Filed Pursuant to Rule 424(b)(5)
Registration No. 33-91744
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL AND IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION: PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JANUARY 26, 2004)
PRELIMINARY PROSPECTUS SUPPLEMENT DATED MAY 10, 2004
- --------------------------------------------------------------------------------
(UBS AG LOGO)
CABCO
SERIES 2004-101 TRUST (GOLDMAN SACHS CAPITAL I)
$-- CERTIFICATE PRINCIPAL BALANCE,
FLOATING RATE CALLABLE CERTIFICATES
CORPORATE ASSET BACKED CORPORATION
DEPOSITOR
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF INITIAL INTEREST PRICE TO UNDERWRITING
CERTIFICATES RATE PUBLIC DISCOUNT
- ------------------------------------------------------------------------------------------------------------------
Floating Rate Callable Certificates................... -- --% $25.00 $.7875
- ------------------------------------------------------------------------------------------------------------------
</Table>
YOU SHOULD FULLY REVIEW THE RISK FACTORS BEGINNING ON PAGE S-15 OF THIS
PROSPECTUS SUPPLEMENT AND BEGINNING ON PAGE 2 OF THE ATTACHED PROSPECTUS BEFORE
INVESTING IN THE CERTIFICATES.
No governmental agency or instrumentality has insured or guaranteed the
certificates or the Underlying Securities.
The certificates will represent interests in the trust only and will not
represent interests in or obligations of any other party.
The certificates currently have no trading market.
THE TRUST
- - will issue one class of floating rate callable certificates, all of which are
offered by this prospectus supplement.
- - will own $-- principal amount of 6.345% Capital Securities issued by the
Underlying Securities Issuer and fully and unconditionally guaranteed by The
Goldman Sachs Group, Inc. and an interest rate swap between the depositor and
the London Branch of UBS AG (which will be assigned by the depositor to the
trust).
EACH CERTIFICATE
- - will evidence the right to receive quarterly interest payments on its
certificate principal balance at a floating rate based on three-month USD
LIBOR plus %; provided that such rate will always be greater than or equal to
--% and will not exceed --%, and the right to receive a payment of principal
and a make-whole amount, if any, on the final distribution date, to the
extent such amounts are received by the trust on the Underlying Securities.
The initial interest payment will be at a rate of --% per annum (--%, three-
month USD LIBOR as of --, 2004 plus --%).
- - will be subject to a call option that upon exercise requires the holder of
the certificate to sell the certificate to the option holder at a price at
least equal to the outstanding certificate principal balance of the
certificate plus any accrued and unpaid interest (i) on or after --, 2009,
(ii) at any time following the occurrence of an Underlying Securities payment
default, an Underlying Securities bankruptcy default, a SEC reporting
failure, a trust swap payment default or a trust regulatory event (each as
defined herein), or (iii) at any time in connection with a tender offer for,
a redemption or repurchase of or an unscheduled payment on Underlying
Securities.
For information about the certificates, you should read both this prospectus
supplement and the attached prospectus. This prospectus supplement must be
accompanied by the attached prospectus if it is being used to offer and sell the
certificates.
The depositor intends to apply to list the certificates on the New York Stock
Exchange. If the application is approved, trading of the certificates on the New
York Stock Exchange is expected to begin within 30 days after the initial
delivery of the certificates. See "Supplemental Plan of Distribution" in this
prospectus supplement and "Plan of Distribution" in the attached prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE CERTIFICATES OR DETERMINED THAT
THIS PROSPECTUS SUPPLEMENT OR THE ATTACHED PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Subject to the satisfaction of specified conditions, UBS Securities LLC will
purchase all the offered certificates from the depositor. See "Supplemental Plan
of Distribution" in this prospectus supplement and "Plan of Distribution" in the
attached prospectus. The certificates will be issued only in book-entry form on
or about --, 2004.
UBS INVESTMENT BANK
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS --, 2004.
- --------------------------------------------------------------------------------
Table of Contents
PROSPECTUS SUPPLEMENT
<Table>
Important Notice about Information
Presented in this Prospectus
Supplement and the Attached
Prospectus............................ S-1
Summary of Principal Economic Terms..... S-2
Summary of Prospectus Supplement........ S-9
Risk Factors............................ S-15
Formation of the Trust.................. S-22
Description of the Underlying
Securities............................ S-23
General Description of the Underlying
Securities.......................... S-23
Interest Payments..................... S-24
Principal Payments.................... S-25
Optional Redemption................... S-25
Guarantee............................. S-27
Junior Obligations.................... S-27
Underlying Securities Defaults........ S-27
Available Information................. S-27
Yield on the Certificates............... S-28
Description of the Swap Agreement....... S-29
General............................... S-29
The Swap Counterparty................. S-29
Amounts Payable by the Swap
Counterparty........................ S-29
Amounts Payable by the Trust.......... S-30
Events of Default and Termination
Events.............................. S-31
Early Termination Date................ S-32
Payments Upon Early Termination....... S-32
Assignment of Rights.................. S-33
Amendment of the Swap Agreement....... S-33
Replacement of Swap Counterparty...... S-34
UBS AG.................................. S-35
Overview.............................. S-35
Where You Can Find More Information... S-37
Incorporation of Documents by
Reference........................... S-37
Experts............................... S-38
Description of the Certificates......... S-39
The Certificates...................... S-39
The Call Options...................... S-41
Trust Termination Events.............. S-43
Termination of Book-Entry Registration
in Connection with Suspension of
Securities Exchange Act Reporting by
GS Group............................ S-43
SEC Reporting Failure................. S-44
Redemptions and Tender Offers......... S-44
Voting Rights......................... S-45
Additional Underlying Securities...... S-45
Description of the Trust Agreement...... S-46
General............................... S-46
Certain Payments to the Depositor..... S-46
The Trustee........................... S-46
Underlying Securities Defaults........ S-47
Method of Liquidation................. S-47
Limitation on Rights of Action........ S-48
Voting of the Underlying Securities;
Modification of the Underlying
Securities Trust Agreement.......... S-48
United States Taxation.................. S-50
Classification of the Trust........... S-50
Classification of the Certificates.... S-51
Initial Certificateholders............ S-51
Secondary Certificateholders.......... S-52
Deferral of Interest Payments......... S-55
Backup Withholding and Information
Reporting........................... S-56
ERISA Considerations.................... S-57
Plan Asset Regulation................. S-57
Prohibited Transaction Exemptions..... S-58
Insurance Company General Accounts.... S-58
Consultation with Counsel............. S-59
Supplemental Plan of Distribution....... S-60
Ratings................................. S-60
Validity of the Certificates............ S-61
Index of Defined Terms.................. S-62
</Table>
PROSPECTUS
<Table>
Important Notice about Information
Presented in this Prospectus and the
Applicable Prospectus Supplement..... 1
Risk Factors........................... 2
Where You Can Find More Information.... 5
Incorporation of Documents By
Reference............................ 5
Reports to Holders of Certificates..... 5
The Depositor.......................... 6
Use of Proceeds........................ 6
Formation of the Trusts................ 6
Description of the Certificates........ 8
Nature of the Certificates........... 9
</Table>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<Table>
Terms Specified in the Prospectus
Supplement......................... 9
Distributions........................ 11
Interest on the Certificates......... 12
Stripped Certificates................ 14
Principal of the Certificates........ 14
Foreign Currency Certificates........ 14
Inability to Pay in Specified
Currency........................... 15
Indexed Certificates................. 15
Multi-Currency Certificates.......... 16
Put Option........................... 16
Transfers and Exchanges.............. 16
Global Securities; Holdings in Street
Name............................... 16
Trust Liquidation Events............... 19
Maturity and Yield Considerations...... 19
Description of the Trust Assets,
including Credit Support............. 20
Underlying Securities................ 20
Principal Economic Terms of
Underlying Securities.............. 23
Publicly Available Information....... 23
Other Trust Assets................... 24
Collections.......................... 27
Description of the Trust Agreement..... 29
Assignment of Trust Assets........... 29
Collection and Other Administrative
Procedures......................... 29
Realization upon Defaulted Trust
Assets............................. 29
Trustee's Compensation; Payment of
Expenses........................... 30
Matters Regarding the Trustee........ 30
Remedies of Certificate Holders...... 30
Modification and Waiver.............. 31
Reports to Certificate Holders;
Notices............................ 32
Annual Compliance Statement.......... 33
Replacement Certificates............. 33
Retained Interest.................... 34
Retained Call Option and Retained
Call Rights........................ 34
Termination.......................... 34
Duties of the Trustee................ 35
The Trustee.......................... 35
Currency Risks......................... 36
Exchange Rates and Exchange
Controls........................... 36
Foreign Currency Judgments........... 36
United States Federal Income Tax
Consequences......................... 38
Certain ERISA Considerations........... 38
Plan of Distribution................... 40
Validity of the Certificates........... 42
Index of Defined Terms................. 43
</Table>
ii
- --------------------------------------------------------------------------------
Important Notice about Information Presented in this Prospectus Supplement and
the Attached Prospectus
We provide information to you about the certificates in two separate documents
that provide progressively more detail: (i) the attached prospectus, which
provides general information, some of which may not apply to your series of
certificates, and (ii) this prospectus supplement, which describes the specific
terms of your series of certificates.
If the description of your certificates in this prospectus supplement is
different from the description in the attached prospectus, you should rely on
the description in this prospectus supplement.
We include cross-references in this prospectus supplement and the attached
prospectus to captions in these materials where you can find further related
discussions. The table of contents in each document provides the pages on which
these captions are located.
You can find a listing of the pages where terms are defined under the caption
"Index of Defined Terms" beginning on page S-56 of this prospectus supplement
and beginning on page 43 of the attached prospectus.
The depositor has filed with the Securities and Exchange Commission a
registration statement with respect to the certificates (of which this
prospectus supplement and the attached prospectus form a part) under the
Securities Act of 1933. This prospectus supplement and the attached prospectus
do not contain all of the information contained in the registration statement.
For further information regarding the documents referred to in this prospectus
supplement and the attached prospectus, you should refer to the registration
statement and its exhibits. See the section called, "Where You Can Find More
Information" in the attached prospectus.
We are incorporating by reference into this prospectus supplement and the
attached prospectus any future SEC reports that we file on behalf of the trust
under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
after the date of this prospectus supplement and before we terminate our
offering of the certificates. These documents may include Annual Reports on Form
10-K and Current Reports on Form 8-K. Information that we file later with the
SEC will automatically update the information in this prospectus supplement and
the attached prospectus. In all cases, you should rely on the later information
over different information included in this prospectus supplement or the
attached prospectus.
As a recipient of this prospectus supplement and the attached prospectus, you
may request a copy of any document we incorporate by reference, except exhibits
to the documents (unless the exhibits are specifically incorporated by
reference), at no cost, by writing or calling us at: Corporate Asset Backed
Corporation, 445 Broad Hollow Road, Suite 239, Melville, New York 11747, (631)
587-4700.
S-1
Summary of Principal Economic Terms
This summary highlights the principal economic terms of the certificates being
issued by the trust and of the Underlying Securities. It does not contain all of
the information that you should consider in making your investment decision. To
understand the terms of the offering of the certificates, you should read this
prospectus supplement and the attached prospectus carefully and in full.
THE TRUST
The trust.................. Corporate Asset Backed Corporation, the depositor,
and U.S. Bank Trust National Association, as
trustee, will form the CABCO Series 2004-101 Trust
(Goldman Sachs Capital I) under a trust agreement
to be dated as of the closing date, or the trust
agreement.
Trustee.................... U.S. Bank Trust National Association.
Trust assets............... The trust assets will consist of (i) the Underlying
Securities (exclusive of interest accrued from and
including February 20, 2004, to, but excluding, the
closing date, which has been retained by the
depositor), (ii) all payments on or collections in
respect of the Underlying Securities due on and
after the closing date (subject to the trust's
obligations to the swap counterparty under the swap
agreement that the depositor will assign to the
trust) and (iii) the rights of the trust under the
swap agreement (subject to the trust's obligations
to the swap counterparty under the swap agreement
that the depositor will assign to the trust). See
"Description of the Underlying Securities" and
"Description of the Swap Agreement" below.
THE CERTIFICATES
Certificates offered....... The trust will issue one class of Series 2004-101
floating rate callable certificates, consisting of
$-- aggregate certificate principal balance of
certificates, all of which are offered by this
prospectus supplement.
Initial aggregate
certificate principal
balance.................. $--.
Original issue date and
closing date --, 2004.
Final distribution date.... February 15, 2034
Interest rate.............. For the first interest accrual period, from and
including the closing date to, but excluding, the
first distribution date, interest will be payable
at the rate of --% per annum (--%, three-month USD
LIBOR as of --, 2004 plus --%). Thereafter,
interest will be reset quarterly and will be
payable on each distribution date at a floating
rate, not to exceed --% per annum, equal to the
greater of (i) three-month USD LIBOR plus --% and
(ii) --%. Following the occurrence of a swap
agreement termination event that is not a trust
termination event, interest will be payable at a
fixed rate equal to 6.345% per annum.
S-2
LIBOR determination date... For each interest accrual period, the second London
banking day preceding the commencement of such
interest accrual period.
Interest distribution
amount..................... With respect to each distribution date, holders of
the certificates will receive an interest
distribution amount equal to the product of (x) the
then outstanding certificate principal balance, (y)
the interest rate for the preceding interest
accrual period and (z) the actual number of days in
such interest accrual period divided by 360;
provided, however, that during the continuance of
an extension period with respect to the Underlying
Securities, interest will continue to accrue on the
principal balance of the certificates (and on any
interest that is due), but such interest will not
be distributed to holders of the certificates until
the extension period ends.
Principal distribution..... Principal in respect of the certificates will be
paid to holders of the certificates following the
trust's receipt of any principal payments in
respect of the Underlying Securities following:
- any redemption or repurchase of or an
unscheduled payment on the Underlying
Securities by the Underlying Securities
Issuer;
- any liquidation of the Underlying Securities
following an Underlying Securities payment
default, an Underlying Securities bankruptcy
default, a SEC reporting failure, a trust
swap payment default or a trust regulatory
event; or
- the maturity of the Underlying Securities.
Distribution dates......... Quarterly on the fifteenth day of February, May,
August and November or if any such date is not a
business day, then the next succeeding business
day, commencing -- , 2004. Following the
occurrence of any swap agreement termination event
that is not also a trust termination event,
distributions will be made on the distribution
dates in February and August.
Record dates............... The day immediately preceding each distribution
date, whether or not a business day.
The call options........... As a condition to its initial purchase of
certificates, UBS Securities LLC will grant to the
depositor call options to repurchase each of the
certificates, and as a purchaser of the
certificates, your ownership of the certificates
will be subject to those call options. The price to
be paid if the call options are exercised will be
equal to the outstanding certificate principal
balance of the certificates purchased plus any
accrued and unpaid interest.
The holder of the call options may exercise its
call options to purchase all of your certificates
(i) on or after -- , 2009, (ii) at any time
following the occurrence of an Underlying
Securities payment default, an Underlying
Securities bankruptcy default, a SEC reporting
failure, a trust swap payment default or a trust
regulatory event or (iii) at any time in connection
with a tender offer for, a redemption or repurchase
of or an unscheduled payment on the Underlying
Securities. See "Description of the
Certificates--The Call Options" below.
S-3
You will not have the right to require any person
to purchase or redeem the certificates at any time.
The holder of the call options has the right to
assign its rights under the call options to any
person other than the depositor.
Denominations; specified
currency................. The certificates will be denominated and payable in
U.S. dollars, the specified currency. The
certificates will be available for purchase in
minimum denominations of $25.00 and multiples of
$25.00.
Interest accrual periods... With respect to the first distribution date, the
period from and including the closing date to, but
excluding, the first distribution date and
thereafter, with respect to each distribution date,
the period from and including the preceding
distribution date to but excluding such current
distribution date.
GS Group may defer the payment of interest on the
GS junior subordinated debentures at any time and
in each case for up to 10 semi-annual consecutive
interest periods, provided that (i) no extension
period may extend beyond the stated maturity date
of the GS junior subordinated debentures; and (ii)
GS Group is not in default under the subordinated
debt indenture governing the GS junior subordinated
debentures. If there is a deferral, the Underlying
Securities Issuer also will defer distributions on
the Underlying Securities. Before any extension
period ends, GS Group may elect to extend the
period further. At the end of any extension period
and the payment of all interest then accrued and
unpaid, GS Group may elect to begin a new extension
period. There is no limitation on the number of
extension periods. If GS Group does this, then
interest distributions on the certificates will
stop being made until GS Group pays interest on the
junior subordinated debentures and the Underlying
Securities Issuer pays interest on the Underlying
Securities again.
Form of certificates....... Book-entry securities with The Depository Trust
Company.
Exchange listing........... The depositor intends to apply to list the
certificates on the New York Stock Exchange. If the
application is approved, trading of the
certificates on the New York Stock Exchange is
expected to begin within 30 days after the initial
delivery of the certificates.
Ratings.................... It is anticipated that the certificates will be
assigned a rating of A2 by Moody's Investors
Service, Inc., or Moody's and a rating of A- by
Standard & Poor's Rating Services, a division of
The McGraw-Hill Companies, Inc., or Standard &
Poor's. As of the date of this prospectus
supplement, the Underlying Securities are rated A1
by Moody's and A- by Standard & Poor's. The trust
will not issue the certificates unless the
certificates have received these ratings. See
"Ratings" below.
THE SWAP AGREEMENT
Swap agreement............. On the date of this prospectus supplement, the
depositor will enter into an ISDA Master Agreement
(including the schedule thereto) and a confirmation
thereunder with the swap counterparty,
S-4
pursuant to which the depositor will agree to
exchange interest payments (including any accrued
and unpaid interest and any interest on such
accrued and unpaid interest) due on the Underlying
Securities for payments of the interest
distribution amount and, if applicable, deferred
interest from the swap counterparty that will be
passed through to the holders of the certificates.
The swap counterparty, under the swap agreement,
will also agree to make a one time payment to the
depositor immediately upon the execution of the
swap agreement. The depositor will retain the one
time payment but, on the closing date, the
depositor will assign all its other rights and
obligations under the swap agreement to the trust.
For purposes of this prospectus supplement, any
rights and obligations the trust has under the swap
agreement assumes that the depositor has assigned
the swap agreement to the trust.
Swap counterparty.......... The London Branch of UBS AG will serve as the swap
counterparty.
The swap counterparty currently has a long-term
debt rating of AA+ from Moody's and AA2 from
Standard & Poor's.
Swap payments by the
trust...................... Provided no swap agreement termination event shall
have occurred, all interest payments (including any
accrued and unpaid interest and any interest on
such accrued and unpaid interest) received by the
trustee on the Underlying Securities will be paid
by the trustee to the swap counterparty on each
Underlying Securities payment date; provided,
however, that any accrued interest on the
Underlying Securities from and including February
20, 2004, to, but excluding, the closing date, will
be payable to the depositor.
Swap payments by the swap
counterparty............. Provided no swap agreement termination event shall
have occurred, on each distribution date and on the
final distribution date, an amount equal to the
interest distribution amount and upon termination
of any extension period an amount equal to the
deferred interest will be paid by the swap
counterparty to the trust; provided, however, that
the swap counterparty will not be obligated to make
any payments to the trust during the continuance of
an extension period with respect to the Underlying
Securities.
Payment currency........... United States Dollars.
Calculation agent.......... The London Branch of UBS AG.
Early termination of the
swap agreement............. The swap agreement will terminate following the
occurrence of various swap agreement termination
events, which are further described under
"Description of the Swap Agreement--Events of
Default and Termination Events" below.
Following a swap agreement termination event that
is not a trust termination event, (i) there will be
no early termination payment payable by either
party to the swap agreement, (ii) the obligations
of the swap counterparty and the trust under the
swap agreement will terminate and (iii)
distributions will be made to the holders of the
certificates on a semi-annual basis on the
distribution dates in
S-5
February and August of each year. Following any
swap agreement termination event that is not a
trust termination event, on each distribution date
in February and August, the holders of the
certificates will receive a pro rata share of any
interest payments received by the trust in respect
of the Underlying Securities, which will cause the
yield on the certificates to be based on the 6.345%
fixed annual rate payable on the Underlying
Securities, instead of the floating rate interest
distribution amount payable prior to such swap
termination event. Following a swap agreement
termination event that is also a trust termination
event, an early termination payment will be payable
under the swap agreement. Additionally, following a
partial swap termination event, an early
termination payment will be payable under the swap
agreement based on the percentage of the swap
notional amount being terminated but, the trust
will only be obligated to make such early
termination payment that it owes to the swap
counterparty to the extent it has funds available
therefore on the related distribution date.
In the event the Underlying Securities are
liquidated as a result of an Underlying Securities
payment default, an Underlying Securities
bankruptcy default, a SEC reporting failure, a
trust swap payment default or a trust regulatory
event, the early termination payment payable by the
trust to the swap counterparty (if any is then
payable) will be deducted from the liquidation
proceeds payable to the holders of the
certificates. If any early termination payment is
payable by the swap counterparty to the trust (if
any is then payable), the amount of such payment
will be added to the proceeds payable to the
holders of the certificates.
In the event the Underlying Securities are
redeemed, repurchased or repaid, in whole or in
part, prior to their maturity, the early
termination payment payable by the trust (if any is
then payable) to the swap counterparty will be paid
only after the holders of the certificates have
received an amount equal to (i) the principal
balance of the certificates being redeemed, (ii)
accrued and unpaid interest thereon and (iii) the
make-whole amount, if any.
See "Description of the Swap Agreement--Events of
Default and Termination Events" and "--Payments
Upon Early Termination" below.
UNDERLYING SECURITIES
Underlying Securities
Issuer..................... Goldman Sachs Capital I.
Underlying Securities...... $ -- in principal amount of 6.345% Capital
Securities, exclusive of interest accrued from and
including February 20, 2004, to, but excluding, the
closing date, which has been retained by the
depositor. Each Underlying Security represents an
undivided preferred beneficial interest in the
assets of the Underlying Securities Issuer. The
Underlying Securities Issuer used the proceeds from
the sale of its capital securities and its common
securities to purchase 6.345% junior subordinated
debentures due February 15, 2034, or the GS junior
subordinated debentures issued by The Goldman Sachs
Group, Inc., or GS Group. The Underlying
S-6
Securities Issuer will pass through to the holders
of the Underlying Securities as distributions the
interest payments it receives from GS Group on the
GS junior subordinated debentures.
Underlying Securities
original issue date........ February 20, 2004.
Underlying Securities
maturity date.............. The Underlying Securities have no stated maturity
but must be redeemed upon the maturity of the GS
junior subordinated debentures or their earlier
redemption. The GS junior subordinated debentures
will mature on February 15, 2034.
Underlying Securities
denominations and
currency................. The Underlying Securities are denominated and
payable in U.S. dollars and are available in
minimum denominations of $1,000 and multiples of
$1,000.
Underlying Securities
interest payment
frequency................ Semi-annually.
Underlying Securities
payment dates.............. Distributions on the Underlying Securities will be
cumulative from February 20, 2004 and will be
payable semi-annually in arrears on February 15 and
August 15 of each year, beginning August 15, 2004.
Underlying Securities
interest rate; interest
deferral................. 6.345% per annum. GS Group may defer the payment of
interest on the GS junior subordinated debentures
at any time and in each case for up to 10
semi-annual consecutive interest periods, or an
extension period, provided that (i) no extension
period may extend beyond the stated maturity date
of the GS junior subordinated debentures; and (ii)
GS Group is not in default under the subordinated
debt indenture governing the GS junior subordinated
debentures. If there is a deferral, the Underlying
Securities Issuer also will defer distributions on
the Underlying Securities. Before any extension
period ends, GS Group may elect to extend the
period further. At the end of any extension period
and the payment of all interest then accrued and
unpaid, GS Group may elect to begin a new extension
period. There is no limitation on the number of
extension periods.
Underlying Securities
ratings.................... A1 by Moody's and A- by Standard & Poor's.
Guarantor of the Underlying
Securities............... GS Group.
Guarantee.................. GS Group will fully and unconditionally guarantee,
on a subordinated basis, payments of amounts due on
the Underlying Securities but will not guarantee
payment of distributions or amounts payable on
redemption or liquidation of the Underlying
Securities when the Underlying Securities Issuer
does not have funds available to make such
payments.
Priority................... The Underlying Securities will rank (i) equally,
and payments on them will be made pro rata, with
the common securities of the
S-7
Underlying Securities Issuer, (ii) junior to all
the senior indebtedness and most of the senior
subordinated debt of GS Group, and (iii) senior to
the common stock of GS Group. However, the
Underlying Securities will rank senior to the
common securities of the Underlying Securities
Issuer as to payment if and so long as GS Group
fails to make a principal or interest payment on
the GS junior subordinated debentures when due.
Optional redemption........ The Underlying Securities Issuer may redeem the
Underlying Securities, in whole at any time or in
part from time to time, provided that no partial
redemption may occur when distributions are
deferred.
In addition, the Underlying Securities Issuer may
elect to redeem the Underlying Securities, in whole
but not in part, at any time upon the occurrence of
(i) changes in U.S. federal income tax laws or
regulations that could have adverse tax
consequences for GS Group or the Underlying
Securities Issuer; or (ii) changes in laws or
regulations that pose more than an insubstantial
risk that the Underlying Securities Issuer will be
required to register as an "investment company"
under the Investment Company Act of 1940. In each
case, the redemption price will include a
make-whole amount, plus accumulated and unpaid
distributions to the redemption date. The
make-whole amount will be smaller if the redemption
is due to a tax or regulatory event than if it is
not. See "Description of the Underlying
Securities--Optional Redemption" below.
Underlying Securities trust
agreement................ The Underlying Securities have been issued pursuant
to a trust agreement, dated as of January 20, 2004,
among GS Group, as depositor of the Underlying
Securities, and the Bank of New York (Delaware), as
trustee, or the Underlying Securities trust
agreement.
Underlying Securities
trustee.................... The Bank of New York (Delaware).
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
United States federal
income tax consequences.... In the opinion of Sullivan & Cromwell LLP, special
federal tax counsel to the depositor, for United
States federal income tax purposes, (a) the trust
will be classified as a grantor trust, and not as
an association or publicly traded partnership
taxable as a corporation, and (b) the certificates
will be treated as evidencing a pro rata interest
in the trust assets. See "United States Taxation"
below.
The terms of the certificates require an initial
holder of the certificates to make an integration
election (as defined under "United States
Taxation--Initial Certificateholders" below) with
respect to the certificates. The only action you
need to take in order to make an integration
election is for you to retain in your books and
records certain information with respect to the
integration election that will be sent to you along
with the confirmation of your purchase of the
certificates. See "United States Taxation--Initial
Certificateholders" below.
S-8
Summary of Prospectus Supplement
The following summary highlights selected information from this prospectus
supplement and the attached prospectus and is qualified in its entirety by
reference to the detailed information appearing elsewhere in this prospectus
supplement and the attached prospectus. You should carefully read this entire
prospectus supplement and the attached prospectus to understand the terms of the
certificates, the risk factors and the principal tax and other considerations
that are important to you to determine whether an investment in the certificates
is appropriate for you.
Depositor.................. Corporate Asset Backed Corporation, a Delaware
corporation that is an indirect, wholly-owned
limited purpose subsidiary of UBS AG and an
affiliate of the underwriter. The principal
executive office of the depositor is located at 445
Broad Hollow Road, Suite 239, Melville, New York
11747 (Telephone: (631) 587-4700).
Certificates............... The trust will issue one class of Series 2004-101
floating rate callable certificates pursuant to a
trust agreement on the closing date. The
certificates will represent, in the aggregate, the
entire undivided beneficial ownership interest in
the assets of the trust. The certificates do not
constitute an obligation of the depositor or any
other party.
Each certificate will have an initial certificate
principal balance of $25.00. The certificate
principal balance of a certificate is the share of
payments on the Underlying Securities that you are
entitled to receive as a distribution allocable to
principal on the final distribution date or upon
any earlier redemption of the Underlying
Securities.
The certificates are expected to trade flat. This
means that any accrued and unpaid interest on the
certificates will be reflected in the trading
price, and purchasers will not pay and sellers will
not receive any accrued and unpaid interest on the
certificates not included in the trading price.
Underlying Securities...... The Underlying Securities will consist of $--
aggregate principal amount of the publicly tradable
6.345% Capital Securities issued by the Underlying
Securities Issuer. As used in this prospectus
supplement, unless the context otherwise requires,
"Underlying Securities" means these securities,
exclusive of interest accrued from and including
February 20, 2004, to, but excluding, the closing
date, which has been retained by the depositor.
Interest accrues on the Underlying Securities at a
rate of 6.345% per annum and is payable on each
February 15 and August 15. The Underlying
Securities have no stated maturity but must be
redeemed upon the maturity of the GS junior
subordinated debentures or their earlier
redemption. The GS junior subordinated debentures
will mature on February 15, 2034. On the closing
date, the GS junior subordinated debentures will
have a remaining term to maturity of approximately
30 years.
GS Group has the right to defer payments of
interest on the GS junior subordinated debentures
for up to 10 semi-annual consecutive interest
periods as described under "Description of the
Underlying Securities--Interest Payments" below.
S-9
The Underlying Securities Issuer is a Delaware
statutory trust created solely for the purpose of
issuing capital securities to investors and trust
common securities to GS Group and investing the
aggregate proceeds in an equivalent amount of GS
Group's junior subordinated debentures. The GS
junior subordinated debentures will be the sole
assets of the Underlying Securities Issuer. GS
Group is a leading global investment banking,
securities and investment management firm that
provides a wide range of services worldwide to a
substantial and diversified client base that
includes corporations, financial institutions,
governments and high net worth individuals.
Swap agreement............. On the date of this prospectus supplement, the
depositor will enter into the swap agreement with
the swap counterparty pursuant to which the
depositor will agree to exchange interest payments
(including any accrued and unpaid interest and any
interest on such accrued and unpaid interest) due
on the Underlying Securities for payments of the
interest distribution amount and, if applicable,
deferred interest from the swap counterparty that
will be passed through to the holders of the
certificates. The swap counterparty, under the swap
agreement, will also agree to make a one time
payment to the depositor immediately upon the
execution of the swap agreement. The depositor will
retain the one time payment but, on the closing
date, the depositor will assign all its other
rights and obligations under the swap agreement to
the trust.
Interest distributions..... Except as provided below, holders of the
certificates will be entitled to receive on each
distribution date, to the extent of available
interest funds, distributions of the interest
distribution amount.
Principal distribution..... On the final distribution date, the trustee will
distribute pro rata to holders of the certificates
an amount equal to the then outstanding certificate
principal balance plus any accrued and unpaid
interest; provided, however, that the certificates
are subject to redemption prior to the final
distribution date, as a result of (i) any
redemption or repurchase of or other unscheduled
payment on the Underlying Securities by the
Underlying Securities Issuer or (ii) any
liquidation of the Underlying Securities as a
result of an Underlying Securities payment default,
an Underlying Securities bankruptcy default, a SEC
reporting failure, a trust swap payment default or
a trust regulatory event. See "Description of the
Certificates--The Certificates--Principal
Distribution", "Description of the
Certificates--SEC Reporting Failure," and
"Description of the Swap Agreement--Events of
Default and Termination Events" below.
Redemptions, tenders and
other repurchases.......... As noted under "Summary of Principal Economic
Terms--Underlying Securities," above, the
Underlying Securities Issuer has the right to
redeem the Underlying Securities at any time, and
may make tenders for or other repurchases of or
unscheduled payments on the Underlying Securities.
Redemptions................ If the Underlying Securities Issuer redeems some or
all of the Underlying Securities, then a
corresponding portion of the certificates will be
redeemed. If there is a partial redemption or
S-10
repurchase of or unscheduled payment on the
Underlying Securities, then the certificates will
be selected for redemption pro rata based on the
certificate principal balance of the certificates,
except that no fractional repurchases of
certificates will be made.
Assuming the Underlying Securities Issuer makes
payments when due, on the third business day after
the trustee receives the proceeds of any full or
partial redemption or repurchase of or unscheduled
payment on the Underlying Securities held by the
trust, the proceeds will be distributed, as
follows:
- first, to the holders of the certificates, in an
amount equal to the sum of (a) the principal
amount of the Underlying Securities so redeemed
or repaid, (b) a make-whole amount, if any and
(c) any accrued and unpaid interest on the amount
of certificates so redeemed or repaid, and
- any remainder shall be paid to the swap
counterparty.
See "Description of the Certificates--The
Certificates--Principal Distribution."
If the Underlying Securities are redeemed, the
option holder is likely to call the certificates to
be redeemed and, as a result, to receive most or
all of the make-whole amount described above.
Tenders and other
repurchases................ If the Underlying Securities Issuer announces its
intention to tender for or otherwise make a
repurchase of the Underlying Securities, or if a
third party announces its intention to tender for
the Underlying Securities, the trustee will be
required not to accept any such tender offer or
repurchase offer, except in connection with the
exercise of the call options as set forth below, or
if the call options are not exercised, upon the
unanimous vote of the holders of the certificates.
If such an offer is made, it is likely that the
holder of the call options will exercise the call
options, and will receive any make-whole amount
paid in the offer, as described under "--Effect of
Call Options" below. If the call options are not
exercised and the trustee does accept any tender
offer or repurchase offer, then the proceeds of the
tender offer or repurchase offer will be
distributed in the same manner as described under
"--Redemptions" above.
Effect of call options..... As described above, if the call options are not
exercised, upon any redemption, repayment,
repurchase or tender offer for the Underlying
Securities, the holder of the certificates will be
entitled to receive a pro rata share of any
make-whole amount. However, if the Underlying
Securities are redeemed, repurchased, repaid or
purchased in a third party tender offer and the
call options are exercised you will only have the
right to receive the call price for the
certificates equal to their certificate principal
balance plus any accrued but unpaid interest.
The trust.................. The trust will be established by Corporate Asset
Backed Corporation and designated as the CABCO
Series 2004-101 Trust (Goldman Sachs Capital I).
