The information in this prospectus supplement and the accompanying prospectus is
not complete and may be changed. This prospectus supplement and the accompanying
prospectus are not an offer to sell these securities and are not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
Subject to Completion
Preliminary Prospectus Supplement dated October 14, 2003
PROSPECTUS SUPPLEMENT Filed pursuant to Rule 424(b)(2)
(To Prospectus dated October 24, 2002) Registration No. 333-88166
Merrill Lynch Depositor, Inc.
Depositor
INDEXPLUS TRUST CERTIFICATES
($ STATED AMOUNT)
INDEXPLUS TRUST SERIES 2003-1
(Underlying securities will consist of the portfolio of debt securities
listed on page S-2 of this prospectus supplement.)
Underwriting Discount Number of Certificates(1) Initial Distribution Rate Price to Public
--------------------- ---------------------- ------------------------- ---------------
% $25.00
(1) After the original issue date, the trust may, without the consent of trust
certificateholders, issue additional trust certificates for the acquisition
of additional securities identical to the underlying securities originally
deposited with the trust (unless any of such underlying securities has
matured or has been distributed to trust certificateholders after the
original issue date as a result of a removal event), provided that all
trust certificates will be fungible whenever issued.
--------------------
The Trust
o INDEXPLUS Trust Series 2003-1 will be a trust formed under the laws of the
State of New York.
o The trust will issue INDEXPLUS Trust Certificates Series 2003-1
(representing undivided beneficial interests in the trust) to Merrill Lynch
Depositor, Inc., the depositor. The depositor has agreed to sell the trust
certificates to Merrill Lynch, Pierce, Fenner & Smith Incorporated, the
underwriter.
o The underwriter proposes to offer the trust certificates at the offering
price set forth above and will initially offer the trust certificates in
minimum lots of 40 trust certificates and subsequent increments of 40 trust
certificates.
The Trust Certificates
o The trust certificates represent a proportionate, undivided beneficial
interest in the assets of the trust, consisting principally of the
underlying securities described in this prospectus supplement.
o Although the trust intends to apply to have the trust certificates listed
on the New York Stock Exchange, the trust certificates currently have no
trading market and are not insured or guaranteed by any governmental
agency.
o Distributions of interest payments received by the trust to holders of the
trust certificates are expected to be made at an initial pass-through rate
of % per annum, except for the first distribution of interest which will
be made at a pass-through rate of % per annum. Pass-through rates on the
trust certificates are subject to adjustment as described herein.
The Underlying Securities
o The underlying securities, which the depositor will deposit into the trust
for your benefit, will be the principal assets of the trust and will
consist of the underlying securities described in this prospectus
supplement on page S-20.
--------------------
Investing in the trust certificates involves certain risks, which are
described in the "Risk Factors" sections beginning on page S-10 of this
prospectus supplement and on page 6 of the accompanying prospectus.
The trust certificates represent interests in the trust only and do not
represent obligations of or interests in the depositor or any of its affiliates.
The trust certificates do not represent direct obligations of any of the
underlying securities issuers or any of their affiliates.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus to which it relates is
truthful or complete. Any representation to the contrary is a criminal offense.
The trust certificates will be ready for delivery in book-entry form
only through The Depository Trust Company on or about , 2003.
--------------------
Merrill Lynch & Co.
--------------------
The date of this prospectus supplement is , 2003
TABLE OF CONTENTS
Prospectus Supplement
Page
----
Summary of Economic Terms....................................................S-1
Summary Information Q&A......................................................S-5
Risk Factors................................................................S-10
The Trust...................................................................S-14
Description of the Trust Certificates.......................................S-14
The Underlying Securities...................................................S-20
The Depositor...............................................................S-27
Description of the Trust Agreement..........................................S-27
United States Federal Income Tax Consequences...............................S-33
ERISA Considerations........................................................S-37
Underwriting................................................................S-38
Validity of the Trust Certificates..........................................S-38
Ratings.....................................................................S-38
Prospectus
Summary Information Q&A........................................................3
Risk Factors...................................................................6
Incorporation of Certain Documents by Reference...............................13
Reports to Certificateholders.................................................15
The Depositor.................................................................16
Use of Proceeds...............................................................16
Establishment of the Trust....................................................17
Maturity and Yield Considerations.............................................18
Description of the Trust Certificates.........................................19
Description of the Trust Agreement............................................32
Description of Underlying Securities and
Other Assets Deposited in the Trust.........................................44
Currency Risks................................................................53
United States Federal Income Tax Consequences.................................53
ERISA Considerations..........................................................58
Underwriting..................................................................61
Legal Matters.................................................................62
--------------------
You should rely only on the information contained in this prospectus
supplement and the accompanying prospectus. The depositor has not, and the
underwriter has not, authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent information,
you should not rely on it. The depositor is not, and the underwriter is not,
making an offer to sell these securities in any jurisdiction where the offer or
sale is not permitted. You should not assume that the information appearing in
this prospectus supplement and the accompanying prospectus is accurate as of any
date other than the respective dates of such documents. Our business, financial
condition, results of operations and prospects may have changed since such
dates.
This prospectus supplement relates only to the trust certificates
offered hereby and does not relate to any of the underlying securities or the
underlying securities issuers. All disclosure contained in this prospectus
supplement with respect to the underlying securities and the underlying
securities issuers is derived from publicly available documents. You should
obtain and evaluate the same information concerning each of the underlying
securities and the underlying securities issuers as you would obtain and
evaluate if you were investing directly in that underlying security or in other
securities issued by that underlying securities issuer. None of the depositor,
the trustee, the underwriter or any of their affiliates assumes any
responsibility for the accuracy or completeness of any publicly available
information of any underlying securities issuer that is filed with the SEC or
otherwise made available to or considered by you in making your investment
decision regarding the trust certificates.
i
SUMMARY OF ECONOMIC TERMS
This summary highlights the principal economic terms of the underlying
securities and of the trust certificates being issued by the trust. It does not
contain all of the information that you need to consider in making your
investment decision. To understand all of the terms of the offering of the trust
certificates, you should carefully read this prospectus supplement and the
accompanying prospectus.
The Trust Certificates
The trust...................................INDEXPLUS Trust Series 2003-1,
formed by Merrill Lynch Depositor,
Inc., as depositor, and The Bank of
New York, as trustee.
Securities offered..........................INDEXPLUS Trust Certificates Series
2003-1
Aggregate stated amount.....................
Denominations; specified currency...........The trust certificates will
initially each have a stated amount
of $25.00, representing a
proportionate, undivided beneficial
interest in each of the underlying
securities comprising the trust's
portfolio. The underwriter will
initially offer the trust
certificates in minimum lots of 40
and subsequent increments of 40. The
trust certificates will be
denominated and payable in U.S.
dollars.
Initial number of trust certificates........
Final scheduled distribution date...........
Distribution dates..........................June 20 and December 20 and the
maturity date of each underlying
security, or if any such date is not
a business day, then the next
succeeding business day, to the
person in whose names the trust
certificates are registered on the
record date immediately preceding
such distribution date, commencing
on , 2003. Any interest received
by the trust on the underlying
securities prior to a distribution
date will be deposited by the
trustee in a non-interest bearing
account with The Bank of New York
and will be distributed to holders
on the next distribution date.
Pass-through rate...........................Initially, % per year, subject
to adjustment in the event that (i)
principal payments are made by any
underlying securities issuer on its
underlying securities, (ii)
underlying securities are redeemed
or sold from the trust, or (iii) a
removal event occurs. See
"Description of the
Certificates--Distributions and
Collections" and "--Adjustment of
Pass-Through Rate."
Distributions of principal..................You will have the right to receive
as a distribution of principal, in
reduction of your certificate
principal balance, a pro rata
distribution of any principal or
maturity amounts received by the
trustee on the underlying securities
on the date of receipt (or if the
trustee receives such amounts after
10:00 A.M. (New York city time) on
that date, the next business day) of
such principal or maturity amounts
by the trustee, and such date shall
be a "Principal Distribution Date."
Absent an early redemption of or the
occurrence of a removal event with
respect to an underlying security,
it is expected that you will receive
your pro rata portion of the
following principal or maturity
amounts on the underlying securities
on the Principal Distribution Dates
set forth in the
S-1
payment schedule on page S-23.
Certain of the underlying securities
are subject to early redemption by
their respective underlying
securities issuers in accordance
with the terms of the related
underlying securities indentures. If
any of the underlying securities are
redeemed in whole or in part prior
to their maturity, you will receive
your pro rata amount of any
redemption proceeds as soon as
practicable after such proceeds are
received by the trustee and not on
the applicable expected principal
distribution date. See "Underlying
Securities" for a description of the
redemption provisions of the
underlying securities, if any. The
maturity, redemption or any other
payment of the principal amount of
an underlying security or a removal
event will result in an adjustment
to the pass-through rate. See
"--Adjustment of the Pass-Through
Rate."
Certificate principal balance...............Initially, $ in aggregate which
is the maximum amount that trust
certificateholders are entitled to
receive as distributions allocable
to principal or maturity payments on
the underlying securities. On any
date after the closing date, the
certificate principal balance will
be equal to the initial certificate
principal balance less the aggregate
amount of any reductions in the
aggregate principal or maturity
amount of the underlying securities
held by the trust on or prior to
that date. For purposes of
calculating the certificate
principal balance, the principal
amount of any underlying security
with respect to which a removal
event has occurred shall be deemed
to be zero. The certificate
principal balance will be made
available in reports sent to trust
certificateholders upon any
reduction thereof. The certificate
principal balance for any individual
trust certificate will be the pro
rata portion of the outstanding
certificate principal balance
represented by such trust
certificate and will initially be
$25.
Deposited assets............................$ 6 1/8% Notes due 2033 issued by
The Boeing Company (Registration
No. 333-99509)
$ 5.875% Subordinated Notes due 2033
issued by Citigroup Inc.
(Registration No. 333-102206)
$ 7 1/8% Notes due 2032 issued by
Credit Suisse First Boston (USA),
Inc. (Reg. No. 333-86720)
$ 8.50% Notes due 2031 issued by
DaimlerChrysler North America
Holding Corporation and
unconditionally guaranteed by
DaimlerChrysler AG (Registration
No. 333-13160)
$ 7.45% GlobLSTM due 2031 issued by
Ford Motor Company (Registration
No. 333-86035)
$ 6.75% Global Medium Term Notes
Series A due 2032 issued by
General Electric Capital
Corporation (Registration
No. 333-66560)
$ 8% Notes due 2031 issued by
General Motors Acceptance
Corporation (Reg. No. 333-58446)
$ 6.125% Notes due 2033 issued by
The Goldman Sachs Group Inc.
(Registration No. 333-63082)
$ 4.95% Debentures due 2033 issued
by Johnson & Johnson (Registration
No. 333-104821)
$ 6.90% Debentures due 2032 issued
by The May Department Stores
Company, a New York corporation,
and unconditionally guaranteed by
The May Department Stores Company,
a Delaware corporation
(Registration No. 333-42940)
$ 6 5/8% Debentures due 2029 issued
by Time Warner Inc. and
unconditionally guaranteed by Time
Warner Companies, Inc. and
S-2
Turner Broadcasting System, Inc.
(Registration No. 333-61207)
$ 7 1/2% Notes due 2032 issued by
Valero Energy Corporation
(Registration No. 333-84820)
$ 7.75% Notes due 2032 issued by
Verizon Global Funding and
supported as to payment of
principal and interest by Verizon
Communications Inc. (Registration
No. 333-73612)
$ 5.50% Senior Debentures due 2033
issued by Viacom Inc. and
uncondionally guaranteed as to
payment of principal and interest
by Viacom International Inc.
(Registration Nos. 333-62052 and
333-52729)
$ 7.375% Debentures due 2032 issued
by Weyerheuser Company
(Registration No. 333-86232)
$ Zero-coupon principal Treasury
STRIPS due 2030 issued by the
United States Department of the
Treasury (CUSIP 912803CH4)
Removal of underlying securities............If (i) any issuer of underlying
securities representing 10% or more
of the aggregate principal and
maturity amount of all underlying
securities held by the trust ceases
to file periodic reports with the
Securities and Exchange Commission
under the Exchange Act or (ii) a
Credit Event occurs with respect to
such underlying security or its
underlying securities issuer, then a
"Removal Event" with respect to such
underlying security shall have
occurred. Within two business days
following the trustee's actual
knowledge or the receipt of written
notice from the Depositor or the
applicable underlying security
indenture trustee that a removal
event has occurred, the trustee on
behalf of the trust will instruct
the market agent to sell the
applicable underlying securities.
The net proceeds from the sale of an
underlying security will be
distributed to the holders of the
certificates on a pro rata basis.
See "Description of the Trust
Certificates--Removal of Underlying
Securities" and "--Sale Procedures."
Credit event................................The occurrence of any of the
following: (i) a payment default
with respect to an underlying
security has occurred, (ii) the
initiation by an underlying
securities issuer of any proceeding
seeking a judgment of insolvency or
bankruptcy or seeking relief under
bankruptcy or insolvency laws or
similar laws affecting creditor's
rights, (iii) the passage of thirty
calendar days since the day upon
which any person or entity other
than an underlying securities 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 proceedings have not
been dismissed prior to such
thirtieth day, (iv) the maturity
date of an underlying security has
been extended, and (v) the interest
rate on any underlying security has
been reduced.
Original issue date; closing date........... , 2003.
Cut-off date................................ , 2003.
Collection periods..........................Semi-annual periods (or, in the case
of the first collection period, from
and including the cut-off date to,
and excluding, the first
distribution date). Any income to
the trust, including interest
payments on underlying securities,
collected during a collection period
will be used to pay the trust's
obligations to the
certificateholders, the trustee and
others as set out in the Series
Supplement. See "Description of the
Trust Certificates--Collections and
Distributions"
S-3
Payment default.............................A default by an underlying
securities issuer in the payment of
any amount due on the applicable
underlying securities after the same
becomes due and payable, after the
expiration of any applicable grace
period on such underlying securities
or an acceleration of the maturity
of the underlying securities
pursuant to the terms of the
underlying securities or the
instruments governing the underlying
securities and the failure to pay
100% of the accelerated amount on
the date of accelerated maturity.
Record dates................................The business day immediately
preceding each distribution date.
Form of trust certificate...................Book-entry certificates with The
Depository Trust Company, or DTC.
See "Description of the Trust
Certificates" on page S-14.
Distributions will be settled in
immediately available (same-day)
funds. Holders of trust certificates
will not be entitled to receive a
definitive note except in the event
that definitive certificates are
issued under the limited
circumstances described herein. See
"Description of the Trust
Certificates--Definitive Trust
Certificates."
Trustee.....................................The Bank of New York, as successor
to United States Trust Company of
New York.
Calculation agent, Market agent.............Merrill Lynch & Co.
Expenses....................................All ordinary trust expenses incurred
in connection with the
administration of the trust,
including the annual fees of the
trustee, will be paid by the
depositor. Extraordinary expenses
that are approved by all of the
trust certificateholders will be
paid by the trust from amounts
otherwise available for distribution
to holders of trust certificates.
See "Description of the Trust
Certificates--Collections and
Distributions."
United States federal income tax
consequences................................For United.States federal income tax
purposes, the trust will be
classified as a grantor trust, and
not as an association (or publicly
traded partnership) taxable as a
corporation. As such, trust
certificateholders will be subject
to United States federal income tax
as if such certificateholders
directly owned a proportionate share
of the underlying securities, and
directly paid or incurred a
proportionate share of the
reasonable fees and other expenses
of the trust. Some of the underlying
securities each trust
certificateholder will be deemed to
own directly are principal Treasury
STRIPS, which will have original
issue discount ("OID"). Accordingly,
United States trust
certificateholders will be required
to include accrued OID in respect of
these principal Treasury STRIPS in
their gross income prior to their
receipt of payments on such STRIPS.
See "United States Federal Income
Tax Consequences."
Ratings....................................." " by Standard & Poor's
Ratings Services, a division of The
McGraw-Hill Companies, Inc., and
" " by Moody's Investors Service,
Inc. See "Ratings" on page S-38.
CUSIP number................................
S-4
SUMMARY INFORMATION Q&A
The following information should be read together with the information
contained in other parts of this prospectus supplement and in the accompanying
prospectus. This summary highlights selected information from this prospectus
supplement and the accompanying prospectus to help you understand the trust
certificates. You should carefully read this prospectus supplement and the
accompanying prospectus to understand fully the terms of the trust certificates,
as well as the tax and other considerations that are important to you in making
a decision about whether to invest in the trust certificates. You should pay
special attention to the "Risk Factors" sections beginning on page S-10 of this
prospectus supplement and on page 6 of the accompanying prospectus to determine
whether an investment in the trust certificates is appropriate for you.
For your convenience, we make reference to specific page numbers in
this prospectus supplement and the accompanying prospectus for more detailed
information on some of the terms and concepts used throughout this prospectus
supplement.
What Are the Trust Certificates?
Each trust certificate represents a proportionate, undivided beneficial
interest in certain assets held by the trust. The underwriter is offering
INDEXPLUS Trust Certificates Series 2003-1 with a stated amount of $25.00 per
trust certificate. The trust certificates will be issued pursuant to the
Standard Terms for Trust Agreements, dated as of February 20, 1998, between
Merrill Lynch Depositor, Inc. and The Bank of New York, as successor to United
States Trust Company of New York, as trustee and securities intermediary, as
amended and supplemented by the INDEXPLUS Series 2003-1 Supplement, between
Merrill Lynch Depositor, Inc., as depositor, the trustee and securities
intermediary, to be dated the date set forth in this prospectus supplement
(collectively, the "trust agreement"). The trust certificates will consist of a
single class. All payments on the trust certificates will come from the
underlying securities.
Who Is the Trust?
INDEXPLUS Trust Series 2003-1will be a trust formed under the laws of
the State of New York. The trust certificates issued by the trust will be sold
to the public. The trust will be formed pursuant to the trust agreement
described above. The Bank of New York is the trustee under the trust agreement
and will receive compensation as set forth in an agreement between the depositor
and the trustee.
Who Is the Depositor?
Merrill Lynch Depositor, Inc., incorporated in the State of Delaware as
an indirect, wholly owned, limited purpose subsidiary of Merrill Lynch & Co., is
the depositor and will deposit the underlying securities into the trust. See
"The Depositor" on page 16 of the accompanying prospectus. The depositor is an
affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, the underwriter
of this offering.
What Are the Important Dates to Remember?
Delivery of the trust certificates will be made on the closing date, as
set forth in this prospectus supplement. This prospectus supplement describes
the underlying securities expected to be held by the trust as of the cut-off
date, as set forth in this prospectus supplement.
What Are the Trust's Assets?
The assets of the trust will be the underlying securities consisting
initially of $ in aggregate principal amount of the underlying securities
described on page S-20 of this prospectus supplement. The underlying securities
have different maturity dates, the earliest of which is May 15, 2029 and the
latest of which is May 15, 2033. The principal amount of each underlying
security is expected to be paid to the trust on its maturity date. The maturity
dates for each of the underlying securities, including the corresponding changes
to the rate of distribution
S-5
on the trust certificates are set out under the heading "The Underlying
Securities" on page S-20 of this prospectus supplement.
Either prior to the closing date or the offering date of the trust
certificates or from time to time, the trust may, without the consent of trust
certificateholders, deposit, proportionally, an additional amount of each
underlying security in the trust at the time of that deposit and cause the trust
to issue a corresponding amount of trust certificates, provided that all trust
certificates issued by the trust will be fungible.
When Will You Receive Distributions?
If you purchase the trust certificates, you will be entitled to receive
cash distributions, initially at an annual rate of % of the stated amount of $25
per trust certificate (except for the distribution on December 20, 2003 which
will be made at an annual pass-through rate of %). The distribution rate
assumes that none of the underlying securities are redeemed, accelerated or
otherwise paid or removed from the trust prior to their final maturity date and
none of the underlying securities issuers default on their payment obligations.
Distributions of interest will accumulate from the date the trust issues the
trust certificates and will be paid semiannually in arrears on June 20 and
December 20 of each year, beginning on December 20, 2003 and ending on May 15,
2033, and on the maturity date of each underlying securities unless the final
scheduled distribution date is advanced for any reason. Each semiannual
distribution on the trust certificates represents a portion of the interest
accrued and previously unpaid on the underlying securities, with respect to the
distribution on December 20, 2003, at the time of their deposit into the trust
and from and including the cut-off date or the previous distribution date, as
applicable, to, but not including, each distribution date which is paid to the
trust in accordance with the terms of the underlying securities. Such interest
is paid to the trust in accordance with the terms of the underlying securities.
Any interest received by the trust on the underlying securities prior to a
distribution date will be deposited by the trustee in a non-interest bearing
account with the trustee.
When Can the Trust Redeem the Trust Certificates?
The trustee will redeem all outstanding trust certificates on the final
scheduled distribution date or, if earlier, upon termination of the trust. The
trust will terminate prior to the final scheduled distribution date (1) if the
last remaining underlying security held by the trust matures or is sold and the
proceeds of such sale are distributed to trust certificateholders, or if all
outstanding trust certificates are exchanged pursuant to one or more optional
exchanges or otherwise, and (2) all amounts received in respect of the maturity
or sale of such last remaining underlying security, and all other underlying
securities that previously matured or were sold, are distributed to trust
certificateholders, prior to that date. See "Description of the Trust
Agreement--Termination of the Trust" on page S-29 of this prospectus supplement.
What Happens If There Is a Payment Default on the Underlying Securities?
If there is a payment default on any of the underlying securities, a
removal event will have occurred and the trustee will retain a market agent who
will sell the defaulted underlying security on or after the 30th day after
receipt of notice of the default in accordance with the sale procedures
described on page S-18 and distribute the proceeds from such sale to the trust
certificateholders pro rata. If there is an acceleration of the maturity of any
of the underlying securities and the related underlying security is declared to
be immediately due and payable and the underlying securities issuer (1) pays all
amounts when due, then the trustee will distribute such amounts to the trust
certificateholders pro rata, the assets of the trust will be reduced by the
principal amount of the underlying securities so repaid and the pass-through
rate on the trust certificates will be adjusted to reflect the change in the
portfolio of the underlying securities, or (2) fails to pay such amount when due
or pays only a portion of such amount when due, then a removal event will have
occured. For more information see "Description of the Trust
Certificates--Removal of Underlying Securities" on page S-17 of this prospectus
supplement.
S-6
What Happens If Any of the underlying securities Are Redeemed?
If any one of the underlying securities is redeemed by the relevant
underlying securities issuer, then the trustee will:
o remove the underlying securities subject to redemption from the
assets of the trust;
o receive the redemption proceeds from the underlying securities
issuer; and
o distribute such redemption proceeds, pro rata, to trust
certificateholders as soon as practicable after receiving such
redemption proceeds,
and the assets of the trust will be reduced by the principal amount of
underlying securities redeemed. In addition, the pass-through rate on the trust
certificates will be adjusted to reflect the change in the portfolio of
underlying securities. Upon receipt by the trustee of a notice that all or a
portion of any of the underlying securities are to be redeemed, the trustee
shall deliver notice of such redemption to the registered trust
certificateholders not less than fifteen (15) days prior to the redemption date
of such redeemable securities by mail to each registered trust certificateholder
at such registered trust certificateholder's last address on the register
maintained by the trustee; provided, however, that the trustee shall not be
required to give any notice of redemption prior to the third business day after
the date it receives notice of such redemption. The trustee will distribute any
redemption proceeds it receives from underlying securities issuers pro rata to
trust certificateholders.
In What Form Will the Trust Certificates Be Issued?
Except in limited circumstances, the trust certificates will be
represented by one or more global securities that will be deposited with and
registered in the name of DTC or its nominee. This means that you will not
receive a physical certificate representing your trust certificates. The trust
certificates will be ready for delivery through DTC on or about the date set
forth in this prospectus supplement. The trust certificates will have the CUSIP
number set forth in this prospectus supplement.
What Are the United States Federal Income Tax Consequences of Investing in the
Trust Certificates?
The trust will be classified for United States federal income tax
purposes as a grantor trust and not as an association (or publicly traded
partnership) taxable as a corporation. As such, for United States federal income
tax purposes, the trust certificateholders will be treated as directly owning
each of the underlying securities held by the trust. Each trust
certificateholder will be required to report on its United States federal income
tax return its pro rata share of the income from each of the underlying
securities. In this regard, some of the underlying securities each trust
certificateholder will be deemed to own directly are principal Treasury STRIPS,
which will have original issue discount ("OID"). Accordingly, United States
trust certificateholders will be required to include accrued OID in respect of
these principal Treasury STRIPS in their gross income prior to their receipt of
payments on such STRIPS. See "United States Federal Income Tax Consequences" on
page S-33.
Will the Trust Certificates Be Listed on a Stock Exchange?
The trust intends to apply to have the trust certificates listed on the
New York Stock Exchange, or the NYSE, under the symbol " ." If approved for
listing, trading of the trust certificates is expected to commence within 30
days after they are first issued. You should be aware that the listing of the
trust certificates will not necessarily ensure that a liquid trading market will
be available for the trust certificates.
Will the Trust Certificates Be Rated?
It is a condition to the issuance of the trust certificates that the
trust certificates have a rating assigned by Moody's Investors Service, Inc. or
by Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc., or any other nationally recognized statistical rating organization (each,
a "rating agency" and
S-7
collectively, the "rating agencies") on the original issue date in one of the
four highest categories assigned to long-term debt.
The rating of the trust certificates by Moody's only addresses the
ultimate receipt of interest and principal on the underlying securities in the
trust in accordance with the governing documentation, and is substantially based
on the average credit quality of such underlying securities. The Moody's rating
of the certificates will reflect the composition of the trust's pool of
remaining underlying securities following any removal from the trust of
underlying securities pursuant to the governing documentation, and accordingly,
the rating of the certificates can be expected to change with the credit quality
of such remaining underlying securities. The rating of the certificates does not
address losses that an investor may experience if distributed underlying
securities are sold by the trust prior to their maturity. Any future ratings
assigned by Moody's following the removal of an underlying security will address
the ultimate receipt of interest and principal on the then prevailing
outstanding principal amount and coupons thereof. The rating by S&P of the trust
certificates addresses the likelihood of timely payment of distribution on the
trust certificates. We cannot assure you that any such rating will continue for
any period of time or that it will not be revised or withdrawn entirely by the
related rating agency if, in its judgment, circumstances (including, without
limitation, the rating of any of the underlying securities) so warrant. A
revision or withdrawal of such rating may have an adverse effect on the market
price of the trust certificates. A security rating is not a recommendation to
buy, sell or hold securities. The rating on the trust certificates does not
constitute a statement regarding the occurrence or frequency of redemption of
the underlying securities and the corresponding effect on yield to investors.
Can an Employee Benefit Plan Purchase the Trust Certificates?
An employee benefit plan subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and an individual retirement account
(each, a "plan") are each permitted to purchase trust certificates. However,
each plan should take into consideration certain potential issues under ERISA
and, by purchasing a trust certificate, will be deemed to represent that the
purchase and holding of the trust certificate will not result in a non-exempt
prohibited transaction under ERISA.
Where Can You Find More Information About the Underlying Securities?
Each underlying securities issuer is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which means that it files periodic reports and other information with the
Securities and Exchange Commission. You can read and copy these reports and
other information at the public reference facilities maintained by the SEC at
Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549. You may obtain copies
of this material for a fee by writing to the SEC's Public Reference Section at
450 Fifth Street, NW, Washington, D.C. 20549. You may obtain information about
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
You can also access some of this information electronically by means of the
SEC's website on the Internet at http://www.sec.gov, which contains reports,
proxy and information statements and other information that the underlying
securities issuer has filed electronically with the SEC.
Each underlying securities issuer has filed with the SEC a registration
statement (each a "registration statement," which term, with respect to each
underlying securities issuer, shall include all supplements, amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act of 1933,
as amended with respect to each of the underlying securities. The prospectuses
relating to each of the underlying securities do not contain all the information
set forth in the applicable registration statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. For further
information with respect to any of the underlying securities and the related
underlying securities issuer, you should refer to the applicable registration
statement and its exhibits. Statements contained in this prospectus supplement
as to the contents of any contract or other document are not necessarily
complete, and in each instance reference is made to the copy of such contract or
document filed as an exhibit to the applicable registration statement, each such
statement being qualified in all respects by such reference.
You should not rely on this prospectus supplement for information with
respect to any of the underlying securities issuer. This prospectus supplement
sets forth certain relevant terms with respect to the underlying
S-8
securities, but does not provide detailed information with respect to any of the
underlying securities or any underlying securities issuer. This prospectus
supplement relates only to the trust certificates offered hereby and does not
relate to any of the underlying securities. All disclosure contained herein with
respect to each underlying securities issuer is derived from publicly available
documents.
No investigation with respect to any underlying securities issuer
(including, without limitation, any investigation as to its financial condition
or creditworthiness) or of any of the underlying securities has been made. You
should obtain and evaluate the same information concerning any underlying
securities issuer as you would obtain and evaluate if you were investing
directly in the underlying securities or in other securities issued by such
underlying securities issuer. None of the depositor, the trustee, the
underwriter, or any of their respective affiliates assumes any responsibility
for the accuracy or completeness of any publicly available information of the
underlying securities issuer filed with the SEC or otherwise made publicly
available or considered by you in making your investment decision in connection
therewith.
S-9
RISK FACTORS
Your investment in the trust certificates will involve certain risks.
You should carefully consider the following discussion of risks, and the other
information included or incorporated by reference in this prospectus supplement
and the accompanying prospectus, before deciding whether an investment in the
trust certificates is suitable for you.
If the trust certificates or any of the underlying securities are redeemed prior
to their maturity date, you may not be able to reinvest your redemption proceeds
at a yield comparable to the yield you would have received on your trust
certificates.
The yield you will realize on your trust certificates depends upon
several factors, including:
o the purchase price of the trust certificates,
o when you acquire your trust certificates,
o whether an underlying securities issuer exercises an option
to redeem underlying securities, and
o whether the Trust redeems the trust certificates prior to
the final scheduled distribution date.
The description of the underlying securities on page S-20 of this
prospectus supplement indicates which of the underlying securities can be
redeemed prior to maturity at the option of the associated underlying securities
issuer. Because the indicated underlying securities issuers have the right to
redeem the indicated underlying securities early, we cannot assure you that the
trust will be able to hold those underlying securities until their maturity
date. See "The Underlying Securities--Underlying Securities
Indentures--Redemption Provisions in the Underlying Securities Indentures" on
page S-24 of this prospectus supplement.
An inactive public market may limit your ability to sell your trust
certificates.
We cannot assure you that an active public market for the trust
certificates will develop or, if a public market develops, that you will be able
to sell your trust certificates. The underwriter has advised the depositor that
it intends to make a market in the trust certificates, as permitted by
applicable laws and regulations. Merrill Lynch & Co. is not obligated, however,
to make a market in any series of the trust certificates. At its sole
discretion, Merrill Lynch & Co. may discontinue its market-making activities at
any time without notice to you.
Under certain circumstances described under "Description of the Trust
Certificates--Removal of Underlying Securities," a portion of the underlying
securities held by the trust may be liquidated and the proceeds distributed to
you. We cannot assure you that an active public market for such securities will
exist at the time they are liquidated, or if a public market exists, that the
market agent will be able to sell such securities. If an active public market
for the trust certificates or any of the underlying securities does not exist or
continue, the market prices and liquidity of the trust certificates or the
underlying securities may be adversely affected. We will apply for listing of
the trust certificates on the NYSE, but we cannot assure you that approval for
such listing will be granted or that such listing will result in an active
trading market for the trust certificates.
You may not be paid if the assets of the trust are insufficient.
Distributions on the trust certificates will be made only from
available assets of the trust. The trust will have no significant assets other
than the portfolio of underlying securities. The trust certificates are not
obligations of and do not represent any interests in the underwriter, the
depositor, the trustee, the market agent, the calculation agent or any of their
affiliates. None of the underwriter, the depositor, the trustee, the market
agent, the calculation agent or any other person or entity will be obligated to
make any payments on the trust certificates from its own assets, and trust
certificates holders will have no recourse against any of them or their
respective assets. If the
S-10
payments received from the underlying securities are insufficient to make
distributions on the trust certificates, you may not receive all or part of the
full amount due on your trust certificates.
Neither the trustee, the underwriter, the depositor, the market agent, the
calculation agent nor any of their affiliates will manage the underlying
securities.
Except as described below, the trust will not dispose of any of the
underlying securities, even if an event occurs that adversely affects any
underlying securities issuer and/or the value of any or all of the underlying
securities. Under the trust agreement, the trust will dispose of an underlying
security only if:
o there is a Credit Event on an underlying security or an
underlying securities issuer,
o there is a non-payment-related default that accelerates the
maturity of an underlying security, or
o in the case of an underlying securities issuer that is
obliged to file Exchange Act reports, the relevant
underlying securities issuer ceases to file Exchange Act
reports and the related underlying securities comprise 10%
or more of the assets of the trust.
Under the above circumstances, the trustee must retain a market agent
who will sell the defaulted underlying security on or after the 30th day after
receipt of notice of the default in accordance with the sale procedures
described on page S-18 of this prospectus supplement and distribute the net
proceeds from such sale to the holders of the trust certificates pro rata even
if adverse market conditions exist. Neither the trustee nor the market agent has
discretion to do otherwise. If adverse market conditions exist at the time of
the sale of the underlying securities, you may incur greater losses than if the
trust continued to hold the underlying securities and sold them at a later date.
The value of the trust certificates depends upon the creditworthiness of the
underlying securities issuers and the market prices of the underlying
securities. None of the depositor, the underwriter, the trustee, the market
agent, the calculation agent or any of their affiliates has investigated any of
the underlying securities.
The trust certificates represent interests in obligations of the
underlying securities issuers and will be subject to all the risks associated
with directly investing in each underlying securities issuer's debt obligations.
The indenture and the terms and conditions governing each underlying security
may not limit the amount of indebtedness that may be incurred by the relevant
underlying securities issuer. In addition, an investment in the trust
certificates represents an investment in the underlying securities and most of
the underlying securities are not listed on any securities exchange. The
underlying securities are generally purchased and sold through dealers who make
a market in such securities for their own accounts, and there may be significant
disparities in the prices quoted for any of the underlying securities by
securities dealers at any point in time. Therefore, the market for any of the
underlying securities is less liquid than the market for securities which are
traded through a securities exchange and the aggregate market value of a
comparable amount of the underlying securities may be higher than the market
price of the trust certificates. You should consider the nature of each
underlying security and the credit risk of each underlying securities issuer
before making an investment decision regarding the trust certificates. The
depositor, the underwriter, the trustee, the market agent, the calculation agent
or any of their affiliates have not:
o investigated the business condition, financial or otherwise,
of any of the underlying securities issuers, nor
o verified any reports or information that any underlying
securities issuer has filed with the SEC or otherwise made
publicly available.
