0000947871-01-500888.txt : 20011029
0000947871-01-500888.hdr.sgml : 20011029
ACCESSION NUMBER: 0000947871-01-500888
CONFORMED SUBMISSION TYPE: 424B5
PUBLIC DOCUMENT COUNT: 1
FILED AS OF DATE: 20011023
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: MERRILL LYNCH DEPOSITOR PREFERREDPLUS TRUST SERIES CTR 1
CENTRAL INDEX KEY: 0001160865
STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189]
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 424B5
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-29015-06
FILM NUMBER: 1764529
BUSINESS ADDRESS:
STREET 1: WORLD FINANCIAL CENTER
CITY: NEW YORK
STATE: NY
ZIP: 10281
424B5
1
f424b5_102201-ctr1.txt
FORM 424B5
PROSPECTUS SUPPLEMENT
---------------------
(To Prospectus dated September 18, 1997)
Merrill Lynch Depositor, Inc.
Depositor
1,248,000 PREFERREDPLUS 8.00% TRUST CERTIFICATES
($25 STATED AMOUNT)
PREFERREDPLUS TRUST SERIES CTR-1
(Underlying Securities Will Be 8.00% Notes due 2019
Issued by Cooper Tire & Rubber Company)
Underwriting Discount Number of Certificates(1) Distribution Rate Price to Public
--------------------- ---------------------- ----------------- ---------------
$.50 1,248,000 8.00% $25.00
(1) Either prior to the closing date or from time to time, the depositor may,
without the consent of the trust certificateholders, increase the amount of
the underlying securities in the trust and issue a corresponding amount of
additional trust certificates.
----------------------
The Trust
o PREFERREDPLUS Trust Series CTR-1 will be a trust formed under the laws of
the State of New York.
o The trust will issue PREFERREDPLUS 8.00% Trust Certificates Series CTR-1
(representing undivided beneficial interests in the trust) to Merrill Lynch
Depositor, Inc., the depositor. The depositor has agreed to sell the trust
certificates to Merrill Lynch, Pierce, Fenner & Smith Incorporated, the
underwriter.
o The underwriter proposes to offer the trust certificates at the offering
price set forth above and will initially offer the trust certificates in
minimum lots of 40 trust certificates and subsequent increments of 40 trust
certificates.
The Trust Certificates
o The trust certificates represent an interest in the assets of the trust,
which consist principally of the underlying securities described in this
prospectus supplement.
o Call warrants may be issued to third parties from time to time,
representing the rights of call warrant holders to purchase outstanding
trust certificates in whole or in part. Holders of trust certificates
cannot cause call warrant holders to exercise their call rights. The call
price will be the stated amount of each trust certificate called plus
accrued and unpaid distributions thereon. The call warrants are not being
offered pursuant to this prospectus supplement.
o Although the trust intends to apply to have the trust certificates listed
on the New York Stock Exchange, the trust certificates currently have no
trading market and are not insured or guaranteed by any governmental
agency.
The Underlying Securities
o The underlying securities, which the depositor will deposit into the trust
for your benefit, will be the principal assets of the trust and will
consist of $31,200,000 8.00% Notes due 2019 issued by Cooper Tire & Rubber
Company.
Investing in the trust certificates involves certain risks, which are
described in the "Risk Factors" sections beginning on page S-11 of this
prospectus supplement and on page 7 of the accompanying prospectus.
The trust certificates represent interests in the trust only and do not
represent obligations of or interests in the depositor or any of its affiliates.
The trust certificates do not represent a direct obligation of the underlying
securities issuer or any of its affiliates.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus to which it relates is
truthful or complete. Any representation to the contrary is a criminal offense.
The trust certificates will be ready for delivery in book-entry form only
through The Depository Trust Company on or about October 25, 2001.
--------------------
Merrill Lynch & Co.
--------------------
The date of this prospectus supplement is October 22, 2001.
TABLE OF CONTENTS
Prospectus Supplement
Page
Summary of Economic Terms....................................................S-3
Summary Information Q&A......................................................S-6
Risk Factors................................................................S-11
The Trust...................................................................S-14
Description of the Trust Certificates.......................................S-14
The Depositor...............................................................S-18
Description of the Trust Agreement..........................................S-18
Description of the Underlying Securities....................................S-22
Federal Income Tax Consequences.............................................S-31
ERISA Considerations........................................................S-37
Underwriting................................................................S-38
Validity of the Trust Certificates..........................................S-38
Ratings.....................................................................S-38
Prospectus
Prospectus Supplement..........................................................2
Available Information..........................................................2
Incorporation of Certain Documents by Reference................................2
Reports to Certificateholders..................................................3
Prospectus Summary.............................................................4
Risk Factors...................................................................7
The Depositor.................................................................12
Use of Proceeds...............................................................12
Formation of the Trust........................................................12
Maturity and Yield Considerations.............................................12
Description of the Trust Certificates.........................................13
Description of Deposited Assets...............................................25
Description of the Trust Agreement............................................32
Currency Risks................................................................41
Federal Income Tax Consequences...............................................43
ERISA Considerations..........................................................46
Plan of Distribution..........................................................48
Legal Matters.................................................................49
Index of Defined Terms.......................................................I-1
--------
You should rely only on the information contained in this prospectus
supplement and the accompanying prospectus. The depositor has not, and the
underwriter has not, authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent information,
you should not rely on it. The depositor is not, and the underwriter is not,
making an offer to sell these securities in any jurisdiction where the offer or
sale is not permitted. You should not assume that the information appearing in
this prospectus supplement and the accompanying prospectus is accurate as of any
date other than the respective dates of such documents. Our business, financial
condition, results of operations and prospects may have changed since such
dates.
S-2
SUMMARY OF ECONOMIC TERMS
This summary highlights the principal economic terms of the underlying
securities and of the trust certificates being issued by the trust. It does not
contain all of the information that you need to consider in making your
investment decision. To understand all of the terms of the offering of the trust
certificates, you should read carefully this prospectus supplement and the
accompanying prospectus.
The Trust Certificates
The trust.................................. PREFERREDPLUS Trust Series CTR-1,
formed by Merrill Lynch Depositor,
Inc. and the trustee.
Securities offered......................... PREFERREDPLUS 8.00% Trust
Certificates Series CTR-1.
Initial number of trust certificates....... 1,248,000.
Final scheduled distribution date.......... December 15, 2019.
Rate of distributions...................... 8.00% per year.
Deposited assets .......................... The deposited assets will consist
of the underlying securities. See
"-The Underlying Securities" below
and "Description of the Underlying
Securities" on page S-22.
Original issue date; closing date.......... October 25, 2001.
Cut-off date............................... October 25, 2001.
Distribution dates......................... June 15 and December 15, or if any
such date is not a business day,
then the next succeeding business
day, to the persons in whose names
the trust certificates are
registered on the record date
immediately preceding such
distribution date, commencing
December 15, 2001.
Record date................................ The business day immediately
preceding each distribution date.
Call warrant............................... On any business day on or after
December 15, 2006 that any call
warrant holders designate as a
"Call Date", the call warrant
holders may, upon notice to the
trustee of not less than 30 days
(or after receipt of notice of
termination of the trust not less
than three days or when a tender
offer for the underlying securities
is pending, not less than five days
notice prior to the expiration of
the tender offer acceptance period)
but not more than 60 days prior to
that Call Date, purchase your trust
certificates in whole or in part at
their stated amount plus any
accrued and unpaid distributions to
the Call Date.
On any business day before December
15, 2006 and after receipt of
notice of termination of the trust
or when a tender offer for the
underlying securities is pending
that any call warrant holders
designate as a "Call Date", the
call warrant
S-3
holders may, in the case of receipt
of notice of termination of the
trust upon notice of not less than
three days and when a tender offer
of the underlying securities is
pending not less than five days
notice prior to the expiration of
the tender offer acceptance period,
but not more than 60 days prior to
that Call Date, purchase your trust
certificates in whole or in part at
their stated amount plus any
accrued and unpaid distributions to
the Call Date.
In addition, at any time upon an
acceleration of the underlying
securities and payment in full by
the underlying securities issuer of
all amounts when due, all
outstanding call warrants will be
exercised automatically. The trust
certificates will be purchased at
their stated amount plus any
accrued and unpaid distributions to
the exercise date.
Denominations; specified currency.......... The trust certificates will each
have a stated amount of $25 and
will be denominated and payable in
U.S. dollars. The underwriter will
initially offer the trust
certificates in minimum lots of 40
trust certificates and subsequent
increments of 40 trust
certificates.
Collection periods......................... Semi-annual periods (or, in the
case of the first collection
period, from and including the
original issue date to, and
including, the first distribution
date). Any income to the trust,
including interest payments on
underlying securities, collected
during a collection period will be
used to pay the trust's obligations
to the certificateholders, the
trustee and others as set out in
the Series Supplement.
Form of trust certificate.................. Book-entry certificates with The
Depository Trust Company, or DTC.
See "Description of the Trust
Certificates - Definitive Trust
Certificates" on page S-15.
Distributions will be settled in
immediately available (same-day)
funds.
Trustee.................................... The Bank of New York, as successor
to United States Trust Company of
New York.
Ratings.................................... "BBB+" by Standard & Poor's Ratings
Services, a division of The McGraw
Hill Companies, Inc., and "A3" by
Moody's Investors Service, Inc. See
"Ratings" on page S-38.
CUSIP number............................... 740434865
The Underlying Securities
Underlying securities...................... 8.00% Notes due 2019 issued by the
underlying securities issuer.
Underlying securities issuer............... Cooper Tire & Rubber Company, a
Delaware corporation.
S-4
Underlying securities trustee.............. The Chase Manhattan Bank.
Underlying securities original issue date.. December 13, 1999.
Underlying securities final payment date... December 15, 2019.
Denominations; specified currency.......... The underlying securities are
denominated and payable in U.S.
dollars and are available in
minimum denominations of $1,000 and
multiples thereof.
Underlying securities payment dates........ June 15 and December 15, or if any
such date is not a business day,
then the next succeeding business
day to the persons in whose names
the underlying securities are
registered at the close of business
on June 1 or December 1 prior to
the payment date, subject to
certain exceptions.
Underlying securities rate................. 8.00% per year.
Underlying securities distribution periods. Semi-annual periods.
Form of security........................... Book-entry securities with DTC.
Ratings.................................... "BBB+" by Standard & Poor's Ratings
Services, a division of The McGraw
Hill Companies, Inc., and "A3" by
Moody's Investors Service, Inc.
Underlying Securities' CUSIP number........ 216831AE7
S-5
SUMMARY INFORMATION Q&A
The following information supplements, and should be read together
with, the information contained in other parts of this prospectus supplement and
in the accompanying prospectus. This summary highlights selected information
from this prospectus supplement and the accompanying prospectus to help you
understand the trust certificates. You should carefully read this prospectus
supplement and the accompanying prospectus to understand fully the terms of the
trust certificates, as well as the tax and other considerations that are
important to you in making a decision about whether to invest in the trust
certificates. You should pay special attention to the "Risk Factors" sections
beginning on page S-11 of this prospectus supplement and on page 7 of the
accompanying prospectus to determine whether an investment in the trust
certificates is appropriate for you.
For your convenience, we make reference to specific page numbers in
this prospectus supplement and the accompanying prospectus for more detailed
information on some of the terms and concepts used throughout this prospectus
supplement.
What Are the Trust Certificates?
Each trust certificate represents a proportionate, undivided beneficial
interest in certain distributions to be made by the trust. Each trust
certificate will entitle the holder to receive semiannual cash distributions as
described in this prospectus supplement. The underwriter is offering
PREFERREDPLUS 8.00% Trust Certificates Series CTR-1 with a stated amount of $25
per trust certificate. The trust certificates will be issued pursuant to the
Standard Terms for Trust Agreements, dated as of February 20, 1998, between
Merrill Lynch Depositor, Inc. and The Bank of New York, as successor to United
States Trust Company of New York, as trustee and securities intermediary, as
amended and supplemented by the Series CTR-1 Supplement, between Merrill Lynch
Depositor, Inc., as depositor, and the trustee and securities intermediary, to
be dated the date set forth in this prospectus supplement (collectively, the
"trust agreement"). The trust certificates will consist of a single class. All
payments on the trust certificates will come from the underlying securities.
On or after the closing date set forth in this prospectus supplement,
call warrants may be issued that represent the right of the holders of the call
warrants to purchase outstanding trust certificates in whole or in part as
discussed under "Description of the Trust Certificates - Call Warrants" on page
S-16 of this prospectus supplement. The call warrants are not being offered
pursuant to this prospectus supplement.
Who Is the Trust?
PREFERREDPLUS Trust Series CTR-1 will be a trust formed under the laws
of the State of New York. The trust certificates issued by the trust will be
sold to the public. The trust will be formed pursuant to the Standard Terms for
Trust Agreements, as amended and supplemented by the Series Supplement described
above. The Bank of New York is the trustee under the trust agreement and will
receive compensation as set forth in an agreement between the depositor and the
trustee.
Who Is the Depositor?
Merrill Lynch Depositor, Inc., incorporated in the State of Delaware as
an indirect, wholly owned, limited purpose subsidiary of Merrill Lynch & Co.,
Inc., is the depositor and will deposit the underlying securities into the
trust. See "The Depositor" on page 12 of the accompanying prospectus. The
depositor is an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated,
the underwriter of this offering.
What Are the Important Dates to Remember?
Delivery of the trust certificates will be made on the closing date, as
set forth in this prospectus supplement. This prospectus supplement describes
the underlying securities held by the trust as of the cut-off date, as set forth
in this prospectus supplement.
S-6
What Are the Trust's Assets?
The initial assets of the trust will be the underlying securities
consisting of $31,200,000 of 8.00% Notes due December 15, 2019 issued by Cooper
Tire & Rubber Company, a Delaware corporation. The underlying securities held by
the trust will represent 13.87% of the total issuance of the 8.00% Notes due
December 15, 2019. The underlying securities were issued pursuant to an
indenture dated as of March 17, 1997 between the underlying securities issuer
and The Chase Manhattan Bank, as underlying securities trustee. Pursuant to a
registration statement filed by the underlying securities issuer on Form S-3
(No. 333-89149), the underlying securities were originally issued in the form of
book-entry securities deposited with The Depository Trust Company, New York, New
York, or DTC. The underlying securities have a CUSIP number of 216831AE76.
The underlying securities will mature on December 15, 2019 and the
principal amount of the underlying securities will be payable to the trust on
that date. Either prior to the closing date or from time to time, the depositor
may, without the consent of the trust certificateholders, increase the amount of
the initial assets of the trust and issue a corresponding amount of additional
trust certificates.
When Will You Receive Semiannual Distributions?
If you purchase the trust certificates, you will be entitled to receive
cash distributions at an annual rate of 8.00% of the stated amount of $25 per
trust certificate. Distributions will accumulate from the date the trust issues
the trust certificates and will be paid semiannually in arrears on June 15 and
December 15 of each year, beginning on December 15, 2001 and ending on December
15, 2019, unless the final scheduled distribution date is advanced for any
reason. Each semi-annual distribution on the trust certificates represents a
portion of the interest accrued on the underlying securities from the cut-off
date or the previous distribution date, as applicable, to, but not including,
each distribution date. Such interest is paid to the trust on each distribution
date, in accordance with the terms of the underlying securities.
When Can the Trust Redeem the Trust Certificates?
The trust will redeem all of the outstanding trust certificates when
the underlying securities are paid at maturity on December 15, 2019 (the "stated
maturity date"). Upon exercise of any call warrants, the trustee will select by
lot a stated amount of trust certificates to be surrendered to the trustee in
exchange for a pro rata portion of the call exercise price. Following its
receipt of the trust certificates called, the trustee will surrender the called
trust certificates to the exercising call warrant holders.
When Will the Trust Certificates Be Subject to Call Warrants?
On any business day on or after December 15, 2006 that any call warrant
holders designate as a "Call Date", the call warrant holders may, upon notice of
not less than 30 days (or after receipt of notice of termination of the trust,
not less than three days, or when a tender offer for the underlying securities
is pending, not less than five days notice prior to the expiration of the tender
offer acceptance period) but not more than 60 days prior to that Call Date,
purchase your trust certificates in whole or in part at their stated amount plus
any accrued and unpaid distributions to the Call Date. On any business day
before December 15, 2006 and after receipt of notice of termination of the trust
or when a tender offer for the underlying securities is pending that any call
warrant holders designate as a "Call Date", the call warrant holders may, after
receipt of notice of termination of the trust upon notice of not less than three
days or when a tender offer for the underlying securities is pending upon not
less than five days notice prior to the expiration of the tender offer
acceptance period, but not more than 60 days prior to that Call Date, purchase
your trust certificates in whole or in part at their stated amount plus any
accrued and unpaid distributions to the Call Date. In addition, at any time upon
an acceleration of the underlying securities and payment in full by the
underlying securities issuer of all amounts when due, all outstanding call
warrants will be exercised automatically, and the trust certificates will be
purchased at their stated amount plus any accrued and unpaid distributions to
the exercise date. Upon notice of exercise of any call warrants, the trustee
will select by lot a stated amount of the trust certificates to be surrendered
to the trustee in exchange for a pro rata portion of the call exercise
S-7
price. Following its receipt of the trust certificates upon such exercise of any
call warrants, the trustee will surrender the trust certificates to the
exercising call warrant holders.
The call warrant holders are not required to exercise their call
warrants with respect to the trust certificates prior to their stated maturity.
We cannot assure you that the call warrant holders will purchase your trust
certificates prior to December 15, 2019. For additional information on the
exercise of call warrants, see "Description of the Trust Certificates - Call
Warrants" on page S-16.
What Happens If There Is a Payment Default on the Underlying Securities?
If there is a payment default on the underlying securities, the trustee
will sell the underlying securities and distribute the proceeds from the sale of
the underlying securities to the holders of the trust certificates pro rata.
Upon such sale, the call warrants will expire and have no value. If there is an
acceleration of the maturity of the underlying securities and the underlying
securities are declared to be immediately due and payable and the underlying
securities issuer (1) pays all amounts when due, then the trustee will
distribute such amounts to the trust certificate holders pro rata, (2) fails to
pay such amount when due, then the trustee will distribute the underlying
securities to the trust certificate holders pro rata, or (3) pays only a portion
of such amount when due, then the trustee will distribute any amounts received
along with the underlying securities to the trust certificateholders pro rata.
In addition, if the underlying securities issuer ceases to file Exchange Act
reports, the call warrant holders will have an opportunity to exercise call
rights and thereafter the trustee will distribute the underlying securities to
the holders of the trust certificates pro rata. If the events set forth in
clause (1) of this paragraph occur, all call warrant holders will be deemed to
have automatically exercised their rights pursuant to all outstanding call
warrants, all certificateholders will receive the call price with respect to
their trust certificates called and all amounts received from the underlying
securities issuer will be distributed directly to the call warrant holders. If
the events set forth in clause (2) of this paragraph occur, the call warrants
will expire and have no value. If the events set forth in clause (3) occur, the
call warrant holders will have an opportunity to exercise call rights before the
trustee distributes any amounts received or any underlying securities to the
trust certificateholders.
In What Form Will the Trust Certificates Be Issued?
Except in limited circumstances, the trust certificates will be
represented by one or more global securities that will be deposited with and
registered in the name of DTC or its nominee. This means that you will not
receive a certificate for your trust certificates. The trust certificates will
be ready for delivery through DTC on or about the date set forth in this
prospectus supplement. The trust certificates will have the CUSIP number set
forth in this prospectus supplement.
How Will the Trust Be Treated for Income Tax Purposes?
The trust will be classified for United States federal income tax
purposes as a grantor trust and not as an association (or publicly traded
partnership) taxable as a corporation. For United States federal income tax
purposes, the trust certificates will represent direct ownership of all of the
underlying securities held by the trust and a written call option on the
underlying securities. Each trust certificateholder will be required to report
on its federal income tax return its pro rata share of the income from the
underlying securities. See "Federal Income Tax Consequences" on page S-31.
Will the Trust Certificates Be Listed on a Stock Exchange?
The trust intends to apply to have the trust certificates listed on the
New York Stock Exchange, or the NYSE, under the symbol "PKJ". If approved for
listing, trading of the trust certificates is expected to commence within 30
days after they are first issued. You should be aware that the listing of the
trust certificates will not necessarily ensure that a liquid trading market will
be available for the trust certificates.
S-8
Will the Trust Certificates Be Rated?
It is a condition to the issuance of the trust certificates that the
trust certificates have ratings assigned by Moody's Investors Service, Inc. or
by Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc. (each, a "rating agency" and collectively, the "rating agencies"),
equivalent to the ratings of the underlying securities. As of the date of this
prospectus supplement, the underlying securities were rated "A3" by Moody's and
"BBB+" by S&P.
Moody's rating of the trust certificates addresses the ultimate cash
receipt of all required interest payments and payments of principal equal to the
par value of the trust certificates, in each case as provided by the governing
documents, and is based on the expected loss posed to the certificateholders
relative to the promise of receiving the present value of such payments. Moody's
rating does not address any additional payments that certificateholders may
receive under the governing documents. The rating of the underlying securities
by Moody's is currently on watch for a potential downgrade. The rating of the
trust certificates by S&P addresses the likelihood of timely payment of
distributions on the trust certificates or any underlying securities distributed
in respect of the trust certificates. We cannot assure you that any of these
ratings will continue for any period of time or that it will not be revised or
withdrawn entirely by the related rating agency if, in its judgment,
circumstances (including, without limitation, the rating of the underlying
securities) so warrant. A revision or withdrawal of a rating may have an adverse
effect on the market price of trust certificates. A security rating is not a
recommendation to buy, sell or hold securities. The rating on the trust
certificates does not constitute a statement regarding the occurrence or
frequency of redemption of the underlying securities and the corresponding
effect on yield to investors.
Can an Employee Benefit Plan Purchase the Trust Certificates?
An employee benefit plan subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and an individual retirement account
(each, a "plan") are each permitted to purchase trust certificates. However,
each plan should take into consideration certain potential issues under ERISA
and, by purchasing a trust certificate, will be deemed to represent that the
purchase and holding of the trust certificate will not result in a non-exempt
prohibited transaction under ERISA.
Where Can You Find More Information About the Underlying Securities?
The underlying securities issuer is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which means that it files periodic reports, including reports on Forms
10-K and 10-Q, and other information with the Securities and Exchange
Commission. You can read and copy these reports and other information at the
public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, NW, Washington, D.C. 20549, as well as the regional office at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You
may obtain copies of this material for a fee by writing to the SEC's Public
Reference Section of the SEC at 450 Fifth Street, NW, Washington, D.C. 20549.
You may obtain information about the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. You can also access some of this information
electronically by means of the SEC's website on the Internet at
http://www.sec.gov, which contains reports, proxy and information statements and
other information that the underlying securities issuer has filed electronically
with the SEC. In addition, you may inspect reports and other information
concerning the underlying securities issuer at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
The underlying securities issuer filed with the SEC a registration
statement on Form S-3 (the "registration statement", which term shall include
all amendments, exhibits, annexes and schedules thereto) pursuant to the
Securities Act of 1933, as amended, with respect to the underlying securities.
The prospectus relating to the underlying securities does not contain all the
information set forth in the registration statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. For further
information with respect to the underlying securities issuer, you should refer
to the registration statement and its exhibits. Statements contained in this
prospectus supplement as to the contents of any contract or other document are
not necessarily complete, and
S-9
in each instance reference is made to the copy of such contract or document
filed as an exhibit to the registration statement, each such statement being
qualified in all respects by such reference.
You should not rely on this prospectus supplement for information with
respect to the underlying securities issuer. This prospectus supplement sets
forth certain relevant terms with respect to the underlying securities, but does
not provide detailed information with respect to the underlying securities or
the underlying securities issuer. This prospectus supplement relates only to the
trust certificates offered hereby and does not relate to the underlying
securities. All disclosure contained herein with respect to the underlying
securities issuer is derived from publicly available documents.
No investigation with respect to the underlying securities issuer
(including, without limitation, no investigation as to its financial condition
or creditworthiness) or of the underlying securities has been made. You should
obtain and evaluate the same information concerning the underlying securities
issuer as you would obtain and evaluate if you were investing directly in the
underlying securities or in other securities issued by the underlying securities
issuer. None of the depositor, the trustee, the underwriter, or any of their
affiliates, assumes any responsibility for the accuracy or completeness of any
publicly available information of the underlying securities issuer filed with
the SEC or otherwise made publicly available or considered by you in making your
investment decision in connection therewith.
S-10
RISK FACTORS
Your investment in the trust certificates will involve certain risks.
You should carefully consider the following discussion of risks, and the other
information included or incorporated by reference in this prospectus supplement
and the accompanying prospectus, before deciding whether an investment in the
trust certificates is suitable for you.
If any call warrants are exercised, you may not be able to reinvest your call
proceeds at a yield comparable to the yield you would have received on your
trust certificates
The yield you will realize on your trust certificates depends upon
several factors, including
o the purchase price of the trust certificates,
o when you acquire your trust certificates, and
o whether the call warrant holders exercise their optional
rights to purchase outstanding trust certificates.
Although the call warrant holders are not obligated to exercise the
call warrants, the yield you will realize on your trust certificates depends on
whether the call warrant holders exercise their call warrants to purchase the
trust certificates. On any business day on or after December 15, 2006 that any
call warrant holders designate as a "Call Date", the call warrant holders may,
upon notice of not less than 30 days (or after receipt of notice of termination
of the trust, not less than three days or when a tender offer for the underlying
securities is pending not less than five days prior to the expiration of the
tender offer acceptance period) but not more than 60 days prior to that Call
Date, purchase your trust certificates in whole or in part at their stated
amount plus any accrued and unpaid distributions to the Call Date. On any
business day before December 15, 2006 and after receipt of notice of termination
of the trust or when a tender offer for the underlying securities is pending
that any call warrant holders designate as a "Call Date", the call warrant
holders may, after receipt of notice of termination of the trust upon notice of
not less than three days and when a tender offer for the underlying securities
is pending, not less than five days prior to the expiration of the tender offer
acceptance period, but not more than 60 days prior to that Call Date, purchase
your trust certificates in whole or in part at their stated amount plus any
accrued and unpaid distributions to the Call Date. In addition, at any time upon
an acceleration of the underlying securities and payment in full by the
underlying securities issuer of all amounts when due, all outstanding call
warrants will be exercised automatically, and the trust certificates will be
purchased at their stated amount plus any accrued and unpaid distributions to
the exercise date.
If the call warrant holders exercise their call warrants for trust
certificates, the trust will redeem the trust certificates or select by lot
trust certificates to be surrendered to the call warrant holders. Prevailing
interest rates at the time of a call exercise may be lower than the yield on
your trust certificates. Therefore, you may be unable to realize a comparable
yield upon reinvesting the funds you receive from an exercise of any call
warrants. In addition, if the prevailing market value of the trust certificates
exceeds the call exercise price paid to you upon the exercise of a call, you
will not be able to realize such excess.
See "Description of the Trust Certificates - Call Warrants" on page
S-16.
An inactive public market may limit your ability to sell your trust certificates
We cannot assure you that an active public market for the trust
certificates will develop or, if a public market develops, that you will be able
to sell your trust certificates. Merrill Lynch, Pierce, Fenner & Smith
Incorporated has advised the depositor that it intends to make a market in the
trust certificates, as permitted by applicable laws and regulations. Merrill
Lynch & Co. is not obligated, however, to make a market in any series of the
trust certificates. At its sole discretion, Merrill Lynch & Co. may discontinue
its market-making activities at any
S-11
time without notice to you. In addition, the underlying securities are not
listed on a securities exchange. Upon certain events described on page S-17 of
this prospectus supplement, the underlying securities may be distributed to you.
We cannot assure you that an active public market for the underlying securities
will exist at the time any underlying securities are distributed to you, or if a
public market exists, that you will be able to sell the underlying securities
that you may hold. If an active public market for the trust certificates or the
underlying securities does not exist or continue, the market prices and
liquidity of your trust certificates or the underlying securities that you may
hold may be adversely affected. We expect to apply for listing of the trust
certificates on the NYSE.
You may not be paid if the assets of the trust are insufficient
Currently, the trust has no significant assets other than the
underlying securities. If the underlying securities are insufficient to make
payments or distributions on the trust certificates, no other assets will be
available for payment of the deficiency.
The trustee will not manage the underlying securities
Except as described below, the trust will not dispose of any underlying
securities, even if an event occurs that adversely affects the value of the
underlying securities or that adversely affects the underlying securities
issuer. As provided in the trust agreement, the trust will dispose of the
underlying securities only if
o there is a payment default on any underlying securities,
o there is another type of default that accelerates the
maturity of the underlying securities, or
o the underlying securities issuer ceases to file Exchange Act
reports.
Under the first circumstance listed above, the trustee must sell the underlying
securities on behalf of the trust, even if adverse market conditions exist. The
trustee has no discretion to do otherwise. If adverse market conditions do exist
at the time of the trustee's sale of the underlying securities, you may incur
greater losses than if the trust continued to hold the underlying securities.
The depositor, the underwriter and the trustee have not investigated the
underlying securities
The depositor, the underwriter and the trustee have not
o investigated the business condition, financial or otherwise,
of the underlying securities issuer, or
o verified any reports or information that the underlying
securities issuer has filed with the SEC.
We encourage you to consider publicly available information concerning the
underlying securities issuer. You should not construe the trust's issuance of
the trust certificates as an endorsement by the depositor, the underwriter or
the trustee of the financial condition or business prospects of the underlying
securities issuer.
The trust certificates are subject to the creditworthiness of the underlying
securities issuer
The trust certificates represent interests in obligations of the
underlying securities issuer. In particular, the trust certificates will be
subject to all the risks associated with directly investing in the underlying
securities issuer's unsecured subordinated debt obligations. Neither the
indenture nor the underlying securities place a limitation on the amount of
indebtedness that may be incurred by the underlying securities issuer.
The payments owed to the trust certificateholders are unsecured obligations
S-12
In a liquidation, holders of the underlying securities, including the
trust, will be paid only after holders of secured obligations of the underlying
securities issuer. According to the underlying securities prospectus, the
underlying securities are general unsecured obligations of the underlying
securities issuer, which rank equally and ratably with all other unsecured and
unsubordinated indebtedness of the underlying securities issuer. However, if the
underlying securities issuer subjects any of its property to a lien then the
underlying securities, and any other obligations which are then outstanding and
subject to a similar covenant, will be secured ratably with the indebtedness or
obligation secured by that lien and for the same length of time, subject to
certain exceptions. See "Description of the Underlying Securities - Covenants"
on page S-26.
The trust owes certain payments to an affiliate of the underwriter
On December 15, 2001, as payment of the balance of the purchase price
for the underlying securities, the trustee will pay to an affiliate of the
underwriter the amount of the distributions accrued on the underlying securities
from June 15, 2001 to but not including the closing date set forth in this
prospectus supplement. In the event a payment default or acceleration on the
underlying securities occurs on or prior to December 15, 2001 and the affiliate
of the underwriter is not paid such accrued distributions on such date, the
affiliate of the underwriter will have a claim for such accrued distributions,
and will share pro rata with holders of the trust certificates to the extent of
such claim in the proceeds from the recovery on the underlying securities.
The ratings of the trust certificates may change
At the time of issuance, Moody's and/or S&P will have assigned ratings
to the trust certificates equivalent to the ratings of the underlying
securities, which, as of the date of this prospectus supplement were rated "A3"
by Moody's and "BBB+" by S&P.
Any rating issued with respect to the trust certificates is not a
recommendation to purchase, sell or hold a security. Ratings do not comment on
the market price of the trust certificates or their suitability for a particular
investor. The depositor cannot assure you that initial ratings will remain for
any given period of time or that a ratings agency would not revise or withdraw
entirely the ratings if, in its judgment, circumstances (including, without
limitation, the rating of the underlying securities) merit. The rating of the
underlying securities by Moody's is currently on watch for a potential
downgrade. A revision or withdrawal of a rating may adversely affect the market
price of the trust certificates.
An affiliate of the depositor may recognize a gain or loss upon selling the
underlying securities to the depositor for deposit into the trust
An affiliate of the depositor will purchase, in the secondary market,
the underlying securities that will be deposited into the trust. The depositor's
affiliate may make these purchases before deposit into the trust, or it may
borrow securities for the deposit and subsequently purchase the securities to
repay to the lenders the securities previously borrowed. In either event, the
purchases of underlying securities may be made at various prices, and the
affiliate of the depositor may recognize a gain or loss on its purchases upon
selling the underlying securities to the depositor for deposit into the trust.
The price to the public of the trust certificates therefore may differ from the
prevailing market price of a comparable principal amount of underlying
securities.
S-13
THE TRUST
The trust under which the trust certificates are issued will be formed
pursuant to the Series Supplement, to be dated the date set forth in this
prospectus supplement, between the depositor, the trustee and the securities
intermediary. Concurrently with the execution and delivery of the Series
Supplement, the depositor will deposit the underlying securities into the trust.
The trustee, on behalf of the trust, will accept the underlying securities and
will deliver the trust certificates to or upon an order of the depositor.
The depositor did not purchase the underlying securities from the
underlying securities issuer as part of any distribution by or pursuant to any
agreement with the underlying securities issuer. The underlying securities
issuer is not participating in this offering and will not receive any of the
proceeds of the sale of the underlying securities to the depositor or the
issuance of the trust certificates.
DESCRIPTION OF THE TRUST CERTIFICATES
General
The trust certificates will be denominated and their distributions will
be payable in U.S. dollars. The trust certificates each have a stated amount of
$25.
Distributions on the trust certificates will be calculated on a 360-day
year of twelve 30-day months and will accrue from, but not including the prior
distribution date (as defined on page S-3) or, in the case of the first
collection period, from and including the original issue date, to and including
the first distribution date. Each semi-annual interest payment on the underlying
securities represents interest accrued from the cut-off date or the previous
distribution date, as applicable to, but not including, each distribution date
and are paid to the trust on each distribution date, in accordance with the
terms of the underlying securities.
The holders of the trust certificates will be entitled to receive, on
each distribution date, commencing December 15, 2001 and ending on the final
scheduled distribution date, payment of distributions at a rate of 8.00% per
year on the stated amount of the trust certificates, commencing on the initial
issuance of the trust certificates and a distribution of the principal amount of
the underlying securities on December 15, 2019.
