PROSPECTUS SUPPLEMENT
(To Prospectus dated March 5, 2003)
Structured Asset Trust Unit Repackagings (SATURNS SM)
Goldman Sachs Capital I Capital Security Backed
Series 2004-6
$80,000,000
3,200,000 6.00% Deferrable Class A Callable Units
($25 principal balance each)
MS Structured Asset Corp.
Depositor
SATURNS Trust No. 2004-6 is offering Class A Callable Units. Interest
will accrue on the Class A Units at a rate of 6.00%. Interest on the Class A
Units will be deferred if interest on the underlying securities is deferred.
Distribution dates for the Class A Units will occur February 15 and August 15.
The final scheduled distribution date for the Class A Units is February 15,
2034. The Class A Units are subject to the call rights of the warrantholders as
described in this prospectus supplement.
The Class A Units will represent a beneficial interest in the underlying
securities described in this prospectus supplement under "Description of Trust
Property". Those underlying securities will be held by the trust. The underlying
securities have a different interest rate and denomination than do the Class A
Units. The underlying securities are subject to redemption as described in this
prospectus supplement. Any such redemption will result in a redemption or call
of a corresponding portion of the Units.
Prior to this offering, there has been no public market for the Class A
Units. The depositor will apply to list the Class A Units on the New York Stock
Exchange, subject to meeting the applicable listing requirements.
See "Risk Factors" beginning on page S-10 of this prospectus supplement
and on page 5 of the accompanying prospectus to read about certain factors you
should consider before buying Class A Units.
The Securities and Exchange Commission and state securities regulators
have not approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Morgan Stanley & Co. Incorporated or MS&Co. will purchase the Class A
Units from the depositor and will then sell the Class A Units in negotiated
transactions at varying prices at the time of sale. Proceeds from the Class A
Units are expected to total $80,000,000 less an underwriting discount of 3.15%.
MS&Co. expects to deliver the Class A Units through the facilities of The
Depository Trust Company against payment in New York, New York on or about April
15, 2004.
MORGAN STANLEY
April 12, 2004
TABLE OF CONTENTS
Prospectus Supplement
Page
Summary.......................................................S-3
Risk Factors.................................................S-10
Incorporation of Certain Documents by Reference..............S-15
The Trust....................................................S-15
Description of Trust Property................................S-18
Description of Units.........................................S-33
United States Federal Income Taxation........................S-36
ERISA Considerations.........................................S-39
Plan of Distribution.........................................S-39
Validity of Units............................................S-41
Index of Defined Terms.......................................S-42
Prospectus
Page
Prospectus Supplements.......................................3
Risk Factors.................................................5
Available Information.......................................11
Reports to Unitholders......................................12
Important Currency Information..............................12
Use of Proceeds.............................................12
The Depositor...............................................13
The Trusts..................................................13
Description of Trust Agreements.............................14
Description of Trust Property...............................26
Description of Units........................................44
United States Federal Income Taxation.......................64
ERISA Considerations........................................78
Plan of Distribution........................................81
Validity of Units...........................................84
Index of Defined Terms......................................85
"SATURNS" is a service mark of Morgan Stanley.
Summary
In this prospectus supplement and the accompanying prospectus, the units
offered hereby are referred to as the "Class A Units". By contrast, the
underlying securities deposited into the trust are referred to as the
"underlying securities", and terms such as "underlying securities purchase
price", "underlying security issuance agreement", "underlying security issuer",
"underlying security guarantor", "underlying security disclosure document",
"underlying security registration statement", underlying security guaranty or
other terms containing the phrase "underlying security" have related meanings.
Defined terms used but not defined in this prospectus supplement have the
meanings given to such terms in the accompanying prospectus. An index of defined
terms can be found on page S-42 of this prospectus supplement and on page 85 of
the accompanying prospectus.
The following summary is qualified in its entirety by reference to the
more detailed information appearing elsewhere in this prospectus supplement and
the accompanying prospectus.
Depositor...............................MS Structured Asset Corp.
Trustee.................................LaSalle Bank National Association
Trust ..................................SATURNS Trust No. 2004-6. The trust will
be formed under a trust agreement dated
as of the closing date between the
depositor and the trustee.
Units...................................There will be two classes of units, the
Class A Units and the Class B Units. The
Class B Units are not offered hereby.
The total principal amount of Class A
Units being issued is $80,000,000. The
Class A Units will be issued in
book-entry form through the facilities
of The Depository Trust Company in
minimum denominations of $25.
The Class A Units will have the same
final maturity as the underlying
securities.
The Class A Units are expected to trade
flat. This means that any accrued and
unpaid interest on the Class A Units
will be reflected in the trading price,
and purchasers will not pay and sellers
will not receive any accrued and unpaid
interest on the Class A Units not
included in the trading price.
In the event the underlying securities
are redeemed, the Class A Units will be
redeemed when the underlying securities
are redeemed. In addition, the Class A
Units may be called by a warrantholder
at any time on or after April 15, 2009
or at any time in connection with a
tender offer for the underlying
securities or redemption of the
underlying securities.
In the event of a partial redemption of
the underlying securities or a partial
exercise of the warrants, the trustee
will randomly select Class A Units to be
redeemed in full from the proceeds of
the partial redemption or to be called
in full in connection with any such
partial exercise.
Interest on the Class A Units will be
deferred if distributions with respect
to the underlying securities are
deferred. The underlying security issuer
may commence an extension period and
thereby defer interest payments for up
to 10 consecutive semi-annual payment
dates on the underlying securities. No
extension period or period of deferral
may extend beyond the stated maturity of
the underlying securities. See
"Description of Trust Property."
Underlying securities...................The depositor will deposit into the
trust $80,000,000 (by aggregate
liquidation amount) of 6.345% trust
preferred capital securities due
February 15, 2034, issued by Goldman
Sachs Capital I. The underlying
securities have been purchased by the
depositor or its affiliates in the
secondary market. The underlying
security issuer, at its option, may
redeem the underlying securities, in
whole at any time or in part from time
to time, with not less than 30 days'
notice nor more than 60 days' notice,
provided that no partial redemption may
occur where distributions are deferred.
In addition, the underlying security
issuer may redeem the underlying
securities not more than 90 days before
the next date on which the underlying
security issuer would be obligated to
pay additional amounts in connection
with a tax redemption at par. See page
S-18 for a description of the terms of
the underlying securities.
Underlying security issuer..............The issuer of the underlying securities
is Goldman Sachs Capital I. The
underlying securities are guaranteed by
Goldman Sachs Group, Inc. (the
"underlying security guaranty") by way
of a guaranty between the underlying
security issuer and the underlying
security guarantor.
Neither the underlying security issuer
nor the underlying security guarantor is
participating in this offering and
neither has any obligations under the
Class A Units. Information about
underlying security issuer and the
underlying security guarantor is
available in filings with the SEC.
Underlying guarantor debentures.........The underlying security issuer's only
assets are the underlying security
guarantor's 6.345% junior subordinated
debentures due February 15, 2034 (the
"underlying guarantor debentures").
The underlying guarantor debentures may
be distributed or exchanged for the
underlying securities under certain
circumstances, and if such distribution
or exchange occurs, such event will not
be treated as a redemption and the
underlying guarantor debentures will be
treated as the underlying securities for
all purposes.
Distributions...........................Interest will be distributed each
February 15 and August 15 by the trustee
through the facilities of The Depository
Trust Company to recordholders as of the
third business day prior to the
distribution date, commencing August 15,
2004. The interest rate for the Class A
Units is 6.00% annually. The trust will
pass through interest to the Unitholders
based on payments received by the trust
as a holder of the underlying securities
(other than interest which accrued on
the underlying securities prior to the
closing date). Interest will accrue on
the Class A Units on the basis of a 360
day year consisting of twelve 30 day
months or a 30/360 basis.
The underlying security issuer has the
right to defer the payment of interest
on the underlying securities. Any
deferral of the payment of interest on
the underlying securities in accordance
with the security agreement will not
require any payment by the underlying
security guarantor. During an extension
period with respect to the underlying
securities, interest will continue to
accrue on the Class A unit principal
balance at the interest rate of 6.00%
per annum.
Unless distributed earlier due to an
exercise of the warrants, a redemption
of the underlying securities or an early
termination, principal will be
distributed on a final scheduled
distribution date of February 15, 2034.
If any of the warrants are exercised for
settlement prior to April 15, 2009 and
in connection with a tender offer for
any of the underlying securities held by
the trust, each of the corresponding
Class A Units called in connection with
such tender offer and exercise will
receive an additional distribution of
$1.50 per Class A Unit.
The Class B Units will have a claim for
payment equal in priority with that of
the Class A Units in the event of a
shortfall of interest payments on the
underlying securities or a liquidation
of the underlying securities following
an underlying security default.
If any payment with respect to the
underlying securities is not received by
the trustee by 12 noon (New York City
time) on a distribution date, the
corresponding distribution on the Class
A Units will not occur until the next
business day that the trust is in
receipt of proceeds of such payment
prior to 12 noon, with no adjustment to
the amount distributed or to the record
date.
Early termination of the trust..........A trust wind-up event will occur upon
(i) redemption by the underlying
security issuer or underlying security
guarantor of all underlying securities
held by the trust, (ii) exercise of the
warrants as to all Class A Units and
Class B Units, (iii) an underlying
security default, (iv) the underlying
securities becoming disqualified
underlying securities, or (v) any excess
expense event. The trust will terminate
early in connection with any trust
wind-up event.
If a trust wind-up event occurs, any
underlying securities held by the trust
will be liquidated (by delivery to the
underlying security issuer in the event
of a redemption, pursuant to the terms
of the warrants in the event of an
exercise of the warrants or otherwise by
sale thereof).
If the early termination occurs due to a
redemption of the underlying securities
or an exercise of the warrants, the
Class A Unitholders will receive an
amount equal to the principal of and
accrued interest on their Class A Units.
In addition, if the early termination
occurs due to an exercise of warrants
for settlement prior to April 15, 2009
and in connection with a tender offer
for the underlying securities, the Class
A Units will also receive an additional
distribution of $1.50 per Class A Unit.
Remaining amounts will be applied
pursuant to the trust agreement. An
additional amount will also be payable
for distribution to the Class B Units in
connection with an exercise of the
warrants.
If the trust is terminated for any other
reason, the proceeds of liquidation will
be applied to redeem the Class A Units
and the Class B Units. The Class A Units
will have a claim on the proceeds of the
liquidation equal to their aggregate
principal balance plus accrued interest
if any. The Class B Units will have a
claim on the proceeds of liquidation
equal to the value calculated by
discounting each remaining scheduled
payment at a rate of 6.345% on the basis
of a 360 day year consisting of twelve
30 day months or a 30/360 basis. If the
proceeds of the liquidation are less
than the combined claim amounts of the
Class A Units and the Class B Units, the
proceeds will be distributed in
proportion to the claim amounts of the
Class A Units and the Class B Units in
full satisfaction of the claims of the
Units. If the proceeds of liquidation
exceed the combined claim amounts of the
Class A Units and the Class B Units, the
excess will be applied pursuant to the
trust agreement.
Warrants................................Class A Units may be called for
redemption by a holder of the warrants
on or after April 15, 2009 or at any
time if in connection with a tender
offer for or a redemption of the
underlying securities. The warrants are
not offered hereby.
A warrantholder must give at least 15
calendar days' notice and not more than
60-calendar days' notice of exercise,
unless notice of a tender offer for or
redemption of the underlying securities
has been given. A warrantholder may give
notice of its intention to exercise
warrants in connection with a tender
offer for or redemption of the
underlying securities with two business
days' notice prior to the call date.
A notice of call by a warrantholder
shall automatically constitute a notice
of optional exchange pursuant to which
the warrantholder will receive the
portion of the trust property
corresponding to the amount of called
Class A Units and Class B Units.
Class A Unitholders will receive an
amount equal to the principal of and
accrued interest on their Class A Units
in connection with an exercise of
warrants. In addition, if the exercise
settles prior to April 15, 2009 and
occurs in connection with a tender offer
for the underlying securities, the Class
A Units will also receive an additional
distribution of $1.50 per Class A Unit.
The Class A Units will be called on the
basis of random selection from the
proceeds of any partial exercise of the
warrants.
Unitholders may not direct the trust or
the trustee to participate in any tender
offer for the underlying securities and
the trustee will not accept any
instructions to the contrary from the
Unitholders. However, any warrantholder
may exercise its warrants in connection
with any tender offer and the trustee or
the trust may participate in a tender
offer on behalf of an exercising
warrantholder.
Retained interest.......................The depositor retains the right to
receive any and all interest that
accrues on the underlying securities
prior to the closing date and the trust
will have no rights to such interest.
The trustee will pay this accrued
interest over to the depositor on the
first distribution date and such amount
will be paid from the interest payment
received on the underlying securities
with respect to such date.
If an underlying security default occurs
on or prior to first distribution date
and the depositor does not receive its
retained interest amount on first
distribution date, the depositor will
have a claim for its retained interest,
and will share pro rata with holders of
the Class A Units and the Class B Units
to the extent of such claim in the
proceeds from the recovery on the
underlying securities.
Tax status..............................The depositor will receive an opinion of
counsel that the trust should be
characterized as a grantor trust and
will not be characterized as an
association taxable as a corporation.
Rating..................................The Class A Units must be assigned a
rating of at least Baa3 by Moody's
Investors Service, or "Moody's", or a
rating of at least BBB- by Standard &
Poor's, or "S&P", in order to be issued.
The Class A Units will have a rating
corresponding to the ratings currently
assigned to the underlying securities on
the date the Class A Units are issued.
The Class A Units are expected to be
assigned a rating of A1 by Moody's and
A- by S&P on the date of issuance, but
the existence of such ratings is not a
condition to the issuance of the Class A
Units. You should note that these
ratings correspond to the ratings of the
underlying securities. Any downgrade in
the ratings of the underlying securities
by either rating agency would result in
a downgrade of the respective rating
agency's rating with respect to the
Class A Units.
Closing date............................On or about April 15, 2004.
Listing.................................Application has been made to list the
Class A Units on the New York Stock
Exchange or NYSE. Trading on the NYSE is
expected to begin within 30 days after
the completion of this offering.
How to reach the depositor..............You may reach the depositor by
contacting your Morgan Stanley sales
representative.
Risk Factors
In addition to the risk factors discussed in the accompanying
prospectus, you should carefully consider the following risk factors before
buying any Class A Units:
Absence of information
Unitholders will be exposed to the credit risk of the underlying
security issuer and the underlying security guarantor. Material information with
respect to the underlying security issuer and the underlying security guarantor
is described in public filings prepared by the underlying security issuer and
referred to in this prospectus supplement. In addition, this section does not
contain any risk factors relating to the underlying security issuer or the
underlying security guarantor.
No investigation of the financial condition or creditworthiness of the
underlying security issuer or the underlying security guarantor, or any of their
affiliates, or of any ratings of the underlying securities, has been made by the
trust, the trustee, the depositor, MS&Co. or any of their affiliates, in
connection with the issuance of the Class A Units. You should consider carefully
the underlying security issuer and the underlying security guarantor's financial
condition and the underlying security issuer's ability to make payments in
respect of the underlying securities. We are not affiliated with the underlying
security issuer or the underlying security guarantor and have not performed any
due diligence investigation or review of the underlying security issuer or the
underlying security guarantor. You should undertake an independent investigation
of the underlying security issuer and the underlying security guarantor to the
extent required in your judgment to allow you to make an informed decision with
respect to an investment in the Class A Units.
In addition, one or more affiliates of MS&Co. publish research reports
from time to time with respect to the underlying security issuer and the
underlying security guarantor. Such reports may make negative recommendations
with respect to securities of the underlying security issuer or the underlying
security guarantor. None of the trust, the trustee, the depositor or MS&Co.
undertakes any responsibility to reflect or account for in this prospectus
supplement the conclusions or analyses set forth in such research reports. You
may obtain a copy of any research reports relating to the underlying security
issuer or the underlying security guarantor by requesting them from your broker
or from MS&Co. directly.
For information regarding the material terms of the underlying
securities, please refer to page S-18.
Unit ratings may change
The ratings on the Class A Units are expected to correspond to the
ratings on the underlying securities. The ratings of the underlying securities
and the Class A Units may change over time. There can be no assurance that any
such rating will not be lowered or withdrawn by the applicable rating agency in
the future, which may adversely affect the value of the Class A Units. Any
downgrade in the ratings of the underlying securities by either rating agency
would result in a downgrade of the respective rating agency's rating with
respect to the Class A Units.
Effect of redemptions of underlying securities or exercises of warrants
The underlying securities may be redeemed at any time by the underlying
security issuer or the underlying security guarantor or in connection with a tax
event which will result in a call or redemption of a corresponding portion of
the Units. If all the underlying securities are redeemed prior to their
scheduled maturity, the trust will terminate prior to the final scheduled
distribution date. See "Risk Factors" in the prospectus.
A warrantholder may call Units at any time on or after April 15, 2009 or
at any time in connection with a tender offer for or redemption of the
underlying securities. Class A Unitholders whose Class A Units are redeemed or
called will receive a return of principal before the scheduled maturity of Class
A Units. If all of the underlying securities are redeemed early or if all of the
Units are called, the trust will terminate. See "Risk Factors" in the
prospectus.
If the Class A Units are redeemed as a result of a redemption of the
underlying securities, you will not be entitled to any premium or other
additional amounts. Except for an exercise of the warrants for settlement prior
to April 15, 2009 that is in connection with a tender offer for the underlying
securities, if a warrantholder calls the Class A Units, you will not be entitled
to any premium or other additional amounts. If you receive notice that a
warrantholder will exercise its call rights, such warrantholder may revoke such
notice and such warrantholder will retain its ability to exercise its call
rights in the future. A warrantholder will be effectively entitled to realize
any gain from an increase in the market value of the underlying securities in
excess of the par amount of the Class A Units at any time prior to the
expiration of the warrants.
Prepayments will affect yield
A redemption of the underlying securities or an exercise of the warrants
may result in an early redemption or a call of the Class A Units at a time when
reinvestment in securities with yields comparable to that of the Class A Units
is not possible.
Underlying security issuer and underlying security guarantor are the only
payment sources
The payments made by the underlying security issuer and the underlying
security guarantor on the underlying securities are the only source of payment
on the Class A Units. The underlying security issuer and the underlying security
guarantor are subject to laws permitting bankruptcy, moratorium, reorganization
or other actions. Should the underlying security issuer or the underlying
security guarantor experience financial difficulties, this could result in
delays in payment, partial payment or non-payment of the Class A Units. The
ability of the underlying security issuer to pay amounts due on the underlying
securities solely depends upon the underlying security guarantor making payments
on the underlying guarantor debentures as and when required.
The underlying securities are deferrable
The underlying security guarantor may defer its payment obligations
under the underlying guarantor debentures and in such event the underlying
security issuer will only be required to distribute amounts actually received by
it from the underlying security guarantor. The underlying security guarantor's
guaranty of the underlying securities does not prevent deferral of interest
payments. During an extension period, interest will continue to accrue and
holders of the Class A Units will be required to accrue interest income for
United States federal income tax purposes. Interest will accrue on any deferred
interest on the Class A Units at the interest rate on the Class A Units.
The underlying securities are subordinated securities
The obligations of the underlying security guarantor under the
underlying security guaranty and under the underlying guarantor debentures are
subordinate and junior in right of payment to all senior indebtedness of the
underlying security guarantor.
Because the underlying security guarantor is a holding company, the
right of the underlying security guarantor to participate in any distribution of
assets of any subsidiary, upon such subsidiary's liquidation or reorganization
or otherwise (and thus the ability of holders of the underlying securities to
benefit indirectly from such distribution), is subject to the prior claims of
creditors of that subsidiary, except to the extent that the underlying security
guarantor may itself be recognized as a creditor of that subsidiary.
Accordingly, the underlying guarantor debentures and the underlying security
guaranty will be effectively subordinated to all existing and future liabilities
of the underlying security guarantor's subsidiaries, and holders of underlying
guarantor debentures and the underlying security guaranty should look only to
the assets of the underlying security guarantor for payments on the underlying
guarantor debentures and the underlying security guaranty.
None of the guarantor debenture indenture, the underlying security
guaranty or the underlying security agreement places any limitation on the
amount of secured or unsecured debt, including senior indebtedness, that may be
incurred by the underlying security guarantor.
The ability of the underlying security issuer to pay amounts due on the
underlying securities solely depends upon the underlying security guarantor
making payments on the underlying guarantor debentures as and when required.
Conflicts of interest
MS&Co. and other affiliates of the depositor may commence, maintain or
continue to maintain commercial relationships with respect to the underlying
security issuer, the underlying security guarantor or its affiliates. In
particular, affiliates of the depositor may provide investment banking and other
financial services, and may enter into derivative transactions with, the
underlying security issuer, the underlying security guarantor or its affiliates.
Affiliates of the depositor may also hold long or short positions with respect
to securities or other obligations of the underlying security issuer, the
underlying security guarantor or its affiliates (including the underlying
securities), or may enter into credit derivative or other derivative
transactions with third parties with respect to those obligations. In connection
with those transactions, affiliates of the depositor may exercise or enforce
rights against, and may otherwise act with respect to, the underlying security
issuer, the underlying security guarantor or its affiliates without regard to
the issuance of the Units and the related transactions described in this
prospectus supplement. Any such actions might have an adverse effect on the
underlying securities, the underlying security issuer or the underlying security
guarantor, the ability of the trust to exercise or enforce any rights with
respect to the underlying securities or the value of the Class A Units. In the
case of a bankruptcy or insolvency of the underlying security issuer, the
underlying security guarantor or its affiliates, or any other default under
securities or other obligations of the underlying security issuer, the
underlying security guarantor or its affiliates (including the underlying
securities), the interests of Unitholders with respect to underlying securities
held by the trust may be in conflict with the interests of affiliates of the
depositor that have entered into transactions with the underlying security
issuer or its affiliates.
Each Unitholder will be deemed to have acknowledged and agreed that the
underwriter and its affiliates may engage in any kind of business with, or have
an investment in, the underlying security issuer, the underlying security
guarantor and any other underlying security issuer, underlying security
guarantor or related persons, and in connection therewith, may obtain or be in
possession of non-public information regarding the underlying securities or
related persons which may not be made available to Unitholders.
Class A Units may not be actively traded
There may be little or no secondary market for the Class A Units.
Although the Class A Units are expected to be listed on the NYSE, it is not
possible to predict whether the Class A Units will trade in the secondary
market. Even if there is a secondary market, it may not provide significant
liquidity.
Sale upon trust termination
If a trust wind-up event occurs for a reason other than an exercise of
the warrants or redemption of the underlying securities by the underlying
security issuer or the underlying security guarantor, the selling agent will
sell, on behalf of the trust, any such underlying securities held by the trust
by soliciting bids for such underlying securities and selling such underlying
securities at the highest bid price.
You should note that the Class B Units will have a claim on the proceeds
of any such sale equal to their value, calculated as described in "Description
of Trust Agreement--Trust wind-up events". If the proceeds of such sale are less
than the combined claim amounts of the Class A Units and the Class B Units, the
proceeds will be distributed in proportion to the claim amounts of the Class A
Units and the Class B Units in full satisfaction of the claims of the Units.
It is possible that such sale would occur when the underlying securities
are in default or the market value of the underlying securities is diminished
for other reasons. In such circumstances, sale of the underlying securities may
result in holders of the Class A Units incurring losses that would not be
incurred if the holders received a distribution of the underlying securities in
kind or if the Class B Units did not have a pari passu claim on the proceeds of
liquidation.
Market value of underlying securities
The market value of the underlying securities, due to their maturity,
will be sensitive to changes in prevailing market interest rates, and will also
vary depending upon the creditworthiness of the underlying security issuer and
the underlying security guarantor and other factors. Any decline in the market
value of the underlying securities will correspondingly affect the market value
of the Class A Units, and a holder of the Class A Units will bear the risk of
any such decline in market value.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the depositor with respect to the trust pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, before, on or after
the date of this prospectus supplement and prior to the termination of the
offering of the related Class A Units or, if later, the date on which any
affiliates of the depositor cease offering and selling those Class A Units will
be deemed to be incorporated by reference in this prospectus supplement and to
be a part of this prospectus supplement from the date of filing of those
documents. Any statement contained in the prospectus, this prospectus supplement
or in a document incorporated or deemed to be incorporated by reference will be
deemed to be modified or superseded to the extent that a statement contained in
the prospectus, this prospectus supplement or in any subsequently filed document
which also is or is deemed to be incorporated by reference modifies or
supersedes that statement. Any statement so modified or superseded will not be
deemed, except as so modified or superseded, to constitute a part of the
prospectus or this prospectus supplement.
The depositor will provide without charge to each person, including any
beneficial owner of Class A Units, to whom this prospectus supplement is
delivered, upon his or her written or oral request, a copy of any or all of the
documents incorporated by reference in this prospectus supplement, excluding the
exhibits to those documents unless they are specifically incorporated by
reference in those documents. Written or oral requests for such copies should be
directed to MS Structured Asset Corp., 1585 Broadway, New York, New York 10036,
Attention: Secretary, Tel. 212-761-1715.
The Trust
The trust will be formed under a trust agreement between the depositor
and the trustee dated as of the closing date. The trust agreement will
incorporate the provisions of the Standard Terms for trust agreements described
in the accompanying prospectus. When the trust agreement is executed, the
depositor will deposit the underlying securities into the trust. The trustee, on
behalf of the trust, will accept the underlying securities and deliver the Class
A Units, the Class B Units and the warrants to or in accordance with the order
of the depositor.
Description of trust agreement
The following summarizes the material terms of the trust agreement to
the extent that they are not described in the accompanying prospectus. A current
report on Form 8-K relating to the Class A Units containing a copy of the trust
agreement as executed will be filed by the depositor with the SEC following the
issuance and sale of the Class A Units.
The property of the trust created under the trust agreement will consist
of (1) the underlying securities (exclusive of the retained interest described
below, which is not part of the trust) and (2) all payments on or collections in
respect of the underlying securities due after the closing date, together with
any proceeds from the underlying securities. 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 Class A Units.
Under the rules, regulations and procedures creating and affecting The
Depository Trust Company (DTC) and its operations, DTC will take action
permitted to be taken by a Unitholder under the trust agreement only at the
direction of one or more DTC participants to whose account the corresponding
Class A Units are credited. Additionally, DTC will take actions with respect to
specified voting rights only at the direction and on behalf of DTC participants
whose holdings of those Class A Units evidence those voting rights. DTC may take
conflicting actions with respect to voting rights, to the extent that DTC
participants, whose holdings of Class A Units evidence those voting rights,
authorize divergent action. See "Description of Class A Units--Form" in the
accompanying prospectus.
Unitholders may not direct the trust or the trustee to participate in
any tender offer for the underlying securities and the trustee will not accept
any instructions to the contrary from the Unitholders. However, any
warrantholder may exercise its warrants in connection with any tender offer and
the trustee or the trust may participate in a tender offer on behalf of an
exercising warrantholder.
The trustee will not agree to any amendment that would affect the rights
or obligations of any warrantholder, without first obtaining the approval of
that warrantholder. The trustee will also notify the Unitholders of any exercise
of any of the warrants.
Trustee compensation
As compensation for and in payment of trust expenses related to its
services under the trust agreement other than extraordinary trust expenses, the
trustee will receive trustee fees on each distribution date in an amount equal
to $2,000. The trigger amount with respect to extraordinary trust expenses for
the trust is $25,000 and the maximum reimbursable amount is $100,000.
The trustee will act as expense administrator on behalf of the trust.
The expense administrator will be responsible for paying the trustee fee and
reimbursing certain other expenses of the trust. The expense administrator will
receive a fee payable on each distribution date. This fee is payable only from
available interest receipts received with respect to the underlying securities
after application of such receipts to payment of accrued interest on the Class A
Units.
Trust wind-up events
A trust wind-up event will occur upon (i) redemption by the underlying
security issuer or the underlying security guarantor of all underlying
securities, (ii) exercise of the warrants as to all Class A Units and Class B
Units, (iii) an underlying security default, (iv) the underlying securities
becoming disqualified securities, or (v) any excess expense event. The trust
will terminate in connection with any trust wind-up event.
If a trust wind-up event occurs, any underlying securities held by the
trust will be liquidated (by delivery to the underlying security issuer or the
underlying security guarantor in the event of a redemption, pursuant to the
terms of the warrants in the event of an exercise of the warrants or otherwise
by sale thereof).
If the early termination occurs due to a redemption of the underlying
securities or an exercise of the warrants, the Class A Unitholders will receive
an amount equal to the principal of and accrued interest on their Class A Units.
In addition, if the early termination occurs due to an exercise of warrants for
settlement prior to April 15, 2009 and in connection with a tender offer for the
underlying securities, the Class A Units will also receive an additional
distribution of $1.50 per Class A Unit. An additional amount will also be
payable for distribution to the Class B Units in connection with an exercise of
the warrants. Remaining amounts will be applied pursuant to the trust agreement.
If the trust is terminated for any other reason, the proceeds of
liquidation will be applied to redeem the Class A Units and the Class B Units.
The Class A Units will have a claim on the proceeds of the liquidation equal to
their aggregate principal balance plus accrued interest if any. The Class B
Units will have a claim on the proceeds of liquidation equal to the value
calculated by discounting each remaining scheduled payment at a rate of 6.345%
on the basis of a 360 day year consisting of twelve 30 day months or a 30/360
basis. If the proceeds of the liquidation are less than the combined claim
amounts of the Class A Units and the Class B Units, the proceeds will be
distributed in proportion to the claim amounts of the Class A Units and the
Class B Units in full satisfaction of the claims of the Units. If the proceeds
of liquidation exceed the combined claim amounts of the Class A Units and the
Class B Units, the excess will be applied pursuant to the trust agreement.
If the trust must sell the underlying securities it holds, the trust
will sell the underlying securities through MS&Co. as selling agent. The selling
agent must solicit at least three bids for all of the underlying securities held
by the trust. The selling agent must solicit at least three of such bids from
registered broker-dealers of national reputation, but additional bids may be
solicited from one or more financial institutions or other counterparties with
creditworthiness acceptable to the selling agent in its discretion. The selling
agent will, on behalf of the trust, sell the underlying securities at the
highest bid price received. If the warrantholder is not an affiliate of the
selling agent, the selling agent will extend a right of first refusal to the
warrantholder to purchase the underlying securities at the highest bid received
by the selling agent.
Retained interest
The depositor retains the right to receive any and all interest that
accrues on the underlying securities prior to the closing date and the trust
will have no rights to such interest. The trustee will pay this accrued interest
over to the depositor on the first date of distribution of funds and such amount
will be paid from the interest payment received on the underlying securities
with respect to such date.
If an underlying security default occurs on or prior to the first
distribution date and the depositor does not receive its retained interest
amount on the first date of distribution on the Units, the depositor will have a
claim for such retained interest, and will share pro rata with holders of the
Class A Units and the Class B Units to the extent of its claim in the proceeds
from the recovery on the underlying securities.
DESCRIPTION OF TRUST PROPERTY
Available information regarding underlying security issuer
According to publicly available documents, the underlying security
guarantor, Goldman Sachs Group, Inc., was incorporated in Delaware on May 7,
1999 and is the successor to a commercial paper business founded in 1869 by
Marcus Goldman. It was formed to engage in the activities of investment banking,
trading and principal investments, and asset management and securities services.
The underlying security guarantor's principal executive offices are located at
85 Broad Street, New York, New York 10004, and its telephone number is (212)
902-1000.
According to the underlying security prospectus, the underlying security
issuer, Goldman Sachs Capital I, is a statutory business trust created under
Delaware law pursuant to the trust agreement and the filing of a certificate of
trust with the Delaware Secretary of State. All of the equity or common
securities of the underlying security issuer are held by the underlying security
guarantor.
The underlying security issuer is subject to the informational
requirements of the Exchange Act. The underlying security guarantor currently
files reports, proxy statements and other information with the SEC. Those
reports and other information can be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of those materials can be obtained by making a
written request to the SEC, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The SEC also maintains a website on
the internet at http://www.sec.gov at which users can view and download copies
of reports, proxy, information statements and other information filed
electronically. In addition, those reports and other information may also be
obtained from the underlying security guarantor by making a request to the
underlying security guarantor.
This prospectus supplement does not provide information with respect to
the underlying security issuer or the underlying security guarantor, and neither
the trust, the trustee, the depositor, MS&Co. nor any of their affiliates has
made any investigation of the financial condition or creditworthiness of the
underlying security issuer or the underlying security guarantor or any of its
affiliates, or of any ratings of the underlying securities, in connection with
the issuance of the Class A Units. You should consider carefully the financial
condition of the underlying security issuer and the underlying security
guarantor and their ability to make payments in respect of the underlying
securities. All information contained in this prospectus supplement regarding
the underlying security issuer and the underlying security guarantor has been
derived from filings with the SEC. It is possible that events affecting the
underlying securities, the underlying security issuer or the underlying security
guarantor have occurred that have not yet been publicly disclosed and would
affect the accuracy or completeness of the publicly available documents.
General
All of the trust property will consist of $80,000,000 (by aggregate
liquidation amount) of 6.345% publicly issued trust preferred capital securities
due February 15, 2034, exclusive of the retained interest of the depositor. The
underlying securities were issued pursuant to an amended and restated trust
agreement dated as of January 20, 2004 as supplemented and amended from time to
time (the "underlying security issuance agreement"), between the underlying
security guarantor as underlying depositor, The Bank of New York as underlying
property trustee and also underlying security trustee, The Bank of New York
(Delaware) as the underlying Delaware trustee and the administrative trustees
named under the underlying security issuance agreement.
The underlying securities are backed by the underlying guarantor
debentures. The underlying guarantor debentures may be distributed or exchanged
for the underlying securities under certain circumstances, and if such
distribution or exchange occurs, the underlying guarantor debentures will be
treated as the underlying securities for all purposes and the underlying
security guarantor will be treated as the underlying security issuer for all
purposes. The underlying guarantor debentures were issued under an indenture
dated as of February 6, 2004 (the "underlying guarantor debenture indenture"),
as amended and supplemented from time to time, between the underlying security
guarantor and The Bank of New York, as indenture trustee.
Interest on the underlying securities is payable semiannually in arrears
on February 15 and August 15 of each year. Such interest payments are
deferrable. The underlying security guarantor may defer its payment obligations
under the underlying guarantor debentures, at any one time and from time to
time, for up to 10 consecutive semi-annual payment periods. Any such deferral
will cause the underlying security issuer to defer payment on the underlying
securities and the underlying security guaranty does not require the underlying
security guarantor to make payments with respect to the underlying securities at
any time when the underlying security guarantor has deferred its obligation to
make payments under the underlying guarantor debentures. Interest will accrue on
any deferred interest on the Class A Units at the interest rate on the Class A
Units.
Although the underlying securities are issued pursuant to a multi-stage
legal structure, the underlying securities are effectively unsecured and fully
subordinated obligations of the underlying security guarantor. The underlying
securities were part of a series of securities originally issued in a public
offering on or about February 6, 2004 in a principal amount of $2,750,000,000.
The underlying securities were registered under the Securities Act.