We encourage you to obtain and consider all publicly available
information concerning each of the underlying securities issuer and the
underlying securities. You should not construe the trust's issuance of the trust
certificates as an endorsement or any form of investment recommendation by the
depositor, the underwriter, the
S-11
trust, the trustee, the market agent, the calculation agent or any of their
affiliates of the financial condition or business prospects of any of the
underlying securities issuers.
The trust certificateholders may suffer a loss upon the occurrence of a removal
event.
Should a removal event, as described on page S-17, occur with respect
to an underlying security, the trustee on behalf of the trust will instruct the
market agent to sell such underlying security and distribute the net proceeds of
the sale of such underlying security to the trust certificateholders. In such
case, the certificate principal balance of the trust certificates will be
reduced by the principal amount of the underlying security subject to such
removal event. If the amount distributable to the trust certificateholders from
the proceeds of the sale of the underlying securities subject to the removal
event is less than the principal amount of such underlying securities plus any
accrued and unpaid interest thereof the trust certificateholders will suffer a
loss. Additionally, if less than all of such underlying securities are sold and
the applicable underlying securities issuer defaults on payments due on such
unsold underlying securities, the trust certificateholders will suffer a loss.
The trust certificateholders will also bear the risk of reinvestment resulting
from the reduction in the certificate principal balance of the trust
certificates. See "Description of the Trust Certificates--Removal of Underlying
Securities" on page S-17 of this prospectus supplement.
The pass-through rate may be reduced upon payment of principal on or the
occurrence of a removal event with respect to underlying securities.
Because the pass-through rate on the trust certificates will be
determined in part by the weighted average interest rate of the underlying
securities, payments of principal on the underlying securities or the occurrence
of a removal event may cause the pass-through rate to decrease depending upon
the interest rate of such underlying security. See "The Underlying
Securities--Payments Schedule" for a description of changes to the pass-through
rate or the maturity dates for the underlying securities and "Description of the
Trust Certificates--Removal of Underlying Securities" on page S-17 of this
prospectus supplement for a description of the removal events.
As underlying securities are removed from the trust at their maturity,
redemption or sale, the pool of underlying securities will become less
diversified and your exposure to economic factors that disproportionately affect
one or more of the remaining underlying securities will increase.
As underlying securities mature, underlying securities are redeemed or
sold, or removal events occur, the pool of underlying securities held by the
Trust will become less diversified. These events could increase your risk of
loss resulting from the decline in one or more of the economic factors
disproportionately affecting any of the remaining underlying securities.
Principal and interest payments on the underlying securities are unsecured
obligations of the underlying securities issuers.
Distributions on the trust certificates depend primarily on principal
and interest payments on the underlying securities. Some of these payments are
unsecured obligations of the underlying securities issuers. In any proceedings
involving the insolvency, liquidation or winding up of an underlying securities
issuer, holders of unsecured securities of that issuer will be paid only after
the holders of that underlying securities issuer's secured obligations are paid
in full. As a result, you may not recover the principal amount of your trust
certificates attributable to such underlying security.
The ratings of the trust certificates may change.
At the time of issuance, Moody's and/or S&P will have assigned ratings
to the trust certificates on the original issue date in one of the four highest
categories assigned to long-term debt.
Any rating issued with respect to the trust certificates is not a
recommendation to purchase, sell or hold a security. Ratings do not reflect upon
the market price of the trust certificates or their suitability for a particular
investor. The depositor cannot assure you that initial ratings will remain for
any given period of time or that a
S-12
ratings agency would not revise or withdraw entirely the ratings if, in its
judgment, circumstances (including, without limitation, the rating of any of the
underlying securities) merit. A revision or withdrawal of a rating may adversely
affect the market price of the trust certificates.
Potential conflicts of interests may arise between the depositor, the
underwriter and the trust.
Merrill Lynch, the depositor, or one of its affiliates will acquire the
underlying securities comprising the trust's portfolio. Potential conflicts of
interests may arise as Merrill Lynch and its affiliates may engage in investment
banking or may provide other services for some or all of the underlying
securities issuers. In addition, Merrill Lynch and its affiliates may also own,
make purchases or sales, including sales to the trust, establish long or short
positions or engage in hedging activities in some or all of the underlying
securities for their own accounts. All such activities may result in conflicts
of interests among Merrill Lynch, its affiliates and the trust
certificateholders.
An affiliate of the depositor may recognize a gain or loss upon selling the
underlying securities to the depositor for deposit into the trust.
An affiliate of the depositor will purchase the underlying securities
to be deposited into the trust in the secondary market. The depositor's
affiliate may make these purchases before deposit into the trust, or it may
borrow securities for the deposit and subsequently purchase the securities to
repay to the lenders the securities previously borrowed. In either event, the
purchases of underlying securities may be made at various prices, and the
affiliate of the depositor may recognize a gain or loss on its purchases upon
selling the underlying securities to the depositor for deposit into the trust.
The price to the public of the trust certificates therefore may differ from the
prevailing aggregate market price of an equivalent portfolio of the underlying
securities.
S-13
THE TRUST
The trust under which the trust certificates are issued will be formed
pursuant to the trust agreement between Merrill Lynch Depositor, Inc., as the
depositor, and The Bank of New York, as the trustee and the securities
intermediary. Concurrently with the execution and delivery of the Series
Supplement, which along with the Standard Terms for Trust Agreements between the
depositor and the trustee form the trust agreement, the depositor will deposit
the underlying securities into the trust. The trustee, on behalf of the trust,
will accept the underlying securities and will deliver the trust certificates to
or upon an order of the depositor. By purchasing the trust certificates, you
will be deemed to have appointed the trustee to act on your behalf pursuant to
the terms of the trust agreement.
The depositor did not purchase the underlying securities as part of any
distribution by or pursuant to any agreement with any of the underlying
securities issuers. None of the underlying securities issuers is participating
in this offering nor will any of them receive any proceeds from the sale of the
underlying securities to the depositor or from the issuance of the trust
certificates.
DESCRIPTION OF THE TRUST CERTIFICATES
General
The trust certificates will each have a stated amount of $25,
representing a proportionate, undivided beneficial interest in each of the
underlying securities comprising the trust's portfolio. The underwriter will
initially offer the trust certificates in minimum lots of 40 and subsequent
increments of 40. The trust certificates will be denominated and payable in U.S.
dollars.
The holders of the trust certificates will be entitled to receive, on
each distribution date, commencing December 20, 2003 and ending on the final
scheduled distribution date, payment of distributions at an initial pass-through
rate of % per year on the stated amount of the trust certificates (except for
the distribution on December 20, 2003 which will be at an annual pass-through
rate of %), subject to any changes as a result of the removal of any of
underlying securities from the trust (see "--Redemptions of Underlying
Securities" and "--Removal of Underlying Securities" below) commencing on the
initial issuance of the trust certificates, and a distribution of the principal
amount and accrued interest of the underlying securities on the maturity date
(or if the trustee receives such payments after 10:00 A.M. (New York city time)
on that date, the next business day) for each underlying security as described
in the Payment Schedule.
Distributions on the trust certificates will be calculated on a 360-day
year of twelve 30-day months and will accrue from, and including the prior
distribution date (as defined on page S-1) or, in the case of the first
collection period, from and including the original issue date, to and excluding
the first distribution date. Each semiannual interest payment on the underlying
securities represents interest accrued and previously unpaid on the underlying
securities, with respect to the distribution on December 20, 2003, at the time
of their deposit into the trust and from and including the cut-off date or the
previous distribution date, as applicable, to, but not including, each
distribution date, which is paid to the trust in accordance with the terms of
the underlying securities. Any interest received by the trust on the underlying
securities prior to a distribution date will be deposited by the trustee in a
non-interest-bearing bank account with the trustee and will be distributed to
trust certificateholders on the next distribution date.
The trust certificates will be delivered in registered form. The trust
certificates will be maintained and transferred on the book-entry records of DTC
and its participants in minimum stated amounts of and integral multiples of $25.
The trust certificates will each initially be represented by one or more global
certificates registered in the name of the nominee of DTC (together with any
successor clearing agency selected by the depositor), except as provided below.
DTC has informed the depositor that DTC's nominee will be Cede & Co. No holder
of any trust certificate will be entitled to receive a certificate representing
that person's interest, except as set forth below under "Definitive Trust
Certificates" on page S-15. Unless and until definitive trust certificates are
issued under the limited circumstances described below, all references to
actions by trust certificateholders with respect to any trust certificates shall
refer to actions taken by DTC upon instructions from its participants. See
"--Definitive Trust
S-14
Certificates" below and "Description of the Trust Certificates--Global
Securities" on page 29 in the accompanying prospectus.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC will take action permitted to be taken by a trust
certificateholder under the trust agreement only at the direction of one or more
participants having trust certificates credited to their DTC accounts.
Additionally, DTC will take actions with respect to specified voting rights only
at the direction and on behalf of participants whose holdings of certificates
evidence specified voting rights. DTC may take inconsistent positions in its
exercise of voting rights, to the extent that participants authorize such
divergent action.
Definitive Trust Certificates
Definitive trust certificates will be issued to trust
certificateholders or their nominees only if:
o the depositor advises the trustee in writing that DTC is no
longer willing or able to discharge properly its
responsibilities as clearing agency with respect to the
trust certificates and the depositor is unable to locate a
qualified successor, or
o at the depositor's option, it elects to terminate the
book-entry system of the trust certificates through DTC.
Upon the occurrence of either of these events, the trustee is required
to notify all participants of the availability through DTC of definitive trust
certificates. Upon surrender by DTC of the global certificates representing the
trust certificates and receipt of instructions for re-registration, the trustee
will reissue the trust certificates as definitive trust certificates issued in
the stated amounts owned by the individual trust certificateholders. Then, the
trustee will recognize the holders of definitive trust certificates as trust
certificateholders under the trust agreement.
Listing on the New York Stock Exchange
The depositor intends to list the trust certificates on the NYSE. If
approved for listing, trading is expected to commence within 30 days after the
trust certificates are first issued. The depositor cannot assure you that the
trust certificates, once listed, will continue to be eligible for trading on the
NYSE.
Collections and Distributions
To the extent of available funds, on each semi-annual distribution
dates the trust will make the following distributions in the following order of
priority:
o to the trustee, for reimbursement of any approved
extraordinary trust expenses incurred by the trustee and
approved by not less than 100% of the certificateholders;
o to the trust certificateholders, all payments of interest in
respect of scheduled interest payments on the underlying
securities, which are not redemption or sale proceeds,
received by the trust during a collection period at the
initial pass-through rate of % per year (except for the
distribution on December 20, 2003 which will be at an annual
pass-through rate of %), as adjusted on the occurrence of a
removal event (see "--Adjustment of Pass-Through Rate");
o to the trust certificateholders, a distribution of the
principal amount and accrued interest of each underlying
security held by the trust on the stated maturity date of
such underlying security, in any event, no later than the
final scheduled distribution date;
S-15
o to the extent there are available funds in the certificate
account, to any creditors of the trust in satisfaction of
the trust's liabilities; and
o if any funds remain in the certificate account after all of
the trust's liabilities are satisfied, then such funds will
be distributed to an affiliate of the depositor.
"Available funds" for any distribution date means the sum of all
amounts received on or with respect to the underlying securities. Not less than
100% of the trust certificateholders may elect to sell a portion of the
underlying securities such that the proceeds of the sale would be sufficient to
reimburse the trustee for any extraordinary expenses. In the event of a payment
default on any of the underlying securities, the trustee's approved
extraordinary expenses (see "Description of the Trust Agreement--The Trustee" on
page S-27 of this prospectus supplement) may be reimbursed to the trustee out of
available funds before any distributions to trust certificateholders are made.
No additional amounts will accrue on the trust certificates or be owed
to trust certificateholders as a result of any delay in the receipt or
distribution of funds by the trust, but any additional distributions owed and
paid by an underlying securities issuer as a result of any delay will be paid to
the trust certificateholders.
The depositor cannot assure you that collections received from the
underlying securities over a specified period will be sufficient to make all
required distributions to the trust certificateholders. To the extent available
funds are insufficient to make the distributions due to trust
certificateholders, any shortfall will be carried over and will be distributable
on the next distribution date on which sufficient funds exist to pay the
shortfalls. The depositor will pay the trustee's ordinary expenses, as described
in the accompanying prospectus under "Description of the Trust
Agreement--Trustee Compensation and Payment of Expenses" on page 36 of the
accompanying prospectus, including the compensation and expenses of the trustee
as provided in an agreement between the depositor and the trust.
Adjustment of Pass-Through Rate
Any reduction in the principal amount of any of the underlying
securities is likely to result in the adjustment of the pass-through rate.
Reductions in the principal amount of the underlying securities are expected to
occur on each of the expected principal distribution dates as described under
"The Underlying Securities--Payment Schedule" or, if earlier, upon a redemption
or removal of any of underlying securities as described under "--Redemption of
Underlying Securities" and "--Removal of Underlying Securities." The
pass-through rate will be adjusted by the calculation agent in connection with
any such reduction using the formula set forth in the definition of
"Pass-Through Rate" on page S-18.
Exchange of Trust Certificates
Merrill Lynch & Co. or any of its affiliates, other than the depositor,
may notify the trustee, not less than 30 days but not more than 60 days prior to
each six-month anniversary of the original issue date (an "optional exchange
date"), that it intends to tender some or all of its trust certificates in an
Authorized Denomination to the trustee on that optional exchange date in
exchange for a proportional amount of underlying securities. Such optional
exchange will not be made if:
o the exchange would cause the trust or the depositor to fail
to satisfy the applicable requirements for exemption under
Rule 3a-7 under the Investment Company Act of 1940, as
amended (the "Investment Company Act");
o the exchange would affect the characterization of the trust
as a "grantor trust" under the Code; or
o in the case of an exchange of less than all outstanding
trust certificates, the exchange would cause the trust to
fail to satisfy the minimum requirements to remain listed on
the New York Stock Exchange, unless the party exercising the
optional exchange will hold all remaining outstanding trust
certificates upon such optional exchange.
S-16
All exercises of the optional exchange right will be effected so that the
proportion that the principal amount of each underlying security bears to the
aggregate principal amount of trust certificates immediately before the exercise
will be equal to the proportion that the principal amount of such underlying
security bears to the aggregate principal amount of trust certificates
immediately after the exercise. The exercise of an optional exchange right will
decrease the aggregate amount of trust certificates outstanding. See
"Description of the Trust Certificates--Optional Exchange" on page 27 of the
accompanying prospectus. Upon such tender of trust certificates, the trustee
will deliver to Merrill Lynch & Co. or its affiliates, as applicable, a
proportional amount of the underlying securities equal to the proportional
amount of the trust certificates that were tendered.
"Authorized Denomination" means an aggregate stated amount of trust certificates
that when exchanged for the underlying securities in accordance with the terms
of an optional exchange will not cause the trustee to be required to deliver any
fractional underlying securities.
Redemption of Underlying Securities
As indicated in the table under the heading "The Underlying Securities"
on page S-20 of this prospectus supplement, some of the underlying securities
are redeemable at the option of the related underlying securities issuers. If
any one of the underlying securities is redeemed by the relevant underlying
securities issuer prior to the final scheduled distribution date, then the
trustee will:
o remove the underlying securities subject to redemption from
the assets of the trust;
o receive the redemption proceeds from the underlying
securities issuer; and
o distribute such redemption proceeds, pro rata, to trust
certificateholders promptly upon receiving such redemption
proceeds,
and the assets of the trust will be reduced by the principal amount of
underlying securities redeemed. In addition, the distribution rate on the
securities will be adjusted to reflect the change in the portfolio of underlying
securities. Upon receipt by the trustee of a notice that all or a portion of any
of the underlying securities are to be redeemed, the trustee shall deliver
notice of such redemption to the registered trust certificateholders not less
than fifteen (15) days prior to the redemption date of such redeemable
securities by mail to each registered trust certificateholder at such registered
trust certificateholder's last address on the register maintained by the
trustee; provided, however, that the trustee shall not be required to give any
notice of redemption prior to the third business day after the date it receives
notice of such redemption. The trustee will distribute any redemption proceeds
it receives from underlying securities issuers pro rata to trust
certificateholders as soon as practicable after its receipt of those proceeds.
Removal of Underlying Securities
If (i) any underlying securities issuer of underlying securities
representing 10% or more of the aggregate principal amount (except with respect
to treasury securities, the present value, discounted at the rate of % per year
of the maturity amount of that treasury security) of all underlying securities
ceases to file periodic reports with the Securities and Exchange Commission
under the Exchange Act, (ii) a Credit Event occurs with respect to an underlying
security or its underlying securities issuer, then a "removal event" with
respect to such underlying security shall have occurred. Within two business
days following the trustee's actual knowledge or the receipt of written notice
from the Depositor or the applicable underlying security indenture trustee that
a removal event has occurred, the trustee on behalf of the Trust will instruct
the market agent to sell the applicable underlying securities on or after the
30th day after the date on which the trustee receives notice that a removal
event has occurred. The net proceeds from the sale of an underlying security
will be distributed to the trust certificateholders on a pro rata basis.
The occurrence of a removal event will result in a reduction of the
certificate principal balance by an amount equal to the principal amount of the
underlying securities that are the subject of such removal event and will result
in an adjustment of the pass-through rate. Any payments received by the trustee
from underlying securities issuers on underlying securities, with respect to
which a removal event has occurred, prior to the sale of such underlying
securities will be distributed to trust certificateholders upon receipt by the
trustee.
S-17
"Credit event" means (i) a payment default with respect to an
underlying security has occurred and any applicable grace period set forth in
the indenture related to such underlying security has expired, (ii) an
underlying securities issuer has become the subject of bankruptcy, insolvency or
similar proceedings, (iii) the passage of thirty calendar days since the day
upon which any person or entity other than an underlying securities 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, (iv) the maturity date of an
underlying security has been extended, or (v) the interest rate on any
underlying security has been reduced.
"Payment default" means (i) a default by an underlying securities
issuer in the payment of any amount due on the applicable underlying security
after the same becomes due and payable and any applicable grace period set forth
in the indenture related to such underlying security has expired, or (ii) the
acceleration of the maturity of the underlying securities pursuant to the terms
of the underlying securities or the instrument governing the underlying
securities and the failure to pay 100% of the accelerated amount on the date of
accelerated maturity.
"Certificate principal balance" means, on the closing date $ and on
any date thereafter, an amount equal to the initial certificate principal
balance less any reductions in the principal amount of the underlying securities
and payments on the treasury securities. For purposes of calculating the
certificate principal balance, the principal amount of any underlying securities
with respect to which a removal event has occurred shall be deemed to be zero.
The certificate principal balance will be made available in reports sent to
trust certificateholders upon any reduction thereof. The certificate principal
balance for any individual trust certificateholder will be such trust
certificateholder's pro rata portion of the outstanding certificate principal
balance.
"Pass-through Rate" means the per annum interest rate on the trust
certificates applicable during the interest accrual period related to a
distribution date. The pass-through rate will initially be equal to %, (except
for the distribution on December 20, 2003 which will be at an annual
pass-through rate of %) until a Pass-through Rate Adjustment Event (as defined
below) has occurred, in which case the pass-through rate shall be recalculated
by the calculation agent so that the adjusted pass-through rate will be equal
to:
(i) the principal amount of the underlying securities after
giving effect to any distribution of principal resulting from such
Pass-through Rate adjustment event multiplied by the weighted average
interest rate of the underlying securities after giving effect to any
distribution of principal resulting from such Pass-through Rate
Adjustment Event, divided by
(ii) the certificate principal balance after giving effect to the
distribution of principal resulting from such Pass-through Rate
Adjustment Event.
"Pass-through Rate Adjustment Event" means (i) a reduction of the
principal amount of the underlying securities resulting from distribution of the
principal amount or maturity payment of any underlying securities, a redemption
of underlying securities by the related underlying securities issuer, or the
sale or distribution to the certificateholders of the underlying securities
following the occurrence of a removal event, (ii) the incurrence by the Trust of
reoccurring expenses other than expenses incurred in connection with
distributions of interest and principal to trust certificateholders and the
filing of periodic reports with the SEC.
Sale Procedures
In connection with the sale of any underlying securities following a
removal event, the trustee will instruct the market agent to sell such
underlying securities on or after the 30th day but in no event later than the
45th day after the date on which the trustee receives notice of the occurrence
of the removal event. The market agent will use its reasonable efforts to sell
such underlying securities to the highest of not less than four solicited
bidders (which bidders may include the market agent or one of its affiliates or
the underwriters; provided, however, that none of the market agent, any of its
affiliates or the underwriters is obligated to bid for such underlying
securities; and provided further that the market agent will use its reasonable
efforts to solicit at least four bids from financial institutions with invested
assets or assets under management of at least $50 million that are not
affiliates of the market agent). If, after the market agent determines, in its
sole discretion, a sufficient period of time has elapsed and the market agent
S-18
has received less than four bids, the market agent will sell such underlying
securities to the highest bidder of the bids received. In the sole judgment of
the market agent, bids may be evaluated on the basis of bids for all or a
portion of the underlying securities to be sold or any other basis selected in
good faith by the market agent.
Amounts distributed to trust certificateholders after a sale of an
underlying security will be reduced by any expenses incurred by the trustee and
the market agent.
No assurance can be given as to whether the market agent will be
successful in soliciting any bids to purchase the underlying securities
following a removal event or as to the price of any such bid relative to the
principal amount of those underlying securities.
Following the sale of any of the underlying securities, a schedule
setting forth the updated composition of the underlying securities in the trust,
including the aggregate principal amount of the underlying securities and a
revised description of the expected pass-through rate and amount of
distributions on the trust certificates will be filed with the SEC by the
trustee as a current report on Form 8-K. The trustee will also provide notice of
the distribution of any sale proceeds to holders of the trust certificates.
S-19
THE UNDERLYING SECURITIES
The underlying securities represent the sole assets of the trust that
are available to make distributions in respect of the trust certificates. This
prospectus supplement sets forth certain relevant terms with respect to the
underlying securities, but does not provide detailed information with respect to
them or with respect to the underlying securities issuers. This prospectus
supplement relates only to the trust certificates offered hereby and does not
relate to the underlying securities. All disclosures contained in this
prospectus supplement with respect to the underlying securities issuers and the
underlying securities are derived from publicly available documents.
The underlying securities each convert into cash in a finite time
period and the underlying securities issuer, or guarantor of the underlying
securities (a) is subject to the periodic reporting requirements of the Exchange
Act; and (b) is eligible to use a Registration Statement on Form S-3 or F-3 for
a primary offering of non-convertible investment grade securities. As such, the
trust will not be providing you with periodic financial information with respect
to the underlying securities and we refer you to the periodic reports filed by
the underlying securities issuers with the SEC. Those reports should be reviewed
by any prospective certificateholder of the trust. For further information, see
"Risk Factors--If public information concerning the underlying securities issuer
is not available, your ability to make an informed decision to act in regard to
the trust certificates may be impaired" in the accompanying prospectus.
Although we have no reason to believe the information concerning the
underlying securities or the underlying securities issuers contained in the
prospectuses related to the underlying securities or in the underlying
securities issuers' Exchange Act reports is not reliable, we have not
participated in the preparation of such documents, or made any due diligence
inquiry with respect to the information provided therein. There can be no
assurance that events affecting the underlying securities or the underlying
securities issuers have not occurred or have not yet been publicly disclosed
which would affect the accuracy or completeness of the publicly available
documents described in this prospectus supplement.
The trust will have no assets other than underlying securities from
which to make distributions of amounts due in respect of the trust certificates.
Consequently, the ability of trust certificateholders to receive distributions
in respect of the trust certificates will depend entirely on the trust's receipt
of payments on the underlying securities. You should consider carefully the
financial condition of the underlying securities issuers and their ability to
make payments in respect of the underlying securities issued by them
respectively. This prospectus supplement relates only to the trust certificates
being offered hereby and does not relate to the underlying securities issuer or
the underlying securities. Information contained in this prospectus supplement
regarding the underlying securities and the underlying securities issuer is
derived from publicly available documents. None of the depositor, the
underwriter or the trustee participated in the preparation of such documents or
takes any responsibility for the accuracy or completeness of the information
provided therein.
The following tables provide summary information regarding the
underlying securities expected to be held by the trust on the closing date, the
distribution by ratings of the underlying securities as of the date of this
prospectus supplement, the schedule of expected payments on the trust
certificates and the expected amortization of the aggregate stated amount of the
trust certificates.
Underlying Securities
The underlying securities we expect to deposit into the trust are set
forth below. This list is a preliminary list of underlying securities and may be
subject to change prior to the date of pricing of the trust certificates(1):
_____________________________
(1) This information is derived from reports and/or other sources deemed to be
reliable; however, no investigation has been undertaken in connection
therewith and no guaranty can be given as to its accuracy or completeness
on the date hereof.
S-20
Name of Issuer / Coupon Principal / Rating
Name of Guarantor(s) Rate Maturity Date Weighting(2) Moody's / S&P Redemption CUSIP
1 The Boeing Company 6.125% February 15, $ / % A2(2) / A Optional redemption 097023AU9
2033 with make-whole,
otherwise
redemption limited
to certain changes
in U.S. tax law
2 Citigroup Inc. 5.875% February 22, $ / % Aa2 / A+ Redemption limited 172967BU4
2033 to certain changes
in U.S. tax law
3 Credit Suisse First Boston 7.125% July 15, 2032 $ / % Aa3 / A+ Optional redemption 22541LAE3
(USA), Inc. with make-whole,
otherwise
redemption limited
to certain changes
in U.S. tax law
4 DaimlerChrysler North America 8.500% January 18, $ / % A3 / BBB+ Redemption limited 233835AQ0
Holding Corporation / 2031 to certain changes
DaimlerChrysler AG in U.S. or German
tax law
5 Ford Motor Company 7.450% July 16, 2031 $ / % Baa1 / BBB Redemption limited 345370CA6
to certain changes
in U.S. tax law
6 General Electric Capital 6.750% March 15, 2032 $ / % Aaa / AAA Optional redemption 36962GXZ2
Corporation with make-whole
7 General Motors Acceptance 8.000% November 1, 2031 $ / % A3 / BBB Limited to certain 370425RZ5
Corporation changes in U.S. tax
law
8 The Goldman Sachs Group, Inc. 6.125% February 15, $ / % Aa3 / A+ Optional redemption 38141GCU6
2033 with make-whole,
otherwise
redemption limited
to certain changes
in U.S. tax law
9 Johnson & Johnson 4.950% May 15, 2033 $ / % Aaa / AAA Not redeemable 478160AL8
10 The May Department Stores 6.900% January 15, $ / % Baa1 / BBB+ Optional redemption 577778BQ5
Company (New York) / 2032 with make-whole
The May Department Stores
Company (Delaware)
11 Time Warner Inc. / 6.625% May 15, 2029 $ / % Baa1 / Optional redemption 887315BN8
Time Warner Companies, Inc. BBB+(3) with make-whole
and Turner Broadcasting
System, Inc.
12 Valero Energy Corporation 7.500% April 15, 2032 $ / % Baa3 / BBB Optional redemption 91913YAE0
with make-whole
13 Verizon Global Funding Corp. / 7.750% June 15, 2032 $ / % A2 / A+ Optional redemption 92344GAS7
Verizon Communications with make-whole
Inc.(5)
14 Viacom Inc. / 5.500% May 15, 2033 $ / % A3 / A- Optional redemption 925524AV2
Viacom International Inc. with make-whole
15 Weyerhaeuser Company 7.375% March 15, 2032 $ / % Baa2 / BBB Optional redemption 962166BR4
with make-whole
16 United States Department of 0.000% May 15, 2030 $ / % Not rated Not redeemable 912803CH4
Treasury
________________________________________
(1) Does not sum to 100% due to rounding.
(2) On Moody's Credit Watch: Possible Down Grade.
(3) On S&P Credit Watch: Possible Down Grade.
(4) Support as to payment of principal and interest.
S-21
Distribution by Standard & Poor's Ratings
of the underlying securities
Percent of
Aggregate Principal Aggregate Principal
and/or Maturity Payment and/or Maturity Payment
Standard & Poor's Rating Number Amount Amount
------------------------ ------ ------ ------
US Government
Treasury Securities 1 $ %
AAA 2 $ %
A+ 4 $ %
A 1 $ %
A- 1 $ %
BBB+ 3 $ %
BBB 4 $ %
Total: 16 $ %
Distribution by Moody's Ratings
of the underlying securities
Percent of
Aggregate Principal Aggregate Principal
and/or Maturity Payment and/or Maturity Payment
Moody's Rating Number Amount Amount
-------------- ------ ------ ------
US Government
Treasury Securities 1 $ %
Aaa 2 $ %
Aa2 1 $ %
Aa3 2 $ %
A2 2 $ %
A3 3 $ %
Baa1 3 $ %
Baa2 1 $ %
Baa3 1 $ %
Total: 16 $ %
Payment Schedule
The table below sets forth the expected distribution dates for the
trust certificates and the expected distribution per trust certificate on each
distribution date. This schedule of payments will be amended upon the early
redemption, occurrence of a removal event or repayment and subsequent sale of
any underlying security and a revised schedule of payments will be filed with
the SEC by the trustee as a current report on Form 8-K.
The timing and amount of payments presented below is based on the
preliminary list of underlying securities set forth above and is subject to
change prior to the date of pricing of the trust certificates. As well, the
information below is presented subject to the assumption that none of the
underlying securities will be redeemed, accelerated, subject to a removal event
or otherwise paid prior to their maturity:
S-22
Scheduled Effective Scheduled Certificate
Distribution of Pass-Through Rate Distribution of Principal
Scheduled Distribution Dates (1) Interest (2) (3) Principal Balance(4)
December 20, 2003 $ % None $25
Each June 20 and December 20 from None $25
December 20, 2003 to and including
December 20, 2028
May 15, 2029 $ $
June 20, 2029 None
December 20, 2029 None
May 15, 2030 $
June 20, 2030 None
December 20, 2030 None
January 18, 2031 $
June 20, 2031 None
July 16, 2031 $
November 1, 2031 $
December 20, 2031 None
January 15, 2032 $
March 15, 2032 $
April 15, 2032 $
June 15, 2032 $
June 20, 2032 None
November 15, 2032 $
December 20, 2032 None
February 15, 2033 $
February 22, 2033 $
May 15, 2033 $
___________________________
(1) If any distribution date is not a business day, the related distribution
will be made on the next succeeding business day.
(2) The distribution of interest on December 20, 2003 represents the interest
that will accrue on the underlying securities during the first collection
period.
(3) The effective pass-through presented for each period is based on the
certificate principal balance on that date and not on the aggregate stated
amount of the trust certificates.
(4) The certificate principal balance reduces following payments of principal
on the underlying securities.
S-23
General Discussion of Investment Grade Securities Indentures
The underlying securities were each issued pursuant to an indenture or
other agreement (each, an "underlying securities indenture") that limits the
respective underlying securities issuer's ability to engage in certain
activities and transactions and requires that the underlying securities issuer
perform certain obligations with respect to the underlying securities. The
following discussion describes the terms that typically appear in investment
grade securities indentures (the documents that govern the issuance of any
treasury securities that constitute part of the underlying securities are
described at the end of this section).
Events of Default in the Underlying Securities Indentures
Each of the underlying securities indentures specifies certain events
that constitute "events of default." These events typically include:
o failure to make payments of principal (and premium, if any)
and interest to holders of the underlying securities when payment
is due;
o breach of specified representations or warranties, or
failure to observe or perform any covenant or agreement under the
underlying securities indentures for a specified time period after
notice is given to the underlying securities issuer by the
underlying securities trustee or the holders of not less than a
specified percentage of the underlying securities; and
o specified events of bankruptcy, insolvency or reorganization
relating to the underlying securities issuer and, in some cases,
guarantors under the underlying securities indenture or certain
subsidiaries.
In addition, some underlying securities indentures specify that events
of default include failure by the underlying securities issuer to make any
required payment of principal (and premium, if any) or interest with respect to
other debt obligations of the underlying securities issuer or the acceleration
of those obligations.
An underlying securities trustee may withhold notice to the underlying
securities holders of any default other than a payment default on the underlying
securities if that underlying securities trustee believes that withholding
notice is in the best interests of the underlying securities holders. If an
event of default occurs and continues, most indentures specify that the trustee
or a specified amount of holders of the relevant underlying securities may
accelerate the underlying securities and cause them to become immediately due
and payable. The underlying securities indentures may also contain provisions
allowing a specified percentage of the holders of the applicable underlying
securities to waive an event of default. However, the right of any holder to
receive payment of principal and interest, if any, on an underlying security on
or after the date that payment is due or the right to institute suit for the
enforcement of any such payment, cannot be waived without the consent of each
affected holder except in limited circumstances described in Section 316 of the
Trust Indenture Act of 1939, as amended.
Modification of the Underlying Securities Indentures
Each of the underlying securities indentures provides that if the
holders of a specified percentage of the aggregate principal amount of the
applicable underlying securities consent, the rights of the holders of the
applicable underlying securities may be modified. However, in most
circumstances, the consent of all affected underlying securities holders is
required before amendments can be made to an underlying securities indenture
that would adversely affect those holders' rights to receive timely payment of
principal or interest, if any, on the underlying securities, waive payment
defaults or reduce the aggregate principal amount of underlying securities
needed to make any modifications to the applicable underlying securities
indenture.
Redemption Provisions in the Underlying Securities Indentures
The underlying securities that are subject to redemption are described
in the table on page S-21 of this prospectus supplement. Redeemable underlying
securities are described in two ways: (1) those subject to optional make-whole
redemption and (2) those subject to redemption upon certain changes in tax laws.
If an underlying
S-24
security is subject to optional make-whole redemption, the issuer of those
securities may, at their option and after giving a specified amount of notice,
redeem the underlying securities upon payment of a make-whole amount. In most
circumstances, the make-whole amount will be equal to the greater of (A) 100% of
the underlying securities being redeemed, and (B) the sum of the present value
at the redemption date of the future payments of principal and interest on the
underlying securities to be redeemed discounted at a rate equal to the treasury
rate as reported on a specified service plus a specified number of basis points,
in both cases with accrued and unpaid interest to the redemption date. If an
underlying security is subject to redemption upon certain changes in tax laws
then, in most circumstances, the issuer of the applicable underlying security
will be obliged to pay certain additional amounts if the tax treatment of those
underlying securities is changed in specified ways. If the obligation to pay
additional amounts arises, in most circumstances, the issuer of the affected
underlying securities has the right to redeem those underlying securities at a
redemption price equal to 100% of the principal amount plus accrued and unpaid
interest to the redemption date if the obligation to pay additional amounts
cannot be reasonably avoided.
Ranking in the Underlying Securities Indentures
Other than treasury securities, which are backed by the full faith and
credit of the United States, 14 of the remaining 15 underlying securities are
senior obligations of the underlying securities issuers and all of the
underlying securities are unsecured. With respect to the subordinated underlying
securities, the applicable underlying securities indentures generally provides
that the underlying securities issuer cannot make payments on the subordinated
debt if it is in default on its senior debt and, that upon the bankruptcy or
insolvency of the underlying securities issuer, holders of subordinated debt
cannot receive payments until senior debt holders are paid in full and that the
subordinated debt holders' acceleration rights are limited to specified events
of bankruptcy or insolvency.