The trust certificates will be delivered in registered form. The trust
certificates will be maintained and transferred on the book-entry records of DTC
and its participants in minimum stated amounts of and integral multiples of $25.
The underwriter will initially offer the trust certificates in minimum lots of
40 trust certificates and subsequent increments of 40 trust certificates. The
trust certificates will each initially be represented by one or more global
certificates registered in the name of the nominee of DTC (together with any
successor clearing agency selected by the depositor), except as provided below.
DTC has informed the depositor that DTC's nominee will be Cede & Co. No holder
of any trust certificate will be entitled to receive a certificate representing
that person's interest, except as set forth below under "Definitive Trust
Certificates" on page S-15. Unless and until definitive trust certificates are
issued under the limited circumstances described below, all references to
actions by trust certificateholders with respect to any trust certificates shall
refer to actions taken by DTC upon instructions from its participants. See "-
Definitive Trust Certificates" below and "Description of the Trust Certificates
- Global Securities" on page 23 in the prospectus.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC will take action permitted to be taken by a trust
certificateholder under the trust agreement only at the direction of one or more
participants having trust certificates credited to their DTC accounts.
Additionally, DTC will take actions with respect to specified voting rights only
at the direction and on behalf of participants whose holdings of certificates
evidence specified voting rights. DTC may take inconsistent positions in its
exercise of voting rights, to the extent that participants authorize such
divergent action.
S-14
Definitive Trust Certificates
Definitive trust certificates will be issued to trust
certificateholders or their nominees only if
o the depositor advises the trustee in writing that DTC is no
longer willing or able to discharge properly its
responsibilities as clearing agency with respect to the
trust certificates and the depositor is unable to locate a
qualified successor, or
o at the depositor's option, it elects to terminate the
book-entry system of the trust certificates through DTC.
Upon the occurrence of either of these events, the trustee is required
to notify all participants of the availability through DTC of definitive trust
certificates. Upon surrender by DTC of the global certificates representing the
trust certificates and receipt of instructions for re-registration, the trustee
will reissue the trust certificates as definitive trust certificates issued in
the stated amounts owned by the individual trust certificateholders. Then, the
trustee will recognize the holders of definitive trust certificates as trust
certificateholders under the trust agreement.
Listing on the New York Stock Exchange
The depositor intends to list the trust certificates on the NYSE. If
approved for listing, trading is expected to commence within 30 days after the
trust certificates are first issued. The depositor cannot assure you that the
trust certificates, once listed, will continue to be eligible for trading on the
NYSE.
Collections and Distributions
To the extent of available funds, the trust will make the following
distributions in the following order of priority
o to the trust certificatesholders at the rate of 8.00% per
year on the stated amount of the trust certificates until
the final scheduled distribution date,
o to the trust certificateholders, a distribution of the
principal amount of the underlying securities held by the
trust on the final scheduled distribution date,
o to the extent there are available funds in the certificate
account, to any creditors of the trust in satisfaction of
the trust's liabilities, and
o if any funds remain in the certificate account after all of
the trust's liabilities are satisfied then such funds will
be distributed to an affiliate of the depositor.
"Available funds" for any distribution date means the sum of all
amounts received on or with respect to the underlying securities during the
preceding collection period except for eligible investments described below. Not
less than 100% of the trust certificateholders may elect to sell a portion of
the underlying securities such that the proceeds of the sale would be sufficient
to reimburse the trustee for any extraordinary expenses. In the event of a
payment default on the underlying securities, the trustee's approved
extraordinary expenses (see "Description of the Trust Agreement - The Trustee"
on page S-18) may be reimbursed to the trustee out of available funds before any
distributions to trust certificateholders are made.
If the trustee has not received payment on the underlying securities on
or prior to a distribution date, the distribution will be made upon receipt of
payment on the underlying securities. No additional amounts will accrue on the
trust certificates or be owed to trust certificateholders as a result of any
delay, but any additional distributions owed and paid by the underlying
securities issuer as a result of the delay will be paid to the trust
certificateholders.
S-15
The trustee shall invest all amounts received on or with respect to the
underlying securities that are not distributed to trust certificateholders on
the date of receipt, including any funds deposited with the trustee in its
capacity as escrow agent upon the exercise of a call warrant, in eligible
investments. "Eligible investments" means, with respect to the trust
certificates, those investments consistent with the trust's status as a grantor
trust under the Internal Revenue Code of 1986, as amended (the "Code"), and
acceptable to the rating agencies as being consistent with the rating of the
trust certificates, as specified in the trust agreement. Generally, eligible
investments must be limited to obligations or securities that mature not later
than the business day prior to the next distribution date. Income on these
investments will constitute trust property.
The depositor cannot assure you that collections received from the
underlying securities over a specified period will be sufficient to make all
required distributions to the trust certificateholders. To the extent available
funds are insufficient to make the distributions due to trust
certificateholders, any shortfall will be carried over and will be distributable
on the next distribution date on which sufficient funds exist to pay the
shortfalls. The depositor will pay the trustee's ordinary expenses.
Call Warrants
The initial call warrant holder will be the depositor or an affiliate
of the depositor, and such person may transfer its call warrants, in whole or in
part, in privately negotiated transactions. On any business day on or after
December 15, 2006 that any call warrant holders designate as a "Call Date", the
call warrant holders may, upon notice of not less than 30 days (or after receipt
of notice of termination of the trust, not less than three days, or when a
tender offer for the underlying securities is pending, not less than five days
notice prior to the expiration of the tender offer acceptance period) but not
more than 60 days prior to that Call Date, purchase your trust certificates in
whole or in part at their stated amount plus any accrued and unpaid
distributions to the Call Date. On any business day before December 15, 2006 and
after receipt of notice of termination of the trust or when a tender offer for
the underlying securities is pending that any call warrant holders designate as
a "Call Date", the call warrant holders may, after receipt of notice of
termination of the trust upon notice of not less than three days and when a
tender offer for the underlying securities is pending not less than five days
notice prior to the termination of the tender offer acceptance period, but not
more than 60 days prior to that Call Date, purchase your trust certificates in
whole or in part at their stated amount plus any accrued and unpaid
distributions to the Call Date. In addition, at any time upon an acceleration of
the underlying securities and payment in full by the underlying securities
issuer of all amounts when due, all outstanding call warrants will be exercised
automatically, and trust certificates will be purchased at their stated amount
plus any accrued and unpaid distributions to the exercise date.
If a call warrant holder has met the exercise requirements set forth
below, the holder may, on the Call Date, purchase a principal amount of trust
certificates proportionate to such holder's call warrant at the exercise price.
In order to exercise its call warrants, the call warrant holder must, not less
than 30 days (or after receipt of notice of termination of the trust not less
than three days or when a tender offer for the underlying securities is pending
not less than five days prior to the tender offer acceptance period) but not
more than 60 days prior to such Call Date,
o notify the trustee in writing of its intention to exercise
its call warrants (which notice is irrevocable),
o deposit the call exercise price with The Bank of New York,
as escrow agent, to be held in escrow pursuant to an escrow
agreement in form reasonably satisfactory to the trustee,
and
o provide the trustee with certain other documents customary
for a transaction of this nature.
The call warrant holders need not comply with the foregoing conditions
if call warrants are exercised automatically upon an acceleration of the
underlying securities and payment in full by the underlying securities issuer of
all amounts due upon such acceleration. Upon exercise of any call warrants, the
trustee will select by lot a stated amount of trust certificates to be
surrendered to the trustee in exchange for a pro rata portion of the call
exercise price. Following its receipt of trust certificates upon the exercise of
any call warrants, the trustee will surrender the trust certificates to the
exercising call warrant holders.
S-16
Exchange of Trust Certificates
Merrill Lynch & Co. or any of its affiliates, other than the depositor,
or any other person holding trust certificates with an aggregate stated amount
of $5 million or more acquired pursuant to the exercise of call warrants, may
notify the trustee, not less than 30 days but not more than 60 days prior to a
given distribution date, that it intends to tender its trust certificates to the
trustee on that distribution date in exchange for a proportional amount of
underlying securities; provided that, if any such person has received notice of
a tender offer for the underlying securities, such person may notify the
trustee, not less than 5 days but not more than 60 days prior to a given date,
that it intends to tender its trust certificates to the trustee on that date in
exchange for a proportional amount of underlying securities. Such optional
exchange may only be made with respect to trust certificates that are not
subject to outstanding call warrants held by persons other than the person
exercising the optional exchange. In addition, in the case of a person other
than Merrill Lynch & Co. or any of its affiliates, such exchange may only be
made with respect to an aggregate stated amount of trust certificates equal to
the aggregate stated amount of trust certificates acquired by such person
pursuant to the exercise of call warrants. Such optional exchange will not be
made if
o the exchange would cause the trust or the depositor to fail
to satisfy the applicable requirements for exemption under
Rule 3a-7 under the Investment Company Act of 1940, as
amended (the "Investment Company Act"),
o the exchange would affect the characterization of the trust
as a "grantor trust" under the Code, or
o in the case of an exchange of less than all outstanding
trust certificates, the exchange would cause the trust to
fail to satisfy the minimum requirements to remain listed on
the New York Stock Exchange, unless the party exercising the
optional exchange will hold all remaining outstanding trust
certificates upon such optional exchange.
See "Description of the Certificates - Optional Exchange" on page 22 of the
prospectus. Upon such tender of trust certificates, the trustee will deliver to
Merrill Lynch & Co. or its affiliates or the call warrant holders, as
applicable, a proportional amount of the underlying securities equal to the
proportional amount of the trust certificates that were tendered.
Default on Underlying Securities
If there is a payment default on the underlying securities, the trustee
will sell the underlying securities and distribute the proceeds from the sale of
the underlying securities to the holders of the trust certificates pro rata.
Upon such sale, the call warrants will expire and have no value. If there is an
acceleration of the maturity of the underlying securities and the underlying
securities are declared to be immediately due and payable and the underlying
securities issuer (1) pays all amounts when due, then the trustee will
distribute such amounts to the trust certificate holders pro rata, (2) fails to
pay such amount when due, then the trustee will distribute the underlying
securities to the certificate holders pro rata, or (3) pays only a portion of
such amount when due, then the trustee will distribute the amount received to
the trust certificateholders pro rata and will distribute any amounts received
along with underlying securities to the trust certificateholders pro rata. In
addition, if the underlying securities issuer ceases to file Exchange Act
reports, the call warrant holders will have an opportunity to exercise call
rights and thereafter the trustee will distribute the underlying securities to
the holders of the trust certificates pro rata. If the events set forth in
clause (1) of this paragraph occur, all call warrant holders will be deemed to
have automatically exercised their rights pursuant to all outstanding call
warrants, all certificateholders will receive the call price with respect to
their trust certificates called and all amounts received from the underlying
securities issuer will be distributed directly to the call warrant holders. If
the events set forth in clause (2) of this paragraph occur, the call warrants
will expire and have no value. If the events set forth in clause (3) occur, the
call warrant holders will have an opportunity to exercise call rights before the
trustee distributes any amounts received or any underlying securities to the
trust certificateholders.
S-17
THE DEPOSITOR
The depositor, Merrill Lynch Depositor, Inc., a Delaware corporation,
is an indirect, wholly owned, limited-purpose subsidiary of Merrill Lynch & Co.,
Inc. The depositor has not guaranteed and is not otherwise obligated under the
trust certificates.
The principal office of the depositor is located at c/o Merrill Lynch &
Co., World Financial Center, New York, New York 10281 (Telephone: (212)
449-1000). See "The Depositor" on page 12 in the prospectus.
DESCRIPTION OF THE TRUST AGREEMENT
General
The trust certificates will be issued pursuant to the trust agreement,
a form of which is filed as an exhibit to the registration statement of the
depositor on Form S-3 (Registration No. 333-29015). The depositor will file with
the SEC, following the issuance and sale of the trust certificates, a Current
Report on Form 8-K relating to the trust certificates containing a copy of the
Series Supplement as executed. The trust created under the Series Supplement
will consist of
o the deposited assets, and
o all payments on or collections in respect of the deposited
assets except with respect to periods prior to the cut-off
date.
Reference is made to the prospectus for important information in addition to
that set forth herein regarding the trust, the terms and conditions of the trust
agreement and the trust certificates. The following summaries of certain
provisions of the trust agreement do not purport to be complete and are subject
to the detailed provisions contained in the agreement. You should refer to the
trust agreement for a full description of these provisions, including the
definition of certain terms used in this prospectus supplement.
The discussions in the prospectus under "Description of the Trust
Agreement - Advances in Respect of Delinquencies" on page 33, "Description of
the Trust Agreement - Certain Matters Regarding the Trustee, Administrative
Agent and the Depositor" (to the extent the discussion relates to the
Administrative Agent) on page 34, "Description of the Trust Agreement -
Administrative Agent Termination Events; Rights upon Administrative Agent
Termination Event" on page 35 and "Description of the Trust Agreement - Evidence
as to Compliance" on page 40 are not applicable to the trust certificates.
The Trustee
The Bank of New York, as successor to United States Trust Company of
New York, will be the trustee for the trust certificates and the trust pursuant
to the trust agreement. The trustee's offices are located at 114 West 47th
Street, New York, New York 10036 and its telephone number is (212) 852-1623.
The trustee shall receive compensation as set forth in an agreement
between the depositor and the trust.
The trust agreement will provide that the trustee may not take any
action that, in the trustee's opinion, would or might cause it to incur
extraordinary expenses, unless
o the trustee is satisfied that it will have adequate security
or indemnity in respect of the costs, expenses and
liabilities,
o the trustee has been instructed to do so by trust
certificateholders representing at least the required
percentage-remedies (as defined below) of the aggregate
voting rights, and
S-18
o the trust certificateholders have agreed that these costs
will be paid by the trustee
o from the trust (in the case of an affirmative vote of 100%
of the trust certificateholders) or
o out of the trustee's own funds (in which case the trustee
can receive reimbursement from the trust certificateholders
voting in favor of the proposal).
Extraordinary expenses that may be reimbursed to the trustee from the trust may
be reimbursed out of available funds on any distribution date before any
distributions to trust certificateholders on the distribution date are made.
Events of Default
An event of default with respect to the trust certificates under the
trust agreement will consist of
o a default in the payment of any distributions on any
underlying securities after it becomes due and payable
(subject to any applicable grace period);
o a default in the payment of the liquidation amount of or any
installment of the liquidation amount of any underlying
security when it becomes due and payable; and
o any other event specified as an event of default in the
indenture.
The trust agreement will provide that, within 10 days after the
occurrence of an event of default in respect of the trust certificates, the
trustee will give notice to the trust certificateholders, transmitted by mail,
of all uncured or unwaived events of default known to it. However, the trustee
will be protected in withholding such notice if in good faith it determines that
the withholding of the notice is in the interest of the trust
certificateholders, except for an event of default relating to the payment of
the liquidation amount or distributions other than permitted deferred
distributions on any of the underlying securities.
No trust certificateholder will have the right to institute any
proceeding with respect to the trust agreement, unless
o such trust certificateholder previously has given to the
trustee written notice of a continuing breach,
o trust certificateholders evidencing at least the required
percentage-remedies of the aggregate voting rights have
requested in writing that the trustee institute a proceeding
in its own name as trustee,
o the trust certificateholder or trust certificateholders have
offered the trustee reasonable indemnity,
o the trustee has for 15 days failed to institute a
proceeding, and
o no direction inconsistent with a written request has been
given to the trustee during such 15-day period by trust
certificateholders evidencing at least the required
percentage-remedies of the aggregate voting rights.
"Required percentage-remedies" shall mean 66 2/3% of the voting rights.
S-19
Voting Rights
At all times, voting rights shall be allocated among trust
certificateholders in proportion to the then outstanding stated amounts of their
respective trust certificates. The "required percentage-amendment" of voting
rights necessary to consent to a modification or amendment is 66 2/3%. Despite
the foregoing, in addition to the other restrictions on modification and
amendment, the trustee will not enter into any amendment or modification of the
trust agreement that would adversely affect in any material respect the
interests of the trust certificateholders or the call warrant holders without
the consent of 100% of the trust certificateholders or the call warrant holders,
as the case may be. No amendment or modification will be permitted which would
alter the status of the trust as a grantor trust under the Code. See
"Description of the Trust Agreement - Modification and Waiver" on page 38 in the
prospectus.
Voting of Underlying Securities, Modification of Indenture
The trustee, as holder of the underlying securities, has the right to
vote and give consents and waivers in respect of the underlying securities as
permitted by DTC and except as otherwise limited by the trust agreement. If the
trustee receives a request from DTC, the underlying securities trustee or the
underlying securities issuer for its consent to any amendment, modification or
waiver of the underlying securities, the indenture or any other document
relating to the underlying securities or receives any other solicitation for any
action with respect to the underlying securities, the trustee shall mail a
notice of the proposed amendment, modification, waiver or solicitation to each
trust certificateholder of record as of that date. The trustee shall request
instructions from the trust certificateholders as to whether or not to consent
to or vote to accept the amendment, modification, waiver or solicitation. The
trustee shall consent or vote, or refrain from consenting or voting, in the same
proportion (based on the relative outstanding principal balances of the trust
certificates) as the trust certificates were actually voted or not voted by the
trust certificateholders as of a date determined by the trustee prior to the
date on which the consent or vote is required. Despite anything to the contrary,
the trustee shall at no time vote or consent to any matter
o unless such vote or consent would not (based on an opinion
of counsel) alter the status of the trust as a grantor trust
under the Code,
o which would alter the timing or amount of any payment on the
underlying securities, including, without limitation, any
demand to accelerate the underlying securities, except in
the event of an underlying security event of default or an
event which with the passage of time would become an
underlying security event of default and with the unanimous
consent of all trust certificateholders, or
o which would result in the exchange or substitution of any of
the outstanding underlying securities pursuant to a plan for
the refunding or refinancing of the underlying securities
except in the event of a default under the indenture and
only with the consent of 100% of the trust
certificateholders and the call warrant holders.
The trustee shall have no liability for any failure to act resulting
from trust certificateholders' late return of, or failure to return, directions
requested by the trustee from the trust certificateholders.
If an offer is made by the underlying securities issuer to issue new
obligations in exchange and substitution for any of the underlying securities,
pursuant to a plan for the refunding or refinancing of the outstanding
underlying securities or any other offer is made for the underlying securities,
the trustee shall notify the trust certificateholders and the call warrant
holders of the offer as promptly as practicable. The trustee must reject any
offer unless the trustee is directed by the affirmative vote of all of the trust
certificateholders and the call warrant holders to accept the offer and the
trustee has received the tax opinion described above.
If an event of default under the indenture occurs and is continuing and
if directed by all of the outstanding trust certificateholders, the trustee
shall vote the underlying securities in favor of directing, or take such other
action
S-20
as may be appropriate to direct, the underlying securities trustee to
declare the unpaid liquidation amount of the underlying securities and any
accrued and unpaid distributions to be due and payable. In connection with a
vote concerning whether to declare the acceleration of the underlying
securities, the trust certificateholder's interests may differ from each other.
Termination of the Trust
The trust shall terminate upon the earliest to occur of
o the payment in full or sale of the underlying securities by
the trust after a payment default on or an acceleration of
the underlying securities,
o the exchange of all outstanding trust certificates for
underlying securities pursuant to one or more optional
exchanges or otherwise,
o the distribution in full of all amounts due to the trust
certificateholders and
o the final scheduled distribution date.
See "Description of the Trust Agreement - Termination" on page 40 in
the prospectus.
In addition, the holders of all, but not less than all, outstanding
trust certificates may elect to terminate the trust at any time; provided that
the exercise of such termination right would not cause the trust or the
depositor to fail to satisfy the applicable requirements for exemption under
Rule 3a-7 under the Investment Company Act. Under the terms of the Trust
Agreement and the call warrants, the trust certificateholders will not be
entitled to terminate the trust or cause the sale or other disposition of the
underlying securities if and for so long as the call warrants remain
outstanding, without the consent of the call warrant holders.
S-21
DESCRIPTION OF THE UNDERLYING SECURITIES
General
The underlying securities represent the sole assets of the trust that
are available to make distributions in respect of the trust certificates. The
primary economic terms of the underlying securities are described in "Summary of
Economic Terms" beginning on page S-3 and "Summary Information Q&A" beginning on
page S-6 in this prospectus supplement.
This prospectus supplement sets forth certain relevant terms with
respect to the underlying securities, but does not provide detailed information
with respect thereto or with respect to the underlying securities issuer. This
prospectus supplement relates only to the trust certificates offered hereby and
does not relate to the underlying securities. All disclosures contained in this
prospectus supplement with respect to the underlying securities issuer and the
underlying securities are derived from publicly available documents.
The underlying securities convert into cash in a finite time period and
the underlying securities issuer (a) is subject to the periodic reporting
requirements of the Exchange Act; and (b) is eligible to use a Registration
Statement on Form S-3 for a primary offering of common stock. The rating on the
underlying securities will allow at least one investment-grade rating of the
trust certificates by a rating agency.
The underlying securities issuer is a corporation formed under Delaware
law. According to the underlying securities issuer's publicly available
documents, it specializes in the manufacture and marketing of rubber products.
Its business is managed as two operating groups - Cooper Tire and
Cooper-Standard Automotive. The Cooper Tire group manufactures and markets
automobile, truck and motorcycle tires and inner tubes to the replacement
market, and supplies equipment and materials to the truck tire retreading
industry. It manufactures and markets proprietary brands that are sold in the
domestic and international replacement tire market to independent tire dealers,
wholesale tire distributors and large retail chains. In addition, Cooper Tire
manufactures private-label tires for several companies. The Cooper-Standard
Automotive group manufactures and markets active and passive vibration control
systems, sealing systems, exterior trim products, and hoses and hose assemblies
to the global automotive original equipment market. This group also manufactures
sealing products for the appliance and construction industries through a
subsidiary. The principal executive office of the underlying securities issuer
is at Lima & Western Avenues, Findlay, Ohio 45840 and its telephone number is
(419) 421-1321.
The underlying securities issuer is subject to the informational
requirements of the Exchange Act and files periodic reports and other
information with the SEC. You may inspect and copy these reports and other
information at the SEC's public reference facilities located at 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as at the regional office of the
SEC located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. You may obtain copies of these materials for a fee by
writing to the SEC's Public Reference Section at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information about the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. You can also access
some of this information electronically by means of the SEC's website on the
Internet at http://www.sec.gov, which contains reports, proxy and information
statements and other information that the underlying securities issuer has filed
electronically with the SEC. In addition, you may inspect reports and other
information concerning the underlying securities issuer at the offices of the
New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
Although we have no reason to believe the information concerning the
underlying securities and the underlying securities issuer contained in the
prospectus related to the underlying securities or in the underlying securities
issuer's Exchange Act reports is not reliable, we have not participated in the
preparation of such documents, or made any due diligence inquiry with respect to
the information provided therein. There can be no assurance that events
affecting the underlying securities or the underlying securities issuer have not
occurred or have not yet been publicly disclosed which would affect the accuracy
or completeness of the publicly available documents described above.
S-22
The trust will have no assets other than underlying securities from
which to make distributions of amounts due in respect of the trust certificates.
Consequently, the ability of trust certificateholders to receive distributions
in respect of the trust certificates will depend entirely on the trust's receipt
of payments on the underlying securities. You should consider carefully the
financial condition of the underlying securities issuer and its ability to make
payments in respect of such underlying securities. This prospectus supplement
relates only to the trust certificates being offered hereby and does not relate
to the underlying securities or the underlying securities issuer. Information
contained in this prospectus supplement regarding the underlying securities
issuer and the underlying securities is derived from publicly available
documents. None of the depositor, the underwriter or the trustee participated in
the preparation of such documents or takes any responsibility for the accuracy
or completeness of the information provided therein.
You should refer to the underlying securities prospectus for
definitions of capitalized terms not defined in this section.
Underlying Securities Indenture
The underlying securities were issued under an indenture dated as of
March 17, 1997, between the underlying securities issuer and the underlying
securities trustee. The underlying securities will mature on December 15, 2019.
The underlying securities are 13.87% of an issue totaling $225,000,000.
The following summaries of certain provisions of the underlying
securities and the indenture do not purport to be complete and are based upon
the underlying securities prospectus dated November 15, 1999 as supplemented by
a prospectus supplement dated November 30, 1999 (together referred to as the
"underlying securities prospectus") relating to the underlying securities, and
are subject to, and are qualified in their entirety by reference to, all
provisions of the underlying securities and the indenture, including the
definitions therein of certain terms. Wherever particular sections or defined
terms of the indenture are referred to, it is intended that such sections or
defined terms shall be incorporated herein by reference.
Reference is made to the underlying securities prospectus for the terms
of the underlying securities not set forth herein. Principal, premium, if any,
and interest will be payable, and the underlying securities will be
transferable, in the manner described in the underlying securities prospectus.
The indenture does not limit the aggregate principal amount of debt
securities that may be issued under the indenture and provides that the
underlying securities issuer may issue debt securities from time to time in one
or more series.
Events of Default
The indenture limits the underlying securities issuer's ability to
engage in certain activities and transactions and requires that the underlying
securities issuer perform certain obligations with respect to the underlying
securities. Certain events of default contained in the indenture are as follows.
Events of Default; Rights upon Default
The indenture provides that any one or more of the following events
with respect to the underlying securities that has occurred and is continuing
constitutes an "Event of Default" with respect to the underlying securities (the
capitalized terms used below are defined at the end of this section):
(a) if the underlying securities issuer defaults in the payment
of interest on the underlying securities, and such default
continues for 30 days;
S-23
(b) if the underlying securities issuer defaults in the payment
of the principal of the underlying securities or any other
securities in the same series when the same becomes due and
payable at maturity or otherwise;
(c) if the underlying securities issuer defaults in the
performance, or breach, of any covenant or warranty
contained in the underlying securities or in the indenture
(other than a covenant or warranty, a default in the
performance of which, or the breach of which, is
specifically dealt with in the indenture or which has
expressly been included in the indenture solely for the
benefit of a series of securities other than the underlying
securities), and continuance of such default or breach for a
period of 60 days after there has been given, by registered
or certified mail, to the underlying securities issuer by
the underlying securities trustee or to the underlying
securities issuer and the underlying securities trustee by
the holders of at least 25% in principal amount of the
outstanding underlying securities a written notice
specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of
Default" under the indenture; and
(d) if the underlying securities issuer defaults under any bond,
debenture, note or other evidence of indebtedness for money
borrowed by the underlying securities issuer (including a
default with respect to securities of any series other than
the underlying securities), which indebtedness is in excess
of $10,000,000 outstanding principal amount, or under any
mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the underlying securities
issuer (including the indenture), which indebtedness is in
excess of $10,000,000 outstanding principal amount, whether
such indebtedness now exists or shall hereafter be created,
which default shall constitute a failure to pay any portion
of the principal of such indebtedness when due and payable
after the expiration of any applicable grace period with
respect thereto or shall have resulted in such indebtedness
becoming or being declared due and payable prior to the date
on which it would otherwise have become due and payable,
without such indebtedness having been discharged, or such
acceleration having been rescinded or annulled, within a
period of 10 days after there shall have been given, by
registered or certified mail, to the underlying securities
issuer by the underlying securities trustee or to the
underlying securities issuer and the underlying securities
trustee by the holders of at least 25% in principal amount
of the underlying securities at the time outstanding, a
written notice specifying such default and requiring the
underlying securities issuer to cause such indebtedness to
be discharged or cause such acceleration to be rescinded or
annulled and stating that such notice is a "Notice of
Default" under the indenture; or
(e) if certain events of bankruptcy or insolvency occur with
respect to the underlying securities issuer.
Except as described above, a default under the underlying securities
issuer's other indebtedness will not be a default under the indenture and a
default under one series of underlying securities issuer's debt securities will
not necessarily be a default under another series.
If an event of default for the underlying securities occurs and is
continuing, the underlying securities trustee or the holders of at least 25% in
principal amount of all of the underlying securities outstanding may require the
underlying securities issuer to immediately repay all of the principal and
interest due on the underlying securities. The holders of a majority in
principal amount of all of the underlying securities may rescind this
accelerated payment requirement, if the rescission would not conflict with any
judgment or decree by a court and if all existing events of default have been
cured or waived. The underlying securities trustee is required to give notice to
the holders of the underlying securities within 90 days of a default under the
indenture, except that the underlying securities trustee may withhold notice to
the holders of the underlying securities, except for a payment default, if the
underlying securities trustee considers the withholding to be in the interests
of the underlying securities holders.
S-24
The indenture provides that the holders of the underlying securities
are not permitted to institute any proceedings, judicial or otherwise, with
respect to the indenture or for any remedy under the indenture unless the
underlying securities trustee fails to act for a period of 60 days after it has
received a written request from the holders of at least 25% in principal amount
of the outstanding underlying securities, as well as an offer to the underlying
securities trustee of reasonable indemnity against any costs or liabilities it
may incur. This provision will not prevent, however, any holder of underlying
securities from instituting suit to enforce payment on the debt securities on or
after their due dates.
Subject to provisions in the indenture relating to its duties in case
of default, the underlying securities trustee is under no obligation to exercise
any of its rights or powers under the indenture at the request or direction of
any holders of underlying securities, unless the holders have offered the
underlying securities trustee reasonable security or indemnity. The holders of a
majority in principal amount of the outstanding underlying securities will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the underlying securities trustee or exercising any
trust or power conferred on the underlying securities trustee. However, the
underlying securities trustee may refuse to follow any direction which is in
conflict with any law or the indenture, which may involve the underlying
securities trustee in personal liability or which may be unduly prejudicial to
the holders of underlying securities not joining in giving that direction.
Within 120 days after the end of each year, the underlying securities
issuer must deliver a certificate to the underlying securities trustee, signed
by one of several specified officers, stating whether or not the officer has
knowledge of any default under the indenture.
The holders of a majority in principal amount of the underlying
securities may generally waive an existing default and its consequences, except
a default in paying principal or interest.
Underlying Securities Interest
The underlying securities will bear interest at the rate of 8.00% per
annum from and including June 15, 2000, or from the most recent interest payment
date to which interest has been paid or duly provided for. The underlying
securities will mature and the principal amount will be payable on December 15,
2019. The underlying securities will not have the benefit of any sinking fund.
The underlying securities will be issued only in registered form,
without coupons, in denominations of $1,000 and integral multiples thereof.
Interest on the underlying securities will be payable semiannually in arrears on
June 15 and December 15 of each year, commencing on June 15, 2000, to the
persons in whose names the underlying securities are registered at the close of
business on June 1 or December 1, as the case may be, immediately preceding such
interest payment date. Interest will be calculated on the basis of a 360-day
year of twelve 30-day months.
Modification and Waiver
The indenture may be amended without the consent of any holder of
underlying securities:
o to secure the underlying securities;
o to permit a successor to assume the underlying securities
issuer's obligations under the indenture;
o to add to the underlying securities issuer's covenants and
events of default;
o to cure any ambiguity, defect or inconsistency;
o to establish the form or terms of any series of debt
securities; and
S-25
o to provide for a successor underlying securities trustee.
The indenture may be amended with the written consent of the holders of
at least a majority in principal amount of the underlying securities when they
are affected by the amendment. Holders of at least a majority in principal
amount of the underlying securities may waive the underlying securities issuer's
compliance with any provision of the indenture or the underlying securities by
giving notice to the underlying securities trustee.
However, no amendment or waiver which
o reduces the principal of or extends the fixed maturity of
the underlying securities;
o reduces the rate of or extends the time for payment of
interest on the underlying securities;
o impairs the right of any holder of underlying securities to
sue for payment;
o impairs any right of repayment at the option of the holders
of underlying securities;
o reduces the amount of underlying securities whose holders
must consent to an amendment or waiver; or
o waives a default in the payment of the principal or any
premium or interest on the underlying securities;
will be effective against any holder of underlying securities without the
holder's consent. The underlying securities trustee may call a meeting in its
discretion or upon request by the underlying securities issuer or the holders of
at least 10% of the principal amount of the underlying securities outstanding by
giving notice to the holders.
Covenants
In the indenture, the underlying securities issuer has agreed to some
restrictions on its activities for the benefit of holders of the underlying
securities. The restrictive covenants summarized below will apply, unless the
covenants are waived or amended, so long as any of the underlying securities are
outstanding. Other than as described below under "- Limitation on Liens," the
indenture does not limit the amount of other indebtedness or securities which
the underlying securities issuer may issue. The indenture does not contain any
provisions that would protect holders of underlying securities if the underlying
securities issuer engages in a highly leveraged transaction, if there is a
change in the credit rating of the underlying securities or another similar
occurrence.
Limitation on Liens
The underlying securities issuer has agreed not to, and not to permit
any Restricted Subsidiary (as defined below) to, incur a lien to secure
indebtedness for borrowed money on a Principal Property (as defined below) or on
any shares of stock or indebtedness of a Restricted Subsidiary without equally
and ratably securing the underlying securities unless:
(a) the lien existed on March 17, 1997 or at the time the
Restricted Subsidiary became a Restricted Subsidiary;
(b) the lien existed at the time the underlying securities
issuer or a Restricted Subsidiary acquired the Principal
Property or the stock or indebtedness;
(c) the lien secures indebtedness incurred to finance all or
some of the purchase price of the Principal Property or the
stock or indebtedness;
S-26
(d) the lien secures indebtedness incurred to finance
development, operation, construction, alteration, repair or
improvement costs;
(e) the lien secures indebtedness of a Restricted Subsidiary
owing to the underlying securities issuer or another
Restricted Subsidiary;
(f) the lien was incurred in connection with government
contracts, including an assignment of money due or to come
due under those contracts;
(g) the lien arose in connection with legal proceedings or in
the ordinary course of business and not in connection with
borrowing money;
(h) the lien secures tax-exempt obligations issued by a domestic
governmental entity to finance the cost of acquiring or
constructing the pledged property;
(i) the lien extends, renews or replaces in whole or in part a
permitted lien; or
(j) the underlying securities issuer's total indebtedness
secured by liens on Principal Properties plus all of the
underlying securities issuer's and the underlying securities
issuer's Restricted Subsidiaries' Attributable Debt for sale
and leaseback transactions entered into after March 17, 1997
does not exceed 10% of the underlying securities issuer's
consolidated net tangible net assets.