The underlying securities have been purchased by the depositor or its
affiliates in the secondary market and will be deposited into the trust. The
underlying securities will not be acquired from the underlying security issuer
or its affiliates or pursuant to any distribution by or agreement with the
underlying security issuer or its affiliates. All information contained in this
prospectus supplement regarding the underlying securities has been derived
solely from the underlying security disclosure documents relating to the
underlying securities as filed with SEC in connection with their original
issuance. You are urged to read the underlying security disclosure documents. No
investigation of the financial condition or creditworthiness of the underlying
security issuer, the underlying security guarantor or any of their affiliates,
or of any ratings of the related underlying securities, will be made by the
trust, the trustee, the depositor, MS&Co. or any of their affiliates in
connection with the issuance of the Class A Units. Prospective purchasers of
Class A Units should carefully consider the financial condition of the
underlying security issuer and the underlying security guarantor and their
ability to make payments in respect of the underlying securities. The depositor,
MS&Co. and the trustee, as well as their respective affiliates, did not
participate in the preparation of the underlying security disclosure documents
or other public information relating to the underlying securities, the
underlying security issuer or the underlying security guarantor, and they take
no responsibility for the accuracy or completeness of the information contained
in the underlying security disclosure documents.
The following is a summary of certain material terms of the underlying
securities:
Underlying security issuer: Goldman Sachs Capital I
Principal amount held by trust: $80,000,000
(by aggregate liquidation amount)
Interest rate: 6.345%
Scheduled payment dates: February 15 and August 15
Scheduled maturity: February 15, 2034
Ranking: Junior and subordinated
Ratings: A1 by Moody's
A- by S&P
Currency of denomination: U.S. dollars
Underlying security trustee: The Bank of New York
Listing: Not applicable
Form: Book-Entry
CUSIP: 38143VAA7
Underlying security
disclosure document: The prospectus supplement describing the
underlying securities dated February 12,
2004, and the prospectus dated February 6,
2004
Underlying security
registration statement: 333-112367
Redemption
The underlying securities have no stated maturity but must be redeemed
upon the maturity of the underlying guarantor debentures or their earlier
redemption. The underlying guarantor debentures will mature on February 15,
2034. Any redemption of underlying securities must occur as described in this
section. If the underlying security issuer or the underlying security guarantor
repays or redeems the underlying guarantor debentures at any time, the trust
will be obligated to redeem a like amount of underlying securities and trust
common securities. The redemption of the underlying securities will occur on the
redemption date, which means the date on which payment of the principal of those
underlying guarantor debentures becomes due under the subordinated debt
indenture. The redemption price for the underlying securities will be the total
liquidation amount of the underlying securities being redeemed, plus accumulated
but unpaid distributions up to and including the redemption date; and the
related amount of the make whole amount, if any, in excess of the total
liquidation amount of the underlying securities being redeemed, paid by the
underlying security issuer or the underlying security guarantor on the
concurrent redemption of the underlying guarantor debentures.
The underlying security issuer or the underlying security guarantor may
redeem the underlying guarantor debentures before their stated maturity as
follows: in whole at any time or in part from time to time, provided that no
partial redemption may occur during an extension period; or in whole at any time
within 90 days after the occurrence of a tax event or investment company event.
If the underlying security issuer or the underlying security guarantor elects to
redeem the underlying guarantor debentures, the underlying security issuer or
the underlying security guarantor will do so at the relevant redemption price.
The redemption price for the underlying guarantor debentures will equal the
greater of: 100% of the principal amount of the underlying guarantor debentures
being redeemed, and the make whole amount, if any, as determined by the
quotation agent, equal to the sum of the present values of scheduled payments of
principal and interest from the redemption date to February 15, 2034 on the
underlying guarantor debentures being redeemed, discounted to the redemption
date on a semiannual basis at a discount rate equal to the treasury rate (as
described below) plus a spread of 0.50%, in the case of a redemption after the
occurrence of a tax event or investment company event, or plus a spread of
0.20%, in the case of any other redemption, plus, in either case, accrued and
unpaid interest on the underlying guarantor debentures being redeemed. Because
the spread percentage will be higher for a redemption after a tax event or
investment company event than for a redemption in other circumstances, the make
whole amount (and thus the redemption price) the underlying security issuer or
the underlying security guarantor will pay to redeem the underlying securities
will be lower if the redemption is due to an event of this kind than if it is
not.
The "quotation agent" will initially be Goldman, Sachs & Co. However, if
Goldman, Sachs & Co. ceases to be a primary U.S. Government securities dealer in
New York City, the underlying security issuer or the underlying security
guarantor will replace them with another primary U.S. Government securities
dealer. If less than all of the underlying guarantor debentures are redeemed or
repaid, then the aggregate liquidation amount of the underlying trust securities
to be redeemed will be allocated approximately 3% to the underlying trust common
securities and 97% to the underlying securities, except in the case of an event
of default as a result of any failure by the underlying security issuer or the
underlying security guarantor to make any payments on the underlying guarantor
debentures when due after any applicable grace period (in which case 100% will
be allocated to the underlying securities).
The underlying trust cannot redeem less than all of the underlying
securities unless all accrued and unpaid distributions on the underlying
securities and underlying trust common securities have been paid on or before
the redemption date.
"Tax event" means the receipt by the underlying trust of an opinion of
counsel experienced in such matters to the effect that, as a result of any tax
change, there is more than an insubstantial risk that any of the following will
occur: the underlying trust is, or will be within 90 days after the date of the
opinion of counsel, subject to U.S. federal income tax on income received or
accrued on the underlying guarantor debentures; interest payable by the
underlying security issuer or the underlying security guarantor on the
underlying guarantor debentures is not, or within 90 days after the opinion of
counsel will not be, deductible by us, in whole or in part, for U.S. federal
income tax purposes; or the underlying trust is, or will be within 90 days after
the date of the opinion of counsel, subject to more than a de minimis amount of
other taxes, duties or other governmental charges.
"Tax change" means any of the following: (1) any amendment to or change,
including any announced prospective change, in the laws or any regulations under
the laws of the United States or of any political subdivision or taxing
authority of or in the United States, if the amendment or change is effective on
or after the date the underlying securities are issued; or (2) any official
administrative pronouncement, including any private letter ruling, technical
advice memorandum, field service advice, regulatory procedure, notice or
announcement (including any notice or announcement of intent to adopt any
procedures or regulations) or action or any judicial decision interpreting or
applying such laws or regulations, whether or not the pronouncement, action or
decision is issued to or in connection with a proceeding involving the
underlying security issuer or the underlying security guarantor or the
underlying trust or issue subject to review or appeal, if the pronouncement,
action or decision is announced or occurs on or after the date of the issuance
of the underlying securities.
"Investment company event" means the receipt by the underlying trust of
(1) an opinion of counsel experienced in such matters to the effect that, as a
result of any amendment to, or change (including any announced prospective
change) in, the laws or any regulations under the laws of the United States or
of any political subdivision or governmental agency or regulatory authority of
or in the United States, or as a result of any official administrative
pronouncement, including any interpretation, release, no-action letter,
regulatory procedure, notice or announcement (including any notice or
announcement of an intent to adopt any interpretation, procedures or
regulations) or (2) action or any judicial decision interpreting or applying
such laws or regulations, whether or not the pronouncement, action or decision
is issued to or in connection with a proceeding involving the underlying
security issuer, the underlying security guarantor or the underlying trust is
subject to review or appeal, which amendment or change is effective, or which
pronouncement, action or decision is announced or occurs, on or after the date
of the issuance of the underlying securities, there is more than an
insubstantial risk that the underlying trust is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act of 1940.
The "treasury rate" for purposes of determining the make whole amount
will be: the yield, under the heading which represents the average for the week
immediately prior to the date of calculation, appearing in the most recently
published statistical release designated H.15(519) or any successor publication
which is published weekly by the Federal Reserve and which establishes yields on
actively traded U.S. Treasury securities adjusted to constant maturity under the
caption "Treasury Constant Maturities", for the maturity most closely
corresponding to the time period from the redemption date to February 15, 2034,
or if no maturity is within three months before or after this time period,
yields for the two published maturities most closely corresponding to this time
period will be determined and the treasury rate will be interpolated or
extrapolated from those yields on a straightline basis, rounding to the nearest
month; or if the release or any successor release is not published during the
week preceding the calculation date or does not contain such yields, the annual
rate equal to the semiannual equivalent yield to maturity of the comparable
treasury issue (as described below), calculated using a price for the comparable
treasury issue, expressed as a percentage of its principal amount, equal to the
comparable treasury price (as described below) for the redemption date. The
treasury rate will be calculated on the third business day preceding the
redemption date.
The "comparable treasury issue", with respect to any redemption date,
will be the U.S. Treasury security selected by the quotation agent as having a
maturity comparable to the time period from the redemption date to February 15,
2034 that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt securities
of comparable maturity to this time period. If no U.S. Treasury security has a
maturity which is within a period from three months before to three months after
February 15, 2034, the two most closely corresponding U.S. Treasury securities
will be used as the comparable treasury issue, and the treasury rate will be
interpolated or extrapolated on a straightline basis, rounding to the nearest
month using such securities.
The "comparable treasury price", with respect to any redemption date,
will be (1) the average of five reference treasury dealer quotations (as
described below) for such redemption date, after excluding the highest and
lowest of such reference treasury dealer quotations, or (2) if the underlying
subordinated debt trustee obtains fewer than five such reference treasury dealer
quotations, the average of all such quotations.
The "reference treasury dealer quotations" means, with respect to each
reference treasury dealer (as described below) and any redemption date, the
average, as determined by the underlying subordinated debt trustee, of the bid
and ask prices for the comparable treasury issue, expressed in each case as a
percentage of its principal amount, quoted in writing to the underlying
subordinated debt trustee by such reference treasury dealer at 5:00 p.m., New
York City time, on the third business day preceding such redemption date.
The "reference treasury dealer" will be (1) the quotation agent or (2)
any other primary U.S. Government securities dealer selected by the quotation
agent after consultation with the underlying security issuer or the underlying
security guarantor.
"Like amount" means, with respect to a redemption of any underlying
trust securities, underlying trust securities having a liquidation amount equal
to the principal amount of underlying guarantor debentures to be
contemporaneously redeemed in accordance with the subordinated debt indenture,
the proceeds of which will be used to pay the redemption price of the underlying
trust securities.
"Liquidation amount" means the stated amount per underlying trust
security of $1,000.
Redemption procedures
Holders will receive at least 30 days', but not more than 60 days',
written notice before any redemption of underlying securities. If there are
accumulated and unpaid distributions on the underlying securities that have not
been paid on or before the redemption date, the underlying trust cannot redeem
less than all of the underlying securities. If (1) the underlying trust gives
irrevocable notice of redemption of the underlying securities, and (2) the
underlying security issuer or the underlying security guarantor has paid to the
underlying property trustee a sufficient amount of cash in connection with the
related redemption or maturity of the underlying guarantor debentures, then on
the redemption date, the underlying property trustee will irrevocably deposit
with DTC funds sufficient to pay the redemption price for the underlying
securities being redeemed. The underlying trust will also give DTC irrevocable
instructions and authority to pay the redemption amount in immediately available
funds to the beneficial owners of the global securities representing the
underlying securities. Distributions to be paid on or before the redemption date
for any underlying securities called for redemption will be payable to the
holders on the record dates for the related dates of distribution.
Once notice of redemption is given and funds are irrevocably deposited,
distributions on the underlying securities will cease to accumulate immediately
prior to the close of business on the redemption date and all rights of the
holders of the underlying securities called for redemption will cease, except
for the right to receive the redemption amount (but without interest on such
redemption amount). If any redemption date is not a business day, then the
redemption amount will be payable on the next business day (and without any
interest, additional distributions or other payment in respect of any such
delay). However, if payment on the next business day causes payment of the
redemption amount to be in the next calendar year, then payment will be on the
preceding business day. If payment of the redemption amount for any underlying
securities called for redemption is improperly withheld or refused and not paid
either by the underlying trust or by the underlying security issuer or the
underlying security guarantor under the guarantee, distributions on the
underlying securities will continue to accumulate at the applicable rate from
the original redemption date scheduled to the actual date of payment. In this
case, the actual payment date will be considered the redemption date for
purposes of calculating the amount to be redeemed and the redemption price. If
less than all of the underlying securities are redeemed, the underlying
securities will be redeemed pro rata in accordance with DTC's applicable
policies. In compliance with applicable law, including the U.S. federal
securities laws, the underlying security issuer or the underlying security
guarantor or their affiliates may, at any time, repurchase outstanding
underlying securities by tender, in the open market, by private agreement or
otherwise.
Underlying security issuance agreement
The underlying security issuance agreement limits the underlying
security issuer's ability to engage in certain activities and transactions and
requires that the underlying security issuer perform certain obligations with
respect to the underlying securities.
The underlying security issuance agreement authorizes the administrative
trustees to issue the underlying securities and the underlying trust common
securities. The underlying trust's only assets will be the underlying guarantor
debentures, which will be issued under the subordinated debt indenture. The
underlying securities represent undivided preferred beneficial interests in the
underlying trust's assets. All of the underlying trust common securities will be
owned, directly or indirectly, by the underlying security guarantor. The
underlying trust common securities rank equally, and payments will be made on
the underlying trust common securities on a pro rata basis, with the underlying
securities. If an event of default under the underlying security issuance
agreement has occurred and is continuing as a result of any failure by the
underlying security issuer or the underlying security guarantor to pay any
amounts in respect of the underlying guarantor debentures when due, however, the
rights of the holders of the underlying trust common securities to receive
distributions and payments upon liquidation, redemption and otherwise will be
subordinated to the rights of the holders of the underlying securities. The
underlying security issuance agreement does not permit the underlying trust to
issue the underlying securities and underlying trust common securities or to
incur any debt.
Distributions. Distributions on the underlying securities will accrue
from February 20, 2004 at the annual rate of 6.345% of the liquidation amount of
each underlying security. The distributions on the underlying securities will be
cumulative (i.e., if distributions are deferred or otherwise not paid, they will
accumulate until paid out.) Distributions will be payable semiannually in
arrears on February 15 and August 15 of each year, beginning on August 15, 2004,
to holders of the underlying securities. Distributions not paid when due for
more than one semiannual payment period will themselves accumulate interest (to
the extent legally permitted) at the annual rate of 6.345% compounded
semiannually. The underlying trust will compute the amount of distributions
payable for any period on the basis of a 360-day year consisting of twelve
30-day months. The amount of distributions payable for any partial period will
be computed on the basis of the actual number of days elapsed per 30-day month.
If distributions are payable on a date that is not a business day, then
the underlying trust will pay the distributions payable on that date on the next
succeeding day that is a business day, without making any additional
distributions or other payments because of the delay. However, if the next
business day falls in the next calendar year, the underlying trust will make the
payment on the immediately preceding business day.
The term "distributions" includes any semiannual payments made on the
underlying securities and underlying trust common securities, any deferred
distribution and any payments that accumulate on distributions not paid on the
applicable distribution date, all as further described below and in the
accompanying prospectus.
Deferral of distributions. If the underlying security issuer or the
underlying security guarantor is not in default under the subordinated debt
indenture, the underlying security issuer or the underlying security guarantor
may, on one or more occasions, defer the payment of interest on the underlying
guarantor debentures for up to 10 consecutive semiannual periods, referred to in
each case as an "extension period". Because interest payments on the underlying
guarantor debentures fund distributions on the underlying securities, semiannual
distributions on the underlying securities will be deferred during any extension
period. During an extension period, the amount of distributions due on the
underlying securities will accumulate and such deferred distributions will
accrue additional distributions (to the extent legally permitted) at the annual
rate of 6.345% compounded semiannually from the relevant payment date for the
distributions.
The underlying security issuer and the underlying security guarantor may
not defer interest payments for any period of time that exceeds 10 consecutive
semi-annual periods with respect to each extension period or that extends beyond
the maturity date of the underlying guarantor debentures on February 15, 2034.
During any extension period, neither the underlying security issuer, the
underlying security guarantor nor any of their subsidiaries may:
o declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect
to, any of the capital stock of the underlying security issuer
or the underlying security guarantor;
o make any payment of principal of or interest or premium, if
any, on, or repay, repurchase or redeem, any of the debt
securities of the underlying security issuer or the underlying
security guarantor that rank on a parity in all respects with
or junior in interest in all respects to the underlying
guarantor debentures, or
o make any guarantee payment regarding any guarantee by the
underlying security issuer or the underlying security
guarantor of debt securities of any of their subsidiaries if
such guarantee ranks on a parity in all respects with or
junior in interest in all respects to the underlying guarantor
debentures.
Such restrictions on the underlying security issuer and the underlying
security guarantor, in each case, do not apply to:
o repurchases, redemptions or other acquisitions of shares of
the capital of the underlying security issuer or the
underlying security guarantor; stock in connection with any
employment contract, benefit plan or other similar arrangement
with or for the benefit of one or more employees, officers,
directors or consultants, in connection with a dividend
reinvestment or stockholder stock purchase plan, in connection
with the issuance of underlying security issuer or underlying
security guarantor's capital stock (or securities convertible
into or exercisable for such capital stock) as consideration
in an acquisition transaction entered into prior to the
applicable extension period;
o as a result of any exchange or conversion of any class or
series of the capital stock of (or any capital stock of a
subsidiary of) the underlying security issuer or the
underlying security guarantor for any class or series of the
capital stock of or of any class or series of the indebtedness
of the underlying security issuer or the underlying security
guarantor for any class or series of the capital stock of the
underlying security issuer or the underlying security
guarantor;
o the purchase of fractional interests in shares of the capital
stock of the underlying security issuer or the underlying
security guarantor in accordance with the conversion or
exchange provisions of such capital stock or the security
being converted or exchanged;
o any declaration of a dividend in connection with any
stockholders' rights plan, or the issuance of rights, stock or
other property under any stockholders' rights plan, or the
redemption or repurchase of rights in accordance with any
stockholders' rights plan;
o any dividend in the form of stock, warrants, options or other
rights where the dividend stock or the stock issuable upon
exercise of the warrants, options or other rights is the same
stock as that on which the dividend is being paid or ranks on
a parity with or junior to such stock; and
o payments under the guarantee.
Prior to the termination of any extension period, the underlying
security issuer or the underlying security guarantor may further extend the
payment of interest, provided that the extension period complies with the
conditions above. Upon the termination of an extension period and the payment of
all amounts then due under the subordinated debt indenture, the underlying
security issuer or the underlying security guarantor may elect to begin a new
extension period as long as the underlying security issuer or the underlying
security guarantor comply with the above conditions. There may be more than one
extension period prior to the maturity of the underlying guarantor debentures.
Deferral of interest payments during an extension period is not an event of
default under the subordinated debt indenture or the underlying security
issuance agreement.
There is no limitation on the number of times that the underlying
security issuer or the underlying security guarantor may elect to defer interest
payments and begin an extension period. If the underlying security issuer or the
underlying security guarantor elect to defer interest payments, you will be
required to accrue and recognize income (in the form of original issue discount)
for U.S. federal income tax purposes regardless of your actual receipt of the
distributions, subject to any changes in the United States federal income tax
laws.
Events of Default, Rights and Remedies. A "trust event of default" means
an event of default under the underlying security issuance agreement with
respect to the underlying securities. An underlying trust event of default is
any of the following:
o any debenture event of default with respect to the underlying
guarantor debentures has occurred and is continuing;
o default for 30 days by the underlying trust in the payment of
any distribution on any underlying security or common
underlying trust security of the underlying trust;
o default by the underlying trust in the payment of the
redemption price of any underlying security or common
underlying trust security of the underlying trust;
o failure by the underlying trustees to perform any other
covenant or warranty in the underlying security issuance
agreement for 60 days after the holders of at least 25% in
aggregate liquidation amount of the outstanding underlying
securities give written notice of the default to the
underlying security issuer, the underlying security guarantor
and the underlying trustees; or
o bankruptcy, insolvency or reorganization of the underlying
property trustee and the failure by the underlying security
issuer or the underlying security guarantor to appoint a
successor underlying property trustee within 90 days.
"Debenture event of default" means an event of default under the
subordinated debt indenture with respect to the underlying guarantor debentures.
A debenture event of default is any of the following: the underlying security
issuer or the underlying security guarantor does not pay the principal or any
premium on any junior subordinated debenture on the due date; the underlying
security issuer or the underlying security guarantor does not pay interest on
any junior subordinated debenture within 30 days after the due date; the
underlying security issuer or the underlying security guarantor remains in
breach of any covenant contained in the subordinated debt indenture for the
benefit of the underlying guarantor debentures for 60 days after the underlying
security issuer or the underlying security guarantor receive a notice of default
from the underlying subordinated debt trustee or the holders of at least 10% in
principal amount of the outstanding underlying guarantor debentures stating that
the underlying security issuer or the underlying security guarantor is in breach
and requiring the underlying security issuer or the underlying security
guarantor to remedy the breach; or the underlying security issuer or the
underlying security guarantor files for bankruptcy or other events of
bankruptcy, insolvency or reorganization relating to the underlying security
issuer or the underlying security guarantor occur. Those events must arise under
U.S. federal or state law, unless the underlying security issuer or the
underlying security guarantor has merged, consolidated or sold their assets and
the successor firm is a non-U.S. entity. The underlying trust will not be
obligated to pay any amount on the underlying securities unless it has received
payment of the corresponding amount on the underlying guarantor debentures.
Consequently, any failure of the underlying trust to make payment on the
underlying securities on a payment date will not result in an underlying trust
event of default unless (1) the underlying trust has received the corresponding
payment from Goldman Sachs Group (and, in the case of an overdue distribution, a
30-day grace period has ended) or (2) Goldman Sachs Group has failed to make the
corresponding payment when due under the subordinated debt indenture (and, in
the case of any overdue interest, a 30 day grace period has ended), so that a
debenture event of default occurs.
Remedies for underlying trust events of default. If an underlying trust
event of default has occurred and is continuing, the underlying property trustee
will be obligated to enforce the underlying security issuance agreement for the
benefit of the holders of the underlying trust securities, subject to the terms
and conditions of that agreement. In the case of any underlying trust event of
default resulting from a debenture event of default, however, the underlying
property trustee will be obligated to act solely on behalf of the holders of
underlying securities and not on behalf of the holder of underlying trust common
securities, and only the holders of the underlying securities will have the
right to direct the underlying property trustee to act on their behalf, in each
case until that underlying trust event of default has been cured, waived or
otherwise eliminated. The underlying property trustee is under no obligation to
exercise any of the powers vested in it by the underlying security issuance
agreement at the request of any holder of underlying securities unless it is
offered a reasonable indemnity by such holder against the costs, expenses and
liabilities that might be incurred as a result.
Remedies for underlying debenture events of default. If a underlying
debenture event of default has occurred and is continuing, and if that
underlying debenture event of default is attributable to the underlying security
issuer or the underlying security guarantor's failure to pay the principal of or
any premium or interest on the underlying guarantor debentures on the applicable
due date (and after a 30 day grace period in the case of overdue interest), then
a holder of underlying securities may institute a legal proceeding against the
underlying security issuer or the underlying security guarantor directly to
enforce the payment to the extent of the holder's underlying securities. This
means that the holder may directly sue for enforcement of payment to such holder
of the principal of or premium or interest on the underlying guarantor
debentures having a principal amount equal to the aggregate liquidation amount
of the holder's underlying securities on or after the applicable due date
specified in the underlying guarantor debentures (and after a 30-day grace
period in the case of overdue interest). The holder need not first (1) direct
the underlying property trustee to enforce the terms of the underlying guarantor
debentures or (2) sue to enforce the underlying property trustee's rights under
the underlying guarantor debentures.
In connection with a direct action, the underlying security issuer or
the underlying security guarantor will be subrogated to the rights of the holder
of underlying securities under the underlying security issuance agreement to the
extent of any payment made by the underlying security issuer or the underlying
security guarantor to that holder in the direct action. This means that the
underlying security issuer or the underlying security guarantor will be entitled
to payment of amounts that a holder of underlying securities receives in respect
of an unpaid distribution that resulted in the bringing of a direct action to
the extent that the holder receives or has already received full payment
relating to the unpaid distribution from the underlying security issuer or the
underlying security guarantor.
Upon the occurrence of a underlying debenture event of default (other
than certain bankruptcy related events), the underlying property trustee, on
behalf of the underlying trust as the holder of the underlying guarantor
debentures, will have the right under the subordinated debt indenture to declare
the principal of and interest on the underlying guarantor debentures to be
immediately due and payable. If the underlying property trustee does not
exercise this right, then the holders of at least 25% in aggregate liquidation
amount of the outstanding underlying securities may, by giving notice in writing
to the underlying security issuer or the underlying security guarantor and the
underlying subordinated debt trustee, on behalf of the holders of all underlying
securities, exercise this right. The holders of a majority in liquidation amount
of all outstanding underlying securities may also, on behalf of all such
holders, rescind any such declaration by holders of underlying securities and
may waive certain prior underlying debenture events of default.
Except for the right to bring a direct action, to declare amounts
immediately due and payable, to rescind such a declaration and to waive certain
past underlying debenture events of default as described above, the holders of
underlying securities will have no right to exercise any remedy or take any
other action under the subordinated debt indenture, and only the underlying
property trustee or the underlying subordinated debt trustee will be entitled to
do so as provided in the subordinated debt indenture.
Distribution of underlying guarantor debentures. The underlying security
issuer or the underlying security guarantor will have the right at any time to
cause the dissolution of the underlying trust and cause the underlying guarantor
debentures to be distributed pro rata to the holders of the underlying
securities and underlying trust common securities. If the underlying guarantor
debentures are distributed to the holders of the underlying securities, the
underlying security issuer or the underlying security guarantor will use their
best efforts to cause the underlying guarantor debentures to be listed on any
exchange on which the underlying securities are then listed. After the date for
any distribution of underlying guarantor debentures upon dissolution of the
underlying trust: the underlying securities will no longer be deemed to be
outstanding; DTC or its nominee, as record holder of the underlying securities,
will receive a registered global certificate or certificates representing the
underlying guarantor debentures to be delivered upon such distribution; and any
certificates representing underlying securities or underlying trust common
securities not held by DTC or its nominee will be deemed to represent underlying
guarantor debentures having an aggregate principal amount equal to the aggregate
liquidation amount of, with an interest rate identical to the distribution rate
of, and accumulated and unpaid interest equal to accumulated and unpaid
distributions on, such underlying securities until such certificates are
presented to the underlying trust or its agent for transfer or reissuance. There
can be no assurance as to the market prices for either the underlying securities
or the underlying guarantor debentures that may be distributed in exchange for
the underlying securities if the underlying trust were to dissolve or liquidate.
This means that the underlying securities that an investor may purchase, whether
in connection with this offering or in the secondary market, or the underlying
guarantor debentures that an investor may receive if the underlying trust were
to dissolve or liquidate, may trade at a discount to the price that the investor
paid to purchase the underlying securities in this offering or in the secondary
market.
Liquidation distribution upon dissolution. Pursuant to the underlying
security issuance agreement, the underlying trust will dissolve upon the
earliest of: the expiration of its term of approximately 31 years; certain
events of bankruptcy, dissolution or liquidation of the holder of the underlying
trust common securities; the distribution of a like amount of the underlying
guarantor debentures to the holders of its underlying securities, if the
underlying security issuer or the underlying security guarantor has given
written direction to the underlying property trustee to terminate the underlying
trust (such written direction by the underlying security issuer or the
underlying security guarantor is optional and solely within their discretion);
redemption of all of the underlying securities as described under "Redemption";
or the entry of an order for the dissolution of the underlying trust by a court
of competent jurisdiction. Any of these events is a "dissolution event".
Upon the occurrence of a dissolution event, the holders of underlying
securities will be entitled to receive out of the underlying trust's assets,
after satisfaction of liabilities to creditors, if any, distributions in an
amount equal to the aggregate of the liquidation amount of $1,000 per underlying
security plus accumulated and unpaid distributions thereon to the payment date.
However, such holders will not receive this distribution if the underlying trust
instead distributes on a ratable basis to the holders of the underlying
securities underlying guarantor debentures in an aggregate principal amount
equal to the aggregate liquidation amount of, with an interest rate equal to the
distribution rate of, and bearing accrued and unpaid interest in an amount equal
to accrued and unpaid distributions on, such underlying securities. If this
distribution can be paid only in part because the underlying trust has
insufficient assets available to pay in full the aggregate distribution, then
the amounts payable directly by the underlying trust on the underlying
securities will be paid on a ratable basis. The holder of the underlying trust
common securities will be entitled to receive distributions upon any such
dissolution event on a ratable basis with the holders of the underlying
securities, except that if an underlying trust event of default resulting from a
debenture event of default has occurred and is continuing, the underlying
securities will have a preference over the underlying trust common securities
with regard to such distributions.
Amendment of the underlying security issuance agreement. The underlying
security issuance agreement may be amended by the underlying security issuer or
the underlying security guarantor with: the consent of holders representing at
least a majority (based upon liquidation amounts) of the outstanding underlying
securities; and receipt by the underlying trustees of an opinion of counsel to
the effect that the amendment or the exercise of any power granted to the
underlying trustees in accordance with the amendment will not cause the
underlying trust to be taxable as a corporation or affect the underlying trust's
status as a grantor trust for U.S. federal income tax purposes or the underlying
trust's exemption from status as an "investment company" under the Investment
Company Act of 1940; provided that, without the consent of the holder of each
underlying security, the underlying security issuance agreement may not be
amended to: reduce the amount or change the timing of any distribution on such
underlying security or otherwise adversely affect the amount of any distribution
required to be made in respect of such underlying security when due and payable;
or restrict the right of such holder to institute suit for the enforcement of
any such payment on such underlying security on or after the date when due and
payable.
So long as the underlying guarantor debentures are held by the
underlying trust, the underlying property trustee will not: direct the time,
method and place of conducting any proceeding for any remedy available to the
underlying subordinated debt trustee, or executing any underlying trust or power
conferred on the underlying property trustee with respect to the underlying
guarantor debentures; waive any past default with respect to the underlying
guarantor debentures that is waivable under the subordinated debt indenture;
exercise any right to rescind or annul a declaration that the principal of all
the underlying guarantor debentures will be due and payable; or consent to any
amendment, modification or termination of the subordinated debt indenture or the
underlying guarantor debentures, where this consent is required, without, in
each case, obtaining the prior approval of the holders of a majority in
aggregate liquidation amount of all outstanding underlying securities; provided,
however, that where a consent under the subordinated debt indenture would
require the consent of each holder of underlying guarantor debentures affected,
no such consent will be given by the underlying property trustee without the
prior consent of each holder of the related underlying securities.
Mergers, consolidations or amalgamations. The underlying trust may not
merge, consolidate or amalgamate with or into, or be replaced by, or convey,
transfer or lease its properties and assets substantially as an entirety to any
corporation or other person except as described under "Description of Underlying
Securities and Related Instruments Mergers, Consolidations, Amalgamations or
Replacements of the Trusts" in the underlying security issuance agreement.
Additional information regarding the underlying securities and
underlying guarantor debentures may be found in the underlying security issuance
agreement.
DESCRIPTION OF UNITS
The Units will consist of two classes of units, designated as the Class
A Units and the Class B Units. Only the Class A Units are offered hereby. The
Class A Units have in the aggregate an initial principal balance of $80,000,000.
The Class A Units may be redeemed as a result of a redemption of the underlying
securities or called as a result of an exercise of the warrants by the
warrantholders. The trust will also issue Class B Units, which are not being
offered by this prospectus supplement.
The Class A Units will be issued, maintained and transferred on the
book-entry records of The Depositary Trust Company and its participants in
minimum denominations of $25 and multiples of $25 in excess thereof. The trustee
will maintain a register of the Unitholders of record and distributions in
respect of the Class A Units will be made on each distribution date to holders
of record as of the close of business on the third business day prior to each
distribution date except that in respect of the final distribution date, when
distributions will be made against presentation of Class A Units.
Application has been made to list the Class A Units on the NYSE. Trading
on the NYSE is expected to begin within 30 days after the completion of this
offering.
The Class A Units will be redeemed at any time when the underlying
securities are redeemed by the underlying security issuer. In addition, the
Class A Units are callable by a warrantholder at any time on or after April 15,
2009 or at any time in connection with a tender offer for or redemption of the
underlying securities. In the event of a partial redemption of the underlying
securities or a partial exercise of the warrants, the trustee will randomly
select Class A Units to be redeemed or called in full from the proceeds of any
such redemption or exercise.
No Unitholder other than the depositor or a warrantholder acquiring
Units in connection with an exercise of warrants may exchange Units for trust
property.
Interest distributions
Distribution dates for the Class A Units will occur on February 15 and
August 15, commencing August 15, 2004. Exact distribution dates are subject to
the provisions of the trust agreement and the underlying securities as to
shifting of payment dates where distribution dates would otherwise fall on a
date which is not a business day. Specifically, if a distribution date would
otherwise fall on a day which is not a business day, the payment will instead be
made on the next following business day. If any payment with respect to the
underlying securities held by the trust is not received by the trustee by 12
noon (New York City time) on a distribution date, the corresponding distribution
on the Class A Units will not occur until the next business day that the trust
is in receipt of proceeds of such payment prior to 12 noon, with no adjustment
to the amount distributed or to the record date.
Under the trust agreement, a "business day" includes any day other than
(i) Saturday or Sunday or (ii) a day on which commercial banks, in New York, New
York or Chicago, Illinois or, for final payment of principal, in the relevant
place of presentation, or the city in which the corporate trust office of the
trustee is located, are authorized or required by applicable law, regulation or
executive order to close.
The interest rate payable on the Class A Units is a fixed rate of 6.00%
per annum. Interest will accrue on the Class A Units on the basis of a 360 day
year consisting of twelve 30 day months or a 30/360 basis.
During an extension period with respect to the underlying securities,
interest will continue to accrue on the unit principal balance at the interest
rate on the Class A Units. Interest will accrue on any deferred interest on the
Class A Units at the interest rate on the Class A Units.
With respect to the first distribution date, interest will accrue from
and including the closing date to but excluding the first distribution date.
With respect to each successive distribution date, interest will accrue from and
including the previous distribution date to but excluding the current
distribution date. The trust will pay interest to the Unitholders based on the
payments of interest received by the trust as a holder of the underlying
securities (other than interest that accrued prior to the closing date). See
"The Trust--Retained interest" above on page S-17.
The right of the Class A Units to interest is equal to the right of the
Class B Units to interest.
Principal distributions
Principal will be distributed on the final scheduled distribution date
occurring on February 15, 2034.
If a warrantholder exercises its warrants or if the underlying security
issuer redeems the underlying securities, the proceeds of any such exercise or
redemption will be distributed to pay principal of and accrued interest on the
Class A Units. If a warrantholder exercises only a portion of its warrants or if
the underlying security issuer redeems only a portion of the underlying
securities, the trustee will randomly select Class A Units to be called by the
exercising warrantholder or redeemed in full from the proceeds of such partial
exercise or redemption.
If the trust is terminated prior to the final scheduled distribution
date, the trust will liquidate the underlying securities and distribute the
proceeds to pay the principal of and interest on the Class A Units.
If any payment of principal with respect to the underlying securities
held by the trust is not received by the trustee by 12 noon (New York City time)
on a distribution date, the corresponding distribution of principal on the Class
A Units will not occur until the next business day that the trust is in receipt
of proceeds of such payment prior to 12 noon, with no adjustment to the amount
distributed or the record date.
Additional distributions
If notice of a tender offer is given and a warrantholder exercises its
warrants in connection with such tender offer for settlement prior to April 15,
2009, each Unitholder holding Class A Units selected for call will receive an
additional distribution of $1.50 per Class A Unit.
Other Units
There will also be a class of interest-only units or strip Units that
are not offered hereby designated as the Class B Units. There are 3,564 Class B
Units each with a $1,000 initial notional amortizing amount balance. On August
15, 2004, $24.7848 ($88,333.33 / 3,564 Class B Units) is expected to be paid on
each Class B Unit and thereafter $37.1773 ($132,500.00 / 3,564 Class B Units) is
expected to be paid on each Class B Unit on each distribution thereafter, in
each case from interest received on the underlying securities. Interest will be
deferred on the Class B Units if the interest is deferred on the underlying
securities. Distribution dates for the Class B Units will occur February 15 and
August 15. The final scheduled distribution date for the Class B Units is
February 15, 2034.