The trust will be a common law trust formed under
the laws of New York, and U.S. Bank Trust National
S-11
Association will be the trustee of the trust. The
assets of the trust will consist of (i) the
Underlying Securities (exclusive of interest
accrued from and including February 20, 2004, to,
but excluding, the closing date, which has been
retained by the depositor), (ii) all payments on or
collections in respect of the Underlying Securities
due on and after the closing date (subject to the
trust's obligations to the swap counterparty under
the swap agreement that the depositor will assign
to the trust) and (iii) the rights of the trust
under the swap agreement (subject to the trust's
obligations to the swap counterparty under the swap
agreement that the depositor will assign to the
trust).
The call options........... As a condition to its initial purchase of
certificates, UBS Securities LLC will grant to the
depositor call options to purchase each of the
certificates, and as a purchaser of the
certificates, your ownership of the certificates
will be subject to those call options. After the
call options are granted, the depositor will sell
the call options to the swap counterparty through
UBS Securities LLC, as agent.
The holder of the call options may exercise its
call options to purchase certificates (i) on or
after --, 2009, (ii) at any time following the
occurrence of an Underlying Securities payment
default, an Underlying Securities bankruptcy
default, a SEC reporting failure, a trust swap
payment default or a trust regulatory event, or
(iii) at any time in connection with a tender offer
for, a redemption or repurchase of or an
unscheduled payment on the Underlying Securities.
U.S. Bank Trust National Association will act as
your agent, or the option agent, with respect to
the call options.
The price that the option holder must pay you to
purchase your certificates will be equal to the
outstanding certificate principal balance of the
certificates purchased plus any accrued and unpaid
interest.
The holder of the call options may exercise the
call options only if:
- it exercises the call options with respect to
all of the certificates outstanding; provided,
however, that in connection with a partial
tender for, a partial redemption or repurchase
of the Underlying Securities, it exercises the
call options with respect to the certificates
equal to the aggregate principal amount of
Underlying Securities being tendered or
redeemed; and
- it gives the trustee and the option agent at
least 15 calendar days' notice and not more
than 60 calendar days' notice of exercise.
However, the holder of the call options may
give notice of its intention to exercise its
call options in connection with an Underlying
Securities payment default, an Underlying
Securities bankruptcy default, a SEC reporting
failure, a trust swap payment default or a
trust regulatory event, two business days prior
to the call date and the holder of the call
options may give notice of its intention to
exercise its call options in connection with a
tender offer for, redemption or repurchase of
or unscheduled payment on the Underlying
Securities, no later
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than seven business days prior to the
expiration of the tender offer acceptance
period.
If the holder of the call options exercises the
call options, the option agent will remit the
amount of the call price received to the trustee
for payment to the certificate holders whose
certificates are called. The trustee will transfer
your called certificates from you to the option
holder without your taking any action. The called
certificates will then be cancelled by the trustee
without any action by you. If you are holding your
certificates in definitive physical form, your
called certificates will be cancelled without your
taking any action, but you will not receive the
purchase price for your certificates until you
deliver your called certificates to the trustee. If
the called certificates represent all the
certificates outstanding, the trustee will
liquidate the Underlying Securities, remit the
liquidation proceeds to the option holder and
terminate the trust.
The holder of the call options has the right to
assign its rights under the call options to any
person other than the depositor.
If the call options are exercised with respect to
less than all the certificates, the certificates to
be purchased will represent a pro rata portion of
the certificates held by each certificate holder,
except that purchases of a fraction of a single
certificate will not be made, and the trustee may
round up or down to avoid such fractional
purchases.
Termination of the trust... By its terms, the trust will terminate 30 days
after the final distribution of all amounts due in
respect of the Underlying Securities, or of the
Underlying Securities themselves, to holders of the
certificates.
Ratings.................... The trust will not issue the certificates unless
the certificates have the ratings specified above
under "Summary of Principal Economic Terms--The
Certificates--Ratings." The ratings address the
likelihood of the receipt by holders of the
certificates of the payments required under the
trust agreement (subject to the trust's obligations
under the swap agreement), and are based primarily
on the credit quality of the swap counterparty and
the Underlying Securities. The ratings are 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, and each
rating should be evaluated independently of any
other rating. The ratings do not address the
occurrence or frequency of redemptions or
prepayments on, or extensions of the maturity of,
the Underlying Securities, or the probability that
the call options will be exercised, or the
corresponding effect of those events on the yield
to investors. See "Ratings" below.
Listing or quotation of
certificates............. The depositor intends to apply to list the
certificates on the New York Stock Exchange. If the
application is approved, trading of the
certificates on the New York Stock Exchange is
expected to commence within a 30-day period after
the initial delivery of the certificates. See
"Supplemental Plan of Distribution" below.
S-13
You should be aware that the listing or quotation
of the certificates on the New York Stock Exchange
will not ensure that a liquid trading market will
be available for the certificates.
Underwriter................ UBS Securities LLC is the sole underwriter for the
offering and sale of the certificates. After the
initial offering, UBS AG, UBS Securities LLC, UBS
Financial Services Inc. and/or other affiliates of
UBS AG intend to buy and sell the certificates to
create a secondary market for the holders of the
certificates and may engage in other activities
described in the section "Supplemental Plan of
Distribution" below. However, none of UBS AG, UBS
Securities LLC, UBS Financial Services Inc. nor any
other affiliates of UBS AG will be obligated to
make a secondary market in the certificates, or to
continue secondary market activities once started.
See "Risk Factors" below.
United States federal
income tax consequences.... In the opinion of Sullivan & Cromwell LLP, special
federal tax counsel to the depositor, for United
States federal income tax purposes, (i) the trust
will be classified as a grantor trust, and not as
an association or publicly traded partnership that
is taxable as a corporation, and (ii) a
certificateholder will be treated as if it owned
directly its pro rata share of the assets held by
the trust. See "United States Taxation" below.
ERISA considerations....... Employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, as amended,
or ERISA, and individual retirement accounts, Keogh
plans and other similar plans (each, a "plan") can
generally purchase the certificates. However, each
plan should consider whether the purchase of the
certificates is prudent and consistent with the
documents governing the plan. The fiduciary rules
governing plans are complex and individual
considerations may apply to a particular account.
Accordingly, any fiduciary of any plan should
consult with its legal advisers to determine
whether the purchase of the certificates is
permissible under the fiduciary rules. In addition,
by acquiring and holding a certificate, a plan will
be deemed to have represented and warranted that
the acquisition and holding of such certificate
does not involve a non-exempt prohibited
transaction with respect to the plan under Section
406 of ERISA or section 4975 of the Internal
Revenue Code. See "ERISA Considerations" below.
Risk factors............... There are a number of risks associated with any
investment in the certificates. See the sections
entitled "Risk Factors" in this prospectus
supplement and in the attached prospectus.
S-14
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Risk Factors
You should consider, among other things, the material risk factors described
below and the additional risk factors described in the attached prospectus in
deciding whether to purchase certificates.
YOUR CERTIFICATES WILL REPRESENT AN INTEREST IN THE ASSETS OF THE TRUST ONLY AND
WILL NOT REPRESENT AN OBLIGATION OF OR INTEREST IN THE DEPOSITOR, THE TRUSTEE OR
ANY OF ITS AFFILIATES. THE PERFORMANCE OF THE UNDERLYING SECURITIES WILL AFFECT
THE VALUE OF YOUR INVESTMENT AND YOU WILL EXPERIENCE A LOSS IF LOSSES ARE
EXPERIENCED ON THE TRUST ASSETS.
Your certificates will represent an interest in the assets of the trust only and
will not represent an obligation of or interest in the depositor, the trustee or
any of its affiliates. The trust has no significant assets other than (i) the
Underlying Securities (exclusive of interest accrued from and including February
20, 2004, to, but excluding, the closing date, which has been retained by the
depositor), (ii) all payments on or collections in respect of the Underlying
Securities due on and after the closing date (subject to the trust's obligations
to the swap counterparty under the swap agreement) and (iii) the rights of the
trust under the swap agreement (subject to the trust's obligations to the swap
counterparty under the swap agreement). No other assets are available to make
payments or distributions with respect to your certificates. None of the
depositor, the trustee, the swap counterparty, the underwriter or any of their
affiliates is obligated to make any payments in respect of your certificates if
the payments on the Underlying Securities are insufficient or not made when due.
Consequently, if losses are experienced on the Underlying Securities, you will
experience a loss on your investment. Accordingly, you are strongly encouraged
to obtain as much information about the Underlying Securities as you would if
you were investing directly in the Underlying Securities. This prospectus
supplement provides only the basic terms of the Underlying Securities and refers
you to publicly available information about the Underlying Securities Issuer and
GS Group.
NO DUE DILIGENCE INVESTIGATION OF THE UNDERLYING SECURITIES, THE UNDERLYING
SECURITIES ISSUER OR GS GROUP HAS BEEN MADE BY THE DEPOSITOR, THE UNDERWRITER,
THE SWAP COUNTERPARTY OR THE TRUSTEE.
None of the depositor, the underwriter, the swap counterparty, the trustee or
any of their affiliates has made, or will make, any investigation of the
business condition, financial or otherwise, of the Underlying Securities Issuer
or GS Group or will verify any reports or information filed by GS Group with the
SEC or otherwise made available to the public. You should not construe the
issuance of the certificates as an endorsement of the financial condition or
business prospects of GS Group by the depositor, the underwriter, the swap
counterparty, the trustee or any of their affiliates. It is strongly recommended
that you consider publicly available financial and other information about GS
Group as if you were investing directly in GS Group and its securities. However,
the depositor, the underwriter, the swap counterparty, the trustee and their
affiliates (i) have not verified, and have not undertaken to verify, the
accuracy, completeness or continued availability of any information by GS Group
(whether or not filed with the SEC), (ii) have made no investigation of the
financial condition or creditworthiness of GS Group, and (iii) assume no
responsibility for any information considered by any purchaser or potential
purchaser of the certificates that is not contained in this prospectus
supplement or the attached prospectus.
S-15
RISK FACTORS
- --------------------------------------------------------------------------------
YOU MAY SUFFER LOSSES AS A RESULT OF ANY SWAP EARLY TERMINATION PAYMENT OR THE
LIQUIDATION OF THE UNDERLYING SECURITIES.
Upon the occurrence of any liquidation of the Underlying Securities as a result
of an Underlying Securities payment default, an Underlying Securities bankruptcy
default, a SEC reporting failure, a trust swap payment default or a trust
regulatory event, you will not receive any distributions payable to you until
after the payment of the early termination payment (if any is then payable) to
the swap counterparty. Unless the proceeds received from the liquidation of the
Underlying Securities are sufficient to pay any early termination payment plus
the certificate principal balance and accrued and unpaid interest then due on
the certificates, you will suffer a loss as a result of such early termination
payment and such liquidation. This loss could be quite substantial in relation
to the total value of your certificates. See "Description of the
Certificates--The Certificates--Interest Distributions" and "--Principal
Distribution" below.
THE ABILITY OF THE UNDERLYING SECURITIES ISSUER TO MAKE PAYMENTS MAY BE AFFECTED
BY THE SUCCESS OF GS GROUP'S BUSINESS PLANS, ECONOMIC DEVELOPMENTS AND OTHER
FACTORS.
Financial difficulties experienced by GS Group could cause delays in payment,
partial payment or nonpayment on the Underlying Securities and your
certificates. Furthermore, the business of GS Group is vulnerable to adverse
business conditions, such as economic factors and increased market competition,
all of which may affect payment on the Underlying Securities, and in turn, on
your certificates. GS Group is subject to laws permitting bankruptcy,
moratorium, reorganization and other actions. If GS Group does not make payment
on the GS junior subordinated debentures, the Underlying Securities Issuer will
not have sufficient funds to make payment on the Underlying Securities and as a
result, the swap counterparty will not be obligated to make any payments to the
trust and you will bear the losses arising from the resulting nonpayment on the
certificates.
THE UNDERLYING SECURITIES ISSUER MAY REDEEM OR REPURCHASE THE UNDERLYING
SECURITIES BEFORE THE FINAL MATURITY DATE.
The Underlying Securities Issuer will have the right to redeem or repay the
Underlying Securities in whole or in part at any time from time to time, and may
also tender for or otherwise repurchase the Underlying Securities. If the
Underlying Securities are redeemed or repurchased, the certificates will be
correspondingly redeemed. See "Description of the Underlying
Securities--Optional Redemption." In certain circumstances, redemption or
repayment of the Underlying Securities by the Underlying Securities Issuer may
require payment of a make-whole amount to the holders of the Underlying
Securities, and the Underlying Securities Issuer may pay a make-whole amount to
the holders of the Underlying Securities if it makes a tender offer for or other
repurchase of the Underlying Securities. However, in such circumstances it is
likely that the holder of the call options will exercise its right to purchase
the certificates pursuant to the call options. If the holder of the call options
does exercise its right, holders of the certificates may receive less than if
such certificate holders directly owned the Underlying Securities and may not
receive any make-whole amount or any excess of the Underlying Securities' market
value over their face amounts.
YOU WILL NOT RECEIVE TIMELY DISTRIBUTIONS ON THE CERTIFICATES IF THE TRUST DOES
NOT RECEIVE TIMELY DISTRIBUTIONS ON THE UNDERLYING SECURITIES.
GS Group may defer the payment of interest on the GS junior subordinated
debentures at any time and in each case for up to 10 semi-annual consecutive
interest periods, provided that (i) no extension period may extend beyond the
stated maturity date of the GS junior subordinated debentures; and (ii) GS Group
is not in default under the subordinated debt indenture governing the GS junior
subordinated debentures. If there is a deferral, the Underlying Securities
Issuer also will defer
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RISK FACTORS
- --------------------------------------------------------------------------------
distributions on the Underlying Securities and the swap counterparty will not be
obligated to make any payments to the trust pursuant to the swap agreement.
Before any extension period ends, GS Group may elect to extend the period
further. At the end of any extension period and the payment of all interest then
accrued and unpaid, GS Group may elect to begin a new extension period. There is
no limitation on the number of extension periods. If the Underlying Securities
Issuer does not pay any amounts due under the Underlying Securities, as a result
of a deferral, the swap counterparty is not obligated to make payments to the
trust, and the trust will not make any corresponding payments on the
certificates.
Should GS Group elect to exercise its right to defer payments of interest on the
GS junior subordinated debentures in the future, the market price of the
Underlying Securities is likely to be adversely affected. In addition, merely as
a result of the existence of GS Group's right to defer payments of interest on
the GS junior subordinated debentures, the market price of the Underlying
Securities may be more volatile than the market prices of other securities that
are not subject to such deferrals.
DISTRIBUTIONS AND OTHER PAYMENTS WITH RESPECT TO YOUR CERTIFICATES AND YOUR
EXPECTED INVESTMENT YIELD MAY BE AFFECTED BY FACTORS SUCH AS THE PERFORMANCE OF
THE TRUST ASSETS, THE REDEMPTION OF THE UNDERLYING SECURITIES AND THE EARLY
TERMINATION OF THE SWAP AGREEMENT.
A number of factors may affect the timing of distributions with respect to your
certificates and the yield that you realize on your certificates, including:
- - the purchase price you pay for your certificates;
- - the interest rate on the certificates, which will be greater than or equal to
-- % and will not exceed -- %;
- - the performance of the Underlying Securities;
- - whether the Underlying Securities Issuer redeems, repurchases or repays the
Underlying Securities before their maturity;
- - whether GS Group elects to defer interest payments on the GS junior
subordinated debentures;
- - whether the Underlying Securities Issuer defaults under the Underlying
Securities;
- - the possibility that if there is a swap termination event that is not a trust
termination event a fixed rate of 6.345% per annum will be payable on the
certificates, instead of the floating rate distribution amount payable under
the swap agreement;
- - the possibility that the swap agreement may be terminated early in certain
circumstances, resulting in the termination of the trust prior to its
scheduled termination date; and
- - whether the holder of the call options exercises its call options on your
certificates.
None of the depositor, the trustee, the swap counterparty or the underwriter can
predict whether or when the call options will be exercised, whether the
Underlying Securities will be redeemed, repaid, repurchased or accelerated or
whether interest on the GS junior subordinated debentures will be deferred. If
the certificates are prepaid or if the holder of the call options exercises its
call options prior to the final distribution date, then the principal of your
certificates or the call price will be paid to the extent funds are received on
the Underlying Securities or the holder of the call options pays the call price
and your investment in the certificates will have a shorter average maturity.
S-17
RISK FACTORS
- --------------------------------------------------------------------------------
IF THE SWAP AGREEMENT IS TERMINATED AS A RESULT OF A SWAP AGREEMENT TERMINATION
EVENT WHICH IS NOT A TRUST TERMINATION EVENT, THEN THE YIELD ON THE CERTIFICATES
WILL BE CONVERTED FROM A FLOATING RATE TO A FIXED RATE AND DISTRIBUTIONS TO YOU
WILL BE MADE SEMI-ANNUALLY INSTEAD OF QUARTERLY.
The ability of the trust to make quarterly floating rate interest distributions
on the certificates will be dependent on the performance by the swap
counterparty of its payment obligations under the swap agreement. If the swap
agreement were to be terminated as a result of a swap agreement termination
event that is not also a trust termination event, then (i) the trust will remain
in existence without any rights or obligations under the swap agreement and (ii)
you will receive a pro rata share of the fixed rate interest payments received
by the trust in respect of the Underlying Securities on a semi-annual basis,
instead of a pro rata share of the floating rate payments under the swap
agreement received by the trust on a quarterly basis.
THE BUSINESS ACTIVITIES OF THE SWAP COUNTERPARTY AND ITS AFFILIATES MAY CREATE
CONFLICTS OF INTEREST BETWEEN YOU AND THE SWAP COUNTERPARTY AND ITS AFFILIATES.
UBS Securities LLC and certain of its affiliates are acting in a number of
capacities in connection with this offering. UBS Securities LLC and each of its
affiliates acting in such capacities in connection with this offering will have
only the duties and responsibilities expressly agreed to by such entity in the
relevant capacity and will not by virtue of its or any of its affiliates' acting
in any other capacity, be deemed to have other duties or responsibilities or be
deemed to be held to a standard of care other than as expressly provided with
respect to each such capacity.
THE SWAP AGREEMENT WILL ALTER THE AMOUNTS AND TIMING OF SOME OF THE
DISTRIBUTIONS ON THE UNDERLYING SECURITIES, SUCH THAT DISTRIBUTIONS ON THE
CERTIFICATES WILL BE DIFFERENT FROM WHAT YOU WOULD BE ENTITLED TO HAD YOU HELD
THE UNDERLYING SECURITIES DIRECTLY.
It is not intended that the swap agreement will provide coverage against losses
as a result of failure to receive payments on the Underlying Securities, and no
assurance can be given that the trustee will receive either the payments due to
be received on the Underlying Securities or any payment due to be received under
the swap agreement, in each case when due, upon a payment default by the
Underlying Securities Issuer or by the swap counterparty under the swap
agreement.
Upon swap agreement termination events that are also trust termination events,
as described more fully in "Description of the Swap Agreement--Events of Default
and Termination Events," an early termination payment determined in accordance
with the swap agreement may be payable by the trust to the swap counterparty or
by the swap counterparty to the trust. Any early termination payments payable by
the trust will be limited to the assets of the trust. The trust will not be
liable to the swap counterparty for early termination payments to the extent, if
any, that the amount of any such payments exceed the assets of the trust. In
addition, if the swap agreement is terminated early in connection with a trust
termination event, the certificates will be redeemed, which could affect your
yield. See "Description of the Swap Agreement--Events of Default and Termination
Events" below.
S-18
RISK FACTORS
- --------------------------------------------------------------------------------
IF THE CERTIFICATES ARE PREPAID WHEN PREVAILING MARKET INTEREST RATES FOR
SECURITIES OF A COMPARABLE CREDIT RATING ARE LOWER THAN THE YIELD ON YOUR
CERTIFICATES, YOU MAY BE UNABLE TO REALIZE A COMPARABLE YIELD WHEN YOU REINVEST
THE FUNDS THAT YOU RECEIVE FROM THE PREPAYMENT OF YOUR CERTIFICATES.
If the certificates are prepaid when prevailing market interest rates for
securities of a comparable credit rating are lower than the yield on your
certificates, you may be unable to realize a comparable yield when you reinvest
the funds that you receive from the prepayment of your certificates.
OWNING THE CERTIFICATES IS NOT THE SAME AS OWNING THE UNDERLYING SECURITIES
DIRECTLY.
Although you can exercise "pass-through" voting in relation to the Underlying
Securities in some circumstances, holding certificates that represent an
interest in the Underlying Securities will differ from owning the Underlying
Securities directly. For instance, if the Underlying Securities Issuer or a
third party makes a tender offer for, or redeems, repurchases or otherwise makes
an unscheduled payment on the Underlying Securities, the option holder will
likely receive most or all of any make-whole amount that you would otherwise
have received if you owned the Underlying Securities directly. Also, while the
Underlying Securities pay interest at a fixed rate, the certificates pay
interest at a floating rate based on USD LIBOR and is subject to an interest
rate cap of -- %. With respect to voting of the Underlying Securities, there
are certain matters that you would be able to consent to if you owned the
Underlying Securities directly, but that the trustee may not consent to except
at the direction of a majority or, in some instances all, of the certificate
holders. Furthermore, the trustee may not agree to any amendment to the terms of
the Underlying Securities that affect the amount or timing of payments on the
Underlying Securities without the consent of the holders of 100% of both the
certificates and the call options. Because these types of decisions can
generally be made only with the unanimous consent of all holders of the
Underlying Securities, any negative vote by any holder of a certificate or the
holder of the call options would prevent the adoption of a proposed amendment,
even if you and the other holders of the certificates have determined that the
amendment is in their best interest.
Furthermore, the Underlying Securities held by the trust will be only a small
portion of the total issue of Underlying Securities. Accordingly, even when the
holder of the call options does not have the right to control votes with respect
to the Underlying Securities, the holders of the certificates, acting together
or alone, will not be able to control voting matters with respect to the
Underlying Securities.
YOUR ABILITY TO REALIZE MARKET VALUE APPRECIATION IS CAPPED BY THE CALL PRICE.
The holder of the call options will determine whether to exercise the call
options solely on the basis of that party's self interest, and is expected to
exercise its call options when it is profitable to do so (that is, when the
value of the interests in the Underlying Securities evidenced by the
certificates exceeds the call price). Exercise of the call options will allow
the option holder to obtain the value of the interests in the Underlying
Securities evidenced by the certificates in excess of the call price for itself,
by taking such excess value away from the certificate holders. See "Yield on the
Certificates" below and "Maturity and Yield Considerations" in the attached
prospectus.
THE INTEREST RATE CAP ON THE CERTIFICATES MAY LIMIT YOUR INTEREST PAYMENTS AND
MAY NEGATIVELY IMPACT THE MARKET VALUE OF YOUR CERTIFICATES.
The interest paid on the certificates is based on a floating rate that will not
exceed -- %. If interest rates exceed -- %, your certificates will not receive
interest based on the higher interest rate but rather will be capped at -- %.
The market value of your certificates will also be negatively affected as
interest rates rise.
S-19
RISK FACTORS
- --------------------------------------------------------------------------------
UPON A SWAP TERMINATION EVENT WHEREBY THE SWAP COUNTERPARTY IS THE DEFAULTING
PARTY, YOU ARE NOT LIKELY TO RECEIVE FROM THE SWAP COUNTERPARTY ANY INTEREST
THAT HAS ACCRUED.
Upon a swap termination event that is not a trust termination event whereby the
swap counterparty is the defaulting party (especially upon the bankruptcy,
insolvency or reorganization of the swap counterparty), it is unlikely that you
will receive from the swap counterparty any interest that has accrued since the
last quarterly interest payment.
A TRADING MARKET FOR YOUR CERTIFICATES MAY NOT DEVELOP OR CONTINUE; THUS IT MAY
BE DIFFICULT TO RESELL YOUR CERTIFICATES.
Prior to the issuance of the certificates there will not be a public market for
those securities. There may be little or no secondary market for the
certificates. UBS AG, UBS Securities LLC, UBS Financial Services Inc. and other
affiliates of UBS AG currently intend to make a market for the certificates,
although they are not required to do so. UBS AG, UBS Securities LLC, UBS
Financial Services Inc. or any other affiliate of UBS AG may stop any such
market making activities at any time. As market makers, trading of the
certificates may cause UBS AG, UBS Securities LLC, UBS Financial Services Inc.
or any other affiliates of UBS AG to have long or short positions of the
certificates in their inventory. The supply and demand for the certificates,
including inventory positions of market makers, may affect the secondary market
price for the certificates. Even if a secondary market does develop, it may not
continue or be sufficiently liquid to allow you to resell your certificates, and
you may experience a loss on your investment.
YOUR CERTIFICATES REPRESENT INTERESTS PRIMARILY IN OBLIGATIONS OF A SINGLE
OBLIGOR AND, AS A RESULT, THE CREDIT RISK IS CONCENTRATED PRIMARILY IN A SINGLE
OBLIGOR.
Your certificates represent interests primarily in obligations of a single
obligor and, as a result, the credit risk is concentrated primarily in a single
obligor. In particular, your certificates will be subject to all the risks
associated with a direct investment in unsecured obligations of the Underlying
Securities Issuer and GS Group.
A REDUCTION OR WITHDRAWAL OF THE SECURITY RATING OF YOUR CERTIFICATES WOULD
ADVERSELY AFFECT THEIR VALUE.
On the closing date, the certificates will be rated A2 by Moody's and A- by
Standard & Poor's. We cannot assure you that either rating will not be lowered
or withdrawn by the applicable rating agency in the future. If the rating
assigned by any rating agency to the swap counterparty or the Underlying
Securities is reduced, the rating assigned to your certificates will likely be
reduced as well. Any reduction in the rating of your certificates may adversely
affect their value.
NO RULINGS WILL BE OBTAINED FROM THE INTERNAL REVENUE SERVICE, OR IRS,
CONCERNING THE CERTIFICATES AND THE IRS MAY DISAGREE WITH THE DEPOSITOR'S
FEDERAL TAX COUNSEL.
Sullivan & Cromwell LLP, special federal tax counsel to the depositor, has
provided an opinion regarding the tax classification of the trust. However,
opinions of counsel are not binding on the IRS or the courts. In addition, you
should be aware that no rulings will be sought from the IRS with respect to any
of the federal income tax consequences discussed in this prospectus supplement,
and no assurance can be given that the IRS will not take contrary positions.
Accordingly, you should consult your tax advisor to determine the federal,
state, local and other tax consequences of the purchase, ownership and
disposition of the certificates. See "United States Taxation" in this prospectus
supplement and "United States Federal Income Tax Consequences" in the attached
prospectus.
S-20
RISK FACTORS
- --------------------------------------------------------------------------------
THE LIQUIDITY OF YOUR CERTIFICATES MAY BE REDUCED, OR YOUR CERTIFICATES MAY BE
REDEEMED FOR LESS THAN THEIR CERTIFICATE PRINCIPAL BALANCE, IF GS GROUP STOPS
MAKING INFORMATION ABOUT ITS FINANCIAL CONDITION AND BUSINESS PUBLICLY
AVAILABLE.
The information that GS Group makes available to the public is important to
prospective buyers of your certificates. To the extent that GS Group ceases to
make information about itself and its Underlying Securities publicly available,
your ability to sell your certificates or to obtain a favorable price upon sale
could be adversely affected. If GS Group stops making information about its
financial condition and business publicly available, the trust will take actions
intended to increase the likelihood that GS Group will be required to resume
making this information available as described under "Description of the
Certificates--Termination of Book-Entry Registration in Connection with
Suspension of Securities Exchange Act Reporting by GS Group" below. However, if
these steps are not effective and the holder of the call options does not
exercise its call rights, the depositor shall instruct the trustee to sell the
Underlying Securities and allocate the proceeds of such sale as described under
"Description of the Certificates--SEC Reporting Failure" below. The amount of
these proceeds may not be sufficient to repay the certificate principal balance
on your certificates and/or any accrued and unpaid interest.
S-21
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Formation of the Trust
The trust will be a common law trust formed under the laws of the State of New
York pursuant to the trust agreement, to be dated as of the closing date,
between the depositor and the trustee. Concurrently with the execution and
delivery of the trust agreement, the depositor will (i) assign its rights and
obligations under the swap agreement and (ii) transfer and sell the Underlying
Securities to the trust in exchange for the issuance of the certificates. The
trustee, on behalf of the trust, will accept the Underlying Securities and will
deliver the certificates to the depositor. The depositor will sell the
certificates to UBS Securities LLC for resale to investors. As a condition to
its initial purchase of the certificates, UBS Securities LLC will grant to the
depositor call options to purchase each of the certificates at a price equal to
the outstanding certificate principal balance of the certificates purchased plus
any accrued and unpaid interest. As a purchaser of the certificates, your
ownership of the certificates will be subject to those call options.
After the call options are granted, the depositor will sell the call options to
the swap counterparty, through UBS Securities LLC, as agent. The Underlying
Securities will be purchased by the depositor from UBS Securities LLC. The
Underlying Securities will not be acquired 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
certificates. Neither the depositor nor any of its affiliates participated in
the initial public offering of the Underlying Securities.
S-22
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Description of the Underlying Securities
The Underlying Securities will consist solely of publicly tradable 6.345%
Capital Securities issued by the Underlying Securities Issuer. The Underlying
Securities were originally issued by the Underlying Securities Issuer, in an
underwritten public offering of $2,750,000,000 aggregate principal amount of the
6.345% Capital Securities, pursuant to a registration statement on Form S-3
filed by the Underlying Securities Issuer with the SEC under the Securities Act.
This prospectus supplement sets forth the material terms of the Underlying
Securities and the Underlying Securities trust agreement, as described in the
prospectus supplement, dated February 12, 2004, or the Underlying Securities
Issuer prospectus supplement, and the prospectus, dated February 6, 2004, or the
Underlying Securities Issuer prospectus, issued by the Underlying Securities
Issuer in connection with the issuance of the Underlying Securities. This
prospectus supplement does not provide detailed information about the Underlying
Securities. This prospectus supplement relates only to the certificates offered
by this prospectus supplement and is not an offering document for the Underlying
Securities. GS Group is subject to the information reporting requirements of the
Securities Exchange Act and files reports and other information with the SEC.
All disclosure with respect to the Underlying Securities is derived from
publicly available documents. See "--Available Information" below.
Neither the depositor nor the underwriter has participated in the preparation of
the Underlying Securities Issuer prospectus, the Underlying Securities Issuer
prospectus supplement, the registration statement relating to the Underlying
Securities, the Underlying Securities trust agreement or any related documents,
or made any due diligence inquiry with respect to the information provided in
these documents, and no representation is made by the depositor or the
underwriter as to the accuracy or completeness of the information contained in
the Underlying Securities Issuer prospectus supplement, the Underlying
Securities Issuer prospectus, the registration statement relating to the
Underlying Securities or any other publicly available information relating to
the Underlying Securities Issuer or the Underlying Securities. Neither the
depositor nor the underwriter has verified the accuracy or completeness of these
documents or reports. Events affecting the Underlying Securities or the
Underlying Securities Issuer may have occurred that have not yet been publicly
disclosed. This would affect the accuracy or completeness of the publicly
available documents described above.
GENERAL DESCRIPTION OF THE UNDERLYING SECURITIES
The table below sets forth the payment terms of the Underlying Securities. The
table is not complete and is subject to, and qualified in its entirety by
reference to, the Underlying Securities Issuer prospectus supplement and the
Underlying Securities Issuer prospectus.
Underlying Securities
Issuer..................... Goldman Sachs Capital I
Underlying Securities...... 6.345% Capital Securities
Issue date................. February 20, 2004
Currency................... U.S. dollars
Denominations.............. $1,000 and multiples of $1,000
Aggregate principal amount
issued................... $2,750,000,000
Public offering price...... 100%
Aggregate principal amount
outstanding.............. $2,750,000,000
Type of security........... Capital securities
Common code................ 018675684
ISIN number................ US38143VAA70
CUSIP number............... 38143VAA7
S-23
DESCRIPTION OF THE UNDERLYING SECURITIES
- --------------------------------------------------------------------------------
Interest payment
frequency.................. semi-annual, subject to deferral as described
below
Stated interest rate....... 6.345% per annum
Interest deferral.......... GS Group may defer the payment of interest on the
GS junior subordinated debentures at any time and
in each case for up to 10 semi-annual consecutive
interest periods, provided that (i) no extension
period may extend beyond the stated maturity date
of the GS junior subordinated debentures; and
(ii) GS Group is not in default under the
subordinated debt indenture governing the GS
junior subordinated debentures. If there is a
deferral, the Underlying Securities Issuer also
will defer distributions on the Underlying
Securities. Before any extension period ends, GS
Group may elect to extend the period further. At
the end of any extension period and the payment
of all interest then accrued and unpaid, GS Group
may elect to begin a new extension period. There
is no limitation on the number of extension
periods
Distribution dates......... Distributions on the Underlying Securities will
be cumulative from February 20, 2004 and will be
payable semi-annually in arrears on February 15
and August 15 of each year, beginning August 15,
2004
Mode of payment............ Fixed rate securities
Guarantee.................. The GS Group will fully and unconditionally
guarantee, on a subordinated basis, payments of
amounts due on the Underlying Securities but will
not guarantee payment of distributions or amounts
payable on redemption or liquidation of the
Underlying Securities when the Underlying
Securities Issuer does not have funds available
to make payments
Priority................... Ranked equally with common securities of the
Underlying Securities Issuer. See also "--Junior
Obligations" below
Ratings*................... A1 by Moody's and A- by Standard & Poor's
Underlying Securities
trustee.................... The Bank of New York (Delaware)
- ------------
(*) A rating of the Underlying Securities is not a recommendation to purchase,
hold or sell those securities, inasmuch as the rating does not comment as to
the market price of the securities or the suitability of the securities for
a particular investor (such as the trust or the holder of a certificate). A
rating may be reduced or withdrawn by the assigning rating organization at
any time, and each rating should be evaluated independently of any other
rating. Any reduction or withdrawal of the security rating with respect to
the Underlying Securities would adversely affect the value of those
securities and may cause a reduction or withdrawal of the rating of your
certificates. See "Ratings" below.