Any indebtedness secured by a permitted lien is excluded in determining
the underlying securities issuer's total secured indebtedness.
A "Restricted Subsidiary" is a subsidiary:
(a) substantially all of the property of which is located in the
continental United States;
(b) which owns or leases a "Principal Property", defined as an
important manufacturing plant or other facility located in
the continental United States and not financed by tax-exempt
industrial development bonds; and
(c) in which the underlying securities issuer's direct or
indirect investment exceeds 1% of the underlying securities
issuer's total consolidated assets.
"Attributable Debt" means:
(a) the greater of the fair value of the real property subject
to a sale and leaseback transaction or the net proceeds to
the lender or investor from selling that real property;
multiplied by
(b) the unexpired initial term of the lease of that real
property divided by the full initial term of that lease.
Limitations on Sale and Leaseback Transactions
The underlying securities issuer has agreed not to, and not to permit
any Restricted Subsidiary to, enter into a sale and leaseback transaction
covering any Principal Property unless:
(a) the lease has a term, including renewals, of three years or
less;
S-27
(b) the underlying securities issuer or the Restricted
Subsidiary could create a lien on the Principal Property to
secure indebtedness at least equal in amount to the
Attributable Debt for the lease; or
(c) within 120 days after the transaction, the underlying
securities issuer retires indebtedness which has a remaining
maturity of more than one year or which is extendible for
more than one year in an amount equal to the greater of the
net proceeds of the sale or the fair market value of the
Principal Property.
Merger, Consolidation or Sale
The underlying securities issuer may merge or consolidate with or into
another corporation, or transfer all or substantially all of the underlying
securities issuer's properties and assets to another person without the consent
of the holders of any of the underlying securities outstanding, if:
(a) either the underlying securities issuer is the surviving
corporation or the surviving corporation assumes all of the
underlying securities issuer's obligations under the
underlying securities and the indenture; and
(b) immediately after the transaction no default exists.
Ranking
The underlying securities are unsecured obligations of the underlying
securities issuer and rank equally and ratably with all of the underlying
securities issuer's other unsecured and unsubordinated indebtedness.
Governing Law
The indenture and the underlying securities are governed by, and
construed in accordance with, the laws of the State of New York.
Form, Denomination, Book-Entry Procedures and Transfer
The description of book-entry procedures in this prospectus supplement
includes summaries of certain rules and operating procedures of DTC that affect
transfers of interests in the Global Certificate or Certificates issued in
connection with sales of underlying securities. Except as described in the next
paragraph, the underlying securities will be issued only as fully registered
securities (the "Global Underlying Securities") registered in the name of Cede &
Co. (as nominee for DTC). One or more fully registered Global Certificates were
issued, representing, in the aggregate, the underlying securities, and were
deposited with DTC.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the Global Underlying
Securities as represented by a Global Certificate.
DTC has advised the underlying securities issuer that it is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code and a "clearing agency" registered pursuant
to the provisions of Section 17A of the Exchange Act. DTC holds securities that
its participants ("Participants") deposit with DTC. DTC also facilitates the
settlement among Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Participants in DTC include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations ("Direct Participants"). DTC is owned by a
S-28
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
transactions through or maintain a direct or indirect custodial relationship
with a Direct Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to DTC and its Participants are on file
with the Commission.
Purchases of underlying securities within the DTC system must be made
by or through Direct Participants, which will receive a credit of the underlying
securities on DTC's records. The ownership interest of each actual purchaser of
each underlying security ("Beneficial Owner") is in turn to be recorded on the
Direct Participants' and Indirect Participants' records. Beneficial Owners will
not receive written confirmation from DTC of their purchases, but Beneficial
Owners are expected to receive written confirmations providing details of the
transactions, as well as periodic statements of their holdings, from the Direct
or Indirect Participants through which the Beneficial Owners purchased
underlying securities. Transfers of ownership interests in the underlying
securities are to be accomplished by entries made on the books of Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in the underlying
securities, except in the event that use of the book-entry system for the
underlying securities is discontinued.
To facilitate subsequent transfers, all the underlying securities
deposited by Participants with DTC were registered in the name of DTC's nominee,
Cede & Co. The deposit of underlying securities with DTC and their registration
in the name of Cede & Co. will effect no change in beneficial ownership. DTC
will have no knowledge of the actual Beneficial Owners of the underlying
securities. DTC's records will reflect only the identity of the Direct
Participants to whose accounts such underlying securities are credited, which
may or may not be the Beneficial Owners. The Direct Participants and Indirect
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Certificate in respect of the underlying securities, DTC or such nominee,
as the case may be, will be considered the sole owner or holder of the
underlying securities represented thereby for all purposes under the indenture
and such underlying securities. No Beneficial Owner of an interest in a Global
Certificate will be able to transfer that interest except in accordance with
DTC's applicable procedures.
DTC has advised the underlying securities issuer that it will take any
action permitted to be taken by a holder of underlying securities (including the
presentation of underlying securities for exchange as described below) only at
the direction of one or more Participants to whose accounts the DTC interests in
the Global Certificates are credited and only in respect of such portion of the
aggregate liquidation amount of underlying securities as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default with respect to the underlying securities, DTC will, upon
notice, exchange the Global Certificates in respect of such underlying
securities for certificated securities, which it will distribute to its
Participants.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Although voting with respect to the underlying securities is limited,
in those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to the underlying securities. Under its usual
procedures, DTC would mail an omnibus proxy to the underlying securities issuer
as soon as possible after the record date. The omnibus proxy assigns Cede &
Co.'s consenting or voting rights to those Direct Participants to whose accounts
the underlying securities are credited on the record date (identified in a
listing attached to the omnibus proxy).
Distributions on the underlying securities held in book-entry form will
be made to DTC in immediately available funds. DTC's practice is to credit
Direct Participants' accounts on the relevant payment date in accordance with
their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payments on such payment date. Payments by
Direct Participants and Indirect Participants to Beneficial
S-29
Owners will be governed by standing instructions and customary practices and
will be the responsibility of such Direct Participants and Indirect Participants
and not of DTC or the underlying securities issuer subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
distributions to DTC is the responsibility of the underlying securities issuer,
disbursement of such payments to Direct Participants is the responsibility of
DTC, and disbursement of such payments to the Beneficial Owners is the
responsibility of Direct Participants and Indirect Participants.
Except as provided herein, a Beneficial Owner of an interest in a
Global Certificate will not be entitled to receive physical delivery of
underlying securities. Accordingly, each Beneficial Owner must rely on the
procedures of DTC, the Direct Participants and the Indirect Participants to
exercise any rights under the underlying securities.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Certificates among the
Participants of DTC, DTC is under no obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any time.
Neither the underlying securities issuer nor the underlying securities trustee
will have any responsibility for the performance by DTC or its Direct
Participants or Indirect Participants under the rules and procedures governing
DTC. DTC may discontinue providing its services as a securities depositary with
respect to the underlying securities at any time by giving notice to the
underlying securities issuer. Under such circumstances, in the event that a
successor securities depositary is not obtained, underlying security
certificates will be required to be printed and delivered. Additionally, the
underlying securities issuer may decide to discontinue use of the system of
book-entry transfers through DTC (or a successor depositary) with respect to the
underlying securities of the underlying securities issuer. In that event,
certificates for such underlying securities will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that we believe to be reliable, but none
of ourselves, the underlying securities issuer or DTC takes responsibility for
the accuracy thereof.
S-30
FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material United States
federal income tax consequences of the purchase, ownership and disposition of
the trust certificates by an initial holder of the trust certificates. This
section supersedes the discussion contained in the prospectus under "Federal
Income Tax Consequences" on page 43.
This summary is based on laws, regulations, rulings and decisions
currently in effect, all of which are subject to change, possibly on a
retroactive basis. This discussion does not deal with all United States federal
tax consequences applicable to all categories of investors, some of which may be
subject to special rules. In addition, this summary is generally limited to
investors who will hold the trust certificates as capital assets (generally,
property held for investment) within the meaning of Section 1221 of the Code,
and do not hold their trust certificates as part of a "straddle", a "hedge" or a
"conversion transaction". This summary does not address trust certificates held
by a foreign partnership or other foreign flow-through entities. Furthermore, no
authority exists concerning the tax treatment of some aspects of the trust
certificates, and there can be no assurance that the Treasury Department will
not issue regulations which would modify the treatment described below.
Accordingly, the ultimate United States federal income tax treatment of the
trust certificates may differ substantially from that described below. Investors
should consult their own tax advisors to determine the United States federal,
state, local and other tax consequences of the purchase, ownership and
disposition of the trust certificates.
As used herein, the term "U.S. Person" means a citizen or resident of
the United States, a corporation, partnership or other entity created or
organized in or under the laws of the United States or any State (other than a
partnership that is not treated as a U.S. Person under any applicable Treasury
regulations), an estate whose income is subject to United States federal income
tax regardless of its source, or a trust if a court within the United States is
able to exercise primary supervision of the administration of the trust and one
or more U.S. Persons have the authority to control all substantial decisions of
the trust. Notwithstanding the preceding sentence, to the extent provided in
Treasury regulations, certain trusts in existence on August 20, 1996, and
treated as U.S. Persons prior to such date, that elect to continue to be treated
as U.S. Persons, also will be U.S. Persons.
Tax Status of Trust
In the opinion of Shearman & Sterling, special federal income tax
counsel to the depositor, the trust will be classified as a grantor trust and
not as an association (or publicly traded partnership) taxable as a corporation
under the Code. Accordingly, each trust certificateholder will be subject to
federal income taxation as if it (i) owned directly the portion of the
underlying securities allocable to such trust certificates, (ii) wrote directly
a call option on such underlying securities and (iii) paid directly its share of
reasonable expenses paid by the trust.
Income of Trust Certificateholders That Are U.S. Persons
In General
For United States federal income tax purposes, the trust certificates
will represent direct ownership of the underlying securities held by the trust
and a written call option on the underlying securities. If the trust is
over-collateralized, however, a call warrant holder may be viewed as owning an
interest in the underlying securities in addition to a call option. In that
situation, a trust certificateholder would be treated as owning stripped bonds
for United States federal income tax purposes and as having written a call
option. Trust certificateholders should consult their tax advisors about the
potential application of the coupon stripping rules, including their effect on a
trust certificateholder's computation of its basis in, and interest income with
respect to, the underlying securities.
Allocations
A trust certificateholder must separately account for the call warrant
for United States federal income tax purposes by allocating its purchase price
between the underlying securities and the call warrant. A trust
certificateholder should be considered to have purchased its interest in the
underlying securities for an amount equal to the cost of its interest in the
trust certificate plus the fair market value at the time of purchase of the call
warrant
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that the trust certificateholder is deemed to have written, which amount
the trust certificateholder is deemed to have received. Accordingly, the trust
certificateholder's basis in its interest in the underlying securities will be
greater than the amount the trust certificateholder paid directly for its
interest in the trust certificate.
Similarly, when the trust certificateholder sells an interest in a
trust certificate, the trust certificateholder will be deemed to have sold its
interest in the underlying securities for a price equal to the sales price for
its interest in the trust certificate plus an amount equal to the fair market
value at the time of the sale of the call warrant that the trust
certificateholder is deemed to have written, which amount the trust
certificateholder is deemed to have paid to be relieved from the obligation.
Accordingly, the amount realized by the trust certificateholder with respect to
its interest in the underlying securities will be greater than the amount the
trust certificateholder received directly for its interest in the trust
certificate.
Taxation of Trust Assets
Interest Income
Each trust certificateholder will be required to report on its United
States federal income tax return its pro rata share of the income from the
underlying securities. Assuming the underlying securities constitute
indebtedness for federal income tax purposes (the "Debt Instruments"), the trust
certificateholder's income will include interest income from the Debt
Instruments (with an allowance for deductions as described below) in accordance
with the trust certificateholder's method of accounting. The remainder of this
discussion assumes that the underlying securities constitute indebtedness for
United States federal income tax purposes.
Market Discount
At maturity, a trust certificateholder is entitled to receive an amount
equal to its pro rata portion of the aggregate face amount of the underlying
securities. If the trust is over-collateralized, the aggregate face amount of
the underlying securities would exceed the aggregate stated amount of the trust
certificates. In such case, the Debt Instruments may be treated as purchased
with "market discount". In determining whether the Debt Instruments have market
discount, a trust certificateholder should compare the stated redemption price
at maturity of a trust certificate with the amount deemed paid for the Debt
Instruments, computed in the manner described above. Accordingly, whether or not
the trust certificates have market discount will be affected by the fair market
value of the call option that the trust certificateholder is deemed to have
written.
A Debt Instrument will have market discount if its stated redemption
price at maturity exceeds a trust certificateholder's tax basis in the Debt
Instrument by more than a de minimus amount (generally, 0.25% of the stated
redemption price multiplied by the number of complete years to maturity). A
trust certificateholder that is treated as purchasing a Debt Instrument at a
market discount will be required to treat any principal payments on, or any gain
realized upon the disposition or retirement of, the Debt Instrument as interest
income to the extent of the market discount that accrued while the trust
certificateholder held the Debt Instrument, unless the trust certificateholder
elects to include such market discount in income on a current basis. A trust
certificateholder that is treated as acquiring a Debt Instrument at a market
discount and that does not elect to include market discount in income on a
current basis also may be required to defer the deduction for a portion of the
interest expense on any indebtedness incurred or continued to purchase or carry
the Debt Instrument until the deferred income is realized. Trust
certificateholders should consult their tax advisors regarding the potential
application of the market discount rules.
Amortizable Bond Premium
If the trust is over-collateralized, depending on the fair market value
of the call warrants, it is possible that the Debt Instruments may be purchased
at a premium in relation to their face amount. If the trust is not
over-collateralized, based upon the expected value of the Debt Instruments and
the call warrants, it is expected that the Debt Instruments will be purchased at
a premium in relation to their face amount. If a trust certificateholder makes
an election under Section 171 of the Code to treat such premium as "amortizable
bond premium", the amount of
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interest that must be included in the trust certificateholder's income for an
accrual period will be reduced by the portion of the premium allocable to the
period based on the Debt Instruments' yield to maturity as of the date of
acquisition. If a trust certificateholder makes the election under Code Section
171, the election also shall apply to all bonds the interest on which is not
excludible from gross income ("Fully Taxable Bonds") held by the trust
certificateholder at the beginning of the first taxable year to which the
election applies and to all such Fully Taxable Bonds thereafter acquired by it,
and is irrevocable without the consent of the Internal Revenue Service (the
"IRS"). If such an election is not made, a trust certificateholder must include
the full amount of each interest payment in income in accordance with its
regular method of accounting and will receive a tax benefit from the premium
only in computing its gain or loss upon the sale or other disposition or
retirement of the Debt Instruments. Trust certificateholders should consult
their tax advisors regarding the applicability of the bond premium rules,
including the advisability of making the election described above.
Sale or Exchange of Trust Certificates or Retirement of Debt
Instruments
Upon the sale, exchange or other disposition of a trust certificate or
upon the retirement of Debt Instruments, a trust certificateholder will
recognize gain or loss equal to the difference, if any, between the amount
realized upon the disposition allocated to the Debt Instruments and the trust
certificateholder's tax basis in the Debt Instruments. Moreover, upon the sale
of the Debt Instruments as a result of the exercise of the call warrant, a trust
certificateholder will recognize gain or loss equal to the difference, if any,
between the amount realized from such sale of the Debt Instruments (computed in
the manner described below) and the trust certificateholder's tax basis for
determining gain or loss on the disposition of the Debt Instruments. If the
trust is over-collateralized, a trust certificateholder's tax basis for
determining gain or loss on the disposition of the Debt Instruments will be
determined as described above, decreased by the portion of any premium applied
to reduce interest payments and increased by any discount previously included
income with respect to such Debt Instruments. If the trust is not
over-collateralized, a trust certificateholder's tax basis for determining gain
or loss on the disposition of the Debt Instruments will be determined as
described above, decreased by the portion of any premium applied to reduce
interest payments with respect to such Debt Instruments. Gain or loss upon the
disposition or retirement of the Debt Instruments will be capital gain or loss,
except to the extent the gain represents accrued stated interest.
Depending on the circumstances, it is possible that a modification of
the terms of the Debt Instruments would be a taxable event to trust
certificateholders on which they would recognize gain or loss.
Taxation of Call Premium
A trust certificateholder will not be required to include immediately
in income the option premium that it is deemed to receive when it purchases its
interest in the trust certificate. Instead, such premium will be taken into
account when the call warrant lapses, is exercised or is otherwise terminated
with respect to such trust certificateholder.
A trust certificateholder will include the option premium in income as
short-term capital gain if the call warrant lapses. If the call warrant is
exercised, the trust certificateholder will add an amount equal to the option
premium to the amount realized from the sale of the Debt Instruments. If the
trust certificateholder transfers its interest in a trust certificate (other
than pursuant to the exercise of the call warrant), such transfer will be
treated as a "closing transaction" with respect to the option the trust
certificateholder is deemed to have written. Accordingly, the trust
certificateholder will recognize a short-term capital gain or loss equal to the
difference between the amount of option premium and the amount the trust
certificateholder is deemed to pay, under the rules discussed above, to be
relieved from the trust certificateholder's obligation under the option.
If a trust certificateholder were to acquire an interest in a
corresponding amount of call warrants, the call option would be proportionately
extinguished and such trust certificateholder would be treated as holding solely
its proportionate share of the underlying Debt Instruments. This extinguishment
of the call option would be a taxable event. Accordingly, the trust
certificateholder would have to recognize gain or loss on such extinguishment
equal to the difference between the option premium received at the time the
trust certificateholder purchased its trust
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certificate and the amount paid for the call warrants. Such gain or loss would
constitute short-term capital gain or loss.
Potential Recharacterization of Exercise of Call Warrant
With respect to the exercise of a call warrant, the trustee intends to
report assuming that that call warrant is exercised only against the particular
trust certificates that are selected by lot to be tendered to the trustee. It is
possible, however, that the IRS may assert an alternative treatment of the
exercise of a call warrant. For example, the IRS may argue that the exercise of
a call warrant is a pro rata call on each trust certificateholder's interest in
the underlying securities. In that event, all trust certificateholders would be
required to recognize gain or loss on the exercise computed in the same manner
as if they had sold a pro rata portion of their trust certificates pursuant to
the exercise of a call warrant. The non-tendering trust certificateholders would
then be deemed to have used the cash deemed received on the exercised call to
purchase trust certificates from the trust certificateholder whose trust
certificates were actually tendered to the trustee. Trust certificateholders are
advised to consult their tax advisors regarding this potential
recharacterization.
Deductibility of Trust's Fees and Expenses
In computing its federal income tax liability, a trust
certificateholder will be entitled to deduct, consistent with its method of
accounting, its share of reasonable administrative fees, trustee fees and other
fees paid or incurred by the trust as provided in Section 162 or 212 of the
Code. If a trust certificateholder is an individual, estate or trust, the
deduction for his share of fees will be a miscellaneous itemized deduction that
may be disallowed in whole or in part.
Application of the Straddle Rules
The trust certificateholder's interest in the Debt Instruments and the
call warrant likely constitute positions in a straddle. Under the straddle
rules, a trust certificateholder selling its interest in the trust certificate
would be treated as selling its interest in the Debt Instruments at a gain or
loss which would be short-term because the trust certificateholder's holding
period would be tolled. (As discussed above, the trust certificateholder's gain
or loss with respect to the option premium always would be short-term under the
option rules, regardless of the application of the straddle rules.) In addition,
the straddle rules require a trust certificateholder to capitalize, rather than
deduct, a portion of any interest and carrying charges allocable to the trust
certificateholder's interest in a trust certificate. Further, if the IRS were to
take the position that a trust certificateholder's interest in the Debt
Instruments and the call warrant constituted a "conversion transaction" under
Section 1258 of the Code, as well as a straddle, then a portion of the gain with
respect to the Debt Instruments or the call warrant might be characterized as
ordinary income. Trust certificateholders are advised to consult their tax
advisors regarding these issues, including the advisability of a protective
netting identification under Treasury regulation Section 1.1258-1.
Foreign Trust Certificateholders
Withholding Tax on Payments of Principal and Interest on Trust
Certificates
Interest paid to trust certificateholders that are not U.S. Persons
("foreign trust certificateholders") generally will not be subject to the 30%
withholding tax on interest paid, provided that (i) the foreign trust
certificateholder does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Debt Instruments
issuer entitled to vote, (ii) the foreign trust certificateholder is not a
controlled foreign corporation for United States tax purposes that is directly
or indirectly related to the Debt Instruments issuer through stock ownership,
(iii) the foreign trust certificateholder is not a bank described in Section
881(c)(3)(A) of the Code, and (iv) either (A) the beneficial owner of the trust
certificates certifies to the applicable payor or its agent, under penalties of
perjury, that it is not a U.S. Person and provides its name and address on U.S.
Treasury Form W-8BEN (or a suitable substitute form) 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 trust certificates, certifies under penalties of
perjury that such a Form W-8BEN (or a suitable substitute form) has been
received from the beneficial owner by it or by a financial institution between
it
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and the beneficial owner and furnishes the payor with a copy thereof.
Otherwise, the 30% withholding tax may apply to interest paid unless an income
tax treaty reduces or eliminates such tax. In general, a trust certificateholder
will not be subject to United States withholding tax on amounts received or
deemed received with respect to the option associated with the trust
certificate.
If a foreign trust certificateholder holds the trust certificates in
connection with the conduct of a trade or business within the United States,
payments of interest on the trust certificates will not be subject to
withholding tax if the holder delivers a Form W-8ECI (or a suitable substitute
form) to the payor. The foreign trust certificateholder will be subject to
United States federal income tax with respect to the trust certificates at
regular rates in the same manner as a U.S. Person, unless an income tax treaty
reduces or eliminates such tax. Such a trust certificateholder may also be
subject to an additional branch profits tax at a 30% rate (or, if applicable, a
lower treaty rate).
Gain on Disposition of Trust Certificates
A foreign trust certificateholder generally will not be subject to
United States federal income tax on gain realized on the sale, exchange or other
disposition of a trust certificate or upon the retirement of the Debt
Instruments unless:
o the foreign trust certificateholder is an individual present
in the United States for 183 days or more in the year of
such sale, exchange or redemption and either (A) has a "tax
home" in the United States and certain other requirements
are met, or (B) the gain from the disposition is
attributable to an office or other fixed place of business
in the United States;
o in the case of an amount which is attributable to accrued
interest, the foreign trust certificateholder does not meet
the conditions for exemption from the 30% withholding tax,
as described above; or
o the gain is effectively connected with the foreign trust
certificateholder's conduct of a United States trade or
business.
United States Federal Estate Tax
A trust certificate held by an individual who at the time of death is
not a citizen or resident of the United States (as specially defined for United
States federal estate tax purposes) will not be subject to United States federal
estate tax if the individual did not actually or constructively own 10% or more
of the total combined voting power of all classes of the Debt Instruments
issuer's stock and, at the time of the individual's death, payments with respect
to such trust certificate would not have been effectively connected with the
conduct by such individual of a trade or business in the United States.
Backup Withholding and Information Reporting
Information returns will be filed with the IRS in connection with
payments on the trust certificates and the proceeds from a sale or other
disposition of the trust certificates. If you own trust certificates and are a
U.S. Person, you will be subject to United States backup withholding tax at a
30.5% rate (subject to periodic reductions through 2006) on these payments
unless you provide your taxpayer identification number to the paying agent and
comply with certain certification procedures. If you are a foreign trust
certificateholder, you may have to comply with certification procedures to
establish that you are not a U.S. Person in order to avoid information reporting
and backup withholding tax requirements. The certification on Form W-8BEN,
required to claim exemption from 30% federal withholding on interest payments as
described above, will satisfy the certification requirements necessary to avoid
the 30.5% backup withholding tax as well.
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The amount of any backup withholding from a payment to you will be
allowed as a credit against your United States federal income tax liability and
may entitle you to a refund, provided that the required information is furnished
to the IRS.
S-36
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain requirements on (a) an employee benefit
plan (as defined in Section 3(3) of ERISA), (b) a plan described in Section
4975(e)(i) of the Code or (c) any entity whose underlying assets include Plan
Assets (as defined below) by reason of a plan's investment in the entity (each,
a "Plan").
In accordance with ERISA's general fiduciary standards, before
investing in a trust certificate, a Plan fiduciary should determine whether such
an investment is permitted under the governing Plan instruments and appropriate
for the Plan in view of the Plan's overall investment policy and the composition
and diversification of its portfolio. Other provisions of ERISA and the Code
prohibit certain transactions involving the assets of a Plan and persons who
have certain specified relationships to the Plan ("Parties in Interest" within
the meaning of ERISA or "Disqualified Persons" within the meaning of the Code).
Thus, a Plan fiduciary considering an investment in trust certificates should
also consider whether such an investment might constitute or give rise to a
prohibited transaction under ERISA or the Code.
An investment in trust certificates by a Plan might result in the
assets of the trust being deemed to constitute Plan Assets, which in turn might
mean that certain aspects of such investment, including the operation of the
trust, might be prohibited transactions under ERISA and the Code. Neither ERISA
nor the Code defines the term "Plan Assets". Under Section 2510.3-101 of the
United States Department of Labor regulations (the "Regulation"), "Plan Assets"
may include an interest in the underlying assets of an entity (such as a trust)
for certain purposes, including the prohibited transaction provisions of ERISA
and the Code, if the Plan acquires an "equity interest" in such entity. Thus, if
a Plan acquired a trust certificate, for certain purposes under ERISA and the
Code (including the prohibited transaction provisions) the Plan would be
considered to own its share of the underlying assets of the trust unless (1)
such trust certificate is a "publicly offered security" or (2) equity
participation by "benefit plan investors" is not "significant".
Under the Regulation, a publicly offered security is a security that is
(1) freely transferable, (2) part of a class of securities that is owned by 100
or more investors independent of the issuer and of one another at the conclusion
of the initial offering and (3) either is (A) part of a class of securities
registered under Section 12(b) or 12(g) of the Exchange Act or (B) sold to the
Plan as part of an offering of securities to the public pursuant to an effective
registration statement under the Securities Act and the class of securities of
which such security is a part is registered under the Exchange Act within 120
days (or such later time as may be allowed by the SEC) after the end of the
fiscal year of the issuer during which the offering of such securities to the
public occurred.
Participation by benefit plan investors in the trust certificates would
not be significant if immediately after the most recent acquisition of a trust
certificate, whether or not from the depositor or Merrill Lynch & Co., less than
25% of (1) the value of such Class of trust certificates and (2) the value of
any other Class of trust certificates that is not a publicly offered security
under the Regulation, were held by benefit plan investors, which are defined as
Plans and employee benefit plans not subject to ERISA (for example, governmental
plans).
Although either or both the exceptions described above (relating to
publicly offered securities and participation by benefit plan investors that is
not significant) may apply to a Plan's investment in trust certificates, no
assurance can be provided that such will be the case. However, if the trust
certificates were deemed to be Plan Assets, certain prohibited transaction
exemptions nevertheless could apply to the acquisition and holding of the trust
certificates.
By acquiring and holding a trust certificate, a Plan shall be deemed to
have represented and warranted to the depositor, the trustee and the underwriter
that such acquisition and holding of a trust certificate, including the
activities of the trust, does not involve a non-exempt prohibited transaction
with respect to such Plan.
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UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, dated as of February 9, 1998, as amended and supplemented by the
terms agreement, dated as of the date set forth in this prospectus supplement,
the depositor has agreed to sell to Merrill Lynch, Pierce, Fenner & Smith
Incorporated, and Merrill Lynch, Pierce, Fenner & Smith Incorporated has agreed
to purchase, all of the trust certificates. The underwriter proposes to offer
the trust certificates directly to the public at the offering price set forth on
the cover page of this prospectus supplement or to dealers at that offering
price less a concession not in excess of $.50 per trust certificate. The
underwriters may allow, and the dealers may reallow, a discount not in excess of
$.45 per trust certificate to other dealers. After the initial offering, the
public offering price, concession and discount may be changed.
In connection with the offering, the underwriter is permitted to engage
in transactions that stabilize the market price of the trust certificates. Such
transactions consist of bids or purchases to peg, fix or maintain the price of
the trust certificates. If the underwriter creates a short position in the trust
certificates, i.e., if it sells more trust certificates than are on the cover
page of this prospectus supplement, the underwriter may reduce that short
position by purchasing trust certificates in the open market. Purchases of a
security to stabilize the price or to reduce a short position could cause the
price of the security to be higher than it might be in the absence of such
purchases.
Neither we nor the underwriter makes any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the trust certificates. In addition, neither we
nor the underwriter makes any representation that the underwriter will engage in
these transactions or that these transactions, once commenced, will not be
discontinued without notice.
The underwriter may from time to time provide investment banking and
other financial services to the underlying securities issuer and expects in the
future to provide these services, for which it will receive customary fees and
commissions.
If the size of the trust is increased, the underwriter may participate
in offerings of additional trust certificates, as contemplated on the cover of
this prospectus supplement. Additional trust certificates may be sold for cash
or delivered to cover short positions as more fully described in the "Plan of
Distribution" section on page 48 of the prospectus.
The underwriting agreement provides that the depositor will indemnify
the underwriter against certain civil liabilities, including liabilities under
the Securities Act, or will contribute to payments the underwriter may be
required to make in respect thereof.
VALIDITY OF THE TRUST CERTIFICATES
Shearman & Sterling, New York, New York, will pass upon the validity of
the trust certificates for the depositor and for the underwriter.
RATINGS
It is a condition to the issuance of the trust certificates that the
trust certificates have ratings assigned by Moody's or by S&P, equivalent to the
ratings of the underlying securities, which, as of the date of this prospectus
supplement, were rated "A3" by Moody's and "BBB+" by S&P.
Moody's rating of the trust certificates addresses the ultimate cash
receipt of all required interest payments and payments of principal equal to the
par value of the trust certificates, in each case as provided by the governing
documents, and is based on the expected loss posed to the certificateholders
relative to the promise of receiving the present value of such payments. Moody's
rating does not address any additional payments that certificateholders may
receive under the governing documents. S&P's rating of the trust certificates
addresses the likelihood of timely payment of interest on the trust certificates
or any underlying securities distributed in respect of the trust certificates.
S-38
The ratings address the likelihood of the payment by the issuer as required
under the trust agreement, and are based primarily on the credit quality of the
underlying securities. The rating on the trust certificates does not, however,
constitute a statement regarding the occurrence or frequency of redemptions or
prepayments on, or extensions of the maturity of, the underlying securities, and
the corresponding effect on yield to investors.
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
assigning rating agency. The rating of the underlying securities by Moody's is
currently on watch for a potential downgrade. You should evaluate each security
rating independently of similar ratings on different securities.
The depositor has not requested a rating on the trust certificates by
any rating agency other than Moody's and S&P. However, the depositor cannot
assure you as to whether any other rating agency will rate the trust
certificates, or, if it does, what rating would be assigned by any other rating
agency. A rating on the trust certificates by another rating agency, if assigned
at all, may be lower than the ratings assigned to the trust certificates by
Moody's and S&P.
S-39
PROSPECTUS
----------
PUBLIC STEERS(R) TRUST CERTIFICATES
(ISSUABLE IN SERIES)
Merrill Lynch Depositor, Inc.
DEPOSITOR
The Public STEERS(R) Trust Certificates (the "Trust Certificates")
offered hereby and by supplements (each, a "Prospectus Supplement") to this
Prospectus will be offered from time to time in one or more series (each, a
"Series") and in one or more classes within each such Series (each, a "Class"),
denominated in U.S. dollars or in one or more other currencies or composite
currencies. Trust Certificates of each respective Series will be offered in
amounts, at prices and on terms to be determined at the time of sale as
described in the Prospectus Supplement accompanying this Prospectus. Each Series
of Trust Certificates will represent in the aggregate the entire beneficial
ownership interest in a publicly traded debt, or other eligible, security or a
pool of such securities (the "Underlying Securities"), together with certain
other assets, if applicable, described herein or in the applicable Prospectus
Supplement (such assets, together with the Underlying Securities, the "Deposited
Assets", to be deposited in a trust (the "Trust") for the benefit of holders of
Trust Certificates of such Series ("Trust Certificateholders") by Merrill Lynch
Depositor, Inc., a Delaware corporation that is an indirect, wholly owned,
limited-purpose subsidiary of Merrill Lynch & Co., Inc. (the "Depositor"),
pursuant to the Standard Terms for Trust Agreements (the "Standard Terms") and a
supplement thereto (the "Series Supplement") with respect to a Series
(collectively, the "Trust Agreement") between the Depositor and the trustee (the
"Trustee") named in the applicable Prospectus Supplement. If so specified in the
applicable Prospectus Supplement, the Trust for a Series of Trust Certificates
may also include, or the Trust Certificateholders of such Trust Certificates may
have the benefit of, any combination of insurance policies, letters of credit,
Reserve Accounts (as defined below) and other types of rights or assets designed
to support or ensure the servicing and distribution of amounts due in respect of
the Deposited Assets (collectively, "Credit Support"). The Underlying Securities
will represent debt securities issued by the Government of the United States of
America ("Government Securities") or senior or subordinated publicly-traded debt
obligations of one or more corporations, general or limited partnerships,
preferred securities of trusts organized by such issuers to issue certain
trust-originated preferred securities, in each case organized under the laws of
the United States of America or any state thereof (each, an "Underlying
Securities Issuer"). As a condition to the deposit into a Trust of Underlying
Securities (other than Government Securities) constituting 10% or more of the
total Underlying Securities with respect to the related Series of Trust
Certificates ("Concentrated Underlying Securities"), as of the date of the
issuance of such Series, the issuer of such Underlying Securities will be
subject to the periodic reporting 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"). See "Description of Deposited Assets--Underlying Securities
Issuer". Except for Government Securities, the Underlying Securities will be
purchased in the secondary market; they will not be acquired from the issuer
thereof. No such issuer will participate in the offering of the Trust
Certificates, nor will such issuer receive any of the proceeds from the sale of
the Underlying Securities to the Depositor or from the issuance of the Trust
Certificates. See "Description Deposited Assets--General". Except as otherwise
provided herein and in the applicable Prospectus Supplement, the Depositor's
only obligations with respect to each Series of Trust Certificates will be to
assign and deliver the Deposited Assets and certain related documents to the
applicable Trustee and, in certain cases, to arrange for Credit Support, if any.