Covenants in the Underlying Securities Indentures
The underlying securities indentures provide that the relevant
underlying securities issuer, and in some cases, guarantors under the underlying
securities indenture or certain subsidiaries of the underlying securities
issuer, may not consolidate, merge, or transfer or lease all or substantially of
its assets or engage in other similar transactions, except under certain
conditions. Those conditions may require that:
o the corporation that survives the consolidation, merger,
sale or lease is the underlying securities issuer, guarantor or
other entity subject to the restriction;
o the corporation that survives the consolidation, merger,
sale or lease is a U.S. domestic corporation;
o the surviving corporation assumes all of the obligations of
the underlying securities issuer, guarantor or other entity
subject to the restriction under the underlying securities and the
relevant underlying securities indenture;
o after giving effect to the consolidation, merger, sale or
lease there is no default under the underlying securities
indenture;
o if, as the result of the consolidation or other
transaction, assets of the underlying securities issuer become
subject to a lien, the underlying securities are secured equally
and ratably, or if required, given priority; or
o there would be no obligation to compensate holders of the
applicable underlying securities for adverse tax consequences as a
result of the consolidation, merger, sale or lease.
Limitations are also placed on the abilities of most of the underlying
securities issuers, some guarantors of underlying securities and some
subsidiaries to create, assume, incur, guarantee or suffer to exist any lien,
charge or other form of encumbrance on some or all of their assets without
equally and ratably securing the underlying securities. Some exceptions are made
to this limitation, including:
S-25
o liens, charges or other encumbrances that are specifically
permitted by the terms of the underlying securities indenture;
o liens, charges or other encumbrances that secure not more
than a specified amount of indebtedness;
o liens, charges or other encumbrances on property to secure
payment of the purchase price for that property; or
o extensions, renewals or replacements of liens, charges or
other encumbrances that are otherwise permitted.
Sale and leaseback transactions, where a person leases property that it
has sold, are also prohibited or restricted by many of the underlying securities
indentures.
Treasury Securities
Some of the underlying securities are principal Treasury STRIPS.
"STRIPS" is the acronym for "Separate Trading of Registered Interest and
Principal of Securities." STRIPS are obligations of the United States Department
of the Treasury and are backed by the full faith and credit of the United
States. STRIPS may have a denomination of $1,000 or any integral multiple of
$1,000. The principal STRIPS held by the trust are securities that only
represent the right to receive a fixed payment at the maturity date of the
principal STRIP. They are zero-coupon securities and as such the trust is not
entitled to periodic payments of interest on the principal amount of the STRIPS
held by it. For more information regarding Treasury STRIPS and the STRIP
program, please see http://www.publicdebt.treas.gov/of/ofstrips.htm or 31 CFR
356.31 for rules relating to stripping and reconstituting Treasury securities.
S-26
THE DEPOSITOR
The depositor, Merrill Lynch Depositor, Inc., a Delaware corporation,
is an indirect, wholly owned, limited-purpose subsidiary of Merrill Lynch & Co.
The depositor has not guaranteed and is not otherwise obligated under the trust
certificates.
The principal office of the depositor is located at c/o Merrill Lynch &
Co., World Financial Center, New York, New York 10281 (Telephone: (212)
449-1000). See "The Depositor" on page 16 in the accompanying prospectus.
DESCRIPTION OF THE TRUST AGREEMENT
General
The trust certificates will be issued pursuant to the trust agreement,
a form of which is filed as an exhibit to the registration statement of the
depositor on Form S-3 (Registration No. 333-29015). The depositor will file with
the SEC, following the issuance and sale of the trust certificates, a Current
Report on Form 8-K relating to the trust certificates containing a copy of the
Series Supplement as executed. The trust created under the Series Supplement
will consist of:
o the deposited assets, and
o all payments or collections in respect of the deposited
assets, except with respect to periods on or prior to the cut-off
date.
Reference is made to the prospectus for important information in addition to
that set forth herein regarding the trust, the terms and conditions of the trust
agreement and the trust certificates. The following summaries of certain
provisions of the trust agreement do not purport to be complete and are subject
to the detailed provisions contained in the agreement. You should refer to the
trust agreement for a full description of these provisions, including the
definition of certain terms used in this prospectus supplement.
The discussions in the accompanying prospectus under "Description of
the Trust Agreement--Advances in Respect of Delinquencies" on page 33,
"Description of the Trust Agreement--Matters Regarding the Trustee,
Administrative Agent and the Depositor" (to the extent the discussion relates to
the Administrative Agent) on page 34, "Description of the Trust
Agreement--Administrative Agent Termination Events; Rights upon Administrative
Agent Termination Event" on page 35 and "Description of the Trust
Agreement--Evidence as to Compliance" on page 42 are not applicable to the trust
certificates.
The Trustee
The Bank of New York, as successor to United States Trust Company of
New York, will be the trustee for the trust certificates and the trust pursuant
to the trust agreement. The trustee's offices are located at 100 Church Street,
8th Floor, New York, New York 10286, Attn: Corporate Trust Division and its
telephone number is (212) 437-4055.
The trustee shall receive compensation as set forth in an agreement
between the depositor and the trust.
The trust agreement will provide that the trustee is not obliged to
take any action that, in the trustee's opinion, might cause it to incur
extraordinary expenses, unless:
o the trustee is satisfied that it will have adequate security
or indemnity in respect of such costs, expenses and liabilities,
o the trustee has been instructed to do so by trust
certificateholders representing at least 66 2/3% of the aggregate
voting rights, and
S-27
o the trust certificateholders have agreed that these costs
will be paid by the trustee (1) from the trust if such payment is
approved by an affirmative vote of 100% of the trust
certificateholders, or (2) out of the trustee's own funds, in
which event the trustee will be reimbursed by the trust
certificateholders voting in favor of the proposal.
Extraordinary expenses to be reimbursed to the trustee from the trust may be
paid out of available funds on any distribution date before any distributions to
trust certificateholders on such distribution date are made.
Limitation on Rights of Certificateholders
Trust certificateholders cannot institute any proceeding with respect
to the trust agreement, unless:
o they have previously given to the trustee written notice of
a continuing breach,
o trust certificateholders evidencing at least 66 2/3% of the
aggregate voting rights have requested in writing that the trustee
institute a proceeding in its own name as trustee,
o such trust certificateholders have offered the trustee
reasonable indemnity,
o the trustee has for 15 days failed to institute a
proceeding, and
o no direction inconsistent with a written request has been
given to the trustee during such 15-day period by trust
certificateholders evidencing at least 66 2/3% of the aggregate
voting rights.
Voting Rights
At all times, voting rights shall be allocated among trust
certificateholders in proportion to the then outstanding stated amounts of their
respective trust certificates. The "required percentage-amendment" of voting
rights necessary to consent to a modification or amendment is 662/3%. Despite
the foregoing, in addition to the other restrictions on modification and
amendment, the trustee will not enter into any amendment or modification of the
trust agreement that would adversely affect in any material respect the
interests of the trust certificateholders without the consent of 100% of the
trust certificateholders. No amendment or modification will be permitted which
would alter the status of the trust as a grantor trust under the Code. See
"Description of the Trust Agreement--Modification and Waiver" on page 39 in the
accompanying prospectus.
Voting of Underlying Securities, Modification of Underlying Securities
Indentures
The trustee, as holder of the underlying securities, has the right to
vote and give consents and waivers in respect of each underlying security as
permitted by DTC and except as otherwise limited by the trust agreement. If the
trustee receives a request from DTC, an underlying securities trustee or an
underlying securities issuer for its consent to any amendment, modification or
waiver of any underlying security, the indenture or any other document relating
to such underlying security or receives any other solicitation for any action
with respect to an underlying security, the trustee shall mail a notice of the
proposed amendment, modification, waiver or solicitation to each trust
certificateholder of record as of that date. The trustee shall request
instructions from the trust certificateholders as to whether or not to consent
to or vote to accept the amendment, modification, waiver or solicitation. The
trustee shall consent or vote, or refrain from consenting or voting, in the same
proportion (based on the relative outstanding principal balances of the trust
certificates) as the trust certificates were actually voted or not voted by the
trust certificateholders as of a date determined by the trustee prior to the
date on which the consent or vote is required. Any persons, including trust
certificateholders and the trust, must comply with all applicable laws when
engaged in the solicitation of votes from trust certificateholders. Despite
anything to the contrary, the trustee shall at no time vote or consent to any
matter:
o unless such vote or consent would not (based on an opinion
of counsel) alter the status of the trust as a grantor trust under
the Code,
S-28
o which would alter the timing or amount of any payment on the
underlying securities, including, without limitation, any demand
to accelerate that underlying security, except in the event of
default on that underlying security or an event which with the
passage of time would become an event of default on that
underlying security and with the unanimous consent of all trust
certificateholders, or
o which would result in the exchange or substitution of any of
that underlying security pursuant to a plan for the refunding or
refinancing of that underlying security except in the event of a
default under the related underlying securities indenture and only
with the consent of 100% of the trust certificateholders.
The trustee shall have no liability for any failure to act resulting
from trust certificateholders' late return of, or failure to return, directions
requested by the trustee from the trust certificateholders.
If an offer is made by an underlying securities issuer to issue new
obligations in exchange and substitution for any underlying security, pursuant
to a plan for the refunding or refinancing of that underlying security or any
other offer is made for that underlying security, the trustee shall notify the
trust certificateholders of the offer as promptly as practicable. The trustee
must reject any offer unless the trustee is directed by the affirmative vote of
all of the trust certificateholders to accept the offer and the trustee has
received the tax opinion described above.
If an event of default under an underlying securities indenture occurs
and is continuing and if directed by all trust certificateholders, the trustee
shall vote the related underlying security in favor of directing, or take such
other action as may be appropriate to direct, the underlying securities trustee
to declare the unpaid liquidation amount of that underlying security and any
accrued and unpaid distributions to be due and payable. In connection with a
vote concerning whether to declare the acceleration of the underlying
securities, each trust certificate holder's interests may differ from each
other.
Termination of the Trust
The trust shall terminate upon the earliest to occur of:
o the final scheduled distribution date;
o the sale of the last remaining underlying security held by
the trust;
o the exchange of all outstanding trust certificates for
underlying securities pursuant to one or more optional exchanges
or otherwise; and
o the distribution in full of all amounts due to trust
certificateholders.
o The distribution of all underlying securities if a removal
event occurs with respect to all underlying securities and the
underlying securities cannot be sold pursuant to the sales
procedures described on page S-18.
See "Description of the Trust Agreement--Termination" on page 42 in the
accompanying prospectus.
In addition, the holders of all, but not less than all, outstanding
trust certificates may elect to terminate the trust at any time; provided that
the exercise of such termination right would not cause the trust or the
depositor to fail to satisfy the applicable requirements for exemption under
Rule 3a-7 under the Investment Company Act of 1940.
Reports to Trust Certificateholders; Notices
Within 5 business days after each distribution date, the trustee will
forward or cause to be forwarded to each trust certificate holder, the depositor
and such other parties as specified in the trust agreement a statement setting
forth:
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o the amounts of principal, premium, if any, or interest on the
underlying securities received by the trustee as of the last
statement date;
o the aggregate stated principal amount of the underlying
securities and, if the ratings of any of the underlying
securities have changed since the last distribution date, the
current ratings assigned by the applicable rating agency; and
o the amounts of compensation received by the trustee during the
preceding three month period and other customary information
which the trustee deems necessary or desirable.
All notices required to be given to a trust certificate holder of
record will be mailed to the last address of that holder as set forth in the
register maintained by the trustee. Any notice mailed within the prescribed time
period will be deemed duly given when mailed, whether or not the trust
certificate holder receives that notice.
Form, Denomination, Book-Entry Procedures and Transfer
The description of book-entry procedures in this prospectus supplement
includes summaries of certain rules and operating procedures of DTC that affect
transfers of interests in the Global Certificate or certificates issued in
connection with sales of underlying securities. Except as described in the next
paragraph, the underlying securities will be issued only as fully registered
securities (the "Global underlying securities") registered in the name of Cede &
Co. (as nominee for DTC). One or more fully registered Global Certificates were
issued, representing, in the aggregate, the underlying securities, and were
deposited with DTC.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the Global underlying
securities as represented by a Global Certificate.
DTC has advised the underlying securities issuer that it is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code and a "clearing agency" registered pursuant
to the provisions of Section 17A of the Exchange Act. DTC holds securities that
its participants ("Participants") deposit with DTC. DTC also facilitates the
settlement among Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Participants in DTC include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations ("Direct Participants"). DTC is owned by a number of its
Direct Participants and by the New York Stock Exchange Inc., the American Stock
Exchange, Inc., and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others, such as securities brokers and
dealers, banks and trust companies that clear transactions through or maintain a
direct or indirect custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the Commission.
Purchases of underlying securities within the DTC system must be made
by or through Direct Participants, which will receive a credit of the underlying
securities on DTC's records. The ownership interest of each actual purchaser of
each underlying security ("Beneficial Owner") is in turn to be recorded on the
Direct Participants' and Indirect Participants' records. Beneficial Owners will
not receive written confirmation from DTC of their purchases, but Beneficial
Owners are expected to receive written confirmations providing details of the
transactions, as well as periodic statements of their holdings, from the Direct
or Indirect Participants through which the Beneficial Owners purchased
underlying securities. Transfers of ownership interests in the underlying
securities are to be accomplished by entries made on the books of Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in the underlying
securities, except in the event that use of the book-entry system for the
underlying securities is discontinued.
To facilitate subsequent transfers, all the underlying securities
deposited by Participants with DTC were registered in the name of DTC's nominee,
Cede & Co. The deposit of underlying securities with DTC and their
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registration in the name of Cede & Co. will effect no change in beneficial
ownership. DTC will have no knowledge of the actual Beneficial Owners of the
underlying securities. DTC's records will reflect only the identity of the
Direct Participants to whose accounts such underlying securities are credited,
which may or may not be the Beneficial Owners. The Direct Participants and
Indirect Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Certificate in respect of the underlying securities, DTC or such nominee,
as the case may be, will be considered the sole owner or holder of the
underlying securities represented thereby for all purposes under the indenture
and such underlying securities. No Beneficial Owner of an interest in a Global
Certificate will be able to transfer that interest except in accordance with
DTC's applicable procedures.
DTC has advised the underlying securities issuer that it will take any
action permitted to be taken by a holder of underlying securities (including the
presentation of underlying securities for exchange as described below) only at
the direction of one or more Participants to whose accounts the DTC interests in
the Global Certificates are credited and only in respect of such portion of the
aggregate liquidation amount of underlying securities as to which such
Participant or Participants has or have given such direction. However, if there
is an indenture Event of Default with respect to the underlying securities, DTC
will, upon notice, exchange the Global Certificates in respect of such
underlying securities for certificated securities, which it will distribute to
its Participants.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Although voting with respect to the underlying securities is limited,
in those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to the underlying securities. Under its usual
procedures, DTC would mail an omnibus proxy to the underlying securities issuer
as soon as possible after the record date. The omnibus proxy assigns Cede &
Co.'s consenting or voting rights to those Direct Participants to whose accounts
the underlying securities are credited on the record date (identified in a
listing attached to the omnibus proxy).
Distributions on the underlying securities held in book-entry form will
be made to DTC in immediately available funds. DTC's practice is to credit
Direct Participants' accounts on the relevant payment date in accordance with
their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payments on such payment date. Payments by
Direct Participants and Indirect Participants to Beneficial Owners will be
governed by standing instructions and customary practices and will be the
responsibility of such Direct Participants and Indirect Participants and not of
DTC or the underlying securities issuer subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of distributions to
DTC is the responsibility of the underlying securities issuer, disbursement of
such payments to Direct Participants is the responsibility of DTC, and
disbursement of such payments to the Beneficial Owners is the responsibility of
Direct Participants and Indirect Participants.
Except as provided herein, a Beneficial Owner of an interest in a
Global Certificate will not be entitled to receive physical delivery of
underlying securities. Accordingly, each Beneficial Owner must rely on the
procedures of DTC, the Direct Participants and the Indirect Participants to
exercise any rights under the underlying securities.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Certificates among the
Participants of DTC, DTC is under no obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any time.
Neither the underlying securities issuer nor the underlying securities trustee
will have any responsibility for the performance by DTC or its Direct
Participants or Indirect Participants under the rules and procedures governing
DTC. DTC may discontinue providing its services as a securities depositary with
respect to the underlying securities at any time by giving notice to the
underlying securities issuer. Under such circumstances, in the event that a
successor securities depositary is not obtained, underlying security
certificates will be required to be printed and delivered. Additionally, the
underlying securities issuer may decide to discontinue use of the system of
book-entry transfers through DTC (or a successor depositary)
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with respect to the underlying securities of the underlying securities issuer.
In that event, certificates for such underlying securities will be printed and
delivered.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that we believe to be reliable, but none
of ourselves, the underlying securities issuer or DTC takes responsibility for
the accuracy thereof.
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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material United States
federal income tax consequences of the purchase, ownership and disposition of
the trust certificates by an initial holder of the trust certificates. This
section supersedes the discussion contained in the accompanying prospectus under
"U.S. Federal Income Tax Consequences" on page 53.
This summary is based on laws, regulations, rulings and decisions
currently in effect, all of which are subject to change, possibly on a
retroactive basis, and to different interpretations. This discussion does not
deal with all United States federal income tax consequences that may be
applicable to investors based upon their particular circumstances, or to
investors that may be subject to special rules under United States federal
income tax law (including, for example, banks, insurance companies, tax-exempt
organizations, partnerships and other pass-through entities, dealers in
securities or currencies, persons holding trust certificates as part of a
"straddle," a "hedge" or a "conversion transaction," investors who do not hold
the trust certificates as capital assets (generally, property held for
investment) within the meaning of Section 1221 of the Internal Revenue Code of
1986, as amended (the "Code") and U.S. Persons, as defined below, having a
functional currency other than the U.S. dollar). Furthermore, no authority
exists concerning the United States federal income tax treatment of some aspects
of the trust certificates, and there can be no assurance that the Internal
Revenue Service (the "IRS") will not issue Treasury regulations or other
guidance which would modify the treatment described below. Accordingly, the
ultimate United States federal income tax treatment of the trust certificates
may differ substantially from that described below. Investors should consult
their own tax advisors to determine the United States federal, state, local and
other tax consequences of the purchase, ownership and disposition of the trust
certificates based upon their particular circumstances.
As used herein, the term "U.S. Person" means an individual citizen or
resident of the United States, a corporation (including a business entity
taxable as a corporation) created or organized in or under the laws of the
United States or any state thereof or the District of Columbia, an estate whose
income is subject to United States federal income tax regardless of its source,
or a trust if a court within the United States is able to exercise primary
supervision of the administration of the trust and one or more U.S. Persons have
the authority to control all substantial decisions of the trust. Notwithstanding
the preceding sentence, to the extent provided in Treasury regulations, certain
trusts in existence on August 20, 1996, that are treated as U.S. Persons prior
to such date, and that elect to continue to be treated as U.S. Persons, also
will be U.S. Persons. If a partnership holds trust certificates, the United
States federal income tax treatment of a partner generally will depend upon the
status of the partner and the activities of the partnership. Partners of a
partnership holding trust certificates should consult their own tax advisors.
Tax Status of Trust
In the opinion of Shearman & Sterling LLP, special United States
federal income tax counsel to the depositor, the trust will be classified as a
grantor trust and not as an association (or publicly traded partnership) taxable
as a corporation under the Code. Accordingly, each trust certificateholder will
be subject to United States federal income taxation as if it (i) owned directly
an undivided interest in all of the underlying securities held by the trust, and
(ii) paid directly its share of reasonable expenses paid by the trust.
Income of Trust Certificateholders That Are U.S. Persons
In General
Based on the underlying securities' prospectus supplements, this
discussion assumes that each of the underlying securities constitute
indebtedness for United States federal income tax purposes. This assumption is
necessary in order to discuss some of the material United States federal income
tax consequences to the trust certificateholders. The underlying securities'
prospectus supplements did not disclose that there was a risk that the
underlying securities would be treated as other than indebtedness for United
States federal income tax purposes. Generally the determination of whether an
instrument is treated as indebtedness or as equity for United States federal
income tax purposes is based upon the facts and circumstances applicable at the
time of issuance, and takes into account such factors as an unconditional
promise to pay a sum certain, a fixed maturity date in the reasonably
foreseeable future, an obligation to pay a fixed rate of interest regardless of
the earnings of the issuer, the extent of
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subordination of the instrument, and the adequacy of the issuer's capital. In
the event that any of the underlying securities are not respected as
indebtedness, the United States federal income tax consequences to the trust
certificateholders could be materially different from those described below. For
example, in such event, a portion of payments on the trust certificates could be
treated as dividends to the extent allocable to the current or accumulated
earnings and profits of the relevant underlying securities issuer, and any such
dividends would be subject to United States federal withholding tax if paid to a
foreign trust certificateholder (as defined below). The remainder of this
discussion assumes that all of the underlying securities constitute indebtedness
for United States federal income tax purposes.
Allocations
For United States federal income tax purposes, a trust
certificateholder will determine its initial tax basis in each of the underlying
securities by allocating the purchase price for the trust certificates among the
underlying securities based on their relative fair market values at the time of
purchase. Similarly, when a trust certificateholder sells a trust certificate,
it will determine the amount realized with respect to each underlying security
by allocating the sales price among the underlying securities based on their
relative fair market values at the time of sale. A trust certificateholder's
gain or loss with respect to each underlying security will be the difference
between the amount realized on such underlying security and the trust
certificateholder's adjusted tax basis in such underlying security.
Taxation of Trust Assets
Interest Income
Each trust certificateholder will be required to report on its United
States federal income tax return its pro rata share of the income from the
underlying securities. As a general rule, and subject to the discussion below
regarding original issue discount, the trust certificateholder's gross income
will include interest income from each of the underlying securities (possibly
with an allowance for deductions as described below) in accordance with the
trust certificateholder's regular method of accounting for United States federal
income tax purposes.
Amortizable Bond Premium
It is expected that at least some of the underlying securities will be
considered to be purchased by a trust certificateholder at a premium in relation
to their stated principal amounts. If a trust certificateholder makes an
election under Section 171 of the Code to treat such premium as "amortizable
bond premium," the amount of interest that must be included in the trust
certificateholder's gross income in respect of such an underlying security for
an accrual period will be reduced by the portion of the premium allocable to the
period based on such underlying security's yield to maturity as of the date of
acquisition. If a trust certificateholder makes the election under Section 171
of the Code, the election shall also apply to all debt instruments (other than
tax-exempt bonds) that were acquired at a premium and held by the trust
certificateholder at the beginning of the first taxable year to which the
election applies and to all such premium debt instruments thereafter acquired by
it, and is irrevocable without the consent of the IRS. If such an election is
not made, a trust certificateholder must include the full amount of each
interest payment in gross income in accordance with its regular method of tax
accounting and will take into account the premium only in computing its gain or
loss upon the sale or other disposition or retirement of the underlying
security. Trust certificateholders should consult their own tax advisors
regarding the applicability of the bond premium rules, including the
advisability of making the election described above.
Market Discount
An underlying security will have market discount if its stated
redemption price at maturity exceeds a trust certificateholder's initial tax
basis in such underlying security (determined as described above) by more than a
de minimis amount (generally, 0.25% of the stated redemption price multiplied by
the number of complete years to maturity). A trust certificateholder that is
treated as purchasing an underlying security at a market discount will be
required to treat any principal payments on, or any gain realized upon the
disposition or retirement of, such underlying security as interest income to the
extent of the market discount that accrued while the trust certificateholder was
deemed to hold such underlying security, unless the trust certificateholder
elects to include
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such market discount in gross income on a current basis. A trust
certificateholder that is treated as acquiring an underlying security with
market discount and that does not elect to include market discount in income on
a current basis may be also required to defer the deduction for a portion of the
interest expense on any indebtedness incurred or continued to purchase or carry
such underlying security until the deferred income is realized. Trust
certificateholders should consult their own tax advisors regarding the potential
application of the market discount rules.
Original Issue Discount
Some of the underlying securities that each trust certificateholder
will be deemed to own directly are principal Treasury STRIPS. These principal
Treasury STRIPS will be treated under section 1286 of the Code as purchased by
each trust certificateholder at original issuance at an "issue price" equal to
the purchase price allocated to it, determined in the manner described above
under "Allocations." The excess of the stated redemption price at maturity of
the principal Treasury STRIPS (that is, the maturity amount) over the issue
price of such STRIPS will constitute original issue discount ("OID") for United
States federal income tax purposes. Each trust certificateholder (whether on the
cash or accrual method of tax accounting) will be required to include in its
gross income (and report on its own annual United States federal income tax
return) such OID as it accrues on a daily basis under a constant yield method,
prior to the receipt of the principal payment on such bond. The constant yield
used in accruing OID will be the discount rate that, when used in computing the
present value of the payments to be made on the principal Treasury STRIPS, would
produce an amount equal to the deemed issue price of the STRIPS. Under the
constant yield method, a trust certificateholder generally will be required to
include in income increasingly greater amounts of OID in later accrual periods.
The amount of OID required to be taken into account by a trust certificateholder
in any particular taxable year may exceed the amount of distributions paid to
such trust certificateholder in that year. Trust certificateholders should
consult their own tax advisors regarding the calculation of OID and reporting of
OID on their own income tax returns.
Sale or Exchange of Trust Certificates or Retirement of
Underlying Securities
Upon the sale, exchange or other disposition of a trust certificate and
upon the retirement of any underlying security, a trust certificateholder will
recognize gain or loss for United States federal income tax purposes equal to
the difference, if any, between the amount realized upon the disposition
allocable to each underlying security disposed of or retired and the trust
certificateholder's adjusted tax basis in such underlying security. A trust
certificateholder's adjusted tax basis for determining gain or loss will be
determined as described above under "Allocations," decreased by the portion of
any premium applied to reduce interest payments and increased by any market
discount or OID previously included in gross income with respect to such
underlying security. Gain or loss upon the disposition or retirement of an
underlying security will be capital gain or loss, except to the extent the gain
represents accrued but unpaid interest.
Depending on the circumstances, a modification of the terms of an
underlying security could be a taxable event to trust certificateholders on
which they would recognize gain or loss for United States federal income tax
purposes with respect to such underlying security.
Deductibility of Trust's Fees and Expenses
In computing its United States federal income tax liability, a trust
certificateholder will be entitled to deduct, consistent with its regular method
of tax accounting, its share of reasonable administrative fees, trustee fees and
other fees paid or incurred by the trust as provided in section 162 or 212 of
the Code. If a trust certificateholder is an individual, estate or trust, the
deduction for such fees will be a miscellaneous itemized deduction that may be
disallowed in whole or in part.
Foreign Trust Certificateholders
Withholding Tax on Payments of Principal and Interest on Trust
Certificates
Interest paid to trust certificateholders who are not U.S. Persons
("foreign trust certificateholders") generally will not be subject to the 30%
United States federal withholding tax on interest paid from United States
sources, provided that (i) the foreign trust certificateholder does not actually
or constructively own 10% or more of
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the total combined voting power of all classes of stock of any underlying
securities issuer entitled to vote, (ii) the foreign trust certificateholder is
not a controlled foreign corporation for United States tax purposes that is
directly or indirectly related to any underlying securities issuer through stock
ownership, (iii) the foreign trust certificateholder is not a bank described in
Section 881(c)(3)(A) of the Code, and (iv) either (A) the beneficial owner of
the trust certificates certifies to the applicable payor or its agent, under
penalties of perjury, that it is not a U.S. Person and provides its name and
address on U.S. Treasury Form W-8BEN (or a suitable substitute form) or (B) a
securities clearing organization, bank or other financial institution, that
holds customers securities in the ordinary course of its trade or business (a
"financial institution") and holds the trust certificates, certifies under
penalties of perjury that such a Form W-8BEN (or a suitable substitute form) has
been received from the beneficial owner by it or by a financial institution
between it and the beneficial owner and furnishes the payor with a copy thereof.
Otherwise, the 30% United States federal withholding tax may apply to interest
received by a foreign trust certificateholder unless an applicable United States
income tax treaty reduces or eliminates such tax.
If a foreign trust certificateholder holds the trust certificates in
connection with its conduct of a trade or business within the United States,
payments of interest on the trust certificates will not be subject to United
States federal withholding tax if the holder delivers a Form W-8ECI (or a
suitable substitute form) to the payor. However, the foreign trust
certificateholder will be subject to United States federal income tax with
respect to income derived from the trust certificates at regular rates in the
same manner as a U.S. Person, unless an applicable income tax treaty reduces or
eliminates such tax. Such a foreign trust certificateholder, if a corporation,
also may be subject to a branch profits tax at a 30% rate (or, if applicable, a
lower treaty rate).
Gain on Disposition of Trust Certificates
A foreign trust certificateholder generally will not be subject to
United States federal income or withholding tax on gain realized on the sale,
exchange or other disposition of a trust certificate, or upon the retirement of
any underlying security, unless:
o the foreign trust certificateholder is an individual present in
the United States for 183 days or more in the taxable year of
such sale, exchange, retirement or other disposition and either
(A) has a "tax home" in the United States and certain other
requirements are met, or (B) the gain from the disposition is
attributable to an office or other fixed place of business in the
United States;
o in the case of an amount which is attributable to accrued
interest, the foreign trust certificateholder does not meet the
conditions for exemption from the 30% United States federal
withholding tax, as described above; or
o the gain is effectively connected with the foreign trust
certificateholder's conduct of a trade or business within the
United States.
Backup Withholding and Information Reporting
Information returns will be filed with the IRS in connection with
payments on the trust certificates and the proceeds from a sale or other
disposition of the trust certificates. If you own trust certificates and are a
U.S. Person, you will be subject to United States backup withholding tax on
these payments unless you provide your taxpayer identification number to the
paying agent and comply with certain certification procedures. If you are a
foreign trust certificateholder, you may have to comply with certification
procedures to establish that you are not a U.S. Person in order to avoid
information reporting and backup withholding tax requirements. The certification
on Form W-8BEN, required to claim exemption from 30% United States federal
withholding on interest payments as described above, will satisfy the
certification requirements necessary to avoid the United States backup
withholding tax as well.
The amount of any backup withholding imposed on a payment to you will
be allowed as a credit against your United States federal income tax liability
and may entitle you to a refund, provided that the required information is
furnished to the IRS.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain requirements on (a) an employee benefit
plan (as defined in Section 3(3) of ERISA), (b) a plan described in Section
4975(e)(i) of the Code or (c) any entity whose underlying assets include Plan
Assets (as defined below) by reason of a plan's investment in the entity (each,
a "Plan").
In accordance with ERISA's general fiduciary standards, before
investing in a trust certificate, a Plan fiduciary should determine whether such
an investment is permitted under the governing Plan instruments and appropriate
for the Plan in view of the Plan's overall investment policy and the composition
and diversification of its portfolio. Other provisions of ERISA and the Code
prohibit certain transactions involving the assets of a Plan and persons who
have certain specified relationships to the Plan ("Parties in Interest" within
the meaning of ERISA or "Disqualified Persons" within the meaning of the Code).
Thus, a Plan fiduciary considering an investment in trust certificates should
also consider whether such an investment might constitute or give rise to a
prohibited transaction under ERISA or the Code.
An investment in trust certificates by a Plan might result in the
assets of the trust being deemed to constitute Plan Assets, which in turn might
mean that certain aspects of such investment, including the operation of the
trust, might be prohibited transactions under ERISA and the Code. Neither ERISA
nor the Code defines the term "Plan Assets." Under Section 2510.3-101 of the
United States Department of Labor regulations (the "Regulation"), "Plan Assets"
may include an interest in the underlying assets of an entity (such as a trust)
for certain purposes, including the prohibited transaction provisions of ERISA
and the Code, if the Plan acquires an "equity interest" in such entity. Thus, if
a Plan acquired a trust certificate, for certain purposes under ERISA and the
Code (including the prohibited transaction provisions) the Plan would be
considered to own its share of the underlying assets of the trust unless (1)
such trust certificate is a "publicly offered security" or (2) equity
participation by "benefit plan investors" is not "significant."
Under the Regulation, a publicly offered security is a security that is
(1) freely transferable, (2) part of a class of securities that is owned by 100
or more investors independent of the issuer and of one another at the conclusion
of the initial offering and (3) either is (A) part of a class of securities
registered under Section 12(b) or 12(g) of the Exchange Act or (B) sold to the
Plan as part of an offering of securities to the public pursuant to an effective
registration statement under the Securities Act and the class of securities of
which such security is a part is registered under the Exchange Act within 120
days (or such later time as may be allowed by the SEC) after the end of the
fiscal year of the issuer during which the offering of such securities to the
public occurred.
Participation by benefit plan investors in the trust certificates would
not be significant if immediately after the most recent acquisition of a trust
certificate, whether or not from the depositor or Merrill Lynch & Co., less than
25% of (1) the value of such Class of trust certificates and (2) the value of
any other Class of trust certificates that is not a publicly offered security
under the Regulation, were held by benefit plan investors, which are defined as
Plans and employee benefit plans not subject to ERISA (for example, governmental
plans).
Although either or both the exceptions described above (relating to
publicly offered securities and participation by benefit plan investors that is
not significant) may apply to a Plan's investment in trust certificates, no
assurance can be provided that such will be the case. However, if the trust
certificates were deemed to be Plan Assets, certain prohibited transaction
exemptions nevertheless could apply to the acquisition and holding of the trust
certificates.
By acquiring and holding a trust certificate, a Plan shall be deemed to
have represented and warranted to the depositor, the trustee and the underwriter
that such acquisition and holding of a trust certificate, including the
activities of the trust, does not involve a non-exempt prohibited transaction
with respect to such Plan.
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UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, dated as of February 9, 1998, as amended and supplemented by the
terms agreement, dated as of the date set forth in this prospectus supplement,
the depositor has agreed to sell to Merrill Lynch, Pierce, Fenner & Smith
Incorporated, and Merrill Lynch, Pierce, Fenner & Smith Incorporated has agreed
to purchase, all of the trust certificates. The underwriter proposes to offer
the trust certificates directly to the public at the offering price set forth on
the cover page of this prospectus supplement or to dealers at that offering
price less a concession not in excess of % per trust certificate. The
underwriters may allow, and the dealers may reallow, a discount not in excess of
% per trust certificate to other dealers. After the initial offering, the public
offering price, concession and discount may be changed.
In connection with the offering, the underwriter is permitted to engage
in transactions that stabilize the market price of the trust certificates. Such
transactions consist of bids or purchases to peg, fix or maintain the price of
the trust certificates. If the underwriter creates a short position in the trust
certificates, i.e., if it sells more trust certificates than are on the cover
page of this prospectus supplement, the underwriter may reduce that short
position by purchasing trust certificates in the open market. Purchases of a
security to stabilize the price or to reduce a short position could cause the
price of the security to be higher than it might be in the absence of such
purchases.
