] Trust Certificates on
each Payment Date will equal the interest accrued during the period from the
preceding Payment Date through the day preceding such current Payment Date,
commencing ______________, 199__. [To the extent there are deficiencies in the
interest available for payment on a Payment Date, such deficiencies will be
deferred to succeeding Payment Dates and will bear interest at the rate or rates
otherwise borne by the applicable Class of Trust Certificates until paid.]
[The Interest-Only Trust Certificates are issued in ___ Classes,
corresponding to the number of Interest Payment Dates remaining until and
including [__________ 199__, the first date on which the Underlying Issuers may
redeem the Underlying Securities (the "First Call Date")] [the maturity date of
the Underlying Security with the latest maturity date]. Each Interest-Only
Trust Certificate of a Class represents the right to receive its pro rata share
of a specified portion (equal to [__basis points] of the then outstanding
principal amount of the Underlying Securities) of an Interest Payment due on a
single Interest Payment Date on the Underlying Securities [on or before the
First Call Date]. The Interest-Only Trust Certificates are not entitled to any
periodic payments of interest. Thus, no payment will be made on any Class of
Interest-Only Trust Certificates prior to the corresponding Interest Payment
Date on the Underlying Securities.]
PRINCIPAL
[On each Payment Date, principal will be paid to holders of the [Class__]
Trust Certificates in the amount equal to the "Minimum Principal Payment
Amount". The "Minimum Principal Payment Amount" for any Payment Date will be an
amount equal to the aggregate distributions of principal made on the Underlying
Assets during the [one month] [quarterly] [semi-annual] period ending on the
[day] [prior to the Payment Date] [in the month in which such Payment Date
occurs]. On each Payment Date, the Minimum Principal Payment Amount will be
allocated among the Classes of Trust Certificates [other than the Class __ Trust
Certificates] in the manner set forth herein. [Specify principal allocations
among Classes.]]
[The Stripped Principal Trust Certificates are issued in a single Class.
Each Stripped Principal Trust Certificate represents the right to receive its
pro rata share of [(1)] any payment of principal of the Underlying Securities by
the Underlying Issuers, whether at maturity or upon redemption, including any
redemption premium, [[and] (2) [prior to _____________, ___,] the portion of the
Interest Payments on the Underlying Securities not payable to any Class of
Interest-Only Trust Certificates, equivalent to interest on the principal amount
of the Stripped Principal Trust Certificates at a rate equal to [describe rate]
[, and (3) after the First Call Date, the entire amount of any Interest Payments
made on the Underlying Securities, equivalent to interest on the principal
amount of the Stripped Principal Trust Certificates at a rate equal to ___%].]]
[Describe alternative principal payment terms.]
RECORD DATE
The record date for each Payment Date for the Trust Certificates is [the
last business day of the month preceding the month in which such Payment Date
occurs].
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<PAGE>
PAYMENTS OF INTEREST AND PRINCIPAL
[On each Payment Date while the Trust Certificates are outstanding [, after
payment of certain expenses,] Available Funds will be applied as follows: (i)
first, as interest on the [Senior] Trust Certificates; [and] (ii) second, as
principal of the [Senior] Trust Certificates[; (iii) third, as interest on the
Subordinated Trust Certificates; and (iv) fourth, as principal of the
Subordinated Trust Certificates].]
[Purchasers of Interest-Only Trust Certificates of a Class will receive
their pro rata portions of the related single interest payment on the Underlying
Securities on or after the corresponding interest payment date, subject to
receipt thereof by the Trustee, and will receive no payments prior to such time.
Purchasers of Stripped Principal Trust Certificates will receive their pro rata
portions of the principal payment (including any redemption premium) on the
Underlying Securities, subject to receipt thereof by the Trustee, on or after
the earlier of the maturity date of the Underlying Securities or the date on
which the Underlying Securities are redeemed by the Underlying Issuers or
accelerated upon an event of default with respect thereto. [Purchasers of
Stripped Principal Trust Certificates will receive interest payments on or prior
to the First Call Date, and thereafter to the extent that the Underlying
Securities have not been earlier redeemed, in the manner set forth above, in
each case subject to receipt of the corresponding interest payments by the
Trustee.] No payments representing interest on the Underlying Securities will
be made on any Class of Securities with respect to any payments due after any
redemption date with respect to the Underlying Securities. See "Redemption of
Underlying Securities; Termination of Stripped Principal Trust Certificates"
below.]
