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 May 24, 2004
PROSPECTUS SUPPLEMENT Filed Pursuant to Rule 424(b)(2)
- ---------------------
(To Prospectus dated October 24, 2002) Registration No. 333-88166
Merrill Lynch Depositor, Inc.
Depositor
_______ PPLUS CLASS B ___% TRUST CERTIFICATES
($___ NOTIONAL PRINCIPAL AMOUNT)
PPLUS TRUST SERIES DCNA-1
(Underlying Securities Will Be 8.50% Notes due 2031
Issued by DaimlerChrysler North America Holdings Corporation and
Irrevocably and Unconditionally Guaranteed by DaimlerChrysler AG)
Underwriting Discount Number of Certificates(1) Distribution Rate Price to Public
$--- ------- ---% $---
(1) Either prior to the closing date or from time to time, the depositor
may, without the consent of the trust certificateholders, increase the
amount of the underlying securities in the trust and issue a
corresponding amount of additional trust certificates.
----------
The Trust
o PPLUS Trust Series DCNA-1 will be a trust formed under the laws of the
State of New York.
o The trust will issue PPLUS Class B ___% Trust Certificates Series DCNA-1
and PPLUS Class A ___% Trust Certificates Series DCNA-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 Class B trust certificates at the
offering price set forth above and will initially offer the Class B trust
certificates in minimum lots of ___ trust certificates and subsequent
increments of ___ trust certificates.
o The Trust Certificates
o The trust certificates will be issued in two classes, Class B and Class A.
Only the Class B trust certificates are being offered pursuant to this
prospectus supplement.
o The trust certificates represent an interest in the assets of the trust,
which consist principally of the underlying securities described in this
prospectus supplement.
o Call warrants may be issued to third parties from time to time,
representing the rights of call warrant holders to purchase outstanding
trust certificates in whole or in part. Holders of trust certificates
cannot cause call warrant holders to exercise their call rights. The call
price will be the sum of the present values at the call date, discounted at
the rate of 8.50% per year, of the unpaid distributions due, or to become
due, in respect of the distributions to be made to the applicable Class B
trust certificateholders, assuming that the underlying securities are paid
when due and are not accelerated prior to their stated maturity. The call
warrants are not being offered pursuant to this prospectus supplement.
o The trust does not intend to have the Class B trust certificates listed on
a securities exchange and the trust certificates currently have no trading
market and are not insured or guaranteed by any governmental agency.
The Underlying Securities
o The underlying securities, which the depositor will deposit into the trust
for your benefit, will be the principal assets of the trust and will
consist of $_______ 8.50% Notes due 2031 issued by DaimlerChrysler North
America Holding Corporation, a Delaware corporation, and irrevocably and
unconditionally guaranteed by DaimlerChrysler AG, a German corporation.
Investing in the trust certificates involves certain risks, which are
described in the "Risk Factors" sections beginning on page S-14 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 a direct obligation of the underlying
securities issuer or any of its affiliates.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus to which it relates is
truthful or complete. Any representation to the contrary is a criminal offense.
The Class B trust certificates will be ready for delivery in book-entry
form only through The Depository Trust Company on or about _______, 2004.
-------------------
Merrill Lynch & Co.
-------------------
The date of this prospectus supplement is ______, 2004.
TABLE OF CONTENTS
Prospectus Supplement
Page
----
Summary of Economic Terms....................................................S-3
Summary Information Q&A......................................................S-8
Risk Factors................................................................S-14
The Trust...................................................................S-19
Description of the Trust Certificates.......................................S-19
The Depositor...............................................................S-26
Description of the Trust Agreement..........................................S-26
Description of the Underlying Securities....................................S-30
United States Federal Income Tax Consequences...............................S-44
ERISA Considerations........................................................S-50
Underwriting................................................................S-51
Validity of the Class A Trust Certificates..................................S-51
Ratings.....................................................................S-51
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
U.S. 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.
S-2
SUMMARY OF ECONOMIC TERMS
This summary highlights the principal economic terms of the underlying
securities and of the trust certificates being issued by the trust. It does not
contain all of the information that you need to consider in making your
investment decision. To understand all of the terms of the offering of the trust
certificates, you should read carefully this prospectus supplement and the
accompanying prospectus.
The Trust Certificates
The trust.................................PPLUS Trust Series DCNA-1, formed by
Merrill Lynch Depositor, Inc. and the
trustee.
Securities offered........................PPLUS Class B ___% Trust Certificates
Series DCNA-1.
Initial number of trust certificates......_______.
Final scheduled distribution date.........January 18, 2031.
Distributions
General...............................All distributions of payments or
underlying securities will be made
on a pro rata basis to the holders
of the respective trust certificate
class. The Class B and Class A trust
certificateholders will have an
equal right to receive distributions
of interest. The distributions of
principal to Class A trust
certificateholders will be
subordinate to those distributions
of interest.
Class B trust certificates
Rate of distributions............___% per year on the principal amount
of the underlying securities.
Principal distribution...........The holders of the Class B trust
certificates will not receive a
distribution of the principal amount
of the underlying securities unless
a default on the underlying
securities occurs or the underlying
securities guarantor ceases to file
Exchange Act reports or ceases to
satisfy the requirements of Rule
3-10 of Regulation S-X under the
Securities Act. See "Description of
the Trust Certificates - Default on
Underlying Securities" below.
Class A trust certificates
Aggregate stated amount..........$_______.
Rate of distributions............___% per year on the stated amount of
the Class A trust certificates.
Principal distribution...........Unless their trust certificates are
earlier purchased pursuant to the
exercise of a call warrant, the
holders of the Class A trust
certificates will receive a
distribution of the principal amount
of the underlying securities on the
final scheduled
S-3
distribution date.
Deposited assets .........................The deposited assets will consist of
the underlying securities. See "-
The Underlying Securities" and
"Description of the Underlying
Securities" below.
Original issue date; closing date........._______, 2004.
Cut-off date.............................._______, 2004.
Distribution dates........................January 18 and July 18, or if any
such date is not a business day,
then the next succeeding business
day, to the persons in whose names
the trust certificates are
registered on the record date
immediately preceding such
distribution date, commencing July
18, 2004.
Record date...............................The business day immediately
preceding each distribution date.
Call warrant..............................On any business day on or after July
18, 2009 that any call warrant
holders designate as a "Call Date",
the call warrant holders may, upon
notice of not less than 30 days (or
in the case of the announcement of
any redemption or other unscheduled
payment of the underlying securities
or after receipt of notice of
termination of the trust, not less
than three days notice, or when a
tender offer for the underlying
securities is pending, not less than
five days notice prior to the
expiration of the tender offer
acceptance period) but not more than
60 days prior to that Call Date,
purchase your Class B trust
certificates in whole or in part for
the sum of the present values at the
Call Date, discounted at the rate of
___% per year, of the unpaid
distributions due, or to become due,
in respect of the distributions to
be made to you by the trustee.
On any business day before July 18,
2009 and after the announcement of
any redemption or other unscheduled
payment of the underlying securities
or receipt of notice of termination
of the trust or when a tender offer
for the underlying securities is
pending, that any call warrant
holders designate as a "Call Date",
the call warrant holders may, in the
case of receipt of notice of any
redemption or other unscheduled
payment of the underlying securities
or of termination of the trust, upon
notice of not less than three days
or when a tender offer for the
underlying securities is pending,
upon notice of not less than five
days prior to the expiration of the
tender offer acceptance period, but
not more than 60 days prior to that
Call Date, purchase your Class B
trust certificates in whole or in
part for the sum of the present
values at the Call Date, discounted
at the rate of 8.50% per year, of
the unpaid distributions due, or to
become due, in respect of the
distributions to be made to you by
the trustee, provided that if the
warrants are to be exercised after
the announcement of any redemption
or
S-4
other unscheduled payment of the
underlying securities and prior to
such redemption or other unscheduled
payment, then the call date
designated by the call warrant
holder must be the second business
day prior to such redemption or
other unscheduled payment.
In addition, at any time upon an
acceleration of the underlying
securities and payment in full by
the underlying securities issuer of
all amounts when due where the
acceleration payment exceeds the sum
of (i) the aggregate stated amount
of the Class A trust certificates
plus any accrued and unpaid
distributions to the date of payment
and (ii) the sum of the present
values at the payment date,
discounted at the rate of ___% per
year, of the unpaid distributions
due, or to become due, in respect of
the distributions to be made to the
Class B trust certificateholders by
the trustee (assuming, for the
purpose of that calculation, that
the underlying securities would have
been paid in full at their stated
maturity, that such acceleration had
not occurred and that no portion of
the underlying securities would have
been redeemed prior to that stated
maturity date), all outstanding call
warrants will be exercised
automatically. The Class B trust
certificates will be purchased for
the sum of the present values at the
exercise date, discounted at the
rate of ___% per year, of the unpaid
distributions due, or to become due,
in respect of the distributions to
be made to the Class B trust
certificateholders by the trustee.
In all cases where only a portion of
the outstanding call warrants are
exercised, if a call warrant holder
also holds Class B trust
certificates on the date of the
exercise of a call warrant, the call
warrant holder may elect to call its
own Class B trust certificates
before any other person's Class B
trust certificates are called.
Mandatory redemption......................The trust certificates will be
redeemable on a redemption of the
underlying securities. See
"Description of the Underlying
Securities - Tax Redemption; Payment
of Additional Amounts" below.
Denominations; specified currency.........The Class B trust certificates will
each have a notional principal
amount of $____ and will be
denominated and payable in U.S.
dollars. The underwriter will
initially offer the Class B trust
certificates in minimum lots of ___
trust certificates and subsequent
increments of ___ trust
certificates.
Collection periods........................Semi-annual periods (or, in the case
of the first collection period, from
and including the original issue
date to, and including, the first
distribution date). Any income to
the trust, including interest
payments on underlying securities,
S-5
collected during a collection period
will be used to pay the trust's
obligations to the Class B and Class
A certificateholders, the trustee
and others as set out in the Series
Supplement.
Form of trust certificate.................Book-entry certificates with The
Depository Trust Company, or DTC.
See "Description of the Trust
Certificates - Definitive Trust
Certificates" on page S-19.
Distributions will be settled in
immediately available (same-day)
funds.
Trustee...................................The Bank of New York, as successor
to United States Trust Company of
New York.
Ratings..................................."BBB" by Standard & Poor's Ratings
Services, a division of The McGraw
Hill Companies, Inc., and "A3" by
Moody's Investors Service, Inc. See
"Ratings" on page S-46.
Class B trust certificate's CUSIP number..__________
Class A trust certificate's CUSIP number..__________
The Underlying Securities
Underlying securities.....................8.50% Notes due 2031 issued by the
underlying securities issuer.
Underlying securities issuer..............DaimlerChrysler North America
Holdings Corporation
Underlying securities guarantor DaimlerChrysler AG has fully and
unconditionally guaranteed the
underlying securities issuer's
obligation on the underlying
securities. The guarantee is
described below under "Description
of the Underlying
Securities--Guarantee".
Underlying securities trustee.............JPMorgan Chase Bank, as successor to
The Chase Manhattan Bank.
Underlying securities original
issue date..............................January 11, 2001.
Underlying securities final
payment date............................January 18, 2031.
Denominations; specified currency.........The underlying securities are
denominated and payable in U.S.
dollars and are available in minimum
denominations of $1,000 and
multiples thereof.
Underlying securities payment dates.......January 18 and July 18, or if any
such date is not a business day,
then the next succeeding business
day to the persons in whose names
the underlying securities are
registered at the close of business
on the 15th day preceding the
relevant interest payment date,
subject to certain exceptions.
S-6
Underlying securities rate................8.50% per year.
Underlying securities distribution
periods.................................Semi-annual periods.
Optional redemption.......................The underlying securities issuer
will have the option to redeem the
underlying securities, as a whole
and not in part, on not less than 30
or more than 60 days' notice mailed
to registered holders thereof at a
redemption price of 100% of their
principal amount (and premium, if
any), together with accrued interest
to the date of redemption if, as a
result of changes to certain laws,
the underlying securities issuer or
guarantor becomes obliged to pay
additional amounts, subject to
certain exceptions. See "Description
of the Underlying Securities--Tax
Redemption; Payment of Additional
Amounts" below.
Form of security..........................Book-entry securities with DTC.
Ratings..................................."BBB" by Standard & Poor's Ratings
Services, a division of The McGraw
Hill Companies, Inc., and "A3" by
Moody's Investors Service, Inc.
Underlying securities' CUSIP number.......233835AQ0.
S-7
SUMMARY INFORMATION Q&A
The following information supplements, and should be read together
with, the information contained in other parts of this prospectus supplement and
in the accompanying prospectus. This summary highlights selected information
from this prospectus supplement and the accompanying prospectus to help you
understand the trust certificates. You should carefully read this prospectus
supplement and the accompanying prospectus to understand fully the terms of the
trust certificates, as well as the tax and other considerations that are
important to you in making a decision about whether to invest in the trust
certificates. You should pay special attention to the "Risk Factors" sections
beginning on page S-14 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 distributions to be made by the trust. Each trust
certificate will entitle the holder to receive semiannual cash distributions as
described in this prospectus supplement. The underwriter is offering PPLUS Class
B ___% Trust Certificates Series DCNA-1 with a notional principal amount of $___
per trust certificate. The trust certificates will be issued pursuant to the
Standard Terms for Trust Agreements, dated as of February 20, 1998, between
Merrill Lynch Depositor, Inc. and The Bank of New York, as successor to United
States Trust Company of New York, as trustee and securities intermediary, as
amended and supplemented by the Series DCNA-1 Supplement, between Merrill Lynch
Depositor, Inc., as depositor, and the trustee and securities intermediary, to
be dated the date set forth in this prospectus supplement (collectively, the
"trust agreement"). The trust certificates will consist of two classes. Only the
Class B trust certificates are being offered pursuant to this prospectus
supplement. All payments on the trust certificates will come from the underlying
securities.
On or after the closing date set forth in this prospectus supplement,
call warrants may be issued that represent the right of the holders of the call
warrants to purchase outstanding trust certificates in whole or in part as
discussed under "Description of the Trust Certificates - Call Warrants" on page
S-21 of this prospectus supplement. The call warrants are not being offered
pursuant to this prospectus supplement.
Who Is the Trust?
PPLUS Trust Series DCNA-1 will be a trust formed under the laws of the
State of New York. The trust certificates issued by the trust will be sold to
the public. The trust will be formed pursuant to the Standard Terms for Trust
Agreements, as amended and supplemented by the Series Supplement described
above. The Bank of New York is the trustee under the trust agreement and will
receive compensation as set forth in an agreement between the depositor and the
trustee.
Who Is the Depositor?
Merrill Lynch Depositor, Inc., incorporated in the State of Delaware as
an indirect, wholly owned, limited purpose subsidiary of Merrill Lynch & Co.,
Inc., is the depositor and will deposit the underlying securities into the
trust. See "The Depositor" on page 16 of the accompanying prospectus. The
depositor is an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated,
the underwriter of this offering.
S-8
What Are the Important Dates to Remember?
Delivery of the trust certificates will be made on the closing date, as
set forth in this prospectus supplement. This prospectus supplement describes
the underlying securities held by the trust as of the cut-off date, as set forth
in this prospectus supplement.
What Are the Trust's Assets?
The initial assets of the trust will be the underlying securities
consisting of $_______ 8.50% Notes due January 18, 2031 issued by
DaimlerChrysler North America Holding Corporation, a Delaware corporation, and
guaranteed by DaimlerChrysler AG, a German corporation, to the extent set forth
under "Description of the Underlying Securities--Guarantee". The underlying
securities held by the trust will represent ___% of the total issuance of the
8.50% Notes due January 18, 2031. The underlying securities were issued pursuant
to an indenture dated as of September 17, 1996, as amended and supplemented by a
first supplemental indenture dated as of May 17, 1999, among the underlying
securities guarantor, the underlying securities issuer, DaimlerChrysler Canada
Finance Inc., a Quebec corporation, DaimlerChrysler International Finance B.V.,
a company established in Utrecht, The Netherlands, DaimlerChrysler AG and
JPMorgan Chase Bank, as successor to The Chase Manhattan Bank, as trustee, by
which the punctual and full payment of the entire principal of (and premium, if
any) and interest, if any, on the underlying securities was fully and
unconditionally guaranteed by the underlying securities guarantor. Pursuant to a
registration statement filed by the underlying securities issuer on Form S-3
(No. 333-10366), the underlying securities were originally issued in the form of
book-entry securities deposited with The Depository Trust Company, New York, New
York, or DTC. The underlying securities have a CUSIP number of 233835AQ0.