Neither we make nor the underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the trust certificates. In addition,
neither we make nor the underwriter makes any representation that the
underwriter will engage in these transactions or that these transactions, once
commenced, will not be discontinued without notice.
The underwriter may from time to time provide investment banking and
other financial services to the underlying securities issuer and expects in the
future to provide these services, for which it will receive customary fees and
commissions.
If the size of the trust is increased, the underwriter may participate
in offerings of additional trust certificates, as contemplated on the cover of
this prospectus supplement. Additional trust certificates may be sold for cash
or delivered to cover short positions as more fully described in the
"Underwriting" section on page 61 of the prospectus.
The underwriting agreement provides that the depositor will indemnify
the underwriter against certain civil liabilities, including liabilities under
the Securities Act, or will contribute to payments the underwriter may be
required to make in respect thereof.
VALIDITY OF THE TRUST CERTIFICATES
Shearman & Sterling LLP, New York, New York, will pass upon the
validity of the trust certificates for the depositor and for the underwriter.
RATINGS
It is a condition to the issuance of the trust certificates that the
trust certificates have a rating assigned by Moody's Investors Service, Inc. or
by Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc. (each, a "rating agency" and collectively, the "rating agencies"), on the
original issue date in one of the four highest categories assigned long-term
debt.
Moody's rating of the trust certificates addresses the ultimate cash
receipt of all required interest payments and payments of principal equal to the
par value of the trust certificates, in each case as provided by the governing
documents, and is based on the expected loss posed to the certificateholders
relative to the promise of receiving the present value of such payments. Moody's
rating does not address any additional payments that certificateholders may
receive under the governing documents. S&P's rating of the trust certificates
addresses the likelihood of timely payment of interest on the trust certificates
or any underlying securities distributed in respect of the trust certificates.
The ratings address the likelihood of the payment by the issuer as required
under the trust agreement, and are based
S-38
primarily on the credit quality of the underlying securities. The rating on the
trust certificates does not, however, constitute a statement regarding the
occurrence or frequency of redemptions or prepayments on, or extensions of the
maturity of, the underlying securities, and the corresponding effect on yield to
investors.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating agency. You should evaluate each security rating independently
of similar ratings on different securities.
The depositor has not requested a rating on the trust certificates by
any rating agency other than Moody's and S&P. However, the depositor cannot
assure you as to whether any other rating agency will rate the trust
certificates, or, if it does, what rating would be assigned by any other rating
agency. A rating on the trust certificates by another rating agency, if assigned
at all, may be lower than the ratings assigned to the trust certificates by
Moody's and S&P.
The rating addresses the likelihood that certificateholders will
receive the payment required under the trust agreement and are based primarily
on the credit quality and relative volatility of the underlying securities. The
ratings do not constitute a statement regarding the occurrence or frequency of
redemption or repayment on or extension of the maturity of the underlying
securities, the corresponding effect on yields to investors or whether investors
may fail to recover fully from their initial investment.
Any rating will be based on the initial portfolio of underlying
securities. These ratings may change if any underlying securities are removed
from the portfolio upon their maturity or due to a redemption, repayment or
mandatory liquidation if any underlying security becomes subject to a rating
change. S&P ratings only address the timely receipt of interest or principal on
the certificates. This assessment considers the credit quality of the underlying
securities. The rating does not address market price losses that might occur if
an underlying security is liquidated as the result of the occurrence at a
mandatory liquidation prior to the Final Scheduled Distribution Date.
S&P ratings may change due to changes in the portfolio that occurs when
an underlying securities is a subject of a mandatory liquation, is repaid in
full or has matured.
S-39
PROSPECTUS
PREFERREDPLUS AND INDEXPLUS TRUST CERTIFICATES
(ISSUABLE IN SERIES)
Merrill Lynch Depositor, Inc.
Depositor
The Trust:
o will periodically issue trust certificates in one or more series with
one or more classes through this prospectus and by supplements to this
prospectus; and
o will own underlying securities or a pool of underlying securities
that:
- may include debt securities issued by the U.S. government,
senior or subordinated publicly traded debt obligations of
one or more corporations or general or limited partnerships,
asset-backed securities of one or more trusts or other
special purpose legal entities or preferred securities of
trusts organized by such issuers to issue trust-originated
preferred securities; and
- except for U.S. government securities, will be purchased in
the secondary market and will not be acquired directly from
the issuer of the underlying securities.
The Trust Certificates:
o will be offered in amounts, at prices and on terms to be determined at
the time of sale as described in the prospectus supplement
accompanying this prospectus;
o will be denominated, sold and payable in U.S. dollars or one or more
foreign or composite currencies;
o at the time of their issuance, will be rated in one of the investment
grade categories recognized by one or more nationally recognized
rating agencies; and
o unless otherwise specified in the prospectus supplement, will
represent in the aggregate the beneficial ownership interest in an
aggregate amount of principal of and premium, if any, and interest on
underlying securities, together with other assets, if any, described
in this prospectus and the prospectus supplement.
The Certificateholders:
o will be entitled to receive principal, premium, if any, and
distributions from the assets deposited with the trust as specified in
the applicable prospectus supplement; and
o may have the benefit of any credit support specified in the applicable
prospectus supplement for that series of trust certificates.
Investing in trust certificates involves certain risks that are described
in the "Risk Factors" section beginning on page 6 of this prospectus.
------------------
Neither the Securities and Exchange Commission nor any state securities
commission has 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 trust certificates may be offered and sold to or through underwriters,
dealers or agents or directly to purchasers, as more fully described under
"Underwriting" and in the applicable prospectus supplement. This prospectus may
not be used to consummate sales of trust certificates offered hereby unless
accompanied by a prospectus supplement.
-------------------
Merrill Lynch & Co.
-------------------
The date of this prospectus is October 24, 2002.
TABLE OF CONTENTS
Summary Information Q&A........................................................3
Risk Factors...................................................................6
Incorporation of Certain Documents by
Reference..................................................................13
Reports to Certificateholders.................................................15
The Depositor.................................................................16
Use of Proceeds...............................................................16
Establishment of the Trust....................................................17
Maturity and Yield Considerations.............................................18
Description of the Trust Certificates.........................................19
Description of the Trust Agreement............................................32
Description of Underlying Securities and
Other Assets Deposited in the Trust.........................................44
Currency Risks................................................................53
Federal Income Tax Consequences...............................................53
ERISA Considerations..........................................................58
Underwriting..................................................................61
Legal Matters.................................................................62
You should rely only on the information contained or incorporated in this
prospectus and the related prospectus supplement. We have not authorized anyone
to provide you with different information. If anyone provides you with different
or inconsistent information, you should not rely on it. We are not offering to
sell the trust certificates in any state where the offer or sale is not
permitted. You should assume that the information appearing in this prospectus,
the related prospectus supplement and the documents incorporated by reference is
accurate only as of their respective dates. Material information may have
changed since those dates.
2
SUMMARY INFORMATION Q&A
The following summary does not purport to be complete. You should read it
together with the information contained in other parts of this prospectus and in
the prospectus supplement related to your trust certificates. This summary
highlights selected information from this prospectus to help you understand the
trust certificates. You should carefully read this prospectus and the prospectus
supplement related to your trust certificates to fully understand the terms of
the trust certificates, as well as the tax and other considerations that are
important to you in making a decision about whether to invest in the trust
certificates. You should pay special attention to the "Risk Factors" section
beginning on page 8 of this prospectus to determine whether an investment in the
trust certificates is appropriate for you.
What Securities Are Being Offered?
Through this prospectus and a related prospectus supplement, the applicable
trust is offering public trust certificates periodically in one or more series
and in one or more classes within each series. The trust certificates may be
described as PREFERREDPLUS or INDEXPLUS trust certificates, or by such other
name as the depositor may from time to time describe in a related prospectus
supplement. The trust certificates will be denominated in U.S. dollars or in one
or more foreign or composite currencies. Trust certificates for each series will
be offered in amounts, at prices and on terms to be determined at the time of
sale as described in the related prospectus supplement. For a description of the
kinds of terms that the applicable prospectus supplement will set forth, see
"Description of the Trust Certificates--General."
What Are the Underlying Securities and What Will They Represent?
Each series of trust certificates will represent in the aggregate the
entire beneficial ownership interest in underlying securities or a pool of
underlying securities that may include:
o debt securities issued by the U.S. government,
o senior or subordinated publicly traded debt obligations of one or more
corporations or general or limited partnerships,
o asset-backed securities of one or more trusts or other special purpose
legal entities, or
o preferred securities of trusts organized by one or more corporations
or general or limited partnerships to issue trust-originated preferred
securities.
As a condition to the deposit into a trust of underlying securities, the
issuer of any underlying securities, other than U.S. government securities, that
constitute 10% or more of the total underlying securities of a particular series
of trust certificates must, as of the date of the issuance of the series of
trust certificates, be subject to the periodic reporting requirements of the
Exchange Act. The underlying securities issuer will, pursuant to the Exchange
Act, file reports and other information with the SEC. Except for U.S. government
securities, the underlying securities will be purchased in the secondary market
and not directly from the issuer. The underlying securities issuer will neither
participate in the offering of the trust certificates nor receive any of the
proceeds from the sale of the underlying securities to the depositor or from the
issuance of the trust certificates. For more detailed information on the
underlying securities, see "Description of Underlying Securities and Other
Assets Deposited in the Trust--General" in this prospectus.
What Other Assets May Be Deposited in the Trust?
Certain other assets may be deposited in the trust for a series of
certificates. These other assets may include:
o cash; o floors;
o cash equivalents; o collars and options;
3
o guarantees; o forward contracts;
o letters of credit; o structured securities; and
o financial insurance; o other instruments and transactions
o interest rate, currency, that credit, enhance, hedge or
equity, commodity and otherwise provide support to the
credit-linked swaps; underlying securities to ensure
o caps; the servicing or timely
distribution of payments to
holders of the trust certificates.
The assets deposited in each trust will be described in the applicable
prospectus supplement. For a more detailed description, see "Description of
Underlying Securities and Other Assets Deposited in the Trust" in this
prospectus.
What Credit Support Will Be Available to My Series of Trust Certificates?
If specified in the applicable prospectus supplement, the trust for a
series of trust certificates may also include, or the certificateholders of the
series may have the benefit of any combination of:
o letters of credit; o other types of rights or assets intended
o limited guarantees; to support or ensure the timely or
o surety bonds; ultimate distribution of amounts due in
o swap agreements; respect of a series of trust certificates
o swap guarantees; and or a class within the series.
For a more detailed description of potential credit support, see "Description of
the Deposited Assets--Credit Support" in this prospectus.
Who Is Merrill Lynch Depositor, Inc.?
Merrill Lynch Depositor, Inc., or the "depositor," is a Delaware
corporation and an indirect, wholly owned, limited-purpose subsidiary of Merrill
Lynch, Pierce, Fenner & Smith Incorporated, or Merrill Lynch. The depositor will
deposit the underlying securities into the trust for each particular series of
certificates. The depositor has its principal office c/o Merrill Lynch & Co.,
Inc., World Financial Center, New York, New York 10281. The certificate of
incorporation of the depositor provides that the depositor may conduct any
lawful activities necessary or incidental to serving as depositor of one or more
trusts that may issue and sell trust certificates.
How Will the Trust Work?
The depositor will assign and deliver the underlying securities, together
with any other assets, for each series of trust certificates to the trustee
named in the applicable prospectus supplement. The deposit of these underlying
securities and any other deposited assets will be for the benefit of the trustee
and you, the certificateholders of the series. The trustee will administer the
underlying securities and other deposited assets pursuant to the trust agreement
and the applicable series supplement to the trust agreement and will receive a
fee for those services. For more detailed information about the trust, see
"Description of the Trust Agreement--Assignment of Deposited Assets" in this
prospectus.
How Will the Trust Be Treated for U.S. Federal Income Tax Purposes?
The method of creating and selling each series of trust certificates and
administering the underlying securities will allow each trust to qualify as a
grantor trust under the Internal Revenue Code of 1986, as amended. You will be
treated as the owner of a pro rata undivided interest in the ordinary income and
corpus of the underlying securities deposited in the related grantor trust. For
a more detailed explanation of the federal tax laws and their effect on you, see
"Federal Income Tax Consequences" in this prospectus.
What Types of Employee Benefit or Other Plans May Purchase the Trust
Certificates?
4
An employee benefit plan subject to the Employee Retirement Income Security
Act of 1974, as amended, or ERISA, an individual retirement account or an entity
whose underlying assets include plan assets by reason of a plan's investment in
the entity may purchase trust certificates, provided that either:
o the structure of the offering is such that participation by "benefit
plan investors" is not "significant" or that there are at least 100
independent purchasers of the class of trust certificates being
offered; or
o the plan can represent that its purchase of trust certificates would
not be prohibited under ERISA or the Internal Revenue Code.
For more information regarding benefit plans and the applicable law, see "ERISA
Considerations" in this prospectus.
Will the Trust Certificates Be Rated?
One or more nationally recognized rating agencies will rate the trust
certificates of each series, or class of that series, at the time of issuance,
in one of the investment grade categories. Any rating issued with respect to a
trust certificate is not a recommendation to buy, sell or hold a certificate. We
cannot assure you that any rating will remain the same for any given period of
time or that any rating agency will not revise or withdraw its rating. For more
information see "Risk Factors--If a rating agency lowers its rating of the trust
certificates, the market price of your certificates and your investment may
suffer" in this prospectus.
Will the Trust Certificates Be Listed on a Stock Exchange?
We may apply to list some of the series of trust certificates on the New
York Stock Exchange, another national securities exchange or the Nasdaq National
Market.
In What Form Will the Trust Certificates Be Issued?
Unless otherwise specified in the applicable prospectus supplement, one or
more global securities registered in the name of Cede as nominee of The
Depository Trust Company, or DTC, will initially represent each series of trust
certificates. Book entries of participating members of DTC will represent the
interests of beneficial owners of trust certificates. Individual definitive
trust certificates will be available only under the limited circumstances
described under the heading "Description of the Trust Certificates--Global
Securities" in this prospectus.
5
RISK FACTORS
Your investment in the trust certificates will involve some risks. You
should carefully consider the following discussion of risks and the other
information included or incorporated by reference in this prospectus or in the
prospectus supplement before deciding whether an investment in the trust
certificates is suitable for you.
An inactive public market may limit your ability to sell your trust
certificates.
We cannot assure you that an active public market for the trust
certificates will develop or, if a public market develops, that you will be able
to sell your trust certificates. Merrill Lynch has advised the depositor that it
intends to make a market in any trust certificates issued, as permitted by
applicable laws and regulations, but it is not obligated to make a market in any
series of trust certificates. At its sole discretion, Merrill Lynch may
discontinue its market-making activities at any time without notice. If an
active public market for your trust certificates does not develop or continue,
the market prices and liquidity of your trust certificates may suffer.
Because the trust certificates will not represent a recourse obligation of the
depositor, your recourse will be limited.
The trust certificates will not represent a recourse obligation of or
interest in the depositor, any administrative agent, Merrill Lynch, the
underlying securities issuer or any of their respective affiliates other than
the trust. None of the depositor, Merrill Lynch or any of their respective
affiliates will insure or guarantee the trust certificates. Any obligation of
the depositor with respect to the trust certificates of any series will only be
pursuant to some limited representations and warranties with respect to the
underlying securities or any other assets deposited in the trust. Recourse with
respect to the satisfaction of these obligations will be limited to any recourse
for a breach of a corresponding representation or warranty that the depositor
may have against the seller of the underlying security or the other assets
deposited in the trust, as described in this prospectus or the related
prospectus supplement. The depositor does not have, and is not expected in the
future to have, any assets with which to satisfy any claims arising from a
breach of any representation or warranty.
Your receipt of principal, premium, if any, and distributions will depend
entirely on the performance of the underlying securities and any other assets
deposited in the trust for a particular series of trust certificates.
The trust for a particular series of trust certificates will have no
significant assets other than the underlying securities and any other assets
deposited in the trust. Accordingly, your receipt of distributions in respect of
the trust certificates will depend entirely on the performance of the trust and
on the trust's receipt of payments on the underlying securities and any other
assets deposited in the trust.
If the underlying securities issuer redeems the underlying securities before
their maturity date, or if your trust certificates are subject to call or
redemption rights of third parties, you may not be able to hold your investment
to maturity.
Several factors may affect the timing of distributions on your trust
certificates and reduce your ability to realize a comparable yield upon
reinvestment of funds. If the underlying securities issuer exercises any right
of redemption in respect to the underlying securities deposited in the trust, it
may affect the yield you will receive on your trust certificates. Provisions in
an underlying securities indenture for optional or mandatory redemption or
repayment before stated maturity, if exercised, will reduce the weighted average
life of the underlying securities and the related series of trust certificates.
Tax, accounting, economic and other factors will influence whether an underlying
securities issuer exercises any right of redemption in respect of underlying
securities. We cannot assure you that any underlying security redeemable at the
option of the underlying security issuer will remain outstanding until its
stated maturity. All else remaining equal, if prevailing interest rates are
below the interest rates on the related underlying securities, we expect the
likelihood of the exercise of any optional redemption right to increase. Upon a
redemption of the underlying securities, the trust will redeem any trust
certificates that are not called prior to redemption by any parties that may
hold call rights on the trust certificates. Prevailing interest rates at the
time of an early redemption may be lower than the yield on your trust
certificates; therefore, you may be unable to realize a comparable yield upon
reinvestment of your funds from an early redemption.
The applicable prospectus supplement will discuss any calls, puts or other
redemption options, and some other terms applicable to the underlying securities
and any other assets deposited in the related trust. For further discussion on
factors that may affect your distributions, see "Description of Underlying
Securities and Other Assets Deposited in the Trust--Underlying Securities
Indenture" in this prospectus.
6
If an underlying securities issuer becomes subject to a bankruptcy or similar
insolvency proceeding, the timing and amount of payments with respect to the
principal of, premium on, if any, and any distributions you receive may be
materially and adversely affected.
Several factors, including the underlying securities issuer's operating and
financial condition, capital structure and other economic, geographic, legal and
social factors, can influence the performance of an underlying securities
issuer. Any of these factors may negatively affect the underlying securities
issuer's ability to satisfy its obligations with respect to the underlying
securities related to your trust certificates.
Because some series of trust certificates may be subject to call or redemption
rights of third parties, we cannot assure you that you will be able to hold your
investment to maturity.
Merrill Lynch, the depositor or others, as specified in the prospectus
supplement, may hold the right to purchase from the certificateholders all or
some of the trust certificates of a given series or class. For further
information regarding rights of third parties, see "Description of the Trust
Certificates--Call Right."
We cannot assure you that you will be able to hold to maturity an
investment in trust certificates subject to call rights. In particular, upon the
exercise of a call right, the investment represented by the trust certificates
will have a shorter maturity than if that right were not exercised. The
likelihood that a call right will be exercised increases as interest rates
generally prevailing in the market for debt securities fall relative to those in
effect on the dates or periods when the series of trust certificates may be
issued. Any reduction in interest rates would increase the value of the
underlying securities and make the exercise of a call right more likely.
However, a reduction in interest rates may also result in a reinvestment risk to
certificateholders. If a reduction of interest rates occurs and a call right is
exercised then the interest rates at which a certificateholder can reinvest the
proceeds received from the exercise of that call right may be lower than the
return that the certificateholders would have earned over the remaining life of
the trust certificates if a call right were not exercised.
Some terms of the underlying securities and other assets deposited in the trust
may affect your effective yield.
Two factors may affect the effective yield to holders of the trust
certificates of a series, namely:
o the terms of any assets deposited with the underlying securities, and
o the manner and priorities of allocations of collections with respect
to deposited assets between classes of a given series.
The applicable prospectus supplement will discuss any calls, puts or other
redemption options and other terms applicable to the underlying securities and
any other deposited assets. For detailed information on factors that may affect
your effective yield, see "Description of Underlying Securities and Other Assets
Deposited in the Trust--Underlying Securities Indenture" in this prospectus.
You may incur additional currency, exchange rate and exchange control risks if
the trust certificates are not denominated in U.S. dollars.
An investment in trust certificates that are denominated in a currency
other than U.S. dollars may entail significant risks that are not associated
with similar investments in U.S. dollar-denominated securities. These risks
include the possibility of significant changes in rates of exchange between the
U.S. dollar and the trust certificates' currency and the possibility of the
imposition or modification of foreign exchange controls with respect to the
foreign currency that could restrict or prohibit distributions of principal,
premium or interest in the specified currency. These risks generally depend on
factors over which we have no control, such as economic and political events and
the supply of and demand for the relevant currencies.
This prospectus does not describe all the risks of an investment in trust
certificates denominated in currencies other than the U.S. dollar. You should
consult your own financial and legal advisors as to the risks entailed by an
investment in trust certificates denominated in a currency other than U.S.
dollars. Such trust certificates are not an appropriate investment for persons
who are unsophisticated with respect to foreign currency transactions. For more
information, see "Currency Risks" in this prospectus.
7
Your investment may be subject to risks associated with the trust's use of
derivative instruments.
A trust may include various derivative instruments, including those listed
under the heading "Description of Certain Derivative Instruments" below. The
relevant prospectus supplement will describe the fluctuations in securities,
currency and commodity rates, prices, yields and returns that may have a
significant effect on the yield to maturity of derivatives or the levels of
support that derivatives can provide to a trust.
In addition, derivatives may cover only some risks. The financial condition
of the counterparties to the derivatives or, in some instances, the related
guarantor, may affect the continuation of payments on derivatives. We cannot
assure you that counterparties to the derivatives will be able to perform their
obligations. Failure by a counterparty or the related guarantor to make required
payments may result in the delay or failure to make payments on the related
securities and risks. The related prospectus supplement will identify the
material terms and risks of any relevant derivatives. The related prospectus
supplement also will identify the material terms, the material risks and the
counterparty for any derivative instrument in a trust.
If public information concerning underlying securities issuers ceases to be
available, your ability to make an informed decision to purchase or sell
certificates may suffer.
You should obtain and evaluate the same information concerning each
underlying securities issuer related to your trust certificates as you would
obtain and evaluate if you were investing directly in the underlying securities
or in other securities issued by the underlying securities issuer. You should
not construe the trust's issuance of the trust certificates as the depositor's
or trustee's endorsement of the financial condition or business prospects of the
underlying securities issuer. The publicly available information concerning an
underlying securities issuer is important in considering whether you should
invest in or sell trust certificates. If that information ceases to be
available, your ability to make an informed decision to purchase or sell trust
certificates could suffer.
The depositor undertakes to provide information about the material terms of
the underlying securities in the applicable prospectus supplement. It also
undertakes to provide, in certain circumstances, financial and other information
regarding the underlying securities issuer. For more information see "Underlying
Securities Issuer" in this prospectus. In circumstances where the depositor is
not required to provide financial and other information regarding the underlying
securities issuer, none of the depositor, the trustee, the securities
intermediary, Merrill Lynch or any of their respective affiliates
o assumes any responsibility for the continued availability, accuracy or
completeness of any information concerning any underlying securities
issuer, or
o has investigated the financial condition or creditworthiness of any
underlying securities issuer, whether or not that information is filed
with the SEC or otherwise would be considered in making a decision to
purchase trust certificates.
The above does not apply to any information concerning any underlying securities
issuer that is expressly set forth in this prospectus, an applicable prospectus
supplement or periodic reports of a trust or the depositor.
The depositor's obligation to provide information to you regarding an
underlying securities issuer and the underlying securities ceases upon the sale,
distribution or repayment of the underlying securities. If an issuer of
concentrated underlying securities, other than U.S. government securities,
constituting 10% or more of the total underlying securities for a particular
series of trust certificates ceases to file periodic reports under the Exchange
Act, then either:
o the trustee will sell all of the concentrated underlying securities
and distribute the proceeds from the sale to you in accordance with
the allocation ratio described in the trust agreement and the related
series supplement (that sale will result in a loss to you if the sale
price is less than the purchase price for the concentrated underlying
securities);
o the trustee will distribute those concentrated underlying securities
in kind to you according to the allocation ratio; or
o The depositor will provide you with the financial and other
information that the SEC requires.
8
The related prospectus supplement will describe the choice of remedies for
a given series. Neither the trustee, the securities intermediary, the depositor
nor you will have discretion in this respect.
If a rating agency lowers its rating of the trust certificates, the value of the
certificates and your investment may suffer.
One or more nationally recognized rating agencies will rate the trust
certificates of each series, or class of that series, at the time of issuance,
in one of the investment grade categories. These rating agencies will be solely
responsible for selecting the criteria for rating the trust certificates. They
may rate a series or class of trust certificates on the basis of several
factors, including:
o the underlying securities and any other assets deposited in the trust;
o any credit support available for the trust certificates; and
o the relative priorities of the certificateholders of that series or
class to receive collections from the trust and to assert claims
against the trust with respect to the underlying securities, any other
assets deposited in the trust and any credit support.
Any rating that a rating agency issues with respect to the trust
certificates is not a recommendation to buy, sell or hold a security. The
ratings do not comment on the market price of the trust certificates or their
suitability for a particular investor. We cannot assure you that the ratings
will remain for any given period of time or that any rating agency will not
lower or withdraw entirely its rating if, in its judgment, circumstances,
including the rating of the underlying securities, so warrant. A revision or
withdrawal of the rating may have an adverse effect on the market price of the
trust certificates.
Because global securities, and not individual, physical certificates, initially
will represent the trust certificates of each series, your ability to pledge
your trust certificates may be limited.
One or more global securities deposited with or on behalf of a depositary
will initially represent the trust certificates of each series. You will not
receive individual, physical trust certificates. Consequently, unless and until
individual, physical trust certificates of a particular series are issued, you
will not be a recognized certificateholder under the trust agreement and the
related series supplement. Until that time, you will only be able to exercise
your rights indirectly through the depositary and its participating
institutions. As a result, your ability to pledge your trust certificates to
persons or entities that do not participate in the depositary's system, or
otherwise to act with respect to your trust certificates, may be limited. For
more details, see "Description of the Trust Certificates--Global Securities" in
this prospectus and any further description contained in the applicable
prospectus supplement.
Your ability to dispose of or take action with respect to any underlying
securities and any other assets deposited in the trust may be limited due to the
passive nature of the trust.
The trustee of a trust relating to a particular series of trust
certificates will hold, for the benefit of certificateholders, the underlying
securities and any other assets deposited in the trust. Each trust generally
will hold the deposited assets to maturity and will not dispose of them,
regardless of adverse events, financial or otherwise, that may affect any
underlying securities issuer or the value of the underlying securities and other
assets deposited in the trust. Except as indicated below, you will not be able
to direct the trustee to dispose of or take other actions with respect to any
underlying securities or other assets deposited in the trust.
Under some circumstances described in the applicable prospectus supplement,
the trustee will, or will at the direction of a specified percentage of
certificateholders of the relevant series, dispose of, or take other actions
with respect to, the underlying securities and other assets deposited in the
trust. In some limited circumstances, such as a mandatory redemption of
underlying securities or a third party's exercise of a right to purchase
underlying securities, which is described below under "Description of Underlying
Securities and Other Assets Deposited in the Trust--Principal Terms of
Underlying Securities," the trustee may dispose of the underlying securities and
other assets deposited in the trust before maturity. The applicable prospectus
supplement will describe the particular circumstances, if any, under which the
underlying securities and other assets deposited in the trust may be disposed of
before maturity and additional risk factors relating to any such disposal.
9
Amendments or modifications to the trust agreement or related series supplement
may adversely affect the interests of minority certificateholders.
The prospectus supplement for a series of trust certificates may provide
for the amendment or modification of the trust agreement and the related series
supplement with less than the unanimous consent of the certificateholders. In no
event, however, will the percentage required for consent be less than a
majority. Any amendment or other modification could have a material adverse
effect on minority certificateholders that oppose the amendment or other
modification.
The exercise of an optional exchange right may decrease the amount of
outstanding trust certificates.
The prospectus supplement for a series of trust certificates may designate
the series as an exchangeable series. An exchangeable series is a series in
which any of the depositor, Merrill Lynch, the trustee for that series or their
respective affiliates and designees or other persons identified in the
prospectus supplement may exchange their trust certificates for a pro rata
portion of the underlying securities and any other assets deposited in the
trust. For more detailed information on the optional exchange right, see
"Description of the Trust Certificates--Optional Exchange" in this prospectus.
The exercise of an optional exchange right will decrease the aggregate amount of
the exchangeable series of trust certificates outstanding.
__________________
The prospectus supplement for each series of trust certificates will set
forth information regarding additional risk factors, if any, applicable to that
series and each class within that series.
Description of Certain Derivative Instruments
o interest rate swaps; o forward contracts;
o currency swaps; o commodity swaps and credit swaps;
o securities swaps; and
o caps; o structured securities having
o floors; embedded derivatives, such as
o collars and options; structured notes.
Swaps involve the exchange with another party of their respective
commitments to pay or receive amounts computed by reference to:
o specified fixed or floating interest rates;
o currency rates;
o securities prices;
o yields or returns, including baskets of securities or securities
indices; or
o commodity prices,
and a notional principal amount. The notional principal amount is the reference
amount with respect to which obligations are determined, although no actual
exchange of principal occurs except in the case of currency swaps. An example of
a swap is an exchange of floating rate payments for fixed rate payments on a
periodic basis. Interim payments are generally netted, with the difference being
paid by one party to the other.
The purchase of a cap entitles the purchaser, to the extent that a
specified rate, price, yield or return exceeds a predetermined level, to receive
payments computed by reference to a specified fixed or floating rate, price,
yield or return and a notional principal amount from the party selling the cap.
The purchase of a floor entitles the purchaser, to the extent that a
specified rate, price, yield or return declines below a predetermined level, to
receive payments computed by reference to a specified fixed or floating rate,
price, yield or return and a notional principal amount from the party selling
that floor.
10
Options work similarly to caps and floors, and exist on various underlying
securities, such as bonds, equities, currencies and commodities. Options can
also be structured as securities, such as warrants, or can be embedded in
securities, such as some commodity or equity-linked bonds with option-like
characteristics.
Forward contracts involve the purchase and sale of a specified security,
commodity, currency or other financial instrument at a specified price and date
in the future, and may be settled by physical delivery or cash payment.
Credit derivatives involve swap and option contracts designed to assume or
lay off credit risk on loans, debt securities or other assets, or in relation to
a particular reference entity or country, in return for either swap payments or
payment of premium. Credit derivatives may also be embedded in other
instruments, such as notes or warrants. Credit derivatives give one party to a
transaction the right to dispose of or acquire an asset or group of assets, or
the right to receive or make a payment from the other party, upon the occurrence
of specified credit events.
11
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE PROSPECTUS SUPPLEMENT
We provide information to you about the trust certificates in two separate
documents: (1) this prospectus, which provides general information, some of
which may not apply to a particular series of trust certificates, including your
series, and (2) the related prospectus supplement, which will describe the
specific terms of your series of trust certificates, including:
o the specific designation and aggregate principal amount of the trust
certificates;
o the currency or currencies in which the trust will distribute
principal, premium, if any, and any distributions to you;
o a description of the material terms of the underlying securities
together with any other assets deposited in the trust and any credit
support;
o the number and designation of the classes of trust certificates we are
issuing and the minimum denomination of the trust certificates;
o the aggregate principal amount of trust certificates we are issuing,
or in case of strip certificates that are entitled to
disproportionate, nominal or no principal distributions, the notional
principal amount on which interest will be paid;
o the relative rights and priorities of each series or class of trust
certificates, including the type, characteristics and specifications
of the underlying securities together with any other assets deposited
in the trust and any credit support for the series or class of trust
certificates being issued;
o the identity of each issuer of underlying securities and each obligor
with respect to any other assets deposited in the trust;
o the name of the trustee and any administrative agent;
o the applicable rate of distributions or, in the case of a variable
rate, the method of calculating the distributions;
o the dates on which you will be entitled to receive principal, premium,
if any, and/or distributions;
o the date of issue of the trust certificates;
o the final scheduled distribution date of the trust certificates, if
applicable;
o the offering price or prices of the trust certificates;
o remedies upon a payment default on the underlying securities;
o voting rights and required voting percentages with regard to certain
actions by the depositor or the trustee under the trust agreement and
the supplement to the trust agreement relating to the trust
certificates, or with regard to the applicable trust; and
o any other material terms of the trust certificates, including terms
relating to the rights of the trust or any third party to call, redeem
or purchase the trust certificates or the underlying securities before
the final scheduled distribution date.
See "Description of the Trust Certificates--General" for a listing of other
terms that the applicable prospectus supplement may specify. If the terms of a
particular series of trust certificates vary between this prospectus and the
prospectus supplement, you should rely on the information in the prospectus
supplement.