An administrative agent (the "Administrative Agent"), if any is named in the
applicable Prospectus Supplement with respect to a Series of Trust Certificates,
may assume certain contractual administrative obligations of the Trustee, to the
extent provided in the applicable Prospectus Supplement, including certain cash
advances in the event of payment delinquencies on the Deposited Assets. See
"Description of the Trust Agreement--Advances in Respect of Delinquencies". The
Trust Certificates of each Series will not represent an obligation of or
interest in the Depositor or Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("Merrill Lynch & Co.") or any of their affiliates. Neither
the Trust Certificates nor the Deposited Assets will be guaranteed or insured by
the Depositor or Merrill Lynch & Co. or their affiliates.
Application will be made to list certain Series of Trust Certificates
on the New York Stock Exchange ("NYSE"). At the time of issue, each Series of
Trust Certificates offered hereby will be rated in one of the investment grade
categories recognized by one or more nationally recognized rating agencies.
There can be no assurance that an active public market for any Series of Trust
Certificates will develop or, if a public market develops, as to the liquidity
of the trading market for such Trust Certificates. Unless otherwise specified in
the applicable Prospectus Supplement, each Series of Trust Certificates
initially will be represented by one or more global securities (each, a "Global
Security") registered in the name of Cede & Co. ("Cede"), as nominee of The
Depository Trust Company (the "Depositary" or "DTC"). The interests of
beneficial owners of such Trust Certificates will be represented by book entries
on the records of participating members of DTC. Definitive certificates in
registered form without coupons will be available only under the limited
circumstances described herein under the heading "Description of the Trust
Certificates--Global Securities".
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH HEREIN UNDER
"RISK FACTORS", BEGINNING ON PAGE 7.
----------------
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 UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------
The Trust Certificates may be offered and sold to or through
underwriters, dealers or agents or directly to purchasers, as more fully
described under "Plan of Distribution" and in the applicable Prospectus
Supplement. This Prospectus may not be used to consummate sales of Trust
Certificates offered hereby unless accompanied by a Prospectus Supplement.
-------------------
Merrill Lynch & Co.
-------------------
The date of this Prospectus is September 18, 1997.
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Trust Certificates to
be offered hereby will set forth with respect to such Series: (a) the specific
designation and aggregate principal amount thereof; (b) the currency or
currencies in which the principal, premium, if any, and any interest are
distributable (the "Specified Currency"), (c) a description of the material
terms of the Deposited Assets, including the Underlying Securities, and Credit
Support, if any; (d) the number of Classes and, with respect to each such Class,
its designation, aggregate principal amount or, if applicable, Notional Amount
(as defined below), and the minimum denomination of the Trust Certificates; (e)
the relative rights and priorities of each Series or Class (including the type,
characteristics and specifications of the Deposited Assets and Credit Support,
if any, for such Series or Class); (f) the identity of each issuer of the
Underlying Securities and each obligor with respect to any of the other
Deposited Assets; (g) the name of the Trustee and the Administrative Agent, if
any; (h) the Trust Certificate Rate (as defined below) or the applicable method
of calculation thereof; (i) the date of distribution (each, a "Distribution
Date") of any interest, premium (if any) and/or principal; (j) the date of
issue; (k) the final scheduled Distribution Date (the "Final Scheduled
Distribution Date"), if applicable; (l) the offering price or prices; (m)
remedies upon the occurrence of a payment default on the Underlying Securities;
(n) applicable Required Percentages and Voting Rights (as defined below) with
regard to certain actions by the Depositor or the Trustee under the Trust
Agreement or with regard to the applicable Trust; and (o) any other material
terms of the Trust Certificates (including terms relating to the rights of the
Trust or any third party to redeem or purchase such Trust Certificates prior to
the Final Scheduled Distribution Date). See "Description of the Trust
Certificates--General" for a listing of other terms that may be specified in the
applicable Prospectus Supplement.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-3 (together with all
amendments and exhibits, the "Registration Statement") under the Securities Act
of 1933, as amended (the "Securities Act"), relating to the Trust Certificates.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is hereby made to the Registration Statement. The Depositor will be subject to
the periodic reporting 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 Commission. Such reports and other information
concerning the Depositor may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the Commission:
New York Regional Office, Room 1100, 7 World Trade Center, New York, New York
10048 and Chicago Regional Office, Suite 1400, Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and copies of
such material can be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549, at prescribed rates. Such material may also
be accessed electronically by means of the Commission's home page on the
Internet at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Depositor pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Trust Certificates shall be
deemed to be incorporated by reference in this Prospectus. Such documents may
include, without limitation, Annual Reports on Form 10-K and Current Reports on
Form 8-K. Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Depositor 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 Merrill Lynch Depositor, Inc.,
2
c/o World Financial Center, New York, New York 10281, Attention: Secretary.
Telephone requests for such copies should be directed to Merrill Lynch
Depositor, Inc. at 212-449-1000.
REPORTS TO TRUST CERTIFICATEHOLDERS
Except as otherwise specified in the applicable Prospectus Supplement,
unless and until definitive Trust Certificates (as defined below) are issued,
unaudited reports containing information concerning the related Trust will be
prepared annually by the related Trustee and sent on behalf of the related Trust
only to Cede, as nominee of DTC and registered holder of the Trust Certificates.
If Definitive Trust Certificates are issued, such reports will be prepared by
the related Trustee and sent on behalf of the related Trust directly to the
Trust Certificateholders in accordance with the Trust Agreement. See
"Description of the Trust Certificates--Global Securities" and "Description of
the Trust Agreement--Reports to Trust Certificateholders; Notices". Such reports
will not constitute financial statements prepared in accordance with generally
accepted accounting principles. The Depositor, on behalf of each Trust, will
cause to be filed with the Commission such periodic reports as are required
under the Exchange Act. The Depositor does not intend to send any financial
reports to Trust Certificateholders.
References herein to "U.S. dollars", "US$", "dollar" or "$" are to the
lawful currency of the United States.
For definitions of certain terms used herein, refer to "Index of
Defined Terms", beginning on page I-1.
3
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified
in its entirety by reference to the detailed information appearing elsewhere in
this Prospectus. Certain capitalized terms used herein are defined elsewhere in
this Prospectus. See "Index to Defined Terms".
SECURITIES OFFERED.......................STEERS(R)Trust Certificates, to be
offered from time to time in one or
more Series and in one or more Classes
within each such Series, will be
denominated in U.S. dollars or in one
or more other currencies or composite
currencies. Trust Certificates of each
respective Series will be offered in
amounts, at prices and on terms to be
determined at the time of sale as
described in the applicable Prospectus
Supplement. For a description of the
kinds of terms which will be set forth
in the applicable Prospectus
Supplement, see "Description of the
Trust Certificates--General".
DEPOSITED ASSETS.........................Each Series of Trust Certificates will
represent in the aggregate the entire
beneficial ownership interest in the
Underlying Securities, together with
certain other assets, if applicable.
Such other assets may include cash,
cash equivalents, guarantees, letters
of credit, financial insurance,
interest rate, currency, equity,
commodity and credit-linked swaps,
caps, floors, collars and options,
forward contracts, structured
securities and other instruments and
transactions that credit enhance, hedge
or otherwise support the Underlying
Securities designed to assure the
servicing or timely distribution of
payments to holders of the Trust
Certificates. Such assets will be
described in the applicable Prospectus
Supplement See "Description of
Deposited Assets".
UNDERLYING SECURITIES....................The Underlying Securities will
represent debt securities issued by the
Government of the United States of
America or senior or subordinated
publicly-traded debt obligations of one
or more corporations, general or
limited partnerships, or preferred
securities of trusts organized by such
issuers to issue certain
trust-originated preferred securities,
in each case organized under the laws
of the United States of America or any
state thereof. As a condition to the
deposit into a Trust of Underlying
Securities (other than Government
Securities) constituting 10% or more of
the total Underlying Securities with
respect to the related Series of
Certificates ("Concentrated Underlying
Securities"), as of the date of the
issuance of such Series, the issuer of
such Underlying Securities will be
subject to the periodic reporting
requirements of the Exchange Act, and
in accordance therewith will file
reports and other information with the
Commission. See "Description of
Deposited Assets--Underlying Securities
Issuer". Except for Government
Securities, the Underlying Securities
will be purchased in the secondary
market; they will not be acquired from
the issuer thereof. No such issuer will
participate in the offering of the
Certificates, nor will such issuer
receive any of the proceeds from the
sale
4
of the Underlying Securities to the
Depositor or from the issuance of the
Certificates. See "Description
Deposited Assets--General".
CREDIT SUPPORT...........................If so specified in the applicable
Prospectus Supplement, the Trust for a
Series of Trust Certificates may also
include, or the Certificateholders of
such Series may have the benefit of,
any combination of insurance policies,
letters of credit, Reserve Accounts,
and other types of rights or assets
designated to support or ensure the
servicing and distribution of amounts
due in respect of the Deposited Assets.
See "Description of the Deposited
Assets--Credit Support".
THE DEPOSITOR............................The Depositor, a Delaware corporation,
is an indirect, wholly owned,
limited-purpose subsidiary of Merrill
Lynch & Co., Inc. The principal office
of the Depositor is c/o Merrill Lynch &
Co., Inc., World Financial Center, New
York, New York 10281. The Certificate
of Incorporation of the Depositor
provides that the Depositor may conduct
any lawful activities necessary or
incidental to serving as depositor of
one or more trusts that may issue and
sell Certificates.
THE TRUST................................The Depositor will assign and deliver
the Deposited Assets for each Series of
Trust Certificates to the Trustee named
in the applicable Prospectus
Supplement, in its capacity as Trustee,
for the benefit of the Trust
Certificateholders of such Series. See
"Description of the Trust
Agreement--Assignment of Deposited
Assets". The Trustee named in the
applicable Prospectus Supplement will
administer the Deposited Assets
pursuant to the Trust Agreement and
will receive the Trustee Fee.
FEDERAL INCOME TAX
CONSEQUENCES.............................The arrangement pursuant to which the
Trust Certificates will be created and
sold and the Underlying Securities will
be administered will be treated as a
grantor trust under subpart E, part I
of subchapter J of the Code. Each Trust
Certificateholder will be treated as
the owner of a pro rata undivided
interest in the ordinary income and
corpus of the Underlying Securities in
the grantor trust. See "Federal Income
Tax Consequences".
ERISA
CONSIDERATIONS...........................An employee benefit plan subject to the
Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), an
individual retirement account, or an
entity whose underlying assets include
plan assets by reason of a plan's
investment in the entity (each, a
"Plan") may purchase Trust Certificates
provided that either (a) the offering
has been structured so that
participation by "benefit plan
investors" is not "significant" or so
that there are at least 100 independent
purchasers of the class of Trust
Certificates being offered, or (b) the
Plan can represent that its purchase of
Trust Certificates would not be
prohibited under ERISA or the Internal
Revenue Code of 1986, as amended (the
"Code"). See "ERISA Considerations".
5
RATINGS..................................At the time of issuance, the
Certificates of a Series (or Class of
such Series) will be rated in one of
the investment grade categories by one
or more nationally recognized Rating
Agencies. Any rating issued with
respect to a Certificate is not a
recommendation to purchase, sell or
hold a Certificate and there can be no
assurance that the ratings will remain
for any given period of time or that
any rating will not be revised or
withdrawn by the related Rating Agency.
See "Risk Factors--Ratings of the
Certificates Subject to Change".
LISTING..................................Application may be made to list certain
Series of Trust Certificates on the New
York Stock Exchange.
FORM OF SECURITY.........................Unless otherwise specified in the
applicable Prospectus Supplement, each
Series of Trust Certificates will be
initially represented by one or more
Global Securities registered in the
name of Cede as nominee of the DTC. The
interests of beneficial owners of Trust
Certificates will be represented by
book entries of participating members
of DTC. Definitive certificates in
registered form without coupons will be
available only under the limited
circumstances described under the
heading "Description of the Trust
Certificates--Global Securities".
6
RISK FACTORS
In connection with an investment in the Trust Certificates of any
Series, prospective purchasers should consider, among other things, (1) the risk
factors set forth below and (2) any additional risk factors set forth in the
applicable Prospectus Supplement.
Limited Liquidity
There can be no assurance that an active public market for any Series
(or Class within such Series) of Trust Certificates will develop or, if a public
market develops, as to the liquidity of the trading market for such Trust
Certificates. Merrill Lynch & Co. has advised the Depositor that it intends to
make a market in the Trust Certificates, as permitted by applicable laws and
regulations, after the issuance thereof. Merrill Lynch & Co. is not obligated,
however, to make a market in the Trust Certificates of any Series or Class
within such Series and any such market-making activity may be discontinued at
any time without notice at the sole discretion of Merrill Lynch & Co. If an
active public market for the Trust Certificates does not develop or continue,
the market prices and liquidity of the Trust Certificates may be adversely
affected.
Limited Recourse
The Trust Certificates will not represent a recourse obligation of or
interest in the Depositor, any Administrative Agent, Merrill Lynch & Co., the
Underlying Securities Issuer or any of their affiliates. Trust Certificates will
not be insured or guaranteed by the Depositor, Merrill Lynch & Co. or any of
their affiliates. The obligations, if any, of the Depositor with respect to the
Trust Certificates of any Series will only be pursuant to certain limited
representations and warranties with respect to an Underlying Security or other
Deposited Assets, and recourse with respect to the satisfaction of any such
obligations will be limited to any recourse for a breach of a corresponding
representation or warranty that the Depositor may have against the seller of
such Underlying Security or other Deposited Assets to the Depositor. The
Depositor does not have, and is not expected in the future to have, any assets
with which to satisfy any claims arising from a breach of any representation or
warranty.
Limited Assets
The only material assets expected to be in a Trust are Underlying
Securities and any other Deposited Assets corresponding to the related Series
(or Class within such Series) of Trust Certificates being offered. The Trust
Certificates do not represent obligations of the Depositor, any Administrative
Agent, Merrill Lynch & Co. or any of their affiliates and, unless otherwise
specified in the applicable Prospectus Supplement, are not insured or guaranteed
by the Depositor, any Administrative Agent or Merrill Lynch & Co. Accordingly,
Trust Certificateholders' receipt of distributions in respect of the Trust
Certificates will depend entirely on the performance of and the Trust's receipt
of payments with respect to the Deposited Assets.
Reinvestment Risk; Reduction in Yield to Maturity: Redemption, Repayment or Call
Right
Several factors affect the timing of distributions on any Series (or
Class within such Series) of Trust Certificates. In particular, provisions in an
Underlying Securities indenture for optional or mandatory redemption or
repayment prior to stated maturity, if exercised, will reduce the weighted
average life of such Underlying Securities and the related Series (or Class
within such Series) of Trust Certificates. A variety of tax, accounting,
economic, and other factors will influence whether an Underlying Securities
Issuer exercises any right of redemption in respect of its securities. All else
remaining equal, if prevailing interest rates are below the interest rates on
the related Underlying Securities, the likelihood of redemption would be
expected to increase. There can be no assurance that any Underlying Security
redeemable at the option of the Underlying Security Issuer will remain
outstanding until its stated maturity. In addition, the effective yield to
holders of the Trust Certificates of any Series (and Class within such Series)
may be affected by certain terms of the Deposited Assets or the manner and
priorities of allocations of collections with respect to such Deposited Assets
between Classes of a given Series. The applicable Prospectus Supplement will
discuss any calls, puts or other redemption options, and certain other terms
applicable to such Underlying Securities and any other Deposited Assets.
7
If an Underlying Securities Issuer becomes subject to a bankruptcy or
similar insolvency proceeding, the timing and amount of payments with respect to
the principal of, premium on, if any, and any interest to be distributed in
respect of such Trust Certificates may be materially and adversely affected.
Several factors influence the performance of issuers that are corporations or
other business entities; these factors may affect an Underlying Securities
Issuer's ability to satisfy its obligations with respect to the Underlying
Securities, including the Underlying Securities Issuer's operating and financial
condition, its capital structure and other economic, geographic, legal and
social factors.
Certain Series of Trust Certificates may be subject to a Call Right (as
defined below) by Merrill Lynch & Co., the Depositor or others, as specified in
the applicable Supplement. See "Description of the Trust Certificates--Call
Right". There is no assurance that an investment in the Trust Certificates of a
Callable Series (as defined below) may be held to maturity. In particular, if a
Call Right is exercised by the holder thereof, the investment represented by the
Trust Certificates will have a shorter maturity than if such right were not
exercised. The likelihood that Call Right will be exercised increases as
interest rates generally prevailing in the market for debt securities fall
relative to those in effect on the Original Issue Date (as defined below). Any
such reduction in interest rates would increase the value of the Underlying
Securities, making the exercise of a Call Right more likely. Given a reduction
in interest rates, the interest rates at which proceeds received by Trust
Certificateholders from the exercise of a Call Right may be reinvested may be
lower than the return that would have been earned over the remaining life of the
Trust Certificates if those Trust Certificates had not been called.
The extent to which the yield to maturity of such Trust Certificates
may vary from the anticipated yield due to the rate and timing of payments on
the Deposited Assets will also depend upon the degree to which they are
purchased at a discount or premium and the degree to which the timing of
payments thereon is sensitive to the rate and timing of payments on the
Deposited Assets.
To the extent that the Trust Certificate Rate for a Series is based on
variable or adjustable interest rates, variations in the interest rates
applicable to, and the corresponding payments in respect of, such Trust
Certificates, will affect the yield to maturity of such Series. There may be
disproportionate principal payments (whether resulting from differences in
amortization schedules, payments due on scheduled maturity or upon early
redemption) on Trust Certificates backed by a pool of Underlying Securities
having interest rates higher or lower than the then applicable Trust Certificate
Rate, which may adversely affect the yield on such Series of Trust Certificates.
The applicable Prospectus Supplement for a Series of Trust Certificates
will set forth additional information regarding yield and maturity
considerations applicable to such Series and the related Deposited Assets,
including the related Underlying Securities.
Currency Risk: Exchange Rates and Exchange Controls
An investment in a Trust Certificate having a Specified Currency other
than U.S. dollars entails significant risks that are not associated with a
similar investment in a U.S. dollar-denominated security. Such risks include,
without limitation, the possibility of significant changes in rates of exchange
between the U.S. dollar and such Specified Currency and the possibility of the
imposition or modification of foreign exchange controls with respect to such
Specified Currency. Such risks generally depend on factors over which the
Depositor has no control, such as economic and political events and the supply
of and demand for the relevant currencies. In recent years, rates of exchange
between the U.S. dollar and certain currencies have been highly volatile, and
such volatility may be expected in the future. Past fluctuations in any
particular exchange rate do not necessarily indicate, however, fluctuations in
the rate that may occur during the term of any Trust Certificate. Depreciation
of the Specified Currency for a Trust Certificate against the U.S. dollar would
decrease the effective yield of such Trust Certificate below its Trust
Certificate Rate and, in certain circumstances, could result in a loss to the
investor on a U.S. dollar basis.
Governments have from time to time imposed, and may in the future
impose, exchange controls that could affect exchange rates and the availability
of a Specified Currency for making distributions in respect of Trust
Certificates denominated in such currency. There can be no assurance that
exchange controls will not restrict or
8
prohibit distributions of principal, premium or interest in any Specified
Currency. Even if there are no actual exchange controls, it is possible that, on
a Distribution Date with respect to any particular Trust Certificate, the
currency in which amounts then due to be distributed in respect of such Trust
Certificate would not be available.
PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL
ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN TRUST CERTIFICATES
DENOMINATED IN A CURRENCY OTHER THAN U.S. DOLLARS. SUCH TRUST CERTIFICATES ARE
NOT AN APPROPRIATE INVESTMENT FOR PERSONS WHO ARE UNSOPHISTICATED WITH RESPECT
TO FOREIGN CURRENCY TRANSACTIONS.
Derivatives
A Trust may include various derivative instruments, including interest
rate, currency, securities, commodity and credit swaps, caps, floors, collars
and options and structured securities having embedded derivatives (such as
structured notes). Swaps involve the exchange with another party of their
respective commitments to pay or receive amounts computed by reference to
specified fixed or floating interest rates, currency rates, securities prices,
yields or returns (including baskets of securities or securities indices) or
commodity prices and a notional principal amount (i.e., the reference amount
with respect to which such obligations are determined, although no actual
exchange of principal occurs except for currency swaps); for example, an
exchange of floating rate payments for fixed rate payments. Interim payments are
generally netted, with the difference being paid by one party to the other. The
purchase of a cap entitles the purchaser, to the extent that a specified rate,
price, yield or return exceeds a predetermined level, to receive payments
computed by reference to a specified fixed or floating rate, price, yield or
return and a notional principal amount from the party selling such cap. The
purchase of a floor entitles the purchaser, to the extent that a specified rate,
price, yield or return declines below a predetermined level, to receive payments
computed by reference to a specified fixed or floating rate, price, yield or
return and a notional principal amount from the party selling such floor.
Options function in a manner similar to caps and floors, and exist on various
underlying securities, such as bonds, equities, currencies and commodities.
Options can also be structured as securities such as warrants or can be embedded
in securities such as certain commodity or equity-linked bonds with option-like
characteristics. Forward contracts involve the purchase and sale of a specified
security, commodity, currency or other financial instrument at a specified price
and date in the future, and may be settled by physical delivery or cash payment.
Credit derivatives involve swap and option contracts designed to assume or lay
off credit risk on loans, debt securities or other assets, or in relation to a
particular reference entity or country, in return for either swap payments or
payment of premium. Credit derivatives may also be embedded in other instruments
such as notes or warrants. Credit derivatives give one party to a transaction
the right to dispose of or acquire an asset (or group of assets), or the right
to receive or make a payment from the other party, upon the occurrence of
specified credit events.
Fluctuations in securities, currency and commodity rates, prices,
yields and returns may have a significant effect on the yield to maturity of
derivatives or the levels of support that derivatives can provide to a Trust. In
addition, derivatives may be limited to covering only certain risks. Continued
payments on derivatives may be affected by the financial condition of the
counterparties thereto (or, in come instances, the guarantor thereunder). There
can be no assurance that counterparties will be able to perform their
obligations. Failure by a counterparty (or the related guarantor, if any) to
make required payments may result in the delay or failure to make payments on
the related securities and risks. In addition, the notional amounts on which
payments are made may vary under certain circumstances and may not bear any
correlation to principal amounts of the related securities. The terms and risks
of the relevant derivatives will be described in the related Prospectus
Supplement. Further, the relevant Prospectus Supplement will identify the
material terms, the material risks and the counterparty for any derivative
instrument in a Trust which is the result of an agreement with such counterparty
to the extent that such agreement is material.
Information Concerning Underlying Securities Issuers; Risk of Loss if Public
Information Not Available
A prospective purchaser of Trust Certificates should obtain and
evaluate the same information concerning each Underlying Securities Issuer as it
would obtain and evaluate if it were investing directly in the Underlying
Securities or in other securities issued by the Underlying Securities Issuer.
The publicly-available information
9
concerning an Underlying Securities Issuer is important in considering whether
to invest in or sell Trust Certificates. To the extent such information ceases
to be available, an investor's ability to make an informed decision to purchase
or sell Trust Certificates could be impeded. None of the Depositor, the Trustee,
Merrill Lynch & Co. or any of their affiliates assumes any responsibility for
the continued availability, accuracy or completeness of any information
concerning any Underlying Securities Issuer (including, without limitation,
investigation as to its financial condition or creditworthiness) or concerning
the Underlying Securities (whether or not such information is filed with the
Commission) or otherwise considered by a purchaser of the Trust Certificates in
making its investment decision in connection therewith; provided that the
foregoing shall not apply to any information concerning the Underlying
Securities and any Underlying Securities Issuer that is expressly set forth in
this Prospectus or an applicable Prospectus Supplement. The issuance of Trust
Certificates of any Series should not be construed as an endorsement by the
Depositor, Merrill Lynch & Co. or the Trustee of the financial condition or
business prospects of any Underlying Securities Issuer.
If an issuer of Concentrated Underlying Securities ceases to file
periodic reports under the Exchange Act, then the Trustee of the relevant Trust
will exercise one of the following remedies: (i) sell all of such Concentrated
Underlying Securities and distribute the proceeds from such sale to the Trust
Certificateholders in accordance with the Allocation Ratio (as defined below)
(any such sale will result in a loss to the Trust Certificateholders of the
relevant Series if the sale price is less than the purchase price for such
Concentrated Underlying Securities), (ii) distribute such Concentrated
Underlying Securities in kind to the Trust Certificateholders in accordance with
the Allocation Ratio, (iii) elect either (i) or (ii) based upon a majority of
votes cast by the affected Trust Certificateholders, or (iv) in the case of an
Underlying Securities Issuer who is eligible to use Form S-3 for a primary
common stock offering, take no action. The choice of remedies will be set forth
for a given Series in the Prospectus Supplement, and the Trustee, Depositor and
Trust Certificateholders will have no discretion in this respect.
Ratings of the Trust Certificates Subject to Change
At the time of issuance, the Trust Certificates of a Series (or each
Class of such Series) will be rated in one of the investment grade categories by
one or more nationally recognized rating agencies (each, a "Rating Agency"). The
Rating Agencies may rate a Series or Class of Trust Certificates on the basis of
several factors, including the related Deposited Assets, any Credit Support and
the relative priorities of the Trust Certificateholders of such Series or Class
to receive collections from, and to assert claims against, the Trust with
respect to such Deposited Assets and any Credit Support. The Rating Agencies are
solely responsible for selecting the criteria for rating the Trust Certificates.
Any rating issued with respect to the Trust Certificates is not a
recommendation to purchase, sell or hold a security; such ratings do not comment
on the market price of the Trust Certificates or their suitability for a
particular investor. There can be no assurance that the ratings will remain for
any given period of time or that any rating will not be revised or withdrawn
entirely by the related Rating Agency if, in its judgment, circumstances
(including, without limitation, the rating of the Underlying Securities) so
warrant. A revision or withdrawal of such rating may have an adverse effect on
the market price of the Trust Certificates.
Global Securities Limit Direct Voting; Pledge of Trust Certificates
Unless otherwise specified in the applicable Prospectus Supplement, the
Trust Certificates of each Series will initially be represented by one or more
Global Securities deposited with, or on behalf of, a Depositary (as defined
below) and will not be issued as individual definitive Trust Certificates to the
purchasers of such Trust Certificates. Consequently, unless and until such
individual definitive Trust Certificates of a particular Series are issued, such
purchasers will not be recognized as Trust Certificateholders under the Trust
Agreement. Until such time, such purchasers will only be able to exercise the
rights of Trust Certificateholders indirectly through the Depositary and its
respective Participants (as defined below) and, as a result, the ability of any
such purchaser to pledge that Trust Certificate to persons or entities that do
not participate in the Depositary's system, or otherwise to act with respect to
such Trust Certificate, may be limited. See "Description of the Trust
Certificates--Global Securities" and any further description contained in the
applicable Prospectus Supplement.
10
Limitation on Remedies Due to Passive Nature of the Trust
The remedies available to a Trustee of a relevant Trust are
predetermined and therefore an investor in the Trust Certificates has less
discretion over the exercise of remedies than if such investor directly invested
in the Underlying Securities. Each Trust will generally hold the related
Deposited Assets to maturity and not dispose of them, regardless of adverse
events, financial or otherwise, which may affect any Underlying Securities
Issuer or the value of the Deposited Assets. Except as indicated below, a holder
will not be able to dispose of or take other actions with respect to any
Deposited Assets. Under certain circumstances described in the applicable
Prospectus Supplement, the Trustee will (or will at the direction of a specified
percentage of Trust Certificateholders of the relevant Series) dispose of, or
take certain other actions in respect of, the Deposited Assets. In certain
limited circumstances, such as a mandatory redemption of Underlying Securities
or the exercise by a third party of the right to purchase Underlying Securities
(as described below under "Description of Deposited Assets--Principal Terms of
Underlying Securities"), the Trustee may dispose of the Deposited Assets prior
to maturity. The applicable Prospectus Supplement will describe the particular
circumstances, if any, under which a Deposited Asset may be disposed of prior to
maturity.
Amendment of Trust Agreement Without Unanimous Consent
The Trust Agreement may be amended or otherwise modified with the
consent of a percentage of Trust Certificateholders specified in the Prospectus
Supplement (which percentage will not be less than a majority). Any such
amendment or other modification could have a material adverse effect on those
Trust Certificateholders of the relevant Series that do not consent to such
amendment or other modification. However, the Trust Agreement will provide that
any amendment or other modification that would reduce the amount of, or defer
the date of, distributions to Trust Certificateholders of a Series (or Class
within such Series) may become effective only with the consent of each affected
Trust Certificateholder of that Series (or Class within such Series) and that,
if so specified in the applicable Prospectus Supplement, any such amendment or
other modification that would result in the reduction or withdrawal of the then
current rating assigned to the Trust Certificates of a Series (or Class within
such Series) by a Rating Agency would require the consent of a specified higher
percentage of Trust Certificateholders of that Series (or Class within such
Series).
General Unavailability Of Optional Exchange
Although the Prospectus Supplement for a Series of Trust Certificates
may designate such Series as an Exchangeable Series (as defined below) and may
provide that a Trust Certificateholder may exchange Trust Certificates of the
Exchangeable Series for a pro rata portion of Deposited Assets of the related
Trust, any such Optional Exchange Right will be exercisable only to the extent
that the exercise of such right does not affect the Trust's ability to be exempt
under Rule 3a-7 under the Investment Company Act of 1940, as amended, and all
applicable rules, regulations and interpretations thereunder, and would not
affect the characterization of the Trust as a "grantor trust" under the Code.
See "Description of the Trust Certificates--Optional Exchange". Accordingly, the
Optional Exchange Right described in this Prospectus under the heading
"Description of the Trust Certificates--Optional Exchange" and further described
in the relevant Prospectus Supplement will be available only to the Depositor
and Merrill Lynch & Co. and their respective affiliates and designees. Other
Trust Certificateholders will generally not be able to exchange their Trust
Certificates of an Exchangeable Series for a pro rata portion of the Deposited
Assets of the related Trust. In addition, the exercise of an Optional Exchange
Right will decrease the aggregate amount of Trust Certificates of the applicable
Exchangeable Series outstanding.
------------------
The Prospectus Supplement for each Series of Trust Certificates will
set forth information regarding additional risk factors, if any, applicable to
such Series (and each Class within such Series).
11
THE DEPOSITOR
The Depositor, a Delaware corporation, is an indirect, wholly owned,
limited-purpose subsidiary of Merrill Lynch & Co., Inc. The principal office of
the Depositor is c/o Merrill Lynch & Co., Inc., World Financial Center, New
York, New York 10281. The Certificate of Incorporation of the Depositor provides
that the Depositor may conduct any lawful activities necessary or incidental to
serving as depositor of one or more trusts that may issue and sell Trust
Certificates.
USE OF PROCEEDS
If the related Deposited Assets are to be purchased by the Depositor,
the net proceeds to be received from the sale of each Series of Trust
Certificates (whether or not offered hereby) will be used for such purchase. In
addition, the Depositor will use such net proceeds to arrange certain Credit
Support, if any, including, if specified in the applicable Prospectus
Supplement, required deposits into any Reserve Account or the applicable Trust
Certificate Account (as defined below) for the benefit of the Trust
Certificateholders of such Series or Class. The remaining net proceeds, if any,
will be used by the Depositor for purposes related to the deposit of Deposited
Assets into one or more Trusts and the preparation, distribution and filing by
the Depositor of periodic reports and other information, including, but not
limited to, the fees and expenses of the Depositor incurred in connection with
the ongoing activities of the Trust(s).
FORMATION OF THE TRUST
The Depositor will assign and deliver the Deposited Assets for each
Series of Trust Certificates to the Trustee named in the applicable Prospectus
Supplement, in its capacity as Trustee, for the benefit of the Trust
Certificateholders of such Series. See "Description of the Trust
Agreement--Assignment of Deposited Assets". The Trustee named in the applicable
Prospectus Supplement will administer the Deposited Assets pursuant to the Trust
Agreement and will receive a fee for such services (the "Trustee Fee"). The
Trustee or an Administrative Agent, if applicable, will either cause the
assignment of the Deposited Assets to be recorded on the books and records of
The Depository Trust Company or will obtain an opinion of counsel that no
recordation is required to obtain a first priority perfected security interest
in such Deposited Assets.
The Depositor's assignment of the Deposited Assets to the Trustee will
be without recourse to the Depositor (except as to certain limited
representations and warranties, if any).
The applicable Prospectus Supplement will set forth the property of
each Trust, which may consist of (i) such Deposited Assets, or interests
therein, exclusive of any interest in such assets (the "Retained Interest")
retained or acquired by the Depositor, or any previous owner thereof or any
other person or entity, as from time to time are specified in the Trust
Agreement; (ii) such assets as from time to time are identified as deposited in
the related Trust Certificate Account; (iii) rights under the agreement or
agreements pursuant to which the Trustee has acquired such Deposited Assets;
(iv) those elements of Credit Support, if any, provided with respect to any
Series (or Class within such Series) within such Series that are specified as
being part of the related Trust in the applicable Prospectus Supplement, as
described therein and under "Description of Deposited Assets--Credit Support";
and (v) any cash or other property received upon the sale, exchange, collection
or other disposition of any of the foregoing.
MATURITY AND YIELD CONSIDERATIONS
Each Prospectus Supplement will, to the extent applicable, contain
information with respect to the types and maturities of the related Underlying
Securities and the terms, if any, upon which such Underlying Securities may be
subject to early redemption or repayment. Provisions for optional or mandatory
redemption or repayment prior to stated maturity, if exercised, will reduce the
weighted average life of Underlying Securities and the related Series (or Class
within such Series) of Trust Certificates. A variety of tax, accounting,
economic, and other factors
12
will influence whether an Underlying Securities Issuer exercises any right of
redemption in respect of its securities. All else remaining equal, if prevailing
interest rates are below the interest rates on the related Underlying
Securities, the likelihood of redemption would be expected to increase. There
can be no assurance that any Underlying Security redeemable at the option of the
Underlying Security Issuer will remain outstanding until its stated maturity.