[Any funds remaining after the Trust Certificates have been paid in full
[and all expenses have been paid], will be paid to the [Issuer].]
[Describe any alternative terms and conditions of payments of interest and
principal.]
[REDEMPTION OF UNDERLYING SECURITIES; TERMINATION OF STRIPPED PRINCIPAL TRUST
CERTIFICATES
The Underlying Securities may be redeemed by the Underlying Issuers.
[Description of redemption provisions.] The redemption prices for the
Underlying Securities are as set forth below:
[set forth redemption prices]
Subject to [the second following paragraph and to] receipt by the Trustee
of actual notice of such redemption from the Underlying Issuers, if the
Underlying Securities are called for redemption prior to maturity, notice of
such call shall be given by the Trustee to the registered holders of Stripped
Principal Trust Certificates not less than 15 days prior to the redemption date
by mail to each registered holder at such registered holder's last address on
the register maintained by the Trustee; provided, however, that the Trustee
shall not be required to give any notice of redemption prior to the third
business day after the date it receives notice of such redemption.
If the Underlying Securities are redeemed, an equal principal amount of
Stripped Principal Trust Certificates will be redeemed. If less than all the
Underlying Securities are redeemed, the Trustee shall redeem on a pro rata basis
an equal amount of the outstanding Stripped Principal Trust Certificates. The
Holder of a Stripped Principal Trust Certificate that is redeemed will receive a
payment equal to the face amount of such Stripped Principal Trust Certificate
plus any redemption premium payable thereon on the redemption date and, if such
Stripped Principal Trust Certificate is entitled to the payment of interest [at
such time], accrued interest to such redemption date. Such Holder will have no
right to receive interest payments after the redemption of such Underlying
Securities.
S-16
<PAGE>
[Any Stripped Principal Trust Certificates which are not redeemed on the
First Call Date will be terminated and deemed involuntarily surrendered by the
Holders thereof in exchange for a principal amount of the Underlying Securities
underlying such Stripped Principal Trust Certificates equal to the face amount
of such Trust Certificates, whether or not such Holders have requested such
exchange. No action by such Holders will be required to effect such
termination, which will be carried out by the Trustee under the terms of the
Trust Agreement. Such termination and exchange will not affect an investor's
federal income tax treatment with respect to its investment in the Stripped
Principal Trust Certificates. See "Certain Federal Income Tax Consequences" in
the Prospectus.]]
[REALIZED LOSSES
Realized losses on the Underlying Assets ("Realized Losses") will be
allocated first to the Subordinated Trust Certificates, in reduction of their
principal balances, until the principal balances of the Subordinated Trust
Certificates have been reduced to zero, and thereafter such Realized Losses will
be allocated to the Senior Trust Certificates, in reduction of their principal
balances.]
BOOK-ENTRY REGISTRATION; DEFINITIVE SECURITIES
The Trust Certificates will be issued in fully registered, certificated
form and will be initially represented by one or more Trust Certificates
registered in the name of Cede & Co., the nominee for the Depository Trust
Company. The Trust Certificates will be issued in denominations of [$1,000] and
integral multiples thereof. The Trust Certificates will constitute Book-Entry
Only Securities within the meaning of the Prospectus. See "The Securities --
Exchange, Registration and Transfer" and "--Book-Entry Registration" in the
accompanying Prospectus for important information concerning the Trust
Certificates' status as Book-Entry Only Securities. No person acquiring an
interest in the Trust Certificates will be entitled to receive a definitive
certificate ("Definitive Security") representing such person's interest, except
in the event that Definitive Securities are issued under the limited
circumstances described in the Prospectus under "The Securities--Book-Entry
Registration-- Issuance of Definitive Securities for Book-Entry Only
Securities".
[Describe any alternative provisions for holding of the Trust
Certificates.]