The underlying securities will mature on January 18, 2031 unless
redeemed earlier as described under "Description of the Underlying
Securities--Tax Redemption; Payment of Additional Amounts" below. The principal
amount of the underlying securities will be payable to the trust on January 18,
2031. Either prior to the closing date of the offering of the trust certificates
or from time to time, the depositor may, without the consent of the trust
certificateholders, increase the amount of the initial assets of the trust and
issue a corresponding amount of additional Class A and Class B trust
certificates.
When Will You Receive Semiannual Distributions?
If you purchase the Class B trust certificates, you will be entitled to
receive cash distributions at an annual rate of ___% of the notional principal
amount of $___ per trust certificate. Distributions will accumulate from the
date the trust issues the trust certificates and will be paid semiannually in
arrears on January 18 and July 18 of each year, beginning on July 18, 2004 and
ending on January 18, 2031, unless the final scheduled distribution date is
advanced for any reason. Each semi-annual distribution on the trust certificates
represents a portion of the interest accrued on the underlying securities from
the cut-off date or the previous distribution date, as applicable, to, but not
including, each distribution date. Such interest is paid to the trust on each
distribution date, in accordance with the terms of the underlying securities.
When Can the Trust Redeem the Trust Certificates?
The trust certificates will be redeemed in accordance with the
redemption of the underlying securities. The trust will redeem all of the
outstanding Class B trust certificates when the underlying securities are paid
at maturity on January 18, 2031 (the "stated maturity date") or on their earlier
redemption. The underlying securities issuer may redeem all, but not less than
all, of the underlying securities before the stated maturity date if it becomes
obligated to pay additional amounts at the applicable redemption price. Upon
redemption of the underlying securities, the call warrant holders will have the
right to exercise their call warrants. See "When Will the Trust Certificates Be
Subject to Call Warrants?" below. Upon exercise of any call warrants, the
trustee will select by lot a stated or notional amount of Class A or Class B
trust certificates, as applicable, to be surrendered to the trustee in exchange
for a pro rata portion of the call exercise price. Following its receipt of the
trust certificates called, the trustee will surrender the called trust
certificates to the exercising call warrant holders.
S-9
When Will the Trust Certificates Be Subject to Call Warrants?
On any business day on or after July 18, 2009 that any call warrant
holders designate as a "Call Date", the call warrant holders may, upon notice of
not less than 30 days (or in the case of the announcement of any redemption or
other unscheduled payment of the underlying securities or after receipt of
notice of termination of the trust, not less than three days notice, or when a
tender offer for the underlying securities is pending, not less than five days
notice prior to the expiration of the tender offer acceptance period) but not
more than 60 days prior to that Call Date, purchase your Class B trust
certificates in whole or in part for the sum of the present values at the Call
Date, discounted at the rate of ___% per year, of the unpaid distributions due,
or to become due, in respect of the distributions to be made to you by the
trustee (assuming for the purpose of that calculation, that the underlying
securities are paid in full on their stated maturity date, and no portion
thereof is accelerated or redeemed prior to such date). On any business day
before July 18, 2009 and after receipt of notice of any redemption or other
unscheduled payment of the underlying securities or receipt of notice of
termination of the trust or when a tender offer for the underlying securities is
pending, that any call warrant holders designate as a "Call Date", the call
warrant holders may, after receipt of notice of any redemption or other
unscheduled payment of the underlying securities or of termination of the trust,
upon notice of not less than three days, or when a tender offer for the
underlying securities is pending, upon notice of not less than five days prior
to the expiration of the tender offer acceptance period, but not more than 60
days prior to that Call Date, purchase your Class B trust certificates in whole
or in part for the sum of the present values at the Call Date, discounted at the
rate of ___% per year, of the unpaid distributions due, or to become due, in
respect of the distributions to be made to you by the trustee (assuming for the
purpose of that calculation, that the underlying securities are paid in full on
their stated maturity date, and no portion thereof is accelerated or redeemed
prior to such date). In addition, at any time upon an acceleration of the
underlying securities and payment in full by the underlying securities issuer of
all amounts when due and where the acceleration payment exceeds the sum of (i)
the stated amount of the Class A trust certificates plus any accrued and unpaid
distributions to the date of payment and (ii) the sum of the present values at
the payment date, discounted at the rate of ___% per year, of the unpaid
distributions due, or to become due, in respect of the distributions to be made
to the Class B trust certificateholders by the trustee (assuming, for the
purpose of that calculation, that the underlying securities would have been paid
in full at their stated maturity, that such acceleration had not occurred and
that no portion of the underlying securities would have been redeemed prior to
that stated maturity date), all outstanding call warrants will be exercised
automatically, and the Class B trust certificates will be purchased for the sum
of the present values at the payment date, discounted at the rate of ___% per
year, of the unpaid distributions due, or to become due, in respect of the
distributions to be made to you by the trustee (assuming for the purpose of that
calculation, that the underlying securities would have been paid in full at
their stated maturity date, that no redemption had occurred and such
acceleration had not occurred). Upon notice of exercise of any call warrants,
the trustee will select by lot a notional principal amount of the Class B trust
certificates to be surrendered to the trustee in exchange for a pro rata portion
of the call exercise price. Following its receipt of the Class B trust
certificates upon such exercise of any call warrants, the trustee will surrender
the Class B trust certificates to the exercising call warrant holders.
In all cases where only a portion of the outstanding call warrants are
exercised, if a call warrant holder also holds Class B trust certificates on the
date of the exercise of the call warrant, the call warrant holder may elect to
call its own Class B trust certificates before any other person's Class B trust
certificates are called.
The call warrant holders are not required to exercise their call
warrants with respect to the Class B trust certificates prior to their stated
maturity date. We cannot assure you that the call warrant holders will purchase
your trust certificates prior to January 18, 2031. For additional information on
the exercise of call warrants, see "Description of the Trust Certificates - Call
Warrants" on page S-21.
What Happens If There Is a Payment Default on the Underlying Securities?
If there is a payment default on the underlying securities, the
trustee, on or immediately after the 30th day after that default, will sell the
underlying securities and divide the proceeds from the sale of the underlying
securities between the trust certificate classes in accordance with the
allocation ratio, as defined on page S-24, and distribute each class' portion of
the proceeds pro rata to the holders of the trust certificates of that class.
Upon such sale, the
S-10
call warrants will expire and have no value. If, after any default and prior to
the trustee selling the underlying securities, there is an acceleration of the
maturity of the underlying securities and the underlying securities are declared
to be immediately due and payable and the underlying securities issuer
(1) pays all amounts when due, then the trustee will divide such
amounts between the trust certificate classes in accordance with
the allocation ratio and distribute each class' portion of such
amounts pro rata to the trust certificateholders of that class,
(2) fails to pay such amount when due, then the trustee will divide
the underlying securities between the trust certificate classes
in accordance with the allocation ratio and distribute each
class' portion of the underlying securities pro rata to the trust
certificateholders of that class, or
(3) pays only a portion of such amount when due, then the trustee
will divide any amounts received along with the underlying
securities between the trust certificate classes in accordance
with the allocation ratio and distribute each class' portion of
such amounts and the underlying securities pro rata to the trust
certificateholders of that class.
In addition, if the underlying securities guarantor ceases to file Exchange Act
reports or ceases to satisfy the requirements of Rule 3-10 of Regulation S-X
under the Securities Act, the call warrant holders will have an opportunity to
exercise call rights and thereafter the trustee will divide the underlying
securities between the trust certificate classes in accordance with the
allocation ratio and distribute each class' portion of the underlying securities
pro rata to the trust certificateholders of that class. If the events set forth
in clause (1) of this paragraph occur, and if such payment exceeds the sum of
(x) the aggregate stated amount of the Class A trust certificates plus any
accrued and unpaid distributions to the date of payment and (y) the sum of the
present values, discounted at the rate of ___% per year, of the unpaid payments
due, or to become due, in respect of the payments to be made on the Class B
trust certificates on or after the date of payment (assuming, for purposes of
such calculation, that the underlying securities would have been paid in full at
their stated maturity date, that such acceleration had not occurred and that no
portion of the underlying securities would have been redeemed prior to that
stated maturity date), all call warrant holders will be deemed to have
automatically exercised their rights pursuant to all outstanding call warrants,
all Class B certificateholders will receive the call price with respect to their
Class B trust certificates called and all amounts received from the underlying
securities issuer will be distributed directly to the call warrant holders. If
the events set forth in clause (2) of this paragraph occur, the call warrants
will expire and have no value. If the events set forth in clause (3) occur, the
call warrant holders will have an opportunity to exercise call rights before the
trustee distributes any amounts received or any underlying securities to the
trust certificateholders.
What is DaimlerChrysler AG's Guarantee of the Underlying Securities?
Pursuant to the underlying securities guarantee, the underlying
securities guarantor has agreed to fully and unconditionally guarantee the
punctual and full payment of the entire principal of (and premium, if any) and
interest, if any, on the underlying securities. See "Description of the
Underlying Securities--Guarantee" below.
In What Form Will the Trust Certificates Be Issued?
Except in limited circumstances, the trust certificates will be
represented by one or more global securities that will be deposited with and
registered in the name of DTC or its nominee. This means that you will not
receive a certificate for your Class B trust certificates. The Class B trust
certificates will be ready for delivery through DTC on or about the date set
forth in this prospectus supplement. The trust certificates will have the CUSIP
number set forth in this prospectus supplement.
How Will the Trust Be Treated for United States Federal Income Tax Purposes?
The trust will be classified for United States federal income tax
purposes as a grantor trust and not as an association (or publicly traded
partnership) taxable as a corporation. For United States federal income tax
purposes,
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the Class B trust certificates will represent direct ownership of (i) an
interest coupon strip from the underlying securities that is treated as a
newly-issued debt instrument under section 1286 of the Internal Revenue Code of
1986, as amended (the "Code"), and (ii) a written call option on such debt
instrument. Each Class B trust certificateholder will be required to report on
its United States federal income tax return its pro rata share of the income
from this newly-issued debt instrument. See "United States Federal Income Tax
Consequences" on page S-40.
Will the Trust Certificates Be Listed on a Stock Exchange?
The trust does not intend to apply to have the Class B trust
certificates listed on a securities exchange.
Will the Trust Certificates Be Rated?
It is a condition to the issuance of the Class B trust certificates
that the Class B trust certificates have ratings assigned by Moody's Investors
Service, Inc. or by Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc. (each, a "rating agency" and collectively, the
"rating agencies"), equivalent to the ratings of the underlying securities. As
of the date of this prospectus supplement, the underlying securities were rated
"A3" by Moody's and "BBB" by S&P.
Moody's rating of the Class B trust certificates addresses the ultimate
cash receipt of all required interest payments on the Class B trust certificates
at the earliest of the Call Date and the final scheduled distribution date as
provided by the governing documents, and is based on the expected loss posed to
the certificateholders relative to the promise of receiving the present value of
such payments. Moody's rating does not address any additional payments that
certificateholders may receive under the governing documents. The rating of the
Class B trust certificates by S&P addresses the likelihood of timely payment of
distributions on the Class B trust certificates or any underlying securities
distributed in respect of 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 the underlying
securities) so warrant. A revision or withdrawal of such rating may have an
adverse effect on the market price of the Class B trust certificates. A security
rating is not a recommendation to buy, sell or hold securities. The rating on
the Class B trust certificates does not constitute a statement regarding the
occurrence or frequency of redemption of the underlying securities and the
corresponding effect on yield to investors.
Can an Employee Benefit Plan Purchase the Trust Certificates?
An employee benefit plan subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and an individual retirement account
(each, a "plan") are each permitted to purchase trust certificates. However,
each plan should take into consideration certain potential issues under ERISA
and, by purchasing a trust certificate, will be deemed to represent that the
purchase and holding of the trust certificate will not result in a non-exempt
prohibited transaction under ERISA.
Where Can You Find More Information About the Underlying Securities?
The underlying securities guarantor is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which means that it files periodic reports, including reports on Forms
20-F and 6-K, 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 of the SEC at 450 Fifth Street,
NW, Washington, D.C. 20549. You may obtain information about the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can also
access some of this information electronically by means of the SEC's website on
the Internet at http://www.sec.gov, which contains reports, proxy and
information statements and other information that the underlying securities
guarantor has filed electronically with the SEC. In addition, you may inspect
reports and other information concerning the underlying securities guarantor at
the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005.
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The underlying securities issuer filed with the SEC a registration
statement on Form F-3 (the "registration statement", which term shall include
all amendments, exhibits, annexes and schedules thereto) pursuant to the
Securities Act of 1933, as amended, and a prospectus supplement, as amended,
with respect to the underlying securities. The prospectus and the prospectus
supplement relating to the underlying securities do not contain all the
information set forth in the registration statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. For further
information with respect to the underlying securities, the underlying guarantee,
the underlying securities issuer and the underlying securities guarantor, you
should refer to the prospectus supplement, the registration statement and its
exhibits and the indenture, as supplemented. 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 with the SEC, each such statement being
qualified in all respects by such reference.
You should not rely on this prospectus supplement for information with
respect to the underlying securities issuer or the underlying securities
guarantor. This prospectus supplement sets forth certain relevant terms with
respect to the underlying securities and the underlying guarantee, but does not
provide detailed information with respect to the underlying securities, the
underlying guarantee, the underlying securities issuer or the underlying
securities guarantor. This prospectus supplement relates only to the Class A
trust certificates offered hereby and does not relate to the underlying
securities or the underlying guarantee or an offer therefor. All disclosure
contained herein with respect to the underlying securities issuer and the
underlying securities guarantor is derived from publicly available documents.
No investigation with respect to the underlying securities issuer or
the underlying securities guarantor (including, without limitation, no
investigation as to their financial condition or creditworthiness), the
underlying securities or the underlying guarantee has been made. You should
obtain and evaluate the same information concerning the underlying securities
issuer and the underlying securities guarantor as you would obtain and evaluate
if you were investing directly in the underlying securities and the underlying
guarantee or in other securities issued by the underlying securities issuer or
the underlying securities guarantor. None of the depositor, the trustee, the
underwriter, or any of their affiliates, assumes any responsibility for the
accuracy or completeness of any publicly available information of the underlying
securities issuer or the underlying securities guarantor filed with the SEC or
otherwise made publicly available or considered by you in making your investment
decision in connection therewith.
S-13
RISK FACTORS
Your investment in the Class B 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 Class B trust certificates is suitable for you.
If the underlying securities are redeemed prior to their maturity date or if any
call warrants are exercised prior to the stated maturity date, you may not be
able to reinvest your redemption or call proceeds at a yield comparable to the
yield you would have received on your Class B trust certificates
The yield you will realize on your Class B trust certificates depends
upon several factors, including
o the purchase price of the Class B trust certificates,
o when you acquire your Class B trust certificates,
o whether the underlying securities issuer exercises its option to
redeem the underlying securities, and
o whether the call warrant holders exercise their optional rights to
purchase outstanding Class B trust certificates.
The underlying securities issuer has the right to redeem the underlying
securities in whole or in part at its option or in whole if it becomes obligated
to pay additional amounts. Because the underlying securities issuer has the
right to redeem the underlying securities early, we cannot assure you that the
trust will be able to hold the underlying securities until their maturity date.