In addition, the effective yield to holders of the Trust Certificates
of any Series (and Class within such Series) may be affected by certain terms of
the Deposited Assets or the manner and priorities of allocations of collections
with respect to such Deposited Assets between Classes of a given Series.
As specified in the applicable Prospectus Supplement, each of the
Underlying Securities may be subject to acceleration upon the occurrence of
certain events of default under the terms of the Underlying Securities. The
maturity and yield on the Trust Certificates will be affected by any early
repayment of the Underlying Securities as a result of the acceleration of the
Underlying Securities by or on behalf of the holders thereof. See "Description
of Deposited Assets--Underlying Securities Indenture". If an Underlying
Securities Issuer becomes subject to a bankruptcy proceeding, the timing and
amount of payments with respect to the principal of, the premium on, if any, and
the interest to be distributed in respect of the Trust Certificates may be
materially and adversely affected. Several factors influence the performance of
issuers that are corporations or other business entities; these factors may
affect an Underlying Securities Issuer's ability to satisfy its obligations
under the Underlying Securities, including the company's operating and financial
condition, leverage, and economic, geographic, legal and social factors.
The extent to which the yield to maturity of such Trust Certificates
may vary from the anticipated yield due to the rate and timing of payments on
the Deposited Assets will depend upon the degree to which they are purchased at
a discount or premium and the degree to which the timing of payments thereon is
sensitive to the rate and timing of payments on the Deposited Assets.
The yield to maturity of any Series (or Class) of Trust Certificates
will also be affected by variations in the interest rates applicable to, and the
corresponding payments in respect of, such Trust Certificates, to the extent
that the Trust Certificate Rate, if any, for such Series (or Class) is based on
variable or adjustable interest rates. With respect to any Series of Trust
Certificates representing an interest in a pool of debt, or other eligible,
securities, disproportionate principal payments (whether resulting from
differences in amortization schedules, payments due on scheduled maturity or
upon early redemption) on the related Underlying Securities having interest
rates higher or lower than the then applicable Trust Certificate Rates, if any,
applicable to such Trust Certificates may affect the yield thereon.
The Prospectus Supplement for each Series of Trust Certificates will
set forth additional information regarding yield and maturity considerations
applicable to such Series (and each Class within such Series) and the related
Deposited Assets, including the applicable Underlying Securities.
DESCRIPTION OF THE TRUST CERTIFICATES
Each Series (or, if more than one Class exists, the Classes within such
Series) of Trust Certificates will be issued pursuant to the Standard Terms and
a supplement thereto (the "Series Supplement") between the Depositor and the
Trustee named in the applicable Prospectus Supplement; a form of which Trust
Agreement is attached as an exhibit to the Registration Statement. The
provisions of the Trust Agreement may vary depending upon the terms of both the
Trust Certificates to be issued thereunder and the Deposited Assets, the Credit
Support, if any, and related Trust. The following summaries describe material
provisions of the Trust Agreement which may be applicable to each Series of
Trust Certificates. The applicable Prospectus Supplement for a Series of Trust
Certificates will describe any material provision of the Trust Agreement that is
not described herein or the description of which is materially different from
the description herein. The following summaries do not purport to be complete
and are subject to the detailed provisions of the form of Trust Agreement to
which reference is hereby made for a full description of such provisions,
including the definition of certain terms used, and for other information
regarding the Trust Certificates. Wherever particular defined terms of the Trust
Agreement are referred to, such defined terms are
13
incorporated herein by reference as part of the statement made, and the
statement is qualified in its entirety by such reference. As used herein with
respect to any Series, the term "Trust Certificate" refers to all the Trust
Certificates of that Series (and each Class within such Series), whether or not
offered hereby and by the applicable Prospectus Supplement, unless the context
otherwise requires.
A copy of the Series Supplement relating to each Series of Trust
Certificates issued from time to time will be filed by the Depositor as an
exhibit to a Current Report on Form 8-K, which will be filed with the Commission
following the issuance of such Series.
General
There is no limit on the amount of Trust Certificates that may be
issued under the Trust Agreement, and the Trust Agreement will provide that
Trust Certificates of the applicable Series may be issued in multiple Classes.
The Series (or Classes within such Series) of Trust Certificates to be issued
under the Trust Agreement will represent the entire beneficial ownership
interest in the Trust for such Series created pursuant to the Trust Agreement
and each such Class will be allocated certain relative priorities to receive
specified collections from, and a certain percentage ownership interest of the
assets deposited in, such Trust, all as identified and described in the
applicable Prospectus Supplement. See "Description of Deposited
Assets--Collections". Reference is made to the applicable Prospectus Supplement
for a description of the following terms of the Series of Trust Certificates in
respect of which this Prospectus and such Prospectus Supplement are being
delivered:
(i) the title of such Trust Certificates;
(ii) the Series of such Trust Certificates and, if applicable,
the number and designation of Classes of such Series;
(iii) material information concerning the type, characteristics
and specifications of the Deposited Assets being deposited
into the related Trust by the Depositor (including, with
respect to any Underlying Security which at the time of
such deposit represents a significant portion of all such
Deposited Assets and any related Credit Support, if any,
information concerning the material terms of each such
Underlying Security, the identity of the issuer thereof and
where publicly available information regarding such issuer
may be obtained);
(iv) the dates on which, or periods during which, such Series of
Trust Certificates may be issued (each, an "Original Issue
Date") and the offering price thereof;
(v) the limit, if any, upon the aggregate principal amount or
Notional Amount, as applicable, of each Class thereof;
(vi) if applicable, the relative rights and priorities of each
such Class (including the method for allocating collections
from and defaults or losses on the Deposited Assets to the
Trust Certificateholders of each such Class);
(vii) whether the Trust Certificates of such Series are Fixed
Rate Trust Certificates or Floating Rate Trust Certificates
(each, as defined below) and the applicable interest rate
(the "Trust Certificate Rate"), or the method of
calculation thereof applicable to such Series, if variable
(a "Floating Trust Certificate Rate"); the date or dates
from which such interest will accrue; the applicable
Distribution Dates on which interest, principal and
premium, in each case as applicable, on such Series or
Class will be distributable and the related Record Dates
(as defined below), if any;
(viii) the circumstances and conditions under which any of the
Depositor, Merrill Lynch & Co. or the Trustee, or their
respective designees, may exercise an Optional Exchange
Right
14
(to the extent that the exercise of such right does
not affect the Trust's ability to be exempt under Rule 3a-7
under the Investment Company Act of 1940, as amended, and
all applicable rules, regulations and interpretations
thereunder and for treatment of the Trust as a "grantor
trust" under the Code) and the periods within which or the
dates on which, and the terms and conditions upon which any
such Optional Exchange may be exercised, in whole or in
part;
(ix) the option, if any, of any specified third party (which may
include one or more of the Depositor, Merrill Lynch & Co.
or their affiliates) to purchase Trust Certificates held by
a Trust Certificateholder and the periods within which or
the dates on which, and the terms and conditions upon which
any such option may be exercised, in whole or in part;
(x) the rating of each Series or each Class within such Series
offered hereby;
(xi) the denominations in which such Series or each Class within
such Series will be issuable;
(xii) whether the Trust Certificates of any Class within a given
Series are to be entitled to (1) principal distributions,
with disproportionate, nominal or no interest
distributions, or (2) interest distributions, with
disproportionate, nominal or no principal distributions
("Strip Trust Certificates"), and the applicable terms
thereof;
(xiii) the identity of the Depositary (as defined below), if other
than the Depository Trust Company, for such Trust
Certificates;
(xiv) the Specified Currency applicable to the Trust Certificates
of such Series or Class for purposes of denominations and
distributions on such Series or each Class within such
Series and the circumstances and conditions, if any, when
such Specified Currency may be changed, at the election of
the Depositor or a Trust Certificateholder, and the
currency or currencies in which any principal of or any
premium or any interest on such Series or Class are to be
distributed pursuant to such election;
(xv) all applicable Required Percentages and Voting Rights
relating to the manner and percentage of votes of Trust
Certificateholders of such Series and each Class within
such Series required with respect to certain actions by the
Depositor or the Trustee under the Trust Agreement or with
respect to the applicable Trust;
(xvi) remedies upon the occurrence of a payment default on the
Underlying Securities on an acceleration of the Underlying
Securities; and
(xvii) all other material terms of such Series or Class within
such Series of Trust Certificates.
The United States Federal income tax consequences and ERISA
consequences relating to any Series or any Class within such Series of Trust
Certificates will be described in the applicable Prospectus Supplement. In
addition, any special considerations, the specific terms and other information
with respect to the issuance of any Series or Class within such Series of Trust
Certificates on which the principal of and any premium and interest are
distributable in a Specified Currency other than U.S. dollars will be described
in the applicable Prospectus Supplement. The U.S. dollar equivalent of the
public offering price or purchase price of a Trust Certificate having a
Specified Currency other than U.S. dollars will be determined on the basis of
the noon buying rate in New York City for cable transfers in foreign currencies
as certified for customs purposes by the Federal Reserve Bank of New York for
such Specified Currency on the applicable issue date. As specified in the
applicable Prospectus Supplement, such determination will be made by the
Depositor, the Trustee, the Administrative Agent, if any, or an agent thereof as
exchange rate agent for each Series of Trust Certificates. If a noon buying rate
is not published for a Specified Currency, the applicable Prospectus Supplement
will set forth another source for all exchange rate calculations.
15
Transfers of beneficial ownership interests in any Global Security will
be effected in accordance with the normal procedures of The Depository Trust
Company or any other specified Depositary. If Definitive Trust Certificates are
issued in the limited circumstances described herein, they may be transferred or
exchanged for like Trust Certificates of the same Series at the corporate trust
office or agency of the applicable Trustee in the City and State of New York,
subject to the limitations set forth in the Trust Agreement, without the payment
of any service charge, other than any tax or governmental charge payable in
connection therewith.
Distributions
Distributions allocable to principal, premium (if any) and interest on
the Trust Certificates of each Series (and each Class within such Series) will
be made by or on behalf of the Trustee on each Distribution Date as specified in
the applicable Prospectus Supplement, and the amount of each distribution will
be determined as of the close of business on the date specified in the
applicable Prospectus Supplement (the "Record Date").
Except as provided in the succeeding paragraph, distributions with
respect to Trust Certificates will be made at the corporate trust office or
agency of the Trustee specified in the applicable Prospectus Supplement in The
City of New York; provided that any such amounts distributable on the Final
Scheduled Distribution Date of a Trust Certificate will be distributed only upon
surrender of such Trust Certificate at the applicable location set forth above.
Distributions on Trust Certificates will be made, except as provided
below, by check mailed to the Trust Certificateholders listed on the relevant
Record Date in the ownership register maintained for that purpose under the
Trust Agreement (which, in the case of Global Securities, will be a nominee of
the Depositary). A Trust Certificateholder of $10,000,000 or more in aggregate
principal amount of Trust Certificates of a given Series, and any holder of a
Global Security, shall be entitled to receive such distributions by wire
transfer of immediately available funds, but only if appropriate wire transfer
instructions have been received in writing by the Trustee for such Series not
later than 10 calendar days prior to the applicable Distribution Date.
"Business Day" with respect to any Trust Certificate means any day
other than (i) a Saturday, a Sunday or a legal holiday or a day on which banking
institutions or trust companies in the City of New York are authorized or
obligated by law, regulation or executive order to close or (ii) a business day,
as such term is used in the indenture for the Underlying Securities (the
"Indenture").
Interest on the Trust Certificates
Each Class of Trust Certificates (other than certain Classes of Strip
Trust Certificates) of a given Series may have a different Trust Certificate
Rate, which may be a fixed or floating Trust Certificate Rate, as described
below. In the case of Strip Trust Certificates with a nominal or no Trust
Certificate Principal Balance, such distributions of interest will be in an
amount described in the applicable Prospectus Supplement. For purposes hereof,
"Notional Amount" means the notional principal amount specified in the
applicable Prospectus Supplement on which interest on Strip Trust Certificates
with a nominal or no Trust Certificate Principal Balance will be made on each
Distribution Date. Reference to the Notional Amount of a Class of Strip Trust
Certificates herein or in a Prospectus Supplement does not indicate that such
Trust Certificates represent the right to receive any distribution in respect of
principal in such amount, but rather the term "Notional Amount" is used solely
as a basis for calculating the amount of required distributions and determining
certain relative Voting Rights, all as specified in the applicable Prospectus
Supplement. The Trust Certificate Rate will be described in the applicable
Prospectus Supplement and will be based upon the rate of interest received on
the Underlying Securities, Credit Support, if any, and any payments payable in
respect of the Retained Interest (if any). The Trust Certificate Rate may be
either a fixed rate or a floating rate.
Fixed Rate Trust Certificates. Each Series of Trust Certificates with a
fixed Trust Certificate Rate ("Fixed Rate Trust Certificates") will bear
interest, on the outstanding Trust Certificate Principal Balance, from its
Original Issue Date, or from the last date to which interest has been paid, at
the fixed Trust Certificate Rate stated on the face thereof and in the
applicable Prospectus Supplement until the principal amount thereof is
distributed or made available for repayment (or, in the case of Fixed Rate Trust
Certificates with a nominal or no principal amount, until the Notional Amount
thereof is reduced to zero), except that, if so specified in the applicable
Prospectus
16
Supplement, the Trust Certificate Rate for such Series or any such Class or
Classes may be subject to adjustment from time to time in response to designated
changes in the rating assigned to such Trust Certificates by one or more Rating
Agencies, in accordance with a schedule or otherwise, all as described in such
Prospectus Supplement. Unless otherwise set forth in the applicable Prospectus
Supplement, interest on each Series or Class of Fixed Rate Trust Certificates
will be distributable in arrears on each Distribution Date specified in such
Prospectus Supplement. Each such distribution of interest shall include interest
accrued through the day specified in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, interest on
Fixed Rate Trust Certificates will be computed on the basis of a 360-day year of
twelve 30-day months.
Floating Rate Trust Certificates. Each Series of Trust Certificates
with a variable Trust Certificate Rate ("Floating Rate Trust Certificates") will
bear interest, on the outstanding Trust Certificate Principal Balance, from its
Original Issue Date to but excluding the first Interest Reset Date (as defined
below) for such Series at the Initial Trust Certificate Rate set forth on the
face thereof and in the applicable Prospectus Supplement. Thereafter, the Trust
Certificate Rate on such Series for each Interest Reset Period (as defined
below) will be determined by reference to an interest rate basis (the "Base
Rate"), plus or minus the Spread, if any, or multiplied by the Spread
Multiplier, if any. The Base Rate for any Series of Trust Certificates will, as
described in greater detail below, be a fluctuating rate of interest that is
publicly available and is established by reference to quotations provided by
third parties of the interest rate from time to time prevailing on loans or
other extensions of credit in a specified credit market. The "Spread" is the
number of basis points (one basis point equals one one-hundredth of a percentage
point) that may be specified in the applicable Prospectus Supplement as being
applicable to such Series, and the "Spread Multiplier" is the percentage that
may be specified in the applicable Prospectus Supplement as being applicable to
such Series, except that if so specified in the applicable Prospectus
Supplement, the Spread or Spread Multiplier on such Series of Floating Rate
Trust Certificates may be subject to adjustment from time to time in response to
designated changes in the rating assigned to such Trust Certificates by one or
more Rating Agencies, in accordance with a schedule or otherwise, all as
described in such Prospectus Supplement. The applicable Prospectus Supplement,
unless otherwise specified therein, will designate one of the following Base
Rates as applicable to a Floating Rate Trust Certificate: (i) the CD Rate ("CD
Rate Trust Certificate"), (ii) the Commercial Paper Rate ("Commercial Paper Rate
Trust Certificate"), (iii) the Federal Funds Rate ("Federal Funds Rate Trust
Certificate"), (iv) LIBOR ("LIBOR Trust Certificate"), (v) the Prime Rate
("Prime Rate Trust Certificate"), (vi) the Treasury Rate ("Treasury Rate Trust
Certificate") or (vii) another Base Rate, as set forth in the applicable
Prospectus Supplement. The "Index Maturity" for any Series of Floating Rate
Trust Certificates is the period of maturity of the instrument or obligation
from which the Base Rate is calculated. "H.15(519)" means the publication
entitled "Statistical Release H.15(519), Selected Interest Rates", or any
successor publication of the Board of Governors of the Federal Reserve System.
"Composite Quotations" means the daily statistical release entitled "Composite
3:30 p.m. Quotations for U.S. Government Securities", or any successor
publication, published by the Federal Reserve Bank of New York. Interest will be
payable only from cash received by the Trustee from the Deposited Assets or
other assets deposited in the Trust and available for application to such
payment, notwithstanding the accrual of interest on the Trust Certificate
Principal Balance at a higher rate.
As specified in the applicable Prospectus Supplement, Floating Rate
Trust Certificates of a given Series may also have either or both of the
following (in each case expressed as a rate per annum on a simple interest
basis): (i) a maximum limitation, or ceiling, on the rate at which interest may
accrue during any interest accrual period specified in the applicable Prospectus
Supplement ("Maximum Trust Certificate Rate") and (ii) a minimum limitation, or
floor, on the rate at which interest may accrue during any such interest accrual
period ("Minimum Trust Certificate Rate"). In addition to any Maximum Trust
Certificate Rate that may be applicable to any Series of Floating Rate Trust
Certificates, the Trust Certificate Rate applicable to any Series of Floating
Rate Trust Certificates will in no event be higher than the maximum rate
permitted by applicable New York and United States federal law. Under applicable
New York and United States federal law as of the date of this Prospectus, the
maximum rate of interest, with certain exceptions, is 25% per annum on a simple
interest basis.
The Depositor will appoint, and enter into agreements with, agents
(each, a "Calculation Agent") to calculate Floating Trust Certificate Rates on
each Series of Floating Rate Trust
17
Certificates. The applicable Prospectus Supplement will set forth the identity
of the Calculation Agent for each Series of Floating Rate Trust Certificates.
All determinations of interest by the Calculation Agent shall, if made on a
commercially reasonable basis and in good faith, be conclusive for all purposes
and binding on the holders of Floating Rate Trust Certificates of a given
Series.
The Floating Trust Certificate Rate will be reset daily, weekly,
monthly, quarterly, semiannually or annually (such period being the "Interest
Reset Period", and the first day of each Interest Reset Period being an
"Interest Reset Date"), as specified in the applicable Prospectus Supplement.
Interest Reset Dates with respect to each Series will be specified in the
applicable Prospectus Supplement; provided that unless otherwise specified in
such Prospectus Supplement, the Trust Certificate Rate in effect for the 10 days
immediately prior to the Final Scheduled Distribution Date will be that in
effect on the tenth day preceding such Final Scheduled Distribution Date. If an
Interest Reset Date for any Series of Floating Rate Trust Certificates would
otherwise be a day that is not a Business Day, such Interest Reset Date will
occur on the next Business Day, except that, in the case of a LIBOR Trust
Certificate, if such Business Day would fall in the next calendar month, such
Interest Reset Date will be the immediately preceding Business Day.
Unless otherwise specified in the applicable Prospectus Supplement,
interest payable in respect of Floating Rate Trust Certificates shall be the
accrued interest from and including the Original Issue Date of such Series or
the last Interest Reset Date to which interest has accrued and been distributed,
as the case may be, to but excluding the immediately following Distribution
Date. With respect to a Floating Rate Trust Certificate, accrued interest shall
be calculated by multiplying the Trust Certificate Principal Balance of such
Trust Certificate by an accrued interest factor. Such accrued interest factor
will be computed by adding the interest factors calculated for each day in the
period for which accrued interest is being calculated. Unless otherwise
specified in the applicable Prospectus Supplement, the interest factor
(expressed as a decimal calculated to seven decimal places without rounding) for
each such day is computed by dividing the Trust Certificate Rate in effect on
such day by 360, in the case of LIBOR Trust Certificates, Commercial Paper Rate
Trust Certificates, Federal Funds Rate Trust Certificates, Prime Rate Trust
Certificates and CD Rate Trust Certificates or by the actual number of days in
the year, in the case of Treasury Rate Trust Certificates. For purposes of
making the foregoing calculation, the variable Trust Certificate Rate in effect
on any Interest Reset Date will be the applicable rate as reset on such date.
Unless otherwise specified in the applicable Prospectus Supplement, all
percentages resulting from any calculation of the Trust Certificate Rate on a
Floating Rate Trust Certificate will be rounded, if necessary, to the nearest
1/100,000 of 1% (.0000001), with five one-millionths of a percentage point
rounded upward, and all currency amounts used in or resulting from such
calculation on Floating Rate Trust Certificates will be rounded to the nearest
one-hundredth of a unit (with .005 of a unit being rounded upward).
Interest on any Series of Floating Rate Trust Certificates will be
distributable on the Distribution Dates and for the interest accrual periods as
and to the extent set forth in the applicable Prospectus Supplement.
The "Calculation Date", where applicable, pertaining to a Record Date
will be the earlier of (i) the tenth calendar day after such Record Date or, if
any such day is not a Business Day, the next succeeding Business Day or (ii) the
Business Day preceding the applicable Distribution Date.
Upon the request of the holder of any Floating Rate Trust Certificate
of a given Series, the Calculation Agent for such Series will provide the Trust
Certificate Rate then in effect and, if determined, the Trust Certificate Rate
that will become effective on the next Interest Reset Date with respect to such
Floating Rate Trust Certificate.
CD Rate Trust Certificates. CD Rate Trust Certificates will bear
interest at the interest rates (calculated with reference to the CD Rate and the
Spread and/or the Spread Multiplier, if any) specified in the applicable
Prospectus Supplement.
The "CD Rate" means, with respect to any Record Date, the rate on such
date for negotiable certificates of deposit having the applicable Index
Maturity, as published by the Board of Governors of the Federal Reserve System
in H.15(519) under the heading "CDs (Secondary Market)". If such rate is not
published by 9:00 a.m., New York City time, on the Calculation Date pertaining
to such Record Date, the CD Rate will be the rate on such Record Date for
negotiable certificates of deposit of the applicable Index Maturity, as
published by the Federal
18
Reserve Bank of New York in Composite Quotations, under the heading "Trust
Certificates of Deposit". If such rate is not published in Composite Quotations
by 3:00 p.m., New York City time, on the Calculation Date pertaining to such
Record Date, then the CD Rate for such Record Date will be calculated by the
Calculation Agent and will be the arithmetic mean of the secondary market
offered rates as of 10:00 a.m., New York City time, on such Record Date, of
three leading nonbank dealers in negotiable U.S. dollar certificates of deposit
in The City of New York, selected by the Calculation Agent after consultation
with the Depositor, for negotiable certificates of deposit of major United
States money center banks of the highest credit standing (in the market for
negotiable certificates of deposit) with a remaining maturity closest to the
applicable Index Maturity in a denomination of $5,000,000; provided that, if the
dealers selected as aforesaid by the Calculation Agent are not quoting such
rates, the interest rate for the period commencing on the Interest Reset Date
following such Record Date will be the interest rate borne by such CD Rate Trust
Certificates on such Record Date.
CD Rate Trust Certificates, like other Trust Certificates, are not
deposit obligations of a bank and are not insured by the Federal Deposit
Insurance Corporation.
Commercial Paper Rate Trust Certificates. Commercial Paper Rate Trust
Certificates will bear interest at the interest rates (calculated with reference
to the Commercial Paper Rate and the Spread and/or the Spread Multiplier, if
any) specified in the applicable Prospectus Supplement.
The "Commercial Paper Rate" means, with respect to any Record Date, the
Money Market Yield (as defined below) on such date of the rate for commercial
paper having the applicable Index Maturity, as published in H.15(519) under the
heading "Commercial Paper". If such rate is not published prior to 9:00 a.m.,
New York City time, on the Calculation Date pertaining to such Record Date, the
Commercial Paper Rate will be the Money Market Yield on such Record Date of the
rate for commercial paper of the applicable Index Maturity, as published by the
Federal Reserve Bank of New York in Composite Quotations under the heading
"Commercial Paper". If such rate is not published in Composite Quotations by
3:00 p.m., New York City time, on the Calculation Date pertaining to such Record
Date, then the Commercial Paper Rate for such Record Date will be calculated by
the Calculation Agent and will be the Money Market Yield of the arithmetic mean
of the offered rates as of 11:00 a.m., New York City time, on such Record Date
of three leading dealers of commercial paper in The City of New York, selected
by the Calculation Agent after consultation with the Depositor, for commercial
paper of the applicable Index Maturity, placed for industrial issuers whose bond
rating (as determined by a nationally recognized rating agency) is "AA" or the
equivalent; provided that, if the dealers selected as aforesaid by the
Calculation Agent are not quoting such rates, the interest rate for the period
commencing on the Interest Reset Date following such Record Date will be the
interest rate borne by such Commercial Paper Rate Trust Certificates on such
Record Date.
"Money Market Yield" will be a yield calculated in accordance with the
following formula:
Money Market Yield = D X 360 X 100
---------------
360 - (D x M)
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the applicable period for which interest is being calculated.
Federal Funds Rate Trust Certificates. Federal Funds Rate Trust
Certificates will bear interest at the interest rates (calculated with reference
to the Federal Funds Rate and the Spread and/or the Spread Multiplier, if any)
specified in the applicable Prospectus Supplement.
The "Federal Funds Rate" means, with respect to any Record Date, the
rate on such date for federal funds, as published in H.15(519) under the heading
"Federal Funds (Effective)". If such rate is not published by 9:00 a.m., New
York City time, on the Calculation Date pertaining to such Record Date, the
Federal Funds Rate will be the rate on such Record Date, as published by the
Federal Reserve Bank of New York in Composite Quotations under the heading
"Federal Funds/Effective Rate". If such rate is not published in Composite
Quotations by 3:00 p.m., New York City time, on the Calculation Date pertaining
to such Record Date, then the Federal Funds Rate for such
19
Record Date will be calculated by the Calculation Agent and will be the
arithmetic mean of the rates for the last transaction in overnight federal funds
arranged by three leading brokers of federal funds transactions in The City of
New York, selected by the Calculation Agent after consultation with the
Depositor, as of 9:00 a.m., New York City time, on such Record Date; provided
that, if the brokers selected as aforesaid by the Calculation Agent are not
arranging such transactions, the interest rate for the period commencing on the
Interest Reset Date following such Record Date will be the interest rate borne
by such Federal Funds Trust Certificates on such Record Date.
LIBOR Trust Certificates. LIBOR Trust Certificates will bear interest
at the interest rates (calculated with reference to LIBOR and the Spread and/or
the Spread Multiplier, if any) specified in the applicable Prospectus
Supplement.
"LIBOR" means, with respect to any Record Date, the rate determined by
the Calculation Agent in accordance with either clause (1) or clause (2) below,
as specified in the applicable Prospectus Supplement:
(1) The rate for deposits in U.S. dollars of the Index
Maturity specified in the applicable Prospectus Supplement, commencing
on the second London Banking Day immediately following such Record
Date, that appears on the Telerate Page 3750 as of 11:00 a.m., London
time, on such Record Date ("LIBOR Telerate"). "Telerate Page 3750"
means the display designated as page "3750" on the Telerate Service (or
such other page as may replace the page 3750 on that service or such
other service or services as may be designated by the British Bankers'
Association for the purpose of displaying London interbank offered
rates for U.S. dollar deposits).
(2) The arithmetic mean of the offered rates for deposits in
U.S. dollars having the Index Maturity specified in the applicable
Prospectus Supplement, commencing on the second London Banking Day
immediately following such Record Date, that appear on the Reuters
Screen LIBO Page as of 11:00 a.m., London time, on such Record Date, if
at least two such offered rates appear on the Reuters Screen LIBO Page
("LIBOR Reuters"). "Reuters Screen LIBO Page" means the display
designated as Page "LIBO" on the Reuters Monitor Money Rate Service (or
such other page as may replace the LIBO page on that service for the
purpose of displaying London interbank offered rates of major banks).
If neither LIBOR Telerate nor LIBOR Reuters is specified in the
applicable Prospectus Supplement, LIBOR will be determined as if LIBOR Telerate
had been specified.
If (i) in the case where paragraph (1) above applies, no rate appears
on the Telerate Page 3750 or (ii) in the case where paragraph (2) above applies,
fewer than two offered rates appear on the Reuters Screen LIBO Page, LIBOR in
respect of such Record Date will be determined by the Calculation Agent on the
basis of the rates at which deposits in U.S. dollars of the Index Maturity
specified in the applicable Prospectus Supplement are offered to prime banks in
the London interbank market at approximately 11:00 a.m., London time, on such
Record Date by four major banks ("Reference Banks") in the London interbank
market, selected by the Calculation Agent, commencing on the second London
Banking Day immediately following such Record Date in a principal amount of not
less than $1,000,000 that is representative for a single transaction in such
market at such time. The Calculation Agent will request the principal London
office of each of the Reference Banks to provide a quotation of its rate. If at
least two such quotations are provided, LIBOR for such Record Date will be the
arithmetic mean of such quotations. If fewer than two quotations are provided,
LIBOR for such Record Date will be the arithmetic mean of the rates quoted at
approximately 11:00 a.m., New York City time, on such Record Date by three major
commercial or investment banks (which may include Merrill Lynch & Co. or any of
its affiliates) in The City of New York, selected by the Calculation Agent, for
U.S. dollar loans of the applicable Index Maturity to leading European banks,
commencing on the second London Banking Day immediately following such Record
Date, in a principal amount of not less than $1,000,000 that is representative
for a single transaction in such market at such time; provided that, if the
banks selected as aforesaid by the Calculation Agent are not quoting such rates,
the interest rate for the period commencing on the Interest Reset Date following
such Record Date will be the interest rate borne by such LIBOR Notes on such
Record Date.
20
If any LIBOR Trust Certificate is indexed to the offered rates for
deposits in a Specified Currency other than U.S. dollars, the applicable
Prospectus Supplement will set forth the method for determining such rates.
Prime Rate Trust Certificates. Prime Rate Trust Certificates will bear
interest at the interest rates (calculated with reference to the Prime Rate and
the Spread and/or the Spread Multiplier, if any) specified in the applicable
Prospectus Supplement.
The "Prime Rate" means, with respect to any Record Date, the rate on
such date, as published in H.15(519) under the heading "Bank Prime Loan". If
such rate is not published by 9:00 a.m., New York City time, on the Calculation
Date pertaining to such Record Date, the Prime Rate will be determined by the
Calculation Agent and will be the arithmetic mean of the rates of interest
publicly announced by each bank named on the "Reuters Screen NYMF Page" as such
bank's prime rate or base lending rate as in effect for such Record Date.
"Reuters Screen NYMF Page" means the display designated as page "NYMF" on the
Reuters Monitor Money Rates Service (or such other page as may replace the NYMF
page on that service for the purpose of displaying prime rates or base lending
rates of major U.S. banks). If fewer than four but more than one such rate
appears on the Reuters Screen NYMF Page for such Record Date, the Prime Rate
will be determined by the Calculation Agent and will be the arithmetic mean of
the prime rates, quoted on the basis of the actual number of days in the year
divided by 360, as of the close of business on such Record Date by four major
money center banks in The City of New York, selected by the Calculation Agent
after consultation with the Depositor. If fewer than two such rates appear on
the Reuters Screen NYMF Page, the Prime Rate will be calculated by the
Calculation Agent and will be the arithmetic mean of the prime rates in effect
for such Record Date as furnished in The City of New York by at least three
substitute banks or trust companies organized and doing business under the laws
of the United States, or any state thereof, in each case having total equity
capital of at least $500,000,000 and subject to supervision or examination by
federal or state authority, selected by the Calculation Agent after consultation
with the Depositor; provided that, if the banks or trust companies selected as
aforesaid by the Calculation Agent are not quoting such rates, the interest rate
for the period commencing on the Interest Reset Date following such Record Date
will be the interest rate borne by such Prime Rate Trust Certificates on such
Record Date.
Treasury Rate Trust Certificates. Treasury Rate Trust Certificates will
bear interest at the interest rates (calculated with reference to the Treasury
Rate and the Spread and/or the Spread Multiplier, if any) specified in the
applicable Prospectus Supplement.
The "Treasury Rate" means, with respect to any Record Date, the rate
for the auction held on such Record Date of treasury bills of the Index Maturity
specified in the applicable Prospectus Supplement, as published in H.15(519)
under the heading "U.S. Government Securities--Treasury bills-auction average
(investment)". If such rate is not published by 9:00 a.m., New York City time,
on the Calculation Date pertaining to such Record Date, the Prime Rate will be
the auction average rate for such Record Date (expressed as a bond equivalent,
rounded to the nearest one-hundredth of one percent, with five one-thousandths
of a percent rounded upward, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) as otherwise announced by the United
States Department of the Treasury. If the results of the auction of treasury
bills having the applicable Index Maturity are not published or reported as
provided above by 3:00 p.m., New York City time, on such Calculation Date, or if
no such auction is held on such Record Date, then the Treasury Rate will be
calculated by the Calculation Agent and will be a yield to maturity (expressed
as a bond equivalent on the basis of a year of 365 or 366 days, as applicable,
and applied on a daily basis) of the arithmetic mean of the secondary market bid
rates, as of approximately 3:30 p.m., New York City time, on such Record Date,
of three leading primary United States government securities dealers, selected
by the Calculation Agent after consultation with the Depositor, for the issue of
treasury bills with a remaining maturity closest to the applicable Index
Maturity; provided that, if the dealers selected as aforesaid by the Calculation
Agent are not quoting such rates, the interest rate for the period commencing on
the Interest Reset Date following such Record Date will be the interest rate
borne by such Treasury Rate Trust Certificates on such Record Date.