PAYMENTS ON THE TRUST CERTIFICATES; TRANSFER OF TRUST CERTIFICATES
Payments of principal of and interest on the Trust Certificates will be
made on each Payment Date by wire transfer of funds to DTC or, in the event that
Definitive Securities are issued directly to persons other than Cede in the
limited circumstances described in the Prospectus under "The Securities--Book-
Entry Registration--Issuance of Definitive Securities for Book-Entry Only
Securities", by check mailed to the address of holders in whose name Trust
Certificates were registered in the register maintained by the Trustee at the
close of business on the related Record Date. The final distribution in respect
of any Trust Certificate (whether registered in the name of Cede or in the name
of any other person), however, will be made only on presentation and surrender
of such Trust Certificate on the final Payment Date at such office or agency as
is specified in the notice of final payment to Trust Certificateholders. The
Trustee will provide such notice to registered Trust Certificateholders prior to
the final Payment Date.
In the event that Definitive Securities are issued directly to persons
other than Cede in the limited circumstances described in the Prospectus under
"The Securities --Book-Entry Registration -- Issuance of Definitive Securities
for Book-Entry Only Securities", Definitive Securities will be transferable and
exchangeable at the offices of the Trustee, which initially will be
[__________________]. No service charge will be imposed for any registration of
transfer or exchange, other than payment of a sum sufficient to cover any tax or
other governmental charge imposed in connection therewith.
S-17
<PAGE>
[Describe any alternative provisions for payment on and transfer of the Trust
Certificates.]
REPORTS TO INVESTORS
Each Trust Certificateholder will receive [monthly][quarterly][semi-annual]
reports pertaining to the Trust Certificates and the Underlying Assets.
[Describe information to be included in reports.] [Describe information
(periodic trustee reports or similar reports) with respect to the Underlying
Securities which will be made available, or caused to be made available upon
request to holders of Trust Certificates.]
S-18
<PAGE>
THE UNDERLYING ASSETS
The Trust Certificates will represent the entire beneficial ownership
interest in the Underlying Assets and the Collection Account described below.
Additional information is contained under "The Underlying Assets" in the
Prospectus.
UNDERLYING SECURITIES
[Specify, to the extent applicable, either herein or in Schedule I hereto:
(i) the title and characterization of the Underlying Securities (e.g., bonds,
----
debentures, notes or other debt securities); (ii) the currency denomination of
the Underlying Securities; (iii) the aggregate principal amount of the
Underlying Securities; (iv) the stated interest rate, if any, borne by such
Underlying Securities and the timing of, and manner of determining, any
adjustments to such stated interest rate; (v) the weighted average of such
stated interest rates; (vi) the stated maturity of each Underlying Security;
(vii) the weighted average stated maturity date of the Underlying Securities;
(viii) the identity of each Underlying Issuer (including the existence and
extent of any guaranty or credit support with respect to the Underlying
Securities); (ix) the existence and nature of any security for the Underlying
Securities; (x) the senior or subordinated status of the Underlying Securities;
(xi) the approximate percentage that the Underlying Securities represent of the
class of obligations to which the Underlying Securities belong and the vote
requirements relating to such class; (xii) the types of material covenant
protection, if any, provided for the benefit of holders of the Underlying
Securities; (xiii) certain credit characteristics of such Underlying Issuer,
including such Underlying Issuer's rating, if any, and any special risk
factors;(xiv) the major industries and primary geographical locations of the
Underlying Issuers; (xv) the conditions under which, and the terms on which, any
Underlying Security may be redeemed prior to the stated maturity thereof; (xvi)
the percentage of the Underlying Securities that are subject to redemption;
(xvii) the terms, if any, on which the Trustee or its agent may exchange or sell
any Underlying Security; (xviii) the type of information that is made publicly
available by each Underlying Issuer; (xix) defaults and delinquencies by the
Underlying Issuers with respect to the Underlying Securities; and (xx) any other
material general terms with respect to the Underlying Securities.]
The Underlying Securities will have been purchased in the secondary market,
not in a primary distribution.