Although the call warrant holders are not obligated to exercise the
call warrants, the yield you will realize on your Class B trust certificates
depends on whether the call warrant holders exercise their call warrants to
purchase the Class B trust certificates. On any business day on or after July
18, 2009 that any call warrant holders designate as a "Call Date", the call
warrant holders may, upon notice of not less than 30 days (or in the case of
announcement of any redemption or other unscheduled payment of the underlying
securities or after receipt of notice of termination of the trust, not less than
three days notice, or when a tender offer for the underlying securities is
pending, not less than five days notice prior to the expiration of the tender
offer acceptance period) but not more than 60 days prior to that Call Date,
purchase your Class B trust certificates in whole or in part for the sum of the
present values at the Call Date, discounted at the rate of ___% per year, of the
unpaid distributions due, or to become due, in respect of the distributions to
be made to you by the trustee (assuming for the purpose of that calculation,
that the underlying securities are paid in full on their stated maturity date,
and no portion thereof is accelerated or redeemed prior to such date). On any
business day before July 18, 2009 and after the announcement of any redemption
or other unscheduled payment of the underlying securities or receipt of notice
of termination of the trust or when a tender offer for the underlying securities
is pending, that any call warrant holders designate as a "Call Date", the call
warrant holders may, after receipt of notice of any redemption or other
unscheduled payment of the underlying securities or of termination of the trust,
upon notice of not less than three days, or when a tender offer for the
underlying securities is pending upon notice of not less than five days prior to
the expiration of the tender offer acceptance period, but not more than 60 days
prior to that Call Date, purchase your Class B trust certificates in whole or in
part for the sum of the present values at the Call Date, discounted at the rate
of ___% per year, of the unpaid distributions due, or to become due, in respect
of the distributions to be made to you by the trustee (assuming for the purpose
of that calculation, that the underlying securities are paid in full on their
stated maturity date, and no portion thereof is accelerated or redeemed prior to
such date). In addition, at any time upon an acceleration of the underlying
securities and payment in full by the underlying securities issuer of all
amounts when due and where the acceleration payment exceeds the sum of (i) the
aggregate stated amount of the Class A trust certificates plus any accrued and
unpaid distributions to the date of payment and (ii) the sum of the present
values at the payment date, discounted at the rate of ___% per year, of the
unpaid distributions due, or to become due, in respect of the
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distribution to be made to the Class B trust certificateholders by the trustee
(assuming, for the purpose of that calculation, that the underlying securities
would have been paid in full at their stated maturity, that such acceleration
had not occurred and that no portion of the underlying securities would have
been redeemed prior to that stated maturity date), all outstanding call warrants
will be exercised automatically, and your Class B trust certificates will be
purchased for the sum of the present values at the payment date, discounted at
the rate of ___% per year, of the unpaid distributions due, or to become due, in
respect of the distributions to be made to you by the trustee (assuming for the
purpose of that calculation, that the underlying securities would have been paid
in full at their stated maturity date, that no redemption had occurred and such
acceleration had not occurred).
If the call warrant holders exercise their call warrants for Class B
trust certificates, the trust will redeem the Class B trust certificates or
select by lot Class B trust certificates to be surrendered to the call warrant
holders. Prevailing interest rates at the time of an early redemption or a call
exercise may be lower than the yield on your Class B trust certificates.
Therefore, you may be unable to realize a comparable yield upon reinvesting the
funds you receive from an early redemption or exercise of any call warrants. In
addition, if the prevailing market value of the Class B trust certificates
exceeds the redemption price or call exercise price paid to you upon a
redemption of the underlying securities or the exercise of a call, you will not
be able to realize such excess.
In all cases where only a portion of the outstanding call warrants are
exercised, if a call warrant holder also holds Class B trust certificates on the
date of the exercise of the call warrant, the call warrant holder may elect to
call its own Class B trust certificates before any other person's Class B trust
certificates are called.
See "Description of the Trust Certificates - Call Warrants" on page
S-21 and see "Description of the Underlying Securities - Tax Redemption; Payment
of Additional Amounts" on page S-35.
An inactive public market may limit your ability to sell your Class B trust
certificates
We cannot assure you that an active public market for the Class B trust
certificates will develop or, if a public market develops, that you will be able
to sell your Class B trust certificates. Merrill Lynch, Pierce, Fenner & Smith
Incorporated has advised the depositor that it intends to make a market in the
trust certificates, as permitted by applicable laws and regulations. Merrill
Lynch, Pierce, Fenner & Smith Incorporated is not obligated, however, to make a
market in any series of the trust certificates. At its sole discretion, Merrill
Lynch, Pierce, Fenner & Smith Incorporated may discontinue its market-making
activities at any time without notice to you. In addition, the underlying
securities are not listed on a securities exchange. Upon certain events
described on page S-23 of this prospectus supplement, the underlying securities
may be distributed to you. We cannot assure you that an active public market for
the underlying securities will exist at the time any underlying securities are
distributed to you, or if a public market exists, that you will be able to sell
the underlying securities that you may hold. If an active public market for the
Class B trust certificates or the underlying securities does not exist or
continue, the market prices and liquidity of your Class B trust certificates or
the underlying securities that you may hold may be adversely affected. We do not
expect to apply for listing of the Class B trust certificates on a securities
exchange.
You may not be paid if the assets of the trust are insufficient
Currently, the trust has no significant assets other than the
underlying securities and the underlying guarantee. If the underlying securities
and the underlying guarantee are insufficient to make payments or distributions
on the trust certificates, no other assets will be available for payment of the
deficiency. The underlying securities issuer is organized as a holding company
that owns subsidiary companies. According to the underlying securities
prospectus, the underlying securities issuer derives its operating income and
cash flow primarily from its subsidiaries and investments, which poses two
principal risks:
o the underlying securities issuer's right to participate as an equity
holder in any distribution of assets of any of its subsidiaries upon
the subsidiary's liquidation or otherwise, and thus the ability of its
security holders, including the trust, to benefit from the
distribution, will be subject to prior claims of the subsidiary's
creditors, except to the extent that any claims the underlying
securities issuer may have as a creditor of the subsidiary are
recognized, and
S-15
o the underlying securities issuer's ability to service its indebtedness
and other obligations is dependent primarily upon the earnings and
cash flow of its subsidiaries and the distribution or other payment to
it of such earnings and cash flow.
You may not recover the whole of the stated amount of your trust certificates if
the trust disposes of the underlying securities on a default by the underlying
securities issuer or in the event the underlying securities guarantor ceases
filing Exchange Act reports
If the underlying securities issuer defaults on its obligations under
the underlying securities or the underlying securities guarantor ceases to file
Exchange Act reports or ceases to satisfy the requirements of Rule 3-10 of
Regulation S-X under the Securities Act, then the trust will either distribute
the underlying securities to the trust certificateholders or dispose of them and
distribute the proceeds to the trust certificateholders. Your recovery in either
of those events may be limited by two factors:
o if a default occurs, the market value of the underlying securities may
be adversely affected and the proceeds of their disposition may be
lower than the present value of the Class B trust certificates; and
o in either event, any distribution of funds or underlying securities by
the trust to the Class A and Class B trust certificateholders will be
done in accordance with the allocation ratio as described in
"Description of the Trust Certificates -- Default on Underlying
Securities" below. The funds or aggregate principal amount of
underlying securities you receive on that distribution may be less the
present value of your Class B trust certificates.
The trustee will not manage the underlying securities
Except as described below, the trust will not dispose of any underlying
securities, even if an event occurs that adversely affects the value of the
underlying securities or that adversely affects the underlying securities issuer
or the underlying securities guarantor. As provided in the trust agreement, the
trust will dispose of the underlying securities only if
o there is a payment default on any underlying securities,
o there is another type of default that accelerates the maturity of the
underlying securities, or
o the underlying securities guarantor ceases to file Exchange Act
reports or ceases to satisfy the requirements of Rule 3-10 of
Regulation S-X under the Securities Act.
Under the first circumstance listed above, the trustee must sell the underlying
securities on behalf of the trust, even if adverse market conditions exist. The
trustee has no discretion to do otherwise. If adverse market conditions do exist
at the time of the trustee's sale of the underlying securities, you may incur
greater losses than if the trust continued to hold the underlying securities.
The depositor, the underwriter and the trustee have not investigated the
underlying securities
The depositor, the underwriter and the trustee have not
o investigated the business condition, financial or otherwise, of the
underlying securities issuer or the underlying securities guarantor,
or
o verified any reports or information that the underlying securities
issuer or the underlying securities guarantor has filed with the SEC.
S-16
We encourage you to consider publicly available information concerning the
underlying securities issuer and the underlying securities guarantor. You should
not construe the trust's issuance of the trust certificates as an endorsement by
the depositor, the underwriter or the trustee of the financial condition or
business prospects of the underlying securities issuer or the underlying
securities guarantor.
The trust certificates are subject to the creditworthiness of the underlying
securities issuer
The trust certificates represent interests in obligations of the
underlying securities issuer. In particular, the trust certificates will be
subject to all the risks associated with directly investing in the underlying
securities issuer's unsecured unsubordinated debt obligations. Neither the
indenture nor the underlying securities place a limitation on the amount of
indebtedness that may be incurred by the underlying securities issuer.
The trust certificates are subject to the creditworthiness of the underlying
securities issuer
The trust certificates represent interests in obligations of the
underlying securities issuer. In particular, the trust certificates will be
subject to all the risks associated with directly investing in the underlying
securities guarantor's unsecured debt obligations. None of the indenture or the
underlying securities places a limitation on the amount of indebtedness that may
be incurred by the underlying securities issuer or underlying securities
guarantor.
The payments owed to the trust certificateholders are unsecured obligations
In a liquidation, holders of the underlying securities, including the
trust, will be paid only after holders of secured obligations of the underlying
securities issuer and the underlying securities guarantor. According to the
underlying securities prospectus, the underlying securities are unsecured and
rank equally with all other unsecured and unsubordinated indebtedness of the
underlying securities issuer.
The trust owes certain payments to an affiliate of the underwriter
On July 18, 2004, as payment of the balance of the purchase price for
the underlying securities, the trustee will pay to an affiliate of the
underwriter the amount of the distributions accrued on the underlying securities
from January 18, 2004 to but not including the closing date set forth in this
prospectus supplement. In the event an optional redemption, a payment default or
acceleration on the underlying securities occurs on or prior to July 18, 2004
and the affiliate of the underwriter is not paid such accrued distributions on
such date, the affiliate of the underwriter will have a claim for such accrued
distributions, and will share pro rata with holders of the trust certificates to
the extent of such claim in the proceeds from the recovery on the underlying
securities.
The ratings of the trust certificates may change
At the time of issuance, Moody's and/or S&P will have assigned ratings
to the Class B trust certificates equivalent to the ratings of the underlying
securities, which, as of the date of this prospectus supplement were rated "A3"
by Moody's and "BBB" by S&P.
Any rating issued with respect to the Class B trust certificates is not
a recommendation to purchase, sell or hold a security. Ratings do not comment on
the market price of the Class B trust certificates or their suitability for a
particular investor. The depositor cannot assure you that initial ratings will
remain for any given period of time or that a ratings agency would not revise or
withdraw entirely the ratings if, in its judgment, circumstances (including,
without limitation, the rating of the underlying securities) merit. A revision
or withdrawal of a rating may adversely affect the market price of the Class B
trust certificates.
An affiliate of the depositor may recognize a gain or loss upon selling the
underlying securities to the depositor for deposit into the trust
An affiliate of the depositor will purchase, in the secondary market,
the underlying securities that will be deposited into the trust. The depositor's
affiliate may make these purchases before deposit into the trust, or it may
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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 Class B trust certificates therefore may differ
from the prevailing market price of a comparable principal amount of underlying
securities.
S-18
THE TRUST
The trust under which the Class B trust certificates are issued will be
formed pursuant to the Series Supplement, to be dated the date set forth in this
prospectus supplement, between the depositor, the trustee and the securities
intermediary. Concurrently with the execution and delivery of the Series
Supplement, the depositor will deposit the underlying securities into the trust.
The trustee, on behalf of the trust, will accept the underlying securities and
will deliver the Class B trust certificates to or upon an order of the
depositor.
The depositor did not purchase the underlying securities from the
underlying securities issuer as part of any distribution by or pursuant to any
agreement with the underlying securities issuer. The underlying securities
issuer is not participating in this offering and will not receive any of the
proceeds of the sale of the underlying securities to the depositor or the
issuance of the Class B trust certificates.
DESCRIPTION OF THE TRUST CERTIFICATES
General
The trust certificates will be denominated and their distributions will
be payable in U.S. dollars. The Class B trust certificates each have a notional
principal amount of $___.
Distributions on the trust certificates will be calculated on a 360-day
year of twelve 30-day months and will accrue from, but not including the prior
distribution date (as defined on page S-3) or, in the case of the first
collection period, from and including the original issue date, to and including
the first distribution date. Each semi-annual distribution on the Class B trust
certificates represents a portion of the interest accrued on the underlying
securities from the cut-off date or the previous distribution date, as
applicable to, but not including, each distribution date and such interest is
paid to the trust on each distribution date, in accordance with the terms of the
underlying securities.
The holders of the Class B trust certificates will be entitled to
receive, on each distribution date, commencing July 18, 2004 and ending on the
final scheduled distribution date, the payment of a distribution equal to ___%
per year multiplied by the principal amount of the underlying securities.
The holders of the Class A trust certificates will be entitled to
receive, on each distribution date, commencing July 18, 2004 and ending on the
final scheduled distribution date, payment of distributions at a rate of ___%
per year on the stated amount of the Class A trust certificates, commencing on
the initial issuance of the Class B trust certificates, and a distribution of
the principal amount of the underlying securities on January 18, 2031.
The right of the holders of the Class B trust certificates to the
interest payments received on the underlying securities by the trust is of equal
priority with the right of the Class A trust certificateholders to receive
distributions from those interest payments. The Class B trust certificateholders
will generally not be entitled to any allocation of any principal payments
received on the underlying securities unless the underlying securities are
redeemed, a default on the underlying securities occurs or the underlying
securities guarantor ceases to file Exchange Act reports or ceases to satisfy
the requirements of Rule 3-10 of Regulation S-X under the Securities Act. See "-
Tax Redemption; Payment of Additional Amounts" and "- Default on Underlying
Securities" below.
The Class B trust certificates will be delivered in registered form.
The Class B trust certificates will be maintained and transferred on the
book-entry records of DTC and its participants in minimum notional principal
amounts of and integral multiples of $___ notional principal amount. The
underwriter will initially offer the Class B trust certificates in minimum lots
of ___ trust certificates and subsequent increments of ___ trust certificates.
The Class B 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 Class B trust certificate will be entitled to receive a
certificate representing that person's interest, except as set forth below under
S-19
"Definitive Trust Certificates" on page S-19. Unless and until definitive trust
certificates are issued under the limited circumstances described below, all
references to actions by Class B trust certificateholders with respect to any
Class B trust certificates shall refer to actions taken by DTC upon instructions
from its participants. See "- Definitive Trust Certificates" below and
"Description of the Trust Certificates - Global Securities" on page 29 of 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 Class B
trust certificateholder under the trust agreement only at the direction of one
or more participants having Class B 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 Class B 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 Class B 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 Class B 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 Class B
trust certificates. Upon surrender by DTC of the global certificates
representing the Class B trust certificates and receipt of instructions for
re-registration, the trustee will reissue the Class B trust certificates as
definitive trust certificates issued in the stated amounts owned by the
individual Class B trust certificateholders. Then, the trustee will recognize
the holders of definitive Class B trust certificates as Class B trust
certificateholders under the trust agreement.
Redemption
In the event of a tax event redemption of the underlying securities,
the redemption proceeds will be distributed pro rata to the underlying
securities holders, including the trust, not more than 90 days before the next
date on which the underlying securities issuer would be obligated to pay
additional amounts. The trust will then distribute these redemption proceeds pro
rata to trust certificateholders, including call holders who may have exercised
their calls and acquired trust certificates prior to the date of redemption, as
described below.
In the event of a tax event redemption, in whole but not in part, the
redemption price of the underlying securities will be equal to 100% of their
principal amount (and premium, if any), together with accrued interest to the
date of redemption. See "Description of Underlying Securities--Tax Redemption;
Payment of Additional Amounts" on page S-33.
The trust will then distribute these redemption proceeds as follows:
o first, pro rata to the Class A trust certificateholders until each
shall have received the stated amount of each Class A trust
certificate they hold plus accrued and unpaid distributions on the
Class A trust certificates to the redemption date,
o second, pro rata to the Class B trust certificateholders until each
shall have received the present value of future cash flows on Class B
trust certificates at the redemption date discounted at __%, and
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o third, any remaining redemption proceeds will be divided between the
classes of trust certificates in accordance with the allocation ratio,
as defined on page S-24, and within each class, the redemption
proceeds will be distributed pro rata to the certificateholders of
that class of trust securities.
In the case of a redemption, call warrant holders will have the
opportunity to exercise their call warrants and call the certificates to be
redeemed.
Listing on a Securities Exchange
The depositor does not intend to list the Class B trust certificates on
a securities exchange.