21
Principal of the Trust Certificates
Each Trust Certificate (other than certain Classes of Strip Trust
Certificates) will have a "Trust Certificate Principal Balance" which, at any
time, will equal the maximum amount that the holder thereof will be entitled to
receive in respect of principal out of the future cash flows on the Deposited
Assets. The applicable Prospectus Supplement will include a section entitled
"Description of the Trust Certificates--Collections and Distributions" which
will set forth the priority of distributions on each Class of Trust Certificates
in a given Series. The outstanding Trust Certificate Principal Balance of a
Trust Certificate will be reduced to the extent of distributions of principal
thereon, and, if applicable pursuant to the terms of the related Series, by the
amount of any net losses realized on any Deposited Asset ("Realized Losses")
allocated thereto. The initial aggregate Trust Certificate Principal Balance of
Trust Certificates of a Series will equal the outstanding aggregate principal
balance of the related Deposited Assets as of the applicable Cut-off Date. The
initial aggregate Trust Certificate Principal Balance of a Series will be
specified in the applicable Prospectus Supplement.
Optional Exchange
The applicable Prospectus Supplement may provide that any of the
Depositor, Merrill Lynch & Co. or the Trustee, or their respective designees,
may exchange Trust Certificates of any given Series (an "Exchangeable Series")
for a pro rata portion of the Deposited Assets (an "Optional Exchange Right").
The applicable Prospectus Supplement will specify the terms upon which an
Optional Exchange Right may be exercised; provided that (a) any Optional
Exchange Right shall be exercisable only to the extent that the exercise of such
right does not affect the Trust's ability to be exempt under Rule 3a-7 under the
Investment Company Act of 1940, as amended, and all applicable rules,
regulations and interpretations thereunder and would not affect the
characterization of the Trust as a "grantor trust" under the Code and (b) if the
Deposited Assets constitute a pool of Underlying Securities, any exercise of the
Optional Exchange Right will be effected so that, with respect to each series or
issue of Underlying Securities included in such pool (together with any related
assets that credit enhance or otherwise support that series or issue of
Underlying Securities), the proportion that the principal amount of such series
or issue of Underlying Securities (together with such related assets) bears to
the aggregate principal amount of Trust Certificates immediately prior to such
exercise will be equal to the proportion that the principal amount of such
series or issue of Underlying Securities (together with such related assets)
bears to the aggregate principal amount of Trust Certificates immediately after
such exercise. In addition, the exercise of an Optional Exchange Right will
decrease the aggregate amount of Trust Certificates of the applicable
Exchangeable Series outstanding. See "Risk Factors--General Unavailability of
Optional Exchange".
While the exercise of an Optional Exchange will decrease the aggregate
amount of Trust Certificates of the applicable Exchangeable Series outstanding,
the availability of the Optional Exchange Right may increase liquidity for the
Trust Certificateholders. The ability to exchange Trust Certificates for
Underlying Securities enables the Depositor, Merrill Lynch & Co. or the Trustee,
or their respective designees, to sell the Underlying Security, which may be
part of a more liquid issue than the Trust Certificates, at a better price for
the holder than the sale of the less liquid Trust Certificates.
Default and Remedies
If there is a payment default on or acceleration of the Underlying
Securities, then the Trustee of the relevant Trust will exercise one of the
following remedies: (i) sell all of such Underlying Securities and distribute
the proceeds from such sale to the Trust Certificateholders in accordance with
the Allocation Ratio (any such sale may result in a loss to the Trust
Certificateholders of the relevant Series if the sale price is less than the
purchase price for such Underlying Securities), (ii) distribute such Underlying
Securities in kind to the Trust Certificateholders in accordance with the
Allocation Ratio, or (iii) elect either (i) or (ii) based upon a majority of
votes cast by the affected Trust Certificateholders. The choice of remedies will
be set forth for a given Series in the Prospectus Supplement, and the Trustee,
Depositor and Trust Certificateholders will have no discretion in this respect.
The "Allocation Ratio" is the allocation between Classes of a given
Series of the total expected cash flows from the Deposited Assets of that
Series. The Prospectus Supplement for any Series with more than one Class will
22
set forth the Allocation Ratio for that Series. In addition to default or
acceleration on Underlying Securities, the Allocation Ratio relates to voting
rights held by owners of Underlying Securities because such rights will be
allocated among the Trust Certificateholders of different Classes of a given
Series in accordance with their economic interests. Further, the Allocation
Ratio applies in the event of a sale or distribution of Underlying Securities
once an issuer of Concentrated Underlying Securities ceases to file periodic
reports under the Exchange Act, as discussed below under "Description of
Deposited Assets--Principal Terms of Underlying Securities".
Call Right
Merrill Lynch & Co. or the Depositor or, if so specified in the
relevant Prospectus Supplement, a transferee as a result of a private placement
to eligible investors, may hold the right to purchase all or some of the Trust
Certificates of a given Series or Class from the holders thereof, prior to
maturity (a "Call Right"). If one or more specified persons holds a Call Right,
the applicable Prospectus Supplement will designate such Series as a "Callable
Series". The terms upon which any such specified person or entity may exercise a
Call Right will be specified in the applicable Prospectus Supplement. Such terms
may relate to, but are not limited to, the following:
(a) a requirement that the Trust Certificate Principal Balance
of each Trust Certificate being purchased be an integral
multiple of an amount specified in the Prospectus
Supplement;
(b) specified dates during which a Call Right may be exercised,
which may include any and all times that the Trust
Certificates remain outstanding; and
(c) the price or prices at which a Call Right may be exercised,
which may include fixed dollar amounts or be calculated as
a percentage of the principal amount of the Trust
Certificates outstanding (each, a "Call Price").
After receiving notice of the exercise of a Call Right, the Trustee
will provide notice thereof as specified in the Standard Terms. Upon the
satisfaction of any applicable conditions to the exercise of a Call Right, each
Trust Certificateholder will be entitled to receive (in the case of a purchase
of less than all of the Trust Certificates) payment of a pro rata share of the
Call Price paid in connection with such exercise. The Call Right will not be
exercised unless the value of the Underlying Securities exceeds the Call Price
payable upon exercise of the Call Right.
Put Right
Trust Certificates may be issued with Underlying Securities that permit
the holder thereof to require the Underlying Securities Issuer to repurchase or
otherwise repay (in each case, a "Put Option") such Underlying Securities
("Puttable Underlying Securities") on or after a fixed date. In such cases, the
Trustee for such Series of Trust Certificates will exercise the Put Option on
the first date such option is available to be exercised (the "Put Date") and the
Put Date will also be the Final Scheduled Distribution Date with respect to such
Series; provided, however, if the holder of a Call Right has exercised that
right prior to the Final Scheduled Distribution Date, then the Trust
Certificates of the Callable Series will be redeemed as described in
"Description of the Trust Certificates--Call Right". The Depositor will not
issue a Series of Trust Certificates with Puttable Underlying Securities if it
would either (i) cause the Trust or Depositor to fail to satisfy the applicable
requirements for exemption under Rule 3a-7 under the Investment Company Act of
1940 or (ii) affect the characterization of the Trust as a "grantor trust" under
the Code.
Global Securities
Unless otherwise specified in the applicable Prospectus Supplement, all
Trust Certificates of a given Series will, upon issuance, be represented by one
or more Global Securities that will be deposited with, or on behalf of, the
Depositary, and registered in the name of a nominee of the Depositary. Unless
and until it is exchanged in whole or in part for the individual Trust
Certificates represented thereby (each, a "Definitive Trust Certificate"), a
Global Security may not be transferred except as a whole by the Depositary for
such Global Security to a nominee of such Depositary or by a nominee of such
23
Depositary to such Depositary or another nominee of such Depositary or by such
Depositary or any such nominee to a successor of such Depositary or a nominee of
such successor.
The Depository Trust Company has advised the Depositor as follows: The
Depository Trust Company is a limited-purpose trust company organized under the
laws of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. The Depository Trust Company was created to hold
securities of its Participants and to facilitate the clearance and settlement of
securities transactions among the institutions that have accounts with such
Depositary ("Participants") in such securities through electronic book-entry
changes in accounts of the Participants, thereby eliminating the need for
physical movement of securities certificates. Such Depositary's Participants
include securities brokers and dealers (including Merrill Lynch & Co.), banks,
trust companies, clearing corporations and certain other organizations, some of
which (and/or their representatives) own such Depositary. Access to such
Depositary's book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly. The Depository
Trust Company has confirmed to the Depositor that it intends to follow such
procedures.
Upon the issuance of a Global Security, the Depositary for such Global
Security will credit, on its book-entry registration and transfer system, the
respective principal amounts of the individual Trust Certificates represented by
such Global Security to the accounts of its Participants. The accounts to be
accredited shall be designated by the underwriters of such Trust Certificates,
or, if such Trust Certificates are offered and sold directly through one or more
agents, by the Depositor or such agent or agents. Ownership of beneficial
interests in a Global Security will be limited to Participants or persons or
entities that may hold beneficial interests through Participants. Ownership of
beneficial interests in a Global Security will be shown on, and the transfer of
that ownership will be effected only through, records maintained by the
Depositary for such Global Security or by Participants or persons or entities
that hold through Participants. The laws of some states require that certain
purchasers of securities take physical delivery of such securities. Such limits
and such laws may limit the market for beneficial interests in a Global
Security.
So long as the Depositary for a Global Security, or its nominee, is the
owner of such Global Security, such Depositary or such nominee, as the case may
be, will be considered the sole Trust Certificateholder of the individual Trust
Certificates represented by such Global Security for all purposes under the
Trust Agreement governing such Trust Certificates. Except as set forth below,
owners of beneficial interests in a Global Security will not be entitled to have
individual Trust Certificates represented by such Global Security registered in
their names, will not receive or be entitled to receive physical delivery of any
such Trust Certificates and will not be considered the Trust Certificateholders
thereof under the Trust Agreement governing such Trust Certificates. Because the
Depositary can only act on behalf of its Participants, the ability of a holder
of any Trust Certificate to pledge that Trust Certificate to persons or entities
that do not participate in the Depositary's system, or to otherwise act with
respect to such Trust Certificate, may be limited due to the lack of a physical
certificate for such Trust Certificate.
Distributions of principal of (and premium, if any) and any interest on
individual Trust Certificates represented by a Global Security will be made to
the Depositary or its nominee, as the case may be, as the Trust
Certificateholder of such Global Security. None of the Depositor, the Trustee
for such Trust Certificates, any Paying Agent or the Trust Certificate Registrar
for such Trust Certificates will have responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial interests
in such Global Security or for maintaining, supervising or reviewing any records
relating to such beneficial interests.
The Depositor expects that the Depositary for Trust Certificates of a
given Series, upon receipt of any distribution of principal, premium or interest
in respect of a definitive Global Security representing any of such Trust
Certificates, will immediately credit Participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of such Global Security as shown on the records of such Depositary. The
Depositary also expects that payments by Participants to owners of beneficial
interests in such Global Security held through such Participants will be
registered in "street name" and will be the responsibility of such Participants.
24
If the Depositary for Trust Certificates of a given Series is at any
time unwilling or unable to continue as depository and a successor depository is
not appointed by the Depositor within 90 days, the Depositor will issue
individual Definitive Trust Certificates in exchange for the Global Security or
Securities representing such Trust Certificates. In addition, the Depositor may
at any time and in its sole discretion determine not to have any Trust
Certificates of a given Series represented by one or more Global Securities and,
in such event, will issue Definitive Trust Certificates of such Series in
exchange for the Global Security or Securities representing such Trust
Certificates. Further, if the Depositor so specifies with respect to the Trust
Certificates of a given Series, an owner of a beneficial interest in a Global
Security representing Trust Certificates of such Series may, on terms acceptable
to the Depositor and the Depositary for such Global Security, receive individual
Definitive Trust Certificates in exchange for such beneficial interest. In any
such instance, an owner of a beneficial interest in a Global Security will be
entitled to physical delivery of individual Definitive Trust Certificates of the
Series represented by such Global Security equal in principal amount to such
beneficial interest and to have such Definitive Trust Certificates registered in
its name.
The applicable Prospectus Supplement will set forth any specific terms
of the depository arrangement with respect to any Series of Trust Certificates
being offered thereby to the extent not set forth or different from the
description set forth above.
DESCRIPTION OF DEPOSITED ASSETS
General
Each Series of Trust Certificates (or, if more than one Class exists,
each Class within such Series) will represent in the aggregate the entire
beneficial ownership interest in the Underlying Securities (which shall be
Government Securities, senior or subordinated publicly-traded debt obligations
of one or more corporations, general or limited partnerships, preferred
securities of TOPrSSM trusts (as defined below) organized by such issuers, or
securities that are similar to those issued by TOPrSSM trusts, in each case
organized under the laws of the United States of America or any state thereof,
together with other assets. Such other assets may include cash, cash
equivalents, guarantees, letters of credit, financial insurance, interest rate,
currency, equity, commodity and credit-linked swaps, caps, floors, collars and
options, forward contracts, structured securities and other instruments and
transactions that credit enhance, hedge or otherwise support the Underlying
Securities (also described under "Risk Factors--Derivatives") designed to assure
the servicing or timely distribution of payments to holders of the Trust
Certificates. Such assets will be described in the applicable Prospectus
Supplement (such assets, together with the Underlying Securities, the "Deposited
Assets"). Underlying Securities will have been issued pursuant to an effective
registration statement filed with the Commission (or an exemption therefrom). If
the Underlying Securities represent obligations issued by one or more Underlying
Securities Issuers, such Underlying Securities will satisfy certain eligibility
criteria described below under "Underlying Securities Issuer". Except for
Government Securities, the Underlying Securities will be purchased in the
secondary market and will not be acquired from any Underlying Securities Issuer
(whether as part of any distribution by or pursuant to any agreement with such
Underlying Securities Issuer or otherwise). The Underlying Securities will
represent direct obligations of the United States Government, one or more
corporations, general or limited partnerships, preferred securities of TOPrs
Trusts organized by such issuers, or securities that are similar to TOPrSSM, in
each case, organized under the laws of the United States or any state thereof.
No Underlying Securities Issuer will participate in the offering of the Trust
Certificates, nor will an Underlying Securities Issuer receive any of the
proceeds from the sale of Underlying Securities or from the issuance of the
Trust Certificates.
Deposited Assets for a given Series of Trust Certificates and the
related Trust will not constitute Deposited Assets for any other Series of Trust
Certificates and the related Trust, and the Trust Certificates of a given Series
will possess an equal and ratable undivided ownership interest in such Deposited
Assets. The applicable Prospectus Supplement may, however, specify that certain
assets constituting a part of the Deposited Assets relating to any given Series
may be beneficially owned solely by or deposited solely for the benefit of one
Class or a group of Classes within such Series. In such event, the other Classes
of such Series will not possess any beneficial ownership interest in those
specified assets constituting a part of the Deposited Assets.
25
This Prospectus relates only to the Trust Certificates offered hereby
and does not relate to the Underlying Securities. The following description of
the Underlying Securities and the Underlying Securities Issuer is intended only
to summarize material characteristics of the Underlying Securities that the
Depositor is permitted to deposit in a Trust and does not purport to be a
complete description of any prospectus relating to Underlying Securities or of
any related Indenture.
The applicable Prospectus Supplement will describe the material terms
of the Deposited Assets, including the material terms of any derivative
instruments that are included in the Deposited Assets.
Underlying Securities Issuer
The Underlying Securities Issuers will be the United States Government,
one or more corporations, general or limited partnerships, TOPrSSM trusts
organized by such issuers, or by issuers of preferred securities that are
similar to TOPrSSM, in each case organized under the laws of the United States
or any state thereof. The applicable Prospectus Supplement will provide only
limited information about each Underlying Securities Issuer, such as its name,
place of incorporation and the address of its principal offices, unless a Trust
consists of Underlying Securities of a Concentrated Underlying Securities
issuer. In that event, the applicable Prospectus Supplement will include audited
financial statements of such Concentrated Underlying Securities issuer; provided
that if such Underlying Securities Issuer is eligible to use Form S-3 for a
primary offering, then the applicable Prospectus Supplement will only refer to
the periodic reports filed with the Commission by such Underlying Securities
Issuer, which periodic reports should be reviewed by any prospective Trust
Certificateholder of the Trust containing such Underlying Securities. See "Risk
Factors--Information Concerning Underlying Securities Issuers; Risk of Loss if
Public Information not Available".
Reports and information referred to in the preceding paragraph may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following Regional Offices of the Commission: New York Regional Office, Room
1100, 7 World Trade Center, New York, New York 10048 and Chicago Regional
Office, Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511, and copies of such material can be obtained
from the Public Reference Section of the Commission, Washington, D.C. 20549, at
prescribed rates. Such material may also be accessed electronically by means of
the Commission's home page on the Internet at http://www.sec.gov.
WITH RESPECT TO ANY UNDERLYING SECURITIES, A PROSPECTIVE TRUST
CERTIFICATE HOLDER SHOULD OBTAIN AND EVALUATE THE SAME INFORMATION CONCERNING
THE RELEVANT UNDERLYING SECURITIES ISSUER AS IT WOULD OBTAIN AND EVALUATE IF IT
WERE INVESTING DIRECTLY IN THE UNDERLYING SECURITIES OR IN THE ISSUER THEREOF.
None of the Depositor, the Trustee, Merrill Lynch & Co. or any of their
affiliates assumes any responsibility for the accuracy or completeness of any
publicly available information concerning any Underlying Securities Issuer
(including, without limitation, any investigation as to its financial condition
or creditworthiness) or concerning any Underlying Securities (whether or not
such information is filed with the Commission) or otherwise considered by a
purchaser of the Trust Certificates in making its investment decision in
connection therewith; provided that the foregoing shall not apply to any
information concerning the Underlying Securities and any Underlying Securities
Issuer that is expressly set forth in this Prospectus or an applicable
Prospectus Supplement (i.e., identifying information, information of the type
described in an applicable Prospectus Supplement under "Description of the
Underlying Securities--General" and "Description of the Underlying
Securities--Underlying Securities Indenture".
26
Underlying Securities Indenture
General. Except for Government Securities or unless otherwise specified
in the applicable Prospectus Supplement, each Underlying Security will have been
issued pursuant to an Indenture between the Underlying Securities Issuer and a
trustee (the "Underlying Securities Trustee"). The Indenture and the Underlying
Securities Trustee will be qualified under the Trust Indenture Act of 1939 (the
"Trust Indenture Act") and the Indenture will contain certain provisions
required by the Trust Indenture Act. Government Securities are not issued
pursuant to an indenture, are exempt from the Securities Act under Section
3(a)(2) thereof and from the Trust Indenture Act under Section 304(a)(4)
thereof.
Certain Covenants. Indentures generally contain covenants intended to
protect security holders against the occurrence or effects of certain specified
events, including restrictions limiting the issuer's, and in some cases one or
more of the issuer's subsidiaries', ability to: (i) consolidate, merge, or
transfer or lease assets; (ii) incur or suffer to exist any lien, charge or
encumbrance upon all or some specified portion of its property or assets, or to
incur, assume, guarantee or suffer to exist any indebtedness for borrowed money
if the payment of such indebtedness is secured by the grant of such a lien; or
(iii) declare or pay any cash dividends, or make any distributions on or in
respect of, or purchase, redeem, exchange or otherwise acquire or retire for
value, any capital stock or subordinated indebtedness of the issuer or its
subsidiaries, if any. An indenture may also contain financial covenants which,
among other things, require the maintenance of certain financial ratios or the
creation or maintenance of reserves or permit certain actions to be taken only
if compliance with such covenants can be demonstrated at the time the actions
are to be taken. Subject to certain exceptions, indentures typically may be
amended or supplemented and past defaults may be waived with the consent of the
indenture trustee, the consent of the holders of not less than a specified
percentage of the outstanding securities, or both.
The Indenture for one or more Underlying Securities included in a Trust
may include some, all or none of the foregoing provisions or variations thereof,
together with additional covenants not discussed herein. There can be no
assurance that any type of Underlying Securities will be subject to any such
covenants or that any such covenants will protect the Trust as a holder of the
Underlying Securities against losses. The Prospectus Supplement used to offer
any Series of Trust Certificates will describe material covenants concerning any
Concentrated Underlying Security and, as applicable, will describe material
covenants which are common to any pool of Underlying Securities. Any material
risk factors associated with non-investment grade Underlying Securities
deposited into a Trust will be set forth in the applicable Prospectus
Supplement.
Events of Default. Indentures generally provide that any one of a
number of specified events will constitute an event of default with respect to
the securities issued thereunder. Such events of default typically include the
following or variations thereof: (i) failure by the issuer to pay an installment
of interest or principal on the securities at the time required (subject to any
specified grace period) or to redeem any of the securities when required
(subject to any specified grace period); (ii) failure by the issuer to observe
or perform any covenant, agreement or condition contained in the securities or
the indenture which failure is materially adverse to security holders and
continues for a specified period after notice thereof is given to the issuer by
the indenture trustee or the holders of not less than a specified percentage of
the outstanding securities; (iii) failure by the issuer and/or one or more of
its subsidiaries to make any required payment of principal (and premium, if any)
or interest with respect to other material outstanding debt obligations or the
acceleration by or on behalf of the holders of such securities; and (iv) certain
events of bankruptcy or insolvency with respect to the issuer and/or one or more
of its subsidiaries.
Remedies. Indentures generally provide that upon the occurrence of an
event of default, the indenture trustee may, and upon the written request of the
holders of not less than a specified percentage of the outstanding securities
the indenture trustee must, take such action as it may deem appropriate to
protect and enforce the rights of the security holders. Certain indentures
provide that the indenture trustee or a specified percentage of the holders of
the outstanding securities have the right to declare all or a portion of the
principal and accrued interest on the outstanding securities immediately due and
payable upon the occurrence of certain events of default, subject to the
issuer's right to cure, if applicable. Generally, an indenture will contain a
provision entitling the trustee thereunder to be indemnified by the security
holders prior to proceeding to exercise any right or power under such indenture
with respect to such securities at the request of such security holders. An
indenture is also likely to limit a security
27
holder's right to institute certain actions or proceedings to pursue any remedy
under the indenture unless certain conditions are satisfied, including obtaining
the consent of the indenture trustee, that the proceeding be brought for the
ratable benefit of all holders of the security and/or that the indenture
trustee, after being requested to institute a proceeding by the owners of at
least a specified minimum percentage of the securities, shall have refused or
neglected to comply with such request within a reasonable time.
Each Indenture may include some, all or none of the foregoing
provisions or variations thereof, together with additional events of default
and/or remedies not discussed herein. The Prospectus Supplement for any Series
of Trust Certificates will describe the events of default under the Indenture
for any Concentrated Underlying Security and the applicable remedies. The
Prospectus Supplement for any Trust consisting of a pool of Underlying
Securities will describe certain common Underlying Security events of default
with respect to such pool. There can be no assurance that any such provision
will protect the Trust, as a holder of the Underlying Securities, against
losses. Furthermore, a Trust Certificateholder will have no independent legal
right to exercise any remedies with respect to the Underlying Securities and
will be required to rely on the Trustee of the applicable Trust to pursue any
available remedies on behalf of the relevant Trust Certificateholders in
accordance with the terms of the Trust Agreement. If an Underlying Security
Event of Default occurs and the Trustee as a holder of the Underlying Securities
is entitled to vote or take such other action to declare the principal amount of
an Underlying Security and any accrued and unpaid interest thereon to be due and
payable, the Trust Certificateholders' objectives may differ from those of
holders of other securities of the same Series and Class as any Underlying
Security in determining whether to require the acceleration of the Underlying
Securities. See "Risk Factors--Limitation on Remedies Due to Passive Nature of
the Trust".
Subordination. If specified in the applicable Prospectus Supplement,
certain of the Underlying Securities with respect to any Trust may be either
senior ("Senior Underlying Securities") or subordinated ("Subordinated
Underlying Securities") in right to payment to other existing or future
indebtedness of the Underlying Securities Issuer. With respect to Subordinated
Underlying Securities, to the extent of the subordination provisions of such
securities, and after the occurrence of certain events, security holders and
direct creditors whose claims are senior to Subordinated Underlying Securities,
if any, may be entitled to receive payment of the full amount due thereon before
the holders of any subordinated debt securities are entitled to receive payment
on account of the principal (and premium, if any) or any interest on such
securities. Consequently, the Trust as a holder of subordinated debt may suffer
a greater loss than if it held unsubordinated debt of the Underlying Securities
Issuer. There can be no assurance, however, that in the event of a bankruptcy or
similar insolvency proceeding the Trust as a holder of Senior Underlying
Securities would receive all payments in respect of such securities even if
holders of subordinated securities receive no amounts in respect of such
securities. Reference is made to the Prospectus Supplement used to offer any
Series of Trust Certificates for a description of any subordination provisions
with respect to any Concentrated Underlying Securities and the percentage of
Senior Underlying Securities and Subordinated Underlying Securities, if any, in
a Trust comprised of a pool of securities.
Secured Obligations. Certain of the Underlying Securities with respect
to any Trust may represent secured obligations of the Underlying Securities
Issuer ("Secured Underlying Securities"). Generally, unless an event of default
shall have occurred, or with respect to certain collateral or as otherwise set
forth in the indenture pursuant to which such securities were issued, an issuer
of secured obligations has the right to remain in possession and retain
exclusive control of the collateral and to collect, invest and dispose of any
income related to the collateral. The indenture pursuant to which any secured
indebtedness is issued may also contain certain provisions for release,
substitution or disposition of collateral under certain circumstances with or
without the consent of the indenture trustee or upon the direction of not less
than a specified percentage of the security holders. The indenture pursuant to
which any secured indebtedness is issued typically will also provide for the
disposition of the collateral upon the occurrence of certain events of default
with respect thereto. In the event of a default in respect of any secured
obligation, security holders may experience a delay in payments on account of
principal (and premium, if any) or any interest on such securities pending the
sale of any collateral and prior to or during such period the related collateral
may decline in value. If proceeds of the sale of collateral following an
indenture event of default are insufficient to repay all amounts due in respect
of any secured obligations, the holders of such securities (to the extent not
repaid from the proceeds of the sale of the collateral) would have only an
unsecured claim ranking pari passu with the claims of all other general
unsecured creditors.
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The Indenture with respect to Secured Underlying Securities may include
some, all or none of the foregoing provisions or variations thereof. The
Prospectus Supplement used to offer any Series of Trust Certificates that
includes Concentrated Underlying Securities which are Secured Underlying
Securities will describe the material security provisions of such Underlying
Securities and the related collateral. With respect to any Trust composed of a
pool of securities, a substantial portion of which are Secured Underlying
Securities, the applicable Prospectus Supplement will disclose certain material
information with respect to such security provisions and the collateral.
Principal Terms of Underlying Securities
Reference is made to the applicable Prospectus Supplement for each
Series of Trust Certificates for a description of the following terms, as
applicable, of any Concentrated Underlying Security: (i) the title and series of
such Underlying Securities, and the aggregate principal amount, denomination and
form thereof; (ii) whether such securities are senior or subordinated to any
other existing or future obligations of the Underlying Securities Issuer; (iii)
whether any of the obligations are secured and the nature of any collateral;
(iv) the limit, if any, upon the aggregate principal amount of such securities;
(v) the dates on which, or the range of dates within which, the principal of
(and premium, if any, on) such securities will be payable; (vi) the rate or
rates, or the method of determination thereof, at which such Underlying
Securities will bear interest, if any ("Underlying Securities Rate"); 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 Underlying
Securities Issuer to redeem such Underlying Securities and other securities of
the same Class or Series pursuant to any sinking fund or similar 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
securities may be redeemed or repurchased, in whole or in part, pursuant to such
obligation; (viii) the periods within which or the dates on which, the prices at
which and the terms and conditions upon which such securities may be redeemed,
if any, in whole or in part, at the option of the Underlying Securities Issuer;
(ix) the periods within which or the dates on which, the prices at which and the
terms and conditions upon which the holder of the Underlying Securities may
require the issuer of the Puttable Underlying Securities to repurchase or
otherwise repay such Puttable Underlying Securities; (x) whether the Underlying
Securities were issued at a price lower than the principal amount thereof; (xi)
if other than U.S. dollars, the currency in which such securities are
denominated, or in which payment of the principal of (and premium, if any) or
any interest on such Underlying Securities will be made, and the circumstances,
if any, when such currency of payment may be changed; (xii) material events of
default or restrictive covenants provided for with respect to such Underlying
Securities; (xiii) the rating thereof, if any; (xv) the principal United States
market on which the Underlying Securities are traded, if any; and (xiv) any
other material terms of such Underlying Securities.
With respect to a Trust comprised of a pool of Underlying Securities,
the applicable Prospectus Supplement will describe the composition of the
Underlying Securities pool as of the Cut-off Date, certain material events of
default or restrictive covenants common to the Underlying 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 subclauses
(ii), (iii), (v), (vi), (vii), (viii), (ix), (x) and (xi) of the preceding
paragraph and any other material terms regarding such pool of securities.
Other than publicly traded debt securities which satisfy the necessary
requirements set forth herein for Underlying Securities, the Underlying
Securities may consist of, or be similar in structure to, Trust Originated
Preferred Securities ("TOPrSsm") in respect of eligible corporations or general
or limited partnerships. (Trust Originated Preferred Securities and TOPrSsm are
service marks of Merrill Lynch & Co.)
If an issuer of Concentrated Underlying Securities ceases to file
periodic reports under the Exchange Act, the Depositor will continue to be
subject to the reporting requirements of the Exchange Act but certain
information with respect to such issuer may be unavailable. In such cases, the
Trustee of the relevant Trust will exercise one of the following remedies: (i)
sell all of such Concentrated Underlying Securities and distribute the proceeds
from such sale to the Trust Certificateholders in accordance with the Allocation
Ratio (any such sale will result in a loss to the Trust Certificateholders of
the relevant Series if the sale price is less than the purchase price for such
Concentrated Underlying Securities), (ii) distribute such Concentrated
Underlying Securities in accordance with the Allocation Ratio, or (iii) elect
either (i) or (ii) based upon a majority of votes cast by the affected Trust
Certificateholders. The
29
applicable Prospectus Supplement will specify which of these two remedies must
be exercised by the Trustee, and the Trustee, the Depositor and the Trust
Certificateholders will have no discretion in this respect.
Credit Support
As specified in the applicable Prospectus Supplement for a given Series
of Trust Certificates, the Trust for any Series of Trust Certificates may
include, or the Trust Certificateholders of such Series (or any Class or group
of Classes within such Series) may have the benefit of, Credit Support for any
Class or group of Classes within such Series. Credit Support directly benefits
the relevant Trust and thereby benefits Trust Certificateholders. Such Credit
Support may be provided by any combination of the following means described
below or any other means described in the applicable Prospectus Supplement. The
applicable Prospectus Supplement will set forth whether the Trust for any Class
or Classes of Trust Certificates contains, or the Trust Certificateholders of
such Trust Certificates have the benefit of, Credit Support and, if so, the
amount, type and other relevant terms of each element of Credit Support with
respect to any such Class or Classes and certain information with respect to the
obligors of each such element, including financial information with respect to
any such obligor providing Credit Support for 20% or more of the aggregate
principal amount of such Class or Classes.
Subordination. As discussed below under "--Collections", the rights of
the Trust Certificateholders of any given Class within a Series of Trust
Certificates to receive collections from the Trust for such Series and any
Credit Support obtained for the benefit of the Trust Certificateholders of such
Series (or Classes within such Series) may be subordinated to the rights of the
Trust Certificateholders of one or more other Classes of such Series to the
extent described in the applicable Prospectus Supplement. Such subordination
accordingly provides some additional Credit Support to those Trust
Certificateholders of those other Classes. For example, if losses are realized
during a given period on the Deposited Assets relating to a Series of Trust
Certificates such that the collections received thereon are insufficient to make
all distributions on the Trust Certificates of such Series, those Realized
Losses would be allocated to the Trust Certificateholders of any Class of any
such Series that is subordinated to another Class, to the extent and in the
manner provided in the applicable Prospectus Supplement. In addition, if so
provided in the applicable Prospectus Supplement, certain amounts otherwise
payable to Trust Certificateholders of any Class that is subordinated to another
Class may be required to be deposited into a Reserve Account.
If so provided in the applicable Prospectus Supplement, the Credit
Support for any Series or Class of Trust Certificates may also include other
forms of Credit Support, described below. Any such other forms of Credit Support
that are solely for the benefit of a given Class will be limited to the extent
necessary to make required distributions to the Trust Certificateholders of such
Class or as otherwise specified in the applicable Prospectus Supplement. In
addition, if so provided in the applicable Prospectus Supplement, the obligor of
any other forms of Credit Support may be reimbursed for amounts paid pursuant to
such Credit Support out of amounts otherwise payable to one or more of the
Classes of the Trust Certificates of such Series. Further, payments to be made
in respect of any forms of Credit Support arranged for on behalf of the Trust
Certificateholders may be required to be paid prior to any distributions that
must be made to Trust Certificateholders.
Letter of Credit; Surety Bond. The Trust Certificateholders of any
Series (or Class or group of Classes of Trust Certificates within such Series)
may, if specified in the applicable Prospectus Supplement, have the benefit of a
letter or letters of credit (a "Letter of Credit") issued by a bank (a "Letter
of Credit Bank") or a surety bond or bonds (a "Surety Bond") issued by a surety
company (a "Surety"). In either case, the Trustee or such other person specified
in the applicable Prospectus Supplement will use its reasonable efforts to cause
the Letter of Credit or the Surety Bond, as the case may be, to be obtained, to
be kept in full force and effect (unless coverage thereunder has been exhausted
through payment of claims) and to pay timely the fees or premiums therefor
unless, as described in the applicable Prospectus Supplement, the payment of
such fees or premiums is otherwise provided for. The Trustee or such other
person specified in the applicable Prospectus Supplement will make or cause to
be made draws under the Letter of Credit or the Surety Bond, as the case may be,
under the circumstances and to cover the amounts specified in the applicable
Prospectus Supplement. Any amounts otherwise available under the Letter of
Credit or the Surety Bond will be reduced to the extent of any prior
unreimbursed draws thereunder. The applicable
30
Prospectus Supplement will provide the manner, priority and source of funds by
which any such draws are to be repaid.
Unless otherwise specified in the applicable Prospectus Supplement, if
the Letter of Credit Bank or the Surety, as applicable, ceases to satisfy any
credit rating or other applicable requirements specified in the applicable
Prospectus Supplement, the Trustee or such other person specified in the
applicable Prospectus Supplement will use its reasonable efforts to obtain or
cause to be obtained a substitute Letter of Credit or Surety Bond, as
applicable, or other form of credit enhancement providing similar protection,
that meets such requirements and provides the same coverage to the extent
available for the same cost. There can be no assurance that any Letter of Credit
Bank or any Surety, as applicable, will continue to satisfy such requirements or
that any such substitute Letter of Credit, Surety Bond or similar credit
enhancement will be available providing equivalent coverage for the same cost.