Schedule I hereto sets forth information with respect to each Underlying
Security, including the Underlying Issuer, the series, the class, the CUSIP
number, the date of issuance, the current interest rate, the type of security,
the maturity date, the original principal amount, the percentage of the
applicable class to be deposited as Underlying Assets and the current class
principal amount to be deposited as Underlying Assets. Information on Schedule I
is provided as of ________________, 199__.
General
[Description of the general characteristics of the Underlying Securities to
be included.]
Distribution on the Underlying Securities
[Description of the interest and principal distributions on the Underlying
Securities to be included.]
Subordination
S-19
<PAGE>
[Description of the material subordination provisions affecting (or
available to) the Underlying Securities to be included.]
Redemption of the Underlying Securities
[Description of the material redemption provisions of the Underlying
Securities to be included.]
Representations, Warranties and Covenants of the Underlying Issuers
[Description of the material representations, warranties and covenants of
the Underlying Issuers to be included.]
Events of Default
[Description of the material events of default with respect to the
Underlying Securities to be included. Also, if the Trust holds enough of a class
of Underlying Securities to entitle the Trust to take certain actions upon an
event of default this fact will be disclosed and the basis for excising this
discretion will be described.]
Underlying Issuers
[Description of the Underlying Issuers, to be included.]
Each Underlying [Debt] Issuer is subject to the information requirements of
the Exchange Act and in accordance therewith files reports, proxy and
information statements and other information with the SEC. Such reports, proxy
and information statements and other information filed with the SEC can be
inspected and copied at the public reference facilities maintained by the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
SEC's regional offices at Citicorp Center, 500 West Madison Street, 14th Floor,
Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New
York 10048. Copies of such material can be obtained from the Public Reference
Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of such
site is (http://www.sec.gov). [The material described above and other
information will also be available for inspection at the offices of the New York
Stock Exchange at 20 Broad Street, New York, New York.] [Describe information
that will be made available with respect to the Underlying Issuers that no
longer file periodic reports under the Exchange Act.] [Describe information with
respect to the Underlying Governmental Issuers which is available.]
[UNDERLYING ENHANCEMENTS
Specify, to the extent applicable: (i) the types of Underlying Enhancements
(e.g., reserve fund, financial guaranty insurance, letter of credit or
----
guaranteed investment contract); (ii) the amount payable under the Underlying
Enhancements and the currency in which such amount is payable; (iii) the terms
and conditions of payment of amounts under the Underlying Enhancements; (iv) the
conditions under which the amount payable under such Underlying enhancement may
be reduced and under which such Underlying Enhancement may be terminated or
replaced; (v) the material provisions of any agreement relating to such
Underlying Enhancement; (vi) the identity of the obligors or trustees with
respect to the Underlying Enhancements; (vii) the effect of inclusion of such
Underlying Enhancements in the Underlying Assets; (viii) the existence and type
of information that is made publicly available by certain obligors, including
where and how purchasers of Trust Certificates may obtain such publicly
available information with respect to such obligors; and (ix) certain financial
information with respect to certain non-public obligors.]
S-20
<PAGE>
[SWAP AGREEMENT
Specify, to the extent applicable: (i) the type of Swap Agreement included
(e.g., interest rate swap agreement, interest rate cap agreement or interest
----
rate floor agreement); (ii) a description of the Swap Agreement; (iii) the
agreement amount, notional or otherwise, of the Swap Agreement; (iv) the
identity of the counterparty and guarantor, if any; (v) the credit
characteristics of any such counterparty or guarantor, including any special
risk factors; (vi) the types of interest rate fluctuations to which the Swap
Agreement is expected to be most sensitive; (vii) the term of the Swap
Agreement; (viii) the means by which each counterparty to the Swap Agreement
receives consideration for its obligations with respect to the Swap Agreement;
(ix) the effect of inclusion of the Swap Agreement in the Underlying Assets; (x)
the existence and type of information that is made publicly available by certain
counterparties or guarantors, including where and how purchasers of Securities
may obtain such publicly available information with respect to such
counterparties or guarantors; (xi) certain financial information with respect to
certain non-public counterparties or guarantors; and (xii) any other material
general terms with respect to the Swap Agreement.]