Collections and Distributions
To the extent of available funds, the trust will make the following
distributions in the following order of priority
o to the trustee, reimbursement for any approved extraordinary trust
expenses incurred by the trustee and approved by not less
than 100% of the certificateholders,
o pro rata to the holders of the Class A and Class B trust certificates,
distributions at the rate of ___% per year on the stated amount of the
Class A trust certificates to the Class A trust certificateholders and
___% per year multiplied by the principal amount of the underlying
securities to the holders of the Class B trust certificates until the
final scheduled distribution date,
o divided between the classes in accordance with the proportionate
interest of each class in any delayed interest payments on the
underlying securities and each class' portion distributed to the
holders of each class pro rata, if available, of any additional
payments paid by the underlying securities issuer as a result of a
delay in the receipt by the trustee of any interest payment on the
underlying securities,
o to the Class A trust certificateholders, a distribution of the
principal amount of the underlying securities held by the trust on the
final scheduled distribution date,
o to the extent there are available funds in the certificate account, to
any creditors of the trust in satisfaction of the trust's liabilities,
and
o if any funds remain in the certificate account after all of the
trust's liabilities are satisfied then such funds will be distributed
to an affiliate of the depositor.
"Available funds" for any distribution date means the sum of all
amounts received on or with respect to the underlying securities during the
preceding collection period except for eligible investments described below. If
not less than 100% of the trust certificateholders and the call warrant holders
agree, the trustee may sell a portion of the underlying securities such that the
proceeds of the sale would be sufficient to reimburse the trustee for any
approved extraordinary expenses. In the event of a payment default on the
underlying securities, the trustee's approved extraordinary expenses (see
"Description of the Trust Agreement--The Trustee" on page S-25) may be
reimbursed to the trustee out of available funds before any distributions to
trust certificateholders are made.
If the trustee has not received payment on the underlying securities on
or prior to a distribution date, the distribution will be made upon receipt of
payment on the underlying securities. No additional amounts will accrue on the
trust certificates or be owed to trust certificateholders as a result of any
delay, but any additional distributions paid by the underlying securities issuer
as a result of the delay will be paid to the trust certificateholders.
The trustee shall invest all amounts received on or with respect to the
underlying securities that are not distributed to trust certificateholders on
the date of receipt, including any funds deposited with the trustee in its
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capacity as escrow agent upon the exercise of a call warrant, in eligible
investments. "Eligible investments" means, with respect to the trust
certificates, those investments consistent with the trust's status as a grantor
trust under the Internal Revenue Code of 1986, as amended (the "Code"), and
acceptable to the rating agencies as being consistent with the rating of the
trust certificates, as specified in the trust agreement. Generally, eligible
investments must be limited to obligations or securities that mature not later
than the business day prior to the next distribution date. Income on these
investments will constitute trust property.
The depositor cannot assure you that collections received from the
underlying securities over a specified period will be sufficient to make all
required distributions to the trust certificateholders. To the extent available
funds are insufficient to make the distributions due to trust
certificateholders, any shortfall will be carried over and will be distributable
on the next distribution date on which sufficient funds exist to pay the
shortfalls. The depositor will pay the trustee's ordinary expenses.
Call Warrants
The initial call warrant holder may be the depositor or an affiliate of
the depositor, and such person may transfer its call warrants, in whole or in
part, in privately negotiated transactions. On any business day on or after July
18, 2009 that any call warrant holders designate as a "Call Date", the call
warrant holders may, upon notice of not less than 30 days (or in the case of the
announcement of any redemption or other unscheduled payment of the underlying
securities or after receipt of notice of termination of the trust, not less than
three days notice, or when a tender offer for the underlying securities is
pending, not less than five days notice prior to the expiration of the tender
offer acceptance period) but not more than 60 days prior to that Call Date,
purchase your Class B trust certificates in whole or in part for the sum of the
present values at the Call Date, discounted at the rate of ___% per year, of the
unpaid distributions due, or to become due, in respect of the distributions to
be made to you by the trustee (assuming for the purpose of that calculation,
that the underlying securities are paid in full on their stated maturity date,
and no portion thereof is accelerated or redeemed prior to such date). On any
business day before July 18, 2009 and after the announcement of any redemption
or other unscheduled payment of the underlying securities or receipt of notice
of termination of the trust or when a tender offer for the underlying securities
is pending, that any call warrant holder designates as a "Call Date", the call
warrant holders may, after receipt of notice of any redemption or other
unscheduled payment of the underlying securities or of termination of the trust,
upon notice of not less than three days, or when a tender offer for the
underlying securities is pending, upon notice of not less than five days prior
to the termination of the tender offer acceptance period, but not more than 60
days prior to that Call Date, purchase your Class B trust certificates in whole
or in part for the sum of the present values at the Call Date, discounted at the
rate of ___% per year, of the unpaid distributions due, or to become due, in
respect of the distributions to be made to you by the trustee (assuming for the
purpose of that calculation, that the underlying securities are paid in full on
their stated maturity date, and no portion thereof is accelerated or redeemed
prior to such date). In addition, at any time upon an acceleration of the
underlying securities and payment in full by the underlying securities issuer of
all amounts when due and where the acceleration payment exceeds the sum of (i)
the aggregate stated amount of the Class A trust certificates plus any accrued
and unpaid distributions to the date of payment and (ii) the sum of the present
values at the date of payment, discounted at the rate of ___% per year, of the
unpaid distributions due, or to become due, in respect of the distributions to
be made to the Class B trust certificateholders by the trustee (assuming, for
the purpose of that calculation, that the underlying securities would have been
paid in full at their stated maturity date, that such acceleration had not
occurred and that no portion of the underlying securities would have been
redeemed prior to that stated maturity date), all outstanding call warrants will
be exercised automatically, and your Class B trust certificates will be
purchased for the sum of the present values at the payment date, discounted at
the rate of ___% per year, of the unpaid distributions due, or to become due, in
respect of the distributions to be made to you by the trustee (assuming for the
purpose of that calculation, that the underlying securities would have been paid
in full at their stated maturity date, that no redemption had occurred and such
acceleration had not occurred).
If a call warrant holder has met the exercise requirements set forth
below, the holder may, on the Call Date, purchase a principal or notional amount
of Class B or Class A trust certificates, as applicable, proportionate to such
holder's call warrant at the exercise price. In order to exercise its call
warrants, the call warrant holder must, not less than 30 days (or not less than
three days in the case of the announcement of any redemption or other
S-22
unscheduled payment of the underlying securities or after receipt of notice of
termination of the trust or, when a tender offer for the underlying securities
is pending, not less than five days prior to the expiration of the tender offer
acceptance period) but not more than 60 days prior to such Call Date,
o notify the trustee in writing of its intention to exercise
its call warrants (which notice is irrevocable),
o deposit the call exercise price (or, if all of the
outstanding trust certificates are to be purchased and the
warrant holder holds certificates that are subject to call
rights, the warrant holder may deposit such certificates in
lieu of the portion of the call exercise price that would
relate thereto) with The Bank of New York, as escrow agent,
to be held in escrow pursuant to an escrow agreement in form
reasonably satisfactory to the trustee, and
o provide the trustee with certain other documents customary
for a transaction of this nature.
The call warrant holders need not comply with the foregoing conditions
if call warrants are exercised automatically upon an acceleration of the
underlying securities and payment in full by the underlying securities issuer of
all amounts due upon such acceleration. Upon exercise of any call warrants on
Class B trust certificates, the trustee will select by lot a notional principal
amount of Class B trust certificates to be surrendered to the trustee in
exchange for a pro rata portion of the call exercise price. Following its
receipt of trust certificates upon the exercise of any call warrants, the
trustee will surrender the trust certificates to the exercising call warrant
holders.
In all cases where only a portion of the outstanding call warrants are
exercised, if a call warrant holder also holds Class B trust certificates on the
date of the exercise of the call warrant, the call warrant holder may elect to
call its own Class B trust certificates before any other person's Class B trust
certificates are called.
Exchange of Trust Certificates
Either:
o Merrill Lynch & Co. or any of its affiliates, other than the
depositor, or
o any other person (or group of affiliated persons, where each
member of the group holds no less than $500,000 in stated
amount of trust certificates and is not the depositor)
holding Class A trust certificates with an aggregate stated
amount of $5 million or more acquired pursuant to the
exercise of call warrants,
may notify the trustee, not less than 30 days but not more than 60 days prior to
a given distribution date, that it (or they) intends to tender its (or their)
Class A and Class B trust certificates to the trustee on that distribution date
in exchange for a principal amount of underlying securities equal to the
aggregate stated amount of the Class A trust certificates being tendered for
exchange; provided that, if any such person has received notice of a tender
offer for the underlying securities, such person (or group of affiliated
persons, as described above) may notify the trustee, not less than 5 days but
not more than 60 days prior to a given date, that it (or they) intends to tender
Class A trust certificates with an aggregate stated amount of $5 million or more
and an equal aggregate notional principal amount of Class B trust certificates
to the trustee on that date in exchange for a proportional amount of underlying
securities. Such optional exchange may only be made with respect to trust
certificates that are not subject to outstanding call warrants held by persons
other than the person or persons exercising the optional exchange. No optional
exchange can be made unless (A) the aggregate stated amount of Class A trust
certificates tendered equals the aggregate notional principal amount of the
Class B trust certificates tendered and (B) the Class A trust certificates are
tendered in minimum lots of ___trust certificates and subsequent increments of
___trust certificates. In addition, in the case of a person other than Merrill
Lynch & Co. or any of its affiliates, such exchange may only be made with
respect to an aggregate stated amount of trust certificates equal to the
aggregate stated amount of trust certificates acquired by such person pursuant
to the exercise of call warrants. Such optional exchange will not be made if
S-23
o the exchange would cause the trust or the depositor to fail
to satisfy the applicable requirements for exemption under
Rule 3a-7 under the Investment Company Act of 1940, as
amended (the "Investment Company Act"),
o the exchange would affect the characterization of the trust
as a "grantor trust" under the Code, or
o in the case of an exchange of less than all outstanding
trust certificates, the exchange would cause the trust to
fail to satisfy the minimum requirements to remain listed on
the New York Stock Exchange, unless the party exercising the
optional exchange will hold all remaining outstanding trust
certificates upon such optional exchange.
See "Description of the Certificates--Optional Exchange" on page 27 of the
accompanying prospectus. Upon such tender of Class A and Class B trust
certificates, the trustee will deliver to the persons exercising such exchange
rights, a principal amount of the underlying securities equal to the aggregate
stated amount of the Class A trust certificates that were tendered.
Default on Underlying Securities
If there is a payment default on the underlying securities, the trustee
will, on or immediately after the 30th day after that default, sell the
underlying securities, divide the proceeds from the sale of the underlying
securities between the trust certificate classes in accordance with the
allocation ratio, as defined below, and distribute each class' portion of the
proceeds pro rata to the holders of the trust certificates of that class. Upon
such sale, the call warrants will expire and have no value. If, after any
default and prior to the trustee selling the underlying securities, there is an
acceleration of the maturity of the underlying securities and the underlying
securities are declared to be immediately due and payable and the underlying
securities issuer
(1) pays all amounts when due, then the trustee will divide such
amounts between the trust certificate classes in accordance
with the allocation ratio and distribute each class' portion
of such amounts pro rata to the trust certificateholders of
that class,
(2) fails to pay such amount when due, then the trustee will
divide the underlying securities between the trust
certificate classes in accordance with the allocation ratio
and distribute each class' portion of the underlying
securities pro rata to the trust certificateholders of that
class, or
(3) pays only a portion of such amount when due, then the
trustee will divide any amounts received along with the
underlying securities between the trust certificate classes
in accordance with the allocation ratio and distribute each
class' portion of such amounts and the underlying securities
pro rata to the trust certificateholders of that class.
In addition, if the underlying securities guarantor ceases to file Exchange Act
reports or ceases to satisfy the requirements of Rule 3-10 of Regulation S-X
under the Securities Act the call warrant holders will have an opportunity to
exercise call rights and thereafter the trustee will divide the underlying
securities between the trust certificate classes in accordance with the
allocation ratio and distribute each class' portion of the underlying securities
pro rata to trust certificateholders of that class. If the events set forth in
clause (1) of this paragraph occur, and if such payment exceeds the sum of (x)
the aggregate stated amount of the Class A trust certificates plus any accrued
and unpaid distributions to the date of payment and (y) the sum of the present
values, discounted at the rate of ___% per year, of the unpaid payments due, or
to become due, in respect of the Class B Payments to be made on the Class B
trust certificates on or after the date of payment (assuming for purposes of
such calculation, that the underlying securities would have been paid in full at
their stated maturity date, that such acceleration had not occurred and that no
portion of the underlying securities would have been redeemed prior to that
stated maturity date) all call warrant holders will be deemed to have
automatically exercised their rights pursuant to all outstanding call warrants,
all certificateholders will receive the call price with respect to their trust
certificates called and all
S-24
amounts received from the underlying securities issuer will be distributed
directly to the call warrant holders. If the events set forth in clause (2) of
this paragraph occur, the call warrants will expire and have no value. If the
events set forth in clause (3) occur, the call warrant holders will have an
opportunity to exercise call rights before the trustee distributes any amounts
received or any underlying securities to the trust certificateholders.
In this prospectus supplement, "allocation ratio" means the ratio of
the Class A allocation to the Class B allocation. The "Class A allocation" means
the present value, discounted at the rate of ___% per year, of:
(a) the unpaid interest, except for the payments to be made to
Class B trust certificateholders, due or to become due on
the underlying securities on or prior to the final
distribution date; and
(b) the principal amount of the underlying securities then held
by the trust,
in each case assuming that the underlying securities are paid when due and are
not accelerated or redeemed prior to their stated maturity date. The "Class B
allocation" means the sum of the present values, discounted at the rate of ___%
per year, of the unpaid payments due, or to become due, in respect of the
payments to be made to the Class B trust certificateholders by the trust,
assuming that the underlying securities are paid when due and are not
accelerated or redeemed prior to their stated maturity date.
S-25
THE DEPOSITOR
The depositor, Merrill Lynch Depositor, Inc., a Delaware corporation,
is an indirect, wholly owned, limited-purpose subsidiary of Merrill Lynch & Co.,
Inc. The depositor has not guaranteed and is not otherwise obligated under the
trust certificates.
The principal office of the depositor is located at c/o Merrill Lynch &
Co., World Financial Center, New York, New York 10281 (Telephone: (212)
449-1000). See "The Depositor" on page 16 of 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 on or collections in respect of the deposited assets
except with respect to periods prior to the cut-off date.
Reference is made to the prospectus for important information in addition to
that set forth herein regarding the trust, the terms and conditions of the trust
agreement and the trust certificates. The following summaries of certain
provisions of the trust agreement do not purport to be complete and are subject
to the detailed provisions contained in the agreement. You should refer to the
trust agreement for a full description of these provisions, including the
definition of certain terms used in this prospectus supplement.
The discussions in the accompanying prospectus under "Description of
the Trust Agreement - Advances in Respect of Delinquencies" on page 33,
"Description of the Trust Agreement - Certain Matters Regarding the Trustee,
Administrative Agent and the Depositor" (to the extent the discussion relates to
the Administrative Agent) on page 34 and "Description of the Trust Agreement -
Administrative Agent Termination Events; Rights upon Administrative Agent
Termination Event" on page 35 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 101 Barclay Street,
Floor 8F, New York, New York 10286, Attn: Corporate Trust Division and its
telephone number is (212) 815-2915.
The trustee shall receive compensation as set forth in an agreement
between the depositor and the trust.
The trust agreement will provide that the trustee may not take any
action that, in the trustee's opinion, would or might cause it to incur
extraordinary expenses, unless
o the trustee is satisfied that it will have adequate security or
indemnity in respect of the costs, expenses and liabilities,
S-26
o the trustee has been instructed to do so by trust certificateholders
representing at least the required percentage-remedies (as defined
below) of the aggregate voting rights, and
o the trust certificateholders have agreed that these costs will be paid
by the trustee from the trust (in the case of an affirmative vote of
100% of the trust certificateholders) or out of the trustee's own
funds (in which case the trustee can receive reimbursement from the
trust certificateholders voting in favor of the proposal).
Extraordinary expenses that may be reimbursed to the trustee from the trust may
be reimbursed out of available funds on any distribution date before any
distributions to trust certificateholders on the distribution date are made.