The Class B Units will have a claim for payment equal in priority with
that of the Class A Units in the event of a shortfall of interest payments on
the underlying securities or a liquidation of the underlying securities
following an underlying security default.
Warrants
Class A Units may be called for purchase by a warrantholder on or after
April 15, 2009 or at any time if in connection with a tender offer for or
redemption of the underlying securities.
A warrantholder must give at least 15 calendar days' notice and not more
than 60-calendar days' notice of exercise, unless notice of a tender offer for
or redemption of the underlying securities has been given. A warrantholder may
give notice of its intention to exercise warrants in connection with a tender
offer for or redemption of underlying securities with two business days' notice
prior to the Call Date.
Class A Unitholders will receive an amount equal to the principal of and
accrued interest on their Class A Units in connection with an exercise of
warrants. In addition, if the exercise settles prior to April 15, 2009 and
occurs in connection with a tender offer for the underlying securities, the
Class A Units called by the exercising warrantholder will also receive an
additional distribution of $1.50 per Class A Unit.
The trustee will randomly select Class A Units to be called by the
exercising warrantholder in the event of any partial exercise of the warrants.
Unitholders may not direct the trust or the trustee to participate in
any tender offer for the underlying securities and the trustee will not accept
any instructions to the contrary from the Unitholders. However, any
warrantholder may exercise its warrants in connection with any tender offer and
the trustee or the trust may participate in a tender offer on behalf of an
exercising warrantholder.
A notice of call by a warrantholder shall automatically constitute a
notice of optional exchange pursuant to which the warrantholder will receive the
portion of the trust property corresponding to the amount of called Class A
Units and Class B Units. No Unitholder other than the depositor or a
warrantholder acquiring Units in connection with an exercise of warrants may
exchange Units for trust property.
The warrantholders will have many of the same rights that are described
in the prospectus with respect to a swap counterparty.
The trust agreement permits the trustee to enter into any amendment of
the terms of the warrant to cure any ambiguity in, or to correct, eliminate, add
or supplement or otherwise change any provision of, the terms of the warrants if
such amendment will not have a material and adverse effect upon any Unitholder.
The trust agreement will also contain a provision permitting the trustee to
enter into any other amendment of the terms of the warrants if directed or
consented to by the specified percentage of Unitholders materially and adversely
affected thereby. The trustee shall not enter into any amendment, or agree to a
waiver or other modification, of the terms of the warrants that would have the
effect of changing the principal amount, interest rate, maturity of the Class A
Units or the Class B Units without the consent of 100% of the outstanding unit
principal balance of each class of Units affected thereby. The rating agency
condition shall be satisfied with respect to any such amendment, waiver or
modification unless all of the holders of the Class A Units and the Class B
Units affected thereby vote in favor of such amendment with notice that the
rating agency condition need not be satisfied, but in any event each applicable
rating agency shall receive notice of such amendment, waiver or modification. In
the case of any such amendment that would adversely affect the current rating of
any class of Units by each rating agency rating such class of the Units, the
amendment must be approved by all Unitholders of such class. No amendment to the
warrant terms will be permitted unless 100% of the warrantholders consent to the
requested amendment and the trustee first receives an opinion of counsel to the
effect that the requested amendment will not alter the classification of the
related trust for U.S. federal income tax purposes.
United States Federal Income Taxation
The discussion under the heading "United States Federal Income Taxation"
herein represents the opinion of Cleary, Gottlieb, Steen and Hamilton with
respect to the material United States federal income tax consequences of the
purchase, ownership and disposition of Class A Units by a Unitholder who
acquires its Class A Units on the closing date at a price equal to the principal
balance of the Class A Units. This discussion should be read in conjunction with
the discussion contained in the prospectus under "United States Federal Income
Taxation".
The trust will not be characterized as an association taxable as a
corporation and should be treated as a grantor trust for U.S. federal income tax
purposes. Except as provided below under "Possible partnership classification",
the remainder of this discussion assumes that the trust will be treated as a
grantor trust for U.S. federal income tax purposes.
Each Class A Unitholder will be treated, for U.S. federal income tax
purposes, as if it had (1) purchased its pro rata share of the underlying
securities (less the interest represented by the Class B Units) and (2) granted
a call option to the warrantholders (documented as the warrants) in respect of
the Class A Units in exchange for a premium equal to the fair market value of
such option. Accordingly, a Class A Unitholder's initial tax basis in its pro
rata share of the underlying securities will equal the sum of its cost for the
Class A Units and its pro rata share of such option premium. The option premium
will be taken into account as an additional amount realized when the option is
settled or otherwise terminated as to the Class A Unitholder, including by
disposition through sale of the Class A Units.
The discussion below is based on, and assumes the correctness of, the
tax disclosure in the underlying security prospectus and also assumes that the
underlying security issuer qualifies as a "grantor trust" for U.S. federal
income tax purposes. A prospective purchaser of the Class A Units should read
the tax disclosure in the underlying security prospectus for a description of
the U.S. federal income tax consequences of purchasing, holding and disposing of
the underlying securities and should consult its own tax advisor with regard to
the U.S. federal income tax consequences of purchasing, holding and disposing of
the Class A Units if the underlying securities are treated in a manner different
from what is described in the tax disclosure in the underlying security
prospectus.
The trust will not identify the underlying securities and the warrants
as part of an integrated transaction within the meaning of Treasury Regulations
Section 1.1275-6, and the following discussion assumes that the underlying
securities and the warrants are not integrated. Accordingly, a Unitholder should
consult the discussion under "United States Federal Income Taxation--Taxation of
underlying securities" concerning the treatment of the underlying securities for
U.S. federal income tax purposes absent integration. A Unitholder should consult
its own tax advisor regarding the availability and consequences of integration
of the underlying securities and warrants. For a discussion of the integration
rules, see the prospectus under "United States Federal Income Taxation--Taxation
of underlying securities and swap agreement as an integrated transaction".
According to the underlying security prospectus, the underlying security
issuer believes that the likelihood of exercising its option to defer payments
of interest is a "remote" contingency and that, accordingly, the underlying
securities are not considered to be issued with original issue discount ("OID").
However, according to the underlying security prospectus, if the underlying
security issuer were to exercise its option to defer any payment of interest,
the underlying securities would at that time be treated as issued with OID, and
all stated interest on the underlying securities would thereafter be treated as
OID as long as the underlying securities remained outstanding. Assuming interest
on the underlying securities is not treated as OID, interest on the Class A
Units will be included in income as ordinary interest income as it is paid or
accrued, in accordance with the Class A Unitholder's method of accounting.
However, if the underlying security issuer were to exercise its option to defer
any payment of interest, Class A Unitholders will be required to include their
pro-rata shares of such interest (exclusive of the interest allocable to the
Class B Units) in ordinary gross income as it accrues, whether the holder uses
the cash or accrual method of accounting and even though they may not yet have
received the cash attributable to that income.
A Class A Unitholder's tax basis in the underlying securities will
exceed the principal amount of the underlying securities. Accordingly, a Class A
Unitholder will be considered to have acquired the underlying securities with
"amortizable bond premium". For a discussion of the treatment of amortizable
bond premium, see "United States Federal Income Taxation of the underlying
securities--Acquisition premium and amortizable bond premium" in the prospectus.
Although the Class A Units are expected to trade "flat" (without a
specific allocation to accrued interest), for U.S. federal income tax purposes a
portion of the amount realized on sale will be treated as a payment of accrued
interest and taxed as an interest payment to the extent such amount has not
already been included in income.
A Class A Unitholder's ownership interest in the Class A Units and
related position under the warrants will constitute a straddle for U.S. federal
income tax purposes, assuming the Class A Units or the underlying securities are
considered to be "actively traded", which is likely to be the case. Under the
straddle rules, any capital gain or loss realized upon a sale, redemption or
other disposition of a Class A Unit will be short-term capital gain or loss
without regard to the length of time that the holder has held the Class A Unit.
See "United States Federal Income Taxation--Straddle rules" in the prospectus.
If the straddle rules do not apply and a Unitholder has held its Class A Units
for more than one year, capital gains or losses from the underlying securities
may be long-term gains or losses, but all capital gains or losses from a lapse
or termination of the option would be short-term.
Tax information reporting
Class A Unitholders should be aware that the IRS has proposed changes in
information reporting rules for widely held fixed investment trusts that once
effective would apply to the trust. These changes if adopted generally would
require more extensive reporting of trust items to the IRS and investors on IRS
Forms 1099s and in accompanying statements, including separate identification of
trust income and expense items. For individual taxpayers, deductions for trusts
expenses may be subject to limitations or may not be allowed for purposes of the
alternative minimum tax.
Possible partnership classification
The trust should be treated as a grantor trust for U.S. federal income
tax purposes and the trust intends to report tax information as a grantor trust.
Nonetheless, it is possible that the Internal Revenue Service could successfully
assert that the trust should be treated as a partnership. A partnership
classification may affect the timing and character of income recognized by a
Class A Unitholder. The partnership would compute its income on an accrual
method and accordingly income from the underlying securities would be included
before payments are received. As a partnership, the trust would not itself be
subject to U.S. federal income tax. Instead, each Class A Unitholder, in
computing its federal income tax liability for a taxable year, would have to
take into account its allocable share of the trust's items of income, gain,
loss, deduction or credit ("tax items") for the taxable year of the trust ending
within or with the taxable year of the Class A Unitholder, regardless of the
timing or amount of distributions to the Class A Unitholder from the trust. The
trust's tax items would be generally allocated to each Class A Unitholder in
such a manner as to reflect the right of such Class A Unitholder to
distributions from the trust.
A Class A Unitholder generally will not recognize gain or loss for U.S.
federal income tax purposes from a cash distribution on its Class A Units,
except that gain will be recognized to the extent the distribution exceeds the
Class A Unitholder's tax basis in its Class A Units. A Class A Unitholder's tax
basis in its Units is the amount of money such Class A Unitholder contributes to
the trust, increased by the Class A Unitholder's distributive share of the
trust's income and gain, and decreased (but not below zero) by the Class A
Unitholder's distributive share of the trust's losses and by distributions
received from the trust. A Class A Unitholder that sells its Units would
recognize gain or loss equal to the difference between the amount realized and
the Holder's tax basis in the Units.
The trust's tax basis in the underlying securities would exceed the
principal amount of the underlying securities. Accordingly, the trust would be
considered to have acquired the underlying securities with "amortizable bond
premium". The trust would not, however, elect to amortize this premium and a
Class A Unitholder would not be able to make such election with respect to the
underlying securities held by the trust.
ERISA Considerations
As further described in the prospectus, it is anticipated that the Class
A Units will be publicly-offered securities and the assets of the trust will not
be considered to be assets of any plan investing in the Class A Units pursuant
to the plan asset regulations.
However, plans subject to Title I of the Employee Retirement Income
Security Act of 1974, as amended, or ERISA, Section 4975 of the Internal Revenue
Code of 1986, as amended, or the Code, or any federal, state or local law
substantially similar to the foregoing provisions of ERISA and the Code
(referred to as "plans") should note that (as disclosed in the underlying
security disclosure document) the underlying security issuer, the underlying
security guarantor and their affiliates may be considered to be "parties in
interest" (as defined in ERISA) or "disqualified persons" (as defined in the
Internal Revenue Code) with respect to many plans.
Plan of Distribution
Subject to the terms and conditions set forth in the underwriting
agreement, dated as of the closing date, between MS&Co. as underwriter, or the
"underwriter", and the depositor, the depositor has agreed to sell and MS&Co.
(an affiliate of the depositor) has agreed to purchase, the Class A Units.
The underwriter has agreed, subject to the terms and conditions set
forth in the underwriting agreement, to purchase all Class A Units offered
hereby if any of such Class A Units are purchased.
The depositor has been advised by the underwriter that it proposes to
acquire such Class A Units for its own account and to resell the Class A Units
from time to time in one or more transactions including negotiated transactions,
at fixed public offering prices or at varying prices to be determined at the
time of sale or at the time of commitment therefor. The underwriter may effect
such transactions by selling Class A Units to or through dealers and such
dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the underwriter and any purchasers of Class A
Units for whom they may act as agents. The underwriter and any dealers that
participate with the underwriter in the distribution of Class A Units may be
deemed to be underwriters, and any profit on the resale of Class A Units by them
may be deemed to be underwriting discounts, or commissions under the Securities
Act.
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.
MS&Co. is an affiliate of the depositor, and the participation by MS&Co.
in the offering of the Class A Units complies with Section 2720 of the Conduct
Rules of the National Association of Securities Dealers, Inc. regarding
underwriting securities of an affiliate.
From time to time, the underwriter and its affiliates may be engaged by
the underlying security issuer, the underlying security guarantor and other
underlying security issuers as an underwriter or placement agent, in an advisory
capacity or in other business arrangements. In addition, the underwriter and its
affiliates may make a market in outstanding securities of the underlying
security issuer, the underlying security guarantor and any other underlying
security issuer. Each Unitholder will be deemed to have acknowledged and agreed
that the underwriter or its affiliates may engage in any kind of business with,
or have an investment in, the underlying security issuer, the underlying
security guarantor and any other underlying security issuer or related persons,
and in connection therewith, may obtain or be in possession of non-public
information regarding the underlying securities or related persons which may not
be made available to Unitholders.
This prospectus supplement and the accompanying prospectus may be used
by MS&Co., an affiliate of the depositor, and other affiliates of the depositor
in connection with offers and sales of the Class A Units in market-making
transactions at negotiated prices related to prevailing market prices at the
time of sale or otherwise. MS&Co. and such other affiliates of the depositor may
act as principal or agent in such transactions.
The underwriters do not intend to confirm sales to accounts over which
they exercise discretionary authority.
In order to facilitate the offering of the Class A Units, the certain
underwriters and selling group members and their respective affiliates may
engage in transactions that stabilize, maintain or otherwise affect the price of
the Class A Units or any other securities the prices of which may be used to
determine payments on the Class A Units. Specifically, the underwriters may sell
more Class A Units than they are obligated to purchase in connection with the
offering, creating a short position for their own accounts. A short sale is
covered if the short position is no greater than the number or amount of
securities available for purchase by the agents under any overallotment option.
The underwriters can close out a covered short sale by exercising the
overallotment option or purchasing the Class A Units in the open market. In
determining the source of securities to close out a covered short sale, the
agents will consider, among other things, the open market price of the Class A
Units compared to the price available under the overallotment option. The
underwriters may also sell Class A Units or any other securities in excess of
the overallotment option, creating a naked short position. The underwriters must
close out any naked short position by purchasing Class A Units in the open
market. A naked short position is more likely to be created if the underwriters
are concerned that there may be downward pressure on the price of the Class A
Units in the open market after pricing that could adversely affect investors who
purchase in the offering. As an additional means of facilitating the offering,
the underwriters may bid for, and purchase, Class A Units or any other
securities in the open market to stabilize the price of the Class A Units or of
any other securities. Finally, in any offering of Class A Units through a
syndicate of underwriters, the underwriting syndicate may also reclaim selling
concessions allowed to an underwriter or a dealer for distributing the Class A
Units in the offering, if the syndicate repurchases previously distributed Class
A Units to cover syndicate short positions or to stabilize the price of Class A
Units. Any of these activities may raise or maintain the market price of the
Class A Units above independent market levels or prevent or retard a decline in
the market price of these securities. The underwriters are not required to
engage in these activities, and may end any of these activities at any time.
Validity of Units
Certain legal matters relating to the Class A Units will be passed upon
for the depositor and the underwriter by Cleary, Gottlieb, Steen & Hamilton,
Washington, D.C.
Index of Defined Terms
business day..............................................S-33
Class A Units..............................................S-3
comparable treasury issue.................................S-23
comparable treasury price.................................S-23
debenture event of default................................S-28
dissolution event.........................................S-30
investment company event..................................S-22
like amount...............................................S-23
liquidation amount........................................S-24
Moody's....................................................S-8
plans.....................................................S-39
quotation agent...........................................S-21
reference treasury dealer.................................S-23
reference treasury dealer quotations......................S-23
S&P........................................................S-8
tax change................................................S-22
tax event.................................................S-22
treasury rate.............................................S-23
trigger amount............................................S-16
underlying guarantor debentures............................S-5
underlying securities...................................S-3, 4
underlying securities purchase price.......................S-3
underlying security........................................S-3
underlying security disclosure document....................S-3
underlying security guarantor..............................S-3
underlying security guaranty............................S-3, 4
underlying security issuance agreement.................S-3, 19
underlying security issuer..............................S-3, 4
underlying security registration statement.................S-3
underwriter...............................................S-39
PROSPECTUS
$5,000,000,000
MS Structured Asset Corp.
Depositor
Structured Asset Trust Unit Repackagings (SATURNS SM)
Issuable in Series
The Structured Asset Trust Unit Repackagings or "SATURNS" described in
this prospectus, which we refer to in this prospectus as the Units, will be
offered from time to time in one or more series, and in one or more classes
within each such series, denominated in U.S. dollars or in one or more foreign
currencies. Units of each series and class will be offered on terms to be
determined at the time of sale as described in the applicable prospectus
supplement.
Each series of Units will represent beneficial interests in one or more
debt, asset-backed or other fixed income securities or loans, together with, if
specified in the applicable prospectus supplement, rights under swap or other
derivative agreements or other assets. If specified in the applicable prospectus
supplement, the trust property for a particular series of Units may also
include, or the holders of those Units may have the benefit of, a combination of
insurance policies, letters of credit, reserve accounts and other types of
rights or assets designed to support or ensure the servicing and distribution of
amounts due under the Units.
The trust property with respect to a particular series of Units will be
deposited in a trust formed pursuant to a trust agreement to be entered into
between MS Structured Asset Corp., as depositor, and the trustee specified in
the applicable prospectus supplement. Each class of Units of any series will
represent the right, which may be senior to those of one or more other classes
of that series, to receive specified portions of payments of principal, interest
and certain other amounts on the trust property in the manner described in this
prospectus or the applicable prospectus supplement.
The Units represent interests in the related trust only and do not
represent obligations of or interests in the depositor, any credit support
provider, any swap counterparty or guarantor, Morgan Stanley & Co. Incorporated,
which we refer to as MS&Co., the trustee or any of their affiliates. The Units
do not represent direct obligations of any issuer of securities deposited into
the related trust or of its affiliates.
See "Risk Factors" beginning on page 5 of this prospectus to read about
factors you should consider before buying the Units.
The Securities and Exchange Commission and state securities regulators
have not approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell and is not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
MORGAN STANLEY
March 5, 2003
TABLE OF CONTENTS
Page
Prospectus Supplements...............................................3
Risk Factors.........................................................5
Available Information...............................................11
Reports to Unitholders..............................................12
Important Currency Information......................................12
Use of Proceeds.....................................................12
The Depositor.......................................................13
The Trusts..........................................................13
Description of Trust Agreements.....................................14
Description of Trust Property.......................................26
Description of Units................................................44
United States Federal Income Taxation...............................64
ERISA Considerations................................................78
Plan of Distribution................................................81
Validity of Units...................................................84
Index of Defined Terms..............................................85
"SATURNS" is a service mark of Morgan Stanley.
Prospectus Supplements
A prospectus supplement which describes the matters identified below
will be provided with this prospectus. This prospectus provides information
regarding terms generally applicable to the Units, and must be read in
conjunction with the applicable prospectus supplement, which describes the
specific terms applicable to the Units to which it relates and may modify any of
the terms described in this prospectus. The specific terms described in the
applicable prospectus supplement qualify any related general discussion in this
prospectus.
Each prospectus supplement will describe, among other things, the
following with respect to the series of Units to which it relates:
o the title, aggregate principal amount or notional amount and
authorized denominations,
o the currency or currencies in which the principal, premium, if
any, and any interest are distributable on the Units, if other
than U.S. dollars,
o the interest rate on the Units or the method for calculating that
interest rate, or the scheduled interest payments,
o any call rights exercisable by the depositor or any third party,
or any other mandatory or optional redemption terms,
o the terms of one or more swap, option or other derivative
transactions, if any, to be entered into by the related trust,
o the number of classes of that series and, with respect to each
class, its designation, aggregate principal amount or notional
amount, and authorized denominations,
o the time and place of distribution of any interest, premium or
principal,
o the original date of issue and the scheduled final distribution
date for the Units,
o the Units price, if offered at a fixed price,
o certain information concerning the type, characteristics and
specifications of the trust property for that series or a
particular class within that series,
o the relative rights and priorities of each class within that
series, including the method for allocating collections from the
trust property to the Unitholders of each class and the relative
ranking of the claims of the Unitholders of each class to that
trust property,
o a description of specific provisions of any related swap
agreement to the extent not described under "Description of Trust
Property--Swap agreements" in this prospectus or inconsistent
with that description, the identity of any entity entering into a
swap or other derivative transactions with the trust upon which
the trust will depend for payments on the Units and a description
of any guaranty or other type of support of the obligations of
that entity, if any, under the related swap agreement, and
o any other relevant terms of the Units not described in this
prospectus. See "Description of Units--General" for a listing of
other items that may be specified in the applicable prospectus
supplement.
Risk Factors
The following is a discussion of the material risks generally
associated with an investment in the Units. The applicable prospectus supplement
may contain additional information regarding special considerations applicable
to the Units to which it relates.
Limited Recourse
Each trust will be a special purpose entity and will have no assets other than
those described in the applicable prospectus supplement
Each trust will be formed solely for the purpose of issuing the Units
evidencing beneficial interests in its assets, and will have no assets other
than the underlying securities and any other assets transferred to it by the
depositor or otherwise acquired by the trust. If those assets are insufficient
to make distributions of interest, premium, if any,, principal or any other
payments on the Units, the amounts of those distributions will be reduced to the
extent of the shortfall. As a result, purchasers of the Units may lose a part or
all of the value of their initial investment.
There is no recourse to the depositor, MS&Co. or others for payments on the
Units
The Units are obligations only of the applicable trust. The Units do
not represent obligations of or interests in the depositor, any credit support
provider, any swap counterparty or guarantor, MS&Co., Morgan Stanley, the
trustee or any of their affiliates, except to the limited extent described in
this prospectus or the applicable prospectus supplement. None of the depositor,
MS&Co., Morgan Stanley, any swap counterparty, the trustee or any of their
affiliates will be obligated to make payments on the Units in the event that the
applicable trust property is insufficient to provide for distributions, and
holders of the Units will have no recourse against any of them or their assets
in respect of payments not made on the Units.
Limited Liquidity
An investment in the Units is not liquid and there is limited potential for
resale
There will be no market for any series of Units prior to the issuance
of those Units. Furthermore, there can be no assurance that a secondary market
will develop or, if it does develop, that it will provide Unitholders with
liquidity of investment or that it will continue for the life of those Units.
MS&Co. is not obligated to make a market for any Units, and may or may not do
so. Limited liquidity may adversely affect the timing of an investor's resale of
the Units or the price obtainable in the case of a resale.
Listing of the Units may be removed by the relevant stock exchange
If the Units of any series are listed on a registered securities
exchange or market system, the listing of such series will be subject to the
rules of the applicable securities exchange or market system. Events may occur
with respect to the related underlying security issuer that may cause the
applicable securities exchange or market system to determine, in its discretion,
to remove the listing of the Units on such securities exchange or market system.
Priority of Other Claims
Claims of the trustee and a swap counterparty may adversely affect distributions
on the Units
No final distribution will be made to Unitholders of a particular trust
before the payment of (1) all amounts due to the swap counterparty under any
swap agreement to which the trust is a party (unless those amounts are
subordinated in right of payment to the final distribution to Unitholders), as
described under "Description of Trust Property--Swap agreements--Swap
termination payments", (2) any extraordinary trust expenses to be borne by that
trust (if agreed by all Unitholders), as described under "Description of Trust
Agreements--Trustee compensation" and (3) any regular and ordinary expenses to
be borne by that trust, as described under "The Trusts". Trust property may be
sold by the trustee to fund any such payments. It is possible that all or a
substantial part of the trust property may be required to be paid to the trustee
or a swap counterparty prior to any final distribution to Unitholders.
Dependence on Underlying Securities
The ability of a trust to make payments under its Units depends on the receipt
of payments from the related underlying security issuer, credit support
provider, swap counterparty or swap guarantor
Since the assets of each trust will be limited to the underlying
securities and any other assets transferred to the trust, a trust will be able
to distribute interest, premium, if any, and principal on the Units issued by it
only to the extent that it receives the corresponding amounts from the related
underlying security issuer, credit support provider, swap counterparty or
guarantor. The underlying security issuer or issuers, credit support provider,
swap counterparty and guarantor are vulnerable to adverse business conditions
which may affect payment on the underlying securities, and in turn, on the
Units. Financial difficulties experienced by them could cause delays in payment,
partial payment or nonpayment of the underlying securities and the Units. In
deciding whether to purchase or sell Units, an investor should therefore obtain
and evaluate information concerning the relevant underlying security issuer,
credit support provider, swap counterparty or guarantor as if it were investing
directly in securities issued by that person. The trust, the trustee, the
depositor, MS&Co. and their affiliates have not verified, have not undertaken to
verify and will not verify, the accuracy, completeness or continued availability
of any such information, and have not made any investigation of the financial
condition or creditworthiness of any such person (except to the extent that
MS&Co. or one of its affiliates acts as credit support provider, swap
counterparty or guarantor). Furthermore, we cannot give any assurance that all
events occurring prior to the date any Units are offered for sale (including
events that would affect the accuracy or completeness of the publicly available
documents) that would affect the creditworthiness of the relevant underlying
security issuer, credit support provider, swap counterparty or guarantor have
been publicly disclosed. Therefore, neither the issuance and sale of any series
of Units nor the inclusion of information regarding a particular underlying
security issuer, credit support provider, swap counterparty or guarantor in the
applicable prospectus supplement should be construed as an endorsement of any
such Person or a statement regarding the financial condition or creditworthiness
of any such person. Subsequent disclosure of any such events or the disclosure
of or failure to disclose material future events concerning any underlying
security issuer, credit support provider, swap counterparty or guarantor could
affect the value received at maturity with respect to the Units.
You should undertake an independent investigation of the relevant underlying
security issuer, credit support provider, swap counterparty or guarantor
Affiliates of the depositor may currently or from time to time engage
in business with any unaffiliated underlying security issuer, credit support
provider, swap counterparty or guarantor, including extending loans to, or
making equity investments in, or providing advisory services to, including
merger and acquisition advisory services, such entities. In the course of such
business, affiliates of the depositor may acquire non-public information with
respect to any such underlying security issuer, credit support provider, swap
counterparty or guarantor, and neither the depositor nor any of its affiliates
undertakes to disclose any such information to you. In addition, one or more of
affiliates of the depositor may publish research reports with respect to any
such underlying security issuer, credit support provider, swap counterparty or
guarantor. As a prospective purchaser of Units, you should undertake an
independent investigation of each underlying security issuer, credit support
provider, swap counterparty or guarantor necessary to make an informed decision
with respect to an investment in the related Units.
Reinvestment Risk
The Units may be redeemed or called at a time when comparable investments are
not available
The timing of distributions of interest, premium, if any, and principal
of the Units will be affected by any early redemption, amortization or
prepayment of the related underlying securities and by any exchange of the
related underlying securities pursuant to a tender offer or otherwise. The
underlying securities may also be subject to a call option or other similar
rights providing a person the right, but not the obligation, to purchase
underlying securities from the trust at a specified price. The Units may be
subject to call rights, warrants or similar rights providing a person the right,
but not the obligation, to purchase your Units from you at a specified price.
Call, redemption, early payment, amortization or similar events may adversely
affect an investor by returning principal amounts to the investor when
prevailing interest rates have declined and reinvestment of those amounts at the
rate applicable to the Units is not possible.
Extension of maturity of securities may cause illiquidity and loss of more
favorable investment opportunities
The timing of distributions of interest, premium, if any, and principal
of the Units will also be affected by any extension of maturity of the related
underlying securities. Extension of maturity prevents an investor from obtaining
principal amounts at the originally scheduled time and may prevent an investor
from reinvesting those amounts at a time when prevailing interest rates have
risen.
Passive Vehicle
The trustee will not actively manage the trust
The trustee with respect to any series of Units will hold the trust
property for the benefit of the related Unitholders. Each trust will generally
hold the trust property to maturity and not dispose of it, except under
conditions specified in the applicable trust agreement, regardless of any
adverse events, financial or otherwise, which may affect any related underlying
security issuer or the value of the trust property. Restrictions on the
trustee's powers and obligations may mean that the trust will not take actions
with respect to the trust property--in particular, to sell or enforce remedies
under underlying securities that constitute a part of the trust property--that
an investor might take if it held the trust property directly.
Risks Related To Swap Agreements
General
A swap agreement entered into by a trust may alter the amounts, timing
or currency of distributions of principal or interest on the related Units from
those that a holder would be entitled to receive from the related underlying
securities directly. A swap agreement is not a guaranty of the related
underlying securities in whole or in part, and no assurance can be given that
the applicable trustee will receive either the payments due to be received on
the underlying securities or the payments due to be received under that
agreement, or that the trustee will recover moneys under any related guaranty,
in the case of a payment default by the swap counterparty under that agreement.
Moreover, unless expressly entered into for such purpose, a swap agreement does
not protect an investor against risks associated with any early redemption,
amortization, prepayment, exchange or extension of maturity of the related
underlying securities. To the extent that the aggregate principal amount of the
related underlying securities is reduced through any such redemption,
prepayment, exchange or extension, the corresponding notional amount of any swap
or amount or other reference amount for any derivative obligation subject to a
swap agreement, and accordingly, the amounts payable by the swap counterparty
under that agreement, may be ratably reduced. Alternatively, such events may be
treated as termination events under a swap agreement and create potential
liability for swap termination payments as described below.
Changes in the value of a swap transaction may cause losses if that swap
transaction terminates early
In the case of an early termination of one or more transactions under a
swap agreement, a swap termination payment may be payable by the trust to its
swap counterparty or by the swap counterparty to the trust. The amount of any
such payment will be based on (1) the estimated cost, at prevailing market
values, that would be incurred by the trust or its swap counterparty to enter
into a transaction or transactions having economic terms similar to that of the
relevant terminated transaction or transactions or (2) the losses suffered by
the trust or its swap counterparty as a result of the termination of the
relevant transaction or transactions. In general, the swap counterparty will
have the sole right to determine in good faith the amount of any swap
termination payment. A swap termination payment and the resulting loss to
Unitholders may be substantial in relation to the total value of the related
underlying securities if interest rates, currency rates, swap spreads, credit
spreads or option volatilities, as applicable, have changed significantly since
the closing date for the offering of the applicable Units. Any swap termination
payment payable by the trust will be limited (1) in the case of an early
termination other than as a result of an underlying security default, to a claim
against the trust property pro rata with that of the Unitholders based on the
aggregate Unit principal balance and (2) in the case of an early termination as
a result of an underlying security default, to the trust property. See
"Description of Units--Early distribution of trust property" and "Description of
Trust Agreements--Trust wind-up events, liquidation events and disqualification
events". Unitholders will not be liable to the swap counterparty for swap
termination payments to the extent, if any, that the amount of any such
termination payments exceeds the assets of the trust.
The obligations of each trust to any related swap counterparty will be
secured by a security interest in the trust property granted by the trust in
favor of the swap counterparty.
The price obtained by liquidating trust property to make a swap termination
payment may be unfavorable
If the trust is liable for a swap termination payment, underlying
securities and other trust property may be sold by the trustee, through a
selling agent or otherwise. Unless the applicable prospectus supplement
designates a different selling agent, the selling agent may be MS&Co. or one of
its affiliates (including any swap counterparty) designated by it. The timing,
price and other terms of any sale conducted by the selling agent will be
determined by the selling agent in its sole discretion, but all such sales shall
be completed within 30 days or such longer period of time as may be reasonable
with respect to particular underlying securities. The selling agent will be
permitted to sell underlying securities and other trust property to affiliates
of the selling agent. While Unitholders, acting unanimously, may deliver to the
trustee the amount of any swap termination payment payable by the related trust
(and any fees payable to the trustee) and written instruction to discontinue the
sale of the underlying securities and other trust property, it is possible that
underlying securities may be sold by the selling agent in the time necessary for
Unitholders to be notified of and exercise the foregoing right. Unitholders
could be materially adversely affected if the related trust is required to sell
underlying securities in order to make a swap termination payment at a time when
prices for the underlying securities in the secondary market are depressed as a
result of a default on the underlying securities, changes in interest rates or
for any other reason.
Early swap termination may leave a trust with underlying securities that have
unfavorable investment characteristics
During its term, a swap agreement may enable a trust to make scheduled
distributions of principal and interest in the currency, on the interest rate
basis and at the maturity specified in that agreement, notwithstanding that the
related underlying securities may have a different currency, interest rate basis
or maturity, or other features different from those of the Units. In the case of
a trust wind-up event, after giving effect to any sales of the related
underlying securities and payment or receipt of any swap termination payment,
the proceeds from the sale of any remaining underlying securities or other trust
property and any swap termination payment received by the related trust will be
distributed ratably to the applicable Unitholders. That distribution will
constitute full satisfaction of each Unitholder's fractional undivided interest
in the related trust. After any such distribution of underlying securities, the
holders will only be entitled to distributions of principal and interest in
accordance with the terms of those underlying securities, and not in accordance
with the terms of the terminated transaction or transactions under the swap
agreement. As a result, those holders may receive less than they would have
received under the related Units.
Certain events may require that a trust be wound up early on terms that may
result in losses to Unitholders
A trust may terminate prior to the final scheduled distribution on the
Units issued by it if specified wind-up events occur. In the case of any such
event, each transaction under any swap agreement to which the trust is a party
will terminate, and the trust may be required to sell trust property to make any
swap termination payment. A partial trust wind-up may occur as a result of
events affecting only specific underlying securities or transactions, in which
case the affected transaction will terminate and any applicable swap termination
payment will be incurred or received by the trust, but the trust may continue as
to other unaffected assets. It is possible that all or a substantial part of the
trust property may be required to be paid to the trustee or a swap counterparty
prior to any final distribution to Unitholders. See "Description of Trust
Agreements--Trust wind-up events, liquidation events and disqualification
events" in this prospectus and the description of the trust agreement in the
related prospectus supplement for a description of trust wind-up events.
A swap counterparty may have discretion to calculate the payment obligations to
or of the related trust
A swap counterparty (or one of its affiliates) may act as calculation
agent under its swap agreement, and there may be conflicts of interest between
the swap calculation agent and the trustee with respect to calculations or
determinations under the swap agreement. A swap calculation agent will be
obligated only to carry out its duties and functions as swap calculation agent
in good faith, will have no fiduciary obligations to Unitholders and will not
necessarily be acting in the interests of Unitholders. All determinations by the
swap calculation agent under any swap agreement will, in the absence of manifest
error, be conclusive and binding for all purposes on the trust and Unitholders.
The swap counterparty may be responsible for liquidating a trust's assets to pay
the swap counterparty's own claims
A swap counterparty (which may be an affiliate of MS&Co.), MS&Co. or
one of its other affiliates may act as selling agent, and as such have the right
to sell underlying securities on such terms as it may determine in its sole
discretion if any such sale is required to enable the trust to make any swap
termination payment. If a swap termination payment is owed to a swap
counterparty, that swap counterparty and the related Unitholders may have
adverse economic interests with respect to the liquidation of underlying
securities. Moreover, a selling agent will be permitted to sell underlying
securities to its affiliates. A selling agent will be an agent of the trustee
only and will have no fiduciary or other duties to Unitholders, nor will a
selling agent have any liability to the applicable trust in the absence of bad
faith or willful misconduct.