[MISCELLANEOUS ASSETS
Specify, to the extent applicable: (i) the type of the miscellaneous
assets (e.g., cash); (ii) the amount and currency of each miscellaneous asset;
----
(iii) the uses of such assets and terms and conditions of usage; and (iv) the
obligors or trustees with respect to such assets.]
COLLECTION ACCOUNT
The Trustee, as paying agent or its duly appointed successor thereto (the
"Paying Agent"),] will maintain a separate Collection Account for the Trust
Certificates. The Collection Account will be used for purposes of receipt of
all principal, interest and other payments on the Underlying Assets [and the
amount of cash to be initially deposited therein by the Issuer, reinvestment
income ("Reinvestment Income"), if any, thereon and any amounts withdrawn from
any Reserve Funds]. [Describe terms of investment and reinvestment of funds in
Collection Account.] [Reinvestment Income, if any, or other gain from
investments of moneys in the Collection Account will be credited to the
Collection Account and any loss resulting from such investments will be charged
to such Collection Account.] [Describe alternative arrangements relating to
income and losses.] Funds on deposit in the Collection Account will be
available for application to the payment of principal of and interest on the
Trust Certificates [and for [describe other applications]]. [Describe terms of
distribution of excess funds in Collection Account.]
CERTAIN YIELD AND REDEMPTION CONSIDERATIONS
The yield to maturity of the Trust Certificates will be affected by various
factors. Investors should carefully consider the associated risks discussed
hereunder and under "Certain Yield and Redemption Considerations" in the
Prospectus.
GENERAL
General Considerations
The yield to maturity of the Trust Certificates will be affected by the
amount and timing of principal payments on and redemptions of the Underlying
Securities, the payment priorities and other characteristics of the Underlying
Securities [and the level of the Index], the purchase price paid for the Trust
Certificates and the allocations among the [Class ___] Trust Certificates. [If
multiple Classes, describe Class-specific effects of redemptions.] [Describe
any redemption assumptions used to price the Securities or, if applicable, state
that, for the purposes of pricing the Securities, it has been assumed that the
Underlying Securities will not be redeemed.]
S-21
<PAGE>
No representation is made as to the anticipated rate of redemptions of the
Underlying Securities or as to the anticipated yield to maturity of the Trust
Certificates. Prospective investors are urged to consider their own estimates of
the anticipated rate of redemptions of the Underlying Securities and the
suitability of the Trust Certificates to their investment objectives.
[Describe any mitigating or other effects of Underlying Enhancements or the Swap
Agreement on redemptions of Underlying Securities.]
[Redemptions
If prevailing interest rates fall significantly below the interest rates on
the Underlying [Debt] Securities the Underlying [Debt] Securities are likely to
be subject to higher redemption rates than if prevailing rates remain at or
above the interest rates on the Underlying [Debt] Securities or the assets
securing the Underlying [Debt] Securities. Other factors affecting redemptions
of Underlying [Debt] Securities include the term of the Underlying [Debt]
Securities, the availability of credit, the general economic situation, tax,
legal and other factors.] [Describe risk, if any, of redemption of Government
Securities.]
Timing of Payments
The timing and amount of principal payments on the Underlying Securities
may significantly affect an investor's yield. In general, other things being
equal, the earlier the redemption of an Underlying Security, the greater will be
the effect on an investor's yield to maturity. As a result, the effect on an
investor's yield of redemptions occurring at a rate higher (or lower) than the
rate anticipated by the investor during the period immediately following the
issuance of the Trust Certificates may not be offset by a subsequent like
reduction (or increase) in the rate of redemptions.
[Underlying Securities
The Underlying Securities, which were issued at different times, have
different allocations of principal and interest among various classes, and will
perform differently in various interest and prepayment rate environments. The
performance characteristics of the Trust Certificates will reflect a combination
of the performance characteristics of the various Underlying Securities. As a
result, it may be more difficult to analyze the likely yield and payment
experience of the Trust Certificates.]
[The Index
The [Class ___] Trust Certificates will be sensitive to changes in the
level of the Index. If the level of the Index increases, there will be a higher
rate of interest accruing on the Class ___ Trust Certificates, but the amounts
of interest received with respect to certain Underlying Securities will be
reduced.]