Events of Default
An event of default with respect to the trust certificates under the
trust agreement will consist of
o a default in the payment of any distributions on any underlying
securities after it becomes due and payable (subject to any applicable
grace period);
o a default in the payment of the liquidation amount of or any
installment of the liquidation amount of any underlying security when
it becomes due and payable; and
o any other event specified as an event of default in the indenture.
The trust agreement will provide that, within 10 days after the
occurrence of an event of default in respect of the trust certificates, the
trustee will give notice to the trust certificateholders, transmitted by mail,
of all uncured or unwaived events of default known to it. However, the trustee
will be protected in withholding such notice if in good faith it determines that
the withholding of the notice is in the interest of the trust
certificateholders, except for an event of default relating to the payment of
the liquidation amount or distributions other than permitted deferred
distributions on any of the underlying securities.
No trust certificateholder will have the right to institute any
proceeding with respect to the trust agreement, unless
o such trust certificateholder previously has given to the trustee
written notice of a continuing breach,
o trust certificateholders evidencing at least the required
percentage-remedies of the aggregate voting rights have requested in
writing that the trustee institute a proceeding in its own name as
trustee,
o the trust certificateholder or trust certificateholders have offered
the trustee reasonable indemnity,
o the trustee has for 15 days failed to institute a proceeding, and
o no direction inconsistent with a written request has been given to the
trustee during such 15-day period by trust certificateholders
evidencing at least the required percentage-remedies of the aggregate
voting rights.
"Required percentage-remedies" shall mean 66 2/3% of the voting rights.
Voting Rights
At all times, voting rights shall be allocated between the Class A and
Class B trust certificate classes in accordance with the allocation ratio, as
defined on page S-25. Within each class, voting rights will be allocated pro
rata among the trust certificateholders. The "required percentage-amendment" of
voting rights necessary to consent to a modification or amendment is 66 2/3%.
Despite the foregoing, in addition to the other restrictions on modification and
amendment, the trustee will not enter into any amendment or modification of the
trust agreement
S-27
that would adversely affect in any material respect the interests of the trust
certificateholders of a particular class or the call warrant holders without the
consent of 100% of the trust certificateholders of that class or the call
warrant holders, as the case may be. No amendment or modification will be
permitted which would alter the status of the trust as a grantor trust under the
Code. See "Description of the Trust Agreement - Modification and Waiver" on page
39 of the accompanying prospectus.
Voting of Underlying Securities, Modification of Indenture
The trustee, as holder of the underlying securities, has the right to
vote and give consents and waivers in respect of the underlying securities as
permitted by DTC and except as otherwise limited by the trust agreement. If the
trustee receives a request from DTC, the underlying securities trustee or the
underlying securities issuer for its consent to any amendment, modification or
waiver of the underlying securities, the indenture or any other document
relating to the underlying securities or receives any other solicitation for any
action with respect to the underlying securities, the trustee shall mail a
notice of the proposed amendment, modification, waiver or solicitation to each
trust certificateholder of record as of that date. The trustee shall request
instructions from the trust certificateholders as to whether or not to consent
to or vote to accept the amendment, modification, waiver or solicitation. The
trustee shall consent or vote, or refrain from consenting or voting, in the same
proportion (based on the relative outstanding principal balances of the trust
certificates) as the trust certificates were actually voted or not voted by the
trust certificateholders as of a date determined by the trustee prior to the
date on which the consent or vote is required after weighing the votes of the
Class A and Class B trust certificateholders according to the allocation ratio.
Despite anything to the contrary, the trustee shall at no time vote or consent
to any matter
o unless such vote or consent would not (based on an opinion of counsel)
alter the status of the trust as a grantor trust under the Code,
o which would alter the timing or amount of any payment on the
underlying securities, including, without limitation, any demand to
accelerate the underlying securities, except in the event of an
underlying security event of default or an event which with the
passage of time would become an underlying security event of default
and with the unanimous consent of all Class A and Class B trust
certificateholders and the call warrant holders, or
o except as provided in the second paragraph below, which would result
in the exchange or substitution of any of the outstanding underlying
securities pursuant to a plan for the refunding or refinancing of the
underlying securities except in the event of a default under the
indenture and only with the consent of 100% of the Class A and Class B
trust certificateholders and the call warrant holders.
The trustee shall have no liability for any failure to act resulting
from trust certificateholders' late return of, or failure to return, directions
requested by the trustee from the trust certificateholders.
If an offer is made by the underlying securities issuer to issue new
obligations in exchange and substitution for any of the underlying securities,
pursuant to a plan for the refunding or refinancing of the outstanding
underlying securities or any other offer is made for the underlying securities,
the trustee shall notify the trust certificateholders and the call warrant
holders of the offer as promptly as practicable. Subject to the provisions of
the trust agreement permitting an optional exchange in connection with a tender
offer, the trustee must reject any offer unless the trustee is directed by the
affirmative vote of all of the trust certificateholders and the call warrant
holders to accept the offer and the trustee has received the tax opinion
described above.
If an event of default under the indenture occurs and is continuing and
if directed by all of the outstanding Class A and Class B trust
certificateholders, the trustee shall vote the underlying securities 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 the
underlying securities and any accrued and unpaid distributions to be due and
payable. In connection with a vote concerning whether to declare the
acceleration of the underlying securities, the trust certificateholder's
interests may differ from each other.
S-28
Termination of the Trust
The trust shall terminate upon the earliest to occur of
o the payment in full or sale of the underlying securities by the trust
after a payment default on or an acceleration of the underlying
securities,
o the exchange of all outstanding Class A and Class B trust certificates
for underlying securities pursuant to one or more optional exchanges
or otherwise,
o the distribution in full of all amounts due to the Class A and Class B
trust certificateholders and
o the final scheduled distribution date.
See "Description of the Trust Agreement - Termination" on page 42 of
the accompanying prospectus.
In addition, the holders of all, but not less than all, outstanding
Class A and Class B trust certificates may elect to terminate the trust at any
time; provided that the exercise of such termination right would not cause the
trust or the depositor to fail to satisfy the applicable requirements for
exemption under Rule 3a-7 under the Investment Company Act. Under the terms of
the Trust Agreement and the call warrants, the Class A and Class B trust
certificateholders will not be entitled to terminate the trust or cause the sale
or other disposition of the underlying securities if and for so long as the call
warrants remain outstanding, without the consent of the call warrant holders.
S-29
DESCRIPTION OF THE UNDERLYING SECURITIES
General
The underlying securities represent the sole assets of the trust that
are available to make distributions in respect of the trust certificates. The
primary economic terms of the underlying securities are described in "Summary of
Economic Terms" beginning on page S-3 and "Summary Information Q&A" beginning on
page S-8 in this prospectus supplement.
This prospectus supplement sets forth certain relevant terms with
respect to the underlying securities, but does not provide detailed information
with respect thereto or with respect to the underlying securities issuer. This
prospectus supplement relates only to the trust certificates offered hereby and
does not relate to the underlying securities or the guarantee. All disclosures
contained in this prospectus supplement with respect to the underlying
securities issuer, the underlying securities guarantor, the underlying
securities and the guarantee are derived from publicly available documents.
The underlying securities convert into cash in a finite time period and
the underlying securities guarantor (a) is subject to the periodic reporting
requirements of the Exchange Act; and (b) is eligible to use a Registration
Statement on Form 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 guarantor 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. The rating on the underlying
securities will allow at least one investment-grade rating of the trust
certificates by a rating agency.
According to the underlying securities issuer's and the underlying
securities guarantor's publicly available documents, the underlying securities
issuer, incorporated under the laws of the State of Delaware in 1964 and
established as a holding company in January 1982, is a wholly owned subsidiary
of the underlying securities guarantor.
The registered office of the underlying securities issuer is at
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801, USA,
and its principal administrative office is located at 1000 Chrysler Drive,
Auburn Hills, Michigan 48326-2766.
The underlying securities guarantor is a stock corporation organized
under the laws of the Federal Republic of Germany and was incorporated on May 6,
1998. Its registered office is at Epplestrasse 225, 70567 Stuttgart, Germany,
telephone +49-711-17-0.
The underlying securities guarantor develops, manufactures, distributes
and sells a wide range of automotive products, mainly passenger cars, light
trucks and commercial vehicles. It also provides financial and other services
relating to its automotive business. It presently has four primary business
segments. Its fifth segment, Other Activities, comprises all other businesses
and investments in businesses not allocated to one of its primary business
segments. Its primary business segments are:
o Mercedes Car Group. The Mercedes Car Group designs, produces and sells
Mercedes-Benz passenger cars, Maybach high-end luxury sedans and smart
compact passenger cars. In 2003, the Mercedes Car Group contributed
approximately 38% of the underlying securities guarantor's revenues.
o Chrysler Group. The Chrysler Group segment consists of DaimlerChrysler
Motors Company LLC and its subsidiaries DaimlerChrysler Corporation,
DaimlerChrysler Canada Inc., and DaimlerChrysler de Mexico S.A. de
C.V., and other international automotive affiliates. These companies
manufacture, assemble and
S-30
sell cars and trucks under the brand names Chrysler, Jeep(R) and
Dodge. The Chrysler Group segment contributed approximately 36% of the
underlying securities guarantor's revenues in 2003.
o Commercial Vehicles. The underlying securities guarantor manufactures
and sells commercial vehicles under the brand names Mercedes-Benz,
Freightliner, Sterling, Setra, Thomas Built Buses, American La France,
Western Star and Orion. Its worldwide facilities provide it with a
very strong production and assembly network for commercial vehicles
and core components. It distributes its commercial vehicles through a
worldwide distribution and service network. In 2003, the Commercial
Vehicles segment contributed approximately 21% of the underlying
securities guarantor's total revenues.
o Services. The underlying securities guarantor's services activities
consist almost exclusively of financial services supporting its
automotive businesses. The underlying securities guarantor provides
these services through its wholly-owned subsidiary, DaimlerChrysler
Services AG.
The underlying securities guarantor offers its automotive products and
related financial services primarily in Europe and in the NAFTA region, which
consists of the United States, Canada and Mexico. It also expects to increase
its presence in the Asian markets and have established alliances with Mitsubishi
Motors Corporation and Mitsubishi Fuso Truck and Bus Corporation. Approximately
47% of the underlying securities guarantor's 2003 revenues derived from sales in
the United States, 17% from sales in Germany and 18% from sales in other
countries of the European Union.
The underlying securities guarantor is subject to the informational
requirements of the Exchange Act and files periodic reports and other
information with the SEC. You may inspect and copy these reports and other
information at the SEC's public reference facilities located at 450 Fifth
Street, N.W., Washington, D.C. 20549. You may obtain copies of these materials
for a fee by writing to the SEC's Public Reference Section at 450 Fifth Street,
N.W., Washington, D.C. 20549. You may obtain information about the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can also
access some of this information electronically by means of the SEC's website on
the Internet at http://www.sec.gov, which contains reports, proxy and
information statements and other information that the underlying securities
guarantor has filed electronically with the SEC. In addition, you may inspect
reports and other information concerning the underlying securities guarantor at
the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005.
Although we have no reason to believe the information concerning the
underlying securities, the guarantee, the underlying securities issuer or the
underlying securities guarantor contained in the prospectus related to the
underlying securities or in the underlying securities issuer's or the underlying
securities guarantor's Exchange Act reports is not reliable, we have not
participated in the preparation of such documents, or made any due diligence
inquiry with respect to the information provided therein. There can be no
assurance that events affecting the underlying securities, the guarantee, the
underlying securities issuer or the underlying securities guarantor have not
occurred or have not yet been publicly disclosed which would affect the accuracy
or completeness of the publicly available documents described above.
The trust will have no assets other than underlying securities and the
guarantee 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 and the
guarantee. You should consider carefully the financial condition of the
underlying securities issuer and the underlying securities guarantor and their
ability to make payments in respect of such underlying securities and guarantee.
This prospectus supplement relates only to the trust certificates being offered
hereby and does not relate to the underlying securities issuer, the underlying
securities guarantor, the underlying securities or the guarantee. Information
contained in this prospectus supplement regarding the underlying securities
issuer, the underlying securities guarantor, the underlying securities and the
guarantee 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.
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You should refer to the underlying securities prospectus for
definitions of capitalized terms not defined in this section.
Underlying Securities Indenture
The underlying securities were issued under an indenture dated as of
September 17, 1996, as amended and supplemented by a first supplemental
indenture dated as of May 17, 1999, among the underlying securities issuer,
DaimlerChrysler Canada Finance Inc., DaimlerChrysler International Finance B.V.,
the underlying securities guarantor and the underlying securities trustee. The
underlying securities will mature and may be redeemed at par on January 18,
2031. The underlying securities are ___% of an issue totaling $1,500,000,000.
The following summaries of certain provisions of the underlying
securities, the guarantee and the indenture do not purport to be complete and
are based upon the underlying securities prospectus dated January 11, 2001 as
supplemented by a prospectus supplement dated January 11, 2001 relating to the
underlying securities and to the guarantee and are subject to, and are qualified
in their entirety by reference to, all provisions of the prospectus, prospectus
supplement, the current report and the indenture, as supplemented, including the
definitions therein of certain terms and the exhibits thereto. Wherever
particular sections or defined terms of the indenture are referred to, it is
intended that such sections or defined terms shall be incorporated herein by
reference.
Reference is made to the underlying securities prospectus for the terms
of the underlying securities not set forth herein. Principal, premium, if any,
and interest will be payable, and the underlying securities will be transferable
and subject to defeasance, in the manner described in the underlying securities
prospectus.
General
The underlying securities will rank pari passu with all other unsecured
and unsubordinated indebtedness of the Issuer from time to time outstanding. The
underlying securities issuer may, without the consent of the holders of the
underlying securities, create and issue additional notes in the future having
the same terms other than the date of original issuance and the date on which
interest begins to accrue so as to form a single series with any of the series
of the notes offered in the underlying prospectus supplement. No additional
notes may be issued if an Event of Default has occurred with respect to the
underlying securities.
Except as described under "Description of the Underlying Securities -
Certain Covenants," the indenture does not limit other indebtedness or
securities which may be incurred or issued by the underlying securities issuer,
the underlying securities guarantor or any of their respective subsidiaries or
contain financial or similar restrictions on the underlying securities issuer,
the underlying securities guarantor or any of their respective subsidiaries.
There are no covenants or provisions contained in the indenture that afford
holders of the underlying securities protection in the event of a highly
leveraged transaction involving the underlying securities issuer or the
underlying securities guarantor.
The underlying securities are not subject to redemption prior to
maturity except as described herein under "Description of the Underlying
Securities - Tax Redemption; Payment of Additional Amounts." If the underlying
securities are subject to such redemption, the underlying securities will be
redeemed at a redemption price of 100% of their principal amount plus accrued
and unpaid interest to the date of redemption.
Interest
The underlying securities will bear interest from January 18, 2001 at
8.50% per annum, payable on January 18 and July 18 of each year (each such day,
an "Interest Payment Date"), commencing July 18, 2001, to the person in whose
name such underlying security was registered at the close of business on the
15th day preceding the respective Interest Payment Date, subject to certain
exceptions. If any day on which a payment is due with respect to the underlying
securities is not a Business Day, then the holder thereof shall not be entitled
to payment of the amount due until the next following Business Day nor to any
additional principal, interest or other payment as a result of such delay except
as otherwise provided under the heading "Description of the Underlying
Securities -
S-32
Payment of Additional Amounts," below. "Business Day" means any day other than
(a) a Saturday, (b) a Sunday, (c) a day on which banking institutions are closed
in New York City or (d) for any required payment, a day on which banking
institutions are closed in the place of payment.
Interest on the underlying securities will be computed on the basis of
a 360-day year comprised of twelve 30-day months. All amounts resulting from
these calculations will be rounded to the nearest cent.