Underlying securities may be sold when their market value is diminished
Unless underlying securities are redeemed by their issuer or the
related prospectus supplement provides otherwise, if a trust wind-up event
occurs, the selling agent will sell, on behalf of the trust, any such underlying
securities held by the trust. Those sales may occur when the underlying security
issuer is in default (either with respect to the underlying securities or with
respect to any other obligation) or the market value of the underlying
securities is diminished for other reasons. In such circumstances, liquidation
by the selling agent may result in Unitholders incurring losses that would not
be incurred if the holders received a distribution of the underlying securities
in kind.
Available Information
Each trust will be subject, to a limited extent, to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance with those requirements, the depositor will file on
behalf of each trust certain reports and other information with the Securities
and Exchange Commission (the "SEC"). Those reports and other information can be
inspected and copied at the public reference facilities maintained by the SEC at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of those
materials can be obtained by making a written request to the SEC, Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The SEC also maintains a site on the internet at www.sec.gov at which
users can view and download copies of reports, proxy, information statements and
other information filed electronically. The depositor does not intend to send
any financial reports to Unitholders. If the prospectus supplement for the Units
of a given series specifies that those Units are to be listed on the New York
Stock Exchange, reports and other information concerning the related trust can
also be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005. If the prospectus supplement for the Units of
a given series specifies that those Units are to be listed on the American Stock
Exchange LLC, reports and other information concerning the related trust can
also be inspected at the offices of the American Stock Exchange LLC, 86 Trinity
Place, New York, New York 10006.
The depositor has filed with the SEC a registration statement relating
to the Units on Form S-3 under the Securities Act. The SEC file number for the
Registration Statement is 333-101155. This prospectus does not contain all the
information contained in the registration statement. For further information,
please refer to the registration statement.
Incorporation of Certain Documents by Reference
All documents filed by the depositor with respect to a trust pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, before, on or after
the date of this prospectus and prior to the termination of the offering of any
series of Units or, if later, the date on which any affiliates of the depositor
cease offering and selling those Units will with respect to such Units be deemed
to be incorporated by reference in this prospectus and to be a part of this
prospectus from the date of filing of those documents. Any statement contained
in this prospectus, the prospectus supplement or in a document incorporated or
deemed to be incorporated by reference will be deemed to be modified or
superseded to the extent that a statement contained in this prospectus or the
prospectus supplement or in any subsequently filed document which also is or is
deemed to be incorporated by reference modifies or supersedes that statement.
Any statement so modified or superseded will not be deemed, except as so
modified or superseded, to constitute a part of this prospectus or the
prospectus supplement.
The depositor will provide without charge to each person, including any
beneficial owner of Units, to whom this prospectus is delivered, upon his or her
written or oral request, a copy of any or all of the documents incorporated by
reference in this prospectus, excluding the exhibits to those documents unless
they are specifically incorporated by reference in those documents. Written or
oral requests for such copies should be directed to MS Structured Asset Corp.,
1585 Broadway, New York, New York 10036, Attention: Secretary, Tel.
212-761-1715.
Reports to Unitholders
On each distribution date (or on any other dates specified in the
applicable prospectus supplement), unaudited reports containing information
concerning each trust will be prepared by the trustee and sent to registered
Unitholders of that trust, unless otherwise stated in the applicable prospectus
supplement. Where Units are represented by a global security in registered form,
reports will be sent only to the depositary or its nominee, as registered holder
of the Units. See "Description of Units--Form" and "Description of Trust
Agreements--Reports to Unitholders" and "--Notices". Those reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles.
Important Currency Information
Unless the applicable prospectus supplement provides for the payment by
purchasers of Units in a currency other than the specified currency for those
Units, purchasers will be required to pay for those Units in that specified
currency. Currently, there are limited facilities in the United States for
conversion of U.S. dollars into foreign currencies and vice versa, and banks do
not currently offer non-U.S. dollar checking or savings account facilities in
the United States. However, if requested by a prospective purchaser of Units
with a specified currency other than U.S. dollars, MS&Co. or an affiliate or
agent, as exchange rate agent, in its sole discretion, may arrange for the
exchange of U.S. dollars into a specified currency to enable that purchaser to
pay for the Units. Each such exchange will be made by the exchange rate agent on
such terms and subject to such conditions, limitations and charges as it may
from time to time establish in accordance with its regular foreign exchange
practice. All costs of the exchange will be borne by the purchaser.
Use of Proceeds
The net proceeds to be received from the initial sale of each series or
class of Units will be used by the depositor to purchase (or repay any financing
by the depositor in respect of) the related trust property, including, if
specified in the applicable prospectus supplement, arranging for credit support
(including by making required deposits into any reserve account (as described
below) or another account of the trustee for the benefit of the Unitholders of
such series or class) or making initial payments under any swap agreement. Any
remaining net proceeds from the initial sale are expected to be to be used by
the depositor for general corporate purposes or for other purposes as may be
described in the prospectus supplement.
The Depositor
The depositor was incorporated in the State of Delaware on September
21, 1998, as a direct, wholly-owned, limited-purpose subsidiary of Morgan
Stanley. The address of the depositor is 1585 Broadway, New York, New York
10036, Attention: Secretary. The certificate of incorporation of the depositor
provides generally that the business to be conducted by the depositor is limited
to acquiring, holding and disposing of underlying securities, arranging for
credit support, acting as depositor of trusts in connection with series of
Units, registering the Units with the SEC and complying on behalf of each trust
with the related reporting and filing requirements under the Exchange Act,
holding and transferring interests in the Units and retained interests in trust
property, and engaging in other related activities and transactions. The
depositor is required at all times to have at least one director who is not
affiliated with Morgan Stanley.
The Trusts
The Units of any series will be issued by a trust. Each trust will be
established under the laws of the State of New York pursuant to a trust
agreement between the depositor and the trustee. Concurrently with the execution
and delivery of that trust agreement, (1) the depositor will transfer the
related underlying securities and other trust property to the trustee for the
benefit of Unitholders and deposit those underlying securities in the trust, (2)
if applicable, the trustee will enter into any swap agreement and accept any
related guaranty, (3) if applicable, sell any call rights or warrants as
described under "Description of Units--Call rights and warrants" below and (4)
if applicable, accept any credit support, enter into any repurchase agreements
and enter into other agreements or arrangements described in the applicable
prospectus supplement. The trustee, on behalf of the trust, will accept the
underlying securities and other trust property and deliver the related Units to
or in accordance with the order of the depositor. The depositor's transfer of
the underlying securities to the trustee will be without recourse.
The trust property of each trust will consist of:
o the related underlying securities and all payments on or
collections in respect of those underlying securities due
after a specified cut-off date,
o all the trust's right, title and interest under any swap
agreement and any related guaranty,
o all the trust's right, title and interest in any related
credit support,
o all funds from time to time deposited in specified
segregated accounts held by the trustee in trust for the
benefit of the Unitholders, and
o any other asset described in the applicable prospectus
supplement as constituting a part of the trust property,
all as more fully described in this prospectus or the applicable
prospectus supplement, and exclusive of any interest retained by the depositor
or a third party in the underlying securities, the swap agreement or other
assets constituting trust property. The Units to be issued by a trust will
represent fractional undivided interests in, or evidence direct ownership of,
the related trust property. Claims of Unitholders on the related trust property
will be subject to (1) if applicable, the security interest of any swap
counterparty with respect to all amounts due to it under any swap agreement to
which the trust is a party (unless those amounts are subordinated in right of
payment to the claims of Unitholders), as limited in the case of a termination
other than for an underlying security default to a claim ratable and equal with
that of the Unitholders, as described under "Description of Trust Property--Swap
agreements--Swap termination payments", (2) any extraordinary trust expenses to
be borne by the trust, as described under "Description of Trust
Agreements--Trustee compensation" and (3) if applicable, the rights of any
holder of call rights or similar rights or, if applicable, any repo
counterparty.
The trustee will administer the trust property pursuant to the related
trust agreement and will perform those tasks with respect to the related Units
that are specified in that trust agreement. Unless otherwise specified in the
related prospectus supplement, the trustee will receive customary fees as
compensation and in payment of all of its regular and ordinary expenses, which
will be paid from trust property or the proceeds of such property. See
"Description of Trust Agreements--Trustee compensation".
Description of Trust Agreements
General
Unless otherwise provided in the applicable prospectus supplement, each
trust agreement will be entered into by the depositor and the trustee, and will
incorporate, to the extent specified in each trust agreement, the "Standard
Terms for Trust Agreements", filed as an exhibit to the registration statement,
as they may be amended from time to time. The trust agreement for each series of
Units will also contain specific terms of the related trust, depending on the
terms of the Units to be issued by that trust, the related underlying securities
and any swap agreement. The following summary is subject to the detailed
provisions of the "Standard Terms for Trust Agreements" and the specific
provisions of the applicable trust agreement. Specific provisions of each trust
agreement, to the extent that they differ materially from the summary below,
will be described in the applicable prospectus supplement.
Collections on underlying securities
With respect to each series of Units, the trustee will make reasonable
efforts to collect all scheduled payments on the related underlying securities
and other trust property, provided that the procedures used are consistent with
the applicable trust agreement. However, except as otherwise expressly specified
in the applicable trust agreement, the trustee will not be required to expend or
risk its own funds or otherwise incur financial liability.
Certain matters regarding the depositor and the trustee
Each trust agreement will provide that neither the depositor nor any of
its directors, officers, employees or agents will incur any liability to the
related trust or its Unitholders for any action taken, or for refraining from
taking any action, in good faith pursuant to the trust agreement or for errors
in judgment. However, none of the foregoing persons will be protected against
any loss, liability or expense resulting from willful misfeasance, bad faith or
negligence in the performance of specific duties under the trust agreement or
from reckless disregard of obligations and duties under the trust agreement. In
addition, each trust agreement will provide that the depositor will not be under
any obligation to appear in, prosecute or defend any legal action related to its
responsibilities under that agreement which in its opinion may expose it to any
expense or liability. The depositor may, however, in its discretion undertake
any action which it deems necessary or desirable with respect to the trust
agreement, the rights and duties of the parties to that agreement or the
interests of the Unitholders.
The trustee will undertake to perform only those duties that are
specified in the trust agreement. Each trust agreement will provide that the
trustee may elect to perform some or all of its duties through a co-trustee or
agent. Any particular provisions with respect to entities acting as a co-trustee
or agent will be described in the applicable prospectus supplement.
Prior to the date that is one year and one day after all distributions
in respect of the Units of a particular series have been made, neither the
depositor nor the trustee will take any action or institute any proceeding
against each other under the U.S. Bankruptcy Code or any other liquidation,
insolvency, bankruptcy, moratorium, reorganization or similar law applicable to
either of them, or any action which would likely cause the other to be subject
to, or seek the protection of, any such law.
Retained interest
The applicable prospectus supplement will specify whether there will be
any retained interest with respect to the trust property, and, if so, the owner
of that interest. Any such retained interest will be established on an
asset-by-asset basis and will be specified in the applicable trust agreement. A
retained interest in the trust property represents a specified interest in that
property. Payments in respect of a retained interest will be deducted from any
payments received on the trust property and, in general, will not become a part
of the related trust. Unless a different allocation is described in the
applicable prospectus supplement, any partial recovery of interest on the trust
property will be allocated equally and ratably between any retained interest and
the aggregate amount of the related Units.
Modification and waiver
The trust agreement for a particular series of Units may be amended by
the depositor and the trustee, if the Rating Agency Condition is satisfied,
without notice to or consent of the holders of those Units, for certain
purposes, including the following:
o to cure any ambiguity or defect or to correct or supplement
any provision which may be defective or inconsistent with
any other provision or with the disclosure in the applicable
prospectus supplement,
o to add or supplement any credit support for the benefit of
any Unitholders,
o to increase the trigger amount or the maximum reimbursable
amount or other liabilities of the trustee,
o to evidence and provide for the acceptance of appointment
under the trust agreement by a successor trustee,
o to add to the covenants, restrictions or obligations of the
depositor, or the trustee for the benefit of the
Unitholders,
o to comply with any requirements imposed by the Internal
Revenue Code or other applicable law, and
o to change any of the terms thereof if no Unitholder of the
related series will be materially and adversely affected by
such change.
In addition to the foregoing, a trust agreement may also be amended
from time to time by the depositor and the trustee, with the consent of the
holders of Units materially and adversely affected by such amendment evidencing
not less than a specified percentage of each class of the Units that are
affected by such modification or amendment, for the purpose of adding, changing
or eliminating any provision or modifying the rights of the Unitholders of any
class. Unless specified in the applicable prospectus supplement, no amendment to
a trust agreement may change the principal amount, interest rate, maturity, or
other terms specified in the applicable prospectus supplement, of any class or
series of Units without the consent of 100% of the outstanding Unit Principal
Balance of each class of Units affected thereby. In the case of any such
amendment that would adversely affect the current rating of any class of Units
by each rating agency rating such class of the Units, the amendment must be
approved by all Unitholders of such class. No amendment or modification to the
trust agreement shall be permitted unless the trustee first receives an opinion
of counsel that such amendment or modification will not alter the classification
of the trust for U.S. federal income tax purposes. In connection with an
amendment, the trustee is entitled to receive and shall be fully protected in
relying upon an opinion of counsel stating that the execution of such amendment
is authorized or permitted by the trust agreement.
The trustee will not agree to any amendment that would affect the
rights or obligations of any swap counterparty of the trust, without first
obtaining the approval of that swap counterparty.
Holders of Units evidencing not less than a specified percentage of the
Units of a particular class may, on behalf of all holders of the Units of that
class, (1) waive, insofar as that class is concerned, compliance by the
depositor or the trustee with any restrictive provisions of the trust agreement
before the time for such compliance or (2) waive any past default under the
trust agreement with respect to the Units of that class, except for (A) a
default resulting from any failure to distribute amounts received as principal
of (and premium, if any) or any interest on any such Unit and (B) a default in
respect of any covenant or provision the modification or amendment of which
would require the consent of the holder of each outstanding Unit affected by the
default.
Any terms relating to the modification or waiver of the trust agreement
for a particular class of Units in addition to or that differ from the foregoing
will be described in the applicable prospectus supplement.
Reports to Unitholders
On each distribution date for the Units of a particular series, the
trustee will forward or make available or cause to be forwarded or made
available to each holder of the Units a statement setting forth:
o the amounts of the corresponding distribution allocable to
principal of or interest or premium, if any, on the Units,
o if applicable and feasible, the interest rate and scheduled
principal payment,
o the aggregate stated principal amount of the related
underlying securities as of that distribution date and, if
applicable, the interest rate applicable to the underlying
securities for the next accrual period,
o the amount received by the trustee on the related underlying
securities for the last accrual period,
o the amounts of and recipients of any payments under any swap
agreement for the last accrual period,
o if applicable, the swap rate payable to the trust applicable
to the next accrual period under any swap agreement,
o the aggregate principal balance (or notional amount, as
applicable) of the Units at the close of business on such
distribution date,
o if the ratings of the Units or the underlying securities are
specified in the applicable prospectus supplement, the
current ratings of the Units or the underlying securities,
as applicable, if different from the ratings provided in the
prospectus supplement and the names of the rating agencies
that assigned such ratings,
o the cumulative amount of extraordinary trust expenses, if
any, as of that distribution date,
o in the case of any trust having trust property which
includes credit support, any change in the available amount
of each element of that credit support, and
o any additional information relevant to holders of the Units,
as specified in the applicable prospectus supplement.
The prospectus supplement may specify that some of the information
described above will not be furnished with respect to the Units to which it
relates.
In the case of the information as to distributions of principal,
interest and premium, if any, the relevant amounts will be expressed as U.S.
dollar amounts (or equivalents in any other specified currency) per minimum
denomination of Units or for another specified portion of the Units. 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 that year was a Unitholder, a
statement containing the relevant information as to distributions of principal,
interest and premium, if any, aggregated for that year and containing sufficient
information to enable each Unitholder to calculate its U.S. federal income tax
liability with respect to the Unit held by it. Such obligation of the trustee
shall be deemed to have been satisfied to the extent that substantially
comparable information shall be provided by the trustee pursuant to any
requirements of the Internal Revenue Code as are from time to time in effect.
Evidence as to compliance
If specified in the applicable prospectus supplement, the trust
agreement will provide that commencing on a certain date and on or before a
specified date in each following year, a firm of independent public accountants
will furnish a statement to the trustee to the effect that they have examined
specified documents and records relating to the administration of the trust
property 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 must not be more than one year after the original issue
date of the Units to which that prospectus supplement relates) and that, on the
basis of specified agreed procedures considered appropriate under the
circumstances, they are of the opinion that such administration was conducted in
compliance with the terms of the trust agreement, except for any exceptions as
they believe to be immaterial and any other exceptions and qualifications as are
identified in the report.
A trust agreement may also provide for delivery to the depositor, 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.
Copies of the annual accountants' statement and the statement of
officers of the trustee, if any, may be obtained by Unitholders without charge
by making a written request to the trustee at the address identified in the
applicable prospectus supplement.
Notices
The trustee will notify Unitholders as promptly as possible, but in any
event within three business days from receipt, of all notices and communications
it receives from the relevant underlying security issuer, including any notice
of redemption of the related underlying securities by that underlying security
issuer. The trustee will also notify the Unitholders of any exercise of any call
rights as to the related underlying securities by a swap counterparty under the
terms of any swap agreement.
Unless otherwise specified in the applicable prospectus supplement, any
notice required to be given to a holder of a Unit will be given by facsimile to
any number previously provided to the trustee or mailed to the last address of
that holder identified in the Unit register. Any notice mailed within the time
specified in the trust agreement will be presumed to have been given when
mailed, whether or not the Unitholder actually receives it. Notices given by
facsimile will be effective when a confirmation (including electronic
confirmation) of effective transmission is received. In the case of Units in
global form, the depositary will be the sole direct recipient of notices. See
"Description of Units--Form".
Replacement Units
In the event that a Unit is mutilated, destroyed, lost or stolen, it
may be replaced at the corporate trust office or agency of the trustee in the
City of New York after the holder has (1) paid any expenses that may be incurred
by the trustee in connection with the replacement and (2) furnished any evidence
and indemnity that the trustee may require. Mutilated Units must be surrendered
before new Units will be issued unless the depositor and the trustee receive, to
their satisfaction, any security or indemnity that they may require to hold each
of them harmless.
Trust wind-up events, liquidation events and disqualification events
Disqualification events. A "disqualification event" will occur under
each trust agreement if an underlying security becomes a disqualified underlying
security, a swap transaction becomes a disqualified swap transaction or any
credit support becomes disqualified credit support, each as described below.
Unless otherwise specified in the applicable prospectus supplement, if
the applicable issuer of any underlying security, other than a government
security, that constitutes 10% or more of the trust property (referred to as a
"concentrated underlying security"):
o has ceased to be an eligible underlying security issuer as
described under "Description of Trust Property--Underlying
securities" and no additional means of providing current
information regarding that underlying security issuer is
described in the applicable prospectus supplement, and
either:
o twelve months have elapsed, or
o the applicable issuer has formally terminated its reporting
obligations under the Exchange Act,
then such underlying security will be considered a "disqualified
underlying security", unless the depositor, after discussion with the staff of
the SEC, determines that the depositor would not be required to provide
information with respect to that underlying security issuer if the trust
continued to hold such underlying security.
If a concentrated underlying security is considered a disqualified
underlying security:
o a termination event will occur with respect to any
transaction related to that disqualified underlying security
under any related swap agreement,
o the trust will sell that disqualified underlying security or
otherwise liquidate that disqualified underlying security,
o the trust may be required to sell other underlying
securities to the extent necessary to pay any swap
termination payment that may result, and
o unless otherwise provided in the applicable prospectus
supplement, if the trust holds only disqualified underlying
securities to be sold or liquidated as described above, a
trust wind-up event will occur.
If any swap transaction has a value to the trust equal to 10% or more
of the trust property and a concentrated underlying security of the swap
counterparty would be a disqualified underlying security, such swap transaction
will be considered a "disqualified swap transaction". In that case:
o a termination event will occur with respect to such
disqualified swap transaction,
o the trust shall sell any related underlying securities and
if necessary other trust property to the extent necessary to
pay any related swap termination payment, and
o if such terminations occur with respect to all swap
transactions or the swap transactions specified in the
applicable prospectus supplement, and the applicable
prospectus supplement so provides, a trust wind-up event
will occur.
If any credit support arrangement has a value to the trust of 10% or
more of the trust property and a concentrated underlying security of the credit
support provider would be a disqualified underlying security, such credit
support will be considered "disqualified credit support". In that case:
o the trust shall terminate such credit support, and
o if the applicable prospectus supplement so provides, a trust
wind-up event will occur.
Unless otherwise specified in the applicable prospectus supplement, if
any of the above events occur and does not result in a trust wind-up event, the
trust shall distribute any net proceeds to the trust from any such events in the
manner described in the applicable prospectus supplement to the holders of Units
and the trust shall continue thereafter.
Liquidation events. A "liquidation event" will occur following a
disqualification event as described above, an underlying security default as
described below, any termination event with respect to a swap agreement as
described under "Description of Trust Property--Swap agreements" or a default or
other applicable event with respect to any credit support. Following a
liquidation event, the trust will liquidate trust property as described below. A
liquidation event with respect to an underlying security may also result in a
termination of a swap transaction or liquidation of credit support relating to
such underlying security. In connection with a liquidation event, the trust may
need to liquidate trust property related to the swap transaction or other trust
property in order to satisfy any swap termination payment or other payments. A
liquidation event may also result in a trust wind-up event. If an event occurs
that is a trust wind-up event described below as well as a liquidation event,
such event will be treated as a trust wind-up event.
An "underlying security default" will occur with respect to an
underlying security if any of the following occurs:
o the failure of the underlying security issuer to pay an
installment of principal of, or any amount of interest due
on, the underlying securities (or other securities of the
underlying security issuer that rank equal or senior to the
underlying securities) on the due date, after the expiration
of any applicable cure period,
o the acceleration of the maturity of the underlying
securities pursuant to the terms of the underlying
securities or the relevant underlying security issuance
agreement and failure to pay the accelerated amount on the
acceleration date,
o the initiation by the underlying security issuer of any
proceedings seeking a judgment of insolvency or bankruptcy
or seeking relief under bankruptcy or insolvency laws or
similar laws affecting creditor's rights,
o the passage of thirty (30) calendar days since the day upon
which any person or entity other than the underlying
security issuer initiates any proceedings against the
underlying security issuer seeking a judgment of insolvency
or bankruptcy or seeking relief under bankruptcy or
insolvency laws or similar laws affecting creditor's rights
and such proceeding has not been dismissed prior to such
thirtieth day, or
o other events described in the prospectus supplement.
A liquidation event will occur with respect to any credit support if an
event which would constitute an underlying security default occurs with respect
to the issuer of such credit support or if such credit support becomes
disqualified credit support.
Upon the occurrence of a liquidation event (unless the provisions
relating to trust wind-up events are applicable), the trustee, through the
selling agent, will liquidate the applicable underlying security, swap agreement
or credit support, by a sale or otherwise as described in the applicable
prospectus supplement, and will apply the proceeds to satisfy any swap
termination payment and other required payments, with the balance to be
distributed to the Unitholders as described in the prospectus supplement.
Trust wind-up events. Trust wind-up events with respect to any trust,
unless otherwise specified in the applicable prospectus supplement, include the
following:
o an underlying security default that affects all underlying
securities held by the trust or any underlying securities
specified in the prospectus supplement,
o the consummation of any redemption of, tender for, exercise
of any call option on, or other similar transactions with
respect to all underlying securities held by the trust,
o any event of default or termination event under the swap
agreement or swap agreements specified in the applicable
prospectus supplement, including without limitation:
o an event of default under the swap agreements or a
termination event under the swap agreements with respect to
which all transactions are "affected transactions" (as
defined in the swap agreement),
o any swap default arising from any action taken or failure to
act by the swap counterparty,
o any termination event under the related swap agreement with
respect to which the swap counterparty is the sole "affected
party" (as defined in the swap agreement) and all
transactions are "affected transactions" provided that at
the time of such occurrence no swap termination payment
would be payable by the trust to the swap counterparty upon
designation of an early termination date by the trust, or
o the designation of an early termination date by the swap
counterparty under the related swap agreement with respect
to all transactions entered into under that agreement,
o any credit support default specified in the applicable
prospectus supplement,
o the occurrence of a disqualification event that leads to a
trust wind-up, as described above,
o the occurrence of an excess expense event, as described
below,
o the designation by the depositor, if the depositor owns 100%
of the Unit principal balance, of a special depositor
wind-up event, or
o any other wind-up event described in the applicable
prospectus supplement.
Unless otherwise specified in the applicable prospectus supplement, if
more than one trust wind-up event occurs, only the first such event will be the
"trust wind-up event" for all purposes under the relevant trust agreement, any
swap agreement and any related agreements or other documents.
Excess expense event. Under each trust agreement, an "excess expense
event" will occur if the trustee has incurred extraordinary trust expenses in an
aggregate amount exceeding the trigger amount specified in the applicable
prospectus supplement. The trustee will be required to provide notice to any
swap counterparty promptly upon the incurrence by the trustee of extraordinary
trust expenses in an aggregate amount in excess of the trigger amount, stating
that an excess expense event will occur on the fifth business day following the
provision of such notice. If the applicable prospectus supplement so specifies,
notice will also be given to the Unitholders. An excess expense event will not
occur if the swap counterparty agrees to provide adequate assurance of indemnity
to the trustee within five business days after such notice, and prior to such
day any swap counterparty agrees to indemnify the trustee to its reasonable
satisfaction for future extraordinary trust expenses and extraordinary trust
expenses that have already been incurred at the time of the agreement to
indemnify that exceed the maximum reimbursable amount specified in the
applicable prospectus supplement. If the applicable prospectus supplement so
specifies, Unitholders may unanimously agree to provide such indemnity.
Consequences of a trust wind-up event. Except as specified in the
applicable prospectus supplement, if a trust wind-up event occurs:
o the relevant trust agreement and each transaction under any
swap agreement will terminate,
o the trustee, through the selling agent, will liquidate the
underlying securities and trust property pursuant to the
swap agreements or otherwise by sale,
o the trustee will apply the proceeds of any such liquidation
or sale to fund any swap termination payment, as described
under "Description of Trust Property--Swap agreements--Swap
termination payments" and any extraordinary trust expenses
to be borne by the trust, as described under "--Trustee
compensation" below, and
o the trustee will hold all remaining liquidation proceeds and
other trust property, if applicable, until the satisfaction
of certain conditions, at which time the trustee will
distribute such proceeds to the Unitholders. See
"Description of Units--Early distribution of trust
property".
The trustee will notify the Unitholders and the rating agencies
promptly of any trust wind-up event or liquidation event. However, the trustee
will not be responsible for giving notice of a trust wind-up or liquidation
event unless and until (1) the trustee fails to receive amounts due on the
underlying securities or under a swap agreement within any applicable grace
period, (2) the trustee receives notice from a swap counterparty of the
occurrence of a termination event, (3) the trustee receives notice from the
underlying security issuer of an event constituting a default under the
applicable underlying security issuance agreement that is also an underlying
security default or (4) an officer of the trustee assigned to its corporate
trust department obtains actual knowledge of an underlying security default,
swap default or termination event.
Upon the occurrence of a trust wind-up event or liquidation event, the
trustee will notify the selling agent that the trust is required to sell
underlying securities or other trust property. See "--Sale of trust property,
secured party rights" below.
If so specified in the prospectus supplement, in connection with early
termination of a swap agreement or one or more transactions thereunder, other
than as a result of an underlying security default, the claim of the swap
counterparty against the underlying securities (or proceeds thereof arising from
sale thereof) and any other trust property will be limited (1) in the case of an
early termination other than as a result of an underlying security default, to a
claim against the trust property pro rata with that of the Unitholders based on
the aggregate Unit principal balance and (2) in the case of an early termination
as a result of an underlying security default, to the trust property.
Sale of trust property, secured party rights
After receiving a notice from the trustee that a trust is required to
sell underlying securities or other trust property, the selling agent specified
in the applicable prospectus supplement or otherwise appointed by the trustee
will sell underlying securities or other trust property on behalf of the trust.
The timing, price and other terms of any sale conducted by the selling agent
will be determined by the selling agent in its sole discretion, but all such
sales will be completed within 30 days (or a longer period of time as may be
reasonable with respect to particular underlying securities or other trust
property). If a default has occurred under an underlying security issuance
agreement or an underlying security has become a disqualified underlying
security and that event does not result in a termination of the trust, sales
will be limited to the underlying securities affected by that event, except to
the extent that the proceeds from the sale of those underlying securities are
insufficient to make any swap termination payment.
In addition to the provisions of the trust agreement with respect to
the selling agent, in the event that the trust fails to make any payment when
due under any swap agreement, the swap counterparty may have the right to take
all action and to pursue all remedies with respect to the trust property that a
secured party is permitted to take with respect to collateral under the Uniform
Commercial Code as in effect from time to time in the State of New York,
including the right to require the trustee promptly to sell some or all of the
underlying securities held by the trust in the open market or, at the election
of the swap counterparty, to sell underlying securities to the swap counterparty
for their fair value as determined in good faith by the swap counterparty. In
either case, the proceeds of sale will be applied to any amounts owed to the
swap counterparty. Each trust agreement will provide that Unitholders will have
no liability as sellers of the trust property in connection with any sale by the
trustee or the selling agent.
If provided in the applicable prospectus supplement, in connection with
any swap termination payment payable by the trust, the Unitholders may, acting
unanimously, deliver to the trustee the amount of such outstanding swap
termination payment (together with, in the case of a trust wind-up event, any
extraordinary trust expenses in excess of the maximum reimbursable amount
payable to the trustee) and a written instruction to discontinue sale of the
underlying securities.
The selling agent is an agent of the trustee only and shall have no
fiduciary or other duties to the Unitholders, nor shall the selling agent have
any liability to the trust in the absence of the selling agent's bad faith or
willful default. The selling agent shall be permitted to sell underlying
securities to affiliates of the selling agent. The selling agent may elect not
to act as selling agent with respect to some or all of the underlying securities
by oral or written notice to that effect to the trustee, and may resign at any
time.
Distribution to Unitholders; termination
The obligations created by the trust agreement (other than the
obligation of the trustee to provide reports and other information) will
terminate upon the scheduled final distribution date or the date of distribution
of all trust property remaining after payment of all expenses and obligations of
the trust. That distribution will be made after all trust property has been
sold, as described above under "--Sale of trust property, secured party rights",
and any swap termination payment (except for any such payment that is
subordinated to the distribution to Unitholders), as described under
"Description of Trust Property--Swap agreements--Swap termination payments", and
any extraordinary trust expenses to be borne by that trust (if agreed by all
Unitholders), as described under "--Trustee compensation" below, have been paid.
Written notice of termination will be provided as described above under
"--Reports to Unitholders" and "--Notices", and the final distribution on the
Units will generally be made only if the Units are surrendered and cancelled at
an office or agency of the trustee.
Trustee
The trustee will at all times be a corporation or association which is
not an affiliate of the depositor (but may have normal banking relationships
with the depositor or any obligor with respect to any underlying securities and
their affiliates) organized and doing business under the laws of any state of
the United States or of the United States. The trustee must be authorized to
exercise corporate trust powers, have a combined capital and surplus of at least
$200,000,000 and be subject to supervision or examination by federal or state
authorities. Its long-term debt obligations must be rated in one of the four
highest categories assigned to long-term debt obligations by each of the rating
agencies, and it must at all times satisfy the requirements of Section 310(a) of
the Trust Indenture Act of 1939, as amended, and Section (a)(4)(i) of Rule 3a-7
under the Investment Company Act. Unless another trustee is identified in the
applicable prospectus supplement, the trustee for each trust initially will be
LaSalle Bank National Association. The trustee may at any time resign and be
discharged from the trust by giving written notice to the depositor, any swap
counterparty and the Unitholders, subject to an eligible successor trustee being
appointed by the depositor and accepting its appointment. If no successor
trustee has been appointed and accepted its appointment within 30 days after a
notice of resignation by an acting trustee, that trustee or the depositor may
petition any court of competent jurisdiction for the appointment of a successor
trustee.
The trust agreement and, if applicable, the provisions of the Trust
Indenture Act incorporated by reference in that agreement, contain limitations
on the rights of the trustee, should it become a creditor of the trust, to
obtain payment of claims in certain cases or to realize on certain property
received by it in respect of any such claims, as security or otherwise. The
trustee is permitted to engage in other transactions with the trust. However, if
it acquires any "conflicting interest" (as defined in the Trust Indenture Act),
it must eliminate the conflict or resign.
Trustee compensation
As compensation for and in payment of trust expenses related to its
services under the trust agreement (other than extraordinary trust expenses as
described below), the trustee will receive the trustee fees. Unless subordinated
to the Units, the prospectus supplement will set forth the amount, source,
manner and priority of payment with respect to such trustee fees. Trustee fees
and expenses may be paid from a portion of the income received with respect to
the underlying securities. The trust may also retain the depositor or a third
party to act as an expense administrator to pay the trustee fees and certain
other expenses.
The depositor will indemnify the trustee for any other loss, liability
or expense, other than trustee fees, incurred by the trustee ("extraordinary
trust expenses") relating to the applicable trust agreement, swap agreement or
underlying securities (other than any such loss, liability or expense incurred
by reason of willful misfeasance, bad faith or negligence in the performance of
the trustee's duties under such trust agreement) up to, in the aggregate, the
maximum reimbursable amount specified in the prospectus supplement. Under no
circumstances will the depositor be obligated to indemnify the trustee for any
such extraordinary trust expenses in excess of the maximum reimbursable amount.
Unless otherwise specified in the prospectus supplement, any extraordinary trust
expenses actually incurred by the trustee in excess of that amount will be
payable from trust property or otherwise by the swap counterparty or Unitholders
only if and to the extent that the swap counterparty or Unitholders representing
100% of the aggregate principal balance (or notional amount, as applicable), as
applicable, so agree.
Governing law
The Units and each trust agreement will be governed by the laws of the
State of New York. Unless otherwise specified in the applicable prospectus
supplement, each trust agreement will be subject to the provisions of the Trust
Indenture Act that are required to be part of the trust agreement and will, to
the extent applicable, be governed by those provisions.
The federal and state courts in the Borough of Manhattan in the City of
New York will have non-exclusive jurisdiction in respect of any action arising
out of or relating to the Units, each trust agreement or any swap agreement.
Description of Trust Property
General
The trust property for a particular series of Units and the related
trust will not constitute trust property for any other series of Units and the
trust related to those Units. Generally, the Units of all classes of a
particular series represent equal and ratable undivided ownership interests in
the related trust property. The applicable prospectus supplement may specify,
however, that specified assets or portions of assets constituting a part of the
trust property can be beneficially owned solely by, or deposited solely for the
benefit of, one class or a group of classes of Units of the same series. In that
case, the other classes of the same series will not possess any beneficial
interest in those specified assets.