[Discounts and Premiums
In the case of any Class ___ Trust Certificate purchased at a discount, a
slower than anticipated rate of principal payments, other things being equal,
could result in an actual yield that is lower than the anticipated yield. In
the case of any Class ___ Trust Certificate purchased at a premium, a faster
than anticipated rate of principal payments, other things being equal, could
result in an actual yield that is lower than the anticipated yield.]
S-22
<PAGE>
[Reinvestment Risk
Because prevailing interest rates are subject to fluctuation, there can be
no assurance that investors in any Class of Trust Certificates will be able to
reinvest the distributions thereon at yields equaling or exceeding the yields on
the respective Class of Trust Certificates. Yields on any such reinvestments
may be lower, and may even be significantly lower, than yields on the respective
Class of Trust Certificates. Generally, when prevailing interest rates
increase, redemption rates on debt obligations tend to decrease, resulting in a
reduced return of principal to investors at a time when reinvestment at such
higher prevailing rates would be desirable. Conversely, when prevailing
interest rates decline, redemption rates on debt obligations tend to increase,
resulting in a greater return of principal to investors at a time when
reinvestment at comparable yields may not be possible. Prospective investors in
each Class of Trust Certificates should consider the related reinvestment risks
in light of other investments that may be available to such investors.]
FINAL SCHEDULED PAYMENT DATE
The Final Scheduled Payment Date of the [Class ___] Trust Certificates is
__________. The Final Scheduled Payment Date is the Payment Date [[one] [three]
[six] month[s]] after the Payment Date on or immediately following the final
scheduled distribution on the last to mature of the Underlying Assets. As of
__________, 199__, the weighted average final payment date of the Underlying
Securities will be __________. The Trust Certificates may be redeemed prior to
the final distribution on the Underlying Securities under the circumstances
discussed under "The Securities - Redemption" herein.
THE UNDERLYING SECURITIES
[Describe or depict in tabular form, to the extent appropriate: (i)
prepayment experience relating to Underlying Securities, and, if appropriate,
similar obligations of the Underlying Issuers and similar obligations issued in
the same industries (together with modeling information and assumptions); (ii)
effect of certain redemption scenarios with respect to the Underlying Securities
[(taking into account any countervailing effects of Underlying Enhancements and
the Swap Agreement)] on yields of various Classes of Trust Certificates; (iii)
interest rate, exchange rate and prepayment risks relating to particular Classes
of Trust Certificates; and (iv) in the case of a single or limited number of
Underlying Issuers, material facts relating to such Underlying Issuers that may
impact prepayment of the Underlying Securities.] [If there are significant
prepayment risks, tabular information may be included on an earlier page.]
CERTAIN ERISA CONSIDERATIONS
A fiduciary of any employee benefit or other retirement arrangement subject
to ERISA or Section 4975 of the Code (each a "Plan") should review carefully
with its legal advisors as to whether the purchase, transfer or holding of the
Trust Certificates could give rise to a transaction prohibited under ERISA or
the Code or could subject the assets of the Issuer to the fiduciary standards of
ERISA. [Describe any particular features of the Trust Certificates or
exemptions relating to the Trust Certificates that may affect the ERISA
analysis.] For additional information on certain circumstances under which the
holding of the Trust Certificates by a Plan may have ramifications under ERISA
or Section 4975 of the Code. See "Certain ERISA Considerations" in the
Prospectus.
S-23
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
[The Trust Certificates may be issued with original issue discount by
federal income tax purposes.] [The Trust Certificates will be Partnership-Taxed
Securities for federal income tax purposes.] See "Certain Federal Income Tax
Consequences" in the Prospectus.
CERTAIN STATE AND LOCAL TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences" in the Prospectus, there may also be state and
local income tax consequences which may differ substantially from the
corresponding federal tax consequences. Potential investors should consult
their own tax advisors with respect to the various state and local tax
consequences of acquiring, owning and disposing of Trust Certificates.