Tax Redemption; Payment of Additional Amounts
The underlying securities may be redeemed, subject to the procedures
set forth in the indenture and in such underlying security and subject, as a
whole but not in part, at the option of the underlying securities issuer, upon
not more than 60 days, nor less than 30 days, prior notice to the holders of
such underlying securities, at a redemption price equal to 100% of the principal
amount thereof (and premium, if any), together with accrued interest, if any,
thereon to the Redemption Date (as defined in the indenture), if, as a result of
any change in, or amendment to, the laws or regulations prevailing in the
jurisdiction in which the underlying securities issuer or the underlying
securities guarantor is organized, as the case may be, which change or amendment
becomes effective on or after the date of this prospectus supplement or as a
result of any change in or amendment to an official application or
interpretation of such laws or regulations after such date, on the next
succeeding Interest Payment Date:
o the underlying securities issuer will be obligated to (a) pay any
additional amounts as provided by Section 1008 of the indenture as
modified by the terms of any underlying securities or (b) account to
any taxing authority in the United States for any amount, other than
any tax withheld or deducted from interest payable on the underlying
securities, in respect of any payment made or to be made on the
underlying securities,
o the underlying securities guarantor would be unable, for reasons
outside its control, to procure payment by the underlying securities
issuer without such additional amounts being payable or being required
to account as aforesaid and in making such payment itself would be
required to pay additional amounts as provided in Section 1009 of the
indenture or to account as aforesaid, or
o the underlying securities guarantor would be required to deduct or
withhold amounts for or on account of any taxes of whatever nature
imposed or levied by or on behalf of the country of the underlying
securities issuer or the underlying securities guarantor in making any
payment of any sum to the underlying securities issuer required to
enable the underlying securities issuer to make a payment in respect
of such underlying securities or to account to any taxing authority in
the country in which the underlying securities issuer is organized for
any amount calculated by reference to the amount of any such sum to be
paid to the underlying securities issuer.
However, the underlying securities may not be so redeemed if such
obligation of the underlying securities issuer or the underlying securities
guarantor to pay such additional amounts or to account as aforesaid arises
because of the official application or interpretation of the laws or regulations
affecting taxation of the country in which the underlying securities issuer or
the underlying securities guarantor is organized, or any political subdivision
thereof or therein, as a result of any event referred to in (A) or (B) below,
which law or regulation is in effect on the date of (A) the assumption by any
wholly owned subsidiary of the underlying securities guarantor of the underlying
securities issuer's obligation under the underlying securities and under the
indenture or (B) the consolidation, amalgamation or merger of the underlying
securities issuer or the underlying securities guarantor with or into, or the
conveyance, transfer or lease by the underlying securities issuer or the
underlying securities guarantor of its properties and assets substantially as an
entirety to any person. If the underlying securities issuer or the underlying
securities guarantor provides an opinion of counsel in the appropriate
jurisdiction, dated as of the date of the relevant event referred to in clause
(A) or (B) above, that no obligation to pay any additional amount or to account
as aforesaid arises, then that opinion of counsel shall be final and binding,
solely for purposes of this paragraph, on the underlying securities issuer, the
underlying securities guarantor, the underlying securities trustee and the
holders of the underlying securities as to the law of the relevant jurisdiction
at the date of such opinion of counsel. In addition,
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no redemption pursuant to the preceding paragraph may be made unless the
underlying securities issuer shall have received an opinion of independent
counsel to the effect that an act taken by a taxing authority of the United
States or the Federal Republic of Germany results in a substantial probability
that an event described in the preceding paragraph will occur and the underlying
securities issuer shall have delivered to the underlying securities trustee a
certificate, signed by a duly authorized officer, stating that based upon such
opinion the underlying securities issuer is entitled to redeem the underlying
securities pursuant to their terms.
The underlying securities issuer or the underlying securities
guarantor, as the case may be, will pay to the holder of any underlying security
such additional amounts as may be necessary in order that every net payment of
the principal of (and premium, if any) and interest, if any, on any underlying
security after deduction or other withholding for or on account of any present
or future tax, assessment, duty or other governmental charge of any nature
whatsoever imposed, levied or collected by or on behalf of the jurisdiction in
which the underlying securities issuer or the underlying securities guarantor,
as the case may be, is organized, or any political subdivision or taxing
authority thereof or therein having power to tax, will not be less than the
amount provided for in any such underlying security to be then due and payable.
However, the foregoing obligation to pay additional amounts will not apply on
account of any tax, assessment, duty or other governmental charge which is
payable:
o otherwise than by deduction or withholding from payments of principal
of, or premium, if any, or interest, if any, on any such underlying
securities;
o by reason of such holder having, or having had, some personal or
business connection with the country in which the underlying
securities issuer or the underlying securities guarantor, as the case
may be, is organized and not merely by reason of the fact that
payments are, or for the purposes of taxation are deemed to be, from
sources in, or secured in, such country;
o by reason of a change in law or official practice of any relevant
taxing authority that becomes effective more than fifteen days after
the Relevant Date (as defined below), for payment of principal, or
premium, if any, or interest, if any, in respect of such underlying
securities;
o by a paying agent from a payment if the payment could have been made
by another paying agent without such deduction or withholding;
o by reason of such holder's present or former status as a personal
holding company, foreign personal holding company, a passive foreign
investment company, or a controlled foreign corporation for United
States tax purposes or a corporation which accumulates earnings to
avoid United States federal income tax, and not merely by reason of
the fact that payments in respect of the underlying securities or the
guarantee are, or for purposes of taxation are deemed to be, derived
from sources in, or are secured in, the United States or the Federal
Republic of Germany;
o by reason of such holder's past or present status as the actual or
constructive owner of ten percent or more of the total combined voting
power of all classes of stock of the underlying securities issuer
entitled to vote;
o by reason of any estate, excise, inheritance, gift, sales, transfer,
wealth or personal property tax or any similar assessment or
governmental charge;
o as a result of the failure of a holder to comply with certification,
identification, or other information reporting requirements or make a
declaration of non-residence or other similar claim for exemption to
the relevant tax authority; or
o owing to any combination of the above.
No additional amounts will be paid as provided above with respect to any payment
of principal of, or premium, if any, or interest, if any, on any underlying
security to any holder who is a fiduciary or partnership or other than the
S-34
sole beneficial owner of any such payment to the extent that a beneficiary or
settlor with respect to such fiduciary, a member of such partnership or the
beneficial owner of such payment would not have been entitled to the additional
amounts had such beneficiary, settlor, member or beneficial owner been the
holder of any such underlying securities.
"Relevant Date" means the date on which the payment of principal of, or
premium, if any, or interest, if any, on any underlying securities first becomes
due and payable, but, if the full amount of the monies payable on such date has
not been received by the relevant Paying Agent or as it shall have directed on
or prior to such date, the "Relevant Date" means the date on which such monies
shall have been so received.
Consent to Service and Jurisdiction
The underlying securities guarantor has designated and appointed CT
Corporation System, 111 Eighth Avenue, New York, New York 10011, U.S.A., as its
authorized agent upon which process may be served in any suit or proceeding
arising out of or relating to the applicable underlying securities, guarantee or
indenture which may he instituted in any state or federal court located in the
Borough of Manhattan, in the City of New York, and has submitted, for the
purposes of any such suit or proceeding, to the jurisdiction of any such court
in which any such suit or proceeding is so instituted.
Notices
Notices to holders of the underlying securities will be published in
authorized newspapers in the City of New York and in London. It is expected that
publication will be made in the City of New York in The Wall Street Journal and
in London in the Financial Times. Any such notice shall be deemed to have been
given on the date of such publication or, if published more than once, on the
date of the first such publication.
Guarantee
The underlying securities guarantor will irrevocably and
unconditionally guarantee the due and punctual payment of principal and premium,
if any, and interest, if any, or other additional amounts, as provided in the
indenture, if any, and mandatory sinking fund payments, if any, in respect of
the underlying securities when and as the same shall become due and payable and
in the currency or currency unit in which the same are payable whether at the
Stated Maturity (as defined herein), if any, by declaration of acceleration,
call for redemption, request for redemption, repayment at the option of the
holder or otherwise. Under the terms of the guarantee, the underlying securities
guarantor will be liable for the full amount of each payment under the
underlying securities. The guarantee will remain in effect until the entire
principal of and premium, if any, and interest, if any, on the underlying
securities shall have been paid in full. The guarantee will constitute a direct,
unconditional, unsubordinated and unsecured obligation of the underlying
securities guarantor and will rank pari passu with all other unsecured and
unsubordinated obligations of the underlying securities guarantor.
Book-Entry Debt Securities
The underlying securities were issued in the form of one or more fully
registered Global Notes (the "Global Notes"), deposited with, or on behalf of,
The Depository Trust Company, New York, New York ("DTC") and registered in the
name of Cede & Co., as nominee of DTC, for credit to the accounts of DTC
participants and indirect participants including Euroclear Bank S.A./N.V., as
operator of the Euroclear System ("Euroclear") and Clearstream Banking, societe
anonyme ("Clearstream Luxembourg"). Upon issuance of the underlying securities,
DTC credited on its book-entry registration and transfer system the
participants' accounts with the respective interests owned by such participants.
Ownership of book-entry interests is shown on, and the transfer of such
interests will be affected only through, records maintained by DTC, Euroclear or
Clearstream Luxembourg and, with respect to interests of indirect participants,
their respective participants. The laws of some countries and some states in the
United States may require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to own, transfer or pledge the book-entry interests.
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Payments of any amounts owing in respect of the Global Notes will be
made through one or more paying agents (each, a "Paying Agent") appointed under
the indenture (which initially will include the underlying securities trustee)
to DTC, Euroclear or Clearstream Luxembourg, or their nominees, as holder of the
Global Notes.
All interests in the Global Notes, including those held through
Euroclear or Clearstream Luxembourg, will be subject to the procedures and
requirements of DTC. Those interests, if held through Euroclear or Clearstream
Luxembourg, will also be subject to the procedures and requirements of such
system.
So long as DTC, or its nominee, or the Common Depositary, as the case
may be, is the registered holder of the Global Notes, such party will be
considered the sole holder of such Global Notes for all purposes under the
indenture. Except as set forth in the following paragraph, participants or
indirect participants are not entitled to have underlying securities or
book-entry interests registered in their names, will not receive or be entitled
to receive physical delivery of notes in definitive form and will not be
considered the owners or holders thereof under the indenture. Accordingly, each
person owning a book-entry interest must rely on the procedures of DTC, and, if
such person is not a participant in DTC, on the procedures of the participant in
DTC, through which such person owns its interest, to exercise any rights and
remedies of a holder under the indenture. If any definitive notes are issued to
participants or indirect participants, they will be issued in registered form
("definitive registered notes"). Unless and until book-entry interests are
exchanged for definitive registered notes, the certificated depositary interest
held by DTC may not be transferred except as a whole by DTC to its nominee or by
its nominee to DTC or another nominee of DTC or by DTC or any such nominee to a
successor of DTC or a nominee of such successor.
Each owner of a beneficial interest in a Global Note will
receive a definitive registered note (i) if DTC notifies the underlying
securities issuer that it is unwilling or unable to act as depositary or ceases
to be a clearing agency registered under the Securities Exchange Act of 1934
and, in either case, a successor depositary is at any time unwilling or unable
to continue as depositary and a successor depositary is not appointed by the
Issuer within 90 days or (ii) in the event of an Event of Default under the
indenture, upon request of the holders of a majority of the underlying
securities.
Any definitive registered note will be issued in registered form in
denominations of $1,000 principal amount or multiple thereof. Any definitive
registered note will be registered in such name or names as the underlying
securities trustee shall be instructed based on the instructions of DTC. It is
expected that such instructions will be based upon directions received by DTC
from their participants with respect to ownership of book-entry interests.
DTC has advised the underlying securities issuer and the underlying
securities guarantor that DTC is a limited purpose trust company organized under
the laws of the State of New York, a "banking organization" within the meaning
of the 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 was created to hold securities of its participants (the
"Participants") and to facilitate the clearance and settlement of securities
transactions among its Participants through electronic book-entry changes in
accounts of the Participants, thereby eliminating the need for physical movement
of securities certificates. DTC's Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations, some of which, and/or their representatives, own DTC. Access to
DTC's book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly.
Upon the issuance of a Global Note in registered form, DTC will credit,
on its book-entry registration and transfer system, the respective principal
amounts of the underlying securities represented by such Global Note to the
accounts of Participants. The accounts to be credited will be designated by the
underwriters, dealers or agents, if any, or by the underlying securities issuer,
if such underlying securities are offered and sold directly by the underlying
securities issuer. Ownership of beneficial interests in the Global Note will be
limited to Participants or persons that may hold interests through Participants.
Ownership of beneficial interests by Participants in the Global Note will be
shown on, and the transfer of any ownership interest will be effected only
through, records maintained by such Participants. The laws of some jurisdictions
may require that certain purchasers of securities take physical
S-36
delivery of such securities in definitive form. Such laws may impair the ability
to transfer beneficial interest in a Global Note.
So long as DTC or its nominee is the registered owner of a Global Note,
it will be considered the sole owner or holder of the underlying securities
represented by such Global Note for all purposes under the indenture. Except as
set forth below, owners of beneficial interests in such Global Note will not be
entitled to have the underlying securities represented thereby registered in
their names, will not receive or be entitled to receive physical delivery or
certificates representing the underlying securities and will not be considered
the owners or holders thereof under the indenture. Accordingly, each person
owning a beneficial interest in such Global Note must rely on the procedures of
DTC and, if such person is not a Participant, on the procedures of the
Participant through which such person owns its interest, to exercise any rights
of a holder under the indenture. The underlying securities issuer and the
underlying securities guarantor understand that under existing practice, in the
event that the underlying securities issuer and the underlying securities
guarantor request any action of the holders or a beneficial owner desires to
take any action a holder is entitled to take, DTC would act upon the
instructions of, or authorize, the Participant to take such action.
Payment of principal of, and premium, if any, and interest, if any, on
underlying securities represented by a Global Note will be made to DTC or its
nominee, as the case may be, as the registered owner and holder of the Global
Note representing such underlying securities. None of the underlying securities
issuer, the underlying securities guarantor, the underlying securities trustee,
any paying agent or registrar for such underlying securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The underlying securities issuer and the underlying securities
guarantor have been advised by DTC that DTC will credit Participants' accounts
with payments of principal and premium, if any, and interest, if any, on the
payment date thereof in amounts proportionate to their respective beneficial
interests in the principal amounts of the Global Note as shown on the records of
DTC. The underlying securities issuer and the underlying securities guarantor
expect that payments by Participants to owners of beneficial interests in the
Global Note held through such Participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in "street name," and will be the
responsibility of such Participants.
A Global Note may not be transferred except as a whole by DTC to a
nominee or successor of DTC or by a nominee of DTC to DTC, another nominee or a
successor Depositary. A Global Note representing all but not part of the
underlying securities being offered hereby is exchangeable for underlying
securities in definitive form of like tenor and terms if (a) DTC notifies the
underlying securities issuer that it is unwilling or unable to continue as
depositary for such Global Note or if at any time DTC is no longer eligible to
be or in good standing as a clearing agency registered under the Exchange Act
and any other applicable statute or regulation, and, in either case, a successor
depositary is not appointed by the underlying securities issuer within 90 days
of receipt by the underlying securities issuer of such notice or of the
underlying securities issuer becoming aware of such ineligibility, or (b) the
underlying securities issuer in its sole discretion at any time determines not
to have all of the underlying securities issued by the underlying securities
issuer represented by a Global Note and notifies the Paying Agent thereof. A
Global Note exchangeable pursuant to the preceding sentence shall be
exchangeable for underlying securities registered in such names and in such
authorized denominations as DTC for such Global Note shall direct (Section 305).
According to DTC, the foregoing information with respect to DTC has
been provided to the financial community for informational purposes only and is
not intended to serve as a representation, warranty or contract modification of
any kind.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that the underlying securities issuer and
the underlying securities guarantor believe to be reliable, but the underlying
securities issuer and the underlying securities guarantor take no responsibility
for the accuracy thereof.
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Certain Covenants
Restrictions on Liens. The underlying securities guarantor shall not,
so long as any of the underlying securities are outstanding, but only up to the
time all amounts of principal and premium, if any, and interest, if any, have
been placed at the disposal of the Paying Agent, provide any security upon any
or all of its assets for other notes or bonds, including any guarantee or
indemnity assumed therefor, without at the same time having the holders share
equally and ratably in such security, provided that security upon its assets is
neither mandatory pursuant to applicable laws nor required as a prerequisite for
governmental approvals.
Certain Definitions
"Maturity," when used with respect to any underlying security, means
the date, if any, on which the principal, or premium, if any, on that underlying
security becomes due and payable as provided therein or in the indenture,
whether at the Stated Maturity or by declaration of acceleration, call for
redemption, request for redemption, repayment at the option of the holder,
pursuant to any sinking fund provisions or otherwise.