Underlying securities
General. Each series of Units will represent an ownership interest in a
designated security or pool of securities that were registered under the
Securities Act or otherwise publicly issued, or are eligible for resale pursuant
to Rule 144(k) under the Securities Act, and have been purchased by the
depositor or one or more of its affiliates and deposited with the trust. The
underlying securities will consist of one or more of the following issued under
the laws of the United States, any U.S. State or any foreign jurisdiction:
o debt obligations or investment grade term preferred stock
issued or issued and guaranteed by one or more corporations,
general or limited partnerships, limited liability
companies, business trusts, banking organizations or
insurance companies or other organizations, referred to as
"corporate debt",
o equipment trust certificates, including enhanced equipment
trust certificates and pass-through equipment trust
certificates,
o trust preferred capital securities and other similar
preferred securities of one or more trusts or other special
purpose legal entities,
o asset-backed securities of one or more trusts or other
special purpose legal entities issued pursuant to a
registration statement filed with the SEC on Form S-3,
o an obligation issued or guaranteed by an Eligible Sovereign
or any agency or instrumentality thereof for the payment of
which the full faith and credit of the Eligible Sovereign is
pledged, where Eligible Sovereigns include the United States
of America, the Republic of France, the Federal Republic of
Germany and the states thereof, the United Kingdom, Canada
and the provinces thereof, Japan, the Kingdom of Belgium,
the Kingdom of the Netherlands, and the Republic of Italy,
or another sovereign described in the applicable prospectus
supplement,
o the obligations of one or more of the following government
sponsored enterprises ("GSEs"): Federal National Mortgage
Association, Federal Home Loan Mortgage Corporation, Student
Loan Marketing Association, Resolution Funding Corporation,
Federal Home Loan Banks (to the extent such obligations
represent the joint and several obligations of the twelve
Federal Home Loan Banks), Tennessee Valley Authority,
Federal Farm Credit Banks and any other government sponsored
enterprise specified in the applicable prospectus supplement
that, at the time of the offering of the Units, has
outstanding securities held by non-affiliates with an
aggregate market value of at least $75,000,000 and that
makes information publicly available comparable to that of
Exchange Act reporting companies, or
o certificates evidencing undivided fractional interests in a
trust, the assets of which consist of promissory notes (the
"GTC Notes"), payable in U.S. Dollars, of a certain foreign
government, backed by a full faith and credit guaranty
issued by the United States of America, acting through the
Defense Security Assistance Agency of the Department of
Defense, of the due and punctual payment of 90% of all
payments of principal and interest due on the GTC Notes and
a security interest in collateral, consisting of
non-callable securities issued or guaranteed by the United
States government thereof, sufficient to pay the remaining
10% of all payments of principal and interest due on the GTC
Notes.
If an underlying security is corporate debt, a trust preferred capital
security or an equipment trust certificate, and the underlying security will not
be, as of the issue date of the Units, a concentrated underlying security, then
the depositor must reasonably believe that one of the following conditions is
met:
o the related underlying security issuer will be an Exchange
Act registrant who is duly filing reports as specified under
the Exchange Act,
o the underlying securities are guaranteed by an Exchange Act
registrant who is duly filing reports as specified under the
Exchange Act,
o the related underlying security issuer is a direct or
indirect subsidiary of an Exchange Act registrant who is
duly filing reports as specified thereunder and has a direct
or indirect parent company whose periodic reports meet the
requirements of Rule 3-10 of Regulation S-X promulgated by
the SEC, or
o the underlying security satisfies the criteria below.
If an underlying security that is corporate debt, a trust preferred
capital security or an equipment trust certificate that will be, as of the issue
date of the related Units, a concentrated underlying security, then the
depositor must reasonably believe that one of the following additional
conditions is met:
o the issuer is eligible to use SEC Form S-3 or F-3 for a
primary offering of common equity or a primary offering of
non-convertible investment grade securities, or
o the underlying securities are guaranteed by a direct or
indirect wholly-owning parent company of the issuer, or a
wholly-owned subsidiary of the issuer or the issuer's direct
or indirect parent company, and
o the issuer, guaranteeing parent company or
guaranteeing subsidiary of the parent company is
eligible to use SEC Form S-3 or F-3 for a primary
offering of common equity or a primary offering of
non-convertible investment grade securities, and
o the issuer or the relevant parent company's periodic
reports meet the requirements of Rule 3-10 of
Regulation S-X promulgated by the SEC.
In the case of trust preferred capital securities or equipment trust
certificates, the issuer of the obligation held by, or supporting the issuance
of, the trust or other special purpose legal entity issuing the trust preferred
capital securities or equipment trust certificates which may be deemed to be the
issuer for the foregoing purposes.
If a concentrated underlying security is an asset-backed security, the
depositor must reasonably believe that the related issuer has at least
$75,000,000 in outstanding securities held by non-affiliates and that either:
o the related issuer files in accordance with informational
requirements it has under the Exchange Act, periodic reports
and other information with the SEC, or
o the trust undertakes to provide to investors and file under
the Exchange Act the periodic reports and other information
with the SEC the related issuer would be required to file in
accordance with informational requirements of the Exchange
Act from time to time were such issuer subject to such
requirements .
In addition, each of the underlying securities will have been purchased
by the depositor or one or more of its affiliates in the secondary market
(either directly or through an affiliate of the depositor).
The underlying securities that satisfy each of the applicable criteria
described above are referred to as "eligible underlying securities" and the
related issuer of each underlying security is referred to as an "eligible
underlying security issuer".
GSE debt securities generally are exempt from registration under the
Securities Act pursuant to Section 3(a)(2) of the Securities Act (or are deemed
by statute to be so exempt) and are not required to be registered under the
Exchange Act. The securities of any GSE will be included in a trust only to the
extent (A) its obligations are supported by the full faith and credit of the
U.S. government or (B) the organization makes publicly available its annual
report, which shall include financial statements or similar financial
information with respect to the organization. Based on information contained in
the offering document pursuant to which any GSE issuer's underlying securities
were originally offered, the applicable prospectus supplement will set forth
information with respect to the public availability of information with respect
to any GSE issuer of underlying securities which constitute concentrated
underlying securities for any trust as of the date of the prospectus supplement.
The specific terms and conditions of the GSE underlying securities will be set
forth in the related prospectus supplement. Unless otherwise specified in the
related prospectus supplement, the underlying securities with respect to any GSE
issuer will not be guaranteed by the United States and do not constitute a debt
or obligation of the United States or of any agency or instrumentality thereof.
Neither the United States nor any agency thereof is obligated to finance any GSE
issuer's operations or to assist a GSE issuer in any manner. Prospective
purchasers should consult the publicly available information with respect to
each GSE issuer for a more detailed description of the regulatory and statutory
restrictions on the related GSE's activities.
All information contained in a prospectus supplement with respect to
any underlying security will be derived solely from descriptions contained in a
publicly available prospectus or an offering document for that underlying
security (each such prospectus or offering document is referred to as an
"underlying security disclosure document"), any periodic filings with respect to
the underlying security or underlying security issuer or guarantor, or other
available information. The applicable prospectus supplement will state whether
the underlying security disclosure document with respect to any applicable
concentrated underlying security was filed with the SEC in connection with the
issuance of the related underlying security or otherwise in public filings by
the related underlying security issuer or identify another source from which
such underlying security disclosure document can be obtained. Prospective
purchasers of the Units are urged to read this prospectus and the applicable
prospectus supplement in conjunction with (1) each related underlying security
disclosure document and (2) each registration statement of which any underlying
security disclosure document is a part, including any reports filed by the
related underlying security issuer under the Exchange Act (referred to as an
"underlying security registration statement").
Except as may be provided in the applicable prospectus supplement with
respect to any primary offering securities:
o no representation is made by the trust, the trustee, the
depositor, MS&Co. or any of their affiliates as to the
accuracy or completeness of the information contained in any
underlying security disclosure document, or underlying
security registration statement,
o no investigation of the financial condition or
creditworthiness of that underlying security issuer or any
of its affiliates, or of any ratings of the related
underlying securities, will be made by the trust, the
trustee, the depositor, MS&Co. or any of their affiliates in
connection with the issuance of the related Units.
Prospective purchasers of Units should carefully consider
each underlying security issuer's financial condition and
its ability to make payments in respect of the related
underlying securities, and
o unless the applicable prospectus supplement otherwise
specifies, none of the trust, the trustee, the depositor,
MS&Co. or any of their affiliates has participated in the
preparation of any underlying security disclosure document,
underlying security registration statement or other public
information relating to the underlying securities or takes
any responsibility for the accuracy or completeness of the
information contained in the foregoing documents.
Please refer to the applicable prospectus supplement (and the
underlying security disclosure document referred to therein) for a description
of the following material terms, as applicable, of any concentrated underlying
security that constitutes a part of the trust property of the related trust:
o the title and series, as well as the aggregate principal
amount, denomination and form, of the underlying security,
o whether the underlying security is senior or subordinated to
any other obligations of the related underlying security
issuer,
o whether any of the obligations under the underlying security
are secured or unsecured, and the nature of any collateral,
o any limit on the aggregate principal amount of the
underlying security,
o the dates on which, or the range of dates within which, the
principal of (and premium, if any, on) the underlying
security will be payable,
o the rate or rates or the method for determining those rates,
at which the underlying security will bear interest, if any,
the date or dates from which interest will accrue, and the
dates on which that interest will be payable,
o the obligation, if any, of the underlying security issuer to
redeem any underlying security pursuant to any sinking fund
or similar provisions, or at the option of a holder, and the
periods within which or the dates on which, the prices at
which and the terms and conditions under which the
underlying security may be redeemed or repurchased, in whole
or in part,
o the periods within which or the dates on which, the prices
at which and the terms and conditions under which the
underlying security may be redeemed, if any, in whole or in
part, at the option of the underlying security issuer,
o whether the underlying security was issued at a price lower
than its principal amount,
o if other than U.S. dollars, the currency in which the
underlying security is denominated, or in which payment of
the principal of (and premium, if any) or any interest on
the underlying security will be made, and the circumstances,
if any, when that currency of payment may be changed,
o material events of default or restrictive covenants with
respect to the underlying security,
o any retained interest with respect to the underlying
security, and
o other material terms of the underlying security.
With respect to any portion of the trust property comprised of
underlying securities other than concentrated underlying securities, the
applicable prospectus supplement will describe the composition of that portion
as of the relevant cut-off date, specified material events of default or
restrictive covenants common to those underlying securities, and, on an
aggregate, percentage or weighted average basis, as applicable, certain of the
characteristics described above.
Underlying security issuance agreements
Each underlying security will have been issued pursuant to an
indenture, trust agreement or other agreement (each such agreement is referred
to as an "underlying security issuance agreement"). Except as specified in a
prospectus supplement, all information contained in that prospectus supplement
with respect to the provisions of any underlying security issuance agreement
pertaining to a concentrated underlying security will be based solely on the
description of that underlying security issuance agreement filed with the SEC or
available from other public sources.
Covenants. An underlying security issuance agreement will 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 any of its subsidiaries' ability to:
o consolidate, merge, or transfer or lease assets,
o incur or suffer to exist any lien, charge, or encumbrance
upon any 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, and
o 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 any of its
subsidiaries.
An underlying security issuance agreement may also contain financial
covenants which, among other things, require the maintenance of certain
financial ratios or the creation or maintenance of reserves. Subject to certain
exceptions, an underlying security issuance agreement typically may be amended
or supplemented and past defaults may be waived with the consent of the trustee,
if any, of the holders of not less than a specified percentage of the
outstanding securities, or both.
The underlying security issuance agreement related to one or more
underlying securities included in a trust may include some, all or none of the
foregoing provisions or variations thereof or additional covenants not discussed
herein. To the extent that the underlying securities are investment grade debt
they are unlikely to contain significant restrictive covenants although certain
non-investment grade debt may not be subject to restrictive covenants either.
There can be no assurance that any such provision will protect the trust as a
holder of the underlying securities against losses. The prospectus supplement
used to offer any series of Units will describe material covenants in relation
to any concentrated underlying security and, as applicable, will describe
material covenants which are common to other underlying securities included in
the trust property.
Events of default. An underlying security issuance agreement may
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:
o failure by the issuer to pay an installment of interest or
principal on the securities, at the time required or to
redeem any of the securities when required, in each case
subject to any specified grace period,
o failure by the issuer to observe or perform any covenant,
agreement or condition contained in the securities or the
underlying security issuance agreement which failure is
materially adverse to security holders and continues for a
specified period after notice thereof is given to the
issuer,
o failure by the issuer to make any required payment of
principal (and premium, if any) or interest with respect to
certain of the other outstanding debt obligations of the
issuer or the acceleration by or on behalf of the holders
thereof of such securities, and
o certain events of insolvency or bankruptcy with respect to
the underlying security issuer.
Each underlying security issuance agreement may or may not be in the
form of an indenture and may include some, all or none of the foregoing
provisions or variations thereof or additional events of default not discussed
herein. The prospectus supplement with respect to any series of Units will
describe the material terms of the events of default under the underlying
security issuance agreement with respect to any concentrated underlying security
and applicable remedies with respect thereto. With respect to any portion of the
trust property comprised of underlying securities other than concentrated
underlying securities, the applicable prospectus supplement will describe
certain common covenant defaults with respect to such portion. There can be no
assurance that any such provision will protect the trust, as a holder of the
underlying securities, against losses. If a covenant default occurs and the
trust 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 Unitholders'
objectives may differ from those of holders of other securities of the same
series and class as any underlying security in determining whether to declare
the acceleration of the underlying securities.
Limitations on remedies. An underlying security issuance agreement will
generally provide that upon the occurrence of an event of default, the trustee,
if any, may, and upon the written request of the holders of not less than a
specified percentage of the outstanding securities must, take such action as it
may deem appropriate to protect and enforce the rights of the security holders.
In certain cases, the indenture trustee, if any, or a specified percentage of
the holders of the outstanding securities will 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 holder's right to
institute certain actions or proceedings to pursue any remedy under the
indenture unless certain conditions are satisfied, including consent of the
indenture trustee, that the proceeding be brought for the ratable benefit of all
holders of the security, and/or 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.
Subordination. As described in the applicable prospectus supplement,
the underlying securities that constitute a part of the trust property of the
related trust may be either senior or subordinated in right of payment to other
existing or future obligations of the underlying security issuer. With respect
to subordinated underlying securities, to the extent of the subordination
provisions of those underlying securities, and after the occurrence of specified
events, any holders of securities and direct creditors whose claims are senior
to those of holders of subordinated underlying securities may be entitled to
receive payment of the full amount due on those claims before holders of
subordinated underlying securities are entitled to receive payment on account of
the principal (and premium, if any) or any interest on their underlying
securities. Consequently, the trust as a holder of subordinated underlying
securities may suffer a greater loss than if it held unsubordinated debt of the
underlying security issuer. There can be no assurance, however, that in the
event of a bankruptcy or similar proceeding the trust as a holder of senior
underlying securities would receive all payments in respect of those underlying
securities even if holders of subordinated underlying securities of the same
underlying security issuer receive amounts in respect of their underlying
securities. Please refer to the applicable prospectus supplement for (1) a
description of any subordination provisions with respect to any applicable
concentrated underlying securities and (2) the relative percentages of senior
underlying securities and subordinated underlying securities, if any, in trust
property comprised of underlying securities other than concentrated underlying
securities.
Secured obligations. Certain underlying securities that constitute a
part of the trust property of the related trust may represent secured
obligations of the underlying security issuer. Generally, unless an event of
default has occurred and is continuing, or with respect to certain collateral or
as otherwise specified in the related underlying security issuance agreement, an
issuer of secured obligations has the right to remain in possession and retain
exclusive control of the collateral securing a security and to collect, invest
and dispose of any income related to that collateral. An underlying security
issuance agreement may also contain provisions for release, substitution or
disposition of collateral for those underlying securities under specified
circumstances with or without the consent of the trustee under that agreement or
at the direction of not less than a specified percentage of the holders of those
underlying securities.
An underlying security issuance agreement will also provide for the
disposition of collateral if specified events of default occur. In the event of
a default in respect of any secured obligation, holders of the corresponding
underlying securities may experience a delay in payments on account of principal
(and premium, if any) or any interest on their underlying securities pending the
sale of any collateral, and prior to or during that period the related
collateral may decline in value. If proceeds of the sale of collateral following
an event of default are insufficient to repay all amounts due in respect of any
secured obligations, the holders of the corresponding underlying securities (to
the extent not repaid from the proceeds of the sale of collateral) will have
only an unsecured claim ranking equally and ratably with the claims of all other
general unsecured creditors.
The underlying security issuance agreement with respect to any secured
underlying security may include some, all or none of the foregoing provisions or
variations of those provisions. The applicable prospectus supplement will
describe the security provisions of those underlying securities and the related
collateral. With respect to any portion of the trust property of a particular
trust comprised of secured underlying securities other than concentrated
underlying securities, the related prospectus supplement will disclose certain
general information with respect to security provisions and collateral.
Maturity and yield considerations. Each prospectus supplement will, to
the extent applicable, contain information with respect to the type and
maturities of the underlying securities related to conditions under which those
underlying securities may be subject to early redemption (either by the
applicable underlying security issuer or pursuant to a third-party call option),
amortization, repayment (at the option of the holders of those underlying
securities) or extension of maturity. Any such provisions of the applicable
underlying securities will affect the weighted average life of the related
Units.
The effective yield to holders of the Units may be affected by
particular aspects of the related trust property or the manner and priorities of
allocations of collections with respect to the trust property between the
classes of a particular series. In the case of Units where the related trust
holds one or more redeemable underlying securities, extendible underlying
securities or underlying securities subject to a third-party call option or
early amortization, the yield to maturity may be affected by any optional or
mandatory redemption, extension or repayment or amortization of the related
underlying securities prior to their stated maturity. A variety of tax,
accounting, economic and other factors will influence whether an underlying
security issuer exercises any right of redemption in respect of its underlying
securities. All else remaining equal, if prevailing interest rates fall
significantly below the interest rates on the related underlying securities, the
likelihood of redemption would be expected to increase. As a result, there can
be no certainty as to whether any underlying security redeemable at the option
of the relevant underlying security issuer will be repaid prior to its stated
maturity.
Unless the applicable prospectus supplement describes other remedies
applicable to particular underlying securities, all underlying securities will
be subject to acceleration if specified defaults occur. The maturity and yield
on the Units will be affected by any early repayment of the related underlying
securities as a result of any such acceleration by the holders of those
underlying securities. If an underlying security issuer becomes subject to a
bankruptcy proceeding, the timing and amount of payments with respect to both
interest and principal may be materially and adversely affected. A variety of
factors influence the performance of underlying security issuers and
correspondingly may affect an underlying security issuer's ability to satisfy
its obligations under its underlying securities. Those factors include the
underlying security issuer's operating and financial condition, leverage, as
well as social, geographic, legal and economic factors.
The extent to which the yield to maturity of any Units may vary from
the anticipated yield due to the rate and timing of payments on the related
trust property will depend on the degree to which those Units are purchased at a
discount or premium and the degree to which the timing of payments on those
Units is sensitive to the rate and timing of payments on the trust property.
The yield to maturity of any Units will also be affected by variations
in the interest rate applicable to, and the corresponding payments in respect
of, those Units, to the extent that their interest rate is based on variable or
adjustable rates. In the case of Units representing an interest in two or more
underlying securities, disproportionate principal payments (whether resulting
from differences in amortization schedules, payments due on scheduled maturity
or in the case of an early redemption) on the underlying security or underlying
securities having interest rates higher or lower than the interest rate then
applicable to those Units may also affect the yield on those Units.
The applicable prospectus supplement may contain additional information
regarding yield and maturity considerations applicable to the related Units and
the related trust property, including the underlying securities.
Swap agreements
At the time it is formed, a trust may enter into one or more swap
agreements with third parties (which may be affiliates of the depositor). Each
swap agreement consists of a master agreement and the confirmations relating to
particular transactions under that master agreement. The following summary,
together with any related information in the applicable prospectus supplement,
is subject to the detailed provisions of the form of swap agreement filed as an
exhibit to the registration statement. The applicable prospectus supplement will
describe the specific terms of each transaction under the swap agreement,
particularly the method of calculation of payments by the swap counterparty and
the timing of those payments; if required, it will also contain specified
information with respect to the swap counterparty and, if applicable, its
guarantor.
The trust may enter into swap agreements with more than one swap
counterparty, in which case the following discussion will apply separately to
each swap agreement with each swap counterparty.
General. As specified in the applicable prospectus supplement, the
transaction or transactions under a swap agreement may be one or more of the
following:
o a rate swap, basis swap, forward rate transaction, commodity
swap, commodity option, index swap, index option, bond
option, total rate of return swap, interest rate option,
foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction,
cross currency rate swap transaction, currency option or any
other similar transaction (including any option with respect
to any of the foregoing transactions),
o any combination of the foregoing transactions, or
o any other transaction identified in the swap agreement or
the relevant confirmation and described in the prospectus
supplement.
Each swap agreement will be in the form of a confirmation entered into
pursuant to a master agreement in the form of the "1992 ISDA Master Agreement
(Multicurrency--Cross Border)" or any updated similar form (referred to as the
"ISDA Master Agreement"), published by the International Swaps and Derivatives
Association, Inc. ("ISDA") and may incorporate the 2000 ISDA Definitions, the
1997 Government Bond Option Definitions or one or more other sets of standard
definitions or updates or revisions of such definitions published by ISDA
(referred to as the "ISDA Definitions"), and as modified and supplemented by a
schedule, including to reflect the terms of a particular series of Units and the
related trust agreement and any specific terms of the relevant transaction or
transactions. Except as otherwise specified in the confirmation for any relevant
swap transaction, each swap agreement and the relevant transactions thereunder
will be governed in all relevant respects by the provisions of the ISDA Master
Agreement and the ISDA Definitions, without regard to any amendments or
modifications to the ISDA Master Agreement or the ISDA Definitions published by
ISDA subsequent to the date of that swap agreement.
Payments under swap agreement. In general, under a swap agreement, a
trust and its swap counterparty will each agree to exchange specified payments
on specified payment dates. The amounts to be exchanged by the parties on a swap
payment date may both be floating amounts, calculated with reference to one or
more interest rate bases (which may be one or more of the interest rate base
rates described under "Description of Units--Distributions--Interest on Units"
or other types of interest rate bases) or other types of bases, all as specified
in the applicable prospectus supplement, or one such amount may be floating and
the other fixed. Those amounts will also be calculated with reference to the
notional principal amount of the transaction or transactions under the swap
agreement, which, unless otherwise specified in the prospectus supplement, will
be equal to the aggregate principal amount of the related underlying securities
on the date of determination (as such amount may have been reduced through any
redemption, prepayment or exchange). The obligations of a trust to its swap
counterparty may be secured by a security interest in the trust property in
favor of the swap counterparty that will take priority over the interests of
Unitholders in all or specified trust property.
A swap agreement may provide for periodic exchanges of payment amounts,
a single exchange or series of exchanges on one or more interest payment dates
or on the maturity or prospective maturities of the related underlying
securities, or both.
If specified in the applicable prospectus supplement, a swap agreement
may also document a call option granted by the trust, or a put option in favor
of the trust, with respect to all or a portion of the related underlying
securities or other trust property. A call option granted by the trust will
effectively reserve to the swap counterparty the right to (1) realize all or a
portion of the gain from an increase in the market value of the specified trust
property at or prior to the maturity of the related Units or (2) effect a
conversion of the related underlying securities into other securities, rights
which the trust ordinarily will not be entitled to exercise. Conversely, a put
option in favor of the trust will generally be intended to protect the trust in
whole or in part from a decline in the market value of the specified trust
property at or prior to the maturity of the related Units. The prospectus
supplement may specify that a put option written in favor of the trust will be
automatically exercised by the trustee if specified events occur. A prospectus
supplement may describe additional types of options granted by or in favor of a
trust.
On a swap payment date (including a swap payment date occurring on the
maturity of some or all of the related underlying securities), each exchange of
payments in the same currency and in respect of the same transaction will be
settled on a "net payments" basis, which means that only a single net payment
will be due from one of the parties under the swap agreement to the other. If
described in the applicable prospectus supplement, such netting may also be
applied to more than one transaction. On each distribution date for Units with
respect to which the related trust has entered into a swap agreement, the
trustee will have available for distribution to Unitholders funds equal to (1)
the amount of any payments received on the swap agreement and other related
trust property less (2) all payments made by the trustee to the swap
counterparty, in each case since the immediately preceding distribution date.
The effect of the swap agreement, therefore, will be that holders of the related
Units will be entitled to distributions of interest (and, if applicable, of
principal) in accordance with the terms of the swap agreement rather than the
terms of the related underlying securities. No assurance can be given that the
trustee will receive when due any payment due on those underlying securities or
any net payment due under a swap agreement, or that the trustee will recover
moneys under any related guaranty in the case of a payment default by the swap
counterparty under a swap agreement.
Modification and amendment. Each trust agreement will contain
provisions permitting the trustee to enter into any amendment of a swap
agreement to which the related trust is a party to cure any ambiguity in, or to
correct, eliminate, add or supplement or otherwise change any provision of, that
swap agreement if such amendment will not have a material and adverse effect
upon any Unitholder. Each trust agreement will also contain a provision
permitting the trustee to enter into any other amendment of the swap agreement
if directed or consented to by the specified percentage of Unitholders
materially and adversely affected thereby. Unless the applicable prospectus
supplement otherwise provides, the trustee shall not enter into any amendment,
or agree to a waiver or other modification, of the swap agreement that would
have the effect of changing the principal amount, interest rate, maturity, or
other terms specified in the trust agreement, of any class or series of Units
without the consent of 100% of the outstanding Unit Principal Balance of each
class of Units affected thereby. The Rating Agency Condition shall be satisfied
with respect to any such amendment, waiver or modification unless Units
representing 100% of the Unit Principal Balance of all affected Units vote in
favor of such amendment with notice that the Rating Agency Condition need not be
satisfied, but in any event each applicable Rating Agency shall receive notice
of such amendment, waiver or modication. In the case of any such amendment that
would adversely affect the current rating of any class of Units by each rating
agency rating such class of the Units, the amendment must be approved by all
Unitholders of such class. No amendment to a swap agreement will be permitted
unless the trustee first receives an opinion of counsel to the effect that the
requested amendment will not alter the classification of the related trust for
U.S. federal income tax purposes.
Defaults. Events of default under a swap agreement may include:
o any failure of the applicable trust to pay any amount when
due under the swap agreement,
o any failure of the applicable swap counterparty or any
guarantor to pay any amount when due under the swap
agreement, after giving effect to the applicable grace
period, and
o specified other standard events of default under the ISDA
Master Agreement including "Credit Support Default",
"Bankruptcy" and "Merger without Assumption", as described
in Sections 5(a)(iii), 5(a)(vii) and 5(a)(viii) of the ISDA
Master Agreement and as modified by the related schedule.
Several of the standard events of default under the ISDA Master
Agreement will not be events of default under a swap agreement. Those excluded
standard events of default are "Breach of Agreement", "Misrepresentation",
"Default Under Specified Transaction" and "Cross Default", as described in
Sections 5(a)(ii), 5(a)(iv), 5(a)(v) and 5(a)(vi) of the ISDA Master Agreement.
The applicable prospectus supplement will describe any additional events of
default under the relevant swap agreement.
In specified cases, the trust will be the party affected by the event
and as a result its swap counterparty will have the sole right to determine in
good faith the amount of any swap transaction payment for purposes of
calculating any swap termination payment. Notwithstanding the existence of a
grace period with respect to a particular underlying security or underlying
security issuance agreement, the failure of the underlying security issuer to
make timely payment of an amount required in order for the trust to make a
related payment under the swap agreement may result in a default by the trust
under the swap agreement prior to the occurrence of a default under the related
underlying security issuance agreement. The applicable prospectus supplement
will specify any additional circumstances constituting a default for purposes of
any applicable swap agreement.
Termination events. Termination events under a swap agreement may
consist of the following:
o the occurrence of an "Illegality" or "Tax Event" as
described in Sections 5(b)(i) and 5(b)(ii) of the ISDA
Master Agreement,
o the occurrence of a "trust wind-up event" (as described
under "Description of Trust Agreements--Trust wind-up
events, liquidation events and disqualification events")
(which termination event will apply to all transactions
under the swap agreement),
o an underlying security default occurs with respect to the
related underlying security (as described under "Description
of Trust Agreements--Trust wind-up events, liquidation
events and disqualification events") (which termination
event will apply only to the specific transaction or
transactions under the swap agreement relating to that
underlying security),
o the related underlying security becomes a "disqualified
underlying security" (as described under "Description of
Trust Agreements--Trust wind-up events, liquidation events
and disqualification events") (which termination event will
apply only to the specific transaction or transactions under
the swap agreement related to that underlying security),
o any transaction under the swap agreement becomes a
disqualified swap transaction (as described under
"Description of Trust Agreements--Trust wind-up events,
liquidation events and disqualification events") (which
termination event will apply only to the specific
disqualified swap transaction), or
o the occurrence of an excess expense event (as defined under
"Description of Trust Agreements--Trust wind-up events,
liquidation events and disqualification events").
Depending on the circumstances, either the trust or the swap
counterparty, or both the trust and the swap counterparty, will be deemed to be
the party or parties affected by the relevant event and will be entitled to
terminate the relevant transaction(s) under the swap agreement. However, for
purposes of calculating any swap termination payment, the trust will be deemed
the sole affected party, and as a result its swap counterparty will have the
sole right to determine in good faith the amount of any swap termination
payment. The "Tax Event Upon Merger" and "Credit Event Upon Merger" termination
events described in Sections 5(b)(iii) and 5(b)(iv) of the ISDA Master Agreement
will not apply. The applicable prospectus supplement will describe any
additional termination events that apply, or any of the above termination events
that do not apply, to a particular series of Units.
Early termination of swap agreements. Except as otherwise specified in
the applicable prospectus supplement, if specified events of default or
termination events occur, the trustee or the swap counterparty will, by notice
to the other party (if a notice is required under the swap agreement), in the
case of a termination event terminate the particular affected transaction(s)
under the swap agreement and in the case of an event of default terminate all
transactions under the relevant swap agreement. The date of any such termination
is referred to as an "early termination date". In the case of certain
termination events, the date on which the relevant swap transactions will
terminate must be designated by one of the parties, as specified in that swap
agreement, and will occur only after notice and, in certain circumstances, after
the swap counterparty has used reasonable efforts to transfer its rights and
obligations under the relevant transactions to a related entity within a limited
time period after notice of the termination event has been given. In the event
that the trustee becomes aware that a termination event has occurred with
respect to which the swap counterparty is the sole affected party, the trustee
will designate a termination event for each affected transaction under the swap
agreement, unless the trust would owe the swap counterparty a swap termination
payment as a result of such a designation. The swap counterparty will have no
obligation to the trust to exercise any right to terminate any particular
transaction under the swap agreement, and will not act on behalf of the trust to
exercise any right the trust may have to terminate any such transaction. If a
termination event occurs and, when applicable, an early termination date is
designated with respect to a swap transaction, the swap transaction will
terminate and a swap termination payment may be payable by the trust to its swap
counterparty or by the swap counterparty to the trust. If the trust is liable
for a swap termination payment, underlying securities may be sold by the trustee
through a selling agent. See "Description of Trust Agreements-- Trust wind-up
events, liquidation events and disqualification events". Except as specified in
the prospectus supplement, in the event that a trust terminates one or more
transactions under a swap agreement and a trust wind-up event has not occurred,
the underlying securities related to those transactions will be sold and the
proceeds from such sale will be distributed to the Unitholders.
Except as specified in the applicable prospectus supplement, to the
extent that the aggregate principal amount of the underlying securities held by
a trust is reduced through redemption, prepayment or exchange, the corresponding
swap amount under any related swap agreement will be subject to a partial
termination and the trust or the swap counterparty may incur liability for a
swap termination payment.
In the event that an underlying security default results in a
termination event, the trust will be the affected party (as defined below) for
purposes of the calculation of any swap termination payment.
Swap termination payments. If one or more transactions under a swap
agreement is terminated prior to its maturity, the market value of each
terminated transaction will be established by one or both parties, as specified
in the swap agreement, based either (1) on the basis of the market quotations of
the cost of entering into a replacement transaction, (2) if such market
quotations are unavailable or do not produce a commercially reasonable result,
on losses suffered by either party as a result of the termination of the
relevant transaction or (3) as otherwise provided in the applicable prospectus
supplement. If the market value of a particular transaction is positive for the
trust, or the termination of that transaction would result in a loss to the
trust, a swap termination payment will be due from the swap counterparty to the
trust in respect of that transaction. By contrast, if the market value is
positive for, or the termination of a transaction would result in a loss to, the
swap counterparty, a swap termination payment will be due from the trust to its
swap counterparty. The swap termination payment for all terminated transactions
under a swap agreement as a whole is the net amount payable after offsetting
individual termination payments applicable to each transaction under that
agreement. Depending on the type of the event of default or termination event
that causes an early termination of any swap transaction, any swap termination
payment due to the swap counterparty may be senior or subordinated in right of
payment to the final distribution to be made to Unitholders.
Any swap termination payment payable by a trust will be limited to the
assets of the trust, and the related Unitholders will not be liable to the swap
counterparty for a swap termination payment to the extent, if any, that the
amount of those payments exceeds the assets of the trust. Nonetheless, the loss
to Unitholders resulting from a termination payment may, if interest rates,
currency rates, swap spreads, credit spreads or option volatilities, as
applicable, have changed significantly since the closing date for the relevant
offering of Units, be quite substantial in relation to the total value of the
related underlying securities. A trust may be required to sell underlying
securities through a selling agent in order to make any swap termination
payments owed to the swap counterparty. Unitholders could also be materially
adversely affected if a trust is required to sell underlying securities in order
to make swap termination payments at a time when prices for the underlying
securities in the secondary market are depressed, as a result of a default on
the underlying securities or for any other reason. If a swap agreement is
terminated, any further distributions in respect of the related underlying
securities will be made pursuant to the underlying securities without the
benefit of that agreement.
If the applicable prospectus supplement so provides, in connection with
any swap termination payment payable by a trust, the related Unitholders may,
acting unanimously, deliver to the trustee the amount of that payment (together
with any extraordinary trust expenses to be borne by that trust) and a written
instruction to refrain from, or discontinue, the sale of the underlying
securities. It is possible, however, that underlying securities may be sold by a
selling agent in the time necessary for the Unitholders to exercise their rights
described in the foregoing sentence.
Guaranties of support. Unless the applicable prospectus supplement
specifies arrangements for securing the obligations of a swap counterparty, the
payment obligations of that swap counterparty under a swap agreement will be
general, unsecured obligations of that swap counterparty.
Repurchase agreements
The trust for particular Units may enter into one or more repurchase
agreements which will have economic effect similar to swap agreements. A
repurchase agreement will be substantially in the form of the Bond Market
Association Master Repurchase Agreement (1996 Version). Pursuant to any
repurchase agreement, the trust will purchase underlying securities from the
counterparty under the repurchase agreement (a "repo counterparty") on the date
of issuance of the Units.
Under a repurchase agreement, the repo counterparty will pay amounts to
the trust at a fixed or floating rate, and the repo counterparty will be
entitled to all interest income received on the underlying securities. In the
event that any principal payments are made on the underlying securities prior to
the stated expected payment date of principal for the underlying securities,
such payments will be retained by the trust, subject to the right of the repo
counterparty to make a substitution of new underlying securities under the terms
of the repurchase agreement.
The terms of the repurchase agreement will require the repo
counterparty to repurchase the underlying securities on the date specified in
the prospectus supplement, which may be the scheduled maturity of the Units, a
date of termination or settlement of a related swap agreement, the date of a
trust wind-up event, or another specified date. The prospectus supplement may
also specify certain trust wind-up events upon which the repurchase agreement
will be cancelled and the repo counterparty will not be required to repurchase
the securities.