12
WHERE YOU CAN FIND MORE INFORMATION
Merrill Lynch Depositor Inc. has filed with the Securities and Exchange
Commission, or SEC, a registration statement on Form S-3 under the Securities
Act of 1933, as amended, relating to the trust certificates. This prospectus
does not contain all the information included in the registration statement,
which has some parts that have been omitted in accordance with the rules and
regulations of the SEC. The depositor is subject to the periodic reporting
requirements of the Securities Exchange Act of 1934, as amended, and therefore
files reports and other information with the SEC. You can read and copy any
reports, statements or other information that the depositor files with the SEC
at the SEC's Public Reference Room at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. You may also obtain copies of the depositor's SEC
filings for a fee by writing to the SEC's Public Reference Room at 450 Fifth
Street NW, Washington, D.C. 20549. You may obtain information on the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
depositor's SEC filings are also available to the public on the SEC Internet
site at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows the depositor to "incorporate by reference" information it
files with the SEC, which means the depositor can disclose important information
by referring you to those documents. The information incorporated by reference
is considered to be part of this prospectus, and later information the depositor
files with the SEC will automatically update and supersede this information. We
are incorporating by reference the following documents we have filed with the
SEC pursuant to the Exchange Act prior to the date of this Prospectus:
o Annual report on Form 10-K405 for the year ended December 31, 2001 for
Public STEERS(R)Series '98 HLT-1 Trust
o Annual report on Form 10-K405 for the year ended December 31, 2001 for
Public STEERS(R)Series '98 IBM Z-2 Trust
o Annual report on Form 10-K405 for the year ended December 31, 2001 for
Public STEERS(R)Series '98 MCIC-PI Trust
o Annual report on Form 10-K405 for the year ended December 31, 2001 for
Public STEERS(R)Series '98 TRV-CI Trust
o Annual report on Form 10-K405 for the year ended December 31, 2001 for
Public STEERS(R)Series '99 REN-C1 Trust
o Annual report on Form 10-K405 for the year ended December 31, 2001 for
PreferredPLUS Trust Series ALL-1
o Annual report on Form 10-K405 for the year ended December 31, 2001 for
PreferredPLUS Trust Series ATT-1
o Annual report on Form 10-K405 for the year ended December 31, 2001 for
PreferredPLUS Trust Series BLC-1
o Annual report on Form 10-K405 for the year ended December 31, 2001 for
PreferredPLUS Trust Series BLS-1
o Annual report on Form 10-K405 for the year ended December 31, 2001 for
PreferredPLUS Trust Series CCR-1
o Annual report on Form 10-K405 for the year ended December 31, 2001 for
PreferredPLUS Trust Series CTR-1
o Annual report on Form 10-K405 for the year ended December 31, 2001 for
PreferredPLUS Trust Series CZN-1
o Annual report on Form 10-K405 for the year ended December 31, 2001 for
PreferredPLUS Trust Series FRD-1
13
o Annual report on Form 10-K405 for the year ended December 31, 2001 for
PreferredPLUS Trust Series LMG-1
o Annual report on Form 10-K405 for the year ended December 31, 2001 for
PreferredPLUS Trust Series LMG-2
o Annual report on Form 10-K405 for the year ended December 31, 2001 for
PreferredPLUS Trust Series NAI-1
o Annual report on Form 10-K405 for the year ended December 31, 2001 for
PreferredPLUS Trust Series QWS-1
o Annual report on Form 10-K405 for the year ended December 31, 2001 for
PreferredPLUS Trust Series QWS-2
o Annual report on Form 10-K405 for the year ended December 31, 2001 for
PreferredPLUS Trust Series WCM-1
o Current report on Form 8-K for PreferredPLUS Trust Series LMG-2 dated
January 15, 2002
o Current report on Form 8-K for PreferredPLUS Trust Series BLC-2 dated
February 1, 2002
o Current report on Form 8-K for PreferredPLUS Trust Series LMG-1 dated
February 1, 2002
o Current report on Form 8-K for PreferredPLUS Trust Series ALL-1 dated
February 15, 2002
o Current report on Form 8-K for PreferredPLUS Trust Series QWS-1 dated
February 15, 2002
o Current report on Form 8-K for PreferredPLUS Trust Series QWS-2 dated
February 15, 2002
o Current report on Form 8-K for PreferredPLUS Trust Series WCM-1 dated
February 15, 2002
o Current report on Form 8-K for Public STEERS(R)Series '99 REN-C1 Trust
dated March 1, 2002
o Current report on Form 8-K for PreferredPLUS Trust Series ATT-1 dated
March 15, 2002
o Current report on Form 8-K for PreferredPLUS Trust Series BLC-1 dated
March 15, 2002
o Current report on Form 8-K for PreferredPLUS Trust Series BLC-2 dated
March 15, 2002
o Current report on Form 8-K for PreferredPLUS Trust Series ELP-1 dated
March 25, 2002
o Current report on Form 8-K for PreferredPLUS Trust Series CZN-1 dated
April 1, 2002
o Current report on Form 8-K for PreferredPLUS Trust Series ELP-1 dated
April 9, 2002
o Current report on Form 8-K for Public STEERS(R)Series '98 HLT-1 Trust
dated April 15, 2002
o Current report on Form 8-K for PreferredPLUS Trust Series FRD-1 dated
May 1, 2002
o Current report on Form 8-K for PreferredPLUS Trust Series MSD-1 dated
May 29, 2002
o Current report on Form 8-K for PreferredPLUS Trust Series MSD-1 dated
May 29, 2002
In all cases, you should rely on the later information over different
information included in this prospectus or the accompanying prospectus
supplement. We incorporate by reference any future SEC reports filed by or on
behalf of the trust until we terminate our offering of the certificates.
14
You may request a copy of the documents incorporated by reference, except
exhibits to those documents (unless the exhibits are specifically incorporated
by reference in those documents). Documents may be requested orally or in
writing and will be provided at no cost to you. Written requests should be
directed to Merrill Lynch Depositor, Inc., c/o Merrill Lynch & Co., Inc., World
Financial Center, New York, New York 10281, Attention: Secretary. Telephone
requests should be directed to the depositor at 212-449-1000.
REPORTS TO CERTIFICATEHOLDERS
Except as otherwise specified in the applicable prospectus supplement,
unless and until individual definitive trust certificates are issued to you,
unaudited reports containing information concerning each trust will be prepared
annually by the trustee for that trust and sent on behalf of the trust only to
Cede, as nominee of DTC and registered holder of the certificates. If a trust
issues definitive certificates, the reports will be prepared by the trustee for
that trust and sent on behalf of the trust directly to you in accordance with
the trust agreement and the supplement to the trust agreement relating to the
trust certificates. For more information, see "Description of the Trust
Certificates--Global Securities" and "Description of the Trust
Agreement--Reports to Certificateholders; Notices." These reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles. The depositor, on behalf of each trust, will cause the
filing of periodic reports in accordance with Exchange Act requirements. We do
not intend to send any financial reports to you.
References in this prospectus to U.S. dollars, "US$," "dollar" or "$" are
to the lawful currency of the United States.
15
THE DEPOSITOR
The depositor is a Delaware corporation and an indirect, wholly owned,
limited-purpose subsidiary of Merrill Lynch. The principal office of the
depositor is c/o Merrill Lynch & Co., World Financial Center, New York, New York
10281. The depositor's certificate of incorporation provides that the depositor
may conduct any lawful activities necessary or incidental to serving as
depositor of one or more trusts that may issue and sell trust certificates
offered through this prospectus and the related prospectus supplement.
USE OF PROCEEDS
If the depositor purchases the underlying securities and any other assets
deposited in the trust, the depositor will use the net proceeds from the sale of
each series or class of trust certificates, whether or not offered through this
prospectus, to fund the depositor's purchase of those underlying securities and
other assets, and to arrange any credit support. If specified in the applicable
prospectus supplement, this credit support may include deposits into any reserve
account or the applicable trust certificate account, as described below, for the
benefit of the certificateholders of the series or class. The depositor will use
any remaining net proceeds:
o for purposes related to the deposit of underlying securities and any
other assets in the trust;
o for the preparation, distribution and filing of periodic reports and
other information, including, but not limited to, the fees and
expenses of the depositor incurred in connection with the ongoing
activities of the trusts; and
o for general corporate purposes.
16
ESTABLISHMENT OF THE TRUST
A separate trust will be created for each series of trust certificates. The
depositor will assign and deliver the deposited assets, which will include the
underlying securities and any other assets deposited in the trust, for each
series of trust certificates to the trustee named in the applicable prospectus
supplement. See "Description of the Trust Agreement--Assignment of Deposited
Assets" in this prospectus for more information. The trustee named in the
prospectus supplement will administer the assets deposited in the trust
according to the trust agreement and the related series supplement and will
receive a fee for those services. The trustee or an administrative agent, if
applicable, will either cause the assignment of the assets deposited in the
trust to be recorded on the books and records of DTC or any other depositary
specified in the prospectus supplement or will obtain an opinion of counsel that
no recordation is required to obtain a first priority perfected security
interest in the deposited assets.
The depositor's assignment of the underlying securities and other deposited
assets to the trustee will be without recourse to the depositor, except as to
some limited representations and warranties, if any.
The applicable prospectus supplement will describe the property of each
trust, which may consist of:
o underlying securities and any other assets deposited in the trust, or
interests in those underlying securities and other assets, excluding
any interest that the depositor, or any previous owner or any other
person or entity has retained or acquired, as may be specified in the
trust agreement and the related series supplement;
o assets that may be identified as deposited in the related certificate
account, as described below;
o rights under the agreement or agreements pursuant to which the trustee
has acquired the underlying securities and other assets deposited in
the trust;
o those elements of credit support, if any, for any series or class
within that series that are specified as being part of the related
trust in the applicable prospectus supplement; for further details,
see the applicable prospectus supplement and "Description of
Underlying Securities and Other Assets Deposited in the Trust--Credit
Support" in this prospectus; and
o any cash or other property received upon the sale, exchange,
collection or other disposition of any of the items described above.
17
MATURITY AND YIELD CONSIDERATIONS
Each prospectus supplement will, to the extent applicable, contain
information regarding the types and maturities of the underlying securities and
the terms, if any, upon which they may be subject to early redemption or
repayment. The exercise of any provisions for the redemption or repayment of
underlying securities before their stated maturity will reduce the weighted
average life of the underlying securities and the related series of trust
certificates or class of certificates within that series.
Some terms of the underlying securities, and any other assets deposited in
the trust, may affect the effective yield of the trust certificates of any
series and any class of certificates within that series. In addition, the manner
and priorities of allocations of collections with respect to those underlying
securities and other assets between classes of a particular series can also
affect the effective yield of the trust certificates of any series and any class
of certificates in that series. With respect to any series of trust
certificates, a variety of tax, accounting, economic, and other factors will
influence whether an underlying securities issuer exercises any right of
redemption in respect of its securities. All else remaining equal, if prevailing
interest rates are below the interest rates on the related underlying
securities, we would expect the likelihood of redemption to increase.
As specified in the applicable prospectus supplement, each of the
underlying securities may be subject to acceleration upon the occurrence of some
events of default under the terms of the underlying securities. Any early
repayment of the underlying securities as a result of an acceleration will
affect the maturity and yield on the trust certificates. For further
information, see "Description of Underlying Securities and Other Assets
Deposited in the Trust--Underlying Securities Indenture" in this prospectus. If
an underlying securities issuer becomes subject to a bankruptcy proceeding, that
proceeding may materially and adversely affect the timing and amount of payments
of principal, premium, if any, or distributions on the certificates. Several
factors, including an underlying securities issuer's operating and financial
condition and leverage, and economic, geographic, legal and social factors, may
affect the underlying securities issuer's ability to satisfy its obligations
under the underlying securities.
The extent to which the yield to maturity of trust certificates may vary
from the anticipated yield due to the rate and timing of payments on the
underlying securities and any other assets deposited in the trust will depend
upon:
o the degree to which the trust certificates are purchased at a
discount or premium; and
o the degree to which the timing of payments on the trust
certificates is sensitive to the rate and timing of payments on
the underlying securities and other assets deposited in the
trust.
If the interest rate of any series of trust certificates, or class within
that series, is based on variable or adjustable interest rates, variations in
the interest rates applicable to, and corresponding payments in respect of, the
trust certificates will also affect the yield to maturity of the certificates.
In the case of any series of trust certificates representing an interest in a
pool of debt or other eligible securities, disproportionate principal payments,
if any, applicable to those certificates may affect the yield on those
certificates which have distribution rates higher or lower than the applicable
reference interest rate. These disproportionate principal payments may result
from differences in amortization schedules, payments due on scheduled maturity
or upon early redemption.
The prospectus supplement for each series of trust certificates will set
forth additional information regarding yield and maturity considerations
applicable to that series and each class within that series and the related
underlying securities and other assets deposited in the trust.
18
DESCRIPTION OF THE TRUST CERTIFICATES
The related trust will issue each series of trust certificates, or classes
within that series, pursuant to the trust agreement and the series supplement
relating to that series among the depositor, the trustee and any intermediaries
named in the applicable prospectus supplement. We have filed a form of the trust
agreement as an exhibit to our registration statement on Form S-3 (Registration
No. 333-29015). The provisions of the applicable series supplement may vary
depending upon the terms of the trust certificates being issued, the underlying
assets and any other assets deposited in the trust, the credit support, if any,
and the related trust. The following summary describes material provisions of
the trust agreement and the related series supplement that may be applicable to
each series of trust certificates. The applicable prospectus supplement will
describe any material provision of the trust agreement and the related series
supplement that is not described or materially differs from the description in
this prospectus.
The following summary does not purport to be complete and is subject to the
detailed provisions of the trust agreement and related series supplement. You
should carefully read the form of trust agreement and the related series
supplement for a full description of the provisions, including the definition of
some terms used, and for other information regarding the trust certificates.
Whenever this prospectus refers to the defined terms of the trust agreement and
the related series supplement, those defined terms are incorporated by reference
in this prospectus as part of the statement made, and the statement is qualified
in its entirety by that reference. The term "trust certificate," with respect to
any series, refers to all the trust certificates of that series, and each class
within that series, whether or not offered in this prospectus and by the
applicable prospectus supplement, unless the context otherwise requires.
Following the issuance of a series of trust certificates, the applicable
trust will file with the SEC a copy of the series supplement relating to that
series as an exhibit to a current report on Form 8-K.
General
The amount of trust certificates that may be issued under the trust
agreement and the related series supplement is unlimited. The trust agreement
and series supplement for a particular series of trust certificates will provide
that trust certificates of that series may be issued in multiple classes. The
series of trust certificates, or classes within that series, to be issued under
the trust agreement and the related series supplement will represent in the
aggregate the beneficial ownership interest in an aggregate amount of principal
of and premium, if any, and interest on underlying securities, together with
other assets, if any, as described in this prospectus and the prospectus
supplement.
Each of the classes, if any, will be allocated relative priorities to
receive specified collections from and a percentage ownership interest of the
assets deposited in the trust as identified and described in the applicable
prospectus supplement. For further information, see "Description of Underlying
Securities and Other Assets Deposited in the Trust--Collections" in this
prospectus. The applicable prospectus supplement will also contain a description
of the following terms applicable to the series of trust certificates in respect
of which this prospectus and the related prospectus supplement are being
delivered:
(A) the title of the trust certificates;
(B) the series of the trust certificates and, if applicable, the
number and designation of classes of that series;
(C) material information concerning the type, characteristics
and specifications of the underlying securities, any credit
support, and any other assets that the depositor deposits in
the related trust, including, with respect to any underlying
securities which at the time of deposit represent a
significant portion of the assets in the trust and any
related credit support:
o information concerning the material terms of each
underlying security;
o the identity of the issuer; and
o where publicly available information regarding the
issuer may be obtained;
19
(D) the original issue dates, which are the dates on which, or
periods during which, the series of trust certificates may
be issued;
(E) the offering price of the series of trust certificates;
(F) the limit, if any, upon the aggregate principal amount or
notional amount, as applicable, of each class of the series
of trust certificates;
(G) if applicable, the relative rights and priorities of each
class, including the method for allocating to the
certificateholders of that class any collections from and
defaults or losses on assets deposited in the trust;
(H) whether the trust certificates of that series are fixed rate
certificates or floating rate certificates, as described
below, and:
o the applicable interest rate for the fixed rate
certificates and the method of calculating the interest
rate that is applicable to the series of floating rate
certificates;
o the date or dates from which interest will accrue;
o the applicable distribution dates on which principal of
and premium, if any, and interest on, in each case as
applicable, the series or class will be distributable;
and
o the related record dates, if any, for determining the
amounts of those distributions;
(I) the circumstances and conditions under which any of the
depositor, Merrill Lynch or the trustee, or their respective
affiliates and designees, or any other person identified in
the prospectus supplement may exercise an optional exchange
right and the periods within which or the dates on which,
and the terms and conditions upon which any of those parties
may exercise any optional exchange, in whole or in part and
will state that the exchange right will be exercisable only
to the extent that the exercise of the right:
o would not affect the trust's ability to be exempt under
Rule 3a-7 under the Investment Company Act of 1940, as
amended, and all applicable rules, regulations and
interpretations; and
o would not affect the treatment of the trust as a
"grantor trust" under the Internal Revenue Code;
(J) the option, if any, of any specified third parties, which
may include the depositor, Merrill Lynch or their respective
affiliates, to purchase trust certificates held by a
certificateholder and the periods within which or the dates
on which, and the terms and conditions upon which that
option may be exercised, in whole or in part;
(K) the rating of each series or each class within the series
offered by this prospectus and the related prospectus
supplement;
(L) the denominations in which the depositor can issue the
series or each class within the series;
(M) whether the trust certificates of any class within a given
series will be (a) entitled to principal distributions with
disproportionate, nominal or no interest distributions, or
(b) "strip certificates" that are entitled to interest
distributions with disproportionate, nominal or no principal
distributions, and the terms applicable to each;
(N) the identity of the depositary, if other than DTC, for the
trust certificates;
(O) the specified currency applicable to the trust certificates
of the series or class for purposes of denominations of and
distributions on that series or each class and any
applicable circumstances and conditions when the specified
currency may be changed, at the
20
election of the depositor or a certificateholder, and the
currency or currencies in which any principal of or any
premium or any interest on the series or class are to be
distributed pursuant to that election;
(P) all applicable required percentages and voting rights
relating to the manner and percentage of votes of
certificateholders of the series and each class within that
series required with respect to specified actions by the
depositor or the trustee under the trust agreement and the
related series supplement or with respect to the applicable
trust;
(Q) remedies available upon a payment default on the underlying
securities or an acceleration of the underlying securities;
and
(R) all other material terms of the series or class within that
series of trust certificates.
The applicable prospectus supplement will describe the United States
federal income tax consequences and ERISA consequences relating to the related
series of trust certificates, or any class within the series. In addition, the
applicable prospectus supplement will describe any special considerations, the
specific terms and other information with respect to the issuance of any series
of trust certificates or class within that series of trust certificates, on
which the principal of and any premium and interest are distributable in a
specified currency other than U.S. dollars. The U.S. dollar equivalent of the
public offering price or purchase price of a trust certificate in a specified
currency other than U.S. dollars will be determined on the basis of the noon
buying rate in New York City for cable transfers in foreign currencies as
certified for customs purposes by the Federal Reserve Bank of New York for that
specified currency on the applicable issue date. As specified in the applicable
prospectus supplement, the depositor, the trustee, the administrative agent, if
any, or its agent as exchange rate agent for each series of trust certificates,
will make that determination. If a noon buying rate is not published for the
specified currency, the applicable prospectus supplement will set forth another
source for all exchange rate calculations.
Transfers of beneficial ownership interests in any global certificate will
be effected in accordance with the normal procedures of DTC or any other
specified depositary. If definitive certificates are issued in the limited
circumstances described in this prospectus, they may be transferred or exchanged
for like certificates of the same series at the corporate trust office or agency
of the applicable trustee in the City and State of New York, subject to the
limitations set forth in the trust agreement and the related series supplement,
without the payment of any service charge, other than any tax or governmental
charge.
Distributions
Distributions allocable to principal, premium, if any, and interest on the
trust certificates of each series and each class within the series will be made
by or on behalf of the trustee on each distribution date as specified in the
applicable prospectus supplement. The amount of each distribution will be
determined as of the record date, which refers to the close of business on the
date specified in the applicable prospectus supplement.
Except as provided in the succeeding paragraph, the trustee will make
distributions with respect to trust certificates at its corporate trust office
or agency specified in the applicable prospectus supplement in The City of New
York; provided that the trustee will distribute any amounts distributable on the
final scheduled distribution date of a trust certificate only upon surrender of
the trust certificate at the applicable location stated above.
The trustee will make distributions on trust certificates, except as
provided below, by check mailed to the certificateholders listed on the relevant
record date in the ownership register maintained for that purpose under the
trust agreement and the related series supplement, which, in the case of global
securities, will be a nominee of the depositary. A certificateholder of
$10,000,000 or more in aggregate principal amount of trust certificates of a
given series, and any holder of a global security, shall be entitled to receive
distributions by wire transfer of immediately available funds, but only if the
trustee receives appropriate wire transfer instructions in writing for the
series not later than 10 calendar days before the applicable distribution date.
A "business day" with respect to any trust certificate means (1) any day
other than a Saturday, a Sunday or a legal holiday or a day on which banking
institutions or trust companies in The City of New York are authorized or
obligated by law, regulation or executive order to close; or (2) a business day,
as the term is used in the indenture, or other governing document, for the
underlying securities.
21
Distributions on the Trust Certificates
Each class of trust certificates of a given series, other than some classes
of strip certificates, which are trust certificates with nominal,
disproportionate or no interest distributions, may have a different applicable
distribution rates, which may be fixed or floating, as described below. In the
case of strip certificates that entitle their holders to receive either nominal
or no certificate principal balance, the distributions will be in an amount
described in the applicable prospectus supplement. In this prospectus,
"certificate principal balance" means amounts in respect of principal out of the
future cash flows of the assets deposited in the trust. In addition, in this
prospectus "notional amount" means the notional principal amount specified in
the applicable prospectus supplement on which interest on strip certificates
with a nominal or no certificate principal balance will be made on each
distribution date. Reference to the notional amount of a class of strip
certificates in this prospectus or in a prospectus supplement does not indicate
that those certificates represent the right to receive any distribution in
respect of principal in that amount, but rather we use the term "notional
amount" solely as a basis for calculating the amount of required distributions
and determining some relative voting rights, all as specified in the applicable
prospectus supplement. The applicable distribution rate will be described in the
prospectus supplement and will be based upon the rate of interest received on
the underlying securities, credit support, if any, and any payments in respect
of any retained interest. For a detailed description of "retained interest," see
"Description of the Trust Agreement--Retained Interest" below. The applicable
distribution rate may be either a fixed rate or a floating rate.
Fixed Rate Certificates. Each series of trust certificates with a fixed
distribution rate will pay distributions on the outstanding principal balance of
that series, from its original issue date or from the last date to which
distributions have been paid, at the fixed distribution rate stated on its face
and in the applicable prospectus supplement until the principal amount of that
series is distributed or made available for repayment. In the case of a series
of fixed rate certificates with a nominal or no principal amount, that series
will pay distributions until the notional amount of that series is reduced to
zero, except that, if so specified in the applicable prospectus supplement, the
distribution rate for that series or any class or classes may be subject to
periodic adjustment in response to designated changes in the rating assigned to
the trust certificates by one or more rating agencies, in accordance with a
schedule or otherwise, all as described in the related prospectus supplement.
Unless otherwise stated in the prospectus supplement, interest on each series or
class of fixed rate certificates will be distributable in arrears on each
distribution date as specified in the prospectus supplement. Each distribution
of interest payments shall include interest accrued on the underlying securities
through the day specified in the prospectus supplement and the related series
supplement. Unless otherwise specified in the applicable prospectus supplement,
interest on fixed rate certificates will be computed on the basis of a 360-day
year of twelve 30-day months.
Floating Rate Certificates. Each series of trust certificates with a
variable distribution rate will pay distributions on the outstanding principal
balance of that series at the initial applicable distribution rate set forth on
its face and in the applicable prospectus supplement from its original issue
date to but excluding the first distribution reset date for that series. The
distribution reset date is the first day of each daily, weekly, monthly,
quarterly, semiannual or annual distribution reset period, specified in the
applicable prospectus supplement for the series.
Thereafter, the applicable distribution rate on the series for each
distribution reset date will be determined by reference to an interest rate
basis, or "base rate," plus or minus the spread, if any, or multiplied by the
spread multiplier. The "base rate" for any series of trust certificates will, as
described in greater detail below, be a fluctuating rate of interest that is
publicly available and is established by reference to quotations provided by
third parties of the interest rate prevailing on loans or other extensions of
credit in a specified credit market. The "spread" is the number of basis points,
where one basis point equals one one-hundredth of a percentage point, that may
be specified in the applicable prospectus supplement as being applicable to that
series. The "spread multiplier" is the percentage that may be specified in the
applicable prospectus supplement as being applicable to that series. The
applicable prospectus supplement may specify, however, that the spread or spread
multiplier on that series of floating rate certificates may be subject to
adjustment from time to time in response to designated changes in the rating
assigned to those trust certificates by one or more rating agencies, in
accordance with a schedule or otherwise, all as described in the prospectus
supplement.
The applicable prospectus supplement, unless it otherwise specifies, will
designate one of the following base rates as applicable to a floating rate
certificate:
o the CD rate for a "CD rate o the Prime Rate for a "prime rate
certificate"; certificate";
o the commercial paper rate o the treasury rate for a "treasury
for a "commercial paper rate rate certificate"; or
certificate"; o another base rate, as set forth in
22
o the federal funds rate for a the applicable prospectus
"federal funds certificate"; supplement.
o LIBOR rate for a "LIBOR
certificate";
Distributions will be payable only from cash that the trustee receives from
the underlying securities and any other assets deposited in the trust that are
available for application to that payment, notwithstanding the accrual of
distributions on the principal balance of the certificates at a higher rate.
As specified in the applicable prospectus supplement, floating rate
certificates of a particular series may also have either or both of the
following:
(A) a "maximum certificate rate," which is a maximum limitation,
or ceiling, on the rate at which distributions may accrue
during any distribution accrual period specified in the
applicable prospectus supplement; and
(B) a "minimum certificate rate," which is a minimum limitation,
or floor, on the rate at which distributions may accrue
during any distribution accrual period specified in the
prospectus supplement.
In each case, these distribution rates will be expressed as a rate per
annum on a simple interest basis. In addition to any maximum certificate rate,
the distribution rate applicable to any series of floating rate certificates
will in no event be higher than the maximum rate of interest permitted by
applicable New York and United States federal law. Under applicable New York and
United States federal law as of the date of this prospectus, the maximum rate of
interest, with some exceptions, is 25% per annum on a simple interest basis.
The depositor will appoint, and enter into agreements with, calculation
agents who will calculate floating distribution rates on each series of floating
rate certificates. The applicable prospectus supplement will set forth the
identity of the calculation agent for each series of floating rate certificates.
All determinations of distributions by the calculation agent will, if made on a
commercially reasonable basis and in good faith, be conclusive for all purposes
and binding on the holders of floating rate certificates of a given series.
The applicable floating distribution rate will be reset for a "distribution
reset period" that will be reset daily, weekly, monthly, quarterly, semiannually
or annually. The first day of each distribution reset period is called a
"distribution reset date" and, with respect to each series, will be specified in
the applicable prospectus supplement; provided that, unless otherwise specified
in the prospectus supplement, the distribution rate in effect for the 10 days
immediately before the final scheduled distribution date for a particular series
of certificates will be that in effect on the tenth day preceding that final
scheduled distribution date. If a distribution reset date for any series of
floating rate certificates would otherwise be a day that is not a business day,
that distribution reset date will occur on the next business day, except that,
in the case of a LIBOR certificate described above, if that business day would
fall in the next calendar month, the distribution reset date will be the
immediately preceding business day.
Unless the applicable prospectus supplement provides otherwise,
distributions payable in respect of floating rate certificates will be the
accrued distributions from and including the original issue date of the series
or the last distribution reset date to which distributions have accrued and been
distributed, as the case may be, to but excluding the immediately following
distribution date. With respect to a floating rate certificate, accrued
distributions will be calculated by multiplying the certificate's principal
balance by an accrued distribution factor. The accrued distribution factor will
be computed by adding the distribution factors calculated for each day in the
period for which accrued distributions are being calculated. Unless the
applicable prospectus supplement provides otherwise, the distribution factor,
which is expressed as a decimal calculated to seven decimal places without
rounding, for each day is computed by dividing the applicable distribution rate
in effect on that day by 360, in the case of LIBOR certificates, commercial
paper rate certificates, federal funds rate certificates, prime rate
certificates, and CD rate certificates, or by the actual number of days in the
year, in the case of treasury rate certificates. For purposes of making the
foregoing calculation, the variable distribution rate in effect on any
distribution reset date will be the applicable rate as reset on that date.
Unless the applicable prospectus supplement provides otherwise, all
percentages resulting from any calculation of the distribution rate on a
floating rate certificate will be rounded, if necessary, to the nearest
1/100,000 of 1% (.0000001), with five one-millionths of a percentage point
rounded upward, and all currency amounts used in or resulting from that
calculation on floating rate certificates will be rounded to the nearest
one-hundredth of a unit, with .005 of a unit being rounded upward.
23
Distributions on any series of floating rate certificates will be
distributable on the distribution dates and for the distribution accrual periods
as and to the extent set forth in the applicable prospectus supplement.
The "calculation date" pertaining to a record date will be the earlier of
(1) the tenth calendar day after the record date or, if that day is not a
business day, the next succeeding business day or (2) the business day preceding
the applicable distribution date.
Upon the request of the holder of any floating rate certificate of a
particular series, the calculation agent for that series will provide the
applicable distribution rate then in effect and, if determined, the distribution
rate that will become effective on the next distribution reset date with respect
to the floating rate certificate.
In the descriptions below:
o The "index maturity" for any series of floating rate certificates is
the period of maturity of the instrument or obligation from which the
base rate is calculated.
o "H.15(519)" means the publication entitled "Statistical Release
H.15(519), Selected Interest Rates," or any successor publication of
the Board of Governors of the Federal Reserve System.
o "Composite Quotations" means the daily statistical release entitled
"Composite 3:30 p.m. Quotations for U.S. Government Securities," or
any successor publication, published by the Federal Reserve Bank of
New York.
CD Rate Certificates. CD rate certificates will pay distributions at rates
specified in the applicable prospectus supplement and will be calculated with
reference to the CD rate and the spread and/or the spread multiplier, if any.
The "CD rate" means, with respect to any record date, the rate on that date
for negotiable certificates of deposit having the applicable index maturity, as
published by the Board of Governors of the Federal Reserve System in H.15(519)
under the heading "CDs (Secondary Market)." If that rate is not published by
9:00 a.m., New York City time, on the calculation date pertaining to the record
date, the CD rate will be the rate on that record date for negotiable
certificates of deposit of the applicable index maturity, as published by the
Federal Reserve Bank of New York in Composite Quotations under the heading
"Certificates of Deposit." If that rate is not published in Composite Quotations
by 3:00 p.m., New York City time, on the calculation date pertaining to that
record date, then the CD rate for that record date will be the arithmetic mean
of the secondary market offered rates for negotiable certificates of deposit as
of 10:00 a.m., New York City time, on that record date. Those rates will be from
three leading nonbank dealers in negotiable U.S. dollar certificates of deposit
in The City of New York selected by the calculation agent after consultation
with the depositor. The negotiable certificates of deposit will be issued by
major U.S. money center banks of the highest credit standing in the market for
negotiable certificates of deposit and will have a remaining maturity closest to
the applicable index maturity in a denomination of $5,000,000. However, if the
dealers that the calculation agent selects are not quoting those rates, the
distribution rate for the period commencing on the distribution reset date
following the record date will be the distribution rate borne by the CD rate
certificates on the record date. If the CD rate must be calculated then that
calculation will be performed by the calculation agent.
CD rate certificates, like other trust certificates, are not deposit
obligations of a bank and are not insured by the Federal Deposit Insurance
Corporation.
Commercial Paper Rate Certificates. Commercial paper rate certificates will
pay distributions at the rates that the applicable prospectus supplement
specifies, calculated with reference to the commercial paper rate, as described
below, and the spread and/or the spread multiplier, if any.
The "commercial paper rate" means, with respect to any record date, the
money market yield, as described below, on the record date of the rate for
commercial paper having the applicable index maturity, as published in H.15(519)
under the heading "Commercial Paper." If that rate is not published before 9:00
a.m., New York City time, on the calculation date pertaining to that record
date, the commercial paper rate will be the money market yield on that record
date of the rate for commercial paper of the applicable index maturity, as
published by the Federal Reserve Bank of New York in Composite Quotations under
the heading "Commercial Paper." If that rate is not published in Composite
Quotations by 3:00 p.m., New York City time, on the calculation date pertaining
to the record date, then the commercial paper rate for that record date will be
the money market yield of the arithmetic
24
mean of the offered rates for commercial paper of the applicable index maturity
as of 11:00 a.m., New York City time, on that record date. Those rates will be
from three leading dealers of commercial paper in The City of New York selected
by the calculation agent after consultation with the depositor. The commercial
paper will have been placed for industrial issuers whose bond rating, as
determined by a nationally recognized rating agency, is "AA" or the equivalent.
However, if the dealers that the calculation agent selects are not quoting those
rates, the distribution rate for the period commencing on the distribution reset
date following the record date will be the distribution rate borne by the
commercial paper rate certificates on the record date. If the commercial paper
rate must be calculated then that calculation will be performed by the
calculation agent.
The term "money market yield" means 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 applicable period for which interest is being calculated.
Federal Funds Rate Certificates. Federal funds rate certificates will bear
interest at the interest rates that the applicable prospectus supplement
specifies, calculated with reference to the federal funds rate, as described
below, and the spread and/or the spread multiplier, if any.
The "federal funds rate" means, with respect to any record date, the rate
on that date for federal funds, as published in H.15(519) under the heading
"Federal Funds (Effective)." If that rate is not published by 9:00 a.m., New
York City time, on the calculation date pertaining to the record date, the
federal funds rate will be the rate on that record date as published by the
Federal Reserve Bank of New York in Composite Quotations under the heading
"Federal Funds/Effective Rate." If that rate is not published in Composite
Quotations by 3:00 p.m., New York City time, on the calculation date pertaining
to that record date, then the federal funds rate for that record date will be
the arithmetic mean of the rates for the last transaction in overnight federal
funds arranged by three leading brokers of federal funds transactions in The
City of New York as of 9:00 a.m., New York City time, on that record date. Those
dealers will be selected by the calculation agent after consultation with the
depositor. However, if the dealers that the calculation agent selects are not
quoting those rates, the distribution rate for the period commencing on the
distribution reset date following the record date will be the distribution rate
borne by the federal funds certificates on the record date. If the federal funds
rate must be calculated then that calculation will be performed by the
calculation agent.
LIBOR Certificates. LIBOR certificates will pay distributions at the rates
that the applicable prospectus supplement specifies, calculated with reference
to LIBOR and the spread and/or the spread multiplier, if any.
"LIBOR" means, with respect to any record date, the rate that the
calculation agent determines in accordance with either clause (A) or clause (B)
below, as specified in the applicable prospectus supplement:
(A) LIBOR Telerate, which is the rate for deposits in U.S.
dollars of the index maturity specified in the applicable
prospectus supplement, commencing on the second London
Banking Day immediately following the record date, that
appears on Telerate Page 3750 as of 11:00 a.m., London time,
on that record date. "Telerate Page 3750" means the display
designated as page "3750" on the Telerate service, or any
other page that may replace page 3750 on that service or any
other service or services that may be designated by the
British Bankers' Association for the purpose of displaying
London interbank offered rates for U.S. dollar deposits.
(B) LIBOR Reuters, which is the arithmetic mean of the offered
rates for deposits in U.S. dollars having the index maturity
specified in the applicable prospectus supplement,
commencing on the second London Banking Day immediately
following the record date, that appear on the Reuters Screen
LIBO Page as of 11:00 a.m., London time, on that record
date, if at least two of those offered rates appear on the
Reuters Screen LIBO Page. "Reuters Screen LIBO Page" means
the display designated as Page "LIBO" on the Reuters Monitor
Money Rate Service, or any other page that may replace the
LIBO page on that service for the purpose of displaying
London interbank offered rates of major banks.
25
If neither LIBOR Telerate nor LIBOR Reuters is specified in the applicable
prospectus supplement, LIBOR will be determined as if LIBOR Telerate had been
specified.