To the extent not so available, the Credit Support otherwise provided by the
Letter of Credit or the Surety Bond (or similar credit enhancement) may be
reduced to the level otherwise available for the same cost as the original
Letter of Credit or Surety Bond.
Reserve Accounts. If so provided in the applicable Prospectus
Supplement, the Trustee or such other person specified in the Prospectus
Supplement will deposit or cause to be deposited into an account maintained with
an eligible institution (which may be the Trustee) (a "Reserve Account") any
combination of cash or permitted investments in specified amounts, which will be
applied and maintained in the manner and under the conditions specified in such
Prospectus Supplement. In the alternative or in addition to such deposit, a
Reserve Account may be funded through application of a portion of collections
received on the Deposited Assets for a given Series of Trust Certificates, in
the manner and priority specified in the applicable Prospectus Supplement.
Amounts may be distributed to Trust Certificateholders of such Class or group of
Classes within such Series, or may be used for other purposes, in the manner and
to the extent provided in the applicable Prospectus Supplement. Amounts
deposited in any Reserve Account will be invested in certain permitted
investments by, or at the direction of, the Trustee, the Depositor or such other
person as may be specified in the applicable Prospectus Supplement.
Collections
The Trust Agreement will establish procedures by which the Trustee or
such other person as may be specified in the Prospectus Supplement is obligated,
for the benefit of the Trust Certificateholders of each Series of Trust
Certificates, to administer the related Deposited Assets, including making
collections of all payments made thereon, depositing from time to time prior to
any applicable Distribution Date such collections into a segregated trust
account maintained or controlled by the applicable Trustee for the benefit of
such Series (each a "Trust Certificate Account"). An Administrative Agent, if
any is appointed, will direct the Trustee, and otherwise the Trustee will make
all determinations, as to the appropriate application of such collections and
other amounts available for distribution to the payment of any administrative or
collection expenses (such as the administrative fee) and certain Credit
Support-related ongoing fees (such as insurance premiums, letter of credit fees
or any required account deposits) and to the payment of amounts then due and
owing on the Trust Certificates of such Series (and Classes within such Series),
all in the manner and priorities described in the applicable Prospectus
Supplement. The applicable Prospectus Supplement will specify the collection
periods, if applicable, and Distribution Dates for a given Series of Trust
Certificates and the particular requirements relating to the segregation and
investment of collections received on the Deposited Assets during a given
collection period or on or by certain specified dates. There can be no assurance
that amounts received from the Deposited Assets and any Credit Support obtained
for the benefit of Trust Certificateholders for a particular Series or Class of
Trust Certificates over a specified period will be sufficient, after payment of
all prior expenses and fees for such period, to pay amounts then due and owing
to holders of such Trust Certificates. The applicable Prospectus Supplement will
also set forth the manner and priority by which any Realized Loss will be
allocated among the Classes of any Series of Trust Certificates, if applicable.
The relative priorities of distributions with respect to collections
from the assets of the Trust assigned to Classes of a given Series of Trust
Certificates may permanently or temporarily change over time upon the occurrence
of certain circumstances specified in the applicable Prospectus Supplement.
Moreover, the applicable Prospectus Supplement may specify that the Allocation
Ratio in respect of each Class of a given Series for purposes
31
of payments of certain amounts, such as principal, may be different from the
Allocation Ratio assigned to each such Class for payments of other amounts, such
as interest or premium.
DESCRIPTION OF THE TRUST AGREEMENT
General. The following summary of material provisions of the Trust
Agreement does not purport to be complete, and such summary is qualified in its
entirety by reference to the detailed provisions of the form of Trust Agreement
filed as an exhibit to the Registration Statement. Wherever particular sections
or defined terms of the Standard Terms are referred to, such sections or defined
terms are incorporated herein by reference as part of the statement made, and
the statement is qualified in its entirety by such reference.
Assignment of Deposited Assets
At the time any Series of Trust Certificates is issued, the Depositor
will cause the Underlying Securities and the Deposited Assets specified in the
Prospectus Supplement, if any, to be assigned and delivered to the Trustee to be
deposited in the related Trust, together with all principal, premium (if any)
and interest received by or on behalf of the Depositor on or with respect to
such Underlying Securities and other Deposited Assets after the cut-off date
specified in the Prospectus Supplement (the "Cut-off Date"), other than
principal, premium (if any) and interest due on or before the Cut-off Date and
other than any Retained Interest. Concurrently with such assignment, the
Depositor will execute, and the Trustee will authenticate and deliver, the Trust
Certificates to the Depositor in exchange for the Underlying Securities and
other Deposited Assets, if any. Each Deposited Asset will be identified in a
schedule to the Trust Agreement. Such schedule will include certain summary
identifying information with respect to each Underlying Security and each other
Deposited Asset as of the Cut-off Date. Such schedule will include, to the
extent applicable, information regarding the payment terms of any Concentrated
Underlying Security, the Retained Interest, if any, with respect thereto, the
maturity or terms thereof, the rating, if any, thereof and any other material
information with respect thereto.
In addition, the Depositor will, with respect to each Deposited Asset,
deliver or cause to be delivered to the Trustee (or to the custodian hereinafter
referred to) all documents necessary to transfer ownership of such Deposited
Asset to the Trustee. The Trustee (or such custodian) will hold such documents
in trust for the benefit of the Trust Certificateholders.
The Depositor will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the Trust Agreement. Upon a breach of any such representation
of the Depositor which materially and adversely affects the interests of the
Trust Certificateholders, the Depositor will be obligated to cure the breach in
all material respects.
Collection and Other Administrative Procedures
General. With respect to any Series of Trust Certificates, the Trustee
or such other person specified in the Prospectus Supplement, directly or through
administrative agents, will establish and maintain certain accounts for the
benefit of the holders of the relevant Trust Certificates and will deposit in
such accounts all amounts received by it in respect of the Deposited Assets. The
Trustee on behalf of the Trust may direct any depository institution maintaining
such accounts to invest the funds in such accounts in one or more Eligible
Investments (as defined in the Trust Agreement) bearing interest or sold at a
discount. Any earnings with respect to such investments will be paid to, and any
losses with respect to such investments will be solely for the account of, the
Trust Certificateholders (and, if applicable, the holder of the Retained
Interest) in accordance with the Allocation Ratio. Further, the Trustee or such
other person specified in the Prospectus Supplement, will make reasonable
efforts to collect all scheduled payments under the Deposited Assets and will
follow or cause to be followed such collection procedures, if any, as it would
follow with respect to comparable financial assets that it held for its own
account, provided that such procedures are consistent with the Trust Agreement
and any related instrument governing any Credit Support and provided further
that, except as otherwise expressly set forth in the applicable Prospectus
Supplement, it shall not be required to expend or risk its own funds or
otherwise incur personal financial liability.
32
Realization upon Defaulted Deposited Assets. The Trustee, as
administrator with respect to the Deposited Assets, on behalf of the Trust
Certificateholders of a given Series (or any Class or Classes within such
Series), will present claims under each applicable Credit Support instrument and
will take such reasonable steps as are necessary to receive payment or to permit
recovery thereunder with respect to defaulted Deposited Assets. As set forth
above, all collections by or on behalf of the Trustee under any Credit Support
instrument are to be deposited in the Trust Certificate Account for the related
Trust, subject to withdrawal as described above.
The Trustee will be obligated to follow or cause to be followed such
normal practices and procedures as it deems necessary or advisable to realize
upon any defaulted Deposited Asset; provided that, the Trustee will be required
to expend or risk its own funds or otherwise incur financial liability if and
only to the extent specified in the applicable Prospectus Supplement. If the
proceeds of any liquidation of the defaulted Deposited Asset are less than the
sum of (i) the outstanding principal balance of the defaulted Deposited Asset,
(ii) interest accrued but unpaid thereon at the applicable interest rate and
(iii) the aggregate amount of expenses incurred by the Trustee in connection
with such proceedings to the extent reimbursable from the assets of the Trust
under the Trust Agreement, the Trust for the applicable Series will realize a
loss in the amount of such difference. To the extent provided in the applicable
Prospectus Supplement, the Trustee will be entitled to withdraw or cause to be
withdrawn from the related Trust Certificate Account out of the net proceeds
recovered on any defaulted Deposited Asset, prior to the distribution of such
proceeds to Trust Certificateholders, amounts representing its normal
administrative compensation on the Deposited Asset, unreimbursed administrative
expenses incurred with respect to the Deposited Asset and any unreimbursed
advances of delinquent payments made with respect to the Deposited Asset.
Retained Interest
The Prospectus Supplement for a Series of Trust Certificates will
specify whether there will be any Retained Interest in the Deposited Assets,
and, if so, the owner thereof. If so provided, the Retained Interest will be
established on an asset-by-asset basis and will be specified in an exhibit to
the applicable Series Supplement. A Retained Interest in a Deposited Asset
represents a specified ownership interest therein and a right to a portion of
the payments thereon. Payments in respect of the Retained Interest will be
deducted from payments on the Deposited Assets as received and, in general, will
not be deposited in the applicable Trust Certificate Account or become a part of
the related Trust. After the Trustee deducts all applicable fees (as provided
for in the Trust Agreement) from any partial recovery on an Underlying Security,
the Trustee will allocate any such partial recovery between the holder of the
Retained Interest (if any) and the Trust Certificateholders of the applicable
Series.
Advances in Respect of Delinquencies
Unless otherwise specified in the applicable Prospectus Supplement, the
Trustee will have no obligation to make any advances with respect to collections
on the Deposited Assets or in favor of the Trust Certificateholders of the
related Series of Trust Certificates. However, to the extent provided in the
applicable Prospectus Supplement, the Trustee will advance on or before each
Distribution Date its own funds or funds held in the Trust Certificate Account
for such Series that are not part of the funds available for distribution for
such Distribution Date, in an amount equal to the aggregate of payments of
principal, premium (if any) and interest (net of related fees and any Retained
Interest) with respect to the Deposited Assets that were due during the related
Collection Period and were delinquent on the related Record Date, subject to (i)
the Trustee's good faith determination that such advances will be reimbursable
from Related Proceeds (as defined below) and (ii) such other conditions as may
be specified in the Prospectus Supplement.
Advances are intended to maintain a regular flow of scheduled interest,
premium (if any) and principal payments to holders of the Class or Classes of
Trust Certificates entitled thereto, rather than to guarantee or insure against
losses. Unless otherwise provided in the applicable Prospectus Supplement,
advances of the Trustee's funds, if any, will be reimbursable only out of
related recoveries on the Deposited Assets (and amounts received under any form
of Credit Support) for such Series with respect to which such advances were made
(as to any Deposited Assets, "Related Proceeds"); provided, however, that any
such advance will be reimbursable from any amounts in the Trust Certificate
Accounts for such Series to the extent that the Trustee shall determine, in its
sole judgment, that such
33
advance is not ultimately recoverable from Related Proceeds. If advances have
been made by the Trustee from excess funds in the Trust Certificate Account for
any Series, the Trustee will replace such funds in such Trust Certificate
Account on any future Distribution Date to the extent that funds in such Trust
Certificate Account on such Distribution date are less than payments required to
be made to Trust Certificateholders on such date. If so specified in the
applicable Prospectus Supplement, the obligations, if any, of the Trustee to
make advances may be secured by a cash advance reserve fund or a surety bond. If
applicable, information regarding the characteristics of, and the identity of
any obligor on, any such surety bond will be set forth in the applicable
Prospectus Supplement.
Certain Matters Regarding the Trustee, the Administrative Agent, and the
Depositor
The Trustee may enter into agreements ("Administration Agreements")
with one or more Administrative Agents in order to delegate certain of its
administrative obligations with respect to a related Series under the Trust
Agreement; provided, however, that (i) such delegation shall not release the
Trustee from the duties, obligations, responsibilities or liabilities arising
under the Trust Agreement; (ii) such Administrative Agreement shall not affect
the rating of any Class of Trust Certificates of such Series; (iii) such
agreements must be consistent with the terms of the Trust Agreement, (iv) the
Trustee will remain solely liable for all fees and expenses it may owe to such
Administrative Agent; (v) the Administrative Agent shall give representations
and warranties in such Administration Agreement which are the same in substance
as those required of the Trustee; and (vi) such Administrative Agent shall meet
the eligibility requirements of the Trustee pursuant to the Trust Agreement. An
Administrative Agent, if any, for each Series of Trust Certificates under the
Trust Agreement will be named in the applicable Prospectus Supplement. The
entity serving as Administrative Agent for any such Series may be the Trustee,
the Depositor, an affiliate of either thereof, or any third party and may have
other business relationships with the Trustee, the Depositor or their
affiliates. The applicable Prospectus Supplement will specify the Administrative
Agent's compensation, if any, and the source, manner and priority of payment
thereof, with respect to a given Series of Trust Certificates.
The Trust Agreement will provide that an Administrative Agent may
resign from its obligations and duties under the Trust Agreement with respect to
any Series of Trust Certificates only if such resignation, and the appointment
of a successor, will not result in a withdrawal or downgrading of the rating of
any Class of Trust Certificates of such Series or upon a determination that its
duties under the Trust Agreement with respect to such Series are no longer
permissible under applicable law. No such resignation will become effective
until the Trustee or a successor has assumed the Administrative Agent's
obligations and duties under the Trust Agreement with respect to such Series.
The Trust Agreement will further provide that neither such
Administrative Agent, the Depositor, the Trustee nor any director, officer,
employee, or agent of the Trustee, the Administrative Agent or the Depositor
will incur any liability to the related Trust or Trust Certificateholders for
any action taken, or for refraining from taking any action, in good faith
pursuant to the Trust Agreement or for errors in judgment; provided, however,
that none of the Trustee, the Administrative Agent, the Depositor nor any such
director, officer, employee or agent will be protected against any liability
that would otherwise be imposed by reason of willful misfeasance, bad faith or
gross negligence in the performance of duties thereunder or by reason of
reckless disregard of obligations and duties thereunder. The Trust Agreement
will further provide that the Trustee, an Administrative Agent, the Depositor
and any director, officer, employee or agent of any of them will be entitled to
indemnification by the related Trust and will be held harmless against any loss,
liability or expense incurred in connection with any legal action relating to
the Trust Agreement or the Trust Certificates, other than any loss, liability or
expense incurred by reason of willful misfeasance, bad faith or gross negligence
in the performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. In addition, the Trust Agreement will provide
that the Trustee, an Administrative Agent, and the Depositor are under no
obligation to appear in, prosecute or defend any legal action which is not
incidental to their respective responsibilities under the Trust Agreement or
which in their respective opinions may involve it in any expense or liability.
Each of the Trustee, an Administrative Agent, and the Depositor may, however, in
its discretion undertake any such action which it may deem necessary or
desirable with respect to the Trust Agreement and the rights and duties of the
parties thereto and the interests of the Trust Certificateholders thereunder.
The applicable Prospectus Supplement will describe how such legal expenses and
costs of such action and any liability resulting therefrom will be allocated.
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The Trustee, Depositor, and any Administrative Agent shall have no
obligations with respect to the Underlying Securities. The Depositor is not
authorized to proceed against the Underlying Securities Issuer in the event of a
default. Except as expressly provided in the Trust Agreement, the Trustee is not
authorized to proceed against the Underlying Securities Issuer or to assert the
rights and privileges of Trust Certificateholders.
Any person into which the Trustee, the Depositor, or an Administrative
Agent may be merged or consolidated, or any person resulting from any merger of
consolidation to which the Trustee, Depositor, or an Administrative Agent is a
part, or any person succeeding to the business of the Trustee, Depositor, or an
Administrative Agent, will be the successor of the Trustee, Depositor, or such
Administrative Agent (as the case may be) under the Trust Agreement with respect
to the Trust Certificates of a Series.
Administrative Agent Termination Events; Rights upon Administrative Agent
Termination Event
"Administrative Agent Termination Events" under the Trust Agreement
with respect to any given Series of Trust Certificates will consist of the
following: (i) any failure by an Administrative Agent to remit to the Trustee
any funds in respect of collections on the Deposited Assets and Credit Support,
if any, as required under the Trust Agreement, that continues unremedied for
five days after the giving of written notice of such failure to the
Administrative Agent by the Trustee or the Depositor, or to the Administrative
Agent, the Depositor and the Trustee by the holders of such Trust Certificates
evidencing not less than 25% of the Voting Rights; (ii) any failure by an
Administrative Agent duly to observe or perform in any material respect any of
its other covenants or obligations under its agreement with the Trustee with
respect to such Series which continues unremedied for 30 days after the giving
of written notice of such failure to the Administrative Agent by the Trustee or
the Depositor, or to the Administrative Agent, the Depositor and the Trustee by
the holders of such Trust Certificates evidencing not less than 25% of the
Voting Rights; and (iii) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings and certain actions
by or on behalf of an Administrative Agent indicating its insolvency or
inability to pay its obligations. Any additional Administrative Agent
Termination Events with respect to any given Series of Trust Certificates will
be set forth in the applicable Prospectus Supplement. In addition, the
applicable Prospectus Supplement and the related Series Supplement will specify
as to each matter requiring the vote of holders of Trust Certificates of a Class
or group of Classes within a given Series, the circumstances and manner in which
the Required Percentage applicable to each such matter is calculated. "Required
Percentage" means, with respect to any matter requiring a vote of holders of
Trust Certificates of a given Series, the specified percentage of the aggregate
Voting Rights of Trust Certificates of such Series applicable to such matter.
"Voting Rights" are the portion of the aggregate voting rights of Underlying
Securities allocated to Trust Certificateholders of each Class within a given
Series (and to the holder of the Retained Interest) in direct proportion to the
Allocation Ratio, as set forth in the applicable Prospectus Supplement.
Upon the occurrence of an Administrative Agent Termination Event, the
Trustee may terminate the relevant Administration Agreement and the rights and
obligations of any such Administrative Agent under any Administration Agreement
in accordance with the terms and conditions of any such Administration
Agreement. In the event of a termination of any such Administration Agreement,
the Trustee shall simultaneously reassume direct responsibility for all
obligations delegated in such Administration Agreement without any act or deed
on the part of the applicable Administrative Agent, and the Trustee shall
administer directly the related Underlying Securities or shall enter into an
Administration Agreement with a successor Administrative Agent which so
qualifies under the requirements set forth above. If the Trustee is unwilling or
unable to act, it may appoint, or petition a court of competent jurisdiction for
the appointment of, an Administrative Agent which so qualifies under the
requirements set forth above. Pending such appointment, the Trustee must act in
such capacity (except that if the Trustee is prohibited by law from obligating
itself to make advances regarding delinquent Deposited Assets, then the Trustee
will not be so obligated).
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Trustee Compensation and Payment of Expenses
The applicable Prospectus Supplement will specify the Trustee's
compensation, and the source, manner and priority of payment thereof, with
respect to a given Series of Trust Certificates.
The applicable Series Supplement may provide for the payment by the
Depositor of certain Prepaid Ordinary Expenses (as defined below) of the
Trustee. If the Prepaid Ordinary Expenses set forth in the Series Supplement are
greater than zero, the Trustee will be deemed to agree that the payment of such
amount constitutes full and final satisfaction of and payment for all Ordinary
Expenses. If the Prepaid Ordinary Expenses set forth in the Series Supplement
are zero, the Series Supplement may indicate that Ordinary Expenses will be paid
for by the Trust, in which case the Trustee will be paid on a periodic basis by
the Trust or the Retained Interest at the rate or amount and on the terms
provided for in the Series Supplement. The Trustee has agreed, pursuant to the
Trust Agreement, that its right to receive such payments from the Trust will
constitute full and final satisfaction of and payment for all Ordinary Expenses
and that the Trustee will have no claim on payment of Ordinary Expenses from any
other source, including the Depositor. If the Prepaid Ordinary Expenses set
forth in the Series Supplement are zero, the Series Supplement may provide that
the Depositor will pay to the Trustee from time to time a fee for its services
and expenses as trustee as set forth in the Series Supplement payable at the
times set forth therein. The Trustee will agree, pursuant to the Trust
Agreement, that its right to receive such payments from the Depositor will
constitute full and final satisfaction of and payment for all Ordinary Expenses
and that the Trustee will have no claim for payment of Ordinary Expenses from
the Trust. The Trustee has further agreed that, notwithstanding any failure by
the Depositor to make such periodic payments of Ordinary Expenses, the Trustee
will continue to perform its obligations under the Trust Agreement. The
Depositor's obligations to pay Ordinary Expenses under the Trust Agreement will
be extinguished and of no further effect upon he payment of Ordinary Expenses
due and owing on the termination of the Trust pursuant to the terms of the Trust
Agreement.
Subject to the terms of the Trust Agreement, all Extraordinary
Expenses, to the extent not paid by a third party, are obligations of the Trust,
and when due and payable will be satisfied solely by the Trust. "Extraordinary
Expenses" are any and all costs, expenses or liabilities arising out of the
establishment, existence or administration of the Trust, other than (i) Ordinary
Expenses and (ii) costs and expenses payable by a particular Trust
Certificateholder, the Trustee or the Depositor pursuant to the Trust Agreement.
"Ordinary Expenses" are defined in the Series Supplement and generally will
consist of the Trustee's ordinary expenses and overhead in connection with its
services as Trustee, including (i) the costs and expenses of preparing, sending
and receiving all reports, statements, notices, returns, filings, solicitations
of consent or instructions, or other communications required by the Trust
Agreement, (ii) the costs and expenses of holding and making ordinary collection
or payments on the assets of the Trust and of determining and making payments of
interest or principal, (iii) the costs and expenses of the Trust's or Trustee's
counsel, accountants and other experts for ordinary or routine consultation or
advice in connection with the establishment, administration and termination of
the Trust, and (iv) any other costs and expenses that are or reasonably should
have been expected to be incurred in the ordinary course of administration of
the Trust. If and to the extent specified in the applicable Series Supplement,
in addition to amounts payable to any Administrative Agent, the Trustee will pay
from its compensation certain expenses incurred in connection with its
administration of the Deposited Assets, including, without limitation, payment
of the fees and disbursements of the Trustee, if applicable, and independent
accountants, payment of expenses incurred in connection with distributions and
reports to Trust Certificateholders, and payment of any other expenses described
in the applicable Prospectus Supplement.
The Trustee will not take any action, including appearing in,
instituting or conducting any action or suit under the Trust Agreement or in
relation thereto which is not indemnifiable under the Trust Agreement which, in
the Trustee's opinion, would or might cause it to incur costs, expenses or
liabilities that are Extraordinary Expenses unless (i) the Trustee is satisfied
that it will have adequate security or indemnity in respect of such costs,
expenses and liabilities, (ii) the Trustee has been instructed to do so by Trust
Certificate holders representing not less than the Required Percentage-Remedies,
and (iii) the Trust Certificate holders, pursuant to the instructions given
under clause (ii) above, have agreed that such costs, expenses or liabilities
will either be (x) paid by the Trustee from the Trust, in the case of a vote of
100% of the aggregate principal amount of Trust Certificates then outstanding,
or (y) paid by the Trustee (which payment will be made out of its own funds and
not from monies on deposit in the Trust),
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in which case the Trustee will be entitled to receive, upon demand,
reimbursement from those Trust Certificateholders who have agreed to bear the
entire amount of such costs, expenses or liabilities on a pro rata basis among
such Trust Certificateholders.
Optional Exchange
The terms and conditions, if any, upon which Trust Certificates of any
Series may be exchanged for a pro rata portion of the Deposited Assets of the
related Trust will be specified in the related Series Supplement; provided that
any such Optional Exchange Right will be exercisable only to the extent that the
Depositor provides upon the Trustee's request an opinion of counsel that (i)
such exchange would not be inconsistent with continued satisfaction of the
applicable requirements under the Investment Company Act of 1940, as amended,
and (ii) such exchange would not affect the characterization of the Trust as a
"grantor trust" under the Code; and provided further, that no Trust Certificate
may be exchanged unless the Trustee has received at least 30 days' but not more
than 45 days' notice prior to an Optional Exchange Date (as defined in the
Supplement), as more particularly described in the Trust Agreement.
Any tender of a Trust Certificate by the holder thereof for exchange
will be irrevocable. Unless otherwise provided in the applicable Series
Supplement, the Optional Exchange Right may be exercised by the holder of a
Trust Certificate for less than the aggregate principal amount of such Trust
Certificate as long as the aggregate principal amount outstanding after such
exchange is a multiple of the minimum denomination of such Trust Certificate and
all other exchange requirements set forth in the related Series Supplement are
satisfied. Upon such partial exchange, such Trust Certificate will be cancelled
and a new Trust Certificate or Trust Certificates for the remaining principal
amount of the Trust Certificate will be issued (which, in the case of any Trust
Certificate issued in registered form, will be in the name of the holder of such
exchanged Trust Certificate).
Voting Rights with Respect to Underlying Securities
Within five Business Days after receipt of notice of any meeting of, or
other occasion for the exercise of Voting Rights or the giving of consents by,
owners of any of the Underlying Securities, the Trustee will give notice to the
Trust Certificateholders, setting forth (i) such information as is contained in
such notice to owners of Underlying Securities, (ii) a statement that the Trust
Certificateholders will be entitled, subject to any applicable provision of law
and any applicable provisions of such Underlying Securities, to instruct the
Trustee as to the exercise of Voting Rights, if any, pertaining to such
Underlying Securities and (iii) a statement as to the manner in which
instructions may be given to the Trustee to give a discretionary proxy to a
person designated in the notice received by the Trustee. The Trustee will give
such notice to the Trust Certificateholders of record on the relevant record
date.
Upon the written request of the applicable Trust Certificateholder,
received on or before the date established by the Trustee for such purpose, the
Trustee will endeavor, insofar as practicable and permitted under any applicable
provision of law and any applicable provision of or governing the Underlying
Securities, to vote in accordance with any nondiscretionary instruction set
forth in such written request. The Trustee will not vote except as specifically
authorized and directed in written instructions from the applicable Trust
Certificateholder entitled to give such instructions. Notwithstanding the
foregoing, if the Trustee determines (based upon advice furnished by nationally
recognized independent tax counsel, whether at the request of any Trust
Certificateholder or otherwise) that the exercise of voting rights with respect
to any Underlying Securities could result in a "sale or other disposition" of
such Underlying Securities within the meaning of Section 1001(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), the Trustee will exercise such
voting rights in a manner that would not result in any such sale or other
disposition. The Trustee will have no responsibility to make any such
determination.
By accepting delivery of a Trust Certificate, whether upon original
issuance or subsequent transfer, exchange or replacement thereof, and without
regard to whether ownership is beneficial or otherwise, the Trust
Certificateholder agrees so long as it is an owner of such Trust Certificate
that it will not grant any consent (i) to any conversion of the timing of
payment of, or the method or rate of accruing, interest on the Underlying
Securities underlying the Trust Certificates held by such Trust
Certificateholder or (ii) to any redemption or prepayment of the
37
Underlying Securities underlying the Trust Certificates held by such Trust
Certificateholder. The Trustee will not grant any consent solicited from the
owners of the Underlying Securities underlying the Trust Certificates with
respect to the matters set forth under this section, "Description of the Trust
Agreement--Voting Rights with Respect to Underlying Securities," nor will it
accept or take any action in respect of any consent, proxy or instructions
received from any Trust Certificateholder in contravention of the provisions of
such Section.
Limitations on Rights of Trust Certificateholders
No Trust Certificateholder of a given Series will have the right under
the Trust Agreement to institute any proceeding with respect thereto unless (i)
such Trust Certificateholder previously has given to the Trustee written notice
of a continuing breach, (ii) Trust Certificateholders evidencing not less than
the Required Percentage-Remedies of the aggregate Voting Rights have made
written request upon the Trustee to institute such proceeding in its own name as
Trustee, (iii) such Trust Certificateholder or Trust Certificateholders have
offered the Trustee reasonable indemnity, (iv) the Trustee for 15 days has
failed to institute any such proceeding and (v) no direction inconsistent with
such written request has been given to the Trustee during such 15 day period by
Trust Certificateholders evidencing not less than the Required
Percentage-Remedies of the aggregate Voting Rights. The Trustee, however, is
under no obligation to exercise any of the trusts or powers vested in it by the
Trust Agreement, to make any investigation into the facts of matters arising
under the Trust Agreement or stated in any document believed by it to be
genuine, unless requested in writing to do so by Trust Certificateholders of the
Required Percentage-Direction of Trustee (as defined in the Trust Agreement) or
to institute, conduct or defend any litigation thereunder or in relation thereto
at the request, order or direction of any of the holders of Trust Certificates
covered by the Trust Agreement, unless such Trust Certificateholders have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
Modification and Waiver
Unless otherwise specified in the applicable Prospectus Supplement, the
Trust Agreement may be amended from time to time by the Depositor and the
Trustee without notice to or the consent of any of the Trust Certificateholders
for any of the following purposes: (i) to cure any ambiguity; (ii) to correct or
supplement any provision therein which may be inconsistent with any other
provision therein or in the Prospectus Supplement; (iii) to appoint a change in
Trustee for a Series of Trust Certificates subsequent to the Closing Date (as
defined in the applicable Supplement) for such Series; (iv) to provide for
administration of separate Trusts by more than one trustee; (v) to provide for a
successor Trustee with respect to Trust Certificates of one or more Series; (vi)
to provide for the issuance of a new Series of Trust Certificates pursuant to a
Supplement; (vii) to add or supplement any Credit Support for the benefit of any
Trust Certificateholders (provided that if any such addition affects any series
or Class of Trust Certificateholders differently than any other Series or Class
of Trust Certificateholders, then such addition will not, as evidenced by an
opinion of counsel, have a material adverse effect on the interests of any
affected Series or Class of Trust Certificateholders; (viii) to add to the
covenants, restrictions or obligations of the Depositor, the Administrative
Agent, if any, or the Trustee for the benefit of the Trust Certificateholders;
(ix) to comply with any requirements imposed by the Code; or (x) to add, change
or eliminate any other provisions with respect to matters or questions arising
under this Trust Agreement; provided, however, that in the case of any amendment
the Rating Agency Condition shall be satisfied with respect to such amendment
and that no such amendment shall cause any Trust created hereunder to fail to
qualify as a fixed investment trust (or "grantor trust") under the Code.
Without limiting the generality of the foregoing, unless otherwise
specified in the applicable Prospectus Supplement, the Trust Agreement may also
be modified or amended from time to time by the Depositor and the Trustee, with
the consent of the holders of Trust Certificates evidencing the Required
Percentage-Amendment of the aggregate Voting Rights of those Trust Certificates
that are materially adversely affected by such modification or amendment for the
purpose of adding any provision to or changing in any manner or eliminating any
provision of the Trust Agreement or of modifying in any manner the rights of
such Trust Certificateholders; provided, however, that if such modification or
amendment would materially adversely affect the rating of any Series or Class by
each Rating Agency, the Required Percentage specified in the related Series
Supplement shall include an additional specified percentage of the Trust
Certificates of such Series or Class, and provided further, that no such
amendment will (i) reduce in any manner the amount of, or delay the timing of,
payments received on Deposited Assets which
38
are required to be distributed on any Trust Certificate without the consent of
the holders of such Trust Certificates or (ii) reduce the percentage of
aggregate Voting Rights required to take any action specified in the Trust
Agreement, without the consent of the holders of all Trust Certificates of such
Series or Class then Outstanding.
Unless otherwise specified in the applicable Prospectus Supplement,
holders of Trust Certificates evidencing not less than the Required Percentage
to waive the Voting Rights of a given Series may, on behalf of all Trust
Certificateholders of that Series, (i) waive, insofar as that Series is
concerned, compliance by the Depositor or the Trustee with certain restrictive
provisions, if any, of the Trust Agreement before the time for such compliance
and (ii) waive any past default under the Trust Agreement with respect to Trust
Certificates of that Series, except a default in the failure to distribute
amounts received as principal of (and premium, if any) or any interest on any
such Trust Certificate and except a default in respect of a covenant or
provision the modification or amendment of which would require the consent of
the holder of each outstanding Trust Certificate affected thereby.
Reports to Trust Certificateholders; Notices
Reports to Trust Certificateholders. With each distribution to Trust
Certificateholders of a Series, the Trustee will forward or cause to be
forwarded to each such Trust Certificateholder, to the Depositor and to such
other parties as may be specified in the Trust Agreement, a statement setting
forth:
(i) the amounts received by the Trustee as of the last such
statement in respect of principal, interest and premium on the
Underlying Securities and any amounts received by the Trustee with
respect to any derivatives transaction entered into by the Trust
pursuant to the terms of the Trust Agreement;
(ii) any amounts payable by the Trust as of such date pursuant
to any derivatives transaction entered into by the Trust pursuant to
the terms of the Trust Agreement;
(iii) the amount of compensation received by the
Administrative Agent, if any, and the Trustee for the period relating
to such Distribution Date, and such other customary information as the
Administrative Agent, if any, or otherwise the Trustee deems necessary
or desirable (or that such Certificateholder reasonably requests in
writing) to enable Trust Certificateholders to prepare their tax
returns;
(iv) the amount of the distribution on such Distribution Date
to Trust Certificateholders of each Class of such Series allocable to
principal of and premium, if any, and interest on the Trust
Certificates of each such Class, and the amount of aggregate unpaid
interest accrued as of such Distribution Date;
(v) in the case of Trust Certificates bearing interest on a
floating rate basis, the respective floating rate applicable to such
Trust Certificates on such Distribution Date, as calculated in
accordance with the method specified in such Trust Certificates and the
related Series Supplement;
(vi) if the Series Supplement provides for Advances (as
defined in the Trust Agreement), the aggregate amount of Advances, if
any, included in such distribution, and the aggregate amount of
unreimbursed Advances, if any, at the close of business on such
Distribution Date;
(vii) the aggregate stated principal amount and, if
applicable, Notional Amount of the Underlying Securities related to
such Series, the current interest rate or rates thereon at the close of
business on such Distribution Date and, if such rating has changed
since the last Distribution Date, the current rating assigned thereon
by the applicable Rating Agency;
(viii) the aggregate principal amount (or Notional Amount, if
applicable) of each Class of such Series at the close of business on
such Distribution Date, separately identifying any reduction in such
aggregate principal amount (or Notional Amount) due to the allocation
of certain Realized Losses on such Distribution Date or otherwise, as
provided in the Trust Agreement;
39
(ix) as to any Series (or Class within such Series) for which
Credit Support has been obtained, the amount or notional amount of
coverage of each element of Credit Support (and rating, if any,
thereof) included therein as of the close of business on such
Distribution Date; and
(x) any other information appropriate for a Series, as
specified in the applicable Prospectus Supplement.