Unless otherwise provided in the prospectus supplement, the repo
counterparty will have the right to replace the underlying securities with
substitute underlying securities only if (i) the underlying securities would
constitute disqualified underlying securities or (ii) notice is given by the
underlying security issuer that a principal payment will be made on the
underlying securities prior to the stated expected payment date of principal for
the underlying securities. The repo counterparty will not be required to make
any substitutions. The prospectus supplement may provide that if the repo
counterparty does not make a substitution in the event of a principal
pre-payment, a trust wind-up event will occur at the option of the repo
counterparty. "Substitute securities" must meet requirements specified in the
prospectus supplement, which may include a requirement that the substitute
securities have a face amount equivalent to the face amount of the securities
(prior to any early principal repayments), one or more specified ratings, pay
interest determined by reference to the same index as the initial underlying
securities, be denominated in the same currency as the initial underlying
securities, otherwise constitute an asset of the same class and type as the
initial underlying securities and have a specified expected maturity and final
legal maturity, or other requirements.
Credit support
The trust for particular Units may include, or the holders of those
Units (or any class or group of classes within the same series of Units) may
have the benefit of, credit support. Such credit support may be provided by any
combination of the means described below or any other means described in the
applicable prospectus supplement. The applicable prospectus supplement will
describe whether the trust for any class or group of classes of Units contains,
or the holders of those Units have the benefit of, credit support. It will also
describe the amount, type and other relevant terms of each element of any such
credit support and, if required, specified information with respect to the
obligors of each such element, including audited financial information with
respect to any such credit support provider (as defined below) providing credit
support for 20% or more of the aggregate principal amount of such class or
classes, which may be incorporated by reference where such obligor is subject to
the informational requirements of the Exchange Act or information with respect
to such obligor is filed with the SEC and is eligible for incorporation by
reference by registrants of securities backed by such credit support. Any credit
support which takes the form of a guaranty of particular Units, rather than a
guaranty of payment on the underlying trust property, will be issued by an
insurance company or another entity eligible to issue guaranties exempt from
registration under Section 3(a) of the Securities Act.
Subordination. The rights of holders of a particular class within the
same series of Units to receive collections from the related trust and any
credit support obtained for the benefit of the Unitholders of that series (or
classes within that series) may be subordinated to the rights of the Unitholders
of one or more other classes of the same series to the extent described in the
applicable prospectus supplement. This type of subordination in effect provides
credit support to Unitholders of those other classes. If losses are realized
during a given period on the trust property relating to particular Units, such
that the collections received on that property are insufficient to make all
distributions on the Units of that series, those losses will be allocated to the
Unitholders of any class within that series that is subordinated to another
class, to the extent and in the manner described in the applicable prospectus
supplement. In addition, if specified in the applicable prospectus supplement,
specified amounts otherwise payable to Unitholders of any class that is
subordinated to another class may be required to be deposited into a reserve
account. Amounts held in a reserve account may be applied as described below
under "--Reserve accounts" and in the applicable prospectus supplement.
If so provided in the applicable prospectus supplement, the credit
support for any series or class of Units may include, in addition to the
subordination of certain classes of such series and the establishment of a
reserve account, any of the 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 Unitholders of such class. 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 Units of such series.
Letters of credit, guaranty. Units (or any class or group of classes
within the same series of Units) may, if specified in the applicable prospectus
supplement, have the benefit of a letter or letters of credit issued by a bank
or a financial guaranty or surety bond issued by a financial guarantor or surety
company. In either case, the trustee or another person specified in the
prospectus supplement will use reasonable efforts to cause the letter of credit,
guaranty or surety bond to be obtained, to be kept in full force and effect
(except to the extent that coverage may be exhausted through payment of claims)
and to pay timely all related fees or premiums unless the payment of those fees
or premiums is otherwise provided for. The trustee or another person specified
in the applicable prospectus supplement will make or cause to be made draws or
claims under the letter of credit, guaranty or surety bond under the
circumstances and to cover the amounts specified in the applicable prospectus
supplement. The applicable prospectus supplement will provide the manner,
priority and source of funds by which any such draws are to be repaid.
The applicable prospectus supplement will specify whether the letter of
credit bank, guarantor or surety, as applicable, will be required to satisfy any
ongoing credit rating or other requirements. In the event that any such
requirements cease to be satisfied, the trustee or another person specified in
the applicable prospectus supplement will use reasonable efforts to obtain or
cause to be obtained a substitute letter of credit, guaranty or surety bond, or
another form of credit enhancement providing similar protection, that meets
those 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,
guarantor or surety, as applicable, will continue to satisfy any such
requirements or that any such substitute letter of credit, guaranty or 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
may be reduced to the level otherwise available for the same cost as the
original letter of credit, guaranty or surety bond.
Reserve accounts. If specified in the applicable prospectus supplement,
the trustee or another person specified in the prospectus supplement will
deposit or cause to be deposited into a reserve account maintained with an
eligible institution (which may be the trustee) 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 the prospectus supplement.
In the alternative or in addition to that deposit, a reserve account may be
funded through application of a portion of collections received on the trust
property relating to particular Units, in the manner and priority specified in
the prospectus supplement.
Description of Units
The Units of each series will be subject to the terms of a trust
agreement to be entered into between the depositor and the trustee. The
following summary of the terms of the Units should be read together with the
summary of the trust agreements under "Description of Trust Agreements" and any
related discussion in the applicable prospectus supplement. The specific terms
of each series of Units, to the extent that they differ materially from or are
in addition to the summary below, will be described in the applicable prospectus
supplement.
General
The Units issued under a particular trust agreement will represent the
entire beneficial ownership interest in the trust created pursuant to that
agreement. The Units of a particular series may be limited to a single class,
or, if so specified in the applicable prospectus supplement, may include two or
more classes differing as to entitlement to distributions of principal, interest
or premium, and one or more classes may be subordinated in certain respects to
other classes of the same series.
Please refer to the applicable prospectus supplement for a description
of the following terms of the series (and, if applicable, classes within that
series) of the Units to which it relates:
o the title of the Units,
o the series of the Units and, if applicable, the number and
designation of classes of that series,
o whether the Units are callable or subject to early
redemption,
o certain information concerning the type, characteristics and
specifications of the trust property being deposited into
the related trust by the depositor,
o any limit on the aggregate principal amount or notional
amount, as applicable, of each class of that series,
o the dates on which or periods during which that series or
classes within that series may be issued, the offering price
of that series and the applicable distribution dates on
which the principal, if any, of (and premium, if any, on)
that series or classes within that series will be
distributable,
o if applicable, the relative rights and priorities of each
class within that series (including the method for
allocating collections from and defaults or losses on the
trust property to each such class),
o whether the Units of that series or a class within that
series are fixed rate or floating rate Units and the
applicable interest rate or interest payments for each such
class, including the applicable rate or schedule of interest
payments, if fixed, or the method for calculating the rate,
applicable to that series or class, if variable, the date or
dates from which interest will accrue, the applicable
distribution dates on which interest, principal and premium,
in each case as applicable, on that series or class will be
distributed and any related record dates,
o any option (1) of a holder of Units of that series or a
class within that series to withdraw a portion of the assets
of the trust in exchange for surrendering a Unit or (2) of
the depositor or a third party to purchase or repurchase any
trust property, (in each case to the extent not inconsistent
with the depositor's continued satisfaction of any
applicable requirements for exemption under Rule 3a-7 under
the Investment Company Act of 1940 and all applicable rules,
regulations and interpretations thereunder ("Rule 3a-7"), as
relevant) and the periods during which or the dates on
which, and the terms and conditions under which any such
option may be exercised, in whole or in part,
o the denominations in which that series or class within that
series will be issuable and transferable,
o whether the Units of any class within that 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,
o whether the Units of that series or of any class within that
series are to be issued in the form of one or more global
securities and, if so, the identity of the depositary, if
other than The Depository Trust Company, for those global
securities,
o if a temporary Unit is to be issued with respect to that
series or any class within that series, whether any interest
distributable on a distribution date prior to the issuance
of a definitive Unit of that series or class will be
credited to the account of the persons entitled on that
distribution date,
o if a temporary global security is to be issued with respect
to that series or any class within that series, the terms
and conditions under which beneficial interests in that
temporary global security may be exchanged in whole or in
part for beneficial interests in a permanent global security
or for definitive individual Units of the same series or
class and the terms and conditions under which beneficial
interests in a permanent global security, if any, may be
exchanged for individual definitive Units of that series or
class,
o if other than U.S. dollars, the specified currency
applicable to the Units of that series or any class within
that series for purposes of denominations and distributions
on that series or class and the circumstances and
conditions, if any, under which that specified currency may
be changed, and the currency or currencies in which any
principal of or any premium or any interest on that series
or class are to be distributed after any such change,
o all applicable required percentages and voting rights
relating to the manner and percentage of voting by
Unitholders of that series and any class within that series
with respect to certain actions by the depositor or trustee,
and
o any other relevant terms of that series or any class within
that series.
Units may be transferred or exchanged for a like face amount of Units
at the corporate trust office or agency of the relevant trustee, subject to the
limitations contained in the applicable trust agreement, without the payment of
any service charge, other than any tax or governmental charge payable in
connection with that transfer or exchange.
MS&Co. or an affiliate may at any time purchase Units at any price in
the open market or otherwise. Any Units so purchased by MS&Co. or such affiliate
may, at the discretion of MS&Co., be held or resold.
Distributions
In general, distributions allocable to principal, premium, if any, and
interest on particular Units will be made in the specified currency for those
Units by or on behalf of the trustee on each distribution date as specified in
the applicable prospectus supplement. The trustee will remit to each holder of
record on the relevant record date preceding any distribution, other than the
final distribution, its portion of the payment on the related underlying
securities or, if applicable, swap agreement promptly, and in any event within
one business day, after the trustee receives that payment or otherwise as set
forth in the prospectus supplement. Neither the trustee nor the depositor,
however, will have any liability for any shortfall in the amount received from
the relevant underlying security issuer or, if applicable, the swap
counterparty. Accordingly, if less than a particular amount due under the
related underlying security or swap agreement is received by the trustee, or a
particular amount is received after its due date, the corresponding distribution
to Unitholders is reduced or delayed accordingly.
If the specified currency for particular Units is other than U.S.
dollars, the exchange rate agent may, at its discretion and at the request of a
Unitholder in the manner described in the prospectus supplement, arrange to
convert all payments in respect of those Units into U.S. dollars as described in
the following paragraph. Any Unitholder which will receive payments in a
specified currency other than U.S. dollars must provide appropriate wire
transfer instructions to the trustee, and all such payments will be made by wire
transfer of immediately available funds to an account maintained by the payee
with a bank located outside the United States.
Unless the applicable prospectus supplement sets forth additional terms
as to the conversion of currencies, in the case of Units with a specified
currency other than U.S. dollars, the amount of any U.S. dollar distribution
will be determined by the exchange rate agent in its sole discretion. All
currency exchange costs will be borne by the holders of those Units by deduction
from the relevant distributions.
U.S. dollar distributions on Units will be made by wire transfer of
immediately available funds to the holder of record on the record dates for
those distributions, but only if appropriate wire transfer instructions have
been received in writing by the trustee not later than 15 calendar days prior to
the applicable distribution date. The applicable prospectus supplement may also
provide for distributions to be made by check or against presentation of the
relevant Units. In the case of Units issued between a record date and the
related distribution date, interest for the period beginning on the issue date
and ending on the day immediately prior to that distribution date will, unless
otherwise specified in the prospectus supplement, be distributed on the next
succeeding distribution date to the holders of Units on the record date for that
succeeding distribution.
Unless otherwise specified in the applicable prospectus supplement, a
"business day" with respect to any Unit is any day, other than a Saturday or
Sunday, that is neither a legal holiday nor a day on which banking institutions
are authorized or required by law or regulation to close (A) in the City of New
York or in the city where the corporate trust office of the trustee is located
or (B) for Units denominated in a specified currency other than U.S. dollars, in
the principal financial center of the country of the specified currency.
Interest on Units
General. Each class of Units (other than certain classes of strip
Units) of a particular series may have a different interest rate, as described
below. In the case of strip Units with no or, in certain cases, a nominal
principal balance, distributions of interest will be in an amount described in
the applicable prospectus supplement. For purposes of the following description,
"notional amount" means the notional principal amount specified in the
applicable prospectus supplement on which interest on strip Units with no or, in
certain cases, a nominal principal balance will be paid on each distribution
date. Reference to the notional amount of a class of strip Units in this
prospectus or the applicable prospectus supplement does not indicate that those
Units represent the right to receive any principal distribution in that amount,
but rather the 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 prospectus supplement.
Fixed rate Units. Each class of Units of a particular series with a
fixed interest rate will bear interest on the outstanding principal balance (or
notional amount, as applicable), from its original issue date or from the last
distribution date on which interest was paid, at the fixed interest rate stated
in the applicable prospectus supplement, until the principal amount of the Units
is distributed or made available for payment (or in the case of fixed rate Units
with no or a nominal principal amount, until the notional amount of the Units is
reduced to zero). A prospectus supplement may specify that holders of certain
Units will be entitled to receive on specified dates an amount equal to
specified portions of the interest received on the underlying securities held by
the related trust.
If a swap agreement provides for all interest payments on particular
underlying securities to be paid to the swap counterparty, the interest rate
applicable to the related Units will be the corresponding rate payable to the
trust under that swap agreement, subject to adjustment in the event of any
changes in the underlying portfolio. If the applicable prospectus supplement
specifies a calculation agent, that calculation agent will calculate the
interest rate applicable to the Units from time to time as specified in the
prospectus supplement. All determinations of interest by the calculation agent
will, in the absence of manifest error, be conclusive and binding for all
purposes.
If the terms of a related swap agreement or the related underlying
securities so provide, the interest rate for a particular series of Units or any
class within that series may be subject to adjustment from time to time in
response to specified changes in the rating assigned to that series or class by
one or more rating agencies or changes in the portfolio of underlying
securities, all as described in the applicable prospectus supplement. Unless
otherwise specified in the applicable prospectus supplement, interest on fixed
rate Units will be distributable in arrears on each distribution date.
Floating rate Units. As specified in the applicable prospectus
supplement, each class of Units of a particular series with a variable interest
rate will bear interest on the outstanding principal balance (or notional
amount, as applicable), from its original issue date to the first interest reset
date (as described below) at the initial interest rate indicated in the
applicable prospectus supplement. After that date, the interest rate for each
interest period will be determined by reference to an interest rate basis, plus
or minus any specified spread, or multiplied by any applicable spread
multiplier. The "spread" is the number of basis points (one basis point equals
one one-hundredth of a percentage point) that may be applicable to a particular
series or class, and the "spread multiplier" is a specified percentage that may
be applicable to that series or class, all as specified in the applicable
prospectus supplement. If the terms of a related swap agreement or the related
underlying securities so provide, the spread or spread multiplier on a
particular series or class may be subject to adjustment from time to time in
response to specified changes in the rating assigned to that series or class by
one or more rating agencies, all as described in the applicable prospectus
supplement. The applicable prospectus supplement may designate one or more of
the following interest rate bases as a reference for the calculation of payments
under the related swap agreement, which will determine the interest rate to be
payable on the Units: LIBOR, the "commercial paper rate", the "Treasury rate",
the "federal funds rate", the "CD rate" or any other rate basis (which may be
based on, among other things, one or more market indices or the payments
(whether scheduled or otherwise) made with respect to a designated asset or pool
of assets) described in that prospectus supplement. Each of the foregoing rate
bases is described in greater detail below. The "index maturity" for any
floating rate Unit is the period of maturity of the instrument or obligation
from which the rate basis is calculated. "H.15(519)" means the publication
entitled "Statistical Release H.15(519), Selected Interest Rates", or any
successor publication, published by 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"
published by the Federal Reserve Bank of New York.
If specified in the applicable prospectus supplement, floating rate
Units may also have either or both of the following (in each case expressed as
an annual rate on a simple interest basis): (1) a maximum limitation, or
ceiling, on the rate at which interest may accrue during any interest accrual
period and (2) a minimum limitation, or floor, on the rate at which interest may
accrue during any interest accrual period. Irrespective of any such maximum
interest rate, the interest rate applicable to floating rate Units will in no
event be higher than the maximum rate permitted by applicable law.
If a swap agreement provides for all interest payments on particular
underlying securities to be paid to the swap counterparty, the interest rate
applicable to the related Units will be the corresponding floating rate payable
to the trust under that swap agreement, subject to adjustment in the event of
any changes in the underlying portfolio. If the applicable prospectus supplement
specifies a calculation agent, that calculation agent will calculate the
interest rate applicable to the Units from time to time as specified in the
prospectus supplement. All determinations of interest by the calculation agent
will, in the absence of manifest error, be conclusive and binding for all
purposes.
The applicable prospectus supplement will state whether the interest
rate on particular floating rate Units will be reset daily, weekly, monthly,
quarterly, semiannually or annually, or on another periodic basis. The interest
reset dates will be specified in the prospectus supplement. If an interest reset
date would otherwise be a day that is not a business day, that interest reset
date will occur on a prior or succeeding business day, as specified in the
prospectus supplement.
Unless otherwise specified in the applicable prospectus supplement,
interest payable in respect of floating rate Units will be the accrued interest
from and including the original issue date thereof 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 interest reset date.
With respect to each floating rate Unit, accrued interest will be
calculated by multiplying its principal balance (or notional amount, as
applicable) by the accrued interest factor of that Unit. Unless otherwise
specified in the applicable prospectus supplement, the 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 the applicable
prospectus supplement specifies a different period, the interest factor
(expressed as a decimal calculated to seven decimal places, without rounding)
for each day is computed by dividing the interest rate in effect on that day (1)
by 360, in the case of Units bearing interest at a rate based on LIBOR, the
commercial paper rate, the federal funds rate or the CD rate or (2) by the
actual number of days in the year, in the case of the Treasury rate. For
purposes of making the foregoing calculation, the interest rate in effect on any
interest reset date will be the applicable rate as reset on that date.
Unless otherwise specified in the applicable prospectus supplement, the
percentages resulting from any calculation of the interest rate on a floating
rate Unit will be rounded, if necessary, to the nearest one hundred-thousandth,
with five one-millionths rounded upward (e.g., 0.876545 would be rounded to
0.87655), and all currency amounts used in or resulting from that calculation
will be rounded to the nearest one-hundredth of a Unit (with 0.005 of a Unit
rounded upward).
Interest on particular floating rate Units will be distributable on the
distribution dates and for the interest accrual periods as described in the
applicable prospectus supplement.
LIBOR. For each floating rate Unit for which LIBOR is the rate basis
and LIBOR is indexed to the offered rates for U.S. dollar deposits, LIBOR for
each interest period will be determined by the calculation agent, as follows:
1. On the second London banking day prior to the interest reset date
for that interest period (referred to as the "LIBOR determination
date"), the calculation agent will determine (A) if "Reuters" is
specified in the applicable prospectus supplement, the arithmetic
mean of the offered rates for deposits in U.S. dollars for the
period of the specified index maturity which appear on the
Reuters LIBO Page at approximately 11:00 a.m., London time, on
that LIBOR determination date, if at least two such offered rates
appear on the Reuters Screen LIBOR Page ("LIBOR Reuters"), or (B)
if "Telerate" is specified in the applicable prospectus
supplement, the rate for deposits in U.S. dollars for the period
of the specified index maturity that appears on Telerate Page
3750 at approximately 11:00 a.m., London time, on that LIBOR
determination date ("LIBOR Telerate"). "Reuters LIBO page" means
the display designated as the "LIBO" page on the Reuters Monitor
Money Rates Service (or any replacement page). "Telerate page
3750" means the display designated as page "3750" on the Telerate
Service (or any replacement page). If neither LIBOR Reuters nor
LIBOR Telerate is specified in the applicable prospectus
supplement, LIBOR will be determined as if LIBOR Telerate had
been specified. If fewer than two offered rates appear on the
Reuters LIBO page, or if no rate appears on Telerate page 3750,
as applicable, LIBOR in respect of the relevant LIBOR
determination date will be determined as described in (2) below.
2. If fewer than two offered rates appear on the Reuters LIBO page,
or if no rate appears on Telerate page 3750, as applicable, on a
particular LIBOR determination date, the calculation agent will
request the principal London offices of four major banks in the
London interbank market selected by the calculation agent to
provide their offered quotations for deposits in U.S. dollars for
the period of the specified index maturity, commencing on the
relevant interest reset date, to prime banks in the London
interbank market at approximately 11:00 a.m., London time, on
that LIBOR determination date, and in a principal amount of not
less than $1 million that is representative of a single
transaction in that market at that time. If at least two such
quotations are provided, LIBOR for the relevant interest period
will be the arithmetic mean of those quotations. If fewer than
two such quotations are available, LIBOR for the relevant
interest period will be the arithmetic mean of rates quoted by
three major banks in the City of New York selected by the
calculation agent at approximately 11:00 a.m., New York City
time, on the relevant LIBOR determination date for loans in U.S.
dollars to leading European banks, for the period of the
specified index maturity, commencing on the relevant interest
reset date, and in a principal amount equal to an amount of not
less than $1 million that is representative of a single
transaction in that market at that time. If fewer than three such
banks are quoting rates as described in the previous sentence,
LIBOR for the relevant interest period will be the same as LIBOR
for the immediately preceding interest period (or, if there was
no preceding interest period, the initial interest rate).
In the case of any Unit with respect to which LIBOR is indexed to the
offered rates for deposits in a currency other than U.S. dollars, or the method
for determining U.S. dollar LIBOR varies from that described above, the
applicable prospectus supplement will describe the method for determining such
rate.
Commercial paper rate. For each floating rate Unit bearing interest at
a rate based on the "commercial paper rate", the "commercial paper rate" for
each interest period will be determined by the calculation agent as of the
second business day prior to the interest reset date for that interest period
(referred to as a "commercial paper rate determination rate"). The "commercial
paper rate" is the "money market yield" (as defined below) on the relevant
commercial paper rate determination date of the rate for commercial paper having
the specified index maturity, as published in H.15(519) under the heading
"Commercial Paper". In the event that such rate is not published prior to 9:00
a.m., New York City time, on the calculation date pertaining to the commercial
paper rate determination date, then the "commercial paper rate" for the relevant
interest period is the money market yield on the commercial paper rate
determination date of the rate for commercial paper of the specified index
maturity, as published in composite quotations in the H.15 Daily Update under
the heading "Commercial Paper". If by 3:00 p.m., New York City time, on the
relevant calculation date that rate is not yet published in either H.15(519) or
the H.15 Daily Update, then the "commercial paper rate" for the relevant
interest period is the money market yield of the arithmetic mean of the rates
offered, as of 11:00 a.m., New York City time, on the commercial paper rate
determination date, by three leading dealers of commercial paper in the City of
New York selected by the calculation agent for commercial paper of the specified
index maturity placed for an industrial issuer whose bonds are rated AA or the
equivalent by a nationally recognized rating agency. If such dealers are not
quoting offered rates as described in the previous sentence, the "commercial
paper rate" for the relevant interest period will be the same as the "commercial
paper rate" for the immediately preceding interest period (or, if there was no
preceding interest period, the initial interest rate).
The "money market yield" is 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 annual 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 specified index maturity.
The "calculation date" pertaining to any commercial paper rate
determination date is the earlier of (1) the tenth calendar day after that
commercial paper rate determination date or, if that day is not a business day,
the next succeeding business day and (2) the second business day preceding the
date on which any distribution of interest is required to be made following the
applicable interest reset date.
Treasury rate. For each floating rate Unit bearing interest at a rate
based on the "Treasury rate", the "Treasury rate" for each interest period will
be the rate for the auction, which we refer to as the "auction", held on the
Treasury rate determination date (as defined below) for that interest period of
direct obligations of the United States (referred to as "Treasury securities")
having the specified index maturity, as that rate appears under the caption
"INVESTMENT RATE" on the display on Moneyline Telerate, Inc., or any successor
service, on page 56 or any other page as may replace page 56 on that service,
which we refer to as "Telerate Page 56", or page 57 or any other page as may
replace page 57 on that service, which we refer to as "Telerate Page 57", or, in
the event that such rate is not published prior to 3:00 p.m., New York City
time, on the calculation date pertaining to that Treasury rate determination
date, the bond equivalent yield of the rate for the applicable Treasury
securities as published in the H.15 Daily Update, or other recognized electronic
source used for the purpose of displaying the applicable rate, under the caption
"U.S. Government Securities/Treasury Bills/Auction High". In the event that the
results of the auction of Treasury securities having the specified index
maturity are not published or reported as described above by 3:00 p.m., New York
City time, on the relevant calculation date, the bond equivalent yield of the
auction rate of the applicable Treasury securities, announced by the United
States Department of the Treasury, or if such rate is not announced by the
United States Department of the Treasury, or if the auction is not held on that
Treasury rate determination date, the bond equivalent yield of the rate on such
Treasury rate determination date of Treasury securities having the specified
index maturity published in H.15(519) under the caption "U.S. Government
Securities/Treasury Bills/Secondary Market", or if such rate is not published by
3:00 p.m., New York City time, on the related calculation date, then the
"Treasury rate" for that interest period will be the rate on such Treasury rate
determination date of the applicable Treasury securities as published in H.15
Daily Update, or other recognized electronic source used for the purpose of
displaying the applicable rate, under the caption "U.S. Government
Securities/Treasury Bills/Secondary Market", or if such rate is not published by
3:00 p.m., New York City time, on the related calculation date, then the
"Treasury rate" for that interest period will be the rate on such Treasury rate
determination date calculated by the calculation agent as the bond equivalent
yield of the arithmetic mean of the secondary market bid rates, as of
approximately 3:30 p.m., New York City time, on such Treasury rate determination
date, of three primary United States government securities dealers, which may
include affiliates of the depositor, selected by the calculation agent, for the
issue of Treasury Bills with a remaining maturity closest to the specified index
maturity. If such dealers are not quoting bid rates as described in the previous
sentence, then the "Treasury rate" for the relevant interest period will be the
same as the Treasury for the immediately preceding interest period (or, if there
was no preceding interest period, the initial interest rate).
The "Treasury rate determination date" for each interest period is the
day of the week in which the interest reset date for that interest period falls
on which Treasury securities would normally be auctioned. Treasury securities
are normally sold at auction on Monday of each week, unless that day is a legal
holiday, in which case the auction is normally held on the following Tuesday,
except that the auction may be held on the preceding Friday. If, as the result
of a legal holiday, an auction is held on the preceding Friday, that Friday will
be the Treasury rate determination date pertaining to the interest period
commencing in the next succeeding week. Unless otherwise specified in the
applicable prospectus supplement, if an auction date will fall on any day that
would otherwise be an interest reset date, then that interest reset date will
instead be the business day immediately following the auction date.
The "calculation date" pertaining to any Treasury rate determination
date is the earlier of (1) the tenth calendar day after that Treasury rate
determination date or, if that day is not a business day, the next succeeding
business day or (2) the second business day preceding the date on which any
distribution of interest is required to be made following the applicable
interest reset date.
Federal funds rate. For each floating rate Unit bearing interest at a
rate based on the "federal funds rate", the "federal funds rate" for each
interest period will be the effective rate on the interest reset date for that
interest period (referred to as a "federal funds rate determination date") for
federal funds as published in H.15(519) under the heading "Federal Funds
(Effective)" as displayed on Moneyline Telerate, Inc., or any successor service,
or page 120 or any other page as may replace the applicable page on that
service, which is commonly referred to as "Telerate Page 120". In the event that
such rate is not published prior to 9:00 a.m., New York City time, on the
calculation date pertaining to that federal funds rate determination date, the
"federal funds rate" for that interest period is the rate on that federal funds
rate determination date as published in composite quotations in the H.15 Daily
Update under the heading "Federal Funds/Effective Rate". If by 3:00 p.m., New
York City time, on that calculation date such rate is not yet published in
either H.15(519) or the H.15 Daily Update, then the "federal funds rate" for
that interest period is the arithmetic mean of the rates for the last
transaction in overnight federal funds by each of three leading brokers of
federal funds transactions in The City of New York selected by the calculation
agent, prior to 9:00 a.m., New York City time, on that interest determination
date. If the brokers selected by the calculation agent are not quoting as set
forth above, the "federal funds rate" for that interest period will be the same
as the federal funds rate in effect for the immediately preceding interest
period (or, if there was no preceding interest period, the initial interest
rate). Unless otherwise specified in the applicable prospectus supplement, in
the case of a Unit for which the applicable "federal funds rate" resets daily,
the interest rate for the period from and including a Monday to but excluding
the next succeeding Monday will be reset by the calculation agent on that second
Monday (or, if not a business day, on the next succeeding business day) to a
rate equal to the average of the "federal funds rates" in effect with respect to
each day in that week. The "calculation date" pertaining to any federal funds
rate determination date is the next succeeding business day.
CD rate. For each floating rate Unit bearing interest at a rate based
on the "CD rate", the "CD rate" for each interest period will be the rate as of
the second business day prior to the interest reset date for that interest
period (referred to as a "CD rate determination date") for negotiable
certificates of deposit having the specified index maturity, as published in
H.15(519), "Selected Interest Rates", or any successor publication of the Board
of Governors of the Federal Reserve System ("H.15(519)") under the heading "CDs
(Secondary Market)". In the event that such rate is not published prior to 9:00
a.m., New York City time, on the calculation date pertaining to that CD rate
determination date, then the "CD rate" for that interest period will be the rate
on such CD rate determination date for negotiable certificates of deposit of the
specified index maturity, set forth in the daily update of H.15(519), available
through the world wide website of the Board of Governors of the Federal Reserve
System at http://www.federalreserve.gov/releases/h15/current, or any successor
site or publication, which is commonly referred to as the "H.15 Daily Update",
for the interest determination date for certificates of deposit having the index
maturity specified in the applicable pricing supplement, under the caption "CDs
(Secondary Market)". If by 3:00 p.m., New York City time, on that calculation
date such rate is not yet published in either H.15(519) or the H.15 Daily
Update, then the "CD rate" for that interest period 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 that CD rate
determination 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 for negotiable certificates of deposit of major U.S. money center banks of
the highest credit standing (in the market for negotiable certificates of
deposit) with a remaining maturity closest to the specified index maturity in a
denomination specified in the applicable prospectus supplement. If such dealers
are not quoting offered rates as described in the previous sentence, the "CD
rate" for that interest period will be the same as the CD rate for the
immediately preceding interest period (or, if there was no preceding interest
period, the initial interest rate).
The "calculation date" pertaining to any CD rate determination date is
the earlier of (1) the tenth calendar day after that CD rate determination date
or, if that day is not a business day, the next succeeding business day or (2)
the second business day preceding the date on which any distribution of interest
is required to be made following the applicable interest reset date.
If any of the commercial paper rate, Treasury rate, federal funds rate
or CD rate is the applicable base rate and is not to be determined as set forth
above, the prospectus supplement will describe the method for determining such
rate.
Principal of Units
Unless the applicable prospectus supplement specifies a notional amount
or other reference amount for a particular Unit, each Unit will have a principal
balance equal to the maximum amount that the holder of that Unit will be
entitled to receive in respect of principal from the related underlying
securities. The initial aggregate principal balance (or notional amount, as
applicable) of each class of a particular series of Units will be specified in
the applicable prospectus supplement. Distributions of principal of any such
class will be made on a ratable basis among all the Units of that class. Strip
Units with no principal balance will not receive distributions of principal.
The outstanding principal balance (or notional amount, as applicable)
of a Unit will be reduced to the extent of distributions of principal and, if
applicable, by the amount of any net losses realized on the related trust
property.
Index-linked Units
From time to time, the trust may offer a series of Units ("index-linked
Units"), the principal amount payable at the stated maturity date of which (the
"indexed principal amount") and/or interest amounts with respect to which are
determined by reference to:
o the rate of exchange between the specified currency for such
Unit and the other currency (the "indexed currency")
specified therein on specified dates,
o the difference in the price of a specified commodity (the
"indexed commodity") on specified dates,
o the difference in the level of a specified stock index (the
"stock index"), which may be based on U.S. or foreign
stocks, on specified dates, or
o such other objective price or economic measure as is
described in the related prospectus supplement.
The manner of determining the indexed principal amount of an
index-linked Unit, and historical and other information concerning the indexed
currency, indexed commodity, stock index or other price or economic measure used
in such determination, will generally be set forth under a related swap
agreement and will be specified in the related prospectus supplement.
Index-linked Units will be issued only to the extent consistent with
qualification of the trust under Rule 3a-7, as applicable.
Except as otherwise specified in the related prospectus supplement,
interest on an index-linked Unit will be payable based on the amount designated
in the related prospectus supplement as the "face amount" of such index-linked
Unit. The related prospectus supplement will specify whether the principal
amount of the related index-linked Unit that would be payable upon redemption or
repayment prior to the stated maturity date will be the face amount of such
index-linked Unit, the indexed principal amount of such index-linked Unit at the
time of redemption or repayment, or another amount described in such prospectus
supplement.
Foreign currency Units
If the specified currency of a particular Unit is not the U.S. dollar,
the applicable prospectus supplement will describe the denominations, the
currency or currencies in which the principal and interest with respect to that
Unit are to be paid and any other related terms and conditions applicable to
that Unit. If the specified currency or any successor currency for a foreign
currency Unit is not available to the related trust due to exchange controls or
other events beyond the control of the depositor or the trust, the trust will be
entitled to satisfy its obligation to make the payment in that specified
currency by making the payment in U.S. dollars, on the basis of an exchange rate
determined by the exchange rate agent in its sole discretion.
Multi-currency Units
In the case of multi-currency Units, payments of principal or interest
may be made in different currencies, as specified in the applicable prospectus
supplement. The exchange rates will be calculated as specified in those Units
and as described in the prospectus supplement. Other material terms and
conditions will also be specified in the relevant Units and described in the
prospectus supplement.
Call rights and warrants
If one or more specified persons have the right to purchase all or a
portion of the Units of a particular series or to purchase trust property such
that the trustee is obligated to redeem all or a portion of the Units of a
particular series under specified circumstances, or if optional early redemption
or similar provisions with respect to the underlying securities may result in a
redemption of all or a portion of the Units of a particular series, the
applicable prospectus supplement will designate that series as a "callable
series". The terms and conditions under which a specified person may exercise
its right to purchase or cause redemption of all or a portion of the Units of
that series will be described in the applicable prospectus supplement. Such
terms may include the following:
o a minimum principal balance (or notional amount, as
applicable) with respect to the Units being purchased or
redeemed,
o a requirement that the principal balance (or notional
amount, as applicable) of the Units being purchased or
redeemed be an integral multiple of a specified amount,
o if the call right is exercised with respect to less than all
of the Units, the manner of selecting the Units being
purchased or redeemed,
o specified dates during which such a purchase or redemption
may be effected, and
o the price at which such a purchase or redemption may be
effected, which will be at least 100% of the outstanding
principal balance of the relevant Unit.
After receiving notice of the exercise of such a call right or warrant,
the trustee will provide notice as specified in the applicable prospectus
supplement. After satisfying any conditions applicable to the exercise of that
right, each holder of a Unit that has been called will be entitled to receive a
distribution of a ratable share of the aggregate price paid in connection with
that exercise, in the manner and to the extent described in the applicable
prospectus supplement.