If, in the case where clause (A) above applies, no rate appears on Telerate
Page 3750 or, in the case where clause (B) above applies, fewer than two offered
rates appear on the Reuters Screen LIBO Page, the calculation agent will
determine LIBOR in respect of the relevant record date on the basis of the rates
at which deposits in U.S. dollars of the index maturity specified in the
applicable prospectus supplement are offered to prime banks in the London
interbank market at approximately 11:00 a.m., London time, on that record date
by four major banks, or "reference banks," in the London interbank market,
selected by the calculation agent, commencing on the second London Banking Day
immediately following the record date in a principal amount of not less than
$1,000,000 that is representative for a single transaction in the market at the
time. The calculation agent will request the principal London office of each of
the reference banks to provide a quotation of its rate. If at least two
quotations are provided, LIBOR for the record date will be the arithmetic mean
of those quotations. If fewer than two quotations are provided, LIBOR for the
record date will be the arithmetic mean of the rates that three major commercial
or investment banks, which may include Merrill Lynch or any of its affiliates,
in The City of New York quote at approximately 11:00 a.m., New York City time,
on the record date for U.S. dollar loans of the applicable index maturity to
leading European banks, commencing on the second London Banking Day immediately
following the record date, in a principal amount of not less than $1,000,000
that is representative for a single transaction in that market at that time.
Those investment banks will be selected by the calculation agent after
consultation with the depositor. However, if the banks that the calculation
agent selects are not quoting those rates, the distribution rate for the period
commencing on the distribution reset date following the record date will be the
distribution rate borne by the LIBOR certificates on the record date. If LIBOR
must be calculated then that calculation will be performed by the calculation
agent.
If any LIBOR certificate is indexed to the offered rates for deposits in a
specified currency other than U.S. dollars, the applicable prospectus supplement
will describe the method for determining the rates.
Prime Rate Certificates. Prime rate certificates will pay distributions at
the interest rates, calculated with reference to the prime rate and the spread
and/or the spread multiplier, if any, specified in the applicable prospectus
supplement.
The "prime rate" means, with respect to any record date, that rate on that
date, as published in H.15(519) under the heading "Bank Prime Loan." If that
rate is not published by 9:00 a.m., New York City time, on the calculation date
pertaining to that record date the prime rate will be the arithmetic mean of the
rates of interest publicly announced by each bank named on the "Reuters Screen
NYMF Page" as that bank's prime rate or base lending rate as in effect for that
record date. "Reuters Screen NYMF Page" means the display designated as page
"NYMF" on the Reuters Monitor Money Rates Service, or any other page that may
replace the NYMF page on that service for the purpose of displaying prime rates
or base lending rates of major U.S. banks. If fewer than four but more than one
rate appears on the Reuters Screen NYMF Page for that record date the prime rate
will be the arithmetic mean of the prime rates, quoted on the basis of the
actual number of days in the year divided by 360, as of the close of business on
that record date by four major money center banks in The City of New York. If
fewer than two rates appear on the Reuters Screen NYMF Page, the prime rate will
be the arithmetic mean of the prime rates in effect for the record date as
furnished in The City of New York by at least three substitute banks or trust
companies organized and doing business under the laws of the United States, or
any U.S. state, in each case having total equity capital of at least
$500,000,000 and subject to supervision or examination by federal or state
authority. The banks and trust companies referred to above will be selected by
the calculation agent after consultation with the depositor. However, if the
banks or trust companies that the calculation agent selects are not quoting
those rates, the distribution rate for the period commencing on the distribution
reset date following the record date will be the distribution rate borne by the
prime rate certificates on the record date. If the prime rate must be calculated
then that calculation will be performed by the calculation agent.
Treasury Rate Certificates. Treasury rate certificates will pay
distributions at the rates, calculated with reference to the treasury rate and
the spread and/or the spread multiplier, if any, specified in the applicable
prospectus supplement.
The "treasury rate" means, with respect to any record date, the rate for
the auction held on that record date of treasury bills of the index maturity
specified in the applicable prospectus supplement, as published in H.15(519)
under the heading "U.S. Government Securities--Treasury bills-auction average
(investment)." If that rate is not published by 9:00 a.m., New York City time,
on the calculation date pertaining to that record date, the prime rate will be
the auction average rate for the record date, expressed as a bond equivalent,
rounded to the nearest 1/100 of 1%, with 5/1,000 of 1% rounded upward, on the
basis of a year of 365 or 366 days, as applicable, and applied on a daily basis,
as otherwise announced by the U.S. Department of the Treasury. If the results of
the auction of treasury bills having the applicable index maturity are not
published or reported as provided above by 3:00 p.m., New York City time, on the
calculation date, or if no auction is held on the record date, then the treasury
rate will be a yield to maturity, expressed as a bond equivalent on the basis of
a year of 365 or 366 days, as applicable, and applied on a
26
daily basis, of the arithmetic mean of the secondary market bid rates, as of
approximately 3:30 p.m., New York City time, on the record date, of three
leading primary U.S. government securities dealers for the issue of Treasury
bills with a remaining maturity closest to the applicable index maturity. Those
dealers will be selected by the calculation agent after consultation with the
depositor. However, if the dealers that the calculation agent selects are not
quoting those rates, the distribution rate for the period commencing on the
distribution reset date following the record date will be the distribution rate
borne by the treasury rate certificates on the record date. If the treasury rate
must be calculated then that calculation will be performed by the calculation
agent.
Principal of the Trust Certificates
Each trust certificate, other than some classes of strip certificates, will
have a "certificate principal balance," which, at any time, will equal the
maximum amount that the holder of the certificate will be entitled to receive in
respect of principal out of the future cash flows on the underlying securities
and any other assets deposited in the trust. The applicable prospectus
supplement will include a section entitled "Description of the Trust
Certificates--Collections and Distributions," which will describe the priority
of distributions on each class of trust certificates in a particular series. The
outstanding certificate principal balance of a trust certificate will be reduced
to the extent of distributions of principal on the certificate. In addition, if
applicable pursuant to the terms of the related series, the outstanding
certificate principal balance will be reduced by the amount of any realized
losses, which are the net losses realized on any underlying securities or other
assets deposited in the trust that are allocated to the certificates. The
applicable prospectus supplement will specify the initial aggregate certificate
principal balance of a series.
Optional Exchange
The applicable prospectus supplement may provide that any of the depositor,
Merrill Lynch, the trustee or their respective affiliates and designees, or any
other person identified in the prospectus supplement, may have an "optional
exchange right." A person with an optional exchange right may, when permitted by
the terms described in the prospectus supplement, exchange trust certificates of
any particular series for a pro rata portion of the underlying securities and
any other assets deposited in the related trust.
The prospectus supplement will specify the terms upon which an optional
exchange right may be exercised; provided that:
(1) any optional exchange right shall be exercisable only to the extent
that the exercise of that right:
(A) would not affect the trust's ability to be exempt under Rule 3a-7
under the Investment Company Act of 1940, as amended, and all
applicable rules, regulations and interpretations under the act;
and
(B) would not affect the characterization of the trust as a "grantor
trust" under the Internal Revenue Code;
(2) any optional exchange right shall be exercisable only to the extent
that the exercise of that right would not result in an
under-collateralization of the related trust; and
(3) if the assets deposited in the trust constitute a pool of underlying
securities then an optional exchange right can not result in the
exercising party receiving a disproportionate amount of any underlying
securities in that pool. Any exercise of the optional exchange right
will be effected so that, with respect to each series or issue of
underlying securities included in that pool, the proportion that the
principal amount of that series or issue of underlying securities
bears to the aggregate principal amount of trust certificates
immediately before the exercise will be equal to the proportion that
the principal amount of the series or issue of underlying securities
bears to the aggregate principal amount of trust certificates
immediately after the exercise. Any related assets that credit enhance
or otherwise support a series or issue of underlying securities will
be distributed in the same proportions as the related underlying
securities.
The exercise of an optional exchange right will decrease the aggregate
amount of trust certificates of the applicable exchangeable series outstanding.
For more details, see "Risk Factors--The exercise of an optional
27
exchange right may decrease the amount of outstanding trust certificates." While
the exercise of an optional exchange will decrease the aggregate amount of trust
certificates of the applicable exchangeable series outstanding, the availability
of the optional exchange right may increase liquidity for the
certificateholders. The ability to exchange trust certificates for underlying
securities enables holders of optional exchange rights to sell underlying
securities, which may be part of a more liquid issue than the trust
certificates, at a better price for the holder than the sale of any such less
liquid trust certificates.
The trustee will provide certificateholders with semi-annual reports
describing, among other things, the aggregate principal amount, or notional
amount, if applicable, of the underlying securities remaining in the related
trust. See "Description of the Trust Agreement--Reports to Certificateholders;
Notices" for more details.
Any series with certificates that may be exchanged pursuant to an optional
exchange right is referred to as an "exchangeable series."
Default and Remedies
If there is a payment default on or acceleration of the underlying
securities or if an underlying securities issuer of concentrated underlying
securities ceases to file Exchange Act reports, then:
(A) the trustee will sell all of the underlying securities and a pro
rata portion of the related assets and distribute the proceeds
from that sale to the certificateholders in accordance with the
allocation ratio described below; or
(B) the trustee will distribute the underlying securities and a pro
rata portion of the related assets in kind to the
certificateholders in accordance with that allocation ratio.
In each of those circumstances, the related prospectus supplement will specify
whether (A) or (B) above will occur or whether and how the trust
certificateholders will be given the opportunity to vote on which of (A) or (B)
will occur. The certificateholders of the relevant series may experience a loss
on any sale described in (A) above if the sale price is less than the purchase
price for the underlying securities. The prospectus supplement will set forth
the choice of remedies for a particular series, and the trustee, the depositor
and certificateholders will have no discretion in this respect.
The "allocation ratio" referred to above is the allocation between classes
of a given series of the total expected cash flows from the underlying
securities and any other assets deposited in the trust of that series. The
prospectus supplement for any series with more than one class will set forth the
allocation ratio for that series. In addition to default or acceleration on
underlying securities, the allocation ratio relates to voting rights held by
owners of underlying securities because those voting rights will be allocated
among certificate holders of different classes of a particular series in
accordance with their economic interests. Further, the allocation ratio applies
in the event of a sale or distribution of underlying securities once an issuer
of concentrated underlying securities ceases to file periodic reports under the
Exchange Act, as discussed below under "Description of Underlying Securities and
Other Assets Deposited in the Trust--Principal Terms of Underlying Securities."
Call Right
The trust certificates or the underlying securities may be subject to a
"call right." A call right may initially be held by the depositor or an
affiliate of the depositor. Also, if so specified in the relevant prospectus
supplement, the depositor or an affiliate of the depositor may have the ability
to transfer the call right.
A call right on trust certificates is the right to purchase all or some of
the trust certificates of a particular series or class from the holders of those
certificates. A call right on underlying securities is the right to purchase all
or some of the underlying securities of a given series from the trust.
The likelihood that a party will exercise its call right increases as
interest rates generally prevailing in the market for debt securities fall
relative to those in effect on the dates on which, or periods during which, the
series of trust certificates may be issued. Any reduction in interest rates
would increase the value of the underlying securities, making the exercise of a
call right more likely. If one or more specified persons hold a call right with
respect to a particular series of certificates, the applicable prospectus
supplement will designate that series as a "callable series."
The terms upon which the persons or entities specified above may exercise a
call right will be described in the applicable prospectus supplement. Those
terms may include the following:
28
o the initial holder of the call right;
o whether the trust certificate principal balance or notional amount of
each trust certificate being purchased pursuant to the call right must
be an authorized denomination;
o the call date or dates; and
o the call price.
After receiving notice of the exercise of a call right, the trustee will
disseminate that notice as specified in the trust agreement. Upon the
satisfaction of any applicable conditions to the exercise of a call right, each
certificateholder will be entitled to receive payment of a pro rata share of the
call price paid in connection with that exercise. In the case of a purchase of
less than all of the trust certificates, only certificateholders from whom trust
certificates are called will be entitled to receive payment of a pro rata share
of the call price. In addition, in conjunction with the exercise of a call on
underlying securities in respect of all or a portion of the underlying
securities, the trust certificates will be redeemed in whole or in part, pro
rata or in accordance with the allocation ratio, as applicable and as specified
in the related prospectus supplement.
Put Right
Some or all of the underlying securities deposited in a trust may give the
holders of those underlying securities a put option. A put option permits the
holders of underlying securities to require the underlying securities issuer to
repurchase or otherwise repay the underlying securities on or after a fixed
date.
If underlying securities for a particular series of certificates are
subject to a put option, the trustee for that series of trust certificates will,
if the criteria specified in the applicable prospectus supplement are met,
exercise the put option on the "put date." The "put date" is the first date that
the option is available to be exercised. If the trustee exercises the put
option, the trustee will tender the underlying securities to the underlying
securities issuer on the put date in exchange for repurchase or repayment
proceeds. The proceeds received by the trust from the exercise of the put option
will be distributed as described in the applicable prospectus supplement.
Holders of callable trust certificates should note that if the holder of a call
right has exercised that right before the put date then any holders of trust
certificates that are called prior to the put date will not receive put
proceeds. Instead, those persons will receive a pro rata share of the call
proceeds as described above under "--Call Right".
The depositor will not issue a series of trust certificates with underlying
securities that are subject to a put option if doing so would either (1) cause
the trust or the depositor to fail to satisfy the applicable requirements for
exemption under Rule 3a-7 under the Investment Company Act of 1940, as amended,
or (2) affect the characterization of the trust as a "grantor trust" under the
Internal Revenue Code.
Global Securities
Unless otherwise specified in the applicable prospectus supplement, all
trust certificates of a given series will, upon issuance, be represented by one
or more global securities that will be deposited with, or on behalf of, DTC, and
registered in the name of Cede, as nominee of DTC. Unless and until a global
security is exchanged in whole or in part for definitive certificates, which are
the individual trust certificates that the global security represents, a global
security may not be transferred except:
o as a whole by the depositary for that global security to a nominee of
that depositary; or
o by a nominee of that depositary to the depositary or another nominee
of the depositary; or
o by that depositary or any nominee of the depositary to a successor of
the depositary or a nominee of the successor.
DTC has advised the depositor as follows:
o DTC is a limited-purpose trust company organized under the laws of the
State of New York;
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o DTC is 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;
o DTC was created to hold securities of the institutions that have
accounts with DTC and to facilitate the clearance and settlement of
securities transactions among those institutions in those securities
through electronic computerized book-entry changes in accounts of the
participating institutions, thereby eliminating the need for physical
movement of trust certificates; and
o DTC's participating institutions include securities brokers and
dealers, including Merrill Lynch, banks, trust companies, clearing
corporations and other organizations, some of which, and/or their
representatives, own DTC. Access to the DTC system is also available
to others, such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with
a participating institution, either directly or indirectly. DTC has
confirmed to the depositor that it intends to follow these procedures.
Upon the issuance of a global security, the depositary for the global
security will credit, on its book-entry registration and transfer system, the
respective principal amounts of the individual trust certificates that the
global security represents to the accounts of its participating institutions.
The underwriters of the trust certificates will designate the accounts to be
credited, or, if the trust certificates are offered and sold directly through
one or more agents, the depositor or its agent or agents will designate the
accounts to be credited. Only institutions that have accounts with the
depositary or persons or entities that may hold beneficial interests through
these institutions can own beneficial interests in a global security. Ownership
of beneficial interests in a global security will be shown on, and the transfer
of that ownership will be effected only through, records maintained by the
depositary for that global security or by institutions that have accounts with
the depositary or persons or entities that hold securities through these
institutions. The laws of some states require that some purchasers of securities
take physical delivery of those securities. Those limits and 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 the global security, the depositary or the nominee, as the case may be,
will be considered the sole certificateholder of the individual trust
certificates that the global security represents for all purposes under the
trust agreement and the related series supplement governing the trust
certificates. Except as set forth below, owners of beneficial interests in a
global security will not be entitled to have the individual trust certificates
that the global security represents registered in their names, will not receive
or be entitled to receive physical delivery of any of those trust certificates
and will not be considered the certificateholders under the trust agreement and
the related series supplement governing the trust certificates. Because the
depositary can act only on behalf of the institutions that have accounts with
it, the ability of a holder of any trust certificate to pledge that trust
certificate to persons or entities that do not participate in the depositary's
system, or to otherwise act with respect to that trust certificate, may be
limited due to the lack of a physical trust certificate.
Payments of principal of and premium, if any, and any distributions on
individual trust certificates represented by a global security will be made to
the depositary or its nominee, as the case may be, as the certificateholder of
the global security. None of the depositor, the trustee or securities
intermediary for the trust certificates, any paying agent or the trust
certificate registrar for the trust certificates will have responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial interests in the global security or for maintaining, supervising
or reviewing any records relating to the beneficial interests.
The depositor expects that the depositary for trust certificates of a
particular series, upon receipt of any payment of principal, premium or
distributions in respect of a definitive global security representing any of the
trust certificates, will immediately credit participating institutions' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of the global security as shown on the records of the
depositary. The depositary also expects that payments by institutions that have
accounts with it to owners of beneficial interests in the global security held
through those institutions will be registered in "street name" and will be the
responsibility of those institutions.
If the depositary for trust certificates of a given series is at any time
unwilling or unable to continue as depositary and the depositor does not appoint
a successor depositary within 90 days, the depositor will issue individual
definitive trust certificates in exchange for the global security or securities
representing those trust certificates. In addition, the depositor may at any
time and in its sole discretion determine not to have any trust certificates of
a particular series represented by one or more global securities and, in that
event, will issue definitive certificates of the series in exchange for the
global security or securities representing the trust certificates. Further,
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if the depositor so specifies with respect to the trust certificates of a
particular series, an owner of a beneficial interest in a global security
representing trust certificates of that series may, on terms acceptable to the
depositor and the depositary for the global security, receive individual
definitive trust certificates in exchange for the beneficial interest. In that
case, an owner of a beneficial interest in a global security will be entitled to
physical delivery of individual definitive trust certificates of the series that
the global security represents equal in principal amount to the beneficial
interest and to have the definitive trust certificates registered in its name.
The applicable prospectus supplement will set forth any specific terms of
the depositary arrangement with respect to any series of trust certificates
being offered to the extent not set forth or different from the description
above.
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DESCRIPTION OF THE TRUST AGREEMENT
General. The following summary of material provisions of the trust
agreement does not purport to be complete and is qualified in its entirety by
reference to the detailed provisions of the form of trust agreement filed as an
exhibit to the registration statement we previously filed on Form S-3
(Registration No. 333-29015). Wherever references to particular sections or
defined terms of the trust agreement appear in this prospectus, those sections
or defined terms are incorporated in this prospectus by reference as part of the
statement made and the statement is qualified in its entirety by such reference.
Assignment of Underlying Securities and Any Other Assets Deposited in the Trust
At the time any series of trust certificates is issued, the depositor will
cause the underlying securities and any other deposited assets specified in the
prospectus supplement to be assigned and delivered to the trustee for deposit in
the related trust, together with all principal, premium, if any, and interest
received by or on behalf of the depositor on or with respect to those underlying
securities and other assets deposited in the trust after the cut-off date
specified in the prospectus supplement, other than principal, premium, if any,
and interest due on or before the cut-off date and other than any retained
interest. Concurrently with that assignment, the depositor will execute, and the
trustee will authenticate and deliver, trust certificates to the depositor in
exchange for the underlying securities and any other assets deposited in the
trust. Each underlying security and other asset deposited in the trust will be
identified in a schedule to the applicable series supplement to the trust
agreement. The schedule will include summary identifying information with
respect to each underlying security and other deposited asset as of the cut-off
date. The schedule will include, to the extent applicable, information regarding
the payment terms, any retained interest, the maturity or term, any rating, and
any other material information with respect to any concentrated underlying
securities.
In addition, the depositor will, with respect to each underlying security
and other deposited asset, deliver or cause to be delivered to the trustee, or
to the custodian, all documents necessary to transfer to the trustee ownership
of the underlying securities and any other assets deposited in the trust. The
trustee or the custodian will hold those documents in trust for the benefit of
the certificateholders.
The depositor will make some representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under, the
trust agreement and the related series supplement. Upon a breach of any
representation of the depositor that materially and adversely affects the
interests of the certificateholders, the depositor will be obligated to cure the
breach in all material respects.
Collection and Other Administrative Procedures
General. With respect to any series of trust certificates, the trustee or
any other person specified in the prospectus supplement, directly or through
administrative agents, will establish and maintain specific accounts for the
benefit of the holders of the relevant trust certificates and will deposit into
those accounts all amounts that it receives in respect of the underlying
securities and any other assets deposited in the trust. The trustee on behalf of
the trust may direct any depository institution maintaining those accounts to
invest the funds in the accounts in one or more "eligible investments," as
defined in the trust agreement, bearing interest or sold at a discount. Any
earnings with respect to those investments will be paid to, and any losses with
respect to the investments will be solely for the account of, the
certificateholders and, if applicable, the holder of the retained interest, in
accordance with the allocation ratio. Further, the trustee or any other person
specified in the prospectus supplement will make reasonable efforts to collect
all scheduled payments under the underlying securities and any other assets
deposited in the trust, and will follow or cause to be followed those collection
procedures, if any, that it would follow with respect to comparable financial
assets that it held for its own account; provided that those procedures are
consistent with the trust agreement and the related series supplement and any
related instrument governing any credit support, and provided further that,
except as otherwise expressly set forth in the applicable prospectus supplement,
the trustee shall not be required to expend or risk its own funds or otherwise
incur personal financial liability.
Realization upon Defaulted Deposited Assets. The trustee, as administrator
with respect to the underlying securities and any other assets deposited in the
trust, on behalf of the certificateholders of a given series, or any class or
classes within the series, will present claims under each applicable credit
support instrument and will take any reasonable steps necessary to receive
payment or to permit recovery under that instrument with respect to defaulted
underlying securities or other assets deposited in the trust. As described
above, all collections by or on behalf of the trustee under any credit support
instrument are to be deposited in the certificate account for the related trust,
subject to withdrawal as described above.
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The trustee will be obligated to follow, or cause to be followed, those
normal practices and procedures it deems necessary or advisable to realize upon
any defaulted underlying securities or other assets deposited in the trust. The
trustee will be required to expend or risk its own funds or otherwise incur
financial liability if and only to the extent specified in the applicable
prospectus supplement. If the proceeds of any liquidation of the defaulted
assets are less than the sum of:
(A) the outstanding principal balance of the assets;
(B) interest accrued but unpaid on those assets at the applicable
interest rate; and
(C) the aggregate amount of expenses incurred by the trustee in
connection with those proceedings to the extent reimbursable from
the assets of the trust under the trust agreement and the related
series supplement,
then the trust for the applicable series will realize a loss in the amount of
the difference. The trustee will be entitled to withdraw or cause to be
withdrawn from the related certificate account out of the net proceeds recovered
on any defaulted assets, as provided in the applicable prospectus supplement,
amounts representing:
o its normal administrative compensation on the underlying securities
and any other assets deposited in the trust;
o unreimbursed administrative expenses incurred with respect to those
assets; and
o any unreimbursed advances of delinquent payments made with respect to
those assets.
Those withdrawals will occur to the extent provided in the applicable prospectus
supplement before the distribution of those proceeds to certificateholders.
Retained Interest
The prospectus supplement for a series of trust certificates will specify
whether there will be any retained interest in the underlying securities and any
other assets deposited in the trust, and, if so, will identify the owner of any
retained interest. If so specified, the retained interest will be established on
an asset-by-asset basis and will be set forth in an exhibit to the applicable
series supplement. A retained interest in underlying securities and any other
assets deposited in the trust represents a specified ownership interest in those
assets and a right to a portion of the payments thereon. Payments in respect of
the retained interest will be deducted from payments on the underlying
securities and any other assets deposited in the trust as received and, in
general, will not be deposited in the applicable certificate account or become a
part of the related trust. After the trustee deducts all applicable fees, as
provided in the trust agreement and the related series supplement, from any
partial recovery on an underlying security, the trustee will allocate any
partial recovery between the holder of the retained interest, if any, and the
certificateholders of the applicable series.
Advances in Respect of Delinquencies
Unless otherwise specified in the applicable prospectus supplement, the
trustee will have no obligation to make any advances with respect to collections
on the underlying securities and any other assets deposited in the trust or in
favor of the certificateholders of the related series of trust certificates.
However, to the extent provided in the applicable prospectus supplement, the
trustee will advance on or before each distribution date its own funds or funds
held in the certificate account for that series that are not part of the funds
available for distribution for that distribution date, in an amount equal to the
aggregate of payments of principal, premium, if any, and interest, net of
related fees and any retained interest, with respect to the underlying
securities and any other assets deposited in the trust that were due during the
related collection period and were delinquent on the related record date,
subject to (1) the trustee's good faith determination that those advances will
be reimbursable from related proceeds, as described below, and (2) other
conditions as may be specified in the prospectus supplement.
Advances are intended to maintain a regular flow of scheduled principal,
premium, if any, and interest payments to holders of the class or classes of
certificates entitled to those payments, rather than to guarantee or insure
against losses. Unless otherwise provided in the applicable prospectus
supplement, advances of the trustee's funds, if any, will be reimbursable only
out of "related proceeds," which are related recoveries on the underlying
securities and any other assets deposited in the trust and amounts received
under any form of credit support for the
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series with respect to which the advances were made. However, any advance will
be reimbursable from any amounts in the certificate accounts for the series to
the extent that the trustee shall determine, in its sole judgment, that the
advance is not ultimately recoverable from related proceeds. If the trustee has
made advances from excess funds in the certificate account for any series, the
trustee will replace the funds in that certificate account on any future
distribution date to the extent that funds in that certificate account on the
distribution date are less than payments required to be made to
certificateholders on that date. If specified in the applicable prospectus
supplement, the obligations, if any, of the trustee to make advances may be
secured by a cash advance reserve fund or a surety bond. If applicable, the
applicable prospectus supplement will contain information regarding the
characteristics of, and the identity of any obligor on, any surety bond.
Matters Regarding the Trustee, the Administrative Agent, and the Depositor
The trustee may enter into administration agreements with one or more
administrative agents to delegate some of its administrative obligations with
respect to a related series of certificates under the trust agreement and the
related series supplement; provided, however, that:
(A) the delegation shall not release the trustee from the duties,
obligations, responsibilities or liabilities arising under the
trust agreement and the related series supplement;
(B) the administration agreement shall not affect the rating of any
class of trust certificates of the series;
(C) the agreements are consistent with the terms of the trust
agreement and the related series supplement;
(D) the trustee will remain solely liable for all fees and expenses
it may owe to the administrative agent;
(E) the administrative agent shall give representations and
warranties in the administration agreement that are the same in
substance as those required of the trustee; and
(F) the administrative agent shall meet the eligibility requirements
of the trustee pursuant to the trust agreement and the related
series supplement.
Any administrative agent for each series of trust certificates under the trust
agreement and the related series supplement will be named in the applicable
prospectus supplement. The entity serving as administrative agent for any series
may be the trustee, the securities intermediary, the depositor, an affiliate of
any of the foregoing or any third party and may have other business
relationships with the trustee, the securities intermediary, the depositor or
their respective affiliates. The applicable prospectus supplement will specify
the administrative agent's compensation, if any, and the source, manner and
priority of payment of that compensation, with respect to a given series of
trust certificates.
The trust agreement and the related series supplement will provide that an
administrative agent may resign from its obligations and duties under the trust
agreement and the related series supplement with respect to any series of trust
certificates only if:
o the resignation, and the appointment of a successor, will not result
in a rating withdrawal or downgrading of any class of trust
certificates of that series; or
o it is determined that the duties of the administrative agent under the
trust agreement and the related series supplement with respect to that
series are no longer permissible under applicable law.
No resignation will become effective until the trustee or a successor has
assumed the administrative agent's obligations and duties under the trust
agreement and the related series supplement.
The trust agreement and the related series supplement will further provide
that none of the administrative agent, the depositor, the trustee, or any
director, officer, employee or agent of the trustee, the administrative agent or
the depositor will incur any liability to the related trust or
certificateholders for any action taken, or for refraining from taking any
action, in good faith pursuant to the trust agreement and the related series
supplement or for errors
34
in judgment. However, none of the depositor or any director, officer, employee
or agent will be protected against any liability that would otherwise be imposed
by reason of:
o willful misfeasance;
o bad faith or gross negligence in the performance of duties; or
o reckless disregard of obligations and duties.
The trust agreement and the related series supplement will further provide
that the trustee, any administrative agent, the depositor and any director,
officer, employee or agent for any of them will be entitled to indemnification
by the related trust and will be held harmless against any loss, liability or
expense incurred in connection with any legal action relating to the trust
agreement and the related series supplement. However, those persons will not be
indemnified for any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or gross negligence in the performance of duties under
the trust agreement and the related series supplement or by reason of reckless
disregard of obligations and duties thereunder. In addition, the trust agreement
and the related series supplement to the trust agreement will provide that the
trustee, any administrative agent, and the depositor are under no obligation to
appear in, prosecute or defend any legal action which is not incidental to their
respective responsibilities under the trust agreement and the related series
supplement to the trust agreement or which in their respective opinions may
involve them in any expense or liability. Each of the trustee, any
administrative agent, and the depositor may, however, in its discretion
undertake any action which it may deem necessary or desirable with respect to
the trust agreement and the related series supplement to the trust agreement and
the rights and duties of the parties and the interests of the certificateholders
under the trust agreement and the related series supplement to the trust
agreement. The applicable prospectus supplement will describe how legal expenses
and costs of any action and any liability resulting from that action will be
allocated.
Neither the trustee, the depositor, nor any administrative agent shall have
any obligations with respect to the underlying securities. The depositor is not
authorized to proceed against the underlying securities issuer in the event of a
default. Except as expressly provided in the trust agreement and the related
series supplement to the trust agreement, the trustee is not authorized to
proceed against the underlying securities issuer or to assert the rights and
privileges of certificateholders.
Any person into which the trustee, the depositor, or an administrative
agent may be merged or consolidated, or any person resulting from any merger of
consolidation to which the trustee, the depositor, or an administrative agent is
a part, or any person succeeding to the business of the trustee, the depositor,
or an administrative agent, will be the successor of the trustee, the depositor,
or that administrative agent under the trust agreement and the related series
supplement with respect to the trust certificates of a series.
Administrative Agent Termination Events; Rights Upon Administrative Agent
Termination Event
"Administrative agent termination events" under the trust agreement and the
related series supplement to the trust agreement relating to any given series of
trust certificates will consist of the following:
o any failure by an administrative agent to remit to the trustee any
funds in respect of collections on the underlying securities and other
assets deposited in the trust and credit support, if any, as required
under the trust agreement and the related series supplement to the
trust agreement, that continues unremedied for five days after:
(1) the trustee or the depositor gives written notice of the failure
to the administrative agent; or
(2) the holders of the trust certificates evidencing not less than
25% of the voting rights give written notice of the failure to
the administrative agent, the depositor and the trustee;
o any failure by an administrative agent duly to observe or perform in
any material respect any of its other covenants or obligations under
its agreement with the trustee with respect to the series, that
continues unremedied for 30 days after:
35
(1) the trustee or the depositor gives written notice of the failure
to the administrative agent; or
(2) the holders of the trust certificates evidencing not less than
25% of the voting rights give written notice of the failure to
the administrative agent, the depositor and the trustee; and
o events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings and actions by or on behalf of an
administrative agent indicating its insolvency or inability to pay its
obligations.
The applicable prospectus supplement will set forth any additional
administrative agent termination events. In addition, the applicable prospectus
supplement and the related trust agreement series supplement will specify, as to
each matter requiring the vote of holders of trust certificates of a class or
group of classes within a given series, the circumstances and manner in which
the required percentage applicable to each matter is calculated. "Required
percentage" means, with respect to any matter requiring a vote of holders of
trust certificates of a given series, the specified percentage of the aggregate
voting rights of the trust certificates of the series applicable to the matter.
"Voting rights" are the portion of the aggregate voting rights of underlying
securities allocated to certificateholders of each class within a given series
and to the holder of the retained interest in direct proportion to the
allocation ratio, as described in the applicable prospectus supplement.
When an administrative agent termination event occurs, the trustee may
terminate the relevant administration agreement and the rights and obligations
of the administrative agent under any administration agreement in accordance
with its terms and conditions. In the event of a termination of the
administration agreement, the trustee shall simultaneously:
o reassume direct responsibility for all obligations it delegated in the
administration agreement without any act or deed on the part of the
applicable administrative agent; and
o administer directly the related underlying securities or enter into an
administration agreement with a successor administrative agent that
complies with the requirements set forth above.
If the trustee is unwilling or unable to act, it may appoint, or petition a
court of competent jurisdiction to appoint, an administrative agent that
complies with the requirements set forth above. Pending the appointment of the
administrative agent, the trustee must act as administrative agent, except if
the trustee is prohibited by law from obligating itself to make advances
regarding delinquent underlying securities and other assets deposited in the
trust.
Trustee Compensation and Payment of Expenses
With respect to a given series of trust certificates, the applicable
prospectus supplement will specify the trustee's compensation, and the source,
manner and priority of payment. The applicable series supplement may provide
that the depositor will pay some prepaid ordinary expenses of the trustee, as
follows:
o If the prepaid ordinary expenses set forth in the series supplement
are greater than zero, the trustee will be deemed to agree that the
payment of that amount constitutes full and final satisfaction of and
payment for all ordinary expenses.
o If the prepaid ordinary expenses set forth in the series supplement
are zero, the series supplement may indicate that the trust will pay
ordinary expenses. In that case, the trustee will be paid on a
periodic basis by the trust or from the retained interest at the rate
or amount and on the terms provided for in the series supplement.
The trustee has agreed, pursuant to the trust agreement and the related
series supplement, that its right to receive those payments from the trust will
constitute full and final satisfaction of and payment for all ordinary expenses
and that the trustee will have no claim on payment of ordinary expenses from any
other source, including the depositor.
Alternatively, if the prepaid ordinary expenses set forth in the series
supplement are zero, the series supplement may provide that the depositor will
periodically pay to the trustee a fee for its services and expenses as trustee.
In that case, the timing and method of payment will be set forth in the series
supplement. The trustee will
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agree, pursuant to the trust agreement and the related series supplement, that
its right to receive those payments from the depositor will constitute full and
final satisfaction of and payment for all ordinary expenses and that the trustee
will have no claim for payment of ordinary expenses from the trust. The trustee
has further agreed that, notwithstanding any failure by the depositor to make
those periodic payments of ordinary expenses, the trustee will continue to
perform its obligations under the trust agreement and the related series
supplement. Any obligation on the depositor to pay ordinary expenses will be
extinguished and of no further effect upon the payment of ordinary expenses due
and owing on the termination of the trust pursuant to the terms of the trust
agreement and the related series supplement.
Subject to the terms of the trust agreement and the related series
supplement, all extraordinary expenses, to the extent not paid by a third party,
are obligations of the trust, and when due and payable will be satisfied solely
by the trust. "Extraordinary expenses" are any and all costs, expenses or
liabilities arising out of the establishment, existence or administration of the
trust, other than:
(A) ordinary expenses; and
(B) costs and expenses payable by a particular trust
certificateholder, the trustee or the depositor pursuant to the
trust agreement and the related series supplement.