This description of the Underlying Securities is qualified in its entirety by,
and should be read in conjunction with (i) the Underlying Securities Issuer
prospectus supplement, (ii) the Underlying Securities Issuer prospectus and
(iii) the registration statement relating to the Underlying Securities of which
the Underlying Securities Issuer prospectus supplement and the Underlying
Securities Issuer prospectus are a part.
INTEREST PAYMENTS
Interest accrues on the Underlying Securities at an annual rate of 6.345%, from
February 20, 2004, until the principal is paid or made available for payment.
Interest at that rate is payable on the Underlying Securities semi-annually in
arrears on each February 15 and August 15.
Interest on the Underlying Securities is calculated on the basis of a 360-day
year of twelve 30-day months.
S-24
DESCRIPTION OF THE UNDERLYING SECURITIES
- --------------------------------------------------------------------------------
GS Group may defer the payment of interest on the GS junior subordinated
debentures at any time and in each case for up to 10 semi-annual consecutive
interest periods, provided that (i) no extension period may extend beyond the
stated maturity date of the GS junior subordinated debentures; and (ii) GS Group
is not in default under the subordinated debt indenture governing the GS junior
subordinated debentures. If there is a deferral, the Underlying Securities
Issuer also will defer distributions on the Underlying Securities. Before any
extension period ends, GS Group may elect to extend the period further. At the
end of any extension period and the payment of all interest then accrued and
unpaid, GS Group may elect to begin a new extension period. There is no
limitation on the number of extension periods.
If GS Group defers interest payments on the GS junior subordinated debentures,
the Underlying Securities Issuer also will defer the payment of distributions on
the Underlying Securities. During any extension period, your distribution will
continue to accrue, and interest on the unpaid distributions will continue to
compound, semi-annually. During any extension period, you will be required to
accrue interest income and include it in your gross income for U.S. federal
income tax purposes, even if you are a cash basis taxpayer. Permitted deferrals
of interest payments and distributions will not result in a default or an
Underlying Securities event of default.
PRINCIPAL PAYMENTS
The Underlying Securities have no stated maturity but must be redeemed upon the
maturity of the GS junior subordinated debentures or their earlier redemption.
Generally, principal payments due to the holders of the GS junior subordinated
debentures are scheduled to be paid on February 15, 2034, but may be paid
earlier than that date if GS Group redeems the GS junior subordinated debentures
before that date.
OPTIONAL REDEMPTION
If GS Group repays or redeems the GS junior subordinated debentures at any time,
the Underlying Securities Issuer will be obligated to redeem a like amount of
the Underlying Securities. The redemption of the Underlying Securities will
occur on the redemption date, which means the date on which payment of the
principal of those GS junior subordinated debentures becomes due under its debt
indenture. The redemption price for the Underlying Securities will be the total
liquidation amount of the Underlying Securities being redeemed, plus (i)
accumulated but unpaid distributions up to and including the redemption date;
and (ii) the related amount of the make-whole amount, if any, in excess of the
total liquidation amount of the Underlying Securities being redeemed, paid by GS
Group on the concurrent redemption of the GS junior subordinated debentures.
GS Group may redeem the GS junior subordinated debentures before their stated
maturity as follows:
- - in whole at any time or in part from time to time, provided that no partial
redemption may occur during an extension period; or
- - in whole at any time within 90 days after the occurrence of a tax event or
investment company event.
A "tax event" means the receipt by the Underlying Securities Issuer of an
opinion of counsel experienced in such matters to the effect that, as a result
of any tax change, there is more than an insubstantial risk that any of the
following will occur:
- - the Underlying Securities Issuer is, or will be within 90 days after the date
of the opinion of counsel, subject to U.S. federal income tax on income
received or accrued on the GS junior subordinated debentures;
- - interest payable by GS Group on the GS junior subordinated debentures is not,
or within 90 days after the opinion of counsel will not be, deductible by it,
in whole or in part, for U.S. federal income tax purposes; or
S-25
DESCRIPTION OF THE UNDERLYING SECURITIES
- --------------------------------------------------------------------------------
- - the Underlying Securities Issuer is, or will be within 90 days after the date
of the opinion of counsel, subject to more than a de minimis amount of other
taxes, duties or other governmental charges.
As used above, the term "tax change" means any of the following:
- - any amendment to or change, including any announced prospective change, in the
laws or any regulations under the laws of the United States or of any
political subdivision or taxing authority of or in the United States, if the
amendment or change is effective on or after the date the Underlying
Securities are issued; or
- - any official administrative pronouncement, including any private letter
ruling, technical advice memorandum, field service advice, regulatory
procedure, notice or announcement (including any notice or announcement of
intent to adopt any procedures or regulations) or action or any judicial
decision interpreting or applying such laws or regulations, whether or not the
pronouncement, action or decision is issued to or in connection with a
proceeding involving GS Group or the Underlying Securities Issuer or is
subject to review or appeal, if the pronouncement, action or decision is
announced or occurs on or after the date of the issuance of the Underlying
Securities.
An "investment company event" means the receipt by the Underlying Securities
Issuer of an opinion of counsel experienced in such matters to the effect that,
as a result of any amendment to, or change (including any announced prospective
change) in, the laws or any regulations under the laws of the United States or
of any political subdivision or governmental agency or regulatory authority of
or in the United States, or as a result of any official administrative
pronouncement, including any interpretation, release, no-action letter,
regulatory procedure, notice or announcement (including any notice or
announcement of an intent to adopt any interpretation, procedures or
regulations) or action or any judicial decision interpreting or applying such
laws or regulations, whether or not the pronouncement, action or decision is
issued to or in connection with a proceeding involving GS Group or the
Underlying Securities Issuer or is subject to review or appeal, which amendment
or change is effective, or which pronouncement, action or decision is announced
or occurs, on or after the date of the issuance of the Underlying Securities,
there is more than an insubstantial risk that the Underlying Securities Issuer
is or will be considered an "investment company" that is required to be
registered under the Investment Company Act of 1940.
If GS Group elects to redeem the GS junior subordinated debentures, it will do
so at the relevant redemption price. The redemption price for the GS junior
subordinated debentures will equal the greater of: (i) 100% of the principal
amount of the GS junior subordinated debentures being redeemed, and (ii) the
make-whole amount, if any, as determined by a quotation agent, equal to the sum
of the present values of scheduled payments of principal and interest from the
redemption date to February 15, 2034 on the junior subordinated debentures being
redeemed, discounted to the redemption date on a semi-annual basis at a discount
rate equal to the treasury rate plus a spread of 0.50%, in the case of a
redemption after the occurrence of a tax event or investment company event, or
plus a spread of 0.20%, in the case of any other redemption, plus, in either
case, accrued and unpaid interest on the junior subordinated debentures being
redeemed. Because the spread percentage will be higher for a redemption after a
tax event or investment company event than for a redemption in other
circumstances, the make-whole amount (and thus the redemption price) GS Group
will pay to redeem the Underlying Securities will be lower if the redemption is
due to an event of this kind than if it is not.
If less than all of the GS junior subordinated debentures are redeemed or
repaid, then the aggregate liquidation amount of the trust securities to be
redeemed will be allocated approximately 3% to the common securities of the
Underlying Securities Issuer and 97% to the Underlying Securities, except in the
case of an event of default as a result of any failure by GS Group to make any
payments on the GS junior subordinated debentures when due after any applicable
grace period (in which case 100% will be allocated to the Underlying
Securities).
S-26
DESCRIPTION OF THE UNDERLYING SECURITIES
- --------------------------------------------------------------------------------
The Underlying Securities Issuer cannot redeem less than all of the Underlying
Securities unless all accrued and unpaid distributions on the Underlying
Securities have been paid on or before the redemption date.
GUARANTEE
GS Group will fully and unconditionally guarantee, on a subordinated basis,
payments of amounts due on the Underlying Securities but will not guarantee
payment of distributions or amounts payable on redemption or liquidation of the
Underlying Securities when the Underlying Securities Issuer does not have funds
available to make such payments.
JUNIOR OBLIGATIONS
The Underlying Securities will rank (i) equally, and payments on them will be
made pro rata, with common securities of the Underlying Securities Issuer, (ii)
junior to all of GS Group's senior indebtedness (and most of its senior
subordinated debt) and (iii) senior to GS Group's common stock. However, the
Underlying Securities will rank senior to the Underlying Securities Issuer
common securities as to payment if and so long as GS Group fail to make a
principal or interest payment on the GS junior subordinated debentures when due.
Neither the Underlying Securities, the GS junior subordinated debentures nor the
guarantee will contain any terms that will limit GS Group's ability to incur
additional indebtedness, including indebtedness that would rank senior in
priority of payment to the GS junior subordinated debentures and the guarantee.
UNDERLYING SECURITIES DEFAULTS
The following is a summary description of the events of default under the
Underlying Securities (each, an "Underlying Securities event of default"):
- - any event of default under the subordinated debt indenture with respect to the
GS junior subordinated debentures has occurred and is continuing;
- - default for 30 days by the Underlying Securities Issuer in the payment of any
distribution on any Underlying Security or common trust security of the
Underlying Securities Issuer;
- - default by the Underlying Securities Issuer in the payment of the redemption
price of any capital security or common trust security of the Underlying
Securities Issuer;
- - failure by the Underlying Securities Issuer trustees to perform any other
covenant or warranty in the Underlying Securities trust agreement for 60 days
after the holders of at least 25% in aggregate liquidation amount of the
outstanding Underlying Securities give written notice of the default to GS
Group and the Underlying Securities Issuer; or
- - bankruptcy, insolvency or reorganization of the property trustee and the
failure by GS Group to appoint a successor property trustee within 90 days.
AVAILABLE INFORMATION
GS Group is subject to the information requirements of the Securities Exchange
Act and files reports and other information with the SEC. You may read and copy
any reports, statements and other information filed by GS Group with the SEC (a)
over the internet at the SEC website at http://www.sec.gov containing reports,
proxy statements and other information regarding registrants that file
electronically with the SEC; and (b) the SEC's public reference room at 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, the material described
above and other information will also be available from the office of GS Group
identified in the Underlying Securities Issuer prospectus. You can also request
copies of these documents upon payment of a copying fee, by writing to the SEC's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the SEC at (800) SEC-0330 for further information on the operation of the
public reference facilities.
S-27
- --------------------------------------------------------------------------------
Yield on the Certificates
The yield that you receive on your certificates will be affected by a number of
factors, including:
- - the purchase price you pay for your certificates;
- - the interest rate on the certificates, which will be greater than or equal to
--% and will not exceed --%;
- - the performance of the Underlying Securities;
- - whether the Underlying Securities Issuer redeems, repurchases or repays the
Underlying Securities before their maturity;
- - whether the Underlying Securities Issuer defaults on the Underlying
Securities;
- - whether GS Group elects to defer interest payments on the GS junior
subordinated debentures;
- - the possibility that if there is a swap termination event that is not a trust
termination event a fixed rate of 6.345% per annum will be payable on the
certificates, instead of the floating rate interest distribution amount
payable under the swap agreement;
- - the possibility that the swap agreement may be terminated in certain
circumstances, resulting in the termination of the trust prior to its
scheduled termination date; and
- - whether the holder of the call options exercises its call options on your
certificates.
The holder of the call options may exercise its call options to purchase all of
your certificates (i) on or after --, 2009, (ii) at any time following the
occurrence of an Underlying Securities payment default, an Underlying Securities
bankruptcy default, a SEC reporting failure, a trust swap payment default or a
trust regulatory event or (iii) at any time in connection with a tender offer
for, a redemption or repurchase of or an unscheduled payment on the Underlying
Securities.
In certain circumstances, the Underlying Securities Issuer is required to pay a
make-whole amount on the Underlying Securities, which would be distributed to
the holders of the Underlying Securities. In addition, the market value of the
Underlying Securities may increase or decrease to a value in excess of or under
their face amounts. However, if the Underlying Securities Issuer pays a
make-whole amount or the market value of the Underlying Securities increases to
a value in excess of their face amounts it is likely that the holder of the call
options will exercise its right to purchase the certificates pursuant to the
call options.
The price that the option holder must pay you to purchase your certificates will
be equal to the outstanding certificate principal balance of the certificates
purchased plus any accrued and unpaid interest. If the holder of the call
options exercises its call options, you may receive less than the market value
of the Underlying Securities evidenced by your certificates, and you will not
receive any of the make-whole amount paid by the Underlying Securities Issuer.
The holder of the call options will determine whether to exercise the call
options solely on the basis of its own self interest, and you should expect it
to exercise the call options when it is profitable to do so (that is, when the
value of the interests in the Underlying Securities evidenced by the
certificates exceeds their call price). Exercising the call options will allow
the option holder to obtain the value of the certificates in excess of the call
price for itself, by taking such excess value away from the certificate holders.
See "Maturity and Yield Considerations" in the attached prospectus.
If the certificates are redeemed or the call options are exercised prior to the
scheduled final distribution date on the certificates, and at the time
prevailing market interest rates are lower than the yield on your certificates,
you may be unable to realize a comparable yield when you reinvest the funds that
you receive from the prepayment or purchase of your certificates.
S-28
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Description of the Swap Agreement
GENERAL
On the date of this prospectus supplement, the depositor will enter into the
swap agreement with the swap counterparty pursuant to which the depositor will
agree to exchange interest payments (including any accrued and unpaid interest
and any interest on such accrued and unpaid interest) due on the Underlying
Securities for payments of the interest distribution amount and, if applicable,
deferred interest from the swap counterparty that will be passed through to the
holders of the certificates. The swap counterparty, under the swap agreement,
will also agree to make a one time payment to the depositor immediately upon the
execution of the swap agreement. The depositor will retain the one time payment
but, on the closing date, the depositor will assign all its other rights and
obligations under the swap agreement to the trust. For purposes of this
prospectus supplement, any rights and obligations the trust has under the swap
agreement assumes that the depositor has assigned the swap agreement to the
trust.
Under the terms of the swap agreement, the swap counterparty will be obligated
to pay to the trust on each distribution date, including the final distribution
date, an amount equal to the related interest distribution amount; provided,
however, that the swap counterparty will not be obligated to pay an interest
distribution amount to the trust in respect of any interest accrual period
occurring during the continuance of an extension period. Correspondingly, the
trust will be obligated to pay to the swap counterparty on each Underlying
Securities payment date all interest payments received by the trust in respect
of the Underlying Securities. At the conclusion of any extension period, (i) the
trustee will be obligated to pay the swap counterparty all amounts received by
the trust in respect of any accrued and unpaid interest and any interest on such
accrued and unpaid interest on the Underlying Securities during such extension
period and (ii) the swap counterparty will be obligated to pay all deferred
interest with respect to such extension period to the trust. Unless it is sooner
terminated in accordance with its terms, the swap agreement is scheduled to
terminate on the earlier of (i) February 15, 2034 or (ii) the date the option
holder exercises its call options with respect to all the certificates
outstanding.
THE SWAP COUNTERPARTY
The London branch of UBS AG will act as the swap counterparty. The swap
counterparty is also an affiliate of UBS Securities LLC which is acting as an
underwriter.
AMOUNTS PAYABLE BY THE SWAP COUNTERPARTY
Under the swap agreement, the swap counterparty will be obligated to pay to the
trust, (i) provided no swap agreement termination event has occurred, on each
distribution date (other than a distribution date occurring during the
continuance of an extension period), including the final distribution date, an
amount equal to the interest distribution amount for the immediately preceding
interest accrual period, (ii) on any distribution date occurring immediately
following the end of any extension period, an amount equal to any deferred
interest and (iii) upon the occurrence of a swap agreement termination event
that is also a trust termination event or a partial swap termination event, an
amount equal to any early termination payment owed to the trust under the swap
agreement (See "--Payments Upon Early Termination" below). The swap counterparty
will not be obligated to make any interest payments under the swap agreement on
any distribution date occurring during the continuance of an extension period.
The "interest distribution amount" for each interest accrual period will be an
amount obtained by multiplying (a) the swap notional amount and (b) the greater
of (i) three-month USD LIBOR plus --%,
S-29
DESCRIPTION OF THE SWAP AGREEMENT
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and (ii) --%, but it shall not exceed --% and (c) the actual number of days in
the related interest accrual period, divided by 360.
"three-month USD LIBOR" means, with respect to any LIBOR determination date, the
London interbank offered rate for three-month (such period being referred to as
the "index maturity"), United States dollar deposits, commencing on the second
London banking day immediately following such LIBOR determination date, which
appears on telerate page 3750 as of 11:00 A.M., London time, on such LIBOR
determination date. If telerate page 3750 is unavailable at such time, LIBOR for
the appropriate index maturity will be determined at approximately 11:00 A.M.,
London time, on such LIBOR determination date on the basis of the rate at which
LIBOR having such index maturity is offered by four major banks selected by the
calculation agent in the London interbank market commencing on the second London
banking day immediately following such LIBOR determination date. The calculation
agent will request the principal London office of each of such banks to provide
a quotation of its rate. If at least two such quotations are provided, LIBOR for
such index maturity will be the arithmetic mean of such quotations. If fewer
than two quotations are provided, LIBOR for a given index maturity for such
LIBOR determination date will be the arithmetic mean of LIBOR quoted at
approximately 11:00 A.M., New York City time, on such LIBOR determination date
by three major banks in New York City selected by the calculation agent for
LIBOR having such index maturity, commencing on the second London banking day
immediately following such LIBOR determination date; provided, however, that if
the banks selected as aforesaid by the calculation agent are not quoting as
mentioned in this sentence, LIBOR for such index maturity will be LIBOR
determined with respect to the interest accrual period immediately preceding the
current distribution date.
"deferred interest" means, upon the termination of any extension period, (i) the
aggregate of each interest distribution amount that was not paid on the
distribution date that occurred during the relevant extension period plus (ii)
interest on each interest distribution amount that was not paid during the
relevant extension period at the interest rate used to calculate such interest
distribution amount, from the distribution date immediately following the
interest accrual period with respect to such interest distribution amount until
the end of the extension period. For avoidance of doubt, deferred interest does
not include the interest distribution amount due on the distribution date upon
which the extension period terminated.
"LIBOR determination date" means for each interest accrual period beginning on
and after the first distribution date, the second London banking day preceding
the commencement of such interest accrual period.
"London banking day" means, any day on which commercial banks are open for
business (including dealings in foreign exchange and foreign currency deposits)
in London.
"telerate page 3750" means the display on the Dow Jones Telerate Service on page
3750 (or any other page as may replace such page on that service for the purpose
of displaying LIBOR).
The swap counterparty currently has a long-term credit rating of AA+ from
Standard & Poor's and Aa2 from Moody's.
AMOUNTS PAYABLE BY THE TRUST
The trust will be obligated to pay the swap counterparty, (i) all interest
payments (including any accrued and unpaid interest and any interest on such
accrued and unpaid interest) due in respect of the Underlying Securities on each
Underlying Securities payment date and (ii) upon the occurrence of a swap
agreement termination event that is also a trust termination event or a partial
swap termination event, an amount equal to any early termination payment owed to
the swap counterparty under the swap agreement. See "--Payments Upon Early
Termination" below.
S- 30
DESCRIPTION OF THE SWAP AGREEMENT
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EVENTS OF DEFAULT AND TERMINATION EVENTS
The occurrence of any of the following constitutes a termination event under the
swap agreement (each, a "swap agreement termination event") in respect of which
the swap counterparty, on the one hand, or the trust, on the other hand, is a
"defaulting party" or an "affected party:"
(i) the swap counterparty fails to make any payment under the swap
agreement, and such failure is not remedied by the fifth business day
after notice of such failure is given to it, in which case the swap
counterparty is the defaulting party;
(ii) the trust fails to make any payment under the swap agreement, and
such failure is not remedied by the fifth business day after notice
of such failure is given to it, in which case the trust is the
defaulting party (a "trust swap payment default");
(iii) certain events of bankruptcy, insolvency or reorganization in
respect of the swap counterparty, in which case the swap
counterparty is the defaulting party;
(iv) the occurrence of an Underlying Securities event of default relating
to (x) the payment of any distribution on the Underlying Securities
or any redemption price of the Underlying Securities or the payment
of principal of or any make-whole amount, if any on the Underlying
Securities when due (an "Underlying Securities payment default") or
(y) a bankruptcy, insolvency or reorganization of GS Group or GS
Group's failure to pay interest, principal or premium on the GS
junior subordinated debentures (an "Underlying Securities bankruptcy
default"), in the case of (x) or (y), the trust is the defaulting
party;
(v) as a result of certain legislative, regulatory or judicial action, it
becomes unlawful for the swap counterparty to comply with any material
provision of the swap agreement, including any payment obligation, in
which case the swap counterparty is the affected party;
(vi) as a result of certain legislative, regulatory or judicial action, it
becomes unlawful for the trust to comply with any material provision
of the swap agreement, including any payment obligation, in which
case the trust is the affected party (a "trust regulatory event");
(vii) the occurrence of a SEC reporting failure, in which case the trust
is the affected party; or
(viii) an optional redemption or repurchase of or other unscheduled
payment on 100% the Underlying Securities prior to the final
distribution date, in which case the trust is the affected party.
The swap agreement termination events specified in paragraphs (ii), (iv), (vi),
(vii) and (viii) above are each also a "trust termination event." The trustee
will distribute any proceeds received upon the occurrence of a trust termination
event in the manner described under "Description of the Certificates--The
Certificates--Interest Distributions" and "--Principal Distribution" below.
So long as the swap agreement has not been terminated, the notional amount of
the swap agreement (the "swap notional amount") will at all times equal the
principal amount of the Underlying Securities held by the trust. Following any
redemption, repurchase, prepayment or liquidation of or unscheduled payment on
the Underlying Securities, the swap notional amount will be reduced.
A "partial swap termination event" will occur in connection with an optional
redemption or other prepayment of less than all of the Underlying Securities
prior to the final distribution date. In this case, the trust is the affected
party.
S-31
DESCRIPTION OF THE SWAP AGREEMENT
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EARLY TERMINATION DATE
If a swap agreement termination event occurs in which the swap counterparty is
the "defaulting party" or the only "affected party," the trustee shall designate
as an early termination date the earliest date following the trustee's receipt
of actual knowledge thereof on which the swap agreement can practicably be
terminated (an "early termination date").
Except as provided in the preceding paragraph, the swap counterparty will be
responsible for designating an early termination date upon the occurrence of a
swap agreement termination event or a partial swap termination event.
PAYMENTS UPON EARLY TERMINATION
Following a swap termination event, an early termination payment is usually
payable from one party to the other party. This means that upon a swap
termination event, either the swap counterparty would make an early termination
payment to the trust or the trust, by liquidating some or all of the Underlying
Securities, would make an early termination payment to the swap counterparty.
However, the trust and the swap counterparty will not follow these procedures.
Instead, to prevent the trust from having to make an early termination payment
to the swap counterparty, the trust has agreed with the swap counterparty that
following a swap agreement termination event that is not a trust termination
event, (i) there will be no early termination payment payable by either party to
the swap agreement, (ii) the obligations of the swap counterparty and the trust
under the swap agreement will terminate and (iii) distributions will be made to
the holders of the certificates on a semi-annual basis on the distribution dates
in February and August of each year. Following any swap agreement termination
event that is not a trust termination event, on each distribution date in
February and August, the holders of the certificates will receive a pro rata
share of any interest payments received by the trust in respect of the
Underlying Securities, which will cause the yield on the certificates to be
based on the 6.345% fixed annual rate payable on the Underlying Securities,
instead of the floating rate interest distribution amount payable prior to such
swap termination event.
Following a swap agreement termination event that is also a trust termination
event, an early termination payment will be payable under the swap agreement.
Additionally, following a partial swap termination event, an early termination
payment will be payable under the swap agreement based on the percentage of the
swap notional amount being terminated but, the trust will only be obligated to
make such early termination payment that it owes to the swap counterparty to the
extent it has funds available therefore on the related distribution date.
Payments upon early termination of the swap agreement will be determined as
described in the next paragraph.
The amount payable upon an early termination of the swap agreement (the "early
termination payment") will be based on an average of market quotations obtained
by the party entitled to make such determination from leading swap dealers of
the highest credit standing (or if fewer than three quotes are received, based
on the actual loss or gain resulting from such early termination). If an early
termination results from a swap agreement termination event (that is also a
trust termination event) or a partial swap termination event where there is a
defaulting party or one affected party, the non-defaulting or the party which is
not the affected party will determine a market quotation, and an amount will be
payable equal to (a) the market quotation and any unpaid amounts owed to the
party that is not the defaulting party or the affected party less (b) any unpaid
amounts owed to the defaulting party or the affected party. If that amount is a
positive number, the defaulting party or such affected party will pay it to the
other party; if it is a negative number, such other party will pay the absolute
value of that amount to the defaulting party or such affected party. If the
early termination date results from a swap agreement termination event (that is
also a trust termination event) or a partial swap termination event and there
are two affected parties, the swap counterparty will
S-32
DESCRIPTION OF THE SWAP AGREEMENT
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determine a market quotation, and an amount will be payable equal to (a) the
market quotation and any unpaid amounts owed to the swap counterparty less (b)
any unpaid amounts owed to the trust. If that amount is a positive number, the
trust will pay it to the swap counterparty; if it is a negative number, the swap
counterparty will pay the absolute value of that amount to the trust.
"market quotation" means, as to the respective party making the determination,
the termination amount based on quotations from leading dealers, in accordance
with the swap agreement.
"termination amount" means the amount, if any, that the party making the
determination would pay (expressed as a positive number) or receive (expressed
as a negative number) in consideration of an agreement that would have the
effect of preserving the economic equivalent of the amounts that would have been
paid by the trust and the swap counterparty pursuant to the swap agreement after
the early termination date, determined as if the swap agreement had not been
terminated, in whole or in part, early.
In the event the Underlying Securities are liquidated as a result of an
Underlying Securities payment default, an Underlying Securities bankruptcy
default, a SEC reporting failure, a trust swap payment default or a trust
regulatory event, the early termination payment payable by the trust to the swap
counterparty (if any is then payable) will be deducted from the liquidation
proceeds payable to the holders of the certificates. If any early termination
payment is payable by the swap counterparty to the trust (if any is then
payable), the amount of such payment will be added to the proceeds payable to
the holders of the certificates.
In the event the Underlying Securities are redeemed, repurchased or repaid, in
whole or in part, prior to their maturity, the early termination payment payable
by the trust (if any is then payable) to the swap counterparty will be paid only
after the holders of the certificates have received (i) an amount equal to the
principal balance of the certificates being redeemed, (ii) accrued and unpaid
interest thereon and (iii) a make-whole amount, if any. Any remainder shall be
paid to the swap counterparty.
ASSIGNMENT OF RIGHTS
Under the terms of the trust agreement, the trustee may consent to any transfer
or assignment by the swap counterparty of its rights under the swap agreement,
so long as each rating agency shall have given its prior written confirmation
that such transfer or assignment will not result in a reduction or withdrawal of
the then current rating of the certificates. The trustee shall not be permitted
to transfer or assign its rights under the swap agreement without the prior
consent of the swap counterparty.
AMENDMENT OF THE SWAP AGREEMENT
The swap agreement may not be amended without the prior written consent of the
swap counterparty, holders of 66 2/3% of the then outstanding certificates and
without prior written confirmation from each rating agency that such amendment
will not result in a reduction or withdrawal of the then current rating of the
certificates; provided, however, that each of the swap counterparty and the
trustee may amend the swap agreement without the prior written consent of
holders of the certificates to cure any ambiguity in, or to correct or
supplement any provision of the swap agreement which may be inconsistent with
any other provision of the swap agreement, or to otherwise cure any defect in
the swap agreement, provided that any such amendment does not materially
adversely affect the interest of the holders of the certificates and that each
rating agency will have given its prior written confirmation that such amendment
will not result in a reduction or withdrawal of the then current rating of the
certificates; provided further, however, that notwithstanding anything to the
contrary, no amendment may alter the timing or amount of any payment on the swap
agreement without the prior consent of 100% of the holders of the certificates
and without giving each rating agency prior written notice of any such
amendment.
S-33
DESCRIPTION OF THE SWAP AGREEMENT
- --------------------------------------------------------------------------------
REPLACEMENT OF SWAP COUNTERPARTY
Pursuant to the terms of the swap agreement, if the short-term senior unsecured
debt rating of the swap counterparty is lowered below A-1 by Standard & Poor's
at any time following the closing date, then the swap counterparty, in a
commercially reasonable manner, will seek, without the consent of the holders of
the certificates, to assign its rights and obligations under the swap agreement
to a replacement swap counterparty rated at least A-1 by Standard & Poor's and
otherwise acceptable to the rating agencies. All costs and expenses in
connection with such assignment will be paid by the swap counterparty. If a
replacement swap counterparty is not designated within 30 days of the date the
swap counterparty's short-term senior unsecured debt rating is downgraded below
A-1 then the swap counterparty will be obligated to pledge and assign to the
trustee collateral (in the form of cash or U.S. Treasury issued securities)
equal to the replacement value of the swap. There can be no assurance that the
failure to find a replacement swap counterparty or to post any required
collateral will not result in a lowering in the ratings of the certificates.
If the swap counterparty suspends or terminates its reporting under the
Securities Exchange Act, then the swap counterparty will, without the consent of
the holders of the certificates, assign its rights and obligations under the
swap agreement to a replacement swap counterparty that is reporting under the
Securities Exchange Act and otherwise acceptable to the rating agencies or
terminate the swap agreement and make a payment to the trust equal to (x) the
accrued and unpaid interest and principal amounts paid to the holders of the
certificates by the trust less (y) the proceeds resulting from the trust's
liquidation of the Underlying Securities, if it is a positive number.
S-34
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UBS AG
OVERVIEW
UBS AG and subsidiaries ("UBS") comprise one of the world's leading financial
firms, serving a discerning global client base. As an organization, it combines
financial strength with a global culture that embraces change. As an integrated
firm, UBS creates added value for clients by drawing on the combined resources
and expertise of all its businesses.
UBS is the world's leading wealth management business, a global investment
banking and securities firm with a strong institutional and corporate client
franchise, a key asset manager and, with roughly a quarter of the Swiss lending
market, the market leader in Swiss corporate and individual client banking.
On December 31, 2003, UBS employed approximately 66,000 people. With
headquarters in Zurich, Switzerland and Basel, Switzerland, UBS operates in over
50 countries and from all major international centers.
UBS is managed through four Business Groups and its Corporate Center, each of
which is summarized below.
Further information about UBS, including more detailed descriptions of the
Business Groups and Corporate Center, is contained in UBS AG's Annual Report on
US Securities and Exchange Commission Form 20-F for the year ended December 31,
2003 (the "Form 20-F"), which is incorporated by reference into this prospectus
supplement.
WEALTH MANAGEMENT & BUSINESS BANKING
Wealth Management provides a comprehensive range of products and services
individually tailored for wealthy clients around the world via its global branch
network and through financial intermediaries. With CHF 701 billion in invested
assets on December 31, 2003, more than 140 years of wealth management experience
and an extensive branch network comprising 112 offices in Switzerland and 56
offices around the world, it is the world's largest private bank.
Business Banking Switzerland is the leading bank in Switzerland. At the end of
2003, it had around 3.5 million individual client accounts, and relationships
with around some 150,000 corporate clients, including institutional investors,
public entities and foundations based in Switzerland, as well as 3,000 financial
institutions worldwide. Clients have invested assets of CHF 212 billion with
Business Banking. With a total loan book of CHF 139 billion on December 31,
2003, it leads the Swiss lending and retail mortgage market.
GLOBAL ASSET MANAGEMENT
The Global Asset Management business is one of the world's leading asset
managers, providing investment management solutions to private clients,
financial intermediaries and institutional investors. It is distinguished by its
integrated global investment processes and the breadth, depth and scope of
investment capabilities which enable it to offer investment solutions in nearly
every major asset class. Invested assets totaled CHF 574 billion on December 31,
2003, making it one of the largest global institutional asset managers, the
second largest mutual fund manager in Europe, and the largest mutual fund
manager in Switzerland.
S-35
UBS AG
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INVESTMENT BANK
UBS's Investment Bank operates globally as a client-driven investment banking
and securities firm. Its salespeople, research analysts and investment bankers
provide products and services to the world's key institutional investors,
intermediaries, banks, insurance companies, corporations, sovereign governments,
supranational organizations and private investors. For both its own corporate
and institutional clients and the individual clients of other parts of UBS, the
Investment Bank provides product innovation, research and advice, and
comprehensive access to the world's capital markets.
WEALTH MANAGEMENT USA
Wealth Management USA is one of the biggest US wealth managers. With CHF 634
billion in invested assets and nearly 2 million private client relationships,
its focus is on wealth management services to the core affluent (clients with
more than USD 500,000 in investable assets) and to high net worth individuals
(clients with more than USD 5 million in investable assets). It has almost 7,800
financial advisors in 366 branch office locations that build and maintain
consultative relationships with their clients.
CORPORATE CENTER
UBS's portfolio of businesses is planned and managed for the long-term
maximization of shareholder value. Corporate Center creates sustainable value
for shareholders and stakeholders by partnering with the Business Groups to
ensure that the firm operates as an effective and integrated whole with a common
vision and set of values.
CORPORATE INFORMATION
The legal and commercial name of the company is UBS AG. The company was
incorporated under the name SBC AG on February 28, 1978 for an unlimited
duration and entered in the Commercial Register of Canton Basle-City on that
day. On December 8, 1997, the Company changed its name to UBS AG. The company in
its present form was created on June 29, 1998 by the merger of Union Bank of
Switzerland (founded 1862) and Swiss Bank Corporation (founded 1872). UBS AG is
entered in the Commercial Registers of Canton Zurich and Canton Basle-City. The
registration number is CH-270.3.004.646-4.
UBS AG is incorporated and domiciled in Switzerland and operates under Swiss
Company Law and Swiss Federal Banking Law as an Aktiengesellschaft, a
corporation that has issued shares of common stock to investors.
The address and telephone number of UBS AG's two registered offices and
principal places of business are: Bahnhofstrasse 45, CH-8098 Zurich,
Switzerland, telephone +41-1-234 11 11; and Aeschenvorstadt 1, CH-4051 Basel,
Switzerland, telephone +41-61-288 20 20.