Within a reasonable period of time after the end of each calendar year,
the Trustee will furnish to each person who at any time during the calendar year
was a Trust Certificateholder a statement containing the information set forth
in subclause (iii) above, aggregated for such calendar year during which such
person was a Trust Certificateholder. Such obligation of the Trustee will be
deemed to have been satisfied to the extent that substantially comparable
information is provided by the Trustee pursuant to any requirements of the Code
as are from time to time in effect.
Notices. Any notice required to be given to a holder of a Registered
Trust Certificate will be mailed to the last address of such holder set forth in
the applicable Trust Certificate Register. Any notice so mailed within the time
period prescribed in the Trust Agreement or Series Supplement shall be
conclusively presumed to have been duly given when mailed, whether or not the
Trust Certificateholder receives such notice.
Evidence as to Compliance
The Trust Agreement will provide that commencing on a certain date and
on or before a specified date in each year thereafter, a firm of independent
public accountants will furnish a statement to the Trustee to the effect that
such firm has examined certain documents and records relating to the
administration of the Deposited Assets during the related 12-month period (or,
in the case of the first such report, the period ending on or before the date
specified in the Prospectus Supplement, which date shall not be more than one
year after the related Original Issue Date) and that, on the basis of certain
agreed upon procedures considered appropriate under the circumstances, such firm
is of the opinion that such administration was conducted in compliance with the
terms of the Trust Agreement, except for such exceptions as such firm shall
believe to be immaterial and such other exceptions and qualifications as shall
be set forth in such report.
The Trust Agreement will also provide for delivery to the Depositor,
the Administrative Agent, if any, and the Trustee on behalf of the Trust
Certificateholders, on or before a specified date in each year, of an annual
statement signed by two officers of the Trustee to the effect that the Trustee
has fulfilled its obligations under the Trust Agreement throughout the preceding
year with respect to any Series of Trust Certificates.
Copies of the annual accountants' statement, if any, and the statement
of officers of the Trustee may be obtained by Trust Certificateholders without
charge upon written request to either the Administrative Agent or the Trustee,
as applicable, at the address set forth in the applicable Prospectus Supplement.
Replacement Trust Certificates
If a mutilated Trust Certificate is surrendered at the corporate trust
office or agency of the Trustee in the City and State of New York or the
Depositor and the Trustee receive satisfactory evidence that such Trust
Certificate has been lost, destroyed or stolen it may be replaced upon payment
by the holder of such expenses as may be incurred by the Trustee in connection
therewith and the furnishing of such security and indemnity as the Trustee and
the Depositor may require to hold each of them and any Paying Agent harmless;
provided that neither the Depositor nor the Trustee has received notice that
such Trust Certificate was acquired by a bona fide purchaser.
Termination
The obligations created by the Trust Agreement for each Series of Trust
Certificates will terminate upon the payment to Trust Certificateholders of that
Series of all amounts held in the related Trust Certificate Account and required
to be paid to them pursuant to the Trust Agreement following final payment or
other liquidation of any
40
remaining Deposited Assets or Credit Support subject thereto or the disposition
of all property acquired upon foreclosure or liquidation of any such Deposited
Assets or Credit Support. In no event, however, will any Trust created by the
Trust Agreement continue beyond the respective date specified in the applicable
Prospectus Supplement, nor will such Trust continue to exist if its existence
would result in a violation of the common-law Rule Against Perpetuities. Written
notice of termination of the obligations with respect to the related Series of
Trust Certificates under the Trust Agreement will be provided as set forth above
under "--Reports to Trust Certificateholders; Notices", and the final
distribution will be made only upon surrender and cancellation of the Trust
Certificates at an office or agency appointed by the Trustee which will be
specified in the notice of termination.
Any such purchase of Deposited Assets or Credit Support and property
acquired in respect of Deposited Assets or Credit Support evidenced by a Series
of Trust Certificates shall be made at a price approximately equal to the
aggregate fair market value of all the assets in the Trust (as determined by the
Trustee, the Administrative Agent, if any, and, if different than both such
persons, the person entitled to effect such termination), in each case taking
into account accrued interest at the applicable interest rate to the first day
of the month following such purchase or, to the extent specified in the
applicable Prospectus Supplement, a specified price as determined therein. The
exercise of such right will effect early retirement of the Trust Certificates of
that Series, but the right of the person entitled to effect such termination is
subject to the aggregate principal balance of the outstanding Deposited Assets
or Credit Support for such Series at the time of purchase being less than the
percentage of the aggregate principal balance of the Deposited Assets or the
Credit Support at the Cut-off Date (as defined in the Trust Agreement) for the
Series specified in the applicable Prospectus Supplement.
Duties of the Trustee
The Trustee makes no representations as to the validity or sufficiency
of the Trust Agreement, the recitals contained therein, the Trust Certificates
of any Series or any Deposited Asset or related document and is not accountable
for the use or application by the Depositor of any of the Trust Certificates or
the Deposited Assets, or the proceeds thereof. The Trustee is required to
perform only those duties specifically required under the Trust Agreement with
respect to such Series. However, upon receipt of the various certificates,
reports or other instruments required to be furnished to it, the Trustee is
required to examine such documents and to determine whether they conform to the
applicable requirements of the Trust Agreement.
The Trustee
The Trustee for any given Series of Trust Certificates under the Trust
Agreement will be named in the applicable Prospectus Supplement. The commercial
bank, national banking association or trust company serving as Trustee will be
unaffiliated with, but may have banking relationships with or provide financial
services to, the Depositor, any Administrative Agent and their affiliates.
CURRENCY RISKS
An investment in a Trust Certificate having a Specified Currency other
than U.S. dollars entails significant risks that are not associated with a
similar investment in a U.S. dollar-denominated security. Such risks include,
without limitation, the possibility of significant changes in rates of exchange
between the U.S. dollar and such Specified Currency and the possibility of the
imposition or modification of foreign exchange controls with respect to such
Specified Currency. Such risks generally depend on factors over which the
Depositor has no control, such as economic and political events and the supply
of and demand for the relevant currencies. In recent years, rates of exchange
between the U.S. dollar and certain currencies have been highly volatile, and
such volatility may be expected in the future. Past fluctuations in any
particular exchange rate do not necessarily indicate, however, fluctuations in
the rate that may occur during the term of any Trust Certificate. Depreciation
of the Specified Currency for a Trust Certificate against the U.S. dollar would
decrease the effective yield of such Trust Certificate below its Trust
Certificate Rate and, in certain circumstances, could result in a loss to the
investor on a U.S. dollar basis.
41
Governments have from time to time imposed, and may in the future
impose, exchange controls that could affect exchange rates and the availability
of a Specified Currency for making distributions in respect of Trust
Certificates denominated in such currency. At present, the Depositor has
identified the following currencies in which distributions of principal, premium
and interest on Trust Certificates may be made: Australian dollars, Canadian
dollars, Danish kroner, Italian lire, Japanese yen, New Zealand dollars, U.S.
dollars and ECU. However, Trust Certificates distributable in another Specified
Currency may be issued at any time, based upon investor demand for Trust
Certificates denominated in such currencies. There can be no assurance that
exchange controls will not restrict or prohibit distributions of principal,
premium or interest in any Specified Currency. Even if there are no actual
exchange controls, it is possible that, on a Distribution Date with respect to
any particular Trust Certificate, the currency in which amounts then due to be
distributed in respect of such Trust Certificate would not be available.
PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL
ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN TRUST CERTIFICATES
DENOMINATED IN A CURRENCY OTHER THAN U.S. DOLLARS. SUCH TRUST CERTIFICATES ARE
NOT AN APPROPRIATE INVESTMENT FOR PERSONS WHO ARE UNSOPHISTICATED WITH RESPECT
TO FOREIGN CURRENCY TRANSACTIONS.
Any Prospectus Supplement relating to Trust Certificates having a
Specified Currency other than U.S. dollars will contain historical exchange
rates for such currency against the U.S. dollar, a description of such currency,
any exchange controls affecting such currency and any other required information
concerning such currency. Such Prospectus Supplement will also discuss risk
factors relating to any such Specified Currency.
42
FEDERAL INCOME TAX CONSEQUENCES
This summary is based on the Internal Revenue Code of 1986, as amended
to the date hereof (the "Code"), revenue rulings, judicial decisions and
existing and proposed Treasury regulations, including final regulations
concerning the tax treatment of debt instruments issued with original issue
discount (the "OID Regulations"), changes to any of which subsequent to the date
of the Prospectus may affect the tax consequences described herein.
This summary discusses only Trust Certificates held by Trust
Certificateholders as capital assets within the meaning of Section 1221 of the
Code. It does not discuss all of the tax consequences that may be relevant to a
Trust Certificateholder in light of its particular circumstances or to Trust
Certificateholders subject to special rules, such as certain financial
institutions, insurance companies, dealers or Trust Certificateholders holding
the Trust Certificates as part of a hedging transaction or straddle. Further,
the tax consequences arising from the ownership of any Series of Trust
Certificates with special characteristics will be set forth in the applicable
Prospectus Supplement and a legal opinion of tax counsel will be filed with the
Commission in connection with each such Series of Trust Certificates. In such
opinion, tax counsel will opine as to the tax disclosure regarding the Trust
Certificates set forth in this Prospectus and the applicable Prospectus
Supplement.
In all cases, prospective investors are advised to consult their own
tax advisors regarding the federal tax consequences to them of holding, owning
and disposing of Trust Certificates, including the advisability of making any of
the elections described below, as well as any tax consequences arising under the
law of any state or other taxing jurisdiction.
For purposes of this discussion "U.S. Person" means an individual who,
for federal income tax purposes, is a citizen or resident of the United States
or a corporation, partnership or other entity created or organized in or under
the laws of the United States, any state thereof, or an estate that is subject
to U.S. federal income tax regardless of the source of its income, or a trust if
a court within the United States is able to exercise primary supervision of the
administration of the trust and one or more U.S. persons have the authority to
control all substantial decisions of the trust. "U.S. Owner" means a Trust
Certificateholder that is a U.S. Person and "Non-U.S. Owner" means a Trust
Certificateholder that is not a U.S. Person.
Classification of Investment Arrangement
The arrangement pursuant to which the Trust Certificates will be
created and sold and the Underlying Securities will be administered will be
treated as a grantor trust under subpart E, part I of subchapter J of the Code.
Each Trust Certificateholder will be treated as the owner of a pro rata
undivided interest in the ordinary income and corpus of the Underlying
Securities in the grantor trust.
U.S. Owners
In General
Each Trust Certificateholder will be required to report on its federal
income tax return its pro rata share of the entire income from the Underlying
Securities, including gross interest income at the interest rate on the
Underlying Securities, in accordance with its method of accounting.
Original Issue Discount
The Underlying Securities may have originally been sold at a discount
below their principal amount. As provided in the Code and the OID Regulations,
the excess of the "stated redemption price" (as defined below) of each such
Underlying Security over its "issue price" (defined as the initial offering
price to the public, excluding bond houses and brokers, at which a substantial
amount of such Underlying Securities has been sold) will be original issue
discount if such excess equals or exceeds a de minimis amount (i.e., one-quarter
of one percent of such Underlying Security's stated redemption price multiplied
by the number of complete years to its maturity). An Underlying Security having
more than a de minimis amount of original issue discount is referred to herein
as an
43
"OID Underlying Security." A U.S. Owner of an Underlying Security with a de
minimis amount of original issue discount will include any de minimis original
issue discount in income, as capital gain, on a pro rata basis as principal
payments are made on the Underlying Security. The "stated redemption price" of
an Underlying Security is equal to the sum of all payments on the Underlying
Security other than interest based on a fixed rate (or a variable rate, unless
an applicable Prospectus Supplement otherwise states) and payable
unconditionally at least annually.
U.S. Owners are required to include original issue discount in income
as it accrues, which may be before the receipt of the cash attributable to such
income, based on a compounding of interest at a constant rate (using the yield
to maturity of the Underlying Security as originally issued). Under these rules,
U.S. Owners generally must include in income increasingly greater amounts of
original issue discount in successive accrual periods, unless payments that are
part of the state redemption price at maturity of an Underlying Security are
made before its final maturity. The OID Regulations permit U.S. Owners to use
accrual periods of any length up to one year (including daily accrual periods)
to compute accruals of original issue discount, provided each scheduled payment
of principal or interest occurs either on the first or the last day of an
accrual period.
Acquisition Premium and Market Discount
In the event that a U.S. Owner purchases an OID Underlying Security at
an acquisition premium (i.e., at a price in excess of its "adjusted issue price"
but less than its stated redemption price), the amount includible in income in
each taxable year as original issue discount is reduced by that portion of the
excess properly allocable to such year. The adjusted issue price is defined as
the sum of the issue price of the Underlying Security and the aggregate amount
of previously accrued original issue discount, less any prior payments of
amounts included in its stated redemption price. Unless a U.S. Owner makes the
accrual method election described below, acquisition premium is allocated on a
pro rata basis to each accrual of original issue discount, so that the U.S.
Owner is allowed to reduce each accrual of original issue discount by a constant
fraction.
A U.S. Owner that purchases at a "market discount" (i.e., at a price
less than the stated redemption price or, in the case of an OID Underlying
Security, the adjusted issue price) will be required (unless such difference is
less than a de minimis amount) to treat any principal payments on, or any gain
realized upon the disposition or retirement of, the Underlying Security as
interest income to the extent of the market discount that accrued while such
U.S. Owner held such Underlying Security, unless the U.S. Owner elects to
include such market discount in income on a current basis. Market discount is
considered to be de minimis if it is less than one-quarter of one percent of
such Underlying Security's stated redemption price multiplied by the number of
complete years to maturity after the U.S. Owner acquired the Trust Certificate.
If an Underlying Security with more than a de minimis amount of market discount
is disposed of in a nontaxable transaction (other than a nonrecognition
transaction described in Section 1276(d) of the Code), accrued market discount
will be includible as ordinary income to the U.S. Owner as if such U.S. Owner
had sold the Trust Certificate at its then fair market value. A U.S. Owner that
acquired at a market discount and that does not elect to include market discount
in income on a current basis also may be required to defer the deduction for a
portion of the interest expense on any indebtedness incurred or continued to
purchase or carry the Trust Certificate until the deferred income is realized.
Premium
Except as noted below, a U.S. Owner that purchases for an amount in
excess of the principal amount, or in the case of an OID Underlying Security,
the remaining stated redemption price, will be treated as having premium with
respect to the Underlying Security in the amount of such excess. A U.S. Owner
that purchases an OID Underlying Security at a premium is not required to
include in income any original issue discount with respect to such Underlying
Security. If such a U.S. Owner makes an election under Section 171(c)(2) of the
Code to treat such premium as "amortizable bond premium," the amount of interest
that must be included in such U.S. Owner's income for such accrual period (where
such Underlying Security is not optionally redeemable prior to its maturity
date) will be reduced by the portion of the premium allocable to such period
based on the Underlying Security's yield to maturity. If such Underlying
Security may be called prior to maturity after the U.S. Owner has acquired it,
the U.S. Owner generally may not assume that the call will be exercised and must
amortize premium to the maturity date. If the Underlying Security is in fact
called, any unamortized premium may be deducted in the year of the call. If a
44
U.S. Owner makes the election under Section 171(c)(2), the election also shall
apply to all bonds the interest on which is not excludible from gross income
("Fully Taxable Bonds") held by the U.S. Owner at the beginning of the first
taxable year to which the election applies and to all such Fully Taxable Bonds
thereafter acquired by it, and is irrevocable without the consent of the IRS. If
such an election is not made, such a U.S. Owner must include the full amount of
each interest payment in income in accordance with its regular method of
accounting and will receive a tax benefit from the premium only in computing its
gain or loss upon the sale or other disposition or retirement of the Underlying
Security.
Accrual Method Election
Under the OID Regulations, a U.S. Owner is permitted to elect to
include in gross income its entire return on an Underlying Security (i.e., the
excess of all remaining payments to be received on the Underlying Security over
the amount paid for the Trust Certificate by such U.S. Owner) based on the
compounding of interest at a constant rate. Such an election for an Underlying
Security with amortizable bond premium (or market discount) will result in a
deemed election for all of the U.S. Owner's debt instruments with amortizable
bond premium (or market discount) and may be revoked only with permission of the
IRS.
Disposition or Retirement of Trust Certificates
Upon the sale, exchange or other disposition of a Trust Certificate, or
upon the retirement of a Trust Certificate, a U.S. Owner will recognize gain or
loss equal to the difference, if any, between the amount realized upon the
disposition or retirement and the U.S. Owner's tax basis in the Trust
Certificate. A U.S. Owner's tax basis for determining gain or loss on the
disposition or retirement of a Trust Certificate will be the cost of such Trust
Certificate to such U.S. Owner, increased by the amount of original issue
discount and any market discount includible in such U.S. Owner's gross income
with respect to the Underlying Security, and decreased by the amount of any
payments under the Underlying Security that are part of its stated redemption
price and by the portion of any premium applied to reduce interest payments as
described above.
Gain or loss upon the disposition or retirement of a Trust Certificate
will be capital gain or loss, except to the extent the gain represents accrued
stated interest, original issue or market discount on the Trust Certificate not
previously included in gross income, to which extent such gain or loss would be
treated as ordinary income. Any capital gain or loss will be long-term capital
gain or loss if at the time of disposition or retirement the Trust Certificate
has been held for more than one year.
Non-U.S. Owners
Interest
Interest (including original issue discount) on an Underlying Security
of a Non-U.S. Owner will be subject to a 30 percent federal income and
withholding tax, unless an exemption is established.
Disposition or Retirement of Trust Certificates
A Non-U.S. Owner that does not have certain present or former
connections with the United States (e.g., holding such Non-U.S. Owner's Trust
Certificate in connection with the conduct of a trade or business within the
United States or being present in the United States for 183 days or more during
a taxable year) generally will not be subject to federal income tax, and no
withholding of such tax will be required, with respect to any gain realized upon
the disposition or retirement of a Trust Certificate.
Information Reporting and Backup Withholding
Payments made on the Underlying Securities and proceeds from the sale
of the Trust Certificates will not be subject to a "backup" withholding tax of
31 percent unless, in general, the Trust Certificateholder fails to comply with
certain reporting procedures and is not an exempt recipient under applicable
provisions of the Code.
45
THE FEDERAL TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A TRUST
CERTIFICATEHOLDER'S PARTICULAR SITUATION. TRUST CERTIFICATEHOLDERS SHOULD
CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF
THE OWNERSHIP AND DISPOSITION OF THE TRUST CERTIFICATES, INCLUDING THE TAX
CONSEQUENCES UNDER THE TAX LAWS OF THE UNITED STATES, STATES, LOCALITIES,
COUNTRIES OTHER THAN THE UNITED STATES AND ANY OTHER TAXING JURISDICTIONS AND
THE POSSIBLE EFFECTS OF CHANGES IN SUCH TAX LAWS.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain requirements on (a) an employee benefit
plan (as defined in Section 3(3) of ERISA), (b) a plan described in Section
4975(e)(i) of the Code or (c) any entity whose underlying assets include Plan
Assets (as defined below) by reason of a plan's investment in the entity (each,
a "Plan").
In accordance with ERISA's general fiduciary standards, before
investing in a Trust Certificate, a Plan fiduciary should determine whether such
an investment is permitted under the governing Plan instruments and appropriate
for the Plan in view of the Plan's overall investment policy and the composition
and diversification of its portfolio. Other provisions of ERISA and the Code
prohibit certain transactions involving the assets of a Plan and persons who
have certain specified relationships to the Plan ("Parties in Interest" within
the meaning of ERISA or "Disqualified Persons" within the meaning of the Code).
Thus, a Plan fiduciary considering an investment in Trust Certificates should
also consider whether such an investment might constitute or give rise to a
prohibited transaction under ERISA or the Code.
An investment in Trust Certificates by a Plan might result in the
assets of the Trust being deemed to constitute Plan Assets, which in turn might
mean that certain aspects of such investment, including the operation of the
Trust, might be prohibited transactions under ERISA and the Code. Neither ERISA
nor the Code defines the term "Plan Assets". Under Section 2510.3-101 of the
United States Department of Labor regulations (the "Regulation"), "Plan Assets"
may include an interest in the underlying assets of an entity (such as a trust)
for certain purposes, including the prohibited transaction provisions of ERISA
and the Code, if the Plan acquires an "equity interest" in such entity. Thus, if
a Plan acquired a Trust Certificate, for certain purposes under ERISA and the
Code (including the prohibited transaction provisions) the Plan would be
considered to own its share of the underlying assets of the Trust unless (1)
such Trust Certificate is a "publicly-offered security" or (2) equity
participation by "benefit plan investors" is not "significant".
Under the Regulation, a publicly offered security is a security that is
(1) freely transferable, (2) part of a class of securities that is owned by 100
or more investors independent of the issuer and of one another at the conclusion
of the initial offering and (3) either is (A) part of a class of securities
registered under Section 12(b) or 12(g) of the Exchange Act or (B) sold to the
Plan as part of an offering of securities to the public pursuant to an effective
registration statement under the Securities Act and the class of securities of
which such security is a part is registered under the Exchange Act within 120
days (or such later time as may be allowed by the Commission) after the end of
the fiscal year of the issuer during which the offering of such securities to
the public occurred.
Participation by benefit plan investors in the Trust Certificates would
not be significant if immediately after the most recent acquisition of a Trust
Certificate, whether or not from the Depositor or Merrill Lynch & Co., less than
25% of (1) the value of such Class of Trust Certificates and (2) the value of
any other Class of Trust Certificates that is not a publicly-offered security
under the Regulation, were held by benefit plan investors, which are defined as
Plans and employee benefit plans not subject to ERISA (for example, governmental
plans).
It is anticipated that certain offerings of Trust Certificates will be
structured so that assets of the Trust will not be deemed to constitute Plan
Assets. In such cases, the relevant Prospectus Supplement will indicate either
that
46
the Trust Certificates will be considered publicly offered securities under the
Regulation or that participation by benefit plan investors will not be
significant for purposes of the Regulation.
In other instances, however, the offering of Trust Certificates may not
be so structured. Thus, the assets of the Trust may be deemed to be Plan Assets
and transactions involving the Depositor, an underwriter, the Trustee, any
trustee with respect to Underlying Securities, any obligors with respect to
Underlying Securities or affiliates of such obligors might constitute prohibited
transactions with respect to a Plan holding a Trust Certificate unless (i) one
or more prohibited transaction exemptions ("PTEs") applies or (ii) in the case
of an issuer of Underlying Securities, it is not a Disqualified Person or party
in interest with respect to such Plan. Plans maintained or contributed to by the
Depositor, an underwriter, the Trustee, a trustee with respect to Underlying
Securities, any issuer of underlying securities, or any of their affiliates,
should not acquire or hold any Trust Certificate.
If the Trust is deemed to hold Plan Assets, the Underlying Securities
would appear to be an indirect loan between the issuer of the Underlying
Securities and any Plan owning Trust Certificates; however, such loan, by
itself, would not constitute prohibited transaction unless such issuer is a
party in interest or Disqualified Person with respect to such Plan.
If the underwriter with respect to an offering of Trust Certificates is
a broker-dealer 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, sales of Trust Certificates by such underwriter to Plans may be
exempt under PTE 75-1 if the following conditions are satisfied: (i) the
underwriter is not a fiduciary with respect to the Plan and is party in interest
or Disqualified Person solely by reason of Section 3(14)(B) of ERISA or Section
4975(e)(2)(B) of the Code or a relationship to a person described in such
Sections, (ii) the transaction is at least as favorable to the Plan as an
arms-length transaction with an unrelated party and is not a prohibited
transaction within the meaning of Section 503(b) of the Code, and (iii) the Plan
maintains for at least six years such records as are necessary to determine
whether the conditions of PTE 75-1 have been met.
The custodial and other services tendered by the Trustee and any
trustee with respect to Underlying Securities might be exempt pursuant to
Section 408(b)(2) of ERISA and Section 4975(d)(2) of the Code, which exempt
services necessary for the establishment or operation of a Plan under a
reasonable contract or arrangement and for which no more than reasonable
compensation is paid. An arrangement would not be treated as reasonable unless
it can be terminated upon reasonably short notice under the circumstances
without penalty. The statutory exemption for services noted above does not
provide exemptive relief from prohibited transactions described in Section
406(b) of ERISA or Section 4975(c)(1)(E) or (F) of the Code.
Other prohibited transaction exemptions could apply to the acquisition
and holding of Trust Certificates by Plans, and the operation of the Trust,
including, but not limited to: PTE 84-14 (an exemption for certain transaction
determined by An independent qualified professional asset manager), PTE 91-38
(an exemption for certain transactions involving bank collective investment
funds), PTE 90-1 (an exemption for certain transactions involving insurance
company pooled separate accounts) or PTE 95-60 (an exemption for certain
transactions involving insurance company pooled general accounts).
The Prospectus Supplement relating to any offering of Trust
Certificates that will result in the Trust Assets being deemed to constitute
Plan Assets will provide that, by acquiring and holding a Trust Certificate, a
Plan shall be deemed to have represented and warranted to the Depositor,
Trustee, and underwriter that such acquisition and holding of a Trust
Certificate does not involve a non-exempt prohibited transaction with respect to
such Plan, including with respect to the activities of the Trust.
ANY PLAN OR INSURANCE COMPANY INVESTING ASSETS OF ITS GENERAL ACCOUNT
PROPOSING TO ACQUIRE TRUST CERTIFICATES SHOULD CONSULT WITH ITS COUNSEL.
47
PLAN OF DISTRIBUTION
Trust Certificates may be offered in any of three ways: (i) through
underwriters or dealers; (ii) directly to one or more purchasers; or (iii)
through agents. The applicable Prospectus Supplement will set forth the material
terms of the offering of any Series of Trust Certificates, which may include the
names of any underwriters, or initial purchasers, the purchase price of such
Trust Certificates and the proceeds to the Depositor 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 Trust
Certificates may be listed, and the place and time of delivery of the Trust
Certificates to be offered thereby.
If underwriters are used in the sale, Trust Certificates will be
acquired by the underwriters at a fixed price 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 Trust Certificates may be offered to the public either
through underwriting syndicates represented by managing underwriters or by
underwriters without a syndicate. Such managing underwriters or underwriters in
the United States will include Merrill Lynch & Co. The obligations of such
underwriters to purchase such Trust Certificates will be subject to certain
conditions precedent and the underwriters will be obligated to purchase all such
Trust Certificates if any of such Trust Certificates are purchased. Any initial
public offering price and any discounts or concessions allowed or reallowed or
paid to dealers may be changed from time to time.
Trust Certificates may also be sold through agents designated by the
Depositor from time to time. Any agent involved in the offer or sale of Trust
Certificates will be named, and any commissions payable by the Depositor to such
agent will be set forth, in the applicable Prospectus Supplement. Unless
otherwise indicated in the applicable Prospectus Supplement, any such agent will
act on a best-efforts basis for the period of its appointment.
If so indicated in the applicable Prospectus Supplement, the Depositor
will authorize agents, underwriters or dealers to solicit offers by certain
specified institutions to purchase Trust Certificates at the public offering
price described in such Prospectus Supplement pursuant to delayed delivery
contracts providing for payment and delivery on a future date specified in such
Prospectus Supplement. Such contracts will be subject only to those conditions
set forth in the applicable Prospectus Supplement and such Prospectus Supplement
will set forth the commissions payable for solicitation of such contracts. Any
underwriters, dealers or agents participating in the distribution of Trust
Certificates may be deemed to be underwriters and any discounts or commissions
received by them on the sale or resale of Trust Certificates may be deemed to be
underwriting discounts and commissions under the Securities Act. Agents and
underwriters may be entitled under agreements entered into with the Depositor to
indemnification by the Depositor against certain civil liabilities, including
liabilities under the Securities Act, or to contribution with respect to
payments that the agents or underwriters or their affiliates may be required to
make in respect thereof. Agents and underwriters and their affiliates may be
customers of, engage in transactions with, or perform services for, the
Depositor or its affiliates in the ordinary course of business.
Only Trust Certificates rated in one of the investment grade rating
categories by a Rating Agency will be offered hereby. Affiliates of the
underwriters may act as agents or underwriters in connection with the sale of
the Trust Certificates. Any affiliate of the underwriters so acting will be
named, and its affiliation with the underwriters described, in the applicable
Prospectus Supplement. The underwriters or their affiliates may act as
principals or agents in connection with market-making transactions relating to
the Trust Certificates. The original Prospectus Supplement related to the Trust
Certificates for which a market is being made will be delivered with respect to
the Trust Certificates for use by such underwriters or affiliates in connection
with offers and sales related to market-making transactions in the Trust
Certificates.
The Depositor is an affiliate of Merrill Lynch & Co.
48
LEGAL MATTERS
The validity of the Trust Certificates will be passed upon for the
Depositor and the underwriters by Shearman & Sterling, New York, New York or
other counsel identified in the applicable Prospectus Supplement.
49
INDEX OF DEFINED TERMS
Page
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Administration Agreements.....................................................34
Administrative Agent...........................................................1
Allocation Ratio..............................................................22
Base Rate.....................................................................17
Business Day..................................................................16
Calculation Agent.............................................................17
Calculation Date..............................................................18
Call Price....................................................................23
Callable Series...............................................................23
CD Rate.......................................................................18
CD Rate Trust Certificate.....................................................17
Cede...........................................................................1
Class..........................................................................1
Clearing Agency...............................................................24
clearing corporation..........................................................24
Code.......................................................................5,37
Commercial Paper Rate.........................................................19
Commercial Paper Rate Trust Certificate.......................................19
Commission..................................................................1, 2
Composite Quotations..........................................................17
Concentrated Underlying Securities.............................................1
Credit Support.................................................................1
Cut-off Date..................................................................32
Definitive Trust Certificate..................................................24
Depositary.....................................................................1
Deposited Assets...........................................................1, 25
Depositor......................................................................1
Disqualified Persons..........................................................46
Distribution Date..............................................................2
DTC............................................................................1
Exchangeable Series...........................................................22
Exchange Act................................................................1, 2
Extraordinary Expenses........................................................36
Federal Funds Rate............................................................19
Federal Funds Rate Trust Certificate..........................................17
Final Scheduled Distribution Date..............................................2
Fixed Rate Trust Certificates.................................................16
Floating Rate Trust Certificates..............................................17
Floating Trust Certificate Rate...............................................14
Global Security................................................................1
Government Securities..........................................................1
grantor trust.................................................................11
H.15(519).....................................................................17
Indenture.....................................................................16
Index Maturity................................................................17
Interest Reset Date...........................................................18
Interest Reset Period.........................................................18
Letter of Credit..............................................................30
Letter of Credit Bank.........................................................30
LIBOR.........................................................................20
LIBOR Reuters.................................................................20
LIBOR Telerate................................................................20
I-1
Page
----
LIBOR Trust Certificate.......................................................17
Maximum Trust Certificate Rate................................................17
Merrill Lynch & Co.............................................................1
Minimum Trust Certificate Rate................................................17
Money Market Yield............................................................19
Notional Amount...............................................................16
NYSE...........................................................................1
Optional Exchange Right.......................................................22
Original Issue Date...........................................................14
Participants..................................................................23
Parties in Interest...........................................................45
Plan.......................................................................5, 45
Plan Assets...................................................................45
Prime Rate....................................................................21
Prime Rate Trust Certificate..................................................17
Prospectus Supplement..........................................................1
PTEs..........................................................................46
Put Date......................................................................23
Put Option....................................................................23
Puttable Underlying Securities................................................23
Purchase Price................................................................40
Rating Agency.................................................................10
Realized Losses...............................................................22
Record Date...................................................................16
Reference Banks...............................................................20
Registration Statement.........................................................2
Regulation....................................................................45
Related Proceeds..............................................................33
Required Percentage...........................................................35
Reserve Account...............................................................30
Retained Interest.............................................................12
Reuters Screen LIBO Page......................................................20
Reuters Screen NYMF Page......................................................20
Risk Factors-Derivatives......................................................25
Secured Underlying Securities.................................................28
Securities Act.................................................................2
Senior Underlying Securities..................................................28
Series.........................................................................1
Specified Currency.............................................................2
Spread........................................................................17
Spread Multiplier.............................................................17
Standard Terms.................................................................1
Strip Trust Certificates......................................................15
Subordinated Underlying Securities............................................28
Surety........................................................................30
Surety Bond...................................................................30
Telerate Page 3750............................................................20
TOPrSSM.......................................................................29
Treasury Rate.................................................................21
Treasury Rate Trust Certificate...............................................17
Trust..........................................................................1
Trust Agreement................................................................1
Trust Certificate Account.....................................................31
Trust Certificate Rate........................................................14
I-2
Page
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Trust Certificateholders.......................................................1
Trust Certificates.........................................................1, 13
Trust Indenture Act...........................................................27
Trustee........................................................................1
Trustee Fee...................................................................12
U.S. dollars, US$, dollar or $.................................................3
Underlying Securities..........................................................1
Underlying Securities Issuer...............................................1, 25
Underlying Securities Rate....................................................29
Underlying Securities Trustee.................................................27
Voting Rights.................................................................35
I-3
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1,248,000
Trust Certificates
($25 Stated Amount)
PREFERREDPLUS
TRUST CERTIFICATES
SERIES CTR-1
----------------------
PROSPECTUS SUPPLEMENT
----------------------
Merrill Lynch & Co.
October 22, 2001
Until 25 days after the date of this prospectus, all dealers effecting
transactions in the offered trust certificates, whether or not participating in
the distribution, may be required to deliver a prospectus supplement and the
prospectus to which it relates. This requirement is in addition to the
obligations of dealers to deliver a prospectus supplement and prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
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