The series supplement will define "ordinary expenses." Ordinary expenses
generally consist of the trustee's ordinary expenses and overhead in connection
with its services as trustee, including:
o the costs and expenses of preparing, sending and receiving all
reports, statements, notices, returns, filings, solicitations of
consent or instructions, or other communications required by the trust
agreement and the related series supplement;
o the costs and expenses of holding and making ordinary collection or
payments on the assets of the trust and of determining and making
payments of principal or distributions;
o the costs and expenses of the trust's or trustee's counsel,
accountants and other experts for ordinary or routine consultation or
advice in connection with the establishment, administration and
termination of the trust; and
o any other costs and expenses that are or reasonably should have been
expected to be incurred in the ordinary course of administration of
the trust.
If specified in the applicable series supplement, the trustee, in addition to
amounts payable to any administrative agent, will pay from its compensation any
expenses incurred in connection with its administration of the underlying
securities and other assets deposited in the trust to the extent specified,
including, without limitation, payment of:
o the fees and disbursements of the trustee, if applicable, and
independent accountants;
o expenses incurred in connection with distributions and reports to
certificateholders; and
o any other expenses described in the applicable prospectus supplement.
The trustee will not take any action, including appearing in, instituting
or conducting any action or suit under the trust agreement and the related
series supplement to the trust agreement or in relation to the trust agreement
and related series supplement which:
o is not indemnifiable under the trust agreement and the related series
supplement to the trust agreement;
o in the trustee's opinion, would or might cause it to incur costs,
expenses or liabilities that are extraordinary expenses unless:
(A) the trustee is satisfied that it will have adequate security
or indemnity in respect of the costs, expenses and
liabilities,
(B) the trustee has been instructed by the certificateholders
representing not less than the required percentage-remedies
to do so, and
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(C) the certificateholders, pursuant to the instructions given
under clause (B) above, have agreed that the costs, expenses
or liabilities will either be:
o paid by the trustee from the trust, in the case of a
vote of 100% of the aggregate principal amount of trust
certificates then outstanding; or
o paid by the trustee.
The payment will be made out of the trustee's own funds and not from monies
on deposit in the trust, in which case the trustee will be entitled to receive,
upon demand, reimbursement from those certificateholders who have agreed to bear
the entire amount of those costs, expenses or liabilities on a pro rata basis
among those certificateholders.
Optional Exchange
The terms and conditions, if any, upon which trust certificates of any
series may be exchanged for a pro rata portion of the underlying securities and
other assets deposited in the related trust will be specified in the related
trust agreement and the related series supplement. However, the optional
exchange right will be exercisable only to the extent that the depositor
provides, upon the trustee's request, an opinion of counsel that (1) the
exchange would not be inconsistent with continued satisfaction of the applicable
requirements under the Investment Company Act of 1940, as amended, and (2) the
exchange would not affect the characterization of the trust as a "grantor trust"
under the Internal Revenue Code. In addition, no trust certificate may be
exchanged unless the trustee has received at least 30 days' but not more than 45
days' notice before an optional exchange date, unless otherwise specified in the
related series supplement.
Any tender of a trust certificate by a holder for exchange will be
irrevocable. Unless otherwise provided in the applicable series supplement, the
optional exchange right may be exercised by the holder of a trust certificate
for less than the aggregate principal amount of the trust certificate as long as
the aggregate principal amount outstanding after the exchange is a multiple of
the minimum denomination of the trust certificate and all other exchange
requirements set forth in the related series supplement are satisfied. Upon that
partial exchange, the trust certificate will be canceled and a new trust
certificate or trust certificates for the remaining principal amount of the
trust certificate will be issued. The new trust certificate, in the case of any
trust certificate issued in registered form, will be in the name of the holder
of the exchanged trust certificate.
Voting Rights with Respect to Underlying Securities
The trustee will, within five business days after receiving notice of any
meeting of holders of any of the underlying securities or other occasion for the
exercise of voting rights or the giving of consents by those holders, give
notice to the certificateholders, setting forth:
(A) the information contained in the notice to holders of the
related underlying securities;
(B) a statement that the certificateholders will be entitled,
subject to any applicable provisions of law and any
applicable provisions of the underlying securities, to
instruct the trustee as to the exercise of voting rights, if
any, pertaining to the underlying securities; and
(C) a statement as to the manner in which instructions may be
given to the trustee to give a discretionary proxy to a
person designated in the notice received by the trustee. The
trustee will give the notice to the certificateholders of
record on the relevant record date.
The trustee will endeavor to vote in accordance with any nondiscretionary
instruction set forth in any written requests received from certificateholders.
Those written requests must be received on or before the date established by the
trustee for that purpose. However, the trustee will only act as practicable and
permitted under any applicable provision of law and any applicable provision
contained in or governing the underlying securities. The trustee will not vote
except as specifically authorized and directed in written instructions from the
applicable certificateholder entitled to give those instructions. If, however,
the trustee determines, using advice furnished by nationally recognized
independent tax counsel, whether at the request of any certificateholder or
otherwise, that the exercise of voting rights with respect to any underlying
securities could result in a "sale or other disposition" of those underlying
securities within the meaning of Section 1001(a) of the Internal Revenue Code of
1986, the trustee
38
will exercise the voting rights in a manner that would not result in any sale or
other disposition. The trustee will have no responsibility to make that
determination.
The certificateholder, by accepting delivery of a trust certificate,
whether upon original issuance or subsequent transfer, exchange or replacement
agrees that for so long as it owns the trust certificate it will not grant any
consent to:
(D) any conversion of the timing of payment of, or the method or
rate of accruing, interest on the underlying securities
underlying the trust certificates held; or
(E) any redemption or prepayment of the securities underlying
the trust certificates held.
The certificateholder's agreement is without regard to whether its ownership of
the trust certificates is beneficial or otherwise.
The trustee will not grant any consent, solicited from it as an owner of
the underlying securities underlying the trust certificates, with respect to the
matters under this section in, "--Voting Rights with Respect to Underlying
Securities." As well, the trustee will not accept or take any action in respect
of any consent, proxy or instructions received from any certificateholder in
contravention of the provisions of this section.
Limitations on Rights of Certificateholders
No certificateholder of a given series will have the right under the trust
agreement or the related series supplement to institute any proceeding with
respect to the trust certificates unless:
o the certificateholder previously gave the trustee written notice of a
continuing breach;
o certificateholders evidencing not less than the percentage of the
aggregate voting rights specified in the trust agreement have
requested in writing that the trustee institute the proceeding in its
own name as trustee;
o that certificateholder or those certificateholders have offered the
trustee reasonable indemnity;
o the trustee for 15 days has failed to institute that proceeding; and
o certificateholders evidencing not less than the percentage of the
aggregate voting rights specified in the related series supplement do
not give the trustee directions inconsistent with the written request
during that 15-day period.
The trustee, however, is under no obligation to:
(A) exercise any of the trusts or powers vested in it by the
trust agreement and the related series supplement; or
(B) make any investigation into the facts of matters arising
under the trust agreement and the related series supplement
or stated in any document believed by it to be genuine,
unless the certificateholders of the "required percentage" of trust
certificates, as defined in the trust agreement and the related series
supplement, request the trustee in writing to do so. In addition, the trustee is
under no obligation to institute, conduct or defend any litigation under or
related to the trust agreement or related series supplement at the request,
order or direction of any of certificateholders affected by those agreements
unless those certificateholders have offered to the trustee reasonable security
or indemnity against the costs, expenses and liabilities which may be incurred.
Modification and Waiver
Unless otherwise specified in the applicable prospectus supplement, the
trust agreement and the related series supplement may be amended from time to
time by the depositor and the trustee without notice to or the consent of any of
the certificateholders for any of the following purposes:
39
(A) to cure any ambiguity;
(B) to correct or supplement any provision of the trust
agreement or the related series supplement that may be
inconsistent with any other provision in those agreements or
in the prospectus supplement;
(C) to appoint a change in trustee for a series of trust
certificates after the closing date for that series, as
described in the related prospectus supplement;
(D) to provide for the administration of separate trusts by more
than one trustee;
(E) to provide for a successor trustee with respect to trust
certificates of one or more series;
(F) to provide for the issuance of a new series of trust
certificates pursuant to a prospectus supplement;
(G) to add or supplement any credit support for the benefit of
any certificateholders; however, if any addition affects any
series or class of certificateholders differently from any
other series or class of certificateholders, then that
addition cannot, as evidenced by an opinion of counsel, have
a material adverse effect on the interests of any affected
series or class of certificateholders;
(H) to add to the covenants, restrictions or obligations of the
depositor, the administrative agent or the trustee for the
benefit of the certificateholders;
(I) to comply with any requirements imposed by the Internal
Revenue Code; or
(J) to add, change or eliminate any other provisions with
respect to matters or questions arising under the trust
agreement and the related series supplement.
However, if any amendment is made, it must satisfy the condition that the
certificates be rated as investment grade by at least one rating agency and it
cannot cause any trust created by that document to fail to qualify as a fixed
investment trust or "grantor trust" under the Internal Revenue Code.
Additionally, unless otherwise specified in the applicable prospectus
supplement, the trust agreement and the related series supplement may also be
modified or amended from time to time by the depositor, the trustee and the
securities intermediary for the purpose of adding any provision to or changing
in any manner or eliminating any provision of the trust agreement and the
related series supplement or modifying in any manner the rights of
certificateholders. These amendments require the consent of all the
certificateholders materially adversely affected by the modification or
amendment. The percentage of aggregate voting rights required to give consent to
these amendments will be specified in the trust agreement and related series
supplement. However, if that modification or amendment would materially
adversely affect the rating of any series or class by each rating agency, the
required percentage specified in the related series supplement shall include an
additional specified percentage of the trust certificates of that series or
class. Also, no amendment will:
(A) reduce in any manner the amount of, or delay the timing of,
payments received on underlying securities and other assets
deposited in the trust which are required to be distributed
on any trust certificate without the consent of the holders
of that trust certificate; or
(B) reduce the percentage of aggregate voting rights required to
take any action specified in the trust agreement and the
related series supplement, without the consent of the
holders of all trust certificates of that series or class
then outstanding.
Unless otherwise specified in the applicable prospectus supplement, holders
of trust certificates evidencing not less than the required percentage to waive
the voting rights of a given series may, on behalf of all certificateholders of
that series:
40
(A) waive, insofar as that series is concerned, compliance by
the depositor or the trustee with some restrictive
provisions, if any, of the trust agreement and the related
series supplement before the time for compliance; and
(B) waive any past default under the trust agreement and the
related series supplement with respect to trust certificates
of that series, except a default in the failure to
distribute amounts received as principal of and premium, if
any, or any distributions on any trust certificate and
except a default in respect of a covenant or provision that
if modified or amended would require the consent of the
holder of each outstanding affected trust certificate.
Reports to Certificateholders; Notices
Reports to Certificateholders. The trustee will, with each distribution to
certificateholders of a series, forward or cause to be forwarded to each
certificateholder, to the depositor and to such other parties as may be
specified in the trust agreement and the related series supplement, a statement
setting forth:
(A) the amounts received by the trustee as of the last statement
in respect of principal, premium, if any, and interest on
the underlying securities and any amounts received by the
trustee with respect to any derivatives transaction entered
into by the trust pursuant to the terms of the trust
agreement and the related series supplement;
(B) any amounts payable by the trust as of the statement date
pursuant to any derivatives transaction the trust entered
pursuant to the terms of the trust agreement and the related
series supplement;
(C) the amount of compensation the administrative agent, if any,
and the trustee received for the period relating to that
distribution date, and other customary information the
administrative agent, if any, or otherwise the trustee deems
necessary or desirable, or that the certificateholders
reasonably request in writing to enable them to prepare tax
returns;
(D) the amount of the payment to certificateholders of each
class of the series on that distribution date allocable to
principal of and premium, if any, and distributions on the
trust certificates of each class, and the amount of
aggregate unpaid distributions accrued as of that
distribution date;
(E) in the case of floating rate certificates, the floating rate
applicable to those certificates on the distribution date,
as calculated in accordance with the method specified in the
trust certificates and the related trust agreement series
supplement;
(F) if the series supplement provides for advances, as defined
in the trust agreement and the related series supplement,
the aggregate amount of advances, if any, included in that
distribution, and the aggregate amount of nonreimbursed
advances, if any, at the close of business on that
distribution date;
(G) the aggregate stated principal amount and, if applicable,
the notional amount of the underlying securities related to
the series, their current interest rate or rates at the
close of business on that distribution date and, if the
rating has changed since the last distribution date, the
current rating assigned by the applicable rating agency;
(H) the aggregate principal amount, or notional amount, if
applicable, of each class of the series at the close of
business on the distribution date, separately identifying
any reduction in the aggregate principal amount, or notional
amount, due to the allocation of realized losses on that
distribution date or otherwise, as provided in the trust
agreement and the related series supplement;
(I) as to any series or class within the series for which credit
support has been obtained, the amount or notional amount of
coverage of each element of credit support and its rating,
if any, included as of the close of business on the
distribution date; and
41
(J) any other information appropriate for a series, as specified
in the applicable prospectus supplement.
The trustee will furnish within a reasonable period of time after the end
of each calendar year, to each person who at any time during the calendar year
was a certificateholder, a statement containing the information set forth in
clause (C) above, aggregated for the calendar year during which that person was
a certificateholder. That obligation of the trustee will be deemed to have been
satisfied to the extent that substantially comparable information is provided by
the trustee pursuant to any requirements of the Internal Revenue Code as are
from time to time in effect.
Notices. Any notice required to be given to a holder of a registered trust
certificate will be mailed to the last address of that holder set forth in the
applicable certificate register. Any notice mailed within the time period
prescribed in the trust agreement or series supplement shall be conclusively
presumed to have been duly given when mailed, whether or not the
certificateholder receives that notice.
Evidence as to Compliance
A firm of independent public accountants will, pursuant to the trust
agreement and the related series supplement and based on agreed-upon procedures
considered appropriate under the circumstances, furnish a statement to the
trustee to the effect that the firm:
o has examined certain documents and records relating to the
administration of the underlying securities and other assets deposited
in the trust during the related 12-month period or, in the case of the
first report, the period ending on or before the date specified in the
prospectus supplement, which date shall not be more than one year
after the related original issue date; and
o is of the opinion that the trustee's administration was conducted in
compliance with the terms of the trust agreement and the related
series supplement to the trust agreement.
That statement will first be furnished on a date specified in the trust
agreement and related series supplement and annually thereafter on or before a
specified date. The independent public accountants will not include items they
believe to be immaterial and will be subject to any other exceptions and
qualifications set forth in their report.
The trust agreement and the related series supplement will also provide for
delivery to the depositor, the administrative agent, if any, and the trustee on
behalf of the certificateholders, on or before a specified date in each year, of
an annual statement signed by two officers of the trustee to the effect that the
trustee has fulfilled its obligations under the trust agreement and the related
series supplement throughout the preceding year with respect to any series of
trust certificates.
Certificateholders can obtain copies of the annual accountants' statement,
if any, and the statement of officers of the trustee without charge upon written
request to either the administrative agent or the trustee, as applicable, at the
address set forth in the related prospectus supplement.
Replacement Certificates
If a mutilated trust certificate is surrendered at the corporate trust
office or agency of the trustee in the City or State of New York or the
depositor or the trustee receives satisfactory evidence that a trust certificate
has been lost, destroyed or stolen, the trustee may replace the certificate. The
holder must pay the expenses of replacement that the trustee may incur in
connection with the replacement. In addition, that holder must furnish any
security or indemnity that the trustee and the depositor may require to hold
each of them and any paying agent harmless. However, neither the depositor nor
the trustee will replace a trust certificate if it has received notice that the
trust certificate was acquired by a bona fide purchaser.
Termination
The obligations created by the trust agreement and the related series
supplement for each series of trust certificates will terminate upon the payment
to certificateholders of that series of all amounts held in the related
certificate account and required to be paid to them pursuant to the trust
agreement and the related series supplement to the trust agreement following
final payment or other liquidation of
42
o any remaining underlying securities and other assets deposited in the
trust,
o credit support subject to the trust agreement and related series
supplement, or
o the disposition of all property acquired upon foreclosure or
liquidation of any of the underlying securities and other assets
deposited in the trust or credit support.
In no event, however, will any trust created by the trust agreement and the
related series supplement continue beyond the date specified in the applicable
prospectus supplement, nor will the trust continue to exist if its existence
would result in a violation of the common-law rule against perpetuities. Written
notice of termination of the obligations with respect to the related series of
trust certificates under the trust agreement and the related series supplement
to the trust agreement will be provided as set forth above under "--Reports to
Certificateholders; Notices." The final distribution will be made only upon
surrender and cancellation of the trust certificates at an office or agency
appointed by the trustee specified in the notice of termination.
If the underlying securities and other assets deposited in the trust and
any credit support are sold or exchanged for other assets, that sale or exchange
shall be made at a price approximately equal to the aggregate fair market value
of all the assets in the trust, as determined by the trustee, the administrative
agent, if any, and, if different from both persons, the person entitled to
effect such sale or exchange. In each case above, any sale or exchange will take
into account accrued interest at the applicable interest rate to the first day
of the month following such purchase or, to the extent specified in the
applicable prospectus supplement, a specified price. A sale of all the deposited
assets will effect an early retirement of the trust certificates of that series,
but no sale will occur if the aggregate principal balance of the assets
deposited in the trust for such series at the time of purchase is less than the
percentage of the aggregate principal balance of the deposited assets at the
cut-off date for that series that may be sold, as set out in the prospectus
supplement and related series supplement.
Duties of the Trustee
The trustee makes no representations as to the validity or sufficiency of
the trust agreement and the related series supplement, the recitals contained in
either, the trust certificates of any series or any underlying securities or the
other assets deposited in the trust or any related document. The trustee is not
accountable for the use or application of any of the trust certificates or the
underlying securities and other assets deposited in the trust, or their proceeds
by the depositor. The trustee is required to perform only those duties
specifically required under the trust agreement and the related series
supplement with respect to each series of trust certificates. However, when the
trustee receives the various trust certificates, reports or other instruments
required to be furnished to it, the trustee is required to examine those
documents and determine whether they conform to the applicable requirements of
the trust agreement and the related series supplement.
The Trustee
The prospectus supplement will name the trustee for any given series of
trust certificates under the trust agreement and the related series supplement.
The commercial bank, national banking association or trust company serving as
trustee will be unaffiliated with, but may have banking relationships with or
provide financial services to, the depositor, any administrative agent and their
respective affiliates.
43
DESCRIPTION OF UNDERLYING SECURITIES
AND OTHER ASSETS DEPOSITED IN THE TRUST
General
Each series of trust certificates, or, if more than one class exists, each
class within that series, will represent in the aggregate the beneficial
ownership interest in an aggregate amount of principal of and premium, if any,
and interest on a designated, publicly issued security or pool of securities.
The underlying securities will consist of any of the following securities,
issued under the laws of either the United States, any U.S. state or any foreign
jurisdiction:
(A) government securities;
(B) senior or subordinated publicly traded debt obligations of
one or more corporations, or general or limited
partnerships;
(C) asset-backed securities of one or more trusts or other
special purpose legal entities; or
(D) preferred securities of Trust Originated Preferred
Securities, or "TOPrSSM," trusts organized by one or more
corporations, or general or limited partnerships, or
securities that are similar to those issued by TOPrSSM
trusts. Trust Originated Preferred Securities and TOPrSSM
are service marks of Merrill Lynch.
The assets deposited in a trust may also include:
o cash and cash equivalents; o caps, floors, collars and options;
o guarantees; o structured securities; and
o letters of credit; o other instruments and transactions
o financial insurance; that credit enhance, hedge or
o interest rate, currency, equity, otherwise provide support to the
commodity and credit-linked swaps; underlying securities to assure
o forward contracts; the servicing or timely
distribution of payments to
holders of the certificates.
For further information on these instruments see "Risk Factors--Your interests
may be subject to risks associated with the trust's use of derivative
instruments."
The applicable prospectus supplement will describe the "deposited assets" a
term that refers to the underlying securities and any other assets deposited in
the trust. Underlying securities will have been issued pursuant to an effective
registration statement filed with the SEC or pursuant to an exemption. If the
underlying securities represent obligations issued by one or more underlying
securities issuers, the underlying securities will satisfy the eligibility
criteria described in the section below under "Underlying Securities Issuer."
Except for U.S. government securities, the underlying securities will be
purchased in the secondary market and will not be acquired from any underlying
securities issuer or an affiliate of an underlying securities issuer, whether as
part of any distribution by or pursuant to any agreement with an underlying
securities issuer, an affiliate of an underlying securities issuer or otherwise.
No underlying securities issuer will participate in the offering of the trust
certificates, nor will an underlying securities issuer receive any of the
proceeds from the sale of underlying securities or from the issuance of the
trust certificates.
Deposited assets for a given series of trust certificates and the related
trust will not constitute deposited assets for any other series of trust
certificates or related trust, and the trust certificates of a given series will
possess an equal and ratable undivided ownership interest in the deposited
assets. The applicable prospectus supplement may, however, specify that assets
constituting a part of the deposited assets relating to any given series may be
beneficially owned solely by or deposited solely for the benefit of one class or
a group of classes within the series. In that event, the other classes of the
series will not possess any beneficial ownership interest in those specified
assets constituting a part of the deposited assets.
This prospectus relates only to the trust certificates offered through it
and does not relate to the underlying securities. The following description of
the underlying securities and the underlying securities issuer is intended
44
only to summarize material characteristics of the underlying securities that the
depositor is permitted to deposit in a trust. It does not purport to be a
complete description of any prospectus or prospectus supplement relating to
underlying securities or of any underlying securities indenture.
The applicable prospectus supplement will describe the material terms of
the deposited assets, including the material terms of any derivative instruments
that are included in the deposited assets.
Underlying Securities Issuer
The underlying securities issuers will be the U.S. government, one or more
corporations, general or limited partnerships, TOPrSSM trusts organized by one
or more corporations, general or limited partnerships, or issuers of preferred
securities that are similar to TOPrSSM. The underlying securities issuer will be
organized under the laws of either the United States, any U.S. state or any
foreign jurisdiction. The applicable prospectus supplement will provide only
limited information about each underlying securities issuer, such as its name,
place of incorporation and the address of its principal offices, unless a trust
consists of "concentrated underlying securities." Concentrated underlying
securities are underlying securities, other than government securities,
constituting 10% or more of the total underlying securities deposited in a
trust. With respect to concentrated underlying securities, the applicable
prospectus supplement will include audited financial statements of the issuer of
the concentrated underlying securities unless:
(1) the underlying securities issuer is eligible to use Form S-3 or F-3
for a primary offering of common stock or for an offering of
non-convertible investment grade securities where such securities are
rated investment grade;
(2) Guaranteed by Parent: the concentrated underlying securities are
guaranteed by a parent company of the issuer of the concentrated
underlying securities and either:
(a) each of the parent company and the issuer meets the criteria in
(1), above; or
(b) (i) the parent company meets the criteria in (1), above, (ii) the
issuer of the concentrated underlying securities meets the
requirements of general instruction I.C.3. of Form S-3 or general
instruction I.A.5(iii) of Form F-3, and (iii) the requirements of
Rule 3-10 of Regulation S-X under the Securities Act are
satisfied;
(3) Guaranteed by Subsidiary: (i) the issuer meets the criteria in (1),
above, (ii) the concentrated underlying securities are guaranteed by a
wholly owned subsidiary of the issuer of the concentrated underlying
securities and (iii) the requirements of Rule 3-10 of Regulation S-X
under the Securities Act are satisfied;
(4) the concentrated underlying securities are asset-backed securities,
the underlying securities issuer has at least $75,000,000 in
outstanding securities held by non-affiliates and at the time of
issuance the entity will be subject to the informational requirements
of the Exchange Act and in accordance with those requirements, files
periodic reports and other information with the SEC
in which case the applicable prospectus supplement will refer only to the
periodic reports filed by the underlying securities issuer, or underlying
securities guarantor, as applicable, with the SEC. Those reports should be
reviewed by any prospective certificateholder of the trust containing the
underlying securities. For further information, see "Risk Factors--If public
information concerning the underlying securities issuer is not available, your
ability to make an informed decision to act in regard to the trust certificates
may be impaired."
The reports and information above may be read and copied at the SEC's
public reference room, located at 450 Fifth Street, N.W., Washington, D.C.
20549. The SEC filings are also available to the public on the SEC's Internet
site at http://www.sec.gov.
A prospective certificateholder should obtain and evaluate the same
information concerning the relevant underlying securities issuer as it would
obtain and evaluate if it were investing directly in the underlying securities
or in the issuer of the underlying securities.
Neither the depositor, the trustee, the securities intermediary, Merrill
Lynch nor any of their respective affiliates assumes any responsibility for the
accuracy or completeness of any publicly available information
45
concerning any underlying securities issuer, including, without limitation, any
investigation as to its financial condition or creditworthiness, or concerning
any underlying securities, whether or not that information is filed with the SEC
or otherwise would be considered in making a decision to purchase the trust
certificates. The above will not apply to any information concerning the
underlying securities and any underlying securities issuer that is expressly
stated in this prospectus or an applicable prospectus supplement. The above will
not apply, for example, to identifying information or to information of the type
described in an applicable prospectus supplement under "Description of the
Underlying Securities."
Underlying Securities Indenture
General. Except for U.S. government securities or TOPrSSM or similar
securities issued pursuant to a trust agreement or unless otherwise specified in
the applicable prospectus supplement, each underlying security will have been
issued pursuant to an underlying securities indenture between the underlying
securities issuer and a trustee. The underlying securities indenture and the
underlying securities trustee will be qualified under the Trust Indenture Act of
1939 and the underlying securities indenture will contain provisions required by
the Trust Indenture Act. Government securities are not issued pursuant to an
indenture and are exempt from the Securities Act under Section 3(a)(2) and from
the Trust Indenture Act under Section 304(a)(4).
Covenants. Indentures generally contain covenants intended to protect
securityholders against the occurrence or effects of some specified events,
including restrictions limiting the issuer's, and in some cases one or more of
the issuer's subsidiaries', ability to:
o consolidate, merge, transfer or lease assets;
o incur or suffer to exist any lien, charge or encumbrance upon all or
some specified portion of its property or assets;
o incur, assume, guarantee or suffer to exist any indebtedness for
borrowed money if the payment of the indebtedness is secured by the
grant of a lien; or
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 its subsidiaries, if any.
An indenture may also contain financial covenants that, among other things,
require the maintenance of financial ratios or the creation or maintenance of
reserves or permit some actions to be taken only if compliance with the
covenants can be demonstrated at the time the actions are to be taken. Subject
to some exceptions, indentures typically may be amended or supplemented and past
defaults may be waived with the consent of the indenture trustee, the consent of
the holders of not less than a specified percentage of the outstanding
securities, or both.
The underlying securities indenture for one or more underlying securities
included in a trust may include some, all, none of or variations from the above
provisions, together with additional covenants not discussed in this prospectus.
The depositor cannot assure you that any type of underlying securities will be
subject to similar covenants or that any of the covenants will protect the trust
as a holder of the underlying securities against losses. The prospectus
supplement used to offer any series of trust certificates will describe material
covenants concerning any concentrated underlying securities and, as applicable,
will describe material covenants that are common to any pool of underlying
securities. The applicable prospectus supplement will include any material risk
factors associated with non investment-grade underlying securities deposited
into a trust.
Events of Default. Indentures generally provide that any one of a number of
specified events will constitute an event of default with respect to the
securities issued. The events of default typically include the following or
variations of the following:
o failure by the issuer to pay an installment of interest or principal
on the securities at the time required, subject to any specified grace
period, or to redeem any of the securities when required, subject to
any specified grace period;
o failure by the issuer to observe or perform any covenant, agreement or
condition contained in the securities or the indenture if that failure
is materially adverse to securityholders and continues for a
46
specified period after notice is given to the issuer by the indenture
trustee or the holders of not less than a specified percentage of the
outstanding securities;
o failure by the issuer and/or one or more of its subsidiaries to make
any required payment of principal and premium, if any, or interest
with respect to other material outstanding debt obligations or the
acceleration by or on behalf of the holders of those securities; and
o events of bankruptcy or insolvency with respect to the issuer and/or
one or more of its subsidiaries.
Remedies. Indentures generally provide that upon the occurrence of an event
of default, the indenture trustee may, and upon the written request of the
holders of not less than a specified percentage of the outstanding securities,
the indenture trustee must, take action as it may deem appropriate to protect
and enforce the rights of the securityholders. Some indentures provide that the
indenture trustee or a specified percentage of the holders of the outstanding
securities have the right to declare all or a portion of the principal and
accrued interest on the outstanding securities immediately due and payable upon
the occurrence of some events of default, subject to any applicable right of the
issuer to cure. Generally, an indenture will contain a provision entitling the
trustee under the indenture to be indemnified by the securityholders before
proceeding to exercise any right or power under the indenture with respect to
the securities at the request of the securityholders. An indenture is also
likely to limit a securityholder's right to institute some actions or
proceedings to pursue any remedy under the indenture unless certain conditions
are satisfied. These conditions may include:
o obtaining the consent of the indenture trustee;
o that the proceeding be brought for the ratable benefit of all holders
of the security; and/or
o that the indenture trustee, after being requested to institute a
proceeding by the owners of at least a specified minimum percentage of
the securities, shall have refused or neglected to comply with that
request within a reasonable time.
Each underlying securities indenture may include some, none or variations
of the above provisions, together with additional events of default and/or
remedies not discussed here. The prospectus supplement for any series of
certificates will describe the events of default under the underlying securities
indenture for any concentrated underlying security and the applicable remedies.
The prospectus supplement for any trust consisting of a pool of underlying
securities will describe some common underlying security events of default with
respect to the pool. The depositor cannot assure you that the provision will
protect the trust, as a holder of the underlying securities, against losses.
Furthermore, a certificateholder will have no independent legal right to
exercise any remedies with respect to the underlying securities and will be
required to rely on the trustee of the applicable trust to pursue any available
remedies on behalf of the relevant certificateholders in accordance with the
terms of the trust agreement and the related series supplement to the trust
agreement. If an underlying security event of default occurs and the trustee as
a holder of the underlying securities is entitled to vote or take other action
to declare the principal amount of an underlying security and any accrued and
unpaid interest on the underlying security to be due and payable, the
certificateholders' objectives may differ from those of holders of other
securities of the same series and class as any underlying security in
determining whether to require the acceleration of the underlying securities.
For more information, see "Risk Factors--Your ability to dispose of or take
action with respect to any underlying securities and any other assets deposited
in the trust may be limited due to the passive nature of the trust".
Subordination. If specified in the applicable prospectus supplement, some
of the underlying securities with respect to any trust may be either senior or
subordinated in right of payment to other existing or future indebtedness of the
underlying securities issuer. With respect to subordinated underlying
securities, to the extent of the subordination provisions of the securities, and
after the occurrence of specified events, securityholders and direct creditors
whose claims are senior to subordinated underlying securities, if any, may be
entitled to receive payment of the full amount due thereon before the holders of
any subordinated debt securities are entitled to receive payment on account of
the principal and premium, if any, or any interest on the securities. The trust,
as a holder of subordinated debt, may consequently suffer a greater loss than if
it held unsubordinated debt of the underlying securities issuer. We cannot
assure you, however, that in the event of a bankruptcy or similar insolvency
proceeding, the trust as a holder of senior underlying securities would receive
all payments in respect of those securities even if holders of subordinated
securities receive no amounts in respect of the securities. The prospectus
supplement relating to any series of trust certificates will contain a
description of any subordination provisions with respect to any concentrated
underlying securities and the percentage of senior underlying securities and
subordinated underlying securities, if any, in a trust comprised of a pool of
securities.
47
Secured Obligations. Some of the underlying securities with respect to any
trust may be "secured underlying securities," which means that they represent
secured obligations of the underlying securities issuer. Generally, unless an
event of default occurred, or with respect to some types of collateral or as
otherwise set forth in the related indenture, an issuer of secured obligations
has the right to remain in possession and retain exclusive control of the
collateral and to collect, invest and dispose of any income related to the
collateral. The secured indebtedness issued pursuant to the indenture:
o may also contain provisions for release, substitution or disposition
of collateral under some circumstances with or without the consent of
the indenture trustee or upon the direction of not less than a
specified percentage of the securityholders; and
o will also provide for the disposition of the collateral upon the
occurrence of some events of default.
In the event of a default of any secured obligation, securityholders may
experience a delay in payments on account of principal and premium, if any, or
any interest on those securities pending the sale of any collateral and before
or during the period the related collateral may decline in value.
If proceeds from the sale of collateral following an indenture event of
default are insufficient to repay all amounts due in respect of any secured
obligations, the holders of those securities, to the extent not repaid from the
proceeds of the sale of the collateral, would have only an unsecured claim
ranking equally to the claims of all other general unsecured creditors.
The underlying securities indenture with respect to secured underlying
securities may include some, all or none of or variations on those provisions.
The prospectus supplement relating to any series of trust certificates that
includes concentrated underlying securities that are secured will describe the
material security provisions of those underlying securities and the related
collateral. With respect to any trust comprised of a pool of securities with a
substantial portion being comprised of secured underlying securities, the
applicable prospectus supplement will disclose some material information with
respect to those security provisions and the collateral.
Principal Terms of Underlying Securities
The applicable prospectus supplement for each series of trust certificates
will contain a description of the following terms, as applicable, of any
concentrated underlying security:
(A) the title and series of the underlying securities, their
aggregate principal amount, denomination and form;
(B) whether the securities are senior or subordinated to any
other existing or future obligations of the underlying
securities issuer;
(C) whether any of the obligations are secured and the nature of
any collateral;
(D) the limit, if any, upon the aggregate principal amount of
the securities;
(E) the dates on which, or the range of dates within which, the
principal of and premium, if any, on the securities will be
payable;
(F) the rate or rates, or the method of determining the rates,
at which the underlying securities will bear interest, if
any, the date or dates from which the interest will accrue
and the dates on which the interest will be payable;
(G) the obligation, if any, of the underlying securities issuer
to redeem the underlying securities and other securities of
the same class or series at the holder's option or pursuant
to any sinking fund or similar provisions and the timing,
price and the terms and conditions that would govern any
redemption or repurchase of the securities, in whole or in
part, pursuant to that obligation;
(H) if applicable, the timing, price and the terms and
conditions that would govern any redemption, in whole or in
part, of the securities at the option of the underlying
securities issuer;
48
(I) if applicable, the timing, price and the terms and
conditions that would govern the ability of a holder of
underlying securities subject to a put option to require the
issuer of the underlying securities to repurchase or
otherwise repay those underlying securities;
(J) whether the underlying securities were issued at a price
lower than the principal amount of the underlying
securities;
(K) if other than U.S. dollars, the currency in which the
securities are denominated, or in which the payment of the
principal of and premium, if any, or any interest on the
underlying securities will be made, and the circumstances,
if any, when the currency of payment may be changed;
(L) material events of default or restrictive covenants provided
for with respect to the underlying securities;
(M) the rating, if any, of the underlying securities;
(N) the principal U.S. market on which the underlying securities
are traded, if any; and
(O) any other material terms of the underlying securities.