Optional exchange
If a holder may exchange Units of any given series for a pro rata
portion of the trust property (an "exchangeable series") the terms upon which a
holder may exchange Units of any exchangeable series for a pro rata portion of
the trust property of the related trust will be specified in the related
prospectus supplement; provided that any right of exchange shall be exercisable
only to the extent that such exchange would not be inconsistent with the
depositor's and such trust's continued satisfaction of the applicable
requirements for exemption under Rule 3a-7, as applicable. Such terms may relate
to, but are not limited to, the following:
o a requirement that the exchanging holder tender to the
trustee Units of each class within such exchangeable series,
o a minimum Unit principal balance or notional amount, as
applicable, with respect to each Unit being tendered for
exchange,
o a requirement that the Unit principal balance or notional
amount, as applicable, of each Unit tendered for exchange be
an integral multiple of an amount specified in the
prospectus supplement,
o specified dates during which a holder may effect such an
exchange,
o limitations on the right of an exchanging holder to receive
any benefit upon exchange from any credit support or other
non-underlying securities deposited in the applicable trust,
o adjustments to the value of the proceeds of any exchange
based upon the required prepayment of future expense
allocations and the establishment of a reserve for any
anticipated extraordinary trust expenses as set forth in the
applicable prospectus supplement, and
o a requirement that the exchanging holder obtain the consent
of any swap counterparty to such exchange and tender to the
swap counterparty a termination payment in respect of
termination of any portion of the swap agreement
corresponding to the portion of the underlying securities to
be distributed by the trustee.
Unless the prospectus supplement states that "depositor optional
exchange" is not applicable to the Units of a given series, any Units held by
the depositor or its affiliates from time to time will be subject to optional
exchange by the depositor or such affiliates for a pro rata portion of the trust
property of the related trust, subject to one or more of the conditions similar
to those set forth above.
Unless the underlying securities distributable to the holders of the
Units upon an optional exchange have been registered concurrently with the Units
and the exchange otherwise satisfies the registration requirements of the
Securities Act, no optional exchange will be provided for except where such
optional exchange is eligible for an exemption from registration under the
Securities Act.
Unless additional or different terms for an optional exchange are set
forth in the related prospectus supplement, in order for a Unit of a given
exchangeable series (or class within such exchangeable series) to be exchanged
by the applicable Unitholder, the trustee for such Unit must receive, at least
30 (or such shorter period acceptable to the trustee) but not more than 45 days
prior to an optional exchange date (i) such Unit with the form entitled "Option
to Elect Exchange" on the reverse thereof duly completed or (ii) a telegram,
telex, facsimile transmission or letter from a member of a national securities
exchange or the National Association of Securities Dealers, Inc., the depositary
(in accordance with its normal procedures) or a commercial bank or trust company
in the United States setting forth the name of the holder of such Unit, the Unit
principal balance or notional amount of such Unit to be exchanged, the Unit
number or a description of the tenor and terms of such Unit, a statement that
the option to elect exchange is being exercised thereby and a guaranty that the
Unit to be exchanged with the form entitled "Option to Elect Exchange" on the
reverse of the Unit duly completed will be received by such trustee not later
than five business days after the date of such telegram, telex, facsimile
transmission or letter. If the procedure described in clause (ii) of the
preceding sentence is followed, then such Unit and form duly completed must be
received by such trustee by such fifth business day. Any tender of a Unit by the
holder for exchange shall be irrevocable. The exchange option may be exercised
by the holder of a Unit for less than the entire Unit principal balance of such
Unit provided that the Unit Principal Balance or notional amount, as applicable,
of such Unit remaining outstanding after redemption is an authorized
denomination and all other exchange requirements set forth in the related
prospectus supplement are satisfied. Upon such partial exchange, such Unit shall
be canceled and a new Unit or Units for the remaining Unit principal balance
thereof shall be issued (which shall be in the name of the holder of such
exchanged Unit).
Upon the satisfaction of the foregoing conditions and any applicable
conditions with respect to the related trust property, as described in such
prospectus supplement, the applicable Unitholder will be entitled to receive a
distribution of a pro rata share of the trust property related to the
exchangeable series (and class within such exchangeable series) of the Unit
being exchanged, in the manner and to the extent described in such prospectus
supplement. Alternatively, to the extent so specified in the applicable
prospectus supplement, the applicable Unitholder, upon satisfaction of such
conditions, may direct the related trustee to sell, on behalf of such
Unitholder, such pro rata share of the trust property, in which event the
Unitholder shall be entitled to receive the net proceeds of such sale, less any
costs and expenses incurred by such trustee in facilitating such sale, subject
to any additional adjustments set forth in the prospectus supplement.
Prior to any optional exchange, only the trustee is a holder of the
underlying securities and only the trustee will have the ability to enforce the
obligations of the underlying security issuer under the underlying securities.
After an optional exchange, the Unitholders will be holders of the underlying
securities and can enforce such obligations directly.
Any holder of call rights or warrants shall be entitled to exchange
Units acquired upon exercise of the call rights or warrants for a corresponding
portion of trust property.
You should note that any optional exchange will have the effect of
reducing the outstanding amount of Units available for trading in the secondary
markets. Optional exchanges may occur with respect to significant amounts of the
Units and may disrupt secondary market trading in the Units, reduce the
liquidity of the Units, increase the spread between bid and ask prices or have
other adverse effects on any secondary market for the Units.
Ratings
At the time of issue, the Units of a particular series (or class within
that series) will be rated in one of the investment grade categories recognized
by one or more nationally recognized rating agencies. Unless an additional basis
for that rating is described in the applicable prospectus supplement, the rating
of any series or class will be based primarily on the related trust property and
the relative priorities of the Unitholders of the relevant series or class to
receive collections from, and to assert claims against, the trust with respect
to that trust property. There can be no assurance that any such rating will
remain in effect for any given period of time or that it will not be lowered or
withdrawn entirely by the relevant rating agency. If any class of a particular
series of Units is not offered pursuant to this prospectus and the applicable
prospectus supplement, that class will not necessarily be rated in an investment
grade category by a rating agency.
Prospective purchasers of the Units should be aware that a credit
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. A
rating also does not comment as to market price or suitability for a particular
investor. In addition, a rating is limited in scope to its terms. Prospective
purchasers of particular Units are urged to review in its entirety any
disclosure relating to any rating of those Units that is contained in the
applicable prospectus supplement, including the text of any rating letter or
letters, if provided.
Form
Each series and class of Units may be issued (1) in fully registered
form without interest coupons with or without coupons attached and (2) as one or
more global securities or as individual securities in definitive form with or
without coupons. Units will be transferable on the records of the Unit register
maintained by the trustee. For each series of Units, the trustee will maintain a
register in which, subject to any reasonable regulations as it may prescribe,
the trustee will provide for the registration of transfers of those Units. No
service charge will be payable with respect to any transfer of Units, but the
trustee may require payment of a sum sufficient to cover any tax or government
charge that may be imposed in connection with any such transfer.
All Units of a particular series (or class within that series) offered
hereby and by the applicable prospectus supplement unless otherwise provided in
the applicable prospectus supplement will, after they are issued, be represented
by one or more global securities that will be deposited with, or on behalf of,
the Depository Trust Company ("DTC") (only for Units denominated and payable in
U.S. dollars), the Euroclear System ("Euroclear"), Clearstream Banking, societe
anonyme ("Clearstream"), or another entity specified in the applicable
prospectus supplement. All of the foregoing entities are referred to as
"depositaries". Global securities may be issued in registered form and in either
temporary or permanent form or other form specified by the depositary. Global
securities will be registered in the name of a nominee of the depositary, and
will clear and settle in book-entry form only through the facilities of one or
more depositaries. Unless and until it is exchanged in whole or in part for the
individual Units it represents, a global security may only be transferred in its
entirety, by the depositary to a nominee of the depositary, by a nominee of the
depositary to the depositary or another nominee of the depositary, or by the
depositary or any such nominee to a successor of the depositary or a nominee of
that successor.
After a Unit is issued as a global security, the depositary will
credit, on its book-entry registration and transfer system, the respective
principal amounts or notional amounts, as applicable, of the individual Units
represented by that global security to the accounts of its participants. The
accounts to be credited will be designated by the underwriter of the Units, or
if the Units are offered and sold directly through one or more agents, by the
depositor or those agents. Ownership of beneficial interests in a global
security will be limited to participants and to persons that may hold beneficial
interests through participants. Because holders will acquire, hold and transfer
security entitlements with respect to a global security through accounts with
the depository and its participants, a beneficial holder's rights with respect
to a global security will be subject to the laws (including Article 8 of the
Uniform Commercial Code) and contractual provisions governing a holder's
relationship with its securities intermediary and the relationship between its
securities intermediary and each other securities intermediary between it and
the underlying security issuer. Unless and until it is exchanged in whole for
securities in definitive registered form under the limited circumstances
described below, a global security cannot be transferred except as a whole by
and among the depository, its nominees and any successors of the depository or
those nominees. Ownership of beneficial interests in a global security will be
shown on, and transfers of ownership will be effected only through, records
maintained by the depositary or by participants or persons that hold through
participants. The laws of some states require that certain purchasers of a
security take physical delivery of the security. 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 that security, that depositary or nominee will be considered the sole
holder of the individual Units represented by that global security for all
purposes under the trust agreement governing the Units. Except as described
below, owners of beneficial interests in a global security will not be entitled
to have any of the individual Units represented by that global security
registered in their names, will not receive or be entitled to receive physical
delivery of any such Units and will not be considered Unitholders under the
trust agreement governing those Units. Because the depositary can only act on
behalf of its participants, the ability of a holder of any Unit to pledge that
Unit to persons or entities that do not participate in the depositary's system,
or to otherwise act with respect to that Unit, may be limited due to the lack of
a physical certificate for that Unit.
Distributions of principal of (and premium, if any) and any interest on
individual Units represented by a global security will be made to the depositary
or its nominee, as the Unitholder of record. None of the depositor, the trustee,
any paying agent or the registrar for those Units will have responsibility or
liability for any aspect of the records relating to, or payments made on account
of, beneficial interests in that global security or for maintaining, supervising
or reviewing any records relating to such beneficial interests. The depositor
expects that the depositary for Units of a particular series (or class within
that series), after receiving any distribution of principal, premium or interest
in respect of a definitive global security representing those Units, will credit
immediately its participants' accounts with payments in amounts proportionate to
their respective beneficial interests in the principal amount of that global
security, as shown on the records of the depositary. The depositor also expects
that payments by participants to owners of beneficial interests in that global
security held through those participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in registered in a "street name".
Beneficial owners of global securities should consult their banks or
brokers for information on how to receive payments on those Units, including (in
the case of Units denominated in a currency other than U.S. dollars) on how to
request payment in the specified currency for those Units.
As long as the Units of a particular series are represented by a global
security, the depositary's nominee will be the record holder of those Units and
therefore will be the only entity that can exercise a right of exchange. In
order to ensure that the depositary's nominee will timely exercise a right of
exchange with respect to a particular Unit, the beneficial owner of that Unit
must instruct the broker or other direct or indirect participant through which
it holds an interest in that Unit to notify the depositary of its desire to
exercise a right of exchange. Different firms have different cut-off times for
accepting instructions from their customers and, accordingly, each beneficial
owner should consult the broker or other direct or indirect participant through
which it holds an interest in a Unit in order to ascertain the cut-off time by
which such an instruction must be given in order for timely notice to be
delivered to the depositary.
If the depositary for Units of a particular series (or class within
that series) is at any time unwilling or unable to continue as depositary and a
successor depositary is not appointed by the depositor within 30 days, the
related trust will issue individual definitive Units in exchange for the global
security or securities representing those Units. In addition, the depositor may
at any time and in its sole discretion determine not to have any Units of a
particular series or class represented by one or more global securities of that
series or class in exchange for the global security or securities representing
those Units. Further, if specified in the applicable prospectus supplement, an
owner of a beneficial interest in a global security representing Units of a
particular series or class may, on terms acceptable to the depositor and the
depositary, receive individual definitive Units in exchange for its beneficial
interest. In each of the foregoing circumstances, an owner of a beneficial
interest in a global security will be entitled (1) to receive individual
definitive Units of the series or class represented by that global security
equal in principal amount or notional amount, as applicable, to that beneficial
interest and (2) to have those definitive Units registered in its name.
Individual definitive Units will be issued in denominations specified by the
depositor or in the applicable prospectus supplement.
DTC 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 deposit with DTC. DTC also facilitates
the settlement among its participants of securities transactions, such as
transfers and pledges, in deposited securities through electronic computerized
book-entry changes in its 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. DTC is owned by a number of those participants
and by the New York Stock Exchange Inc., the American Stock Exchange, Inc. and
the National Association of Securities Dealers, Inc. ("direct participants").
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 any of the
participants mentioned in the preceding sentence, either directly or indirectly
("indirect participants"). The rules applicable to DTC and its participants are
on file with the SEC.
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 of the Units will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
The applicable prospectus supplement will describe any specific terms
of the depositary arrangement with respect to any particular class or series of
Units to the extent not described or different from the above description above.
Voting of securities, modification of underlying security issuance agreements
As promptly as possible, but in any event, within three 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 underlying securities
related to particular Units, the trustee will give notice to the holders of
those Units, setting forth the following: (1) the information contained in the
notice to owners of those underlying securities, (2) a statement that the
Unitholders are entitled, subject to applicable law, any applicable provisions
of those underlying securities and the trust agreement (and to the extent of the
voting rights allocated to the Unitholders), to instruct the trustee as to the
exercise of any voting right pertaining to those underlying securities, and (3)
a statement as to the manner in which instructions may be given to the trustee
to grant any discretionary proxy to a person designated in the notice received
by the trustee. The trustee will give its notice to the Unitholders of record on
the relevant record date.
Unless a different allocation of voting rights is described in the
applicable prospectus supplement, the voting rights of owners of the relevant
underlying securities pursuant to their terms will be allocated among the
Unitholders ratably, in the proportion that the denomination of each Unit bears
to the aggregate denomination of all Units. At the written request of any
Unitholder, which must be received on or before the date established by the
trustee for that purpose, the trustee will endeavor, to the extent practicable
and permitted under applicable law and any applicable provision of the
underlying securities, to vote in accordance with any nondiscretionary
instruction contained in that written request. If the aggregate principal
balance (or notional amount, as applicable) held by all Unitholders instructing
the trustee to vote in a specified manner does not correspond to an even number
of underlying securities, the trustee will vote the number of underlying
securities most closely corresponding to that principal balance (or notional
amount, as applicable), as instructed. Any portion of the principal balance (or
notional amount, as applicable) representing less than half of an underlying
security will not be voted, but any such portion representing half or more of an
underlying security will be voted as instructed.
Notwithstanding the foregoing, the trustee must reject any vote to (1)
alter the currency, amount or timing of payment of, or the method or rate of
accruing, principal or interest on the underlying securities, (2) consent to any
redemption or prepayment of the underlying securities or (3) consent to the
issuance of new obligations in exchange or substitution for any of the
underlying securities. The foregoing prohibition does not apply if the trustee
is directed by the affirmative vote of all holders of the related Units to
accept the amendment or offer in question and receives advice of nationally
recognized independent tax counsel, designated by the depositor, that the
changes to the terms of the underlying securities to which the vote relates
would not result in a "sale or other disposition" of the underlying securities
within the meaning of Section 1001(a) of the Internal Revenue Code of 1986 or
alter the classification of the trust for U.S. federal income tax purposes. The
trustee must also reject any vote to alter any other terms of the securities
unless it receives advice of tax counsel to the effect described in the
preceding sentence.
The trustee will not grant any consent (other than a unanimous consent)
solicited from the owners of the underlying securities underlying the Units with
respect to the foregoing matters in (1), (2) and (3) above nor will it accept or
take any action in respect of any consent, proxy or instructions received from
any Unitholder in contravention of such provisions.
Early distribution of trust property
Unless specific terms for the continuation of the trust agreement are
described in the applicable prospectus supplement, upon the occurrence of a
trust wind-up event (as defined under "Description of Trust Agreements--Trust
wind-up events, liquidation events and disqualification events"), the applicable
trust agreement and any related swap agreement will terminate, subject to
payment of swap termination payments, if any, and the trustee shall deliver
notice to each of the Unitholders of the occurrence of a trust wind-up event,
the termination of such swap agreement (and payment of swap termination
payments, if any) and the termination of such trust agreement and related trust,
and such notice shall state that holders should surrender their Units to the
trustee or give, to the trustee's reasonable satisfaction, appropriate indemnity
or security in exchange for a portion of the underlying securities or cash if
the trust property is liquidated, as specified in the applicable trust
agreement. Such notice to the Unitholders shall also specify: (1) the cause of
the trust wind-up event, (2) the location and hours of the office or agency of
the trustee at which Units should be presented and surrendered, (3) that each
holder must supply transfer instructions in writing with respect to the related
underlying securities, and (4) any other information required to be set forth by
such trust agreement, as set forth in the applicable prospectus supplement.
Unless the prospectus supplement specifies that the underlying
securities will be distributed in kind, all underlying securities will be
liquidated following a trust wind-up event, either through the selling agent as
described under "Description of Trust Agreements--Sale of trust property,
secured party rights" or through other procedures described in the prospectus
supplement, and the cash proceeds of such liquidation will be distributed to the
Unitholders after satisfaction of all other expenses and liabilities of the
trust.
Upon receipt by the trustee of (1) appropriate transfer instructions in
writing from a holder with respect to such underlying securities and (2) such
holder's Units, or appropriate and satisfactory indemnity or security, the
trustee shall promptly deliver to such holder its pro rata share of such
underlying securities or cash in accordance with such transfer instructions by
physical delivery or, if applicable, by causing the book-entry depositary for
such underlying securities to credit such underlying securities to an account of
such holder with such depositary or an account of a designated participant in
such depositary.
United States Federal Income Taxation
The discussion under the heading "United States Federal Income
Taxation" herein represents the opinion of Cleary, Gottlieb, Steen & Hamilton
with respect to the material United States federal income tax consequences of
the purchase, ownership and disposition of Units by a Unitholder who acquires
its Units on the closing date.
This discussion applies only to:
o Units purchased by those initial holders who purchase such
Units on the date on which the net proceeds of an offering
of the Units of a particular series are received by the
depositor, also referred to as the closing date, at the
offering price provided for the Units in the applicable
prospectus supplement, and
o Units and trust property held as capital assets.
This discussion does not describe all of the tax consequences that may
be relevant to a holder in light of its particular circumstances or to holders
subject to special rules, such as:
o banks, savings and loan associations, and similar financial
institutions,
o insurance companies,
o dealers in securities, including notional principal
contracts, or foreign currencies,
o traders in securities electing to mark to market,
o persons holding Units as part of a hedge, straddle,
conversion or similar transaction,
o U.S. Unitholders (as defined below) whose functional
currency is not the U.S. dollar,
o partnerships or other entities classified as partnerships
for U.S. federal income tax purposes, or
o persons subject to the alternative minimum tax.
This discussion is based on the Internal Revenue Code of 1986, as
amended to the date hereof (the "Internal Revenue Code"), administrative
pronouncements, judicial decisions and final, temporary and proposed Treasury
regulations, changes to any of which subsequent to the date of this prospectus
may affect the tax consequences described herein and may be applied
retroactively.
Units of a particular series may have special features that produce tax
consequences different from those described below. In cases where the related
prospectus supplement contains additional tax information, prospective
Unitholders should review such information together with this tax discussion.
Persons considering the purchase of Units are urged to consult their
tax advisers with regard to the application of the U.S. federal income tax laws
to their particular situations as well as any tax consequences arising under the
laws of any state, local or foreign taxing jurisdiction.
Classification of the trust
Unless otherwise stated in the applicable prospectus supplement, the
trust will not be classified as a corporation or as an association taxable as a
corporation. The trustee shall in no event cause the trust, and each holder of a
Unit by its purchase thereof shall be deemed to have agreed not to make any
election to cause the trust, to be treated as a corporation for U.S. federal
income tax purposes. The prospectus supplement for each series of Units will
include a discussion regarding the classification of the trust as a grantor
trust, partnership or financial asset securitization investment trust ("FASIT"),
as defined in Section 860L of the Internal Revenue Code.
In every case in which the trust intends to treat itself as a
partnership or FASIT, the applicable prospectus supplement will discuss the
material U.S. federal income tax consequences of such classification. In a case
where the appropriate classification of the trust is uncertain, the applicable
prospectus supplement generally will describe potential alternative
characterizations of the trust and the material U.S. federal income tax
consequences thereof.
The remainder of this discussion assumes that the trust will be a
grantor trust for U.S. federal income tax purposes.
Taxation under grantor trust rules
The trustee will report income, gain, loss and deductions to the
Internal Revenue Service (the "IRS") in accordance with the grantor trust
provisions of the Internal Revenue Code. Under the U.S. federal income tax rules
applicable to grantor trusts, a Unitholder will be treated as the owner of an
undivided interest in the assets and income of the trust and as having entered
into any swap agreement that is included in trust property, both to the extent
of such Unitholder's proportionate interest in the trust. The sale of a Unit
will be considered a sale of a Unitholder's interest in the assets of the trust
and a termination of any swap agreement with respect to that Unitholder. In the
case of Units of an exchangeable series, a Unitholder's withdrawal of the
Unitholder's proportionate share of the underlying securities will not
constitute a taxable event, but gain or loss may be recognized upon any related
termination of a swap agreement. A Unitholder may deduct its pro rata share of
the fees and other deductible expenses paid by the trust, at the same time and
to the same extent as such items could be deducted by the Unitholder if the
Unitholder paid directly a pro rata portion of the amounts paid by the trust.
See "Trust expenses", below.
Allocation of basis and sales proceeds
A Unitholder will be considered to have purchased its interest in the
underlying securities for an amount equal to the cost of its Unit multiplied by
a fraction, the numerator of which is the fair market value of such underlying
securities and the denominator of which is the sum of the fair market value of
the underlying securities and the fair market value of any swap agreement (which
may be negative, zero or positive), if any, in each case at the time of
purchase. The Unitholder's initial tax basis in the underlying securities will
equal such allocated purchase price. The Unitholder's tax basis in the
underlying securities generally will be increased by any amounts included in
income with respect thereto, and reduced by any payments thereon and any
amortized bond premium with respect thereto.
If the fair market value to the trust of the swap agreement, if any, is
not zero at the time of purchase of a Unit by a Unitholder, the Unitholder
should be treated as having received or paid a premium with respect to the swap
agreement ("swap premium"). If such fair market value is negative, a swap
premium will be treated as paid to such Unitholder in an amount equal to the
excess of the amount allocated to the underlying securities (determined as
described above) over the cost of the Unit. If such fair market value is
positive, a swap premium will be treated as paid by such Unitholder in an amount
equal to the excess of the cost of the Unit over the amount allocated to the
underlying securities.
Upon a sale of a Unit, the same method would apply in allocating the
amount realized by the selling Unitholder between the underlying securities and
the swap agreement using fair market values at the time of sale. The amount
allocated to the swap agreement would be considered a swap termination payment
made to or by the Unitholder, depending on whether the amount is positive or
negative as to the trust.
If the trust holds, at the time of purchase of a Unit, cash or cash
equivalents, then the cost of the Unit would first be reduced by the amount of
such cash or cash equivalents allocated to the Unit before making the above
allocation.
Tax consequences to U.S. Unitholders
As used herein, the term "U.S. Unitholder" means a beneficial owner of
a Unit that is for U.S. federal income tax purposes:
o a citizen or resident of the United States,
o a corporation, or other entity taxable as a corporation for
U.S. federal income tax purposes, created or organized in or
under the laws of the United States or of any political
subdivision thereof, or
o an estate the income of which is subject to U.S. federal
income taxation regardless of its source, or
o a trust if (i) a U.S. court is able to exercise primary
supervision over the trust's administration and (ii) one or
more U.S. persons have the authority to control all of the
trust's substantial decisions. Notwithstanding the preceding
sentence, certain trusts in existence on August 20, 1996,
and treated as a domestic trust prior to such date, may also
be treated as U.S. Unitholders.
The term U.S. Unitholder also includes certain former citizens and
residents of the United States.
The discussion below, up to the heading "Tax consequences to non-U.S.
Unitholders", applies only to U.S. Unitholders.
Taxation of underlying securities
If the trust property includes a swap agreement, the tax treatment of
the underlying securities and such swap agreement will depend on whether they
are integrated into a single synthetic debt instrument or treated as separate
financial instruments. The following discussion assumes that the underlying
securities are not part of an integrated transaction, so that a U.S. Unitholder
must take into account its pro rata share of the income from the underlying
securities and the swap agreement, if any, as determined under the separate tax
rules applicable to those instruments. In some cases, the trust property may be
subject to rules providing for integration for tax purposes. Such rules, and the
consequences of integrated treatment, are discussed below.
The following discussion also assumes that the underlying securities
are considered to be owned by the trust for U.S. federal income tax purposes. In
some circumstances, the underlying securities and swap agreements may be treated
together as a loan to the swap counterparty. See "Other characterizations of the
underlying securities and swap agreements".
Furthermore, the following discussion assumes that the underlying
securities will constitute debt instruments in their entirety. If the underlying
securities are denominated in a foreign currency, the rules for calculation of
foreign exchange gains and losses discussed below under "Foreign currency rules"
will also apply. See also the discussion below under "Straddle Rules".
Payments of interest. Interest on an underlying security will be
taxable to a U.S. Unitholder as ordinary interest income at the time it accrues
or is received by the trust in accordance with the U.S. Unitholder's method of
accounting for U.S. federal income tax purposes, provided that the interest is
qualified stated interest (as defined below).
Original issue discount. An underlying security that was issued at an
issue price less than its stated redemption price at maturity will be considered
to have original issue discount for U.S. federal income tax purposes (and will
be referred to as an "original issue discount underlying security") unless the
discount is de minimis (as described below). The stated redemption price at
maturity of an underlying security equals the sum of all payments required to be
made on the underlying security other than payments of "qualified stated
interest". "Qualified stated interest" is generally stated interest that is
unconditionally payable in cash or property (other than in debt instruments of
the underlying security issuer) at least annually during the entire term of the
underlying security at a single fixed rate or, subject to certain conditions, at
a variable rate.
If the difference between an underlying security's stated redemption
price at maturity and its issue price is less than a de minimis amount
(generally 1/4 of 1 percent of the stated redemption price at maturity
multiplied by the number of complete years to maturity), then the underlying
security will not be considered to have original issue discount.
If the trust holds original issue discount underlying securities that
mature more than one year from their date of issuance, U.S. Unitholders will be
required to include their share of the original issue discount in ordinary gross
income as it accrues, in accordance with a constant yield method based on a
compounding of interest and regardless of whether the U.S. Unitholder uses the
cash or accrual method of accounting. Under this method, U.S. Unitholders
generally will be required to include in income increasing amounts of original
issue discount in successive accrual periods. In some cases, original issue
discount may be includible in income prior to the receipt of any cash
attributable to such income.
A U.S. Unitholder may make an election to include in gross income all
interest that accrues on any underlying security (including stated interest,
acquisition discount, original issue discount, de minimis original issue
discount, market discount, de minimis market discount, and unstated interest, as
adjusted by any amortizable bond premium or acquisition premium) in accordance
with a constant yield method based on the compounding of interest (a "constant
yield election"), as if such underlying security were newly issued on the date
of purchase of the Units by the U.S. Unitholder and the issue price of such
underlying security equaled the purchase price allocated thereto. An election
made by a taxpayer with respect to one obligation can affect other obligations
held by the taxpayer. U.S. Unitholders should consult with their tax advisors
regarding the merits of making this election.
Contingent debt obligations. Special rules govern the tax treatment of
debt obligations that are treated under applicable Treasury regulations as
providing for contingent payments ("contingent debt obligations"). These rules
generally require accrual of interest income on a constant yield basis at an
assumed yield determined at the time of issuance of the obligation. Adjustments
will be required to these accruals when any contingent payments are made that
differ from the payments calculated based on the assumed yield. Any gain on the
sale, exchange, retirement or other disposition of a contingent debt obligation
will be ordinary income. Loss, up to the amount of interest included in income
with respect to the contingent debt obligation by the U.S. Unitholder in the
current or prior taxable years, will be characterized as ordinary loss; any loss
in excess of that amount will be capital loss. Furthermore, any gain or loss
will be long-term capital gain or loss if the U.S. Unitholder has held the
contingent debt obligation for the long-term holding period and there are no
remaining contingent payments on the obligation at the time of the disposition.
Market discount. If the purchase price allocated to an underlying
security is less than its stated redemption price at maturity or, in the case of
an original issue discount underlying security, its adjusted issue price, the
amount of the difference will be treated as market discount for federal income
tax purposes, unless this difference is less than a specified de minimis amount.
The adjusted issue price is the issue price of the underlying security plus
previously accrued original issue discount, less any prior payments other than
payments of qualified stated interest.
A U.S. Unitholder that makes a constant yield election or a separate
election under market discount rules will be required to include market discount
in income as it accrues. Absent such election, a U.S. Unitholder will be
required to treat any principal payment (or, in the case of an original issue
discount underlying security, any payment that does not constitute qualified
stated interest) on, and any gain on the sale, exchange, retirement or other
disposition of an underlying security as ordinary income to the extent of the
market discount accrued on the underlying security at the time of the payment or
disposition. If the underlying security is disposed of in certain nontaxable
transactions, accrued market discount will be includible as ordinary income to
the U.S. Unitholder as if such U.S. Unitholder had sold the underlying security
at its then fair market value. In addition, the U.S. Unitholder may be required
to defer, until the maturity of the underlying security or its earlier
disposition (including certain nontaxable transactions), the deduction of all or
a portion of the interest expense on any indebtedness incurred or maintained to
purchase or carry the Unit.
Acquisition premium and amortizable bond premium. If the purchase price
allocated to an underlying security exceeds the underlying security's adjusted
issue price but is less than or equal to its stated redemption price at
maturity, a U.S. Unitholder will be considered to have purchased the underlying
security with an acquisition premium. Under the acquisition premium rules, the
amount of original issue discount that the U.S. Unitholder must include in its
gross income with respect to the underlying security for any taxable year will
be reduced by the portion of the acquisition premium properly allocable to that
year.
If the purchase price allocated to an underlying security exceeds the
underlying security's stated redemption price at maturity, a U.S. Unitholder
will be considered to have purchased the underlying security with amortizable
bond premium equal in amount to the excess of the purchase price over the amount
payable at maturity (exclusive of any portion of such excess attributable to a
conversion feature). A U.S. Unitholder may elect under Section 171 of the
Internal Revenue Code to amortize this premium, using a constant yield method,
over the remaining term of the underlying security (where the underlying
security is not optionally redeemable prior to its maturity date). If the
underlying security may be optionally redeemed prior to maturity after the trust
has acquired it, the amount of amortizable bond premium is determined with
reference to the amount payable on maturity or, if it results in a smaller
premium attributable to the period of earlier redemption date, with reference to
the amount payable on the earlier redemption date. A U.S. Unitholder who elects
to amortize bond premium must reduce its tax basis in the underlying security by
the amount of the premium amortized in any year. An election to amortize bond
premium applies to all taxable debt obligations then owned and thereafter
acquired by the U.S. Unitholder and may be revoked only with the consent of the
IRS.
If a U.S. Unitholder makes a constant yield election (as described
under "Original Issue Discount" above) for an underlying security with
amortizable bond premium, such election is treated as an election to amortize
bond premium under Section 171, with the consequences described above.
Stripped bond rules. Some Units may be entitled to either (i) principal
distributions with disproportionate, nominal or no interest distributions or
(ii) interest distributions with disproportionate, nominal or no principal
distributions (such Units will be referred to as "strip Units"). A U.S.
Unitholder that holds a strip Unit will be taxed under the "stripped bond" rules
of the Internal Revenue Code. The U.S. Unitholder will be treated, for purposes
of applying the original issue discount rules of the Internal Revenue Code, as
having purchased a newly issued, single debt instrument providing for payments
equal to the payments on the underlying securities allocable to the Unit. The
issue price is the price at which the U.S. Unitholder is considered to have
purchased its right to payments on the underlying securities. As described above
under "Original Issue Discount", if such newly issued debt instrument has more
than a de minimis amount of original issue discount, the U.S. Unitholder will be
required to include the original issue discount in income as it accrues in
accordance with the constant yield method.
Unless otherwise specified in the applicable prospectus supplement, it
is anticipated that a trust will, for information reporting purposes, account
for original issue discount reportable by holders of strip Units by reference to
the first price at which a substantial amount of the Units is sold to purchasers
(other than the underwriters), even though the amount of original issue discount
will differ for subsequent purchasers. U.S. Unitholders should consult their tax
advisors regarding the proper calculation of original issue discount.
Sale, exchange or retirement of an underlying security. Upon the sale,
exchange or retirement of an underlying security (including a sale resulting
from a sale of Units), a U.S. Unitholder generally will recognize taxable gain
or loss equal to the difference between the amount realized on the sale,
exchange or retirement and the U.S. Unitholder's adjusted tax basis in the
underlying security. For these purposes, the amount realized does not include
any amount attributable to accrued interest. Amounts attributable to accrued
interest are treated as interest as described under "Payments of Interest"
above.
Except as described herein, gain or loss realized on the sale, exchange
or retirement of an underlying security will generally be capital gain or loss
and will be long-term capital gain or loss if at the time of sale, exchange or
retirement the underlying security has been held for more than one year.
Exceptions to this general rule apply to the extent of any accrued market
discount not previously included in the U.S. Unitholder's taxable income. See
"Market discount" above. See also the discussions under "Contingent debt
obligations", "Straddle rules", and "Foreign currency rules".
Taxation of the swap agreement
The following discussion assumes that the swap agreement is not part of
an integrated transaction for tax purposes. For the treatment of a swap
agreement if it is part of an integrated transaction, see the discussion under
"Taxation of Underlying Securities and Swap Agreement as an Integrated
Transaction" below. Furthermore, it is assumed for purposes of the following
discussion that a swap agreement is a "notional principal contract" in its
entirety. Alternative characterizations of a swap agreement are discussed below
under "Other characterizations of the underlying securities and swap agreement".
If payments under a swap agreement are denominated in, or determined by
reference to, a foreign currency, the rules relating to foreign exchange gains
and losses discussed below under "Foreign currency rules" will also apply.
Periodic payments and nonperiodic payments (including swap premium).
Income or deductions with respect to a swap agreement may be attributable to
periodic payments, nonperiodic payments (including swap premium) or swap
termination payments.
Periodic payments under a swap agreement are payments made or received
by the trust that are payable at intervals of one year or less during the entire
term of the contract (including any extension periods), that are based on a
specified index and are based on a single notional principal amount or a
notional principal amount that varies over the term of the contract in the same
proportion as the notional principal amount that measures the other party's
payments. However, payments to buy or sell an interest rate cap or floor are
never periodic payments.
All U.S. Unitholders must account for periodic payments under an
accrual method of accounting. In a case where periodic payments to be made under
a swap agreement are set in arrears, and the payment relating to a period during
a taxable year of a U.S. Unitholder cannot be determined by the end of the year,
then accruals for that year will be based on a reasonable estimate of the
payment, and the difference between the estimated amount and actual amount will
be taken into account in the taxable year in which the payment is fixed.
Payments under a swap agreement that are not periodic payments or Swap
Termination Payments are "nonperiodic payments". (Accordingly, any swap premium
paid or received generally would be a nonperiodic payment.) Nonperiodic payments
generally must be recognized over the term of the swap agreement in a manner
that reflects the economic substance of the contract. The amount of any
nonperiodic payment that is amortized in any taxable year will be treated in the
same manner as a periodic payment that accrues in that year.
Under an alternative rule, nonperiodic payments under a notional
principal contract may be amortized under a level payment method. Under that
method, nonperiodic payments are allocated as if they represented principal
payments on a level payment loan that extends over the life of the contract and
bears interest at a rate equal to the rate (or rates) used by the parties to
determine the nonperiodic payments (or if such rate is not readily
ascertainable, a rate that is reasonable under the circumstances). The level
payment method cannot be used by a taxpayer with respect to a notional principal
contract if the taxpayer reduces risk with respect to the contract by
purchasing, selling or otherwise entering into other financial contracts (other
than debt instruments).