UNDERWRITING
The [Issuer] [Company] has entered into an Underwriting Agreement with CS
First Boston Corporation (the "Underwriter"). Subject to the terms and
conditions set forth in the Underwriting Agreement, the [Issuer] [Company] has
agreed to sell to the Underwriter and the Underwriter has agreed to purchase the
Trust Certificates.
[The Underwriter proposes to offer part of each Class of the Trust
Certificates directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at such price less a
concession not in excess of the amount set forth below for each such Class. The
Underwriter may allow and such dealers may reallot a selling concession not in
excess of the amount set forth below for each such Class. After the initial
public offering, such public offering price and such selling concession may be
changed.
Selling
Concession Reallowances
(Percent of (Percent of
Principal Principal
Amount) Amount)
------------ -------------
Class ___ Trust Certificates % %
[The [Issuer] [Company] has been advised by the Underwriter that it
proposes to offer the Trust Certificates to the public from time to time in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. The Underwriter and any dealers that participate with the
Underwriter in the distribution of the Trust Certificates may be deemed to be
underwriters and any commissions received by them and any profit on the resale
of the Trust Certificates positioned by them may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933, as amended (the
"Securities Act").] [Description of underwriting fees.]
The Underwriting Agreement provides that the [Issuer] [Company] will
indemnify the Underwriter against certain liabilities, including liabilities
under the Securities Act, or contribute to payments the Underwriter may be
required to make in respect thereof.
The Underlying Assets pledged as security for the Trust Certificates will
be purchased from [an affiliate of] the [Underwriter] simultaneously with the
closing of the sale of the Securities.
S-24
<PAGE>
[Specify if the Issuer or any affiliate is retaining an interest in one or
more Classes.]
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933.
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will also be used by the Underwriter
after the completion of the offering in connection with offers and sales related
to market-making transactions in the Securities offered hereby in which the
Underwriter acts as principal. The Underwriter may also act as agent in such
transactions. Sales will be made at negotiated prices determined at the time of
sale.]
LEGAL MATTERS
Certain legal matters relating to the Trust Certificates will be passed on
by Sidley & Austin, New York, New York.
RATING OF THE TRUST CERTIFICATES
As a condition of their issuance, the Trust Certificates will be rated
[[___] by Standard & Poor's Rating Services, Inc. ("S&P")] [[____] by Moody's
Investors Service, Inc. ("Moody's)] [[___] by Duff & Phelps Credit Rating Co.
("D&P")] [[___] by Fitch Investors Service, Inc. ("Fitch")] ([each, a] [the]
"Rating Agency"). A securities rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or withdrawal at any time by the
assigning rating agency.
The rating[s] assigned to the Trust Certificates by the Rating [Agency]
[Agencies] reflects such Rating [Agency's] [Agencies'] assessment solely of the
likelihood of the receipt by Trust Certificateholders of distributions of
scheduled principal [and interest] payments on the Underlying Assets. The
rating[s] take[s] into consideration the characteristics of the Underlying
Assets and the structural legal and tax aspects associated with the Trust
Certificates. [The rating[s] address[es] only the likelihood of the return of
the investor's investment, not the likelihood of full receipt of expected
interest payments on such investment.] The rating[s] on the Trust Certificates
[does] [do] not represent any assessment of the likelihood or rate of
redemptions of the Underlying Assets. The rating[s] [does] [do] not address the
possibility that the Trust Certificateholders might suffer a lower than
anticipated yield due to prepayments [, or that holders of the Class ____ Trust
Certificates may fail to recoup their initial investments]. If the rating[s]
initially assigned to the Trust Certificates [is] [are] subsequently lowered for
any reason, no person or entity is obligated to provide any additional support
or credit enhancement with respect to the Trust Certificates.
S-25
<PAGE>
SCHEDULE I
Underlying Security Information
Certain characteristics of the Underlying Securities are described below.