"Stated Maturity," when used with respect to any underlying security or
any installment of principal or premium, if any, and interest, if any, means the
date, if any, specified in such underlying security as the fixed date on which
the principal of such underlying security or premium, if any, or such
installment of principal or premium, if any, and interest, if any, is due and
payable.
Restrictions on Consolidations, Mergers and Sales of Assets
The underlying securities issuer or the underlying securities guarantor
may merge with or into any corporation, including associations, companies, joint
stock companies and business trusts, or sell, transfer, lease or convey all or
substantially all of its assets substantially as an entirety to any corporation,
provided that (a) the corporation formed by such merger or consolidation or the
corporation which acquired such assets expressly assumes all of the obligations
of the underlying securities issuer or the underlying securities guarantor, as
applicable, and such corporation confirms that it will pay such additional
amounts as may be necessary in order that every net payment of the principal of
and interest on such assumed underlying securities, after deduction or
withholding for or on account of any present or future tax, assessment or
governmental charge imposed upon, or as a result of, such payment arising solely
as a result of such assumption by the country or countries other than the United
States in which any such corporation is organized and principally conducts its
business or any district, municipality or other political subdivision or taxing
authority therein or thereof, will not be less than the amount provided for in
the assumed underlying securities to be then due and payable, and (b)
immediately after giving effect to such transaction, no Event of Default and no
event which, after notice or lapse of time or both, would become an Event of
Default, will have occurred and be continuing.
Events of Default
The following are "Events of Default" under the indenture with respect
to underlying securities:
(a) default in the payment of the principal of, or premium, if
any, on, the underlying securities when the same becomes due
and payable at maturity, upon acceleration, redemption,
mandatory repurchase or otherwise, and such default continues
for five Business Days;
(b) default in the payment of any installment of interest on the
underlying securities when the same becomes due and payable,
and such default continues for a period of 30 days;
(c) default in the performance of or breach of any covenant or
warranty of the underlying securities issuer or the underlying
securities guarantor in the indenture, other than a covenant
or warranty a default in whose performance or whose breach is
elsewhere
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specifically dealt with in the indenture, and such default or
breach continues for a period of 90 consecutive days after
written notice as provided in the indenture;
(d) acceleration of any other notes or bonds of the underlying
securities issuer or the underlying securities guarantor in an
aggregate principal amount exceeding $50,000,000;
(e) certain events of bankruptcy, insolvency or liquidation
relating to the underlying securities issuer or the underlying
securities guarantor that are not cured for a period of 60
consecutive days; and
(f) any other Event of Default particular to the underlying
securities.
The indenture provides that:
o if an Event of Default described in clause (a), (b) or (f) above
occurs and is continuing with respect to the underlying securities,
either the underlying securities trustee or the holders of not less
than 25% in aggregate principal amount of the underlying securities
then outstanding may declare the principal, including premium, and the
interest accrued thereon, if any, to be due and payable immediately;
o if an Event of Default described in clause (c) or (d) above occurs and
is continuing, then in such case, the underlying securities trustee or
the holders of not less than 25% in aggregate principal amount of the
underlying securities, may declare the principal of all such
underlying securities to be due and payable immediately, by notice as
provided in the indenture and upon such declaration such principal
amount, or lesser amount, of such underlying securities shall become
immediately due and payable; and
o if an Event of Default described in clause (e) above occurs and is
continuing, then in such case the underlying securities trustee or the
holders of not less than 25% in aggregate principal amount of the
underlying securities, or, in the case of the underlying securities
guarantor, of all then outstanding securities, treated as one class,
may declare the principal, and the interest accrued thereon, if any,
to be due and payable immediately.
The indenture provides that, subject to the duty of the underlying
securities trustee during a default to act with the required standard of care,
the underlying securities trustee will be under no obligation to exercise any of
its rights or powers under the indenture at the request or direction of any of
the holders, unless such holders shall have offered to the underlying securities
trustee reasonable indemnity. Subject to such provisions for the indemnification
of the underlying securities trustee, and provided that no conflict with the
indenture or any rule of law arises, the holders of a majority in aggregate
principal amount of the underlying securities will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the underlying security trustee, or exercising any trust or power conferred on
the underlying security trustee with respect to the underlying securities.
Discharge, Defeasance and Covenant Defeasance
Covenant Defeasance
If the underlying securities issuer or the underlying securities
guarantor shall deposit with the underlying securities trustee, in trust, at or
before the Stated Maturity or redemption of the underlying securities, money
and/or Government Obligations in such amounts and maturing at such times such
that the proceeds of such obligations to be received upon the respective Stated
Maturities and interest payment dates of such obligations will provide funds
sufficient, without reinvestment, in the opinion of a nationally recognized firm
of independent public accountants, to pay when due the principal of, and
premium, if any, and each installment of principal of, and premium, if any, and
interest on the underlying securities at the Stated Maturity or such principal
or installment of principal or interest, as the case may be, then the underlying
securities issuer or the underlying securities guarantor may omit to comply with
certain of the terms of the indenture with respect to the underlying securities,
including any or all of the
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restrictive covenants described above or in any prospectus supplement, and the
Events of Default described in clauses (c) and (d) under "- Events of Default"
shall not apply. Defeasance of the underlying securities is subject to the
satisfaction of certain conditions, including among others:
o the absence of an Event of Default or event which, with notice or
lapse of time, would become an Event of Default at the date of the
deposit;
o the delivery to the underlying securities trustee by the underlying
securities issuer or the underlying securities guarantor of an Opinion
of Counsel to the effect that holders of the underlying securities
will not recognize gain or loss for United States federal income tax
purposes as a result of such deposit and covenant defeasance and will
be subject to United States federal income tax in the same amounts and
in the same manner and at the same times as would have been the case
if such deposit and covenant defeasance had not occurred; and
o such covenant defeasance will not cause the underlying securities then
listed on any nationally recognized securities exchange to be
delisted.
Defeasance
Upon the deposit of money or securities as contemplated in the
preceding paragraph and the satisfaction of certain other conditions, the
underlying securities issuer or the underlying securities guarantor may also
omit to comply with its obligation duly and punctually to pay the principal of,
and premium, if any, and interest, if any, on the underlying securities, and any
Events of Default with respect thereto shall not apply, and thereafter, the
holders of the underlying securities shall be entitled only to payment out of
the money or securities deposited with the underlying securities trustee. Such
conditions include, among others:
o the absence of an Event of Default or event which, with notice or
lapse of time, would become an Event of Default at the date of the
deposit;
o the delivery to the underlying securities trustee by the underlying
securities issuer or the underlying securities guarantor of an Opinion
of Counsel to the effect that holders of the underlying securities
will not recognize gain or loss for United States federal income tax
purposes as a result of such deposit, discharge and defeasance, and
will be subject to United States federal income tax in the same
amounts and in the same manner and at the same times as would have
been the case if such deposit, discharge and defeasance had not
occurred; and
o such defeasance will not cause the underlying securities then listed
on any nationally recognized securities exchange to be delisted.
Modification and Waiver
The indenture provides that the underlying securities issuer, the
underlying securities guarantor and the underlying securities trustee may, for
specified purposes, amend or supplement the indenture or the underlying
securities without notice to or the consent of the holders, and may make any
modification to the terms of the indenture or the underlying securities with the
consent of the holders of more than 50% in aggregate principal amount of the
outstanding debt securities. However, no such modification or amendment may,
without the consent of the holder of each outstanding debt security affected
thereby, change the Stated Maturity of the principal of, or any installment of
principal of or interest on, the underlying securities; reduce the principal
amount of, and premium, if any, and interest, if any, on the underlying
securities; change the place of payment where the principal amount of, and
premium, if any, and interest, if any, on the underlying securities is payable;
impair the right to institute suit for the enforcement of any payment on or with
respect to the underlying securities; reduce the percentage in principal amount
of outstanding debt securities, the consent of the holders of which is required
for
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modification or amendment of the indenture or for waiver of compliance with
certain provisions of the indenture or for waiver of certain defaults; or modify
any of the above provisions or the provisions of the next paragraph below.
The holders of not less than a majority in aggregate principal amount
of the outstanding debt securities may, on behalf of the holders of all
underlying securities, waive compliance by the underlying securities issuer and
the underlying securities guarantor with certain restrictive provisions of the
indenture. The holders of not less than a majority in aggregate principal amount
of the outstanding debt securities may, on behalf of the holders of all
underlying securities, waive any past default under the indenture with respect
to underlying securities, except a default (a) in the payment of principal of,
or premium, if any, and interest, if any, on, the underlying securities, or (b)
with respect to a covenant or provision of the indenture which can not be
modified or amended without the consent of the holder of each the outstanding
debt securities affected.
o The indenture provides that in determining whether the holders of the
requisite aggregate principal amount of the outstanding debt securities
have given any request, demand, authorization, direction, notice,
consent or waiver thereunder or whether a quorum is present at a
meeting of holders of underlying securities, the principal amount of a
Discount Security that will be deemed to be Outstanding will be the
amount of the principal thereof that would be due and payable as of the
date of such determination upon a declaration of acceleration of the
Maturity thereof to such date.
Payment and Paying Agents
Payment of principal of, and premium, if any, and interest, if any, on
the underlying securities, other than a Global Note, will be made at the office
of such Paying Agent or Paying Agents as the underlying securities issuer or the
underlying securities guarantor, as the case may be, may designate from time to
time, except that, at the option of the underlying securities issuer or the
underlying securities guarantor, as the case may be, payment of any interest may
be made (a) by check mailed or delivered to the address of the person entitled
thereto as such address shall appear in the Security Register or (b) by wire
transfer to an account maintained with a bank located in the United States by
the person entitled thereto as specified in the Security Register. Payment of
any installment of interest on the underlying securities will be made to the
person in whose name such debt security is registered at the close of business
on the Regular Record Date for such interest payment.
JPMorgan Chase Bank, as successor to The Chase Manhattan Bank, will act
as the Paying Agent for the underlying securities.
The principal office of the Paying Agent in the City of New York will
be designated as the sole paying agency of the underlying securities issuer and
the underlying securities guarantor, for payments with respect to underlying
securities. The underlying securities issuer or the underlying securities
guarantor, as the case may be, may at any time designate additional Paying
Agents or rescind the designation of any Paying Agents or approve a change in
the office through which any Paying Agent acts, except that the underlying
securities issuer and the underlying securities guarantor will be required to
maintain a Paying Agent in the Place of Payment for the underlying securities.
o All monies paid by the underlying securities issuer or the underlying
securities guarantor, as the case may be, to a Paying Agent for the
payment of principal of, and premium, if any, and interest, if any, on
any underlying securities or in respect of any other additional
payments thereon which remain unclaimed at the end of two years after
such principal, premium or interest shall have become due and payable
will, subject to applicable laws, be repaid to the underlying
securities issuer or the underlying securities guarantor, as the case
may be, and the holder of such underlying securities will thereafter
look only to the underlying securities issuer or the underlying
securities guarantor, as the case may be, for payment thereof.
Assumption of Obligations
The underlying securities guarantor or any wholly owned subsidiary of
the underlying securities guarantor may assume the obligations with respect to
the underlying securities for the due and punctual payment of the
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principal of, and premium, if any, and interest, if any, including any
additional amounts required to be paid in accordance with the provisions of the
indenture or the underlying securities, and the performance of every covenant of
the indenture to be performed or observed; provided that:
o the underlying securities guarantor or such subsidiary of the
underlying securities guarantor, as the case may be, shall expressly
assume such obligations by a supplemental indenture, executed by the
underlying securities guarantor or such subsidiary, and delivered to
the underlying securities trustee in form reasonably satisfactory to
the underlying securities trustee, and if such subsidiary assumes such
obligations, the underlying securities guarantor shall, by a
supplemental indenture, confirm that its guarantee shall apply to such
subsidiary's obligations under such underlying securities and the
indenture, as so modified by such supplemental indenture;
o the underlying securities guarantor or such subsidiary, as the case
may be, shall confirm in such supplemental indenture that the
underlying securities guarantor or such subsidiary, as the case may
be, will pay to the holders such additional amounts as provided by,
and subject to the limitations set forth in, such underlying
securities and the indenture as may be necessary in order that every
net payment of the principal of, and premium, if any, on, and
interest, if any, on such underlying securities will not be less than
the amount provided for in such underlying securities to be then due
and payable and such obligation shall extend to the payment of any
such additional amounts as necessary to compensate for or indemnify
against any deduction or withholding for or on account of any present
or future tax, assessment or governmental charge imposed upon such
payment by Germany, the United States or the country in which the
underlying securities guarantor or such subsidiary of the underlying
securities guarantor is organized or any district, municipality or
other political subdivision or taxing authority in Germany, the United
States or the country in which the underlying securities guarantor or
any such subsidiary of the underlying securities guarantor is
organized, it being understood that, except as aforesaid, neither the
underlying securities guarantor nor such subsidiary shall be obligated
to make any indemnification or payments in respect of any tax
consequences to any holder as a result of such assumption of rights
and obligations if the underlying securities guarantor or such
subsidiary would not be obligated to pay an additional amount pursuant
to the indenture if the underlying securities guarantor or such
subsidiary were the underlying securities issuer; and
o immediately after giving effect to such assumption of obligations, no
Event of Default with respect to underlying securities and no event
which, after notice or lapse of time or both, would become an Event of
Default, as the case may be, shall have occurred and be continuing.
Upon any such assumption, the underlying securities guarantor or such
subsidiary, as the case may be, will succeed to, and be substituted for, and may
exercise every right and power of, the underlying securities issuer under the
indenture with respect to such underlying securities with the same effect as if
the underlying securities guarantor or such subsidiary, as the case may be, had
been named as the underlying securities issuer under the indenture, and the
underlying securities issuer or any successor corporation thereto shall be
released from all liability as obligor upon such underlying securities.
Further Issuances
The underlying securities issuer may from time to time, without notice
to or the consent of the holders of the underlying securities, create and issue
under the indenture further underlying securities identical in all respects to
the previously issued underlying securities, with any related changes in the
Stated Maturity, issue date, issue price and interest commencement date, so that
such further underlying securities shall be consolidated and form a single
series with such underlying securities and shall have the same terms as to
status, redemption or otherwise as such underlying securities.
New York Law Governs
The indenture, the underlying securities and the guarantee will he
governed by the laws of the State of New York.
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Judgment Currency
A judgment for money damages by courts in the United States, including
a money judgment based on an obligation expressed in a foreign currency, will
ordinarily be rendered only in United States dollars. The statutory law of the
State of New York provides that a court shall render a judgment or decree in the
foreign currency of the underlying obligation and that the judgment or decree
shall be converted into United States dollars at the exchange rate prevailing on
the date of entry of the judgment or decree.
If, for the purpose of obtaining a judgment in any court with respect
to any obligation of the underlying securities issuer or the underlying
securities guarantor under the indenture, the underlying securities or the
guarantee, as the case may be, it shall become necessary to convert into any
other currency, or currency unit, any amount due under the indenture, underlying
security or guarantee, as the case may be, then the conversion shall be made by
the underlying securities issuer or Currency Determination Agent at the Market
Exchange Rate as in effect on the date of entry of the judgment (the "Judgment
Date"). If pursuant to any such judgment, conversion shall be made on a date
(the "Substitute Date") other than the Judgment Date and there shall occur a
change between the Market Exchange Rate as in effect on the Judgment Date and
the Market Exchange Rate as in effect on the Substitute Date, the indenture
requires the underlying securities issuer or the underlying securities
guarantor, as the case may be, to pay such additional amounts, if any, as may be
necessary to ensure that the amount paid is equal to the amount in such other
currency or currency unit which, when converted at the Market Exchange Rate as
in effect on the Judgment Date, is the amount then due under the indenture,
underlying security or guarantee, as the case may be. Neither the underlying
securities issuer nor the underlying securities guarantor, as the case may be,
will, however, be required to pay more in the currency or currency unit due
under the indenture, underlying security or guarantee, as the case may be, at
the Market Exchange Rate as in effect on the Judgment Date than the amount of
currency or currency unit stated to be due under the indenture, underlying
security or guarantee, as the case may be, so that in any event the obligations
of the underlying securities issuer or the underlying securities guarantor, as
the case may be, under the indenture, underlying security or guarantee, as the
case may be, will be effectively maintained as obligations in such currency or
currency unit and the underlying securities issuer or the underlying securities
guarantor, as the case may be, shall be entitled to withhold, or be reimbursed
for, as the case may be, any excess of the amount actually realized upon any
conversion on the Substitute Date over the amount due and payable on the
Judgment Date.