UBS AG shares are listed on the SWX Swiss Exchange and traded through virt-x
which is majority owned by the SWX Swiss Exchange. They are also listed on the
New York Stock Exchange and on the Tokyo Stock Exchange.
S-36
UBS AG
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CAPITALIZATION OF UBS
The following table sets forth the consolidated capitalization of UBS in
accordance with International Financial Reporting Standards and translated into
U.S. Dollars.
<Table>
<Caption>
CHF USD
AS OF MARCH 31, 2004 (In millions)
- -------------------------------------------------------------------------------
Debt
Short Term Debt Issued(1)................................. 106,113 83,754
Long Term Debt Issued(1).................................. 60,773 47,968
------- -------
Total Debt Issued......................................... 166,886 131,722
Minority Interest(2)........................................ 4,606 3,635
Shareholders' Equity........................................ 37,602 29,679
------- -------
Total Capitalization........................................ 209,094 165,036
======= =======
</Table>
- ------------
(1) Includes Money Market Paper and Medium Term Notes as per Balance Sheet
position.
(2) Includes Trust preferred securities.
Swiss francs (CHF) amounts have been translated into U.S. dollars (USD) at the
rate of CHF 1 = USD 0.78929.
WHERE YOU CAN FIND MORE INFORMATION
UBS AG is subject to the informational requirements of the Securities Exchange
Act and files reports and other information with the SEC under File No. 1-15060.
You may read and copy any reports, statements and other information that UBS AG
files with the SEC (i) over the Internet at the SEC's website at
http://www.sec.gov containing reports, proxy statements and other information
regarding registrants that file electronically with the SEC; (ii) at the SEC's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the SEC's regional offices located at 233 Broadway, New York, New York 10279,
and Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois
60661; (iii) at the New York Stock Exchange, Inc., 20 Broad Street, New York,
New York 10005; (iv) at the American Stock Exchange LLC, 86 Trinity Place, New
York, New York 10006; (v) over the Internet at UBS AG's web site at
http://www.ubs.com/investor-relations; and (vi) at no cost, upon request to UBS
AG, Investor Relations G41B, P.O. Box, CH-8098 Zurich, Switzerland, Phone:
011-41-1-234-41-00, Fax: 011-44-1-234-34-15, E-mail:
SH-investorrelations@ubs.com.
INCORPORATION OF DOCUMENTS BY REFERENCE
We are incorporating by reference in this prospectus supplement UBS AG's (a)
Annual Report on Form 20-F for the year ended December 31, 2003, which UBS AG
filed with the SEC on March 31, 2004 and (b) Forms 6-K filed with the SEC on
April 22, 2004 and May 4, 2004. We are also incorporating all subsequent reports
that UBS AG files with the SEC on Form 20-F under the Securities Exchange Act
after the date of this prospectus supplement and prior to the termination of the
offering of the certificates. We may also incorporate any reports on Form 6-K
that UBS AG submits to the SEC after the date of this prospectus supplement and
prior to the termination of the offering of the certificates if the Form 6-K
filing specifically states that it is incorporated by reference into this
prospectus supplement or into registration statements that UBS AG files with the
SEC. Information that UBS AG files with or submits to the SEC later will
automatically update the information in this prospectus supplement and the
attached prospectus. In all cases, you should rely on the later information over
different information included in this prospectus supplement or the attached
prospectus.
S-37
UBS AG
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As a recipient of this prospectus supplement and the attached prospectus, you
may request a copy, at no cost, of any or all of the document(s) we incorporate
by reference, except exhibits to the documents (unless the exhibits are
specifically incorporated by reference), at no cost, by writing or calling UBS
AG at: UBS AG, Investor Relations G41B, P.O. Box, CH-8098 Zurich, Switzerland,
Phone: 011-41-1-234-41-00, Fax: 011-41-1-234-34-15, E-mail:
SH-investorrelations@ubs.com, Internet: www.ubs.com/investor-relations.
EXPERTS
The consolidated balance sheets of UBS AG at December 31, 2003 and 2002 and the
related consolidated statements of income, cash flows and changes in
shareholders' equity for each of the three years in the period ended December
31, 2003 incorporated by reference into this prospectus supplement have been
audited by Ernst & Young Ltd., independent auditors, as set forth in their
report thereon incorporated by reference into this prospectus, and are included
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
S-38
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Description of the Certificates
The trust will issue one class of Series 2004-101 floating rate callable
certificates. The certificates will be denominated, and distributions with
respect to them will be payable in U.S. dollars, their specified currency. The
certificates will represent, in the aggregate, the entire beneficial ownership
interest in the assets of the trust.
THE CERTIFICATES
CERTIFICATE PRINCIPAL BALANCE
Each certificate will have an initial certificate principal balance of $25.00.
The aggregate initial certificate principal balance of all the certificates will
be $--. The certificate principal balance of a certificate is the amount that
the certificate holder is entitled to receive as a distribution allocable to
principal on the final distribution date or as a result of (i) any redemption or
repurchase of or other unscheduled payment on the Underlying Securities by the
Underlying Securities Issuer or (ii) any liquidation of the Underlying
Securities as a result of an Underlying Securities payment default, an
Underlying Securities bankruptcy default, a SEC reporting failure, a trust swap
payment default or a trust regulatory event.
INTEREST DISTRIBUTIONS
For the first interest accrual period, from and including the closing date to,
but excluding, the first distribution date, interest will be payable at the rate
of --% per annum (--%, three-month USD LIBOR as of --, 2004 plus --%).
Thereafter, interest will be reset quarterly and will be payable on each
distribution date at a floating rate, not to exceed --% per annum, equal to the
greater of (i) three-month USD LIBOR plus --% and (ii) --%. Following the
occurrence of a swap agreement termination event that is not a trust termination
event, interest will be payable at a fixed rate equal to 6.345% per annum.
Distributions allocable to interest will be made on the certificates on each
distribution date. The distribution dates on the certificates will be quarterly
on the fifteenth day of February, May, August and November or if any such date
is not a business day, then the next succeeding business day, commencing --,
2004. The distributions made on the certificates on each distribution date will
be made to the person in whose name the certificate is registered on the related
record date, which will be the day immediately prior to the distribution date,
whether or not a business day. The amount of interest you will receive on each
distribution date will be an interest distribution amount equal to the product
of (x) the then outstanding certificate principal balance, (y) the interest rate
for the preceding interest accrual period and (z) the actual number of days in
such interest accrual period divided by 360; provided, however, that during the
continuance of an extension period with respect to the Underlying Securities,
interest will continue to accrue on the principal balance of the certificates
(and on any interest that is due), but such interest will not be distributed to
holders of the certificates until the extension period ends. Following the
occurrence of any swap agreement termination event that is not also a trust
termination event, distributions will be made on the distribution dates in
February and August. The last scheduled distribution date, or the final
distribution date, will be February 15, 2034.
Except as provided herein, collections received by the trustee from the swap
counterparty (or from the Underlying Securities Issuer, following a swap
agreement termination event that is not a trust termination event) and deposited
from time to time into an account established by the trust, or the certificate
account, will be applied by the trustee on each applicable distribution date,
solely to the extent of available interest funds on such distribution date to
the holders of the certificates; provided, however, that if the trustee has not
received any amounts of available interest funds on or prior to the
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related distribution date, such amounts shall be applied as described above
promptly upon receipt of such amounts.
A "business day" is any day other than (a) a Saturday, a Sunday or a day on
which banking institutions in the City of New York are authorized or obligated
by law or executive order to be closed for business, or (b) a day that is not a
business day for purposes of the Underlying Securities.
"available interest funds" means, for any distribution date, the sum of (i) all
amounts received from the swap counterparty pursuant to the swap agreement
during the preceding interest accrual period and (ii) any amounts with respect
to interest on the Underlying Securities that are actually received by the trust
pursuant to the Underlying Securities trust agreement on such distribution date
and not required to be paid to the swap counterparty pursuant to the swap
agreement.
PRINCIPAL DISTRIBUTION
On the final distribution date the trustee will pay from available principal
funds to the holders of the certificates, pro rata, the then outstanding
certificate principal balance to the extent of available principal funds plus,
to the extent not paid out of the available interest funds on such date, any
accrued and unpaid interest due thereon to the extent of available principal
funds; provided, however, that if the Underlying Securities are redeemed,
repurchased, repaid or liquidated prior to the final distribution date, the
proceeds received by the trustee will be allocated as follows:
- - Following any liquidation of the Underlying Securities as a result of an
Underlying Securities payment default, an Underlying Securities bankruptcy
default, a SEC reporting failure, a trust swap payment default or a trust
regulatory event, the funds received by the trust in connection with the
related liquidation will be paid (i) first, to the swap counterparty, in an
amount equal to any early termination payment payable by the trust to the swap
counterparty (if any is then payable) and (ii) thereafter, any remainder will
be paid to the holders of the certificates; or
- - Following any redemption or tender offer described under "Description of the
Certificates--Redemptions and Tender Offers" below, the funds received by the
trust in connection with the such redemption and tender offer will be paid (i)
first, to the holders of the certificates, in an amount equal to the sum of
(a) the principal amount of the Underlying Securities so redeemed, repurchased
or repaid, (b) any accrued and unpaid interest on the amount of certificates
so redeemed, repurchased or repaid, and (c) a make-whole amount, if any, and
(ii) any remainder shall be paid to the swap counterparty.
"available principal funds" means all amounts received from the Underlying
Securities Issuer with respect to principal on the Underlying Securities on the
final distribution date or any other date. If available principal funds on the
final distribution date are less than the amounts owing by the Underlying
Securities Issuer with respect to principal on the Underlying Securities, an
early termination of the swap agreement will occur as a result of an Underlying
Securities payment default.
Any portion of funds received by the trustee in respect of the Underlying
Securities (i) that does not constitute principal of, or interest on, the
Underlying Securities, (ii) that is not received in connection with a
redemption, prepayment or liquidation of the Underlying Securities and (iii) for
which allocation by the trustee is not otherwise contemplated, shall be remitted
by the trustee to the holders of the certificates.
FORM OF CERTIFICATES; BOOK-ENTRY ISSUANCE
The certificates will be issued in fully registered form in denominations of
$25.00 and multiples of $25.00.
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The certificates will initially be represented by one or more global
certificates registered in the name of Cede & Co., as nominee of The Depository
Trust Company, or DTC. No beneficial owner of any of these certificates will be
entitled to receive a certificate representing that person's interest, except as
set forth under "--Definitive Certificates" below. Unless and until definitive
certificates are issued under the circumstances described below, all references
to actions by holders with respect to any certificates will refer to actions
taken by DTC upon instructions from its participants. See "--Definitive
Certificates" below and "Description of the Certificates--Global Securities;
Holdings in Street Name" in the attached prospectus.
DEFINITIVE CERTIFICATES
Definitive certificates will be issued to you or your nominee, rather than to
DTC or its nominee, only if (i) DTC or the depositor advises the trustee that
DTC is no longer willing or able to continue as depositary with respect to the
certificates and the depositor does not appoint a qualified successor within 90
days, or (ii) if GS Group ceases to file Securities Exchange Act reports as
described under "Description of the Certificates--Termination of Book-Entry
Registration in Connection with Suspension of Securities Exchange Act Reporting
by GS Group" below.
Upon the occurrence of either event described in the preceding paragraph, the
trustee is required to notify (i) all DTC participants with interests in the
certificates of the availability of definitive certificates through DTC and (ii)
in the case of an event described in clause (ii) of the preceding paragraph,
DTC, of the occurrence of any such event and of the trustee's intention to make
definitive certificates available. Upon surrender by DTC of the global
certificates registered in the name of the nominee of DTC and receipt of
instructions for re-registration, the trustee will reissue the certificates as
definitive certificates in the respective certificate principal balances
specified by DTC, and thereafter the trustee will recognize the registered
holders of the definitive certificates as holders of certificates under the
trust agreement. See "Description of the Certificates--Global Securities;
Holdings in Street Name" in the attached prospectus.
TRADING
The depositor intends to apply to list the certificates on the New York Stock
Exchange. If the application is approved, trading of the certificates on the New
York Stock Exchange is expected to commence within 30 days after the initial
delivery of the certificates. Listing or quotation of the certificates on the
New York Stock Exchange will not ensure that a liquid trading market will be
available for the certificates.
The certificates are expected to trade flat. This means that any accrued and
unpaid interest on the certificates will be reflected in the trading price, and
purchasers will not pay and sellers will not receive any accrued and unpaid
interest on the certificates not included in the trading price.
THE CALL OPTIONS
As a condition to its initial purchase of the certificates, UBS Securities LLC
will grant to the depositor call options to purchase each of the certificates,
and as a purchaser of the certificates, your ownership of the certificates will
be subject to those call options. After the call options are granted, the
depositor will sell the call options to the swap counterparty through UBS
Securities LLC, as agent. The holder of the call options may exercise its call
options to purchase all of your certificates (i) on or after --, 2009, (ii) at
any time following the occurrence of an Underlying Securities payment default,
an Underlying Securities bankruptcy default, a SEC reporting failure, a trust
swap payment default or a trust regulatory event, or (iii) at any time in
connection with a tender offer for, a redemption or repurchase of or an
unscheduled payment on the Underlying Securities.
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U.S. Bank Trust National Association will execute a call option agreement with
the depositor and UBS Securities LLC pursuant to which the call options will be
granted by UBS Securities LLC to the depositor, and will act as your agent, or
the option agent, with respect to the call options.
The price that the option holder must pay you to purchase your certificates will
be equal to the outstanding certificate principal balance of the certificates
purchased plus any accrued and unpaid interest.
Each purchaser of a certificate following the initial sale of the certificates
will be deemed, by its purchase of such certificate, to have agreed to assume
the obligations of its transferor under the related call option and to appoint
the option agent as its agent to act on its behalf in relation to the related
call option, and the certificate will bear a legend to that effect.
The holder of the call options may exercise the call options only if:
- - it exercises the call options with respect to all of the certificates
outstanding; provided, however, that in connection with a partial tender for,
a partial redemption or repurchase of the Underlying Securities, it exercises
the call options with respect to the certificates equal to the aggregate
principal amount of Underlying Securities being tendered or redeemed;
- - it gives the trustee and the option agent at least 15 calendar days' notice
and not more than 60 calendar days' notice of exercise. However, the holder of
the call options may give notice of its intention to exercise its call options
in connection with (i) an Underlying Securities payment default, an Underlying
Securities bankruptcy default, a SEC reporting failure, a trust swap payment
default or a trust regulatory event, two business days prior to the call date
or (ii) a tender offer for, redemption or repurchase of or unscheduled payment
on the Underlying Securities, no later than seven business days prior to the
expiration of the tender offer acceptance period.
If the holder of the call options exercises its call options, the option agent
will remit the amount of the call price received to the trustee for payment to
the holders of the called certificates. The trustee will transfer your called
certificates from you to the option holder without your taking any action. The
called certificates will then be cancelled by the trustee, and interest will
cease to accrue, without the need for any further action by you. If you are
holding your certificates in definitive physical form, your called certificates
will be cancelled without your taking any further action, but you will not
receive the purchase price for your certificates until you deliver your called
certificates to the trustee. If the called certificates represent all the
certificates outstanding, the trustee will liquidate the Underlying Securities,
remit the liquidation proceeds to the option holder and terminate the trust.
If the call options are exercised with respect to less than all the
certificates, the certificates to be purchased will represent a pro rata portion
of the certificates held by each certificate holder, except that purchases of a
fraction of a single certificate will not be made, and the trustee may round up
or down to avoid such fractional purchases.
In the case of any tender offer for the Underlying Securities (whether by the
Underlying Securities Issuer or any third party), if the option holder exercises
its call options with respect to any certificates, then the trustee must tender,
in compliance with the tender offer requirements for the Underlying Securities,
a principal amount of Underlying Securities equal to the aggregate certificate
principal balance of certificates in relation to which a notice of exercise of
the related call options has been given, unless the tender offer price for the
Underlying Securities is less than the call price that would be required to be
paid by the holder of the call options. If fewer than all the Underlying
Securities tendered by the trust are accepted for payment and paid for under the
tender offer, then the number of call options deemed exercised will be reduced
so that the certificate principal balance of the certificates subject to such
exercised call options corresponds to the principal amount of Underlying
Securities tendered by the trust that are accepted for payment and paid for, and
the call options deemed not
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exercised will remain outstanding. In addition, if the tender offer is
terminated by the Underlying Securities Issuer or any other person making the
tender offer before any Underlying Securities are accepted for payment and paid
for, or if all tenders by the trust of Underlying Securities are rejected, then
the notice of the exercise of the call options will be of no further force and
effect, and any call options for which notice of exercise was given will be
deemed not exercised and will remain outstanding. The trustee will pay the
difference between the tender offer proceeds and the call price to the
exercising option holder.
Unless the exercise of the call options was made in connection with a tender
offer, if the option holder has not paid the purchase price to the option agent
by 10:00 a.m. (New York City time) on the date specified for settlement in the
notice of exercise, the option holder's notice of exercise will automatically
expire. If the exercise of the call options was made in connection with a tender
offer, if the trustee has not received payment of the tender price from the
Underlying Securities Issuer (or another purchaser of the Underlying Securities
in a tender offer, if applicable) under the exercised call options (or with
respect to the portion of the call options deemed exercised, if less than all
Underlying Securities tendered by the trustee are purchased in the tender offer)
in immediately available funds, no later than 10:00 a.m. (New York City time) on
the later of (i) the date specified for settlement in the notice of exercise, or
(ii) the earlier to occur of the date immediately following the date on which
the tender offer is consummated or the date on which it expires unconsummated,
the option holder's notice of exercise will automatically expire. In each case,
upon the expiration of the option holder's notice of exercise, none of the
option holder, the option agent or the trustee will have an obligation with
respect of the notice of exercise, and the expiration of the notice to exercise
will in no way affect the option holder's right to deliver a notice to exercise
at a later date.
The holder of the call options will have the right to assign its rights under
the call options in accordance with its terms to any person other than the
depositor.
TRUST TERMINATION EVENTS
Following the occurrence of an Underlying Securities payment default, an
Underlying Securities bankruptcy default, a SEC reporting failure, a trust swap
payment default or a trust regulatory event, thirty days after giving notice to
the holders of the certificates, the trustee, using commercially reasonable
efforts, will liquidate the Underlying Securities in a manner determined by the
trustee and distribute the proceeds in the manner described in "--The
Certificates--Interest Distributions" and "--Principal Distribution" above.
TERMINATION OF BOOK-ENTRY REGISTRATION IN CONNECTION WITH SUSPENSION OF
SECURITIES EXCHANGE ACT REPORTING BY GS GROUP
If GS Group ceases to have a class of securities listed on a national securities
exchange or held of record by 300 or more holders, it could elect to suspend its
reporting requirements under the Securities Exchange Act. In that event, GS
Group will no longer be required to make available under the Securities Exchange
Act the public information referred to above under "Description of the
Underlying Securities--Available Information." If this happens, then, unless the
trust has earlier suspended its own Securities Exchange Act reporting
requirements, the certificates will be removed from the DTC book-entry system,
and definitive certificates representing the certificates will be issued to the
beneficial owners of the certificates. In addition, the trustee will notify the
Underlying Securities Issuer that the Underlying Securities are held pursuant to
the trust agreement and that the holders of the certificates constitute record
holders of the Underlying Securities. The issuance of definitive certificates is
intended to increase the likelihood that there will then be more than 300
holders of record of the Underlying Securities, requiring GS Group to resume
filing Securities Exchange Act reports, in light of Rule 12g5-1(b)(1) under the
Securities Exchange Act, which requires an issuer of underlying securities
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with actual knowledge that those underlying securities are held pursuant to a
trust agreement to treat holders of record of certificates issued by the trust
as holders of record of the underlying securities. There is, however, no
certainty that the issuance of definitive certificates will cause there to be
more than 300 holders of record of the Underlying Securities.
SEC REPORTING FAILURE
If (i) GS Group has suspended its reporting under the Securities Exchange Act at
a time when the Securities Exchange Act reporting requirements applicable to the
trust have not been suspended or terminated, and either (x) the suspension of
Securities Exchange Act reporting by GS Group continues for a period of at least
one year, or (y) GS Group announces or takes measures that demonstrate in
connection with such suspension or at any time thereafter, that it will no
longer be a reporting company under the Securities Exchange Act; (ii) the
certificates have been be removed from the DTC book-entry system; (iii)
definitive certificates representing the certificates have been issued to the
beneficial owners of the certificates; and (iv) if GS Group has not resumed
filing Securities Exchange Act reports within 60 days of such issuance (a "SEC
reporting failure") and the holder of the call options does not elect to
exercise its call rights, thirty days after giving notice to the holders of the
certificates, the trustee, using commercially reasonable efforts, will liquidate
the Underlying Securities in a manner determined by the trustee and distribute
the proceeds in the manner described above under "--The Certificates--Interest
Distributions" and "--Principal Distribution".
REDEMPTIONS AND TENDER OFFERS
As described above under "Description of the Underlying Securities--Optional
Redemption," the Underlying Securities Issuer has the right to redeem the
Underlying Securities at any time, and may make tender offers for, redemptions
or repurchases of or other unscheduled payments on the Underlying Securities. If
the Underlying Securities Issuer redeems some or all of the Underlying
Securities, then a corresponding portion of the certificates will be redeemed.
Where there is a partial redemption or repayment of the Underlying Securities,
the certificates will be selected for redemption pro rata based on the
certificate principal balance of such certificates, except that no fractional
repurchases of certificates will be made. Assuming the Underlying Securities
Issuer makes payments when due, on the third business day after the trustee
receives the proceeds of any full or partial redemption or repayment of the
Underlying Securities, the proceeds will be distributed in the manner described
under "--The Certificates--Interest Distributions" and "--Principal
Distribution" above.
If the Underlying Securities Issuer (or another third party, in the case of a
tender offer) announces its intention to tender for or repurchase the Underlying
Securities, the trustee will be required not to accept any such tender offer or
repurchase offer, except in connection with the exercise of the call options, as
set forth above, or if the call options are not exercised, upon the unanimous
vote of the certificate holders. The holder of the call options will have the
right to purchase your certificates at a call price equal to the certificate
principal balance of your certificates plus any accrued and unpaid interest.
If there is an Underlying Securities event of default (other than an Underlying
Securities payment default or an Underlying Securities bankruptcy default) and
amounts due in respect of principal on the Underlying Securities are
accelerated, distributions in respect of payments or property, if any, received
by the trustee after the acceleration of the Underlying Securities will be made
as described under "Description of the Trust Agreement--Method of Liquidation"
below.
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VOTING RIGHTS
At all times, the outstanding certificates will bear all of the voting rights
applicable to all the certificates. In the circumstances described under
"Description of the Trust Agreement--Voting of the Underlying Securities;
Modification of the Underlying Securities Trust Agreement," the option holder
must also consent to decisions made by holders of the certificates. Each
certificate of $25.00 in certificate principal balance will bear one vote. The
holders of the certificates have no right to waive compliance by the depositor
or the trustee with any restrictive provision of the trust agreement or to waive
any default under the trust agreement.
A certificate will be considered "outstanding" so long as it is held by any
person other than (and is not pledged to) the depositor, the trustee (in its
individual capacity) or any of their respective affiliates.
ADDITIONAL UNDERLYING SECURITIES
From time to time, the trust may acquire additional Underlying Securities in a
principal amount of not less than $-- in which case additional certificates will
be issued. These new certificates will have an aggregate certificate principal
balance equal to 100% of the principal amount of the additional Underlying
Securities. Any additional certificates issued will have the same priority,
right to payments and voting rights as the certificates of the same class issued
on the closing date, and any additional certificates will be subject to call
options on the same terms as the call options described in this prospectus
supplement.
The depositor will agree that if it does cause the trust to issue additional
certificates, the depositor will either resell the call options on the new
certificates to the same entity that then holds the call options on the existing
certificates or the depositor will ensure that the issuance of the new
certificates and the related call options will not affect the right of the
existing option holder to exercise its call options at any time as described
under "--The Call Options" above.
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Description of the Trust Agreement
GENERAL
The certificates will be issued pursuant to the trust agreement to be dated as
of the closing date, between the depositor and U.S. Bank Trust National
Association, as trustee and option agent, a form of which is filed as an exhibit
to the registration statement of which the attached prospectus forms a part. A
current report on Form 8-K containing a copy of the trust agreement as executed
will be filed by the trustee with the SEC following the closing date. The assets
of the trust created under the trust agreement will consist of:
- - the Underlying Securities (exclusive of interest accrued from and including
February 20, 2004, to, but excluding, the closing date, which has been
retained by the depositor);
- - all payments on or collections in respect of the Underlying Securities due on
and after the closing date (subject to the trust's obligations to the swap
counterparty under the swap agreement);
- - the rights of the trust under the swap agreement (subject to the trust's
obligations to the swap counterparty under the swap agreement); and
- - any other proceeds of the Underlying Securities.
You should refer to the attached prospectus for additional important information
regarding the trust, the trust agreement and the certificates. The material
terms of the trust agreement are summarized below and in the attached
prospectus. These summaries are not complete and are subject to the detailed
provisions contained in the trust agreement. You should refer to the form of
trust agreement in order to obtain a full understanding of its provisions.
CERTAIN PAYMENTS TO THE DEPOSITOR
The interest accrued on the Underlying Securities from and including February
20, 2004, to, but excluding, the closing date will be retained by the depositor
and will not be transferred to the trust with the Underlying Securities. On --,
2004, the trustee will pay the interest accrued during that period to the
depositor to the extent received from the Underlying Securities Issuer.
THE TRUSTEE
U.S. Bank Trust National Association, a national banking association, will act
as trustee of the trust and as option agent. The trustee's corporate trust
offices are located at 100 Wall Street, New York, New York 10005 and its
telephone number is 212-361-2500.
The trust agreement will provide that the trustee and its directors, officers,
employees and agents will be indemnified by the depositor as described in the
attached prospectus under "Description of the Trust Agreement--Matters Regarding
the Trustee." However, the depositor is not required to reimburse any expense or
indemnify the trustee against any loss, liability or expense that is incurred by
the trustee through the trustee's own negligent action, the trustee's own
negligent failure to act or willful misconduct, or bad faith in the performance
of the trustee's duties under the trust agreement.
Except as described under "--Underlying Securities Defaults" below, the
trustee's fees and expenses will all be paid by the depositor pursuant to a
separate agreement between the depositor and the trustee. Failure by the
depositor to pay, reimburse or indemnify the trustee will not entitle the
trustee to any payment, reimbursement or indemnification from the trust. Except
as described under "--Underlying Securities Defaults" below, any unpaid,
unreimbursed or unindemnified amounts will not be borne by the trust and will
not constitute a claim against the trust.
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UNDERLYING SECURITIES DEFAULTS
If there is an Underlying Securities payment default, an Underlying Securities
bankruptcy default, a SEC reporting failure, a trust swap payment default, a
trust regulatory event or any other Underlying Securities event of default, the
trustee will give notice to the registered holders of the certificates, the
option agent and the swap counterparty within five business days after the
trustee has actual knowledge of the default. The notice will identify the
Underlying Securities, and will set forth (i) the date and nature of the
default, (ii) the amount of the interest, principal or make-whole amount in
default, if such default is a payment default, and (iii) any other information
that the trustee may deem appropriate.
If there is an Underlying Securities payment default or an Underlying Securities
bankruptcy default, the trustee has agreed to proceed against the Underlying
Securities Issuer on behalf of the certificate holders to enforce the Underlying
Securities or otherwise to protect the interests of the certificate holders
(including, in the trustee's discretion, voting to accelerate the Underlying
Securities). The trustee is entitled to indemnification for so proceeding under
the indemnity granted to the trustee by the depositor in the trust agreement. In
addition, under the trust agreement, the trustee will be entitled to recover its
reasonable expenses of proceeding against the Underlying Securities Issuer out
of the proceeds of trust assets.
If there is an Underlying Securities event of default (other than an Underlying
Securities payment default or an Underlying Securities bankruptcy default), the
Trustee may proceed against the Underlying Securities Issuer on behalf of the
certificate holders; provided, however, that only with the approval of the
holders representing a majority of the voting rights of the outstanding
certificates will (i) the trustee be entitled to recover its reasonable expenses
of proceeding against the Underlying Securities Issuer out of the proceeds of
trust assets, (ii) the trustee vote the Underlying Securities in favor of
directing, or take other action as may be appropriate to direct, the trustee of
the Underlying Securities to accelerate the Underlying Securities by declaring
the unpaid principal amount of the Underlying Securities and any accrued and
unpaid interest on the Underlying Securities to be due and payable, or (iii) the
certificate holders be entitled to direct the trustee in any such proceeding,
subject to the trustee's receipt of satisfactory indemnity, including
instructing the trustee to stop proceeding against the Underlying Securities
Issuer and, using commercially reasonable efforts, sell the Underlying
Securities instead, in a manner determined by the trustee.
METHOD OF LIQUIDATION
Upon the occurrence of an Underlying Securities payment default, an Underlying
Securities bankruptcy default, a SEC reporting failure, a trust swap payment
default or a trust regulatory event, thirty days after giving notice to the
holders of the certificates, the trustee, using commercially reasonable efforts,
will liquidate the Underlying Securities in a manner determined by the trustee
and distribute the proceeds not later than three business days of receiving such
proceeds in the manner described in "Description of the Certificates--The
Certificates--Interest Distributions" and "--Principal Distribution".
If following an Underlying Securities event of default (other than an Underlying
Securities payment default or an Underlying Securities bankrupt default), the
trustee receives any money or other property in respect of the Underlying
Securities, or actual notice that money or other property will be received, the
trustee will promptly give notice to the registered holders of the certificates
that are then outstanding and unpaid, and to the option agent and the swap
counterparty. The notice will state that, not later than three business days
after the receipt of the money or other property, the trustee will allocate and
distribute the money or other property to the holders of the certificates, pro
rata by
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certificate principal balance (after deducting the costs incurred in connection
therewith). The trustee will make this distribution after payment of any payment
obligations of the trust.
Any property other than cash received in respect of the Underlying Securities
will be distributed in kind, except that property will be liquidated by the
trustee, and the proceeds distributed in cash, to the extent necessary to avoid
distribution of fractional securities or other fractional property to the
certificate holders.
LIMITATION ON RIGHTS OF ACTION
A holder of a certificate will have the right to institute a proceeding against
the Underlying Securities Issuer with respect to the Underlying Securities only
if:
- - the holder previously has given to the trustee written notice of a continuing
breach of the Underlying Securities;
- - the holder or holders of certificates evidencing not less than 25% of the
outstanding certificates have requested in writing that the trustee institute
the proceeding in its own name as trustee;
- - the trustee has for 15 days not instituted the proceeding; and
- - no direction inconsistent with the written request has been given to the
trustee during the 15-day period by the holders certificates evidencing a
majority of the outstanding certificates.
The trustee will not be required to take any action unless the holder or holders
of certificates have offered the trustee reasonable indemnity for its costs,
expenses and liabilities.
VOTING OF THE UNDERLYING SECURITIES; MODIFICATION OF THE UNDERLYING SECURITIES
TRUST AGREEMENT
Except as described below, other than after the occurrence and during the
continuation of a default, the trustee has agreed not to consent to any
amendment, modification or supplement to the Underlying Securities, or any
solicitation for any other action.
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 Underlying Securities trust
agreement or any other documents relating to the Underlying Securities, or
receives any other solicitation for any action with respect to the Underlying
Securities, the trustee will mail notice of the proposed amendment,
modification, waiver or solicitation to the holder of the call options on the
certificates, the swap counterparty and each certificate holder of record, as of
that date. The trustee will request instructions from the holders of the
certificates as to whether or not to consent to or vote to accept the amendment,
modification, waiver, or solicitation, and will vote a principal amount of the
Underlying Securities equal to the certificate principal balance whose holders
have given the trustee instructions to vote ("pass-through voting").
Notwithstanding anything to the contrary in this prospectus supplement, the
trustee will at no time vote or consent to any matter:
- - unless the vote or consent would not, based on an opinion of counsel,
adversely affect the intended classification of the trust as a grantor trust
for federal income tax purposes;
- - that would amend the Underlying Securities trust agreement or the Underlying
Securities to alter the timing or amount of any payment on the Underlying
Securities, except at the direction of the holders of all the outstanding
certificates and the holder of all the call options on the certificates; or
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- - that would result in the exchange or substitution of any of the outstanding
Underlying Securities pursuant to a plan for the refunding or refinancing of
such Underlying Securities, except at the direction of the holders of all the
outstanding certificates and the holder of all the call options on the
certificates.
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 Underlying Securities, or any other
offer is made for the Underlying Securities, the trustee will notify the holder
of the call options on the certificates and the registered holders of the
certificates and must reject the offer unless directed to accept it by holders
of 100% of the outstanding certificates and holder of the call options, in which
case the trustee will accept the offer provided that the trustee has received an
opinion of counsel to the effect that any such exchange will not (i) adversely
affect the intended classification of the trust as a grantor trust for federal
income tax purposes, or (ii) result in a deemed exchange of the Underlying
Securities or the certificates for federal income tax purposes. If and to the
extent that call options have been exercised in connection with any tender
offer, the trustee will be required to tender the Underlying Securities, as
described under "Description of the Certificates--The Call Options" above.
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United States Taxation
This section describes the material United States federal income tax
consequences of owning the certificates and is the opinion of Sullivan &
Cromwell LLP, special tax counsel to the depositor and the trust. It applies to
you only if you are a United States holder (as defined below) and you hold your
certificates as capital assets for United States federal income tax purposes.
This section does not apply to you if you are a member of a class that is
subject to special rules, such as:
- - dealers in securities or currencies,
- - traders in securities that elect to use a mark-to-market method of accounting
for their securities holdings,
- - banks,
- - life insurance companies,
- - tax-exempt organizations,
- - persons that own certificates that are a hedge or that are hedged against
interest rate risks,
- - persons that own certificates as part of a straddle or conversion transaction
for tax purposes, or
- - persons whose functional currency for tax purposes is not the United States
dollar.
For purposes of the discussion below, you are a United States holder if you are
a beneficial owner of a certificate and you are:
- - a citizen or resident of the United States,
- - a domestic corporation,
- - an estate whose income is subject to United States federal income tax
regardless of its source, or
- - a trust if a United States court can exercise primary supervision over the
trust's administration and one or more United States persons are authorized to
control all substantial decisions of the trust.
This section is based on the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), its legislative history, existing and proposed
regulations under the Internal Revenue Code, published rulings and court
decisions, all as currently in effect. These laws are subject to change,
possibly on a retroactive basis.
Please consult your own tax advisor concerning the consequences of owning these
certificates in your particular circumstances under the Internal Revenue Code
and the laws of any other taxing jurisdiction.
CLASSIFICATION OF THE TRUST
In the opinion of Sullivan & Cromwell LLP, special tax counsel to the depositor
and the trust, the trust will be classified as a grantor trust and not as an
association or a publicly traded partnership that is taxable as a corporation
for United States federal income tax purposes. Accordingly, the trust will not
be subject to United States federal income tax, and a certificateholder will be
treated for United States federal income tax purposes as if it owned directly
its ratable share of the assets held by the trust.
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CLASSIFICATION OF THE CERTIFICATES
Your ownership of a certificate represents (i) a ratable share of the Underlying
Securities held by the trust that are allocable to your certificate, (ii) a
ratable share of the trust's position under the swap agreement that is allocable
to your certificate and (iii) an obligation under the call option under which
you may be required to sell your certificates to the holder of the call option.
Accordingly, you should be considered to have purchased your ratable interest in
the Underlying Securities for an amount equal to (i) the cost of your
certificate plus (ii) the absolute amount, if any, of your ratable share of the
negative value of the trust's position under the swap agreement at the time that
you purchase the certificate plus (iii) the fair market value of the call option
at the time that you purchase the certificate minus (iv) the positive value, if
any, of your ratable share of the trust's position under the swap agreement at
the time that you purchase the certificate. Correspondingly, upon your purchase
of a certificate, (i) you should be deemed to have received a payment from the
seller of the certificate in an amount equal to the sum of (a) the fair market
value of the call option at the time that you purchase the certificate plus (b)
the absolute amount, if any, of your ratable share of the negative value of the
trust's position under the swap agreement at the time that you purchase the
certificate and (ii) you should be deemed to have made a payment to the seller
of the certificate in an amount equal to the positive value, if any, of your
ratable share of the trust's position under the swap agreement at the time that
you purchase the certificate. However, as discussed below under "--Initial
Certificateholders", an initial holder of certificates will be required to
integrate its ratable share of the Underlying Securities, the trust's position
under the swap agreement and the initial holder's position under the call
options, thereby creating a single synthetic debt instrument for United States
federal income tax purposes.
INITIAL CERTIFICATEHOLDERS
The following section applies to you if you are an initial holder of
certificates. The trustee will make an election under Treasury Regulation
Section 1.1275-6 (an "integration election") to integrate your ratable share of
the Underlying Securities held by the trust (which represents a ratable share of
the GS junior subordinated debentures held by Goldman Sachs Capital I) and your
ratable share of the trust's position under the swap agreement, thereby creating
a single synthetic debt instrument for United States federal income tax
purposes. Furthermore, the terms of your certificates require you to make an
integration election that would integrate your position under the call option
with the synthetic debt instrument created pursuant to the integration election
made by the trustee under the preceding sentence. In order to make an
integration election with respect to your certificates, you should retain in
your books and records certain information with respect to the integration
election that will be sent to you along with the confirmation of your purchase
of the certificates.
Assuming an integration election is properly made with respect to your
certificates, you will be subject to the following United States federal income
tax consequences. First, your ratable share of the Underlying Securities, your
ratable share of the trust's position under the swap agreement and your position
under the call options will not be accounted for on a separate basis but rather
will be treated as a single synthetic debt instrument with payments equal to the
scheduled payments with respect to your certificates. Second, the synthetic debt
instrument represented by your certificates will be treated as issued with
original issue discount. Consequently, you will be required to accrue the stated
interest payments with respect to your certificates even if you are otherwise
subject to the cash basis method of accounting for United States federal income
tax purposes. Third, you will not be subject to the "straddle rules" described
below under "United States Taxation--Secondary Certificateholders--Secondary
Certificateholders That Do Not Make an Integration Election--Sale of
Certificates" with respect to your certificates, and thus your holding period in
your certificates will not be suspended in the manner described below. Fourth,
you will not be subject to the amortizable bond premium and
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market discount rules described below under "United States Taxation--Secondary
Certificateholders--Secondary Certificateholders That Do Not Make an Integration
Election--Tax Treatment of Ratable Share of Underlying Securities" with respect
to your ratable share of the Underlying Securities even if the amount that you
are deemed to have paid for your ratable share of the Underlying Securities
(determined in the manner described above under "--Classification of the
Certificates") differs from the principal amount attributable to such Underlying
Securities.
Your tax basis in your certificates will generally be the amount you paid for
your certificates plus any accrued but unpaid interest with respect to your
certificates. You will generally recognize gain or loss on the sale or
retirement of your certificates in an amount equal to the difference between the
amount you realize on the sale or retirement and your tax basis in your
certificates. Except to the extent attributable to accrued but unpaid interest,
such gain or loss will be capital gain or loss and will be long-term capital
gain or loss if you hold your certificates for more than one year. Capital gain
of a noncorporate United States holder is generally taxed at a maximum rate of
15% where the property is held more than one year.
If the swap agreement is terminated other than in connection with a trust
termination event as described above under "Description of the Swap
Agreement--Events of Default and Termination Events", you will be treated as
having disposed of the synthetic debt instrument that is represented by your
certificates. Accordingly, you will recognize gain or loss upon such termination
in an amount equal to the difference between your basis in the certificates and
the fair market value of your certificates on the date of the termination.
Furthermore, you would not be permitted to continue to treat your ratable share
of the Underlying Securities and your position under the call options as an
integrated transaction even if you make a new integration election with respect
to your certificates. Accordingly, you would be subject to the rules described
below under "United States Taxation--Secondary Certificateholders--Secondary
Certificateholders That Do Not Make an Integration Election" with respect to
your certificates for all periods after the termination of the swap agreement.
SECONDARY CERTIFICATEHOLDERS
SECONDARY CERTIFICATEHOLDERS THAT MAKE AN INTEGRATION ELECTION
The following section applies to you if you purchase your certificates in the
secondary market and you make an integration election with respect to your
certificates. The trustee will not make an integration election with respect to
secondary purchasers of certificates. Accordingly, in order to make an
integration election with respect to your certificates, you would be required to
enter and retain as part of your books and records as of the date of your
purchase of the certificates (i) the date that you purchased the certificates,
(ii) a description of the call options, your ratable share of the cash flow with
respect to the Underlying Securities and your ratable share of the trust's
position under the swap agreement and (iii) a summary of the cash flows and
accruals resulting from treating your ratable share of the Underlying
Securities, your ratable share of the trust's position under the swap agreement
and your position under the call option as a single synthetic debt instrument.
If you make an integration election with respect to your certificates, you will
be treated in the same manner as described above in "United States
Taxation--Initial Certificateholders", except that the amount of original issue
discount that you will be required to accrue over the term of your certificates
will equal the excess of all of the scheduled interest and principal payments
under your certificates over the adjusted issue price of the synthetic debt
instrument that is represented by your certificates. The adjusted issue price of
the synthetic debt instrument that is represented by your certificates will
equal (i) the principal amount of your certificates plus (ii) the amount, if
any, that you are deemed to have paid in connection with your assumption of your
ratable share of the trust's position under the swap agreement (determined in
the manner described above under "United States Taxation--Classification of the
Certificates") minus (iii) the amount, if any, that you are deemed to have
received
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in connection with your assumption of your position under the call options and
your assumption of your ratable share of the trust's position under the swap
agreement (determined in the manner described above under "United States
Taxation--Classification of the Certificates"). If the amount that you paid for
your certificates exceeds the adjusted issue price of the synthetic debt
instrument that is represented by your certificates, such excess will be treated
as acquisition premium which will reduce the amount of original issue discount
that you would otherwise recognize over the term of your certificates.
If the adjusted issue price of the synthetic debt instrument that is represented
by your certificates exceeds your purchase price for your certificates by more
than a de minimis amount, you will be treated as having purchased such
instrument with market discount. Consequently, you would be required to treat
any gain you recognize on the maturity or disposition of your certificates as
ordinary income to the extent of the accrued market discount on your
certificates. Alternatively, you may elect to include your portion of such
market discount in income currently over the life of your certificates. If you
make this election, it will apply to all debt instruments with market discount
that you acquire on or after the first day of the first taxable year to which
the election applies. You may not revoke this election without the consent of
the Internal Revenue Service. If you are subject to the market discount rules
with respect to your certificates, you will generally be required to defer
deductions for interest on borrowings allocable to your certificates in an
amount not exceeding the accrued market discount with respect to your
certificates until the maturity or disposition of your certificates. You will
accrue market discount with respect to your certificates on a straight-line
basis unless you elect to accrue market discount using a constant-yield method.
If you make this election, it will apply only to your certificates and you may
not revoke it.
SECONDARY CERTIFICATEHOLDERS THAT DO NOT MAKE AN INTEGRATION ELECTION
The following section applies to you if you purchase your certificates in the
secondary market and you do not make an integration election with respect to
your certificates.
Allocation of Purchase Price. If you purchase your certificates in the
secondary market and you do not make an integration election with respect to
your certificates, you will be required to allocate your purchase price between
(i) the amount that you are deemed to have paid for your ratable share of the
Underlying Securities held by the trust, (ii) the amount that you are deemed to
have received or paid in connection with your assumption of your ratable share
of the trust's position under the swap agreement and (iii) the amount that you
are deemed to have received in connection with your assumption of your position
under the call options, in each case determined in the manner described above
under "United States Taxation--Classification of the Certificates."
Tax Treatment of Ratable Share of Underlying Securities. You will include your
ratable share of the stated interest payments on the Underlying Securities in
income at the time that it is received or accrued depending on your method of
accounting for United States federal income tax purposes. If the principal
amount of your ratable share of the Underlying Securities held by the trust
exceeds the amount that you are deemed to have paid for such Underlying
Securities by more than a de minimis amount, then you will be treated as having
purchased your ratable share of the Underlying Securities held by the trust with
market discount. If you are so treated, you must treat any gain you recognize
with respect to the Underlying Securities upon the maturity or disposition of
your certificates as ordinary income to the extent of the accrued market
discount on your ratable share of the Underlying Securities. Alternatively, you
may elect to include your portion of such market discount in income currently
over the life of your certificates. If you make this election, it will apply to
all debt instruments with market discount that you acquire on or after the first
day of the first taxable year to which the election applies. You may not revoke
this election without the consent of the Internal Revenue Service. If you are
subject to the market discount rules with respect to your ratable share of
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the Underlying Securities, you will generally be required to defer deductions
for interest on borrowings allocable to your certificates in an amount not
exceeding the accrued market discount with respect to your ratable share of the
Underlying Securities until the maturity or disposition of your certificates.
You will accrue market discount with respect to your ratable share of the
Underlying Securities on a straight-line basis unless you elect to accrue market
discount using a constant-yield method. If you make this election, it will apply
only to your certificates and you may not revoke it.
If the amount that you are deemed to have paid for your ratable share of the
Underlying Securities held by the trust exceeds the principal amount of such
securities, you may elect to treat the excess as amortizable bond premium with
respect to such Underlying Securities. If you make this election, you will
reduce the amount that you are required to include in income in each year with
respect to your ratable share of the Underlying Securities held by the trust by
the amount of amortizable bond premium allocable to that year, based on the
yield to maturity of the Underlying Securities. If you make an election to
amortize bond premium, it will apply to all debt instruments, other than debt
instruments the interest on which is excluded from net income, that you hold at
the beginning of the first taxable year to which the election applies or
thereafter acquire, and you may not revoke it without the consent of the
Internal Revenue Service.
Tax Treatment of Ratable Share of Swap Agreement. The swap agreement will be
treated as a notional principal contract for United States federal income tax
purposes. Under the rules governing notional principal contracts, you will be
required to include ordinary income or loss in each year in an amount equal to
your ratable share of the difference between the trust's accrued payments and
accrued receipts under the swap agreement that are attributable to such year.
Any net losses that you recognize under the preceding sentence will be treated
as "miscellaneous itemized deductions." Accordingly, if you are an individual,
you will not be able to deduct any such losses in a taxable year to the extent
that your "miscellaneous itemized deductions" in such year do not exceed 2% of
your adjusted gross income in such year. In addition, you will be required to
amortize over the term of your certificates (under one of two methods that are
set forth in Treasury Regulations governing the taxation of notional principal
contracts) any amount that you are deemed to have paid or received in connection
with your assumption your ratable share of the trust's position under the swap
agreement (determined in the manner described above under "--Allocation of
Purchase Price").
Tax Treatment of Option. You will not be required to include any amount in
income upon your purchase of your certificates in respect of the option premium
that are you are deemed to have received at such time as described above under
"United States Taxation--Classification of the Certificates." Instead, you will
take such premium into account when the call options lapse or are exercised or,
if earlier, when you dispose of your certificates.
More specifically, you will include the option premium that you are deemed to
have received in income as short-term capital gain if the call option lapses. If
the call option is exercised, you will treat an amount equal to the option
premium as additional amounts realized in respect of your sale of the
certificates. If you sell or otherwise dispose of your certificates (other than
pursuant to the exercise of the call option), you will recognize short-term
capital gain or loss in an amount equal to the difference between the amount of
option premium that you are deemed to have received upon your purchase of the
certificates and the amount that you are deemed to pay to the purchaser of the
certificates (determined under the rules discussed above under "United States
Taxation--Classification of the Certificates") to be relieved from your position
under the call option.
Sale of Certificates. If you sell your certificates, you will be required to
allocate the purchase price between your ratable share of the Underlying
Securities held by the trust, your ratable share of the trust's position under
the swap agreement and your position under the call options in the manner
described above under "United States Taxation--Classification of the
Securities." If you sell your
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certificates pursuant to an exercise of the call options, you will be treated as
having received a purchase price equal to the exercise price of the option plus
the option premium that you are deemed to have received in connection with your
assumption of your position under the call options (determined in the manner
described above under "United States Taxation--Classification of the
Certificates").
You will recognize gain or loss for United States federal income tax purposes
with respect to your ratable share of the Underlying Securities held by the
trust in an amount equal to the difference between your basis in your ratable
share of the Underlying Securities held by the trust and the amount that the
purchaser of your certificates is deemed to have paid for your ratable share of
the Underlying Securities held by the trust. Your basis in your ratable share of
the Underlying Securities held by the trust will equal the portion of the amount
that you paid for your certificates that is allocable to such Underlying
Securities (determined in the manner described above under "--Allocation of
Purchase Price") plus any market discount that you previously included in income
with respect to the Underlying Securities minus any bond premium that you
amortized with respect to the Underlying Securities in the manner described
above under "--Tax Treatment of Ratable Share of Underlying Securities." Except
to the extent attributable to accrued but unpaid interest or accrued market
discount, any gain or loss that you recognize in respect of your sale of your
ratable share of the Underlying Securities held by the trust will generally be
capital gain or loss.
You will also recognize gain or loss in an amount equal to the difference
between (i) the amount that you are deemed to have received from, or paid to,
the purchaser of your certificates in respect of the purchaser's assumption of
your ratable share of the trust's position under the swap agreement and (ii) the
amount that you are deemed to have paid or received upon your purchase of your
certificates in respect of your assumption of your ratable share of the trust's
position under the swap agreement less the portion of such amount that has been
amortized in the manner described above under "--Tax Treatment of Ratable Share
of Swap Agreement."
In addition, you will recognize gain or loss upon a sale of your certificates
other than upon an exercise of the call options in an amount equal to the
difference between the amount of option premium that you are deemed to have
received upon your purchase of the certificates and the amount that you are
deemed to pay to the purchaser of the certificates (determined under the rules
discussed above under "United States Taxation--Classification of the
Certificates") to be relieved from your position under the call options.
Your ratable share of the Securities, your ratable share of the trust's position
under the swap agreement and your position under the call options will likely
constitute positions in a straddle for United States federal income tax
purposes. If your certificates are so treated, your holding period in your
certificates would likely be suspended, in which case any capital gain or loss
that you recognize upon the sale or maturity of your certificates would be
short-term capital gain or loss. Furthermore, if the straddle rules apply to
your certificates, you would be required to capitalize, rather than deduct, a
portion of any interest and carrying charges that are allocable to your
certificates.
DEFERRAL OF INTEREST PAYMENTS
If there is a deferral of interest payments with respect to the GS junior
subordinated debentures, you will generally be required to continue to accrue
interest income for United States federal income tax purposes with respect to
your certificates irrespective of whether you make an integration election with
respect to your certificates.
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BACKUP WITHHOLDING AND INFORMATION REPORTING
The trust and other payors are required to report to the Internal Revenue
Service the interest accruals and payments with respect to your certificates,
unless you qualify for an exemption from such reporting. In addition, certain
payors are required to report to the Internal Revenue Service any payment of
proceeds of the sale of your certificates before maturity within the United
States. Additionally, backup withholding will apply to any payments if you fail
to provide an accurate taxpayer identification number or if you are notified by
the Internal Revenue Service that you have failed to report all interest and
dividends required to be shown on your federal income tax returns.
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ERISA Considerations
The Employee Retirement Income Security Act of 1974 ("ERISA") and the Internal
Revenue Code impose various requirements on "employee benefit plans" (as defined
in section 3(3) of ERISA), "plans" (as defined in section 4975 of the Internal
Revenue Code) (each, a "plan") and on persons that are fiduciaries with respect
to plans in connection with the investment of the assets of a plan. For purposes
of this discussion, plans may include individual retirement accounts and
annuities, Keogh plans and separate accounts and collective investment funds,
including as applicable, insurance company general accounts, in which other
plans are invested.
Governmental plans and, if they have not made an election under section 410(d)
of the Internal Revenue Code, church plans are not subject to ERISA
requirements. Accordingly, assets of those plans may be invested in the
certificates without regard to the considerations described below in this "ERISA
Considerations" section, subject to the provisions of other applicable federal
and state law. Any of those plans that is qualified and exempt from taxation
under sections 401(a) and 501(a) of the Internal Revenue Code, however, is
subject to the prohibited transaction rules in section 503 of the Internal
Revenue Code.
ERISA imposes general fiduciary requirements on a fiduciary that is investing
the assets of a plan, including investment prudence and diversification and
compliance with the investing plan's governing documents. Section 406 of ERISA
and section 4975 of the Internal Revenue Code also prohibit a broad range of
transactions involving the assets of a plan and a "party in interest" (as
defined in section 3(14) of ERISA) or a "disqualified person" (as defined in
section 4975(e)(2) of the Internal Revenue Code) with respect to that plan,
unless a statutory or administrative exemption exists. Parties in interest or
disqualified persons that participate in a prohibited transaction may be subject
to an excise tax imposed under section 4975 of the Internal Revenue Code or a
penalty imposed under section 502(i) of ERISA, unless a statutory or
administrative exemption is available. In addition, the persons involved in the
prohibited transaction may have to cancel the transaction and pay an amount to
the affected plan for any losses realized by that plan or profits realized by
those persons. In addition, individual retirement accounts involved in the
prohibited transaction may be disqualified, which would result in adverse tax
consequences to the owner of the account.
PLAN ASSET REGULATION
A plan's investment in the certificates may cause the underlying assets of the
trust to be deemed assets of that plan. Section 2510.3-101 of the Department of
Labor regulations (the "Plan Asset Regulation") provides that when a plan
acquires an equity interest in an entity, the assets of that plan include both
that equity interest and an undivided interest in each of the underlying assets
of the entity, unless the equity interest is a "publicly offered security" or
another exception applies. For purposes of the Plan Asset Regulation, a
"publicly offered security" is a security that is (i) freely transferable, (ii)
part of a class of securities that is "widely held" (meaning generally that the
class is initially owned by 100 or more investors independent of the issuer and
of one another) and (iii) 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 part of a class of securities that is registered under the
Securities 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. Although no assurance can be
given in this regard, we expect that the certificates will be treated as
publicly offered securities under the foregoing conditions and, therefore, that
the assets of the trust should not be considered plan assets of any plan
purchasing the certificates. Accordingly, the certificates may be purchased by
plans.
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If the assets included in the trust are plan assets, then any party exercising
management or discretionary control regarding those assets, such as the trustee,
or affiliates of any of these parties, may be deemed to be a fiduciary with
respect to the investing plan and subject to the fiduciary responsibility
provisions of ERISA. If the assets included in the trust are plan assets, then
the operation of the trust may involve prohibited transactions under ERISA or
the Internal Revenue Code.
Even if the assets of the trust are not considered plan assets, the acquisition
or holding of certificates by or on behalf of a plan could give rise to a
prohibited transaction if the depositor, the underwriter, the trustee or any
related sub-servicer, tax administrator or manager, or one of their affiliates,
is or becomes a party in interest or disqualified person with respect to an
investing plan. Plans maintained or contributed to by the depositor,
underwriter, trustee, and the trustee of the Underlying Securities, or any of
their affiliates, should not acquire or hold any certificate.
If you are the fiduciary of a plan, you should consult your counsel before
purchasing any certificates.
PROHIBITED TRANSACTION EXEMPTIONS
If you are a plan fiduciary, then, in connection with your decision of whether
to purchase any of the certificates on behalf of a plan, you should consider the
availability of one of the following prohibited transaction class exemptions
issued by the Department of Labor:
- - Prohibited Transaction Class Exemption 75-1, which exempts particular
transactions involving plans and broker-dealers, reporting dealers and banks;
- - Prohibited Transaction Class Exemption 90-1, which exempts particular
transactions between insurance company separate accounts and parties in
interest or disqualified persons;
- - Prohibited Transaction Class Exemption 91-38, which exempts particular
transactions between bank collective investment funds and parties in interest
or disqualified persons;
- - Prohibited Transaction Class Exemption 84-14, which exempts particular
transactions effected on behalf of a plan by a "qualified professional asset
manager;"
- - Prohibited Transaction Class Exemption 95-60, which exempts particular
transactions between insurance company general accounts and parties in
interest or disqualified persons; and
- - Prohibited Transaction Class Exemption 96-23, which exempts particular
transactions effected on behalf of a plan by an "in-house asset manager."
We cannot provide any assurance that any of these class exemptions will apply
with respect to any particular investment by or on behalf of a plan in any class
of certificates. Furthermore, even if any of them were deemed to apply, that
particular class exemption may not apply to all transactions that could occur in
connection with the investment.
INSURANCE COMPANY GENERAL ACCOUNTS
Section 401(c) of ERISA provides that the fiduciary and prohibited transaction
provisions of ERISA and the Internal Revenue Code do not apply to transactions
involving an insurance company general account where the assets of the general
account are not plan assets. A Department of Labor regulation issued under
section 401(c) of ERISA provides guidance for determining, in cases where
insurance policies supported by an insurer's general account are issued to or
for the benefit of a plan on or before December 31, 1998, which general account
assets are plan assets. That regulation generally provides that, if the
specified requirements are satisfied with respect to insurance policies issued
on or before December 31, 1998, the assets of an insurance company general
account will not be plan assets.
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Any assets of an insurance company general account which support insurance
policies issued to a plan after December 31, 1998, or issued to a plan on or
before December 31, 1998 for which the insurance company does not comply with
the requirements set forth in the Department of Labor regulation under section
401(c) of ERISA, may be treated as plan assets. In addition, because section
401(c) of ERISA and the regulation issued under section 401(c) of ERISA do not
relate to insurance company separate accounts, separate account assets are still
treated as plan assets, invested in the separate account. If you are an
insurance company contemplating the investment of general account assets in
offered certificates, you should consult your legal counsel as to the
applicability of section 401(c) of ERISA.
CONSULTATION WITH COUNSEL
If you are a fiduciary for a plan and you intend to purchase certificates on
behalf of or with assets of that plan, you should consider your general
fiduciary obligations under ERISA and consult with your legal counsel as to the
potential applicability of ERISA and the Internal Revenue Code to that
investment and the availability of any prohibited transaction exemption in
connection with that investment.
By acquiring and holding a certificate, a plan will be deemed to have
represented and warranted to the depositor, the trustee, and the underwriter
that the acquisition and holding of a certificate does not involve a non-exempt
prohibited transaction with respect to the plan, including with respect to the
activities of the trust.
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Supplemental Plan of Distribution
Subject to the terms and conditions set forth in the underwriting agreement,
dated --, 2004, or the underwriting agreement, the depositor has agreed to sell
and UBS Securities LLC, an affiliate of the depositor, or the underwriter, has
agreed to purchase, all the certificates from the depositor at a price equal to
$-- per certificate. The underwriter will also grant to the depositor the call
options on the certificates as further consideration for the certificates.
The underwriter has agreed, subject to the terms and conditions set forth in the
underwriting agreement, to purchase all the certificates if any of the
certificates are purchased.
The depositor has been advised by the underwriter that it proposes initially to
offer the certificates to the public at the public offering price of $25.00, and
to certain dealers at such price less a concession not in excess of $-- per
certificate. The underwriter may allow and such dealers may reallow a concession
not in excess of $--. After the initial public offering, the public offering
price and the concessions may be changed. The underwriter and any dealers that
participate with the underwriter in the distribution of certificates may also be
deemed to be an underwriter, and any profit on the resale of certificates by
them may be deemed to be underwriting discounts or commissions under the
Securities Act.
The depositor intends to apply to list the certificates on the New York Stock
Exchange. If the application is approved, trading of the certificates on the New
York Stock Exchange is expected to commence within a 30-day period after the
initial delivery of the certificates.
The underwriting agreement provides that the depositor will indemnify the
underwriter against specified liabilities, including liabilities under the
Securities Act, or will contribute to any payments the underwriter may be
required to make in respect of such liabilities. In the future, UBS Securities
LLC or one or more of its affiliates may repurchase and resell the offered
certificates in secondary market transactions, with resales being made at prices
related to prevailing market prices at the time of resale or at negotiated
prices. However, neither UBS Securities LLC nor any other affiliate of the
depositor is obligated to make a secondary market in the certificates, or to
continue secondary market activities once started. No assurance can be given as
to the liquidity or trading market for the certificates. For more information
about the plan of distribution, see "Plan of Distribution" in the attached
prospectus. In connection with this offering, the underwriter or securities
dealers may distribute prospectuses electronically.
Ratings
It is a condition to the issuance of the certificates that the certificates are
assigned a rating of A2 by Moody's and a rating of A- by Standard & Poor's. As
of the date of this prospectus supplement, the Underlying Securities are rated
A1 by Moody's and A- by Standard & Poor's. The ratings address the likelihood of
the receipt by the certificate holders of payments required under the trust
agreement (subject to the trust's obligations under the swap agreement), and are
based primarily on the credit quality of the swap counterparty and the
Underlying Securities, as well as on the relative priorities of each class of
the certificates with respect to collections and losses with respect to the
trust assets. The ratings on the certificates do not, however, constitute a
statement regarding the occurrence or frequency of redemptions or prepayments
on, or extensions of the maturity of, the trust assets, the probability that
call options will be exercised, or the corresponding effect of those events on
the yield to investors.
S-60
RATINGS
- --------------------------------------------------------------------------------
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. Each security rating should be evaluated independently of any other
security rating. We cannot assure you that the rating will not be lowered or
withdrawn entirely by the rating agency in the future, which may adversely
affect the value of your certificates.
The depositor has not requested a rating on the certificates by any rating
agency other than Moody's and Standard & Poor's. However, there can be no
assurance as to whether any other rating agency will rate the certificates, or,
if it does, what rating would be assigned by any other rating agency. A rating
on the certificates by another rating agency, if assigned at all, may be lower
than the ratings assigned to the certificates by Moody's and Standard & Poor's.
Validity of the Certificates
The validity of the certificates offered by this prospectus supplement and the
accompanying prospectus and their federal income tax status have been passed
upon for the depositor by Sullivan & Cromwell LLP, New York, New York.
S-61
- --------------------------------------------------------------------------------
Index of Defined Terms
The following is an index of defined terms used in this prospectus supplement
and the page where each definition appears.
<Table>
<Caption>
DEFINED TERMS PAGE
- ------------------------------------------------------------------------
affected party.............................................. S-29
available interest funds.................................... S-37
available principal funds................................... S-37
business day................................................ S-37
calculation agent........................................... S-5
certificate account......................................... S-36
certificates................................................ S-2, S-9
CHF......................................................... S-34
closing date................................................ S-2
defaulting party............................................ S-29
deferred interest........................................... S-29
depositor................................................... S-9
disqualified person......................................... S-51
distribution dates.......................................... S-3
DTC......................................................... S-37
early termination date...................................... S-30
early termination payment................................... S-31
ERISA....................................................... S-51
extension period............................................ S-7
final distribution date..................................... S-2, S-36
Form 20-F................................................... S-33
GS Group.................................................... S-6
GS Junior subordinated debentures........................... S-6
index maturity.............................................. S-28
integration election........................................ S-46
interest accrual periods.................................... S-4
interest distributions...................................... S-10
interest distribution amount................................ S-3, S-28
interest rate............................................... S-2
Internal Revenue Code....................................... S-45
IRS......................................................... S-19
LIBOR determination date.................................... S-2, S-29
London banking day.......................................... S-29
market quotation............................................ S-31
Moody's..................................................... S-4
</Table>
S-62
INDEX OF DEFINED TERMS
- --------------------------------------------------------------------------------
<Table>
<Caption>
DEFINED TERMS PAGE
- ------------------------------------------------------------------------
Option Agent................................................ S-12
outstanding................................................. S-41
partial swap termination event.............................. S-30
party in interest........................................... S-51
pass-through voting......................................... S-44
plan........................................................ S-14, S-51
Plan Asset Regulation....................................... S-51
principal distribution...................................... S-3, S-10
publicly offered security................................... S-51
SEC reporting failure....................................... S-40
Standard & Poor's........................................... S-4
swap agreement.............................................. S-4, S-10
swap agreement termination event............................ S-29
swap counterparty........................................... S-5
swap notional amount........................................ S-30
tax event................................................... S-24
telerate page 3750.......................................... S-29
termination amount.......................................... S-31
three-month USD LIBOR....................................... S-28
trust....................................................... S-2, S-11
trust assets................................................ S-2
trust agreement............................................. S-2
trust regulatory event...................................... S-30
trust swap payment default.................................. S-29
trust termination event..................................... S-30
trustee..................................................... S-2
UBS......................................................... S-33
USD......................................................... S-34
Underlying Securities....................................... S-6, S-9
Underlying Securities bankruptcy default.................... S-30
Underlying Securities event of default...................... S-26
Underlying Securities Issuer................................ S-6
Underlying Securities Issuer prospectus..................... S-22
Underlying Securities Issuer prospectus supplement.......... S-22
Underlying Securities payment default....................... S-30
Underlying Securities Trust Agreement....................... S-7
Underlying Securities Trustee............................... S-7, S-23
underwriter................................................. S-13
</Table>
S-63
INDEX OF DEFINED TERMS
- --------------------------------------------------------------------------------
<Table>
<Caption>
DEFINED TERMS PAGE
- ------------------------------------------------------------------------
underwriting agreement...................................... S-54
United States holder........................................ S-45
</Table>
S-64
PROSPECTUS
- --------------------------------------------------------------------------------
[UBS AG LOGO]
CORPORATE ASSET BACKED CORPORATION
DEPOSITOR
$2,950,000,000
CERTIFICATES
(ISSUABLE IN SERIES)
- --------------------------------------------------------------------------------
YOU SHOULD FULLY REVIEW THE RISK FACTORS BEGINNING ON PAGE 2 OF THIS PROSPECTUS
PRIOR TO INVESTING IN THE CERTIFICATES.
The certificates will not be insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
We will describe the specific terms of your certificates, and of any other
classes of certificates that are included in the same series, in a prospectus
supplement that will be attached to this prospectus.
The depositor may form trusts from time to time as described in this prospectus.
EACH TRUST
- - may periodically issue certificates in one or more series with one or more
classes;
- - will own a publicly tradable, fixed-income security or a pool of such
securities; and
- - may own other assets described in this prospectus and in the attached
prospectus supplement.
THE CERTIFICATES
- - will represent undivided beneficial ownership interests in the trust assets,
and will be paid only from the trust assets;
- - will be denominated in U.S. dollars or in one or more other currencies, and
any payments to certificate holders may be payable in U.S. dollars or in one
or more other currencies; and
- - will be issued as part of a designated series that may include one or more
classes of certificates.
THE CERTIFICATE HOLDERS
- - will receive interest, principal and other payments from the assets deposited
into the trust.
The Depositor may use this prospectus in the initial sale of the certificates.
In addition, the Depositor, UBS AG, UBS Securities LLC, UBS Financial Services
Inc. or any other affiliate of UBS AG may use this prospectus in a market-making
transaction involving the certificates after their initial sale. Unless the
Depositor or its agent informs the purchaser otherwise in the confirmation of
sale, this prospectus is being used in a market-making transaction.
This prospectus may be used to offer and sell any series of certificates only if
accompanied by the prospectus supplement for that series.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED OF THE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
UBS INVESTMENT BANK UBS FINANCIAL SERVICES INC.
THE DATE OF THIS PROSPECTUS IS JANUARY 26, 2004.
- --------------------------------------------------------------------------------
Table of Contents
<Table>
<Caption>
Page
Important Notice about Information
Presented in this Prospectus and the
Applicable Prospectus Supplement........ 1
Risk Factors.............................. 2
Where You Can Find More Information....... 5
Incorporation of Documents By Reference... 5
Reports to Holders of Certificates........ 5
The Depositor............................. 6
Use of Proceeds........................... 6
Formation of the Trusts................... 6
Description of the Certificates........... 8
Nature of the Certificates.............. 9
Terms Specified in the Prospectus
Supplement............................ 9
Distributions........................... 11
Interest on the Certificates............ 12
Stripped Certificates................... 14
Principal of the Certificates........... 14
Foreign Currency Certificates........... 14
Inability to Pay in Specified
Currency.............................. 15
Indexed Certificates.................... 15
Multi-Currency Certificates............. 16
Put Option.............................. 16
Transfers and Exchanges................. 16
Global Securities; Holdings in Street
Name.................................. 16
Trust Liquidation Events.................. 19
Maturity and Yield Considerations......... 19
Description of the Trust Assets, including
Credit Support.......................... 20
Underlying Securities................... 20
Principal Economic Terms of Underlying
Securities............................ 23
</Table>
<Table>
<Caption>
Page
Publicly Available Information.......... 23
Other Trust Assets...................... 24
Collections............................. 27
Description of the Trust Agreement........ 29
Assignment of Trust Assets.............. 29
Collection and Other Administrative
Procedures............................ 29
Realization upon Defaulted Trust
Assets................................ 29
Trustee's Compensation; Payment of
Expenses.............................. 30
Matters Regarding the Trustee........... 30
Remedies of Certificate Holders......... 30
Modification and Waiver................. 31
Reports to Certificate Holders;
Notices............................... 32
Annual Compliance Statement............. 33
Replacement Certificates................ 33
Retained Interest....................... 34
Retained Call Options and Retained Call
Rights................................ 34
Termination............................. 34
Duties of the Trustee................... 35
The Trustee............................. 35
Currency Risks............................ 36
Exchange Rates and Exchange Controls.... 36
Foreign Currency Judgments.............. 36
United States Federal Income Tax
Consequences............................ 38
Certain ERISA Considerations.............. 38
Plan of Distribution...................... 40
Validity of the Certificates.............. 42
Index of Defined Terms.................... 43
</Table>
- --------------------------------------------------------------------------------
Important Notice about Information Presented in this Prospectus and the
Applicable Prospectus Supplement
We provide information to you about the certificates in two separate documents
that provide progressively more detail: (a) this prospectus, which provides
general information, some of which may not apply to a particular series of
certificates, including your series, and (b) the applicable prospectus
supplement, which will describe the specific terms of your series of
certificates. See "Description of the Certificates--Terms Specified in the
Prospectus Supplement" for a listing of the items that may be specified in the
applicable prospectus supplement.
If the descriptions of the terms of a particular series of certificates in this
prospectus differ from those in the applicable prospectus supplement, you should
rely on the description in the prospectus supplement.
You should rely only on the information provided in this prospectus and the
applicable prospectus supplement, including the information incorporated by
reference. We have not authorized anyone to provide you with different
information. We are not offering the certificates in any state where the offer
is not permitted. We do not claim the accuracy of the information in this
prospectus as of any date other than the date stated on its cover.
We include cross-references in this prospectus and in the applicable prospectus
supplement to captions in these materials where you can find further related
discussions. The table of contents in each document provides the pages on which
these captions are located.
1
- --------------------------------------------------------------------------------
Risk Factors
In connection with your investment in the certificates of any series, you should
consider, among other things, the following risk factors and any other risk
factors described in the applicable prospectus supplement.
YOUR CERTIFICATES WILL REPRESENT AN INTEREST IN THE ASSETS OF THE APPLICABLE
TRUST ONLY AND WILL NOT REPRESENT A RECOURSE OBLIGATION OF OR INTEREST IN THE
DEPOSITOR OR ANY OF ITS AFFILIATES. THE PERFORMANCE OF THE UNDERLYING SECURITIES
WILL AFFECT THE VALUE OF YOUR INVESTMENT AND YOU MAY EXPERIENCE A LOSS IF LOSSES
ARE EXPERIENCED ON THE TRUST ASSETS.
Your certificates will represent an interest in the assets of the applicable
trust only and will not represent a recourse obligation of or interest in the
depositor or any of its affiliates. The trust has no significant assets other
than the underlying securities and the other trust assets. No other assets are
available to make payments or distributions with respect to your certificates.
Neither the depositor, the trustee nor any of their affiliates is obligated to
make any payments in respect of your certificates if the underlying securities
and the other trust assets are insufficient. Consequently, if losses are
experienced on the underlying securities and the other trust assets, you may
experience a loss on your investment. Accordingly, you are strongly encouraged
to obtain as much information about the underlying securities as you would if
you were investing directly in the underlying securities. The applicable
prospectus supplement will provide the basic terms of the underlying securities
and will refer you to publicly available information about the issuers of the
underlying securities.
YOUR CERTIFICATES MAY BE REDEEMED IF AN UNDERLYING SECURITIES ISSUER STOPS
MAKING INFORMATION ABOUT ITS FINANCIAL CONDITION AND BUSINESS PUBLICLY
AVAILABLE.
In deciding whether to invest in or to sell certificates, you should obtain and
evaluate information about each issuer of underlying securities as if you were
investing directly in that issuer and its securities. The information that each
underlying securities issuer makes available to the public is important in
considering whether to invest in or sell certificates. See "Description of the
Underlying Securities--Available Information" in the applicable prospectus
supplement.
To the extent that an underlying securities issuer ceases to make information
about itself and the underlying securities publicly available, we will redeem
your certificates as described under "Trust Liquidation Events" in the
applicable prospectus supplement. The depositor, the trustee, the underwriters
and their affiliates (a) have not verified, and have not undertaken to verify,
the accuracy, completeness or continued availability of any information by any
underlying securities issuer (whether or not filed with the SEC), (b) have made
no investigation of the financial condition or creditworthiness of any
underlying securities issuer, and (c) assume no responsibility for any
information considered by any purchaser or potential purchaser of the
certificates that is not contained in this prospectus or the applicable
prospectus supplement.
You should not construe the issuance of the certificates as an endorsement of
the financial condition or business prospects of any underlying securities
issuer by the depositor, the trustee, the underwriters or any of their
affiliates.
2
RISK FACTORS
- --------------------------------------------------------------------------------
DISTRIBUTIONS AND OTHER PAYMENTS WITH RESPECT TO YOUR CERTIFICATES AND YOUR
EXPECTED INVESTMENT YIELD MAY BE AFFECTED BY FACTORS SUCH AS THE PERFORMANCE OF
THE TRUST ASSETS, THE REDEMPTION OR ACCELERATION OF THE UNDERLYING SECURITIES
AND THE PRIORITY OF PAYMENTS FOR YOUR CLASS OF CERTIFICATES.
A number of factors may affect the timing of any distribution with respect to
any series or class of certificates and the yield that you realize on your
investment in the certificates, including:
- - the purchase price of your certificates;
- - the performance of the related trust assets;
- - the repurchase of the underlying securities by the issuer of the underlying
securities;
- - whether the maturity of your certificates is shortened as a result of any
early redemption or repayment;
- - the manner and priority in which collections from the underlying securities
and any other trust assets are allocated to each class of the series; and
- - whether the issuer of the underlying securities stops making information about
its financial condition and business publicly available.
None of the depositor, the trustee, the underwriters or their affiliates can
predict if or when a redemption or repayment of the underlying securities will
occur or whether the issuer of the underlying securities stops making
information about its financial condition and business publicly available. If
the certificates are prepaid, your investment in the certificates and the
underlying securities will have a shorter average maturity. If the certificates
are prepaid when prevailing market interest rates are lower than the yield on
your certificates, you may be unable to realize a comparable yield when you
reinvest the funds that you receive from the prepayment of your certificates.
A TRADING MARKET FOR YOUR CERTIFICATES MAY NOT DEVELOP OR CONTINUE; THUS IT MAY
BE DIFFICULT TO RESELL YOUR CERTIFICATES.
Prior to the issuance of any series of certificates there will not be a public
market for those securities. UBS AG, UBS Securities LLC, UBS Financial Services
Inc. and other affiliates of UBS AG currently intend to make a market for the
certificates, although they are not required to do so. UBS AG, UBS Securities
LLC, UBS Financial Services Inc. or any other affiliate of UBS AG may stop any
such market making activities at any time. As market makers, UBS AG, UBS
Securities LLC, UBS Financial Services Inc. or any other affiliate of UBS AG,
UBS Securities LLC, UBS Financial Services Inc. or any other affiliates of UBS
AG may have long or short positions of any series of certificates in their
inventory at any time as a result of their trading in that series of
certificates. The supply and demand for a series of certificates, including the
inventory positions of market makers, may affect the secondary market price for
that series of certificates. Even if a secondary market does develop, it may not
continue or be sufficiently liquid to allow you to resell your certificates, and
you may experience a loss on your investment. You should be prepared to hold
your certificates until they are redeemed.
THE TRUST WILL NOT ACTIVELY MANAGE THE UNDERLYING SECURITIES TO AVOID ADVERSE
EVENTS.
Except as described in this prospectus and the applicable prospectus supplement,
the trust will not dispose of any underlying securities or other trust assets,
regardless of adverse events, financial or otherwise, that may affect the value
of the underlying securities or the underlying securities issuer. If there is a
payment default on any underlying security or any other default that may result
in the
3
RISK FACTORS
- --------------------------------------------------------------------------------
acceleration of the underlying security, the trust will dispose of or otherwise
deal with the defaulted underlying security only in the manner provided in the
trust agreement. If provided in the applicable prospectus supplement, if a
payment default on or acceleration of an underlying security occurs, the trust
agreement may provide that the trust will sell or distribute the underlying
security notwithstanding market conditions at the time, and the trustee will not
have discretion to do otherwise. This sale or distribution may result in greater
losses than might occur if the trust continued to hold the underlying security.
THE TRUST AGREEMENT MAY BE AMENDED WITHOUT YOUR CONSENT.
The trust agreement that governs the terms of your certificates may be amended
by the depositor and the trustee without your consent upon compliance with the
conditions specified in the trust agreement. For example, the trust agreement
may be amended in a way that materially adversely affects your certificates if
holders of certificates evidencing not less than the required percentage of
votes specified in the trust agreement consent to the amendment. See
"Description of the Trust Agreement--Modification and Waiver" in this
prospectus.
4
- --------------------------------------------------------------------------------
Where You Can Find More Information
Each separate trust created by the depositor is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Securities
Exchange Act"), and the depositor files on behalf of each trust reports and
other information with the SEC. You may read and copy any reports, statements
and other information filed with the SEC concerning each trust (a) over the
Internet at the SEC's website at http://www.sec.gov containing reports, proxy
statements and other information regarding registrants that file electronically
with the SEC; (b) at the SEC's public reference facilities at 450 Fifth Street,
N.W., Washington, D.C. 20549; (c) if the applicable prospectus supplement
specifies that the certificates are to be listed on the New York Stock Exchange,
at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York,
New York 10005; (d) if the applicable prospectus supplement specifies that the
certificates are to be listed on the American Stock Exchange, at the offices of
the American Stock Exchange LLC, 86 Trinity Place, New York, New York 10006; or
(e) at the offices of any other stock exchange on which the certificates are to
be listed, as specified in the applicable prospectus supplement. You can also
request copies of these documents, upon payment of a copying fee, by writing to
the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at (800) SEC-0330 for further information on the
operation of the public reference facilities. We do not intend to send any
financial reports to certificate holders, other than the reports described under
"Reports to Holders of Certificates" below.
We filed a registration statement on Form S-3 relating to the certificates with
the SEC. This prospectus is part of the registration statement, but the
registration statement includes additional information.
Incorporation of Documents by Reference
The SEC allows us to "incorporate by reference" information we file with it,
which means that we can disclose important information to you by referring you
to those documents. The information incorporated by reference is considered to
be part of this prospectus. You should read the applicable prospectus supplement
to find out what information has been incorporated by reference to other
documents.
Reports to Holders of Certificates
On each distribution date, the trustee of each trust will prepare unaudited
reports containing information concerning that trust. Except as otherwise
specified in the applicable prospectus supplement, unless and until definitive
certificates (as defined below) are issued, the trustee of each trust will send
these reports, on behalf of the trust, to Cede & Co., as nominee of The
Depository Trust Company and registered holder of the certificates. If
definitive certificates are issued, the trustee will send the reports to each
registered holder. See "Description of the Certificates--Global Securities;
Holdings in Street Name" and "Description of the Trust Agreement--Reports to
Certificate Holders; Notices." These reports will not constitute financial
statements prepared in accordance with generally accepted accounting principles.
The depositor will also file with the SEC, on behalf of each separate trust,
periodic reports that are required under the Securities Exchange Act. These
reports include Annual Reports on Form 10-K and Current Reports on Form 8-K that
include basic information about transactions made by the trust, but not about
the trustee or the depositor.
5
- --------------------------------------------------------------------------------
The Depositor
Corporate Asset Backed Corporation was incorporated in the State of Delaware on
November 22, 1993, as a wholly-owned limited purpose subsidiary of Paine Webber
Group Inc., and is now a wholly-owned subsidiary of UBS Americas Inc., successor
by merger to Paine Webber Group Inc. UBS Americas Inc. is a wholly-owned
subsidiary of UBS AG, a Swiss bank, which also owns UBS Securities LLC and UBS
Financial Services Inc., the underwriters. The depositor will not engage in any
business or activities other than creating trusts for the purpose of issuing and
selling securities, issuing notes secured by, and certificates representing
interests in, the trusts from time to time, acquiring, owning, holding, pledging
and transferring assets (including underlying securities and other trust assets)
in connection with the creation of a trust and in related activities. The
depositor does not have, nor is it expected to have, any significant assets.
The principal executive office of the depositor is located at 445 Broad Hollow
Road, Suite 239, Melville, New York 11747 (Telephone: (631) 587-4700).
Use of Proceeds
Unless otherwise specified in the applicable prospectus supplement, the net
proceeds received from the initial issuance of each series or class of
certificates will be used by the depositor to pay expenses (including
underwriting fees) associated with its business of creating trusts to issue
notes and certificates, purchasing the related trust assets and obtaining or
establishing any credit support, and, if specified in the applicable prospectus
supplement, making required deposits into a reserve or other account for the
benefit of the certificate holders of such series or class. We anticipate that
any remaining net proceeds from the initial issuance of each series or class of
certificates will be distributed to the depositor's sole shareholder, UBS
Americas Inc., for its general corporate purposes.
The depositor does not expect to receive any proceeds in connection with any
market-making resales of each series or class of certificates by UBS AG, UBS
Securities LLC, UBS Financial Services Inc. or any other affiliates of UBS AG.
We expect UBS AG, UBS Securities LLC, UBS Financial Services Inc. or any other
affiliates of UBS AG to retain the proceeds of their market-making resales and
not to pay the proceeds to us.
Formation of the Trusts
A separate trust will be created to issue each series of trust certificates.
Each trust will be a New York common law trust, a Delaware statutory trust, or a
type of trust governed by the law of a jurisdiction specified in the applicable
prospectus supplement. The depositor will assign to the trustee named in the
applicable prospectus supplement, or the trustee on behalf of the trust will
acquire, the trust assets for each series of certificates, in each case for the
benefit of the holders of that series of certificates. See "Description of the
Trust Agreement--Assignment of Trust Assets." The trustee named in the
applicable prospectus supplement will hold on behalf of the trust legal title to
the trust assets pursuant to a trust agreement and will receive a fee for its
services. See "Description of the Trust Agreement--Trustee's Compensation;
Payment of Expenses." The trustee will establish a collection account to hold
any funds or other property of the trust. See "Description of the Trust Assets,
including Credit Support--Collections."
The trustee will make payments or distributions with respect to the certificates
only out of the proceeds of the trust assets. The depositor and its affiliates
will have no obligation to make any other payments or distributions with respect
to the certificates.
6
FORMATION OF THE TRUSTS
- --------------------------------------------------------------------------------
Unless otherwise provided in the applicable prospectus supplement, the trust
assets of each trust will consist of:
- - underlying securities, contributed to the trust by the depositor or acquired
by the trustee on behalf of the trust, excluding any interest in such
securities (the "retained interest") or any repurchase right (the "retained
call right") retained by the depositor or any other person;
- - any credit support specified in the applicable prospectus supplement, as
described in that prospectus supplement and in this prospectus under
"Description of Trust Assets, including Credit Support--Other Trust
Assets--Credit Support;" and
- - any rights arising out of the underlying securities, the other trust assets
and all proceeds of the underlying securities and the other trust assets.
7
FORMATION OF THE TRUSTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Description of the Certificates
The certificates are "pass-through" securities that represent equity ownership
interests in the assets and rights held by the trust, subject to the obligations
of the trust, if any. All proceeds of the assets and rights will be "passed
through" to certificate holders, except to the extent required to satisfy the
obligations of the trust. The depositor will arrange for the offering of the
certificates by each trust, and will either sell the trust assets to the trust,
or will arrange for the trustee to acquire the trust assets directly on behalf
of the trust, in each case in exchange for the proceeds of the issuance. The
depositor will also arrange for any contractual credit support.
Generally, each trust will hold one or more kinds of bonds, notes or other
fixed-income securities. In some cases, a trust may be the beneficiary of a
guarantee, letter of credit or other instrument that is intended to protect the
holders of certificates from some or all of any losses that may be experienced
on the trust assets. A trust may also enter into swaps, options or other
derivative agreements that result in the trust paying or receiving a fixed or
floating interest rate, payments linked to changes in the value of different
types of securities, or other payments.
Each trust may issue one or more classes of certificates. The certificates will
represent the right of their holders to receive distributions of the proceeds of
the trust assets, including any credit support. If there is only one class of
certificates, then all the certificates will share equally in the proceeds of
the trust assets, including any credit support, until they have been paid in
full. If there is more than one class, then holders of each class of
certificates will have different rights. These differences may relate to the
order in which holders are paid, the way in which income, losses and repayments
of principal are allocated to the different classes, or other rights of the
holders.
The certificates are not debt instruments. The trust will pass through to the
holder of a certificate whatever portion of the proceeds of the trust assets,
including any credit support, that the holder is entitled to under his or her
certificate. If losses are experienced on the trust assets -- for example, if
the issuer of an underlying security does not pay what it owes to the trust, or
a provider of contractual credit support does not make any payment it is
required to make -- then the trust will not be able to pass through the relevant
payments to the holders and may not be able to pay all the amounts due under the
certificates. If a trust issues only one class of certificates, then all the
holders will share these losses equally. If it issues more than one class, then
the losses may be allocated differently among the classes.
Each series of certificates will be issued pursuant to a separate trust
agreement between the depositor and the trustee named in the applicable
prospectus supplement. A form of trust agreement is attached as an exhibit to
the registration statement of which this prospectus forms a part. The provisions
of the trust agreement relating to a particular prospectus supplement may vary
depending upon the nature of the certificates to be issued, the nature of the
trust assets and any credit support.
The depositor's affiliates may purchase certificates at any time and at any
price in the open market or otherwise.
We have been informed that, under the rules, regulations and procedures followed
by DTC and its operations, DTC will take any action permitted to be taken by a
holder only at the direction of one or more participants to whose DTC account
the relevant certificates are credited. Additionally, DTC will take actions with
respect to specified voting rights only at the direction and on behalf of
participants whose holdings of the certificates evidence the specified voting
rights. DTC may take conflicting actions
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DESCRIPTION OF THE CERTIFICATES
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with respect to voting rights, to the extent that participants whose holdings of
certificates evidence the voting rights authorize conflicting action.
The following summaries describe provisions of the trust agreement that may be
applicable to a series of certificates. The applicable prospectus supplement for
a series of certificates will describe any provision of the trust agreement that
materially differs from the description contained in this prospectus. The
following summaries are not complete and are subject to the detailed provisions
of the form of trust agreement, which should be reviewed for a full
understanding of the trust agreement and for other information regarding the
certificates. When we discuss any series, the term "certificate" refers to all
the certificates of that series, whether or not we are offering those
certificates, unless the context otherwise requires.
A copy of the trust agreement for each series in the form executed by the
depositor and the trustee will be filed with the SEC by the depositor as an
exhibit to a current report on Form 8-K following the issuance of the series.
NATURE OF THE CERTIFICATES
There is no limit on the amount of certificates that may be issued under a trust
agreement. The series or classes of certificates to be issued under a trust
agreement will represent the entire beneficial ownership interest in that trust,
and each class will be allocated a specified priority to receive collections
from, and a specified ownership interest of the assets deposited in, the trust,
all as identified and described in the applicable prospectus supplement. The
certificates represent the right to receive distributions in respect of the
certificate principal balance of the certificate and interest payments at the
specified pass-through rate. The distributions will be made out of, and will be
limited to, the proceeds of the trust assets. See "Description of the Trust
Assets, Including Credit Support -- Collections."
Because the certificates represent equity ownership interests in the trust, and
not debt instruments that are obligations of the trust, they do not have a
principal amount or bear interest. However, because the distributions on the
certificates primarily represent distributions of principal and interest on
trust assets that are debt instruments, for convenience, we will designate the
amount of "principal" to which you are entitled as the certificate principal
balance of your certificate, and we will generally designate distributions that
represent a return of your initial investment as "principal," and we will
designate distributions that represent the yield on your investment as
"interest," in accordance with customary market practice.
TERMS SPECIFIED IN THE PROSPECTUS SUPPLEMENT
Each of the following terms and conditions will be described in the applicable
prospectus supplement for the series or classes of certificates in respect of
which this prospectus and the applicable prospectus supplement are being
delivered:
- - the title of the certificates;
- - the series designation of the certificates and, if applicable, the number and
designation of classes within the series;
- - the type, characteristics and specifications of the trust assets deposited by
the depositor into the related trust, or acquired by the trustee on behalf of
the trust and, if any issue of underlying securities represents a significant
portion of the trust assets and any related credit support at the time of the
deposit or acquisition, information about the terms of that issue of
underlying securities, the identity of its issuer and where you may obtain
publicly available information about the issuer;
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DESCRIPTION OF THE CERTIFICATES
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- - the stated or maximum aggregate certificate principal balance or notional
amount, as applicable, of each class of certificates;
- - the dates on which or periods during which the series or classes may be issued
(each, an "original issue date") and their offering price;
- - if applicable, the relative rights and priorities of each class, including the
method for allocating collections from and losses on the trust assets and any
credit support to the holders of each class of certificates;
- - whether the certificates of the series or class are fixed rate certificates or
floating rate certificates and the applicable interest rate (the "pass-through
rate") for each class, including the applicable rate, if fixed (a "fixed
pass-through rate"), or the method of calculating the interest rate, if
variable (a "variable pass-through rate"); the date or dates from which the
interest will accrue; the day-count fraction that will be used to calculate
the interest; and the applicable distribution dates on which interest,
principal and premium, in each case as applicable, on the series or class will
be distributable and the related record dates;
- - any option of the depositor or another third party to purchase or repurchase
any underlying securities or the certificates and the periods within which or
the dates on which, and the terms and conditions upon which, the option may be
exercised, in whole or in part;
- - the denominations in which the series or class will be issuable, if other than
denominations of $1,000 and any integral multiple of $1,000;
- - whether the certificates of any class will be entitled to (a) principal
distributions, with disproportionate, nominal or no interest distributions, or
(b) interest distributions, with disproportionate, nominal or no principal
distributions (in each case, "stripped certificates"), and the applicable
terms of those certificates;
- - whether the principal balance, notional amount or interest payable on any
certificates is indexed or based on any formula and, if so, the method of
applying the formula;
- - whether the certificates of the series or of any class within the series will
be issued in the form of one or more global securities and, if so, the
identity of the securities depositary for the global security or securities,
if not The Depository Trust Company;
- - if a temporary certificate is to be issued with respect to the series or any
class within the series, and how any interest distributable on a distribution
date prior to the issuance of a permanent certificate for the series or class
will be credited on that distribution date;
- - if a temporary global security is to be issued with respect to the series or
class, the terms upon which beneficial interests in the temporary global
security may be exchanged, in whole or in part, for beneficial interests in a
permanent global security or for individual definitive certificates for the
series or class and any terms upon which beneficial interests in a permanent
global security may be exchanged for individual definitive certificates for
the series or class;
- - the currency in which the certificates of the series or class are payable (the
"specified currency"), if other than U.S. dollars;
- - the voting rights of the series or class, including the manner of voting and
the percentages required with respect to particular matters; and
- - the days that will be considered "business days" for purposes of the
certificates;
- - the identity of the trustee and the location of its corporate trust office;
and
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DESCRIPTION OF THE CERTIFICATES
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- - any other terms of the series or class.
Unless otherwise indicated in the applicable prospectus supplement, certificates
of each series will be issued only as registered certificates in denominations
of $1,000 and any multiple of $1,000 and will be payable only in U.S. dollars.
If you purchase the certificates in a market-making transaction, you will
receive information about the price you pay and your trade and settlement dates
in a separate confirmation of sale. A market-making transaction is one in which
UBS AG, UBS Securities LLC, UBS Financial Services Inc. or any other affiliates
of UBS AG resells a certificate that it has previously acquired from another
holder. A market-making transaction in a particular certificate occurs after the
original issuance and sale of the certificate.
DISTRIBUTIONS
Distributions allocable to principal, premium, if any, and interest on the
certificates of each series or class will be made in the specified currency for
those certificates 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 close of business on the date
specified in the applicable prospectus supplement (the "determination date").
If the specified currency for a given series or class is other than U.S.
dollars, the trustee will (unless otherwise specified in the applicable
prospectus supplement) arrange to convert all payments in respect of each
certificate into U.S. dollars in the manner described under "-- Foreign Currency
Certificates" below. However, the holder of a certificate of a given series or
class denominated in a specified currency other than U.S. dollars may elect to
receive all distributions in respect of the certificate in the specified
currency by delivering a written notice to the trustee for the series not later
than 15 calendar days prior to the applicable distribution date, except under
the circumstances described under "-- Inability to Pay in Specified Currency"
below. Each election will remain in effect until revoked by written notice to
the trustee, as long as the trustee receives the notice not later than 15
calendar days prior to the applicable distribution date.
Except as provided in the following paragraph, distributions with respect to
certificates will be made at the corporate trust office or agency of the trustee
specified in the applicable prospectus supplement. However, any amounts
distributable on the final distribution date of a certificate will be
distributed only upon surrender of the certificate at the corporate trust office
or agency of the trustee specified in the applicable prospectus supplement.
Distributions on certificates in U.S. dollars will be made on each distribution
date to each certificate holder of record on the immediately preceding record
date by wire transfer, in immediately available funds, to the account of such
certificate holder at a bank or other entity having appropriate facilities to
receive wire transfer payments, if the trustee for the series received
appropriate written instructions at least five business days prior to such
distribution date, or, if not, by check mailed to the corresponding certificate
holder at its address of record. As described under "-- Global Securities;
Holdings in Street Name," below, distributions on certificates represented by a
global security will be made to the depositary or its nominee, as holder of the
global security. Furthermore, any certificate holder that elects to receive
payments in a specified currency other than U.S. dollars (as provided above)
will receive those payments by wire transfer of immediately available funds to
an account maintained by the payee with a bank located outside the United
States. The holder of a certificate must provide appropriate wire transfer
instructions to the trustee for the series together with the holder's election
to receive payments in the specified currency.
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DESCRIPTION OF THE CERTIFICATES
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Unless otherwise specified in the applicable prospectus supplement, "business
day" with respect to any certificate means any day, other than a Saturday or
Sunday, that is (a) not a day on which banking institutions are authorized or
required by law or regulation to be closed in (1) The City of New York or (2) if
the specified currency for the certificate is other than U.S. dollars, the
financial center of the country issuing the specified currency and (b) if the
pass-through rate for such certificate is based on LIBOR, a London banking day.
"London banking day" with respect to any certificate means any day on which
dealings in deposits in the specified currency of the certificate are transacted
in the London interbank market. The record date with respect to any distribution
date for a series or class of certificates will be specified as in the
applicable prospectus supplement.
INTEREST ON THE CERTIFICATES
Except for classes of stripped certificates described in the applicable
prospectus supplement, each class of certificates of a given series may have a
different pass-through rate, which may be a fixed or variable pass-through rate,
as described below. Unless otherwise specified in the applicable prospectus
supplement, the pass-through rate will be expressed as a rate per annum on a
simple interest basis. In the case of stripped certificates with no or, in some
cases, a nominal certificate principal balance, distributions of interest
("stripped interest") may be paid as described under "-- Stripped Certificates"
below.
Unless otherwise specified in the applicable prospectus supplement,
distributions of interest with respect to a series or class of certificates that
are issued between a record date and the related distribution date will be made
on the next distribution date, for the period beginning on the issue date for
the series or class and ending on the last day of the interest accrual period
ending immediately prior to or on that distribution date.
FIXED RATE CERTIFICATES
Each series or class of certificates with a fixed pass-through rate ("fixed rate
certificates") will bear interest on its outstanding certificate principal
balance, from its original issue date, or from the last date to which interest
has been paid, at the fixed pass-through rate stated in the applicable
prospectus supplement until the principal balance is distributed or made
available for distribution. If so specified in the applicable prospectus
supplement, the pass-through rate for a class may be subject to adjustment from
time to time in response to designated changes in the rating assigned to that
class or series by one or more rating agencies, in accordance with a schedule or
otherwise, all as described in the applicable prospectus supplement. Interest on
each series or class of fixed rate certificates will be distributed in arrears
on each distribution date specified in the applicable prospectus supplement.
Each distribution of interest will include interest accrued through the day
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 or class of certificates with a variable pass-through rate
("floating rate certificates") will bear interest on its outstanding certificate
principal balance from its original issue date to the first interest reset date
for such series or class at the initial pass-through rate set forth in the
applicable prospectus supplement. Thereafter, the pass-through rate on such
series or class for each interest reset period will be determined by reference
to an interest rate basis (the "base rate"), plus or minus the spread, if any,
or multiplied by the spread multiplier, if any. The "base rate" may be the
London interbank offered rate ("LIBOR"), the commercial paper rate, the Treasury
rate, the Federal Funds rate, the certificate of deposit rate, or another base
rate specified in the applicable prospectus supplement. The "spread" is the
number of basis points specified in the applicable prospectus supplement as
being applicable to the series or class. One basis point equals one
one-hundredth of a
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DESCRIPTION OF THE CERTIFICATES
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percentage point. The "spread multiplier" is the percentage specified in the
applicable prospectus supplement as being applicable to the series or class. If
so specified in the applicable prospectus supplement, the spread or spread
multiplier on a series or class of floating rate certificates may be subject to
adjustment from time to time in response to designated changes in the rating
assigned to that series or class by one or more rating agencies, in accordance
with a schedule or otherwise, all as described in the applicable prospectus
supplement. The applicable prospectus supplement will specify the base rate, any
spread and any spread multiplier that are applicable to a floating rate
certificate.
If specified in the applicable prospectus supplement, floating rate certificates
of a series or class may also have: (a) a maximum limitation, or ceiling, on the
rate at which interest may accrue during any interest accrual period specified
in the applicable prospectus supplement ("maximum pass-through rate"), and (b) a
minimum limitation, or floor, on the rate at which interest may accrue during
the interest accrual period ("minimum pass-through rate"). In addition, the
pass-through rate applicable to floating rate certificates may never be higher
than the maximum rate permitted by applicable New York and United States federal
law, which, as of December 2003, was 16%.
The trustee may appoint agents selected by the depositor (each, a "calculation
agent") to calculate pass-through rates on each class of floating rate
certificates. The applicable prospectus supplement will identify the calculation
agent. All determinations of interest by the calculation agent, if any, and
otherwise by the trustee will, in the absence of manifest error, be conclusive
for all purposes and binding on the depositor, the relevant trust and the
holders of certificates of the relevant series.
The pass-through rate on each class of floating rate certificates will be reset
daily, weekly, monthly, quarterly, semiannually or annually, as specified in the
applicable prospectus supplement. The period between each resetting of the
pass-through rate on a class is called an "interest reset period" for that
class, and the first day of each interest reset period is called an "interest
reset date." The interest reset dates with respect to each series or class will
be specified in the applicable prospectus supplement. Unless otherwise specified
in the applicable prospectus supplement, the pass-through rate for the 10 days
immediately prior to the scheduled final distribution date will be the rate in
effect on the 10th day preceding such scheduled final distribution date. If an
interest reset date for any class of floating rate certificates would otherwise
be a day that is not a business day, the interest reset date will occur on a
prior or succeeding business day as specified in the applicable prospectus
supplement.
Interest payable in respect of any series or class of floating rate certificates
will be distributed in arrears on the distribution dates specified in the
applicable prospectus supplement and will be equal to the accrued interest from
and including the original issue date of such series or class or the last
interest reset date to which interest has accrued and been distributed, as the
case may be, to but excluding the immediately following distribution date.
Accrued interest on a floating rate certificate will be calculated by
multiplying the outstanding certificate principal balance by an accrued interest
factor (the "accrued interest factor"). The accrued interest factor will be
computed by adding the interest factors calculated for each day in the period
for which accrued interest is being calculated. The interest factor (expressed
as a decimal calculated to seven decimal places without rounding) for each such
day is computed by dividing the pass-through rate in effect on such day by 360,
or by the actual number of days in the year, as specified in the applicable
prospectus supplement. For purposes of making this calculation, the variable
pass-through rate in effect on any interest reset date will be the applicable
rate as reset on such date.
All percentages resulting from any calculation of the pass-through 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 such
calculations will be rounded to the nearest one-hundredth of a unit (with five
one-thousandths of a unit being rounded upward).
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DESCRIPTION OF THE CERTIFICATES
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Upon the request of the holder of any floating rate certificate, the calculation
agent will provide the pass-through rate then in effect and, if it has been
determined, the pass-through rate that will become effective on the next
interest reset date with respect to the floating rate certificate.
STRIPPED CERTIFICATES
Each class of stripped certificates will be entitled to interest in an amount
described in the applicable prospectus supplement. Accrued interest on a
stripped certificate with no principal balance, or a nominal principal balance,
will be calculated by multiplying the notional amount specified in the
applicable prospectus supplement by an accrued interest factor. The accrued
interest factor will be computed by adding the interest factors calculated for
each day in the period for which accrued interest is being calculated. The
interest factor (expressed as a decimal calculated to seven decimal places
without rounding) for each day will be computed by dividing the pass-through
rate in effect on such day by 360, or by the actual number of days in the year,
as specified in the applicable prospectus supplement.
For purposes of the stripped certificates, "notional amount" means the notional
principal amount specified in the applicable prospectus supplement on which
interest on stripped certificates will be made on each distribution date.
Reference to the notional amount of a class of stripped certificates does not
indicate that such certificates represent the right to receive any distributions
in respect of principal in such amount; rather, the term "notional amount" is
used solely as a basis for calculating the amount of required interest
distributions and determining relative voting rights, all as specified in the
applicable prospectus supplement.
PRINCIPAL OF THE CERTIFICATES
Unless otherwise specified in the applicable prospectus supplement, each
certificate that is not an interest only stripped certificate will have a
"certificate principal balance" that, at any time, will equal the maximum amount
of principal that the holder will be entitled to receive out of the future cash
flow on the trust assets. Distributions generally will be applied to
undistributed accrued interest on, then to principal of, and then to premium (if
any) on, each such certificate of the class or classes entitled to the
distribution (in the manner and priority specified in the applicable prospectus
supplement) until the aggregate certificate principal balance of the class or
classes has been reduced to zero. Distributions of principal of any class of
certificates will be made on a pro rata basis among all the certificates of that
class. The outstanding certificate principal balance of a certificate of any
class will be reduced to the extent of distributions of principal and, if
applicable pursuant to the terms of the related series, by the amount of any net
losses realized on any trust asset ("realized losses") allocated to that class
as a result of the inability to collect from the issuer of the underlying
securities the full amount of payments of principal due in respect of the
underlying securities, or from the obligor under any other trust assets payment
in full of the amount due under the other assets. The initial aggregate
certificate principal balance of each series and each class will be specified in
the applicable prospectus supplement.
Stripped certificates with no certificate principal balance will not receive
distributions of principal.
FOREIGN CURRENCY CERTIFICATES
If the specified currency of any certificate is not U.S. dollars, the applicable
prospectus supplement will specify the permissible denominations of the
certificates, the currency or currencies in which the principal and interest of
the certificates are to be paid and any other material terms and conditions
applicable to the certificates.
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DESCRIPTION OF THE CERTIFICATES
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INABILITY TO PAY IN SPECIFIED CURRENCY
Except as described below, if distributions in respect of a certificate are
required to be made in a specified currency other than U.S. dollars and the
currency is unavailable due to the imposition of exchange controls or other
circumstances beyond the depositor's control, or if the currency is no longer
used by the government of the country that issued the currency or for the
settlement of transactions by public institutions of or within the international
banking community, then all distributions in respect of the certificate will be
made in U.S. dollars until the currency is again available or used. The amounts
payable on any date in the affected currency will be converted into U.S. dollars
on the basis of the most recently available market exchange rate for the
currency, or as otherwise indicated in the applicable prospectus supplement.
All of these determinations will be made by the trustee in its sole discretion
and will, in the absence of manifest error, be conclusive for all purposes and
binding on the holders of affected certificates.
INDEXED CERTIFICATES
A series of certificates ("indexed certificates") may have principal (the
"indexed certificate principal balance") and/or interest (the "indexed
interest") determined by reference to:
- - the rate of exchange between the specified currency for the certificate (or
any other currency) and another currency (the "indexed currency") or the
difference in the prices of a specified commodity (the "indexed commodity") on
different dates;
- - the difference in the levels of a specified stock or bond index (the "stock
index" or the "bond index") which may be based on U.S. or foreign stocks or
bonds, on different dates; or
- - another objective price (including an individual security) or economic measure
described in the applicable prospectus supplement.
The manner of determining the indexed certificate principal balance or indexed
interest of an indexed certificate, and historical and other information
concerning the indexed currency, indexed commodity, stock index or other price
or economic measure used in the determination, will be set forth in the
applicable prospectus supplement, together with any information concerning tax
consequences to the holders of such indexed certificates. If certificates
offered to the public are issued with an indexed certificate principal balance,
the investment grade rating of the certificates will address both (a) the
likelihood that a certificate holder will receive the indexed certificate
principal balance, and (b) the likelihood that payment of the indexed
certificate principal balance will result in a return of the full amount of the
certificate holder's investment. Certificates will not be offered to the public
with an investment grade rating that addresses merely the likelihood of a
certificate holder receiving the indexed certificate principal balance, without
regard to whether receiving such amount could result in an economic loss.
Except as otherwise specified in the applicable prospectus supplement, interest
on an indexed certificate will be payable based on the amount designated as the
"face amount" of the indexed certificate in the applicable prospectus
supplement. The applicable prospectus supplement will describe whether the "face
amount" will be the certificate principal balance of the related indexed
certificate that would be payable upon redemption or repayment prior to the
stated maturity date, the indexed principal balance of the indexed certificate
at the time of redemption or repayment, or another amount described in the
prospectus supplement.
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DESCRIPTION OF THE CERTIFICATES
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MULTI-CURRENCY CERTIFICATES
Certificates ("multi-currency certificates") of a series or class for which
payments of principal and/or interest will be made in more than one currency may
be issued, and rates of exchange will be calculated, as indicated in the
certificates and described in the applicable prospectus supplement. Other
material terms and conditions relating to multi-currency certificates will be
set forth in the certificates and the applicable prospectus supplement.
PUT OPTION
If specified in the applicable prospectus supplement, a holder may put
certificates of a given series or class to the depositor or a third party. The
terms upon which a holder may put its certificates (including the price) will be
specified in the applicable prospectus supplement.
TRANSFERS AND EXCHANGES
Unless otherwise specified in the applicable prospectus supplement, certificates
may be transferred or exchanged for like certificates of the same series and
class at the corporate trust office or agency of the applicable trustee in the
City and State of New York (if the trust is a New York trust) or in the City of
Wilmington, Delaware (if the trust is a Delaware trust) subject to limitations
provided in the applicable trust agreement, including the requirement that
global certificates may be transferred only as a whole to nominees of the
depositary, and representations and indemnities from the holders of the
certificates in connection with lost, destroyed or mutilated certificates. Such
transfers or exchanges will be made free of any service charge (except in the
case of lost, destroyed or mutilated certificates), but the holder must pay any
tax or governmental charge payable in connection with the transfer and exchange.
See "Description of the Trust Agreement--Replacement Certificates" below.
Unless otherwise specified in the applicable prospectus supplement, the trustee
will serve as transfer agent and registrar for the purpose of registering each
series or class of certificates and any transfers or exchanges of certificates.
GLOBAL SECURITIES; HOLDINGS IN STREET NAME
Unless otherwise specified in the applicable prospectus supplement, all
certificates of a given series or class will, upon issuance, be represented by
one or more global securities. The global securities will be deposited with, or
on behalf of, The Depository Trust Company ("DTC"), New York, New York, or
another depositary identified in the applicable prospectus supplement (the
"depositary"), and will be registered in the name of a nominee of the
depositary. Global securities may be issued in either temporary or definitive
form. Unless and until it is exchanged in whole or in part for the individual
certificates it represented (each a "definitive certificate"), a global security
may not be transferred except as a whole by the depositary for the global
security to a nominee of the depositary or by a nominee of the depositary to the
depositary or another nominee of the depositary or by the depositary or the
nominee to a successor of the depositary or a nominee of the successor.
DTC has advised the depositor as follows: DTC is a limited-purpose trust company
organized under the New York Banking Law, a "banking organization" within the
meaning of the New York Banking Law, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act. DTC holds securities that its participants
("direct participants") deposit with DTC. DTC also facilitates the settlement
among direct participants of securities transactions, such as transfers and
pledges, in deposited securities through computerized book-entry changes in
direct participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct participants include securities
brokers and dealers, banks,
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DESCRIPTION OF THE CERTIFICATES
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trust companies, clearing corporations and certain other organizations. DTC is
owned by a number of its direct participants and by the New York Stock Exchange,
Inc., the American Stock Exchange LLC, and the National Association of
Securities Dealers, Inc. Access to the DTC system is also available to others
such as securities brokers and dealers, banks, and trust companies that clear
through or maintain a custodial relationship with a direct participant, either
directly or indirectly ("indirect participants"). The rules applicable to DTC
and its direct and indirect participants are on file with the SEC.
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
certificate principal balances or notional amounts of the individual
certificates represented by the global security to the accounts of its
participants. The accounts to be credited will be designated by the underwriters
of the certificates, or, if the certificates are offered and sold directly
through one or more agents, by the depositor or agents. Ownership of beneficial
interests in a global security will be limited to participants or persons that
may hold beneficial interests through participants. Ownership of beneficial
interests in a global security will be shown on, and the transfer of that
ownership will be effected only through, records maintained by the depositary
for the global security or by participants or persons that hold through
participants. The laws of some states require that some purchasers of securities
take physical delivery of the securities. The limitations on the ownership of
beneficial interest and these state 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 holder
of the global security, the depositary or the nominee, as the case may be, will
be considered the sole holder of the individual certificates represented by the
global security for all purposes. Except as set forth below, owners of
beneficial interests in a global security will not be entitled to have any of
the individual certificates represented by the global security registered in
their names, will not receive or be entitled to receive physical delivery of
individual certificates and will not be considered to be the holder of the
certificates under the trust agreement. Because the depositary can act only on
behalf of its participants, the ability of a beneficial owner of any certificate
to pledge that certificate to persons that do not participate in the
depositary's system, or otherwise to act with respect to such certificate, may
be limited due to the lack of a physical certificate for the certificate.
Distributions of principal of, and any premium and interest on, individual
certificates represented by a global security will be made to the depositary or
its nominee, as the case may be, as the holder of the global security. None of
the depositor, the trustee for such certificates, any paying agent or the
registrar for the certificates will have any 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 certificates of a given class and
series, upon receipt of any distribution or payment in respect of a global
security representing any of such certificates, will immediately credit
participants' 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 depositor also expects that
payments by participants to owners of beneficial interests in the global
security held through such participants will be governed by standing
instructions and customary practices and will be the responsibility of the
participants.
If the depositary for certificates of any series or class is at any time
unwilling or unable to continue as depositary and a successor depositary is not
appointed by the depositor within 90 days, the trustee will issue individual
definitive certificates of the same series or class in exchange for the global
securities representing the certificates. In addition, the trustee will issue
definitive certificates if any underlying securities issuer evidencing more than
10% of the aggregate principal amount of the underlying
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DESCRIPTION OF THE CERTIFICATES
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securities suspends its Securities Exchange Act reporting requirements at a time
when the reporting requirements with respect to the certificates have not been
suspended or terminated. In that event, the trustee will issue individual
definitive certificates of the same series or class in exchange for the global
securities representing such certificates. In any such instance, an owner of a
beneficial interest in a global security (or the participant through which it
holds its interest) will be entitled to physical delivery of individual
definitive certificates of the class represented by the global security equal in
principal balance to the beneficial interest and to have such definitive
certificates registered in its name. Any individual definitive certificates of
the class will be issued in definitive form as registered certificates in the
minimum denominations and integral multiples of such minimum denominations as
specified in the applicable prospectus supplement.
If the certificates cease to be held in the form of a global security, or if the
certificates are issued initially in non-global or definitive form, investors
may choose to hold their certificates in their own names or in "street name."
Certificates held by an investor in street name would be registered in the name
of a bank, broker or other financial institution that the investor chooses, and
the investor would hold only a beneficial interest in those certificates through
an account that he or she maintains at the institution.
For certificates held in street name, only those intermediary banks, brokers and
other financial institutions in whose names the certificates are registered will
be recognized as the holders of those certificates and the trustee will make all
payments on those certificates to those institutions. The depositor expects that
these institutions will pass along the payments they receive to their customers
who are the beneficial owners, but only because they agree to do so in their
customer agreements or are otherwise legally required to do so. Investors who
hold certificates in street name will be indirect holders of the certificates.
The applicable prospectus supplement will describe any material terms of the
depositary arrangement with respect to any class or series of certificates to
the extent not described above.
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Trust Liquidation Events
Each prospectus supplement will contain information with respect to any events
that may lead to liquidation of the trust assets, the method of liquidation of
the trust assets and applicable trust and distribution of the proceeds of the
trust assets to the holders of certificates subject to the priorities set forth
in the applicable prospectus supplement, as well as remedies, if any, of the
certificate holders upon the occurrence of any of these events.
Maturity and Yield Considerations
Each prospectus supplement will contain information with respect to the type of
underlying securities deposited in the related trust, their maturities and the
terms, if any, upon which the underlying securities may be subject to early
redemption, early repayment, amortization, acceleration or extension of
maturity. Early redemption may be at the option of an underlying securities
issuer or a third party or may be mandatory upon the occurrence of specified
events. Generally, payment on the underlying securities may be accelerated if
the issuer of the securities defaults under the terms of the underlying
securities.
The maturity and yield of any class or series of certificates may be affected by
optional or mandatory early redemption, early repayment, amortization,
acceleration or extension of maturity of the underlying securities or call
option on the certificates or trust assets. Furthermore, early redemption,
repayment, amortization or acceleration of payment on the underlying securities
will reduce the weighted average life of the underlying securities and the
related certificates. Extension of maturity of the underlying securities will
increase the weighted average life of the underlying securities and the related
certificates.
Tax, accounting, economic and other factors, including factors specific to the
particular issuer, will influence whether an underlying securities issuer or
third party exercises a right of redemption, repurchase or extension of maturity
in respect of its securities. The extent of any redemptions may be influenced by
prepayments on the obligations that secure or back an issue of underlying
securities. Other things being equal, if prevailing interest rates fall
significantly below the interest rates on the underlying securities, the
likelihood of redemption would be expected to increase. We cannot assure you,
however, that a redeemable underlying security will in fact be repaid prior to
its stated maturity.
We cannot predict the probability of negative developments affecting any
underlying security.
If the certificates are purchased at a discount, their yield to maturity will be
reduced by slower than expected payments on the trust assets. If the
certificates are purchased at a premium, faster than expected payments will
reduce their yield.
If the pass-through rate for any series or class of certificates is based on
variable or adjustable interest rates, the yield to maturity of the certificates
will be reduced if such variable or adjustable interest rates fall. If any
series or class of certificates represents an interest in a pool of underlying
securities of different issuers, disproportionate principal payments on
underlying securities having higher than average interest rates will reduce the
yield on the certificates.
The applicable prospectus supplement for each class or series of certificates
will provide additional information regarding yield and maturity considerations
applicable to that class or series and the related trust assets, including the
underlying securities.
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Description of the Trust Assets, including Credit Support
UNDERLYING SECURITIES
The trust assets for a given series of certificates will not constitute trust
assets for any other series or class of certificates. The certificates of each
class of a given series will possess an equal and ratable interest in the trust
assets for that class. The applicable prospectus supplement may, however,
specify that assets constituting trust assets for a given series may be
beneficially owned solely by, or deposited solely for the benefit of, one or
more classes within such series. In that event, the other classes of that series
will not possess any beneficial ownership interest in those specified assets.
Each certificate will represent an ownership interest, as specified for the
series or class of certificates, in (a) a designated publicly tradable
fixed-income security or a pool of such securities (the "underlying
securities"), that are purchased either by the trustee on behalf of the trust or
by the depositor (or its affiliates), in the secondary market and deposited into
a trust as described in the applicable prospectus supplement, and (b) any other
assets related or incidental to the underlying securities, purchased and
deposited into a trust either by the trustee on behalf of the trust or by the
depositor (or its affiliates). All such other assets for any given series,
together with the underlying securities, and any assets obtained through
foreclosure or settlement, are referred to as the "trust assets."
A fixed-income security is "publicly tradable" if it has been registered under
the Securities Act of 1933 (the "Securities Act") or is exempt from
registration. Any underlying securities that are corporate securities, trust
preferred securities or foreign government securities and that represent 10% or
more of the principal amount of the underlying securities with respect to any
series of certificates are referred to as "concentrated underlying securities."
The underlying securities will consist of one or more of the following:
PRIVATE SECTOR SECURITIES
Private sector securities will consist of corporate securities, trust preferred
securities and asset-backed securities:
- - Corporate securities consist of senior or subordinated debt obligations, or
investment grade term preferred stock, consisting of one or more of the types
of securities described below. Corporate securities may consist of:
- Publicly tradable fixed-income securities of one or more banks, insurance
companies or other corporations or entities organized under the laws of
the United States or any state, the District of Columbia or the
Commonwealth of Puerto Rico that are subject to the informational
requirements of the Securities Exchange Act and that file reports and
other information with the SEC or (for some depository institutions) with
a federal bank or thrift regulatory agency. If any of these securities is
a concentrated underlying security, the depositor must reasonably believe
(based on publicly available information) that the issuer is eligible to
make a primary offering of common stock on Form S-3 at the time the
certificates are offered.
- Publicly tradable fixed-income securities of one or more foreign private
issuers (as defined in Rule 405 under the Securities Act) that are
subject to the informational requirements of the Securities Exchange Act
and that file reports and other information with the SEC. If any of these
securities is a concentrated underlying security, the depositor must
reasonably believe (based on publicly available information) that the
issuer is eligible to make a primary offering of common stock on Form F-3
at the time certificates are offered.
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DESCRIPTION OF THE TRUST ASSETS, INCLUDING CREDIT SUPPORT
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- - Trust preferred securities are publicly tradable preferred equity securities
issued by one or more trusts or other special purpose legal entities
established for the purpose of issuing common and preferred equity securities
and investing the proceeds in subordinated debt obligations of issuers that
are subject, or are wholly-owned subsidiaries of parent companies that are
subject, to the informational requirements of the Securities Exchange Act and
that file reports and other information with the SEC. In the case of these
wholly-owned subsidiaries, the parent companies will have fully and
unconditionally guaranteed those obligations on a subordinated or
non-subordinated basis. If any of these trust preferred securities is a
concentrated underlying security, the depositor must reasonably believe (based
on publicly available information) that the guarantor with respect of the
trust preferred securities is eligible to make a primary offering of common
stock on Form S-3 or Form F-3 at the time the certificates are offered.
Trust preferred securities generally have economic characteristics that mirror
those of the subordinated debt obligations that are the trust's principal
assets. Trust preferred securities generally pay dividends at a rate
approximately equal to the interest rate on the subordinated debt obligations,
and these dividends and interest payments generally are due on or about the
same date.
- - Asset-backed securities are publicly tradable asset-backed notes or
pass-through certificates issued by one or more trusts or other special
purpose legal entities with at least $75,000,000 in outstanding securities
held by non-affiliates. Asset-backed notes are secured by, and asset-backed
pass-through certificates represent an interest in, a fixed or revolving pool
of financial assets. Such financial assets will consist primarily of secured
or unsecured consumer or other receivables, such as automobile loans or
contracts, automobile leases, credit card receivables, home equity or other
mortgage loans, trade receivables, inventory loans, equipment leases and other
assets that by their terms convert into cash within a limited time period.
Asset-backed notes generally are issued pursuant to indentures and
asset-backed pass-through certificates generally are issued pursuant to
pooling and servicing agreements or trust agreements. A separate servicing
agreement typically is executed in connection with asset-backed notes. These
servicing agreements, indentures, pooling and servicing agreements and trust
agreements collectively are referred to as "asset-backed agreements."
Asset-backed securities deposited as underlying securities will be issued by a
trust or other special purpose legal entity that at the time the underlying
asset-backed securities are issued (a) is subject to the informational
requirements of the Securities Exchange Act and (b) files reports and other
information with the SEC.
DOMESTIC GOVERNMENT SECURITIES
Domestic government securities will consist of Treasury securities and GSE
securities.
- - Treasury securities are securities issued or guaranteed by the United States
of America, or by any of its agencies if the full faith and credit of the
United States of America is pledged for their payment.
- - GSE securities are fixed-income securities issued or guaranteed by one or more
of the following U.S. government sponsored entities ("GSEs"): Federal National
Mortgage Association, Federal Home Loan Mortgage Corporation, Student Loan
Marketing Association, Resolution Funding Corporation, Federal Home Loan Banks
(to the extent these obligations represent the joint and several obligations
of the twelve Federal Home Loan Banks), Tennessee Valley Authority and Federal
Farm Credit Banks. These securities generally are exempt from registration
under the Securities Act and are not required to be registered under the
Securities Exchange Act. Securities issued or guaranteed by any GSE will be
included in a trust only if the organization makes publicly available its
annual report including financial statements or similar financial information
with respect to the organization. Unless otherwise specified in the applicable
prospectus supplement, GSE securities are not guaranteed
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DESCRIPTION OF THE TRUST ASSETS, INCLUDING CREDIT SUPPORT
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by the United States of America and do not constitute a debt or obligation of
the United States of America or any of its agencies or instrumentalities other
than the applicable GSE.
FOREIGN GOVERNMENT SECURITIES
Foreign government securities are publicly tradable obligations issued or
guaranteed by a foreign government, political subdivision or agency or
instrumentality.
MULTILATERAL BANK ISSUERS
A trust may own obligations of one or more multilateral bank issuers. A
"multilateral bank issuer" means any one of the International Bank for
Reconstruction and Development, the Inter-American Development Bank, the Asian
Development Bank, the African Development Bank, the International Finance
Corporation, the European Bank for Reconstruction and Development, or another
multilateral development bank that has a comparable volume of outstanding
securities and files with the SEC comparable publicly available information, and
the securities of which are exempted from registration under the Securities Act.
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DESCRIPTION OF THE TRUST ASSETS, INCLUDING CREDIT SUPPORT
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PRINCIPAL ECONOMIC TERMS OF UNDERLYING SECURITIES
The applicable prospectus supplement will disclose the name of each underlying
securities issuer with respect to the applicable series of certificates. In
addition, the applicable prospectus supplement will include a description of the
following terms, as applicable, of any concentrated underlying security:
- - the title and series of the underlying securities and their aggregate
principal amount, denomination and form;
- - whether the underlying securities are senior or subordinated to any other
obligations of the underlying securities issuer;
- - whether the underlying securities are secured or unsecured and, if secured,
the nature of any collateral;
- - the dates on which, or the range of dates within which, the principal of (and
any premium on) the underlying securities will be payable;
- - the rate or rates, or the method of determining the rate or rates, at which
the underlying securities will bear interest, if any ("underlying securities
rate"); the date or dates from which the interest will accrue ("underlying
securities interest accrual periods"); and the dates on which the interest
will be payable ("underlying securities payment dates");
- - the obligation, if any, of the underlying securities issuer to redeem the
underlying securities pursuant to any sinking fund or analogous provisions, or
the option of a holder, and the periods within which (or the dates on which),
the prices at which and the terms and conditions upon which the underlying
securities may be redeemed or repurchased, in whole or in part, pursuant to
the underlying securities;
- - the periods within which (or the dates on which), the prices at which and the
terms and conditions upon which the underlying securities may be redeemed, if
applicable, in whole or in part, at the option of the underlying securities
issuer;
- - whether the underlying securities were issued at a price lower than their
principal amount (other than by a de minimus amount);
- - if other than U.S. dollars, the foreign currency in which the underlying
securities are denominated, or in which payment of the principal of and any
premium or interest on the underlying securities will be made (the "underlying
securities currency"), and the circumstances, if any, when the underlying
currency may be changed; and
- - any rating of the underlying securities by a securities rating agency.
If a trust is comprised of a pool of underlying securities, the applicable
prospectus supplement will, to the extent applicable, describe the composition
of the underlying securities pool as of the date that is specified in the
applicable prospectus supplement as the cut-off date (the "cut-off date") or
closing date (the "closing date"), whichever is applicable to that pool, and, on
an aggregate, percentage or weighted average basis, as applicable, the
characteristics of the pool with respect to the applicable terms listed above.
PUBLICLY AVAILABLE INFORMATION
In addition to the foregoing, the applicable prospectus supplement will
describe, with respect to each concentrated underlying securities issuer, the
existence and type of financial reporting information that is made publicly
available by the underlying securities issuer. The prospectus supplement will
also disclose where and how prospective purchasers of the certificates may
obtain the publicly available
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DESCRIPTION OF THE TRUST ASSETS, INCLUDING CREDIT SUPPORT
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information. This information will typically consist of the underlying
securities issuer's annual report, which contains financial statements or
similar financial information, and can be obtained from the SEC, if so specified
in the applicable prospectus supplement, or from the office of the underlying
securities issuer identified in the applicable prospectus supplement.
OTHER TRUST ASSETS
In addition to the underlying securities, the trustee on behalf of the trust or
the depositor may also acquire and deposit into a trust other assets related or
incidental to the underlying securities or necessary to provide the certificates
with their desired economic terms. Furthermore, the trustee, on behalf of the
trust, and to the extent described in the applicable prospectus supplement, may
enter into hedging contracts and other derivative agreements. The applicable
prospectus supplement will, to the extent appropriate, contain disclosure with
respect to the trust assets other than the underlying securities that is
analogous to the disclosure provided with respect to the underlying securities.
SWAPS, CAPS, FLOORS, OPTIONS, FORWARD CONTRACTS AND CREDIT DERIVATIVES
Any derivative agreements that are included in the trust assets may include, but
are not limited to, puts, calls, interest rate, currency, securities, commodity
and credit swaps, total return swaps, credit default swaps, caps, floors,
collars and options, forward contracts and structured securities with embedded
derivatives. Some of the main categories of hedging contracts and derivative
agreements that may be deposited into a trust are described below.
The applicable prospectus supplement will specify the amount, type and other
relevant terms of each derivative agreement with respect to any such series or
class and information with respect to the derivatives counterparties, including
financial information with respect to any counterparty providing 20% or more of
the cash flow of that series or class, unless the counterparty is subject to the
informational requirements of the Securities Exchange Act, in which case this
information will be incorporated by reference to the counterparty's public
filings under the Securities Exchange Act.
SWAPS
Swaps involve the trust's exchange with another party of their respective
commitments to pay or receive amounts computed by reference to specified fixed
or floating interest rates, currency rates, securities prices, yields or returns
(including baskets of securities or securities indices) or commodity prices,
based on a notional principal amount (that is, a reference amount with respect
to which such obligations are determined). An example of a swap is an exchange
of floating rate interest payments for fixed rate payments. For many types of
swaps, no actual exchange of principal occurs, although currency swaps and some
other types of swaps involve exchanges of the notional amount at the beginning
and end of the transactions. Periodic payments in the same currency due on the
same date under the same swap transaction are generally netted so that the party
owing the greater aggregate amount pays the difference to the party owing the
lesser aggregate amount.
CAPS AND FLOORS
To the extent that a specified rate, price, yield or return exceeds a
predetermined level, the purchaser of a cap is entitled to receive payments in
the amount of the excess, computed by reference to a notional principal amount,
from the party selling the cap. To the extent that a specified rate, price,
yield or return declines below a predetermined level, the purchaser of a floor
is entitled to receive payments in the amount of the decline computed by
reference to a notional principal amount from the party selling the floor.
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DESCRIPTION OF THE TRUST ASSETS, INCLUDING CREDIT SUPPORT
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OPTIONS
The purchaser of a call option is entitled to purchase the asset that is subject
to the call option at the predetermined strike price. The purchaser of a put
option is entitled to require the issuer of the put option to purchase the asset
that is subject to the put option at a predetermined strike price. Options are
sold on various securities, such as bonds, equities, currencies and commodities.
Options can be structured as securities, such as warrants, or can be embedded in
securities. Commodity-linked or equity-linked bonds are securities with embedded
option characteristics. Options may be settled by physical delivery or cash
payment.
FORWARD CONTRACTS
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. Forward
contracts may also be embedded in other instruments such as notes or warrants.
CREDIT DERIVATIVES
Credit derivatives involve swap and option contracts designed to permit a party
to assume or lay off credit risk on loans, debt securities or other assets (the
"reference assets"), or in relation to a particular company, organization or
country (the "reference entity"), without being required to actually purchase or
sell the reference assets. 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 relating to the referenced assets or reference
entity. If a specified credit event occurs, the trust may be entitled to receive
payments from, or may be required to make payments to, the swap counterparty,
generating either a loss or a gain for the trust under the credit derivative
transaction under which the credit event occurred.
Under a credit default swap agreement in which the trust acts as "protection
seller," for example, the trust would agree, in return for a fee, to assume the
payment default or other credit risk on a security, loan or other payment
obligation that is not owned by the trust (a "reference obligation") or on the
obligations of a reference entity generally. If a payment default or other
specified credit event occurs with respect to the reference obligation or
reference entity, the trust would suffer a loss. This would result from (a) a
provision requiring the trust to pay the counterparty the difference between the
face amount of a reference obligation and its then current market value, which
difference the trust would have to pay from the proceeds of the sale of some or
all the trust assets, (b) a provision requiring the trust to pay the face amount
of the reference obligation to the counterparty in exchange for physical
delivery to the trust of the reference obligation, which would then either be
distributed in kind to certificate holders or sold (and the proceeds
distributed) or (c) other provisions set forth in the applicable prospectus
supplement with similar economic effect. Similarly, if so provided in the
applicable prospectus supplement, a trust may enter into a put option
arrangement pursuant to which the trust will agree to purchase a reference
obligation for a predetermined price upon the occurrence of a payment default
by, or other specified credit event with respect to, the issuer of the reference
obligation, thus assuming the risk of loss on the reference obligation.
Reference obligations will be securities of the same types as the underlying
securities described in this prospectus, or will be loans made to, or other
payment obligations of, entities whose debt obligations are eligible to be
underlying securities. The applicable prospectus supplement will include
information regarding reference obligations and their issuers that is analogous
to that provided with respect to underlying securities.
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DESCRIPTION OF THE TRUST ASSETS, INCLUDING CREDIT SUPPORT
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CREDIT SUPPORT
As specified in the applicable prospectus supplement, the trust assets for a
series or class of certificates may include, or the holders of any series or
class may have the benefit of, credit support. Credit support may be provided by
any combination of the following means or any other means described in the
applicable prospectus supplement. The applicable prospectus supplement will set
forth whether the trust assets include, or the holders of the series or class
have the benefit of, credit support. If so, it will specify the amount, type and
other relevant terms of each element of credit support with respect to any such
series or class and 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 that series or
class, unless the obligor is subject to the informational requirements of the
Securities Exchange Act.
Any forms of credit support that are solely for the benefit of a given class
will be limited to the extent necessary to make required distributions to the
certificate holders of such class or as otherwise specified in the applicable
prospectus supplement. In addition, if so provided in the applicable prospectus
supplement, the obligor of any other forms of credit support may be reimbursed
for amounts paid pursuant to the credit support out of amounts otherwise payable
to one or more of the unsupported classes of the certificates of such series.
SUBORDINATION
As discussed below under "--Collections," the rights of the holders of a class
of certificates to receive collections from the relevant trust and any credit
support obtained for the benefit of the holders of a class may be subordinated
to the rights of the holders of one or more other classes of that series to the
extent described in the applicable prospectus supplement. Subordination
accordingly provides some additional credit support to holders of the more
senior classes. For example, if losses are realized during a given period on the
trust assets such that the collections received on the trust assets are
insufficient to make all distributions on the certificates of the series, those
realized losses will be allocated to the holders of the class or classes of that
series that are subordinated to another class, to the extent and in the manner
provided in the applicable prospectus supplement. In addition, if the applicable
prospectus supplement says so, some amounts otherwise payable to holders of any
class that is subordinated may instead be required to be deposited into a
reserve account. Amounts held in any reserve account may be applied as described
below under "--Reserve Accounts" and in the applicable prospectus supplement.
LETTER OF CREDIT; FINANCIAL GUARANTY INSURANCE POLICY
The holders of any series or class may, if specified in the applicable
prospectus supplement, have the benefit of a letter or letters of credit issued
by a bank (a "letter of credit bank") or a financial guaranty insurance policy
or policies issued by a financial guaranty insurance company (an "insurer"). In
either case, the trustee or other person specified in the applicable prospectus
supplement will use reasonable efforts to cause the letter of credit or the
insurance policy, as the case may be, to be obtained, to be kept in full force
and effect (unless coverage has been exhausted through payment of claims) and to
timely pay the related fees or premiums unless, as described in the applicable
prospectus supplement, the payment of such fees or premiums is otherwise
provided for. The trustee or other person specified in the applicable prospectus
supplement will make, or cause to be made, draws under the letter of credit or
the insurance policy, as the case may be, under the circumstances and to cover
the amounts specified in the applicable prospectus supplement. Any amounts
otherwise available under the letter of credit or the insurance policy will be
reduced to the extent of any prior unreimbursed draws. The applicable prospectus
supplement will describe the manner, priority and source of funds by which any
draws are to be repaid.
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DESCRIPTION OF THE TRUST ASSETS, INCLUDING CREDIT SUPPORT
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If specified in the applicable prospectus supplement, if the letter of credit
bank or the insurer ceases to satisfy any credit rating or other applicable
requirements specified in the applicable prospectus supplement, the trustee or
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 insurance policy, as applicable, or other form of credit enhancement
providing similar protection, that meets such requirements and provides the same
coverage to the extent available for the same cost. There can be no assurance
that any letter of credit bank or any insurer, as applicable, will continue to
satisfy such requirements or that it will be possible to obtain any such
substitute letter of credit, insurance policy or similar credit enhancement that
provides equivalent coverage for the same cost. To the extent it is not
available, the credit support otherwise provided by the letter of credit or the
insurance policy (or similar credit enhancement) may be reduced to the level
otherwise available for the same cost as the original letter of credit or
insurance policy.
RESERVE ACCOUNTS
If provided in the applicable prospectus supplement, the trustee or another
person specified in the prospectus supplement will deposit or cause to be
deposited into an account maintained with an eligible institution (which may be
the trustee) (a "reserve account") any combination of cash or permitted
investments in specified amounts. These amounts will be applied and maintained
in the manner and under the conditions specified in the applicable prospectus
supplement. In the alternative or in addition to this initial deposit, a reserve
account may be funded through the application of a portion of collections
received on the trust assets for the series, in the manner and priority
specified in the applicable prospectus supplement. Amounts deposited in the
reserve account may be distributed to holders of a specified 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 another person named in
the applicable prospectus supplement.
COLLECTIONS
The trust agreement will establish procedures by which the trustee or another
person specified in the prospectus supplement will be obligated, for the benefit
of the holders of each series of certificates, to administer the related trust
assets, including making collections of all payments, and depositing the
collections into a segregated account maintained or controlled by the applicable
trustee for the benefit of that series (each a "collection account"). The
trustee will make all determinations, as to the appropriate application of such
collections and other amounts available for distribution.
Amounts in the collection account will first be applied to the payment of any
administrative or collection or other expenses of the trust expenses and then to
credit support-related ongoing fees (such as insurance premiums, letter of
credit fees or any required account deposits), then to deposits in any reserve
account, payments due under any swaps, derivatives or other contracts to which
the trust is a party and then to the payment of amounts then due and owing on
the certificates of the series and classes within the series, all in the manner
and according to the 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
certificates and the particular requirements relating to the segregation and
investment of collections received on the trust assets during a given collection
period or on or by specified dates. There can be no assurance that amounts
received from the trust assets, including any credit support obtained for the
benefit of certificate holders for a particular series or class of certificates,
over a specified period will be sufficient, after payment of all prior expenses
and fees for that period, to pay amounts then intended to be distributed to
holders of such certificates. The applicable prospectus supplement will also set
forth the manner and priority by which any realized loss will be allocated to
the classes of any series of certificates, if applicable.
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DESCRIPTION OF THE TRUST ASSETS, INCLUDING CREDIT SUPPORT
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If specified in the applicable prospectus supplement, the trustee will be
entitled to withdraw or cause to be withdrawn from the collection account, prior
to the distribution of the proceeds to certificate holders, amounts representing
its normal administrative compensation on the trust assets and unreimbursed
administrative expenses incurred with respect to the trust assets. Furthermore,
all liabilities of the trust must be satisfied before any amounts are
distributed to the certificate holders. However, the trust is not expected to
have any liabilities at such time.
The relative priorities of distributions with respect to collections from the
trust assets assigned to each class of a given series of certificates may
permanently or temporarily change over time upon the occurrence of circumstances
specified in the applicable prospectus supplement. Moreover, the applicable
prospectus supplement may specify that the relative distribution priority
assigned to each class of a given series for purposes of payments of some
amounts, such as principal, may be different from the relative distribution
priority assigned to that class for payments of other amounts, such as interest
or premium.
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Description of the Trust Agreement
A separate trust will be created to issue each series of certificates, pursuant
to a separate trust agreement between the depositor and the trustee. The trust
agreement will govern the related series of certificates and will be qualified
under the Trust Indenture Act of 1939. The following summary of material
provisions of the trust agreement and the certificates is not complete, and is
qualified in its entirety by reference to the more detailed provisions of the
form of trust agreement that is filed as an exhibit to the registration
statement of which this prospectus forms a part. The applicable prospectus
supplement for certificates of a series will describe any material provision of
the trust agreement or the certificates that is not described in this
prospectus.
ASSIGNMENT OF TRUST ASSETS
When any series of certificates is issued, the trustee on behalf of the trust,
or the depositor, will acquire and transfer the underlying securities and any
other trust assets specified in the applicable prospectus supplement to the
trust. However, any retained interest and any retained call rights will not be
transferred to the trust (see "--Retained Interest" and "--Retained Call Options
and Retained Call Rights"). If specified in the applicable prospectus
supplement, the trustee will, concurrently with the assignment, deliver or cause
to be delivered the certificates to the depositor in exchange for the trust
assets or the funds necessary to acquire the trust assets. Each trust asset will
be identified in a schedule attached as an exhibit to the trust agreement and
the applicable prospectus supplement. The schedule will include the information
with respect to the trust assets specified under "Description of the Trust
Assets, including Credit Support" above.
COLLECTION AND OTHER ADMINISTRATIVE PROCEDURES
With respect to any series of certificates, the trustee, directly or through its
agents, will make reasonable efforts to collect all scheduled payments under the
trust assets and will follow, or cause to be followed, any collection procedures
that it would follow with respect to comparable financial assets that it held
for its own account. However, these procedures must be consistent with the trust
agreement and any related instrument governing the underlying securities, any
credit support for the trust assets (collectively, the "credit support
instruments") and any other trust assets. Except as otherwise described in the
applicable prospectus supplement, the trustee will not be required to expend or
risk its own funds or to otherwise incur personal financial liability.
REALIZATION UPON DEFAULTED TRUST ASSETS
The trustee will present claims under each applicable credit support instrument,
and will take such normal and customary steps as necessary to receive payment or
to permit recovery under those instruments with respect to defaulted trust
assets.
The trustee will be obligated to follow or cause to be followed normal and
customary practices and procedures as it deems necessary or advisable to recover
upon the defaulted trust asset. However, it will not be required to expend or
risk its own funds or otherwise incur personal financial liability. If the
proceeds of any liquidation of the defaulted trust asset are less than the sum
of (a) the outstanding principal amount of the defaulted trust asset, (b)
interest accrued on the asset at the applicable interest rate and (c) the
aggregate amount of expenses incurred by the trustee or its agents in connection
with the collection proceedings to the extent reimbursable from the assets of
the trust under the trust agreement, and not reimbursed to the trustee by the
depositor in accordance with the depositor's obligations under the trust
agreement, the trust will realize a loss in the amount of the difference. If
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DESCRIPTION OF THE TRUST AGREEMENT
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specified in the applicable prospectus supplement, the trustee will be entitled
to withdraw or cause to be withdrawn from the related collection account out of
the net proceeds recovered on any defaulted trust asset, prior to the
distribution of the proceeds to certificate holders, amounts representing its
normal administrative compensation on the trust assets and unreimbursed
administrative expenses incurred with respect to the trust assets.
TRUSTEE'S COMPENSATION; PAYMENT OF EXPENSES
The applicable prospectus supplement will specify the amount of the trustee's
compensation payable by the trust, if any, or if the trustee's compensation is
to be payable by any other person, and the priority of the trustee's claim on
collections on the trust assets for payment of its compensation with respect to
the relevant series of certificates.
To the extent specified in the applicable prospectus supplement, the depositor
will reimburse the trustee for its reasonable out-of-pocket expenses, including
payment of reasonable fees and disbursements of the trustee's accountants and
counsel, collection costs and any other expenses described in the prospectus
supplement.
Unless otherwise specified in the applicable prospectus supplement, if the
trustee has received any amount from DTC in respect of distributions on the
underlying securities or any other trust asset or agreement to which the trust
is a party and DTC, pursuant to the terms of the depositary agreement in respect
of the underlying securities, requires that the trustee repay such amounts, the
trustee shall have the right to reimbursement of such amounts, from the
certificate holders with respect to any such amounts distributed to certificate
holders, and from the swap counterparty with respect to any such amounts
distributed to the swap counterparty.
MATTERS REGARDING THE TRUSTEE
The trust agreement for each series will provide that neither the trustee nor
any director, officer, employee or agent of the trustee will incur any liability
under the trust agreement except for its own negligent action, negligent failure
to act or its own willful misconduct or bad faith. Unless otherwise specified in
the applicable prospectus supplement, the trust agreement provides that the
trustee and any director, officer, employee or agent of the trustee will be
entitled to indemnification by the depositor and will be held harmless against
any loss, liability or reasonable expense (including attorney's fees) that
results from any legal action relating to the administration of the trust and
the performance of its duties under the trust agreement, other than any loss,
liability or expense incurred by reason of the trustee's own willful misconduct,
negligence or bad faith in the performance of the trustee's duties under the
trust agreement. In addition, the trust agreement will provide that except as
specifically provided, the trustee will not be under any obligation to appear
in, prosecute or defend any legal action that is not incidental to its
responsibilities under the trust agreement or which in its opinion may involve
it in any expense or liability unless the trustee has received indemnification
satisfactory to it. The applicable prospectus supplement will describe how legal
expenses and costs of these actions and any resulting liability resulting will
paid or otherwise be allocated.
REMEDIES OF CERTIFICATE HOLDERS
Any holder of certificates of a series may institute any proceeding with respect
to the certificates or the applicable trust agreement only if the following
conditions are satisfied:
- - the holder must have given the trustee written notice of a continuing breach
of the trust agreement or an event of default in respect of the underlying
securities;
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DESCRIPTION OF THE TRUST AGREEMENT
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- - the holders of certificates evidencing not less than the percentage specified
in the applicable prospectus supplement have made a written request to the
trustee to institute the proceeding in its own name as trustee;
- - for 15 days the trustee must have neglected or refused to institute the
requested proceeding; and
- - the holders of certificates evidencing not less than the percentage specified
in the applicable prospectus supplement have not given an inconsistent
direction to the trustee during the 15-day period.
The trustee, however, is under no obligation to exercise any of the rights or
powers vested in it by the trust agreement or to make any investigation of
related matters or to institute, conduct or defend any litigation under or in
relation to the trust agreement at the request, order or direction of any of the
holders of certificates covered by the trust agreement, unless the holders have
offered the trustee reasonable security or indemnity against the costs, expenses
and liabilities which may be incurred by the trustee.
MODIFICATION AND WAIVER
Unless otherwise specified in the applicable prospectus supplement, the trust
agreement for each series of certificates may be amended by the depositor and
the trustee with respect to that series without notice to or consent of the
holders of any certificates, for some purposes including:
- - to cure any error or ambiguity;
- - to correct or supplement any provision in the trust agreement that is
inconsistent with any other provision in the trust agreement;
- - to add or supplement any credit support for the benefit of any holders of
certificates, except that if any such addition affects any class of holders
differently from any other class of certificate holders, then the depositor
must obtain an opinion of counsel stating that the addition will not have a
material adverse effect on the interests of any affected class of certificate
holders and the trust must have received an opinion of counsel that the
addition will not adversely affect the classification of the trust for federal
income tax purposes;
- - to add to the covenants, restrictions or obligations of the depositor or the
trustee for the benefit of the certificate holders;
- - to provide for the appointment of a successor trustee to the trustee or for
the appointment of more than one trustee;
- - to add, change or eliminate any other provisions with respect to matters or
questions arising under the trust agreement, so long as (a) the addition,
change or elimination does not, as evidenced by an opinion of counsel,
adversely affect in any material respect the interests of the certificate
holders or holders of any retained call options or retained call rights, (b)
the addition, change or elimination will not, as evidenced by an opinion of
counsel, adversely affect the intended classification of the trust for federal
income tax purposes or result in a sale or exchange of any certificate for tax
purposes and (c) the trustee has received written confirmation from each
rating agency that has rated any certificates that the amendment will not
cause the rating agency to reduce or withdraw the then current rating of any
certificates; or
- - to comply with any requirements imposed by the Internal Revenue Code.
In addition, the trust agreement may (if confirmation has been received from
each rating agency rating any class of certificates that the amendment will not
result in a reduction or withdrawal of that class of certificates) be amended by
the depositor and the trustee, with the consent of the holders of
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DESCRIPTION OF THE TRUST AGREEMENT
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certificates whose certificates evidence more than 50% of the voting rights of
the outstanding certificates, to add any provision to or change or eliminate any
provision of the trust agreement or to modify in any manner the rights of those
certificate holders. However, if the amendment would materially adversely affect
any class of certificates, or the rating of any class of certificates by any
rating agency that has rated the certificates at the request of the depositor,
the required percentage of votes of the affected class specified in the related
trust agreement will be specified in the applicable prospectus supplement.
No amendment to the trust agreement may (a) reduce in any manner the amount of,
or alter the timing of, collections of payments on trust assets or distributions
or payments which are required to be made on any certificate, (b) reduce the
required percentage of voting rights specified above required for the consent to
any such amendment (c) as evidenced by an opinion of counsel, adversely affect
the intended classification of the trust for federal income tax purposes, (d)
cause the termination of the trust without, in each case, the consent of the
holders of all outstanding certificates issued pursuant to the trust agreement,
or (e) change any provisions relating to any retained call options or retained
call rights that would adversely affect the holders of any retained call options
or retained call rights without the consent of all of the holders of any
retained call options or retained call rights without the consent of all of the
holders of any retained call options or retained call rights.
Unless the applicable prospectus supplement specifies a different required
percentage, or otherwise provides, holders of certificates evidencing more than
50% of the voting rights in respect of the outstanding certificates with respect
to those certificates of the voting rights of a given class may, on behalf of
all holders of that class, (a) waive, with respect to that class, compliance by
the depositor or the trustee with any restrictive provision of the trust
agreement before the time for compliance and (b) waive any past default under
the trust agreement with respect to certificates of that class, except that the
consent of the holders of each outstanding certificate will be required to waive
either a default in the failure to distribute amounts received as principal of
and any premium or any interest on any certificate or a default in respect of a
covenant or provision the amendment of which would require the consent of the
holder of each outstanding certificate.
REPORTS TO CERTIFICATE HOLDERS; NOTICES
REPORTS TO CERTIFICATE HOLDERS
Unless otherwise specified in the applicable prospectus supplement, on the next
business day following each distribution to certificate holders of any series or
class of certificates or as soon after each distribution date as practicable,
the trustee will prepare and forward or cause to be prepared and forwarded to
each certificate holder (and to any option agent in respect of any retained call
options or retained call rights), to the depositor and to any other parties
specified in the trust agreement for that series, a statement setting forth:
- - the amount of the distribution to holders of that class that is allocable to
principal of or any interest or premium on the certificates of that class, and
the aggregate amount of unpaid interest as of that distribution date;
- - in the case of floating rate certificates, the pass-through rate applicable to
that distribution date, as calculated in accordance with the method specified
in the applicable prospectus supplement;
- - if compensation is received by the trustee from the trust, the amount of
compensation received by the trustee for the period relating to that
distribution date and other customary information that the trustee deems
necessary or desirable to enable certificate holders to prepare their tax
returns;
- - the aggregate stated principal amount or, if applicable, notional principal
amount of the trust assets and the current interest rate (or weighted average
interest rate) on the trust assets at the close of business on that
distribution date;
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DESCRIPTION OF THE TRUST AGREEMENT
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- - if applicable, the current rating of the applicable trust assets assigned by
each rating agency then rating the certificates;
- - the aggregate certificate principal balance or aggregate notional amount, if
applicable, of each class of certificates (including any class of certificates
not offered to the public) at the close of business on that distribution date,
separately identifying any reduction in the aggregate certificate principal
balance or aggregate notional amount due to the allocation of any realized
losses or otherwise; and
- - as to any series or class for which credit support has been obtained, the
amount of credit support available as of the close of business on that
distribution date.
In the case of information furnished pursuant to the first and third paragraphs
listed above, the amounts must be expressed as a U.S. dollar amount (or its
equivalent in any other specified currency) per minimum denomination of
certificates or for another specified portion. Within a reasonable period of
time after the end of each calendar year, the trustee must furnish to each
person who at any time during the calendar year was a certificate holder a
statement containing the information set forth in the first and fourth
paragraphs listed above, aggregated for that calendar year or the applicable
portion of the calendar year during which the person was a certificate holder.
This obligation of the trustee will be deemed to have been satisfied to the
extent that substantially comparable information has been 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 certificate will be
mailed to the address of such holder set forth in the applicable certificate
register. As noted above, for as long as DTC is the sole registered holder, all
notices will be sent to DTC. See "Description of the Certificates--Global
Securities; Holdings in Street Name."
ANNUAL COMPLIANCE STATEMENT
If specified in the applicable prospectus supplement, the trust agreement will
provide that a firm of independent public accountants will furnish an annual
statement to the trustee to the effect that the firm has examined documents and
records relating to the administration of the trust assets during the related
12-month period (or, in the case of the first such report, the period beginning
on the original issue date). This report will provide the firm's findings, based
on these procedures, as to whether the administration was conducted in
compliance with the terms of the trust agreement. The report will identify any
exceptions found during the examination. The report will not be an audit.
If specified in the applicable prospectus supplement, the trust agreement will
also require the trustee to deliver to the depositor, on or before February 15th
of each year, an annual statement signed by an officer of the trustee to the
effect that the trustee has fulfilled its obligations under the trust agreement
throughout the preceding year with respect to the certificates issued pursuant
to the trust agreement.
Copies of the annual accountants' statements, if any, and the statement of the
officers of the trustee may be obtained by certificate holders without charge
upon written request to the trustee at the address provided in the applicable
prospectus supplement.
REPLACEMENT CERTIFICATES
If a certificate is mutilated, destroyed, lost or stolen, it may be replaced at
the corporate trust office or agency of the applicable trustee in the City and
State of New York (if the trust is a New York trust) or in the City of
Wilmington, Delaware (if the trust is a Delaware trust), or any other location
specified in the applicable prospectus supplement, upon payment by the holder of
any expenses incurred by the
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DESCRIPTION OF THE TRUST AGREEMENT
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trustee in connection with the replacement and the furnishing of such evidence
and indemnity as the trustee or the depositor may require. Mutilated
certificates must be surrendered before new certificates will be issued.
RETAINED INTEREST
The prospectus supplement for a series of certificates will specify whether the
depositor or any other party will retain any ownership, beneficial or security
interest in a portion of, the underlying securities to be deposited into the
related trust (the "retained interest"), which retained interest will not be
part of the trust assets. If there is a retained interest, the interest will be
established on an asset-by-asset basis and will be specified in the trust
agreement or an exhibit to the trust agreement. Payments in respect of the
retained interest will be deducted from payments received on the underlying
security related to the retained interest and, in general, will not be property
of the related trust or available to the certificate holders. Unless otherwise
specified in the applicable prospectus supplement, any partial recovery on an
underlying security will be applied pro rata to the retained interest and the
portion of the underlying security deposited into the trust.
RETAINED CALL OPTIONS AND RETAINED CALL RIGHTS
If specified in the applicable prospectus supplement, as a condition to its
purchase of a certificate, each certificate holder may be required to grant to
the depositor the option (each, a "call option") to repurchase its certificates
or the depositor or another specified party may retain the right (a "retained
call right") to repurchase the underlying securities to be deposited into the
related trust, which retained call right will not be part of the trust assets.
The transferability of each call option, the conditions, if any, to exercise of
each call option and the call price of each call option will be specified in the
applicable prospectus supplement. If there are retained call rights, these will
be established on an asset-by-asset basis and will be specified in the
applicable trust agreement or in an exhibit thereto, and the exercise price of
the retained call rights will be at least equal to the principal balance of the
certificates plus any accrued interest, and the proceeds will be distributed by
the trustee to the certificate holders.
TERMINATION
The trust agreement will terminate and the trust will dissolve, wind-up and
terminate 30 days after the final distribution by the trustee of all moneys or
other property or proceeds of the underlying securities and other trust assets
including the proceeds of any repurchase of all the underlying securities by the
issuer of such securities due to the exercise of its retained call rights with
respect to the underlying securities or any sale or other liquidation of the
trust assets, in each case in accordance with the terms of the trust agreement.
The termination may occur following the scheduled maturity of the underlying
securities, as a result of a trust liquidation event, as described under "Trust
Liquidation Events" above, or the exercise of the retained call options or
retained call rights. In no event, however, will any trust continue beyond the
date specified in the applicable prospectus supplement. Written notice of
termination of a trust will be provided to each certificate holder, to the
depositor and to any other party specified in the trust agreement as described
above under "--Reports to Certificate Holders; Notices--Notices." The final
distribution on the related certificates will be made only upon surrender and
cancellation of the certificates at an office or agency appointed by the
trustee, which will be specified in the notice of termination.
Upon the occurrence of a trust liquidation event that causes a liquidation of
some but not all of the underlying securities, the trustee will effect that
partial liquidation as provided in the related prospectus supplement. In the
case of any other trust liquidation event, all trust assets will be liquidated
and, following the distribution of the proceeds of the liquidation, the trust
will terminate. See "Description of the Trust Agreement--Trust Liquidation
Events" in the prospectus supplement.
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DESCRIPTION OF THE TRUST AGREEMENT
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DUTIES OF THE TRUSTEE
The trustee will make no representations as to the validity or sufficiency of
the trust agreement, the certificates of any series or any trust asset, credit
support or related document. The trustee for a series is required to perform
only those duties that are specifically required under the trust agreement with
respect to that series. However, upon receipt of the various certificates,
reports or other instruments required to be furnished to it, the trustee is
required to examine those documents and to determine whether they conform to the
applicable requirements of the trust agreement.
THE TRUSTEE
The trustee, and co-trustee, if any, for any given series of certificates under
the trust agreement will be named in the applicable prospectus supplement. The
commercial bank, national banking association or trust company serving as
trustee and co-trustee, if any, will be unaffiliated with the depositor, but it
may have normal banking relationships with the depositor and its affiliates. The
address of the trustee's, and the co-trustee's, if any, corporate trust office
will be either the address specified in the applicable prospectus supplement or
any other address that the trustee, or if applicable, the co-trustee designates
from time to time by notice to the certificate holders and the depositor.
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Currency Risks
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in a certificate with a specified currency other than U.S. dollars
entails significant risks for investors whose base currency is the U.S. dollar.
These risks include the possibility of significant changes in rates of exchange
between the U.S. dollar and the specified currency and the possibility that
foreign exchange controls could be imposed or modified with respect to the
specified currency. These risks 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 other
currencies have been highly volatile, and this level of volatility may be
expected in the future. Fluctuations in any particular exchange rate that have
occurred in the past are not necessarily indicative, however, of fluctuations in
the rate that may occur during the term of any certificate. Depreciation of the
specified currency for a certificate against the U.S. dollar would result in a
decrease in the effective yield of such certificate below its pass-through 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 as well as the availability
of a specified currency for making distributions in respect of certificates
denominated in that currency. There can be no assurance that exchange controls
will not restrict or prohibit distributions of principal, premium or interest in
any specified currency. Even if there are no actual exchange controls, it is
possible that, on a distribution date with respect to any particular
certificate, the currency in which amounts then due to be distributed would not
be available. In that event, such payments will be made in the manner set forth
below under "--Inability to Pay in Specified Currency" or as otherwise specified
in the applicable prospectus supplement.
YOU SHOULD CONSULT YOUR FINANCIAL AND LEGAL ADVISORS AS TO THE RISKS ENTAILED BY
AN INVESTMENT IN CERTIFICATES DENOMINATED IN A CURRENCY OTHER THAN U.S. DOLLARS.
THESE TYPES OF CERTIFICATES ARE NOT AN APPROPRIATE INVESTMENT FOR PERSONS WHO
ARE NOT SOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
The information provided in this prospectus is directed to prospective
purchasers of certificates who are United States residents. The applicable
prospectus supplement for some issuances of certificates may provide information
applicable to prospective purchasers who are residents of countries other than
the United States with respect to matters that may affect the purchase or
holding of, or receipt of distributions of principal, premium or interest in
respect of, the certificates.
Any prospectus supplement relating to certificates with a specified currency
other than U.S. dollars will contain information concerning the historical
exchange rates for that currency against the U.S. dollar, a description of such
currency, any exchange controls affecting the currency and any other relevant
information about the currency.
FOREIGN CURRENCY JUDGMENTS
Unless otherwise specified in the applicable prospectus supplement, the
certificates will be governed by and construed in accordance with the law of the
State of New York. Courts in the United States The
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CURRENCY RISKS
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New York Judiciary Law provides that an action based upon an obligation
denominated in a currency other than U.S. dollars will be rendered in the
foreign currency of the underlying obligation and converted into U.S. dollars at
the rate of exchange prevailing on the date of the entry of the judgment or
decree. There will be no provision for any further payments if exchange rates
continue to change after the judgment is rendered.
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United States Federal Income Tax Consequences
The applicable prospectus supplement for each series will contain a general
discussion of the material United States federal income tax consequences of the
purchase, ownership and disposition of the certificates by a holder of
certificates. These consequences will depend on the terms of the certificates
and whether the trust is classified as a grantor trust, as a partnership or
otherwise for federal income tax purposes, and will also depend on the trust
assets relating to the certificates. The trust agreement for each series will
include provisions appropriate to the particulars of the transaction and to the
relevant United States federal income tax classification of the trust and
related certificates.
Unless otherwise specified in the applicable prospectus supplement, it is
generally anticipated that, for United States federal income tax purposes, each
trust will be classified as a grantor trust, and not as a partnership or as an
association or publicly traded partnership taxable as a corporation, and the
certificates will be treated as evidencing an undivided ownership interest in
the trust assets.
With respect to each series of certificates, the trust for that series will be
provided with an opinion of Sullivan & Cromwell LLP, special federal tax counsel
to the depositor and the trust, regarding the United States federal income tax
classification of the trust. However, opinions of counsel are not binding on the
Internal Revenue Service (the "IRS") or the courts. In addition, prospective
investors in any particular series of certificates should be aware that no
rulings will be sought from the IRS with respect to any of the federal income
tax consequences discussed in the applicable prospectus supplement, and no
assurance can be given that the IRS will not take contrary positions.
Accordingly, prospective investors in any particular series of certificates
should consult their own tax advisors to determine the federal, state, local and
other tax consequences of the purchase, ownership and disposition of the
certificates.
Certain ERISA Considerations
Title I of the Employee Retirement Income Security Act of 1974 ("ERISA") and
section 4975 of the Internal Revenue Code impose certain restrictions on many
retirement plans and other employee benefit plans and arrangements
(collectively, "plans") and on persons who are "parties in interest" as defined
in ERISA or "disqualified persons" as defined in section 4975 of the Internal
Revenue Code with respect to those plans. ERISA imposes certain duties on
persons who are considered fiduciaries of plans and also prohibits certain
transactions between a plan, its fiduciaries and/or parties in interest with
respect to the plan. The Internal Revenue Code imposes a tax on some types of
prohibited transactions between a plan and a disqualified person with respect to
the plan. Certain employee benefit plans, such as governmental plans and church
plans (provided no election has been made under section 410(d) of the Internal
Revenue Code), are not subject to the restrictions of ERISA or the Internal
Revenue Code, and assets of these plans may be invested in each series of
certificates without regard to the ERISA considerations described below, subject
to the provisions of applicable federal, state and local law.
Investments by plans are subject to ERISA's general fiduciary requirements,
including the requirement of investment prudence and diversification and the
requirement that a plan's investments be made in accordance with the documents
governing the plan. Therefore, each plan fiduciary, before acquiring any
certificates, must determine that an investment in the certificates satisfies
these general fiduciary requirements.
Plan fiduciaries must also determine whether the acquisition and holding of any
certificates and the operations of the related trust would result in direct or
indirect prohibited transactions. The purchase and holding of a certificate or
any interest in a certificate by or on behalf of a plan could result in
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CERTAIN ERISA CONSIDERATIONS
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prohibited transactions and the imposition of excise taxes and civil penalties
under ERISA or the Internal Revenue Code unless a Department of Labor prohibited
transaction exemption applies and the conditions for the exemption are
satisfied. The operations of the trust for a series of certificates could
similarly result in prohibited transactions if plans that purchase the
certificates issued by the trust are deemed to own an interest in the underlying
assets of the trust. There also may be an improper delegation by the plan
fiduciaries of the responsibility to manage plan assets if plans that purchase
any series of certificates are deemed to own an interest in the underlying
assets of the related trust. The applicable prospectus supplement for each
series will specify whether plans are likely to be deemed to own the underlying
assets of the applicable trust. Plan fiduciaries should carefully review with
their legal advisors whether the purchase or holding of a certificate would be a
prohibited transaction or would otherwise be impermissible under ERISA or
section 4975 of the Internal Revenue Code. See "ERISA Considerations" in the
applicable prospectus supplement.
The Department of Labor has issued several prohibited transaction class
exemptions ("PTCEs") from certain of the prohibited transaction provisions of
ERISA and the Internal Revenue Code. For example, the sale of certificates by
the underwriters to plans may be exempt under PTCE 75-1 if the conditions of
that PTCE are satisfied. Other PTCEs also may be available to the acquisition
and holding of a certificate. Plan fiduciaries should consider whether a PTCE is
available and whether such an exemption would cover all possible prohibited
transactions. See "ERISA Considerations" in the applicable prospectus
supplement.
By acquiring and holding a certificate, a plan will be deemed to have
represented and warranted to the depositor, the trustee and the underwriter that
the acquisition and holding of a certificate does not involve a non-exempt
prohibited transaction with respect to the plan, including with respect to the
activities of the related trust.
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Plan of Distribution
PLAN OF DISTRIBUTION FOR THE INITIAL OFFER AND SALE OF CERTIFICATES
Certificates may be offered in any of three ways: (a) through underwriters or
dealers; (b) directly to one or more purchasers; or (c) through agents. The
applicable prospectus supplement will set forth the terms of the offering of any
series of certificates, which may include the names of any underwriters, or
initial purchasers, the purchase price of the certificates and the proceeds to
the depositor from the sale, any underwriting discounts and other items
constituting underwriters' compensation, any initial public offering price, any
discounts or concessions allowed or reallowed or paid to dealers, any securities
exchanges on which the certificates may be listed and the place and time of
delivery of the certificates.
If underwriters are used in the sale, certificates will be acquired by the
underwriters for their own account and may be resold from time to time in one or
more transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale. Certificates may be
offered to the public either through underwriting syndicates represented by
managing underwriters or by underwriters without a syndicate. The managing
underwriters in the United States will include either or both of UBS Securities
LLC and UBS Financial Services Inc., which are affiliates of the depositor.
Unless otherwise provided in the applicable prospectus supplement, the
obligations of the underwriters to purchase the certificates will be subject to
conditions precedent, and the underwriters will be obligated to purchase all of
the certificates if any of the 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.
Certificates may also be sold through agents designated by the depositor from
time to time. Any agent involved in the offer or sale of certificates will be
named, and any commissions payable by the depositor to such agent will be set
forth, in the applicable prospectus supplement. Unless otherwise indicated in
the applicable prospectus supplement, any agent will act on a best efforts basis
for the period of its appointment.
If indicated in the applicable prospectus supplement, the depositor will
authorize agents, underwriters or dealers to solicit offers by specified
institutions to purchase 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 the prospectus supplement.
These contracts will be subject only to those conditions described in the
applicable prospectus supplement and the prospectus supplement will set forth
the commissions payable for solicitation of the contracts.
Any underwriters, dealers or agents participating in the distribution of
certificates may be deemed to be underwriters and any discounts or commissions
they receive on the sale or resale of certificates may be deemed to be
underwriting discounts and commissions under the Securities Act. Agents and
underwriters may be entitled under agreements entered into with the depositor to
indemnification by the depositor against some civil liabilities, including
liabilities under the Securities Act, or to contribution with respect to
payments that the agents or underwriters may be required to make in respect of
those liabilities. Agents and underwriters may be customers of, engage in
transactions with, or perform services for, the depositor or its affiliates in
the ordinary course of business.
Unless otherwise set forth in the applicable prospectus supplement, the
underwriters may purchase and sell the certificates in the open market. These
transactions may include stabilizing transactions and purchases to cover short
positions created by the underwriters, and the imposition of a penalty bid, in
connection with the offering. Stabilizing transactions consist of bids or
purchases for the purpose of preventing or retarding a decline in the market
price of the certificates; and short positions created by the underwriters
involve the sale by the underwriters of a greater number of certificates than
they are
40
PLAN OF DISTRIBUTION
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required to purchase from the trust in the offering. The underwriters also may
impose a penalty bid, whereby selling concessions allowed to broker-dealers in
respect of the certificates sold in the offering may be reclaimed by the
underwriters if the certificates are repurchased by the underwriters in
stabilizing or covering transactions. These activities may stabilize, maintain
or otherwise affect the market price of the certificates, which may be higher
than the price that might otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected in the over-the-counter market or otherwise.
As to each series of certificates, we will offer only those classes rated in one
of the investment grade rating categories by a rating agency. Any certificates
of unrated classes or classes rated below investment grade may be retained by
the depositor or sold at any time to one or more purchasers in a transaction
exempt from registration under the Securities Act.
Because the NASD views the certificates as interests in a direct participation
program, the offering is being made in compliance with Rule 2810 of the NASD's
Conduct Rules. The underwriters may not confirm sales to any discretionary
account without the prior specific written approval of a customer.
MARKET-MAKING RESALES
This prospectus may be used by UBS AG, UBS Securities LLC, UBS Financial
Services Inc. or any other affiliate of UBS AG in connection with offers and
sales of the certificates in market-making transactions. In a market-making
transaction, each of UBS AG, UBS Securities LLC, UBS Financial Services Inc. or
any other affiliate of UBS AG may resell a certificate it acquires from other
holders, after the original offering and sale of the certificate. Resales of
this kind may occur in the open market or may be privately negotiated at
prevailing market prices at the time of resale or at related or negotiated
prices. In these transactions, UBS AG, UBS Securities LLC, UBS Financial
Services Inc. or any other affiliate of UBS AG may act as principal or agent,
including as agent for the counterparty in a transaction in which it acts as
principal, or as agent for both counterparties in a transaction in which it does
not act as principal. UBS AG, UBS Securities LLC, UBS Financial Services Inc. or
any other affiliate of UBS AG may receive compensation in the form of discounts
and commissions, including from both counterparties in some cases.
The depositor does not expect to receive any proceeds from market-making
transactions. The depositor does not expect that UBS AG, UBS Securities LLC, UBS
Financial Services Inc. or any other affiliate of UBS AG that engages in these
transactions will pay any proceeds from its market-making resales to the
depositor.
Information about the trade and settlement dates, as well as the purchase price,
for a market-making transaction will be provided to the purchaser in a separate
confirmation of sale.
Unless the depositor or an agent informs you in your confirmation of sale that
your certificate is being purchased in its original offering and sale, you may
assume that you are purchasing your security in a market-making transaction.
MATTERS RELATING TO INITIAL OFFERING AND MARKET-MAKING RESALES
UBS AG, UBS Securities LLC and UBS Financial Services Inc. do not expect the
amount of certificates held, as a result of market-making resales, by accounts
over which it exercises discretionary authority to exceed, at any time, five
percent of the aggregate initial offering price (that is, $147,000,000) of all
of the certificates. In compliance with NASD guidelines, the maximum commission
or discount to be received by any NASD member or independent broker dealer may
not exceed 8% of the aggregate principal amount of the securities offered
pursuant to this prospectus; however, it is anticipated that the maximum
commission or discount to be received in any particular offering of certificates
will be significantly less than this amount.
41
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Validity of the Certificates
The validity of the certificates and their federal income tax status will be
passed upon for the depositor and the applicable trust by Sullivan & Cromwell
LLP, New York, New York.
42
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INDEX OF DEFINED TERMS
The following is an index of defined terms used in this prospectus and the page