With respect to a trust comprised of a pool of underlying securities, the
applicable prospectus supplement will describe:
o the composition of the underlying securities pool as of the cut-off
date;
o some material events of default or restrictive covenants common to the
underlying securities; and
o on an aggregate, percentage or weighted average basis, as applicable,
the characteristics of the pool with respect to the terms set forth in
clauses (B), (C), (E), (F), (G), (H), (I), (J) and (K) of the
preceding paragraph and any other material terms regarding the pool of
securities.
Other than publicly traded debt securities that satisfy the necessary
requirements set forth in this prospectus for underlying securities, the
underlying securities may consist of, or be similar in structure to, TOPrSSM.
If an issuer of concentrated underlying securities ceases to file periodic
reports under the Exchange Act, the depositor will continue to be subject to the
reporting requirements of the Exchange Act but some information with respect to
the issuer may be unavailable. Also, if an issuer ceases to file those reports,
the actions described in this prospectus under "Description of the Trust
Certificates - Default and Remedies" will be carried out by the trustee and the
depositor.
Asset-Backed Securities. The applicable prospectus supplement may specify
that a trust may include one or more asset-backed securities. Asset-backed
securities may be asset-backed notes or pass-through certificates issued by a
trust or a special purpose entity. Asset-backed notes are secured by, and
pass-through certificates represent an interest in, a fixed or revolving pool of
financial assets. Those financial assets may consist of secured or unsecured
corporate bonds, corporate loans, consumer or other receivables, such as
automobile loans or contracts, automobile leases, credit card receivables, home
equity or other mortgage loans, trade receivables, floor plan (inventory) loans,
equipment leases and other assets that produce streams of payments. Asset-backed
notes generally are issued pursuant to indentures and pass-through certificates
are generally issued pursuant to pooling and servicing agreements. A separate
servicing agreement typically is executed in connection with asset-backed notes.
Those servicing agreements, indentures and pooling and servicing agreements are
collectively referred to as "asset-backed agreements".
Asset-backed agreements provide for the appointment of a trustee and the
segregation of the transferred pool of assets from the other assets of the
transferor. That segregation generally is only required to the extent necessary
to perfect the interest of the trustee in the assets against claims of unsecured
creditors of the transferor of the assets. Where required by the Uniform
Commercial Code (UCC), as in the case of home equity loan notes, documents
evidencing the underlying receivables are delivered to the possession of the
trustee or other custodian for the holders of the asset-backed securities. In
the case of most assets, either no documents evidence the receivables (for
example, credit card receivables) or documents exist, but the UCC does not
require their possession to perfect a
49
transfer (for instance, automobile installment sales contracts). In these cases,
the transferor segregates the assets only on its own books and records, such as
by marking its computer files, and perfects the trustee's interest by filing a
financing statement under the UCC. This method of segregation and perfection
presents the risk that the trustee's interest in the assets could be lost as a
result of negligence or fraud, which would result in the trustee and the
asset-backed security holders becoming unsecured creditors of the transferor of
the assets.
Credit Support
As specified in the applicable prospectus supplement for a given series of
trust certificates, the trust for any series of trust certificates may include,
or the certificateholders of such series or any class or group of classes within
such series may have the benefit of, credit support for any class or group of
classes within such series. Credit support directly benefits the relevant trust
and, consequently, benefits certificateholders. Credit support may be provided
by any combination of the following means described below or any other means
described in the applicable prospectus supplement. The applicable prospectus
supplement will set forth:
o whether the trust for any class or classes of trust certificates
contains, or the certificateholders of such trust certificates have
the benefit of, credit support and, if so, the amount, type and other
relevant terms of each element of credit support with respect to the
class or classes; and
o information with respect to the obligors of each element, including
financial information with respect to any obligor providing credit
support for 20% or more of the aggregate principal amount of the class
or classes.
Subordination. As discussed below under "--Collections," the rights of the
certificateholders of any given class within a series of trust certificates to
receive collections from the trust for the series and any credit support
obtained for the benefit of the certificateholders of the series or classes
within the series may be subordinated to the rights of the certificateholders of
one or more other classes of the series to the extent described in the
applicable prospectus supplement. The subordination accordingly provides some
additional credit support to those certificateholders of those other classes.
For example, if losses are realized during a given period on the deposited
assets relating to a series of trust certificates such that the collections
received on the deposited assets are insufficient to make all distributions on
the trust certificates of the series, those realized losses would be allocated
to the certificateholders of any class of the series that is subordinated to
another class, to the extent and in the manner provided in the applicable
prospectus supplement. In addition, if applicable, the prospectus supplement may
provide that some amounts otherwise payable to certificateholders of any class
that is subordinated to another class may be required to be deposited into a
reserve account. For more information regarding the reserve accounts, see
"--Reserve Accounts" below.
If the applicable prospectus supplement so provides, the credit support for
any series or class of trust certificates may also include the other forms of
credit support that are described below. Any 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 those certificateholders or as
otherwise specified in the applicable prospectus supplement. In addition, if the
applicable prospectus supplement so provides, the obligor of any other forms of
credit support may be reimbursed for amounts paid pursuant to the credit support
out of amounts otherwise payable to one or more of the classes of the trust
certificates of such series. Further, payments to be made in respect of any
forms of credit support arranged for or on behalf of the certificateholders may
be required to be paid before any distributions that must be made to
certificateholders.
Letter of Credit; Surety Bond. The certificateholders of any series or
class or group of classes of trust certificates within that series may, if
specified in the applicable prospectus supplement, have the benefit of a letter
or letters of credit issued by a bank or a surety bond or bonds issued by a
surety company. In either case, the trustee or any other person specified in the
applicable prospectus supplement will use its reasonable efforts to:
o cause the letter of credit or the surety bond to be obtained and to be
kept in full force and effect, unless coverage under the letter of
credit has been exhausted through payment of claims; and
o timely pay the fees or premiums on the letter of credit or surety
bond, unless, as described in the applicable prospectus supplement,
the payment of fees or premiums is otherwise provided for.
The trustee or the other person specified in the applicable prospectus
supplement will make or cause to be made draws under the letter of credit or the
surety bond, as the case may be, under the circumstances and to cover
50
the amounts specified in the applicable prospectus supplement. Any amounts
otherwise available under the letter of credit or the surety bond will be
reduced to the extent of any prior unreimbursed draws. The applicable prospectus
supplement will provide the manner, priority and source of funds by which any
draws are to be repaid.
Unless the applicable prospectus supplement otherwise specifies, if the
bank issuing the letter of credit or the surety company, as applicable, ceases
to satisfy any credit rating or other applicable requirements specified in the
applicable prospectus supplement, the trustee or the other person specified in
the applicable prospectus supplement will use its reasonable efforts to obtain
or cause to be obtained a substitute letter of credit or surety bond, as
applicable, or other form of credit enhancement providing similar protection,
that meets the requirements and provides the same coverage to the extent
available for the same cost. We cannot assure you that any bank issuing the
letter of credit or any surety, as applicable, will continue to satisfy the
requirements or that any substitute letter of credit, surety bond or similar
credit enhancement will be available providing equivalent coverage for the same
cost. To the extent similar credit support is not available, the credit support
otherwise provided by the letter of credit or the surety bond or similar credit
enhancement may be reduced to the level otherwise available for the same cost as
the original letter of credit or surety bond.
Reserve Accounts. If the applicable prospectus supplement so provides, 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. These amounts will be applied and maintained
in the manner and under the conditions specified in the prospectus supplement.
In the alternative or in addition to the deposit, a reserve account may be
funded through application of a portion of collections received on the deposited
assets for a given series of trust certificates, in the manner and priority
specified in the applicable prospectus supplement. Amounts may be distributed to
certificateholders of the class or group of classes within the series, or may be
used for other purposes, in the manner and to the extent provided in the
applicable prospectus supplement. Amounts deposited in any reserve account will
be invested in permitted investments by, or at the direction of, the trustee,
the depositor or any other person as may be specified in the applicable
prospectus supplement.
Collections
The trust agreement and the related series supplement will establish
procedures by which the trustee, or any other person that may be specified in
the prospectus supplement, is obligated, for the benefit of the
certificateholders of each series of trust certificates, to administer the
related deposited assets. Administering the deposited assets will include making
collections of all payments made on those assets and depositing those
collections from time to time before any applicable distribution date into a
"certificate account," which will be a segregated trust account maintained or
controlled by the applicable trustee for the benefit of the series. If an
administrative agent is appointed, it will direct the trustee, and otherwise the
trustee will make all determinations, as to:
(A) the appropriate application of the collections, and other
amounts available for distribution, to the payment of any
administrative or collection expenses, such as the
administrative fee and some credit support-related ongoing
fees, such as insurance premiums, letter of credit fees or
any required account deposit; and
(B) the payment of amounts then due and owing on the trust
certificates of the trust series and classes within the
series, all in the manner and priorities described in the
applicable prospectus supplement.
The applicable prospectus supplement will specify the collection periods,
if applicable, and distribution dates for a given series of trust certificates
and the particular requirements relating to the segregation and investment of
collections received on the deposited assets during a given collection period or
on or by specified dates. We cannot assure you that amounts received from the
deposited assets and any credit support obtained for the benefit of
certificateholders for a particular series or class of trust certificates over a
specified period will be sufficient, after payment of all prior expenses and
fees for that period, to pay amounts then due and owing to holders of the trust
certificates. The applicable prospectus supplement will also set forth the
manner and priority by which any realized loss will be allocated among the
classes of any series of trust certificates, if applicable.
The applicable prospectus supplement will identify the circumstances that
may permanently or temporarily change over time the relative priorities of
distributions with respect to collections from the assets of the trust assigned
to classes of a given series of trust certificates. Moreover, the applicable
prospectus supplement may specify that the allocation ratio in respect of each
class of a given series for purposes of payments of some amounts,
51
such as principal, may be different from the allocation ratio assigned to each
class for payments of other amounts, such as interest or premium.
52
CURRENCY RISKS
An investment in a trust certificate having a specified currency other than
U.S. dollars entails significant risks that are not associated with similar
investments in U.S. dollar-denominated securities. The risks include, without
limitation:
o economic and political events and the supply of and demand for the
relevant currencies;
o the possibility of significant changes in rates of exchange between
the U.S. dollar and the trust certificates' currency;
o volatility of the exchange market;
o depreciation of the specified currency for a trust certificate against
the U.S. dollar, which would decrease the effective yield of your
trust certificate below its applicable interest rate and, in some
circumstances, could result in a loss to you on a U.S. dollar basis;
and
o the possibility that a foreign government will impose or modify
foreign exchange controls with respect to the foreign currency, which
could restrict or prohibit distributions of principal, premium or
interest in the specified currency.
Those risks generally depend on factors over which the depositor has no
control, such as economic and political events and the supply of and demand for
the relevant currencies. In recent years, rates of exchange between the U.S.
dollar and some currencies have been highly volatile and you should expect that
this volatility will continue in the future. Past fluctuations in any particular
exchange rate do not necessarily indicate, however, that fluctuations in the
rate may occur during the term of any trust certificate. Depreciation of the
specified currency for a trust certificate against the U.S. dollar would
decrease the effective yield of the trust certificate below its applicable
interest rate and, in some circumstances, could result in a loss to the investor
on a U.S. dollar basis.
Governments have from time to time imposed, and may in the future impose,
exchange controls that could affect exchange rates and the availability of a
specified currency for making distributions in respect of trust certificates
denominated in that currency. At present, the depositor has identified the
following currencies in which distributions of principal, premium and interest
on trust certificates may be made: Australian dollars, Canadian dollars, Danish
kroner, Italian lire, Japanese yen, New Zealand dollars, U.S. dollars and the
Euro. However, trust certificates distributable in another currency may be
issued at any time, based upon investor demand for trust certificates
denominated in these currencies. We cannot assure you that exchange controls
that restrict or prohibit distributions of principal, premium or interest in any
specified currency will not be imposed. Even if there are no actual exchange
controls, it is possible that, on a distribution date with respect to any
particular trust certificate, the currency in which the amounts are due in
respect of each trust certificate will not be available.
Any prospectus supplement relating to trust certificates having a specified
currency other than U.S. dollars will contain historical exchange rates for that
currency against the U.S. dollar, a description of the currency, any exchange
controls affecting that currency and any other required information concerning
that currency. The prospectus supplement will also discuss risk factors relating
to that specified currency.
U.S. FEDERAL INCOME TAX CONSEQUENCES
This summary is based on the Internal Revenue Code of 1986, as amended to
the date of this prospectus, revenue rulings, judicial decisions and existing
and proposed Treasury regulations, including final regulations concerning the
tax treatment of debt instruments issued with original issue discount, the "OID
Regulations." Changes to any of the rules or regulations stated above after the
date of this prospectus may affect the tax consequences described in this
prospectus.
This summary only discusses the U.S. federal income tax consequences to you
if you hold the trust certificates as capital assets within the meaning of
Section 1221 of the Internal Revenue Code. It does not discuss all of the tax
consequences that may be relevant to you in light of your particular
circumstances or if you are subject to special rules because, for example you
are a financial institution, an insurance company, a foreign partnership or
other flow through entity, a dealer or you hold the trust certificates as part
of a hedging transaction or straddle. Further, the tax consequences arising from
the ownership of any series of trust certificates with special characteristics
will be set forth in the applicable prospectus supplement and a legal opinion of
tax counsel will be
53
filed with the SEC in connection with each series of trust certificates. In its
opinion, tax counsel will opine as to the tax disclosure regarding the trust
certificates set forth in this prospectus and the applicable prospectus
supplement.
In all cases, you are advised to consult your own tax advisor regarding the
U.S. federal tax consequences to you of holding, owning and disposing of trust
certificates, including the advisability of making any of the elections
described below, as well as any tax consequences arising under the law of any
state or other taxing jurisdiction.
For purposes of this discussion, "U.S. Person" means an individual who, for
U.S. federal income tax purposes, is:
o A citizen or resident of the United States;
o a corporation, partnership or other entity created or
organized in or under the laws of the United States or any
state;
o an estate that is subject to U.S. federal income tax
regardless of the source of its income; or
o a trust if a court within the United States is able to
exercise primary supervision of the administration of the
trust and one or more U.S. persons have the authority to
control all substantial decisions of the trust.
Tax Status of Trust
The arrangement under which the trust certificates will be created and sold
and the underlying securities will be administered will be treated as a grantor
trust under subpart E, part I of subchapter J of the Internal Revenue Code. You
will be treated as the owner of a pro rata undivided interest in the ordinary
income and corpus of the underlying securities in the grantor trust.
Income of Trust Certificateholders
In General. If you are a U.S. Person, you will be required to report on
your U.S. federal income tax return your pro rata share of the entire income
from the underlying securities, including gross interest income at the interest
rate on the underlying securities, in accordance with your method of accounting.
Original Issue Discount. The underlying securities may have originally been
sold at a discount below their principal amount. As provided in the Internal
Revenue Code and the OID Regulations, the excess of the "stated redemption
price," as described below, of each of the underlying securities over its "issue
price," defined as the initial offering price to the public, excluding bond
houses and brokers, at which a substantial amount of the underlying securities
has been sold, will be original issue discount if the excess equals or exceeds a
de minimis amount, i.e., 1/4 of 1% of the underlying security's stated
redemption price multiplied by the number of complete years to its maturity. If
you own an underlying security with a de minimis amount of original issue
discount you must include any de minimis original issue discount in income, as
capital gain, on a pro rata basis as principal payments are made on the
underlying security. The "stated redemption price" of an underlying security is
equal to the sum of all payments on the underlying security other than interest
based on a fixed rate or a variable rate, unless stated by the applicable
prospectus supplement, and payable unconditionally at least annually.
You are required to include original issue discount in income as it
accrues, which may be before the receipt of the cash attributable to the income,
based on a compounding of interest at a constant rate, using the yield to
maturity of the underlying security as originally issued. Under these rules, you
generally must include in income increasingly greater amounts of original issue
discount in successive accrual periods, unless payments that are part of the
stated redemption price at maturity of an underlying security are made before
its final maturity. The OID Regulations permit you to use accrual periods of any
length up to one year, including daily accrual periods, to compute accruals of
original issue discount, provided that each scheduled payment of principal or
interest occurs either on the first or the last day of an accrual period.
Acquisition Premium and Market Discount. If you purchase an underlying
security with original issue discount at an acquisition premium (i.e., at a
price in excess of its "adjusted issue price" but less than its stated
redemption price), the amount includible in income in each taxable year as
original issue discount is reduced by that portion of the excess properly
allocable to the year. The adjusted issue price is defined as the sum of the
issue price
54
of the underlying security and the aggregate amount of previously accrued
original issue discount, less any prior payments of amounts included in its
stated redemption price. Unless you make the accrual method election described
below, acquisition premium is allocated on a pro rata basis to each accrual of
original issue discount so that you are allowed to reduce each accrual of
original issue discount by a constant fraction.
If you purchase at a "market discount," for example, at a price less than
the stated redemption price or, in the case of an underlying security with
original issue discount, the adjusted issue price, you will be required, unless
the difference is less than a de minimis amount, to treat any principal payments
on, or any gain realized upon the disposition or retirement of, the underlying
security as interest income to the extent of the market discount that accrued
while you held the underlying security, unless you elect to include the market
discount in income on a current basis. Market discount is considered to be de
minimis if it is less than 1/4 of 1% of the underlying security's stated
redemption price multiplied by the number of complete years to maturity after
you acquired the trust certificate. If an underlying security with more than a
de minimis amount of market discount is disposed of in a nontaxable transaction,
other than a nonrecognition transaction described in Section 1276(d) of the
Internal Revenue Code, accrued market discount will be includible as ordinary
income to you as if you had sold the trust certificate at its then fair market
value. If you acquired at a market discount and do not elect to include market
discount in income on a current basis you may also may be required to defer the
deduction for a portion of the interest expense on any indebtedness incurred or
continued to purchase or carry the trust certificate until the deferred income
is realized.
Premium. Except as noted below, if you purchase for an amount in excess of
the principal amount, or in the case of an underlying security with original
discount, the remaining stated redemption price, you will be treated as having
premium with respect to the underlying security in the amount of the excess. If
you purchase an underlying security with original issue discount at a premium,
you are not required to include in income any original issue discount with
respect to the underlying security. If you make an election under Section
171(c)(2) of the Internal Revenue Code to treat the premium as "amortizable bond
premium," the amount of interest that must be included in your income for the
accrual period, where the underlying security is not optionally redeemable
before its maturity date, will be reduced by the portion of the premium
allocable to the period based on the underlying security's yield to maturity. If
the underlying security may be called before maturity after you have acquired
it, you generally may not assume that the call will be exercised and must
amortize premium to the maturity date. If the underlying security is in fact
called, any unamortized premium may be deducted in the year of the call. If you
make the election under Section 171(c)(2), the election also shall apply to all
bonds the interest on which is not excludible from gross income ("Fully Taxable
Bonds") held by you at the beginning of the first taxable year to which the
election applies and to all Fully Taxable Bonds thereafter acquired by you, and
is irrevocable without the consent of the IRS. If such an election is not made,
you must include the full amount of each interest payment in income in
accordance with your regular method of accounting and will receive a tax benefit
from the premium only in computing your gain or loss upon the sale or other
disposition or retirement of the underlying security.
Accrual Method Election
Under the OID Regulations, you are permitted to elect to include in gross
income your entire return on an underlying security, i.e., the excess of all
remaining payments to be received on the underlying security over the amount you
paid for the trust certificate, based on the compounding of interest at a
constant rate. Such an election for an underlying security with amortizable bond
premium or market discount will result in a deemed election for all of your debt
instruments with amortizable bond premium or market discount and may be revoked
only with permission of the IRS.
Disposition or Retirement of Certificates
Upon the sale, exchange or other disposition of a trust certificate, or
upon the retirement of a trust certificate, you will recognize gain or loss
equal to the difference, if any, between the amount realized upon the
disposition or retirement and your tax basis in the trust certificate. Your tax
basis for determining gain or loss on the disposition or retirement of a trust
certificate will be your cost of the trust certificate, increased by the amount
of original issue discount and any market discount includible in your gross
income with respect to the underlying security, and decreased by the amount of
any payments under the underlying security that are part of its stated
redemption price and by the portion of any premium applied to reduce interest
payments as described above.
If you dispose of or retire a trust certificate any gain or loss will be
capital, gain or loss, except to the extent the gain represents accrued stated
interest, original issue or market discount on the trust certificate not
previously included in your gross income, to which extent the gain or loss would
be treated as ordinary income. Any capital
55
gain or loss will be long-term capital gain or loss if at the time of
disposition or retirement you have held the trust certificate for more than one
year.
Deductibility of Trust's Fees and Expenses
In computing its U.S. federal income tax liability, a trust
certificateholder generally will be entitled to deduct its pro rata share of
reasonable administrative fees, trustee fees and other fees and expenses paid or
incurred by the trust, as provided in Section 162 or 212 of the Internal Revenue
Code. However, if a trust certificateholder is an individual, estate or trust,
the deduction of such fees will be a miscellaneous itemized deduction that may
be disallowed in whole or in part.
Foreign Trust Certificateholders
Withholding Tax on Payments of Principal and Interest on Trust Certificates
If you are not a U.S. Person, interest paid to you on the trust
certificates generally will not be subject to the 30% withholding tax, provided
that:
(1) you do not actually or constructively own 10% or more of the total
combined voting power of all classes of stock entitled to vote of the
issuer of the underlying securities;
(2) you are not a controlled foreign corporation for U.S. tax purposes
that is directly or indirectly related to the issuer of the underlying
securities through stock ownership;
(3) you are not a bank described in Section 881(c)(3)(A) of the Internal
Revenue Code; and
(4) either:
(A) the beneficial owner of the trust certificates certifies to the
applicable payor or its agent, under penalties of perjury, that
it is not a U.S. person and provides its name and address on U.S.
Treasury Form W-8BEN (or a suitable substitute form); or
(B) a securities clearing organization, bank or other financial
institution, that holds customers' securities in the ordinary
course of its trade or business and holds the trust certificates,
certifies under penalties of perjury that such a Form W-8BEN (or
a suitable substitute form) has been received from the beneficial
owner by it or by a financial institution between it and the
beneficial owner and furnishes the payor with a copy thereof.
Otherwise, the 30% withholding tax may apply to interest paid unless an income
tax treaty reduces or eliminates such tax.
If you hold the trust certificates in connection with the conduct of a
trade or business within the U.S., payments of interest on the trust
certificates will not be subject to withholding tax if you deliver a Form W-8ECI
(or suitable substitute form) to the payor. You will be subject to U.S. federal
income tax at regular rates, unless an income tax treaty reduces or eliminates
such tax. You may also be subject to an additional branch profits tax at a 30%
rate or, if applicable, a lower treaty rate.
Gains on Disposition of Trust Certificates
You generally will not be subject to U.S. federal income tax on gain
realized on the sale, exchange or other disposition of a trust certificate
unless:
o You are an individual present in the U.S. for 183 days or
more in the year of such sale, exchange or redemption and
either (A) have a "tax home" in the U.S. and certain other
requirements are met, or (B) the gain from the disposition
is attributable to an office or other fixed place of
business in the U.S.;
o In the case of an amount which is attributable to accrued
interest, you do not meet the conditions for exemption from
the 30% withholding tax, as described above; or
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o The gain is effectively connected with your conduct of a
U.S. trade or business.
Backup Withholding and Information Reporting
Information returns will be filed with the IRS in connection with payments
on the trust certificates and the proceeds from a sale or other disposition of
the trust certificates. If you own trust certificates and are a U.S. Person, you
will be subject to United States backup withholding tax at a 30% rate (subject
to periodic reductions through 2006) on these payments unless you provide your
taxpayer identification number to the paying agent and comply with certification
procedures to establish that you are not a U.S. Person in order to avoid
information reporting and backup withholding tax requirements. The certification
on Form W-8BEN, required to claim exemption from 30% U.S. federal withholding on
interest payments as 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 you will be allowed
as a credit against your U.S. federal income tax liability and may entitle you
to a refund, provided that the required information is furnished to the IRS.
The U.S. federal income tax discussion set forth above may not be
applicable depending upon your particular situation. You should consult your own
tax advisor with respect to the tax consequences to you of the ownership and
disposition of the trust certificates, including the tax consequences under the
tax laws of the United States, states, localities, countries other than the
United States and any other taxing jurisdictions and the possible effects of
changes in the tax laws.
57
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended, which we
refer to as "ERISA", and the Internal Revenue Code impose certain requirements
on:
(1) employee benefit plans, as defined in Section 3(3) of ERISA;
(2) plans described in Section 4975(e)(i) of the Internal Revenue Code; or
(3) entities whose underlying assets include plan assets, as defined
below, by reason of a plan's investment in the entity.
Each of these are referred to as a "plan" in this section of the prospectus.
ERISA's general fiduciary standards provide that a plan fiduciary, before
investing in a trust certificate, should determine whether the investment is
permitted under the governing plan instruments. As well, those standards require
a fiduciary to determine if the investment is appropriate for the plan in view
of the plan's overall investment policy and the composition and diversification
of its portfolio. Other provisions of ERISA and the Internal Revenue Code
prohibit certain transactions that involve both the assets of a plan and persons
who have certain specified relationships to the plan. Those persons are "parties
in interest" within the meaning of ERISA and "disqualified persons" within the
meaning of the Internal Revenue Code. A plan fiduciary considering an investment
in trust certificates should consider whether the investment might constitute or
give rise to a prohibited transaction under ERISA or the Internal Revenue Code.
An investment in trust certificates by a plan might result in the assets of
the trust being deemed to constitute plan assets. In turn, if the trust assets
are deemed to be plan assets, certain aspects of the investment, including the
operation of the trust that holds the assets, might be prohibited transactions
under ERISA and the Internal Revenue Code. Neither ERISA nor the Internal
Revenue Code defines the term "plan assets." Under Section 2510.3-101 of the
United States Department of Labor regulations, if a plan acquires an "equity
interest" in an entity, such as a trust, the underlying assets of the entity may
be plan assets for certain purposes. Those purposes include the prohibited
transaction provisions of ERISA and the Internal Revenue Code. As a result, if a
plan acquired a trust certificate, for certain purposes under ERISA and the
Internal Revenue Code, including the prohibited transaction provisions, the plan
would be considered to own its share of the underlying assets of the trust
unless:
o the trust certificate is a "publicly-offered security"; or
o equity participation by "benefit plan investors" is not "significant".
Under that same regulation, a "publicly offered security" is a security that is:
(1) freely transferable;
(2) part of a class of securities that is owned by 100 or more investors
independent of the issuer and of one another at the conclusion of the
initial offering; and
(3) either is:
o part of a class of securities registered under Section 12(b) or
12(g) of the Exchange Act; or
o 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 the security is a part is registered under
the Exchange Act within 120 days, or later if allowed by the SEC, after the end
of the fiscal year of the issuer during which the offering of the securities to
the public occurred.
Participation by benefit plan investors in the trust certificates would not
be significant if immediately after the most recent acquisition of a trust
certificate, whether or not from the depositor or Merrill Lynch, less than 25%
of:
58
(1) the value of the class of trust certificates; and
(2) the value of any other class of trust certificates that is not a
security under the Regulation,
were held by benefit plan investors, which are defined as employee benefit plans
not subject to ERISA, such as governmental plans, and plans, as defined above.
We anticipate that some offerings of trust certificates will be structured
so that assets of the trust will not be deemed to constitute plan assets. In
these cases, the relevant prospectus supplement will indicate either that the
trust certificates will be considered publicly offered securities under Section
2510.3-101 of the United States Department of Labor regulations or that
participation by benefit plan investors will not be significant for purposes of
that regulation.
In other instances, however, the offering of trust certificates may not be
so structured. In those cases, the assets of the trust may be deemed to be plan
assets and transactions involving:
o the depositor,
o an underwriter,
o the trustee,
o any trustee with respect to underlying securities,
o any obligors with respect to underlying securities, or
o affiliates of the obligors
might constitute prohibited transactions with respect to a plan holding a trust
certificate unless:
(1) one or more prohibited transaction exemptions, which are generally
referred to as "PTEs", apply; or
(2) in the case of an issuer of underlying securities, that issuer is not
a disqualified person or party in interest with respect to the plan.
Plans maintained or contributed to by the depositor, an underwriter, the
trustee, a trustee with respect to underlying securities, any issuer of
underlying securities, or any of their affiliates, should not acquire or hold
any trust certificates.
If the trust is deemed to hold plan assets, the underlying securities would
appear to be an indirect loan between the issuer of the underlying securities
and any plan owning trust certificates. However, the loan, by itself, would not
constitute a prohibited transaction unless the issuer is a party in interest or
a disqualified person with respect to that plan.
If the underwriter with respect to an offering of trust certificates is a
broker-dealer registered under the Exchange Act and customarily purchases and
sells securities for its own account in the ordinary course of its business as a
broker-dealer, an exemption may exist. Sales of trust certificates by those
underwriters to plans may be exempt under PTE 75-1 if all of the following
conditions are satisfied:
(1) the underwriter is not a fiduciary with respect to the plan and is a
party in interest or disqualified person solely by reason of Section
3(14)(B) of ERISA, Section 4975(e)(2)(B) of the Internal Revenue Code
or as a result of a relationship to a person described in those
sections;
(2) the transaction is at least as favorable to the plan as an
arm's-length transaction with an unrelated party and is not a
prohibited transaction within the meaning of Section 503(b) of the
Internal Revenue Code; and
(3) the plan maintains for at least six years those records necessary to
determine whether the conditions of PTE 75-1 have been met.
59
Custodial services and any other services tendered by the trustee or any
trustee with respect to underlying securities might be exempt transactions
pursuant to Section 408(b)(2) of ERISA and Section 4975(d)(2) of the Internal
Revenue Code. Those sections exempt services that are necessary for the
establishment or operation of a plan, that are provided under a reasonable
contract or arrangement and for which no more than reasonable compensation is
paid. An arrangement would not be treated as reasonable unless it can be
terminated without penalty upon reasonably short notice under the circumstances.
However, those statutory exemptions do not provide exemptive relief for
prohibited transactions described in Section 406(b) of ERISA or Section
4975(c)(1)(E) or (F) of the Internal Revenue Code.
Other prohibited transaction exemptions could apply to the acquisition and
holding of trust certificates by plans and the operation of the trust,
including, but not limited to:
o PTE 84-14, an exemption for certain transactions determined by an
independent qualified professional asset manager;
o PTE 91-38, an exemption for certain transactions involving bank
collective investment funds;
o PTE 90-1, an exemption for certain transactions involving insurance
company pooled separate accounts; and
o PTE 95-60, an exemption for certain transactions involving insurance
company pooled general accounts.
If an offering of trust certificates will result in the trust assets being
deemed to constitute plan assets the applicable prospectus supplement will
provide that a plan, by acquiring and holding a trust certificate, will be
deemed to have represented and warranted to the depositor, trustee, and
underwriter that the plan's acquisition and holding of a trust certificate does
not involve a non-exempt prohibited transaction. That representation and
warranty will extend to include the activities of the trust.
Any plan or insurance company investing assets of its general account and
proposing to acquire trust certificates should consult with its counsel.
60
UNDERWRITING
Trust certificates may be offered in any of three ways: (1) through
underwriters or dealers, (2) directly to one or more purchasers or (3) through
agents. The applicable prospectus supplement will set forth the material terms
of the offering of any series of trust certificates, which may include:
o the names of any underwriters or initial purchasers;
o the purchase price of the trust certificates and the proceeds to the
depositor from the sale;
o whether the trust certificates are being offered by the applicable
prospectus supplement in connection with trading activities that may
create a short position or are being issued to cover that short
position;
o any underwriting discounts and other items constituting underwriters'
compensation;
o any initial public offering price;
o any discounts or concessions allowed or reallowed or paid to dealers;
o any securities exchanges on which the trust certificates may be
listed; and
o the place and time of delivery of the trust certificates to be offered
through the applicable supplement.
If underwriters are used in the sale, they will acquire the trust
certificates at a fixed price for their own account and they may resell them
from time to time in one or more transactions, including:
o negotiated transactions;
o at a fixed public offering price; or
o at varying prices determined at the time of sale.
The trust certificates may be offered to the public either through
underwriting syndicates represented by managing underwriters or by underwriters
without a syndicate. The managing underwriters or underwriters in the U.S. will
include Merrill Lynch. The obligations of those underwriters to purchase trust
certificates will be subject to some conditions precedent and the underwriters
will be obligated to purchase all trust certificates if any trust certificates
are purchased. Any initial public offering price and any discounts or
concessions allowed or reallowed or paid to dealers may be changed from time to
time.
Agents designated by the depositor may from time to time sell trust
certificates. The applicable prospectus supplement will set forth the name of
any agent involved in the offer or sale of trust certificates and any
commissions that the depositor has to pay that agent. Unless otherwise indicated
in the applicable prospectus supplement, the agent will act on a best-efforts
basis for the period of its appointment.
If the applicable prospectus supplement so indicates, the depositor will
authorize agents, underwriters or dealers to solicit offers by specified
institutions to purchase trust certificates 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 that prospectus
supplement. The contracts will be subject only to those conditions set forth in
the applicable prospectus supplement. The prospectus supplement will also set
forth the commissions payable for solicitation of those contracts. Any
underwriters, dealers or agents participating in the distribution of trust
certificates may be deemed to be underwriters and any discounts or commissions
received by them on the sale or resale of trust certificates may be deemed to be
underwriting discounts and commissions under the Securities Act of 1933, as
amended. Agents and underwriters may be entitled under agreements entered into
with the depositor to indemnification by the depositor against some civil
liabilities, including liabilities under the Securities Act, or to contribution
with respect to payments that the agents or underwriters or their affiliates may
be required to make in respect thereof. Agents and underwriters and their
affiliates may be customers of, engage in transactions with, or perform services
for, the depositor or its affiliates in the ordinary course of business.
Only trust certificates rated in one of the investment grade rating
categories by a rating agency will be offered by this prospectus. Affiliates of
the underwriters may act as agents or underwriters in connection with the
61
sale of the trust certificates. The applicable prospectus supplement will name
any affiliate of the underwriters acting as agents and will describe its
affiliation with the underwriters. The underwriters or their affiliates may act
as principals or agents in connection with market-making transactions relating
to the trust certificates or trading activities that create a short position.
The prospectus supplement related to the trust certificates for which a market
is being made or a short position is being either created or covered will be
delivered by the underwriters or affiliates.
The depositor is an affiliate of Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
LEGAL MATTERS
Shearman & Sterling, New York, or other counsel identified in the
applicable prospectus supplement, will pass on the validity of the trust
certificates for the depositor and the underwriters.
62
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Trust Certificates
($25 Stated Amount)
INDEXPLUS
TRUST CERTIFICATES
SERIES 2003-1
---------------------
PROSPECTUS SUPPLEMENT
---------------------
Merrill Lynch & Co.
, 2003
Until 25 days after the date of this prospectus, all dealers effecting
transactions in the offered trust certificates, whether or not participating in
the distribution, may be required to deliver a prospectus supplement and the
prospectus to which it relates. This requirement is in addition to the
obligations of dealers to deliver a prospectus supplement and prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
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