Certain of the information with respect to the Underlying Securities has been
derived from the original offering documents relating to such Underlying
Securities and from publicly available data and other data available to the
Depositor with respect thereto. IT SHOULD BE NOTED THAT THERE MAY HAVE BEEN
MATERIAL CHANGES IN FACTS AND CIRCUMSTANCES SINCE THE DATES SUCH DOCUMENTS WERE
PREPARED, INCLUDING, BUT NOT LIMITED TO, PARTIAL REDEMPTIONS AND CHANGES IN
PREVAILING INTEREST RATES AND OTHER ECONOMIC FACTORS, WHICH MAY LIMIT THE
USEFULNESS OF, AND BE DIRECTLY CONTRARY TO THE ASSUMPTIONS USED IN PREPARING,
THE INFORMATION SET FORTH IN SUCH DOCUMENTS.
S-26
<PAGE>
Date of Issuance
S-27
<PAGE>
Date of Issuance
S-28
<PAGE>
[Table to be added.]
<TABLE>
<CAPTION>
Moody's S&P Fitch D&P
------- --- ----- ---
<S> <C> <C> <C> <C>
Underlying Security
- ---------------------
</TABLE>
[Table to be added.]
The following table sets forth expected approximate characteristics of the
Underlying Securities based on remittance reports received with respect to the
Underlying Securities distribution dates in [insert dates].
<TABLE>
<CAPTION>
Percentage
Interest
Represented
Underlying Original by Current Interest
Underlying Security Type of Principal Underlying Principal Current Applicable Adjustment Maturity
Issuer Class Security CUSIP# Balance Security Balance Interest Index Freqency Date
Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
[Table to be added.]
S-29
<PAGE>
Underlying Security Reserve Funds
(Based on [date] Remittance Reports)
<TABLE>
<CAPTION>
Original Current Principal Current
Underlying Security Reserve Reserve Balance of Reserve
Fund Fund all Fund
Balance Balance Securities Balance as
Covered by a % of All
Reserve Fund Covered
Securities
<S> <C> <C> <C> <C>
</TABLE>
[Table to be added.]
S-30
<PAGE>
================================================================================
No dealer salesperson or other individual has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus Supplement or the Prospectus in
connection with the offer made by this Prospectus Supplement and the Prospectus
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company or the Underwriter. Neither the
deliver of this Prospectus Supplement and the Prospectus nor any sale made
hereunder and thereunder shall under any circumstance create an implication that
there has been no change in the affairs of the Company or the facts set forth
in this Prospectus Supplement and the Prospectus since the date hereof. This
Prospectus Supplement and the Prospectus do not constitute an offer or
solicitation by anyone in any state in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
Prospectus Supplement
<S> <C>
Summary........................................................... S-3
Risk Factors...................................................... S-8
The Trust Certificates............................................ S-13
The Underlying Assets............................................. S-16
Certain Yield and Redemption Considerations....................... S-17
Certain Erisa Considerations...................................... S-18
Certain Federal Income Tax Consequences........................... S-19
Certain State and Local Tax Considerations........................ S-19
Underwriting...................................................... S-19
Legal Matters..................................................... S-19
Rating of the Trust Certificates.................................. S-20
</TABLE>
<TABLE>
<CAPTION>
Prospectus
<S> <C>
Available Information............................................ 2
Incorporation of Certain Documents by Reference................... 2
Certain Information to be Set Forth in the Prospectus Supplement.. 3
Summary........................................................... 5
Risk Factors...................................................... 20
The Securities.................................................... 30
Certain Yield, Redemption and Prepayment Considerations........... 45
The Underlying Assets............................................. 48
Structural Enhancement............................................ 54
The Indenture..................................................... 56
The Trust Agreement............................................... 64
The Issuer........................................................ 70
Use of Proceeds................................................... 71
Limitations on Issuance of Bearer Securities...................... 72
Certain Federal Income Tax Consequences........................... 72
Global Clearance, Settlement and Tax Documentation Procedures..... 100
Certain ERISA Considerations...................................... 103
Legal Investment.................................................. 108
Plan of Distribution.............................................. 108
Legal Matters..................................................... 110
Glossary.......................................................... 111
</TABLE>
================================================================================
$
CS FIRST BOSTON
STRUCTURED PRODUCTS
TRUST 199__-__
LINKED CERTIFICATES/SM/
[Title of Classes]
--------------------------------------------------
PROSPECTUS SUPPLEMENT
--------------------------------------------------
CS FIRST BOSTON
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S-31