Periodic and nonperiodic payments attributed to any taxable year would
be netted. The net amount received or paid should generally be ordinary income
or an ordinary deduction, respectively, for that year. For certain taxpayers,
including individuals, such deductions will generally be subject to the 2% floor
applicable to miscellaneous itemized deductions.
Although not certain, income or loss attributable to changes in the
value of property may be treated as gain or loss from the termination of a right
or obligation with respect to such property, and accordingly may be treated as
capital gains or losses under Section 1234A of the Internal Revenue Code
(subject to the discussion below under "Straddle rules" and "Foreign currency
rules").
As an exception to the treatment of nonperiodic payments outlined
above, a notional principal contract that provides for a "significant"
nonperiodic payment is divided into two parts for U.S. federal income tax
purposes: a notional principal contract with periodic payments and a loan.
Where relevant for purposes of tax information reporting, the trustee
intends (i) to assume that all of the Units were purchased on the Closing Date,
and (ii) to amortize any nonperiodic payments that are fixed in amount
(including any initial swap premium) under the level payment method described
above. U.S. Unitholders that purchase a Unit and are deemed either to receive or
to pay swap premium should consult with their tax advisors regarding the
appropriate methods for amortizing such swap premium.
Swap termination payments. As described above under "Allocations of
basis and sales proceeds", a U.S. Unitholder may be considered to pay or receive
a swap termination payment under a swap agreement in connection with the sale of
a Unit. In such a case, a U.S. Unitholder would have gain or loss from
termination of a swap agreement equal to (i) the sum of the unamortized portion
of any nonperiodic payments received by the U.S. Unitholder and any swap
termination payment it receives or is deemed to have received, less (ii) the sum
of the unamortized portion of any nonperiodic payments paid by the U.S.
Unitholder and any swap termination payment it pays or is deemed to have paid.
A termination of a swap agreement generally will be considered to
involve a "sale or exchange" of the swap agreement, with the result that any
gain or loss generally will be treated as capital gain or loss (subject to the
discussion below under "Straddle rules" and "Foreign currency rules"). A U.S.
Unitholder that recognizes capital loss upon termination of the swap agreement
generally will be able to offset that loss against any gain recognized with
respect to the underlying securities to the extent such gain is capital gain.
Other characterizations of the underlying securities and swap agreement
Depending on its terms, a swap agreement may be in economic substance
an option or forward contract (among other possibilities), instead of or in
addition to a notional principal contract. In general, a swap agreement will be
treated for U.S. federal income tax purposes in accordance with its economic
substance. Consequently, if a swap agreement is an option, a U.S. Unitholder
will be treated as writing or purchasing an option. Any premium paid or received
in respect of the option (calculated in the same manner as swap premiums in
respect of a swap agreement, as described under "Allocation of basis and sales
proceeds") generally will be taken into account in determining gain or loss only
upon termination of the option or, if the option is physically settled and
involves the purchase of property by the trust, upon the disposition of such
property. Any such gain or loss will be capital gain or loss (subject to the
discussion below under "Straddle rules" and "Foreign currency rules"). An option
generally will not be subject to the mark-to-market rules under Section 1256 of
the Internal Revenue Code, but the inapplicability of those rules is not
entirely free from doubt in the case of a purchased option underlying a Unit
that is itself listed on a national securities exchange. An option and the
underlying securities may be considered offsetting positions in personal
property for purposes of the straddle rules discussed in the next section.
In some cases, underlying securities and a related swap agreement may
represent economically a loan to the swap counterparty secured by the underlying
securities. In that case, the trust may be considered to have made a loan
providing for cash flows equal to the cash flows of the underlying securities
and the swap agreement combined. Such a loan would be subject to the rules
governing debt instruments described above under "Taxation of underlying
securities".
Other characterizations may be possible, depending on the particular
terms of the swap agreement. U.S. Unitholders should consult their own tax
advisors with respect to the federal income tax treatment of the swap agreement.
Straddle rules
The underlying securities and the swap agreement may be considered
offsetting positions in a "straddle" subject to the straddle rules of Section
1092 of the Internal Revenue Code. Under Section 1092, a selling U.S.
Unitholder's capital gain or loss, if any, with respect to underlying securities
that are positions in a straddle will be short-term unless such underlying
securities have been held for the long term capital gain holding period after
termination of the swap agreement. Similarly, if the swap agreement is a
position in a straddle, capital gain or loss realized in connection with its
termination (or the termination of a right or obligation thereunder) will be
short-term. In addition, under Section 1092, all or a portion of any loss
realized upon such termination may be deferred until disposition of the
underlying securities. Further, if the underlying securities and the swap
agreement are positions in a straddle, any interest or carrying charges incurred
by a U.S. Unitholder with respect to its Units may have to be capitalized to the
extent they exceed the U.S. Unitholder's interest income from the underlying
securities, under Section 263(g) of the Internal Revenue Code. Under proposed
regulations, payments made under a swap agreement may be treated as carrying
charges for this purpose.
Finally, if the underlying securities and the swap agreement are
positions in a straddle and as a result are considered to be held as part of a
"conversion transaction" within the meaning of Section 1258 of the Internal
Revenue Code, all or a portion of any gain that would otherwise be capital gain
may be recharacterized as ordinary income.
Foreign currency rules
If the underlying securities provide for payments denominated in, or
determined by reference to, a foreign currency, and the integration rules do not
apply, then (under the rules of Section 988 of the Internal Revenue Code and the
regulations promulgated thereunder) foreign exchange gain or loss will be
computed separately from interest income and gain or loss from the underlying
securities. The amount of interest income realized by a U.S. Unitholder that
uses the cash method of tax accounting will be the U.S. dollar value of the
foreign currency payment based on the exchange rate in effect on the date the
payment is received, regardless of whether the payment is converted into U.S.
dollars. A U.S. Unitholder that uses the accrual method of accounting for tax
purposes will accrue interest income in the relevant foreign currency and
translate the amount accrued into U.S. dollars based on the average exchange
rate in effect during the interest accrual period (or portion thereof within the
U.S. Unitholder's taxable year) or, at the accrual basis U.S. Unitholder's
election, at the spot rate of exchange on the last day of the accrual period (or
the last day of the taxable year within such accrual period if the accrual
period spans more than one taxable year) or at the spot rate of exchange on the
date of receipt, if such date is within five business days of the last day of
the accrual period. A U.S. Unitholder that makes such election must apply it
consistently to all debt instruments from year to year and cannot change the
election without the consent of the IRS. A U.S. Unitholder that uses the accrual
method of accounting for tax purposes will recognize foreign currency gain or
loss, as the case may be, on the receipt of a foreign currency interest payment
made with respect to an underlying security if the exchange rate in effect on
the date the payment is received differs from the rate applicable to a previous
accrual of that interest income. Foreign currency gain or loss will be treated
as ordinary income or loss that is generally not treated as an adjustment to
interest income received on the underlying security and is sourced based on the
residence of the taxpayer. Similarly, foreign currency gain or loss will be
recognized upon the receipt of a principal payment (exclusive of any portion
thereof representing original issue discount) in an amount equal to the
difference between the U.S. dollar value of the payment based on the exchange
rate when the underlying securities were acquired and the rate when the payment
is made.
Upon a sale, exchange or retirement of the underlying securities, gain
or loss generally will be treated as ordinary income or loss to the extent that
the gain or loss is attributable to changes in exchange rates over the period
that the U.S. Unitholder is considered to have held the underlying securities.
Original issue discount, market discount, acquisition premium and
amortizable bond premium on a foreign currency underlying security are to be
determined in the relevant foreign currency. Where the U.S. Unitholder must
include original issue discount, or elects to include market discount, in income
currently, the amount of original issue or market discount will be determined
for any accrual period in the relevant foreign currency and then translated into
U.S. dollars on the basis of the average rate in effect during the accrual
period (or portion thereof within a U.S. Unitholder's taxable year).
Alternatively, the U.S. Unitholder may elect to translate the foreign currency
amount at the spot rate of exchange on the last day of the accrual period (or
the last day of the taxable year within such accrual period if the accrual
period spans more than one taxable year) or at the spot rate of exchange on the
date of receipt, if that date is within five business days of the last day of
the accrual period. A U.S. Unitholder that makes such election must apply it
consistently to all debt instruments from year to year and cannot change the
election without the consent of the IRS. Exchange gain or loss realized with
respect to such accrued original issue or market discount shall be determined in
accordance with the rules relating to accrued interest described above. If an
election to amortize bond premium is made, amortizable bond premium taken into
account on a current basis shall reduce interest income in a given period in
units of the relevant foreign currency. Exchange gain or loss will be realized
with respect to amortized bond premium based on the difference between the
exchange rate computed on the date or dates the premium is amortized against
interest payments and the exchange rate on the date the U.S. Unitholder acquired
the underlying security. If an election to amortize bond premium is not made,
any loss realized on the sale, exchange or retirement of an underlying security
with amortizable bond premium will generally be capital loss to the extent of
the bond premium.
The principles described above would also apply to any synthetic debt
instrument created by integrating the underlying securities and swap agreement
if that instrument provides for payments in, or determined by reference to, a
foreign currency.
The rules governing a swap agreement whose payments are denominated in,
or determined by reference to, foreign currencies and that is not integrated
with the underlying securities will depend on its specific terms. In general,
the timing of income and deductions would be determined under the principles
described in "Taxation of the swap agreement" and any income, loss or deduction
(including any gain or loss from a termination of a swap agreement) would be
characterized as foreign exchange gain or loss. In the case of a swap agreement
that exchanges both interest and principal payments, however, the amount and
timing of income or loss generally would be determined as though the trust had
made a hypothetical loan denominated in the currency in which payments are
received and had incurred a hypothetical debt denominated in the currency in
which payments are made. The resulting net income or loss would be characterized
as foreign exchange gain or loss.
Taxation of underlying securities and swap agreement as an integrated
transaction
If the underlying securities and swap agreement qualify for integration
under Treasury Regulations Section 1.1275-6 (the "integration regulations") or
Section 1.988-5 (the "Foreign currency integration regulations"), the U.S.
Unitholder may elect, or in some cases the IRS may require, integrated
treatment. If the transaction is integrated, the U.S. Unitholder will be
required to take into account its pro rata share of the income from the
synthetic debt instrument resulting from such integration.
In general, under the Integration Regulations, an underlying security
and a swap agreement that does not hedge currency risk may be integrated and
treated as a single synthetic debt instrument if the combined cash flows are
substantially equivalent to the cash flows on a fixed rate debt instrument or on
a variable rate debt instrument that pays interest at a qualified rate or rates
(as such terms are defined in applicable sections of the Internal Revenue Code
and Treasury Regulations) and certain other requirements are satisfied,
including the identification of the integrated economic transaction in the U.S.
Unitholder's books and records on the date of purchase of the Units. The
synthetic debt instrument may be denominated in U.S. dollars or another single
currency. Certain underlying securities, such as pay-through bonds that are
subject to prepayment out of principal received on other debt instruments or
tax-exempt obligations, will not qualify for integration. In certain cases, the
IRS may require integration where a U.S. Unitholder could have but did not make
the appropriate identification and in certain other cases.
The synthetic debt instrument created through integration generally
will be subject to the tax rules that apply to conventional debt instruments,
except that all stated interest on the instrument will be treated as original
issue discount, which a U.S. Unitholder must include in income as it accrues.
See the discussion of original issue discount and other income from a debt
instrument under "Taxation of underlying securities" above. The issue date of
the synthetic debt instrument will be the date on which the U.S. Unitholder
purchases the Unit, and the term of the instrument will be the period from the
issue date to the maturity date of the underlying securities. The issue price
will be the adjusted issue price of the underlying securities as of the issue
date of the synthetic debt instrument, decreased or increased by any payments of
swap premium (as defined above under "Allocation of basis and sales proceeds")
by or to the U.S. Unitholder. The source and character of interest income from
the synthetic debt instrument will be determined by reference to the source and
character of income on the underlying securities. Income from the underlying
securities and swap agreement underlying a synthetic debt instrument will be
treated separately for purposes of the withholding tax rules. See "Tax
consequences to non-U.S. Unitholders", below.
If a swap agreement hedges currency risk, then integration of the swap
agreement and underlying security may be available under the Foreign Currency
Integration Regulations. The rules for such integration and for the treatment of
the resulting synthetic debt instrument generally are similar to the rules
described above for integration of underlying securities and swap agreements not
hedging currency risk. One difference is that to qualify for integration, the
combined cash flows on the underlying security and swap agreement must be
substantially equivalent to the cash flows on a debt instrument for which a
yield can be calculated under the original issue discount rules. In addition,
different types of debt instruments may qualify for integration under the
Foreign Currency Integration Regulations. Other differences between the two sets
of rules may be relevant for particular underlying securities and swap
agreements.
The issue price of the synthetic debt instrument is determined by
translating the adjusted issue price of the underlying securities into the
currency in which the synthetic debt instrument is denominated at the spot rate
on the issue date of the synthetic debt instrument. If the synthetic debt
instrument is payable in U.S. dollars, U.S. Unitholders will not recognize any
foreign exchange gain or loss (as defined above under "Foreign currency rules")
with respect to the instrument.
Credit support
The applicable prospectus supplement will discuss the U.S. federal
income tax treatment of any credit support that is part of trust property or
that otherwise benefits Unitholders.
Trust expenses
Generally, for U.S. federal income tax purposes, U.S. Unitholders must
take into account their full pro rata share of the trust's income, even if some
of that income is used to pay trust expenses. A U.S. Unitholder may deduct its
pro rata share of each expense paid by the trust to the same extent as if it
directly paid the expense. However, some or all of the expenses of the trust may
be miscellaneous itemized deductions. Individuals may only deduct certain
miscellaneous itemized deductions to the extent they exceed 2% of adjusted gross
income.
Tax-exempt organizations
A qualified pension plan or other entity that generally is exempt from
federal income taxation pursuant to Section 501 of the Internal Revenue Code
(such an entity, a "Tax-exempt investor") nonetheless will be subject to federal
income taxation to the extent that its income is unrelated business taxable
income within the meaning of Section 512 of the Internal Revenue Code. Interest
on the underlying securities (or synthetic debt instrument, if the underlying
securities and swap agreement are integrated), income from a swap agreement that
is a notional principal contract and gains from the sale, exchange or other
disposition of Units held by a Tax-Exempt Investor generally will not be
unrelated business taxable income, unless such Units are "debt-financed
property" within the meaning of Section 514 of the Internal Revenue Code. A
portion of any income or gain from the underlying securities would be unrelated
business taxable income if, because of the existence of a significant swap
premium or other nonperiodic payment under the swap agreement, the swap
counterparty were deemed to have made a loan to a Tax-Exempt Investor that is a
Unitholder. See "Taxation of the swap agreement".
Tax consequences to non-U.S. Unitholders
The following discussion applies to Unitholders that hold registered
Units. The applicable prospectus supplement will discuss the rules applicable to
non-U.S. holders of bearer Units.
A beneficial owner of a Unit that is not a U.S. Unitholder and that is
not subject to U.S. federal income tax with respect to the Units as a result of
any direct or indirect connection to the United States (other than its ownership
of a Unit) will not be subject to United States income or withholding tax,
except as described below and under "Information reporting and backup
withholding", in respect of interest income or gain on the underlying securities
or income from the swap agreement if:
o in the case of underlying securities, the underlying
securities were issued after July 18, 1984,
o the non-U.S. Unitholder does not own, actually or
constructively, 10% or more of the total combined voting
power of all classes of stock entitled to vote, and is not a
controlled foreign corporation related, directly or
indirectly, through stock ownership to, the underlying
security issuer (or the swap counterparty, if the swap
agreement is considered to involve a significant nonperiodic
payment to the swap counterparty that is treated as a loan
or is otherwise considered part of a loan to the swap
counterparty) and is not a bank extending credit under a
loan entered into in the ordinary course of its trade or
business,
o interest on the underlying securities (or, to the extent the
swap agreement is considered to involve a loan to the swap
counterparty, interest on such loan) is not contingent on
the cash flows of, value of property of, or dividends or
other equity payments by, the issuer of the underlying
securities (or, in the case of a loan to the swap
counterparty, the swap counterparty), except that this
clause will not apply to underlying securities that are debt
instruments with a fixed term issued on or before April 7,
1993, and
o the certification requirement described below has been
fulfilled with respect to the beneficial owner, as discussed
below.
Certification requirement. Interest and original issue discount will
not be exempt from withholding tax unless the beneficial owner provides an
appropriate statement (generally on IRS Form W-8BEN), signed under penalties of
perjury, identifying the Unitholder and stating, among other things, that the
Unitholder is not a U.S. person, or satisfies certain documentary evidence
requirements for establishing that it is not a U.S. person.
If a non-U.S. Unitholder is engaged in a trade or business in the
United States, and if income or gain with respect to the Units is effectively
connected with the conduct of this trade or business, the non-U.S. Unitholder,
although exempt from withholding tax, will generally be taxed in the same manner
as a U.S. Unitholder (see "Tax consequences to U.S. Unitholders" above), except
that the Unitholder will be required to provide to the trustee a properly
executed IRS Form W-8ECI in order to claim an exemption from withholding tax.
These Unitholders should consult their own tax advisors with respect to other
U.S. tax consequences of the ownership and disposition of Units including the
possible imposition of a 30% branch profits tax.
If the underlying securities or swap agreement provide for payments
relating to a "United States real property interest" within the meaning of
Section 897 of the Internal Revenue Code, then gain from the underlying
securities or swap agreement, as the case may be, may be treated as income
effectively connected with a United States trade or business, and a related
withholding tax may apply.
A Unitholder that is not a U.S. Unitholder may also be subject to U.S.
federal income taxation with respect to a Unit if the Unitholder is a personal
holding company, a corporation that accumulates earnings to avoid U.S. taxes on
shareholders or a private foundation under the Internal Revenue Code.
Information reporting and backup withholding
Information returns may be filed with the IRS in connection with
payments on the Units and the proceeds from a sale or other disposition of the
Units or the trust property. A U.S. Unitholder will be subject to U.S. backup
withholding tax on these payments if the U.S. Unitholder fails to provide its
taxpayer identification number to the paying agent and comply with certain
certification procedures or otherwise establish an exemption from backup
withholding. A non-U.S. Unitholder may be subject to U.S. backup withholding tax
on these payments unless the non-U.S. Unitholder complies with certification
procedures to establish that it is not a U.S. person. For a non-U.S. Unitholder,
the certification procedures required to claim the exemption from withholding
tax described above will satisfy the certification requirements necessary to
avoid the backup withholding tax as well. The amount of any backup withholding
from a payment to a Unitholder will be allowed as a credit against the
Unitholder's United States federal income tax liability and may entitle the
Unitholder to a refund, provided that the required information is furnished to
the IRS.
ERISA Considerations
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Internal Revenue Code impose requirements on employee benefit
plans (and on certain other retirement plans and arrangements, including
individual retirement accounts and annuities, Keogh plans and collective
investment funds and insurance company general and separate accounts in which
those plans, accounts or arrangements are invested) subject to Title I of ERISA
or Section 4975 of the Internal Revenue Code (collectively, referred to as
"plans") and on persons who are fiduciaries with respect to those plans. Among
other things, ERISA requires that the assets of a plan subject to ERISA be held
in trust and imposes general standards of investment prudence and
diversification on fiduciaries of the plan. In addition, Section 406 of ERISA
and Section 4975 of the Internal Revenue Code prohibit a broad range of
transactions involving plan assets and persons (referred to as "parties in
interest") having specified relationships to a plan and impose additional
prohibitions where parties in interest are fiduciaries with respect to a plan. A
fiduciary who causes or allows a prohibited transaction to occur may be subject
to civil liability under ERISA, and the Internal Revenue Code imposes an excise
tax on any party in interest who participated in the prohibited transaction. The
relevant underlying security issuer, the depositor, any credit support provider,
any swap counterparty or guarantor, the trustee and their affiliates may be
parties in interest with respect to plans.
The United States Department of Labor ("DOL") has issued regulations
(referred to as the "plan asset regulations") concerning what constitutes assets
of a plan when a plan invests in another entity. The Units would constitute
equity interests in the trust for purposes of the plan asset regulations. Under
the plan asset regulations, the underlying assets and properties of
corporations, partnerships and specified other entities in which a plan makes an
"equity" investment could be deemed for purposes of ERISA and Section 4975 of
the Internal Revenue Code to be assets of the investing plan in certain
circumstances, unless the ownership by "benefit plan investors" of equity
interests in the entity is not "significant". In general, ownership by benefit
plan investors of equity interests in an entity is "significant" on any date if,
immediately after the most recent acquisition of any equity interest in the
entity, 25% or more of the value of any class of equity interests in that entity
is held by benefit plan investors. For purposes of the plan asset regulations,
the term "benefit plan investor" includes (1) any employee benefit plan (as
defined in Section 3(3) of ERISA), whether or not it is subject to the
provisions of Title I of ERISA, including governmental and foreign employee
benefit plans, (2) any plan described in Section 4975(e)(1) of the Internal
Revenue Code and (3) any entity whose underlying assets include plan assets by
reason of a plan's investment in the entity.
Certain other exceptions from such treatment under the plan asset
regulations may apply to an entity in which a plan makes an equity investment.
Under one such exception, the assets of such an entity are not considered to be
plan assets where a plan makes an investment in an equity interest that is a
"publicly-offered security". A "publicly-offered security" is a security that is
(a) "freely transferable", (b) part of a class of securities that is "widely
held" and (c) part of a class of securities that is registered under Section 12
of the Exchange Act or 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 Securities and Exchange Commission) after the end of the fiscal year of the
issuer during which the offering of such securities to the public occurred.
Unless otherwise specified in the prospectus supplement, it is
anticipated that the Units will be publicly-offered securities and the assets of
the trust will not be considered to be assets of any plan investing in the Units
pursuant to the plan asset regulations.
If specified in the applicable prospectus supplement, Units may not be
purchased, held by or transferred to any person unless that person is not a
plan, is not a governmental or other plan subject to restrictions substantially
similar to Title I of ERISA or Section 4975 of the Internal Revenue Code, and is
not acquiring the Units with the assets of any such plan or other plan. The
related trust agreement will provide that any purported transfer in violation of
this restriction (referred to as the "no plan restriction") shall be void from
the beginning. If the no plan restriction applies, each person who acquires a
Unit, and each fiduciary which causes any such person to acquire any Unit, in
its individual as well as its fiduciary capacity, will be deemed by such
purchase, holding or acquisition, on each date on which the Unit is held by such
person, to have represented that it is not a plan or any governmental or other
plan subject to requirements substantially similar Title I of ERISA or Section
4975 of the Internal Revenue Code and is not using the assets of any such plan
to purchase that Unit. The related trust agreement will provide that each person
that acquires a Unit, and each fiduciary who causes a person to acquire a Unit,
in such fiduciary's individual capacity, agrees to indemnify and hold harmless
the depositor, the trustee, MS&Co. and their respective affiliates from any
cost, damages, loss or expense, incurred by them as a result of the
representations of that purchaser or fiduciary not being true.
However, if the applicable prospectus supplement specifies that the
"25% test" shall apply, Units will be issued only as definitive Units in
registered form and only after a definitive purchase agreement has been executed
and delivered. A definitive purchase agreement will also be required to be
obtained from any proposed transferee of a Unit to which the 25% test applies.
That agreement will contain additional representations regarding whether the
purchaser or proposed transferee is a benefit plan investor (within the meaning
of the plan asset regulations) or plan or is acquiring the Units with assets of
a benefit plan investor or plan. No such purchase or proposed transfer will be
permitted to the extent that it would cause the ownership of Units by benefit
plan investors to be "significant" within the meaning of the plan asset
regulations immediately after the purchase or proposed transfer, unless no Units
are held by plans. In addition, the depositor and the trustee will agree that,
after the initial distribution of a particular series of Units subject to the
25% test, if any Units are held by plans, neither they nor their affiliates will
acquire any Units of that series, unless that acquisition would not cause the
ownership by benefit plan investors immediately following the acquisition to be
"significant". The related trust agreement will provide that each person that
acquires a Unit, and each fiduciary who causes a person to acquire a Unit, in
such fiduciary's individual capacity, agrees to indemnify and hold harmless the
depositor, the trustee, MS&Co. and their respective affiliates from any cost,
damages, loss or expense, incurred by them as a result of the representations of
that purchaser or fiduciary not being true.
Alternatively, if the applicable prospectus supplement specifies that
the "prohibited transaction exemption restriction" shall apply, Units will be
issued in reliance on certain exemptions from the prohibited transaction
provisions of Section 406 of ERISA and Section 4975 of the Internal Revenue Code
which may be applicable, depending in part on the type of plan fiduciary making
the decision to acquire a Unit and the circumstances under which such decision
is made. Included among these exemptions are Prohibited Transaction Class
Exemption ("PTCE") 91-38 (relating to investments by bank collective investment
funds), PTCE 84-14 (relating to transactions effected by a "qualified
professional asset manager"), PTCE 90-1 (relating to investments by insurance
company pooled separate accounts), PTCE 95-60 (relating to investments by
insurance company general accounts) and PTCE 96-23 (relating to transactions
determined by in-house asset managers). There can be no assurance that any of
these class exemptions or any other exemption will be available with respect to
any particular transaction involving the Units. If the prohibited transaction
exemption restriction applies, by its purchase of any Unit, the purchaser will
be deemed to have represented and warranted that for so long as it holds the
Unit either that:
o It is not a plan, an entity whose underlying assets include
the assets of any such plan, or an governmental plan which
is subject to any federal, state or local law that is
substantially similar to the provisions of Section 406 of
ERISA or Section 4975 of the Internal Revenue Code, or
o Its purchase, holding and disposition of a Unit will not
result in a prohibited transaction under Section 406 of
ERISA or Section 4975 of the Internal Revenue Code (or, in
the case of a governmental plan, any substantially similar
federal, state or local law) unless an exemption is
available (all of the conditions of which have been
satisfied) or in any other violations of an applicable
requirement of ERISA, the Internal Revenue Code or other
law.
The related trust agreement will provide that each person that acquires
a Unit, and each fiduciary who causes a person to acquire a Unit, in such
fiduciary's individual capacity, agrees to indemnify and hold harmless the
depositor, the trustee, MS&Co. and their respective affiliates from any cost,
damages, loss or expense, incurred by them as a result of the representations of
that purchaser or fiduciary not being true.
The applicable prospectus supplement may also specify a treatment with
respect to ERISA and plan investors different from any of the foregoing.
The underlying security issuance agreement may also contain
considerations under ERISA and the Internal Revenue Code in connection with
purchases of the underlying securities that a plan proposing to invest in the
Units should note.
Each plan fiduciary who is responsible for making the investment
decisions whether to purchase or commit to purchase and to hold Units should
determine whether, under the general fiduciary standards of investment prudence
and diversification and under the documents and instruments governing the plan,
an investment in the Units is appropriate for the plan, taking into account the
overall investment policy of the plan and the composition of the plan's
investment portfolio. Any plan proposing to invest in Units should consult with
its counsel to confirm that such an investment will not result in a prohibited
transaction and will satisfy the other requirements of ERISA and the Internal
Revenue Code.
THE SALE OF ANY UNITS TO A PLAN OR A GOVERNMENTAL OR OTHER PLAN IS IN
NO RESPECT A REPRESENTATION BY THE TRUST OR MS&CO. THAT SUCH AN INVESTMENT MEETS
ALL RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY PLANS GENERALLY,
ANY PARTICULAR PLAN OR ANY SUCH OTHER PLAN, OR THAT SUCH AN INVESTMENT IS
APPROPRIATE FOR PLANS GENERALLY, ANY PARTICULAR PLAN OR ANY SUCH OTHER PLAN.
Plan of Distribution
The Units may be offered and sold to or through MS&Co. as underwriter,
dealer or agent, or through one or more other underwriters, dealers or agents,
or directly to purchasers. The applicable prospectus supplement will describe
the terms of the offering of any series of Units, which may include the names of
any underwriters or initial purchasers, the purchase price of the Units and the
proceeds to the depositor from that 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 the Units may be listed, and the place and time of
delivery of the Units offered by that prospectus supplement.
If underwriters are used in a sale of Units, the Units will be acquired
by the underwriters for their own account and may be resold from time to time in
one or more transactions, including negotiated transactions, at fixed public
offering prices or at varying prices to be determined at the time of sale or at
the time of commitment. Such Units 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 MS&Co., an affiliate of the depositor. Unless otherwise
described in the applicable prospectus supplement, the obligations of the
underwriters to purchase Units will be subject to specified conditions
precedent, and the underwriters will be obligated to purchase all Units of a
particular series, if any such Units are purchased. The initial public offering
price for particular Units and any discounts or concessions allowed or reallowed
or paid to dealers may be changed from time to time.
In order to facilitate the offering of the Units, the certain
underwriters and selling group members and their respective affiliates may
engage in transactions that stabilize, maintain or otherwise affect the price of
the Units or any other securities the prices of which may be used to determine
payments on the Units. Specifically, the underwriters may sell more Units than
they are obligated to purchase in connection with the offering, creating a short
position for their own accounts. A short sale is covered if the short position
is no greater than the number or amount of securities available for purchase by
the agents under any overallotment option. The underwriters can close out a
covered short sale by exercising the overallotment option or purchasing the
Units in the open market. In determining the source of securities to close out a
covered short sale, the agents will consider, among other things, the open
market price of the Units compared to the price available under the
overallotment option. The underwriters may also sell Units or any other
securities in excess of the overallotment option, creating a naked short
position. The underwriters must close out any naked short position by purchasing
Units in the open market. A naked short position is more likely to be created if
the underwriters are concerned that there may be downward pressure on the price
of the Units in the open market after pricing that could adversely affect
investors who purchase in the offering. As an additional means of facilitating
the offering, the underwriters may bid for, and purchase, Units or any other
securities in the open market to stabilize the price of the Units or of any
other securities. Finally, in any offering of Units through a syndicate of
underwriters, the underwriting syndicate may also reclaim selling concessions
allowed to an underwriter or a dealer for distributing the Units in the
offering, if the syndicate repurchases previously distributed Units to cover
syndicate short positions or to stabilize the price of Units. Any of these
activities may raise or maintain the market price of the Units above independent
market levels or prevent or retard a decline in the market price of these
securities. The agents are not required to engage in these activities, and may
end any of these activities at any time.
Units may also be sold through agents designated by the depositor from
time to time. Any agent involved in the offer or sale of Units will be named,
and any commissions payable by the depositor to that agent will be described, in
the applicable prospectus supplement. Any such agent will act on a best efforts
basis for the period of its appointment or be subject to another standard
described in the prospectus supplement.
If specified in the applicable prospectus supplement, the depositor
will authorize agents, underwriters or dealers to solicit offers by specified
institutions to purchase Units at the public offering price described in the
prospectus supplement pursuant to delayed delivery contracts providing for
payment and delivery on a future date specified in the prospectus supplement.
Such contracts will be subject only to the conditions described in the
prospectus supplement and the prospectus supplement will specify the commissions
payable for solicitation of such contracts.
Sales of certain series of Units may be restricted to "qualified
institutional buyers" or "QIBs" as defined in Rule 144A under the Securities
Act, in which case each underwriter will be required to exercise reasonable care
to ensure that such Units are sold and will be resold to QIBs. The prospectus
supplement relating to such Units may provide that a purchaser of the Units is
deemed to represent for the benefit of the depositor, the trust and the
underwriters that such purchaser is qualified as a QIB.
Any underwriters, dealers or agents participating in the distribution
of Units may be deemed to be underwriters and any discounts or commissions
received by them on the sale or resale of Units 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 may be required to make in respect of any such liabilities.
Agents and underwriters may be customers of, engage in transactions with, or
perform services for, the depositor or its affiliates in the ordinary course of
their businesses.
If specified in the applicable prospectus supplement, underlying
securities may be deposited into the related trust in connection with a
distribution of those underlying securities by one or more affiliates of the
depositor pursuant to a registration statement under the Securities Act.
As to each series of Units, only those classes rated in one of the
investment grade rating categories by a rating agency will be offered hereby.
Any unrated classes or classes rated below investment grade may be retained by
the depositor or sold at any time to one or more purchasers.
The depositor and MS&Co. may be indemnified by the trust for certain
expenses or liabilities incurred in connection with the offer and sale of the
Units.
From time to time, MS&Co. or one of its affiliates may be engaged by
underlying security issuers as an underwriter or placement agent, in an advisory
capacity or in other business arrangements. In addition, MS&Co. or its
affiliates may make a market in securities of any underlying security issuer,
including underlying securities that may constitute part of the trust property
of a particular trust. Each Unitholder will be deemed to have acknowledged and
agreed that MS&Co. or its affiliates may engage in any kind of business with, or
have an investment in, any underlying security issuer or related persons, and in
that connection, may obtain or be in possession of non-public information
regarding particular underlying securities or related persons which may not be
made available to Unitholders.
Affiliates of other underwriters may also act as agents or underwriters
in connection with the sale of the Units. Any such affiliate will be named, and
its affiliation with the underwriters described, in the applicable prospectus
supplement. Also, MS&Co., affiliates of the underwriters may act as principals
or agents in connection with market-making transactions relating to the Units.
Neither MS&Co, nor its affiliates is obligated to do so, however, and the agents
may discontinue making a market at any time without notice. The underwriters,
their affiliates or agents may use this prospectus in connection with any of
those transactions. No assurance can be given as to the liquidity of any trading
market for the Units.
Validity of Units
Cleary, Gottlieb, Steen & Hamilton, Washington, D.C., or other counsel
identified in the applicable prospectus supplement will pass upon certain legal
matters relating to the offering of the of the Units, including the validity of
the Units.
INDEX OF DEFINED TERMS
25% test.......................................................80
benefit plan investor..........................................79
business day...................................................47
calculation date...............................................52
callable series................................................56
CD rate........................................................53
Clearstream....................................................59
commercial paper rate..........................................51
commercial paper rate determination rate.......................51
composite quotations...........................................49
concentrated underlying security...............................19
corporate debt.................................................27
depositaries...................................................59
depositor optional exchange....................................57
direct participants............................................61
disqualification event.........................................19
disqualified credit support....................................20
disqualified swap transaction..................................20
disqualified underlying security...............................19
DOL............................................................79
DTC............................................................59
early termination date.........................................40
eligible underlying securities.................................29
eligible underlying security issuer............................29
ERISA..........................................................78
Euroclear......................................................59
excess expense event...........................................22
Exchange Act...................................................11
exchangeable series............................................56
extraordinary trust expenses...................................26
FASIT..........................................................65
federal funds rate.............................................53
GTC Notes......................................................27
indexed commodity..............................................55
indexed currency...............................................55
index-linked Units.............................................55
indirect participants..........................................62
integration regulations........................................75
ISDA...........................................................36
ISDA Definitions...............................................36
ISDA Master Agreement..........................................36
LIBOR determination date.......................................50
LIBOR Reuters..................................................50
LIBOR Telerate.................................................50
liquidation event..............................................20
money market yield.............................................51
no plan restriction............................................79
notional amount................................................47
parties in interest............................................78
plan asset regulations.........................................79
plans..........................................................78
prohibited transaction exemption restriction...................80
PTCE...........................................................80
qualified professional asset manager...........................80
repo counterparty..............................................42
Reuters LIBO page..............................................50
Rule 3a-7......................................................45
SEC............................................................11
spread.........................................................48
spread multiplier..............................................48
stock index....................................................55
swap premium...................................................66
Telerate page 3750.............................................50
Treasury rate..................................................52
trust wind-up event............................................22
underlying security default....................................21
underlying security disclosure document........................29
underlying security issuance agreement.........................31
underlying security registration statement.....................30
United States real property interest...........................78