Information Concerning The Underlying Securities Trustee
The underlying securities issuer, the underlying securities guarantor and their
subsidiaries maintain ordinary banking relationships with JPMorgan Chase Bank,
as successor to The Chase Manhattan Bank and its affiliates. JPMorgan Chase Bank
and its affiliates have extended credit facilities to the underlying securities
issuer, the underlying securities guarantor and their subsidiaries in the
ordinary course of business.
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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 Class B trust certificates by an initial holder of the Class B 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 Code and U.S. Persons, as
defined below, having a functional currency other than the U.S. dollar).
Furthermore, no authority exists concerning the tax treatment of some aspects of
the Class B trust certificates, and there can be no assurance that the Treasury
Department will not issue regulations which would modify the treatment described
below. Accordingly, the ultimate United States federal income tax treatment of
the Class B 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 Class B 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, and treated as U.S. Persons prior to
such date, that elect to continue to be treated as U.S. Persons, also will be
U.S. Persons. If a partnership holds Class B 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 Class B 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 Class B trust
certificateholder will be subject to United States federal income taxation as if
it (i) owned directly the portion of the underlying securities allocable to such
Class B trust certificates, (ii) wrote directly a call option on such underlying
securities and (iii) paid directly its share of reasonable expenses paid by the
trust. As discussed further below, the portion of the underlying securities
deemed to be directly owned by the Class B trust certificateholders will be
treated as a newly-issued debt instrument under section 1286 of the Code.
Income of Class B Trust Certificateholders That Are U.S. Persons
In General
Based on the underlying securities prospectus supplement, this
discussion assumes that 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 Class B trust certificateholders. The underlying securities prospectus
supplement did not disclose that there was a risk that the
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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 subordination of the instrument, and
the adequacy of the issuer's capital. In the event that the underlying
securities are not respected as indebtedness, the United States federal income
tax consequences to the Class B trust certificateholders could be materially
different from those described below. For example, in such event, Section 1286
of the Code would not apply, payments on the trust certificates could be treated
as dividends to the extent allocable to the current or accumulated earnings and
profits of the underlying securities issuer, and any such dividends would be
subject to United States federal withholding tax if paid to a foreign Class B
trust certificateholder (as defined below). The remainder of this discussion
assumes that the underlying securities constitute indebtedness for United States
federal income tax purposes.
The Class B trust certificates will represent ownership of an interest
coupon strip from the underlying securities that is treated as a newly-issued
debt instrument under section 1286 of the Code, and a written call option on
such debt instrument. Although the matter is not entirely clear, the trustee
intends to report assuming that the interest coupon strip represents a single
newly-issued debt instrument and not a series of newly-issued debt instruments.
The remainder of this discussion assumes such United States federal income tax
treatment. The newly-issued debt instrument represented by the Class B trust
certificates (referred to herein as the "Debt Instrument") will be treated by
section 1286 of the Code as purchased by the Class B trust certificateholders at
original issuance at an "issue price" equal to the purchase price allocated to
the Debt Instrument, determined in the manner described below under
"Allocations". The excess of the stated redemption price at maturity of the Debt
Instrument (which, for this purpose will include the sum of all payments
scheduled to be received by Class B trust certificateholders in respect of the
Debt Instrument) over its issue price will constitute original issue discount
for United States federal income tax purposes.
Allocations
A Class B trust certificateholder must separately account for the Debt
Instrument and the related call warrant for United States federal income tax
purposes by establishing a separate purchase price for the Debt Instrument, and
sale price for the call warrant. A Class B trust certificateholder should be
considered to have purchased its interest in the Debt Instrument for an amount
equal to the cost of its interest in the Class B trust certificate plus the fair
market value, at the time of purchase of the Class B trust certificate, of the
call warrant that the Class B trust certificateholder should be deemed to have
written. Correspondingly, the Class B trust certificateholder is deemed to have
received a payment in respect of the call warrant equal to its fair market
value. Accordingly, the Class B trust certificateholder's initial tax basis in
its interest in the Debt Instrument should be greater than the amount the Class
B trust certificateholder paid directly for its interest in the Class B trust
certificate.
When the Class B trust certificateholder sells an interest in a Class B
trust certificate, the Class B trust certificateholder should be considered to
have sold its interest in the Debt Instrument for a price equal to the sales
price for its interest in the Class B trust certificate plus an amount equal to
the fair market value, at the time of the sale of the Class B trust
certificates, of the call warrant that the Class B trust certificateholder is
deemed to have written, which amount the Class B trust certificateholder should
be deemed to have paid to be relieved from the obligation. Accordingly, the
amount realized by the Class B trust certificateholder with respect to its
interest in the Debt Instrument should be greater than the amount the Class B
trust certificateholder received directly for its interest in the Class B trust
certificate.
Taxation of Trust Assets
Interest Income
Each Class B trust certificateholder will be required to report on its
United States federal income tax return its pro rata share of the income from
the Debt Instrument (with an allowance for deductions as described below).
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Original Issue Discount
Pursuant to Section 1286 of the Code, all interest payable to the Class
B trust certificateholders will be treated as original issue discount that must
be accrued into gross income, on a constant yield basis, regardless of the Class
B trust certificateholder's regular method of tax accounting. Due to the
required accrual of original issue discount for United States federal income tax
purposes, a Class B trust certificateholder may be taxable on original issue
discount in advance of the receipt of cash attributable to such income.
Sale or Exchange of Class B Trust Certificates or Retirement
of the Debt Instrument
Upon the sale, exchange or other disposition of a Class B trust
certificate (including upon exercise of a call warrant) or upon the retirement
or other disposition of the Debt Instrument, a Class B 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
allocated to the Debt Instrument and the Class B trust certificateholder's tax
basis in the Debt Instrument. A Class B trust certificateholder's tax basis for
determining gain or loss on the disposition of the Debt Instrument will be
determined as described above, under "Allocations," increased by any original
issue discount previously included in gross income with respect to such Debt
Instrument and decreased by any prior payments received on the Debt Instrument.
Gain or loss upon the disposition of a Class B trust certificate or the Debt
Instrument generally will be capital gain or loss.
Depending on the circumstances, a modification of the terms of the
underlying securities would be a taxable event to Class B trust
certificateholders on which they would recognize gain or loss for United States
federal income tax purposes. In addition, in certain circumstances, the trustee
may divide the underlying securities between the Class A and Class B trust
certificateholders in accordance with the allocation ratio and distribute each
class' portion of the underlying securities pro rata to the trust
certificateholders of that class. Such a distribution will be a taxable event to
the Class B trust certificateholders on which they will recognize gain or loss
equal to the difference, if any, between the fair market value of the underlying
securities received and their adjusted tax basis in the Class B trust
certificates on the distribution date.
Taxation of Call Premium
A Class B trust certificateholder will not be required to include
immediately in gross income the option premium that it is deemed to receive when
it purchases its interest in the Class B trust certificate. Instead, such
premium will be taken into account when the call warrant related to the Class B
trust certificate lapses, is exercised or is otherwise terminated with respect
to such Class B trust certificateholder. In this regard, the trustee intends to
report income in respect of the option premium based on the assumption that the
call warrant lapses proportionately as payments of "principal" (i.e., the amount
of each payment in excess of the original issue discount accrued during the
preceding period) are received on the Class B trust certificates. The portion of
the call warrant that is deemed to lapse in a particular period is equal to the
amount of the principal paid during that period over the Class B trust
certificateholder's adjusted tax basis (computed in the manner described above)
in the Class B trust certificate as of the end of the preceding period. Class B
trust certificateholders are advised to consult their tax advisors regarding
whether the call warrant should be treated as partially lapsing prior to the
final payment of the Class B trust certificate.
A Class B trust certificateholder will include the option premium in
income as short-term capital gain if the call warrant lapses. If the call
warrant is exercised, the Class B trust certificateholder will treat an amount
equal to the option premium as part of the amount realized from the sale of the
Debt Instrument. If the Class B trust certificateholder transfers its interest
in a Class B trust certificate (other than pursuant to the exercise of the call
warrant), such transfer will be treated as a "closing transaction" with respect
to the option the Class B trust certificateholder is deemed to have written.
Accordingly, the Class B trust certificateholder will recognize a short-term
capital gain or loss equal to the difference between the amount of option
premium and the amount the Class B trust certificateholder is deemed to pay,
under the rules discussed above, to be relieved from the Class B trust
certificateholder's obligation under the option.
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If a Class B trust certificateholder were to acquire an interest in a
corresponding amount of call warrants, the call option would be proportionately
extinguished and such Class B trust certificateholder would be treated as
holding solely its proportionate share of the underlying Debt Instrument. This
extinguishment of the call option would be a taxable event. Accordingly, the
Class B trust certificateholder would have to recognize gain or loss on such
extinguishment equal to the difference between the option premium received at
the time the Class B trust certificateholder purchased its Class B trust
certificate and the amount paid for the call warrants. Such gain or loss would
constitute short-term capital gain or loss.
Potential Recharacterization of Exercise of Call Warrant
With respect to the exercise of a call warrant, the trustee intends to
report assuming that that call warrant is exercised only against the particular
Class B trust certificates that are selected by lot to be tendered to the
trustee. It is possible, however, that the IRS may assert an alternative
treatment of the exercise of a call warrant. For example, the IRS may argue that
the exercise of a call warrant is a pro rata call on each Class B trust
certificateholder's interest in the Debt Instruments. In that event, all Class B
trust certificateholders would be required to recognize gain or loss on the
exercise computed in the same manner as if they had sold a pro rata portion of
their Class B trust certificates pursuant to the exercise of a call warrant. The
non-tendering Class B trust certificateholders would then be deemed to have used
the cash deemed received on the exercised call to purchase Class B trust
certificates from the Class B trust certificateholder whose Class B trust
certificates were actually tendered to the trustee. Class B trust
certificateholders are advised to consult their tax advisors regarding this
potential recharacterization.
Deductibility of Trust's Fees and Expenses
In computing its United States federal income tax liability, a Class B
trust certificateholder will be entitled to deduct, consistent with its 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 Class B 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.
Application of the Straddle Rules
The Class B trust certificateholder's interest in the Debt Instruments
and the related call warrant likely constitute positions in a straddle. Under
the straddle rules, a Class B trust certificateholder selling its interest in
the Class B trust certificate would be treated as selling its interest in the
Debt Instruments at a gain or loss which would be short-term because the Class B
trust certificateholder's holding period would be tolled. (As discussed above,
the Class B trust certificateholder's gain or loss with respect to the option
premium always would be short-term under the option rules, regardless of the
application of the straddle rules.) In addition, the straddle rules require a
Class B trust certificateholder to capitalize, rather than deduct, a portion of
any interest and carrying charges allocable to the Class B trust
certificateholder's interest in a Class B trust certificate. Further, if the IRS
were to take the position that a Class B trust certificateholder's interest in
the Debt Instrument and the call warrant constituted a "conversion transaction"
under Section 1258 of the Code, as well as a straddle, then a portion of the
gain with respect to the Debt Instrument or the call warrant might be
characterized as ordinary income. Class B trust certificateholders are advised
to consult their tax advisors regarding these issues, including the advisability
of a protective netting identification under Treasury regulation Section
1.1258-1.
Foreign Class B Trust Certificateholders
Withholding Tax on Payments of Principal, Interest and Original Issue
Discount on Class B Trust Certificates
Interest paid to Class B trust certificateholders that are not U.S.
Persons ("foreign Class B trust certificateholders"), including original issue
discount accrued on the Class B trust certificates, 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 Class B trust
certificateholder does not actually or constructively own 10% or more of the
total
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combined voting power of all classes of stock of the underlying securities
issuer entitled to vote, (ii) the foreign Class B trust certificateholder is not
a controlled foreign corporation for United States tax purposes that is directly
or indirectly related to the underlying securities issuer through stock
ownership, (iii) the foreign Class B 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 Class B 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 Class B 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 Class B trust certificateholder
unless an applicable income tax treaty reduces or eliminates such tax. In
general, foreign Class B trust certificateholders will not be subject to United
States federal withholding tax on amounts received or deemed received with
respect to the option associated with the Class B trust certificate.
If a foreign Class B trust certificateholder holds the Class B trust
certificates in connection with the conduct of a trade or business within the
United States, payments of interest, including original issue discount, on the
Class B 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 Class B trust certificateholder will be
subject to United States federal income tax with respect to income derived from
the Class B 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 Class B trust certificateholder also may be subject to a branch profits
tax at a 30% rate (or, if applicable, a lower treaty rate).
Gain on Disposition of Class B Trust Certificates
A foreign Class B 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 Class B trust certificate, or upon the
retirement of the Debt Instrument, unless:
o the foreign Class B 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 Class B 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 Class B trust
certificateholder's conduct of a United States trade or business.
Backup Withholding and Information Reporting
Information returns will be filed with the IRS in connection with
payments on the Class B trust certificates and the proceeds from a sale or other
disposition of the Class B trust certificates. If you own Class B trust
certificates and are a U.S. Person, you will be subject to United States backup
withholding tax on these payments unless you are an exempt recipient or you
provide your taxpayer identification number to the paying agent and comply with
certain certification procedures. If you are a foreign Class B 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.
S-48
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.
S-49
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.
S-50
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 Class B trust certificates. The underwriter proposes to
offer the Class B 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 Class B trust
certificate. The underwriters may allow, and the dealers may reallow, a discount
not in excess of $___ per Class B 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 Class B trust
certificates. Such transactions consist of bids or purchases to peg, fix or
maintain the price of the Class B trust certificates. If the underwriter creates
a short position in the Class B trust certificates, i.e., if it sells more Class
B trust certificates than are on the cover page of this prospectus supplement,
the underwriter may reduce that short position by purchasing Class B trust
certificates in the open market. Purchases of a security to stabilize the price
or to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases.
Neither we nor the underwriter makes any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the Class B trust certificates. In addition,
neither we nor the underwriter makes any representation that the underwriter
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.
The underwriter may from time to time provide investment banking and
other financial services to the underlying securities issuer and expects in the
future to provide these services, for which it will receive customary fees and
commissions.
If the size of the trust is increased, the underwriter may participate
in offerings of additional Class B trust certificates, as contemplated on the
cover of this prospectus supplement. Additional Class B 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 accompanying 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 CLASS B TRUST CERTIFICATES
Shearman & Sterling LLP, New York, New York, will pass upon the
validity of the Class B trust certificates for the depositor and for the
underwriter.
RATINGS
It is a condition to the issuance of the Class B trust certificates
that the Class B trust certificates have ratings assigned by Moody's or by S&P,
equivalent to the ratings of the underlying securities, which, as of the date of
this prospectus supplement, were rated "A3" by Moody's and "BBB" by S&P.
Moody's rating of the Class B trust certificates addresses the ultimate
cash receipt of all required interest payments on the Class B trust certificates
at the earliest of the Call Date and the final scheduled distribution date 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
S-51
payments that certificateholders may receive under the governing documents.
S&P's rating of the Class B trust certificates addresses the likelihood of
timely payment of interest on the Class B trust certificates or any underlying
securities distributed in respect of the Class B trust certificates. The ratings
address the likelihood of the payment by the issuer as required under the trust
agreement, and are based primarily on the credit quality of the underlying
securities. The rating on the Class B 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 Class B 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
Class B trust certificates, or, if it does, what rating would be assigned by any
other rating agency. A rating on the Class B trust certificates by another
rating agency, if assigned at all, may be lower than the ratings assigned to the
Class B trust certificates by Moody's and S&P.
S-52
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
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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:
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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,
30
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.
32
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
33
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:
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(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
36
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
37
(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
56
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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_______ Class B Trust Certificates
($___ Notional Principal Amount)
PPLUS
CLASS B TRUST CERTIFICATES
SERIES DCNA-1
---------------------
PROSPECTUS SUPPLEMENT
---------------------
Merrill Lynch & Co.
________, 2004
Until 25 days after the date of this prospectus, all dealers effecting
transactions in the offered Class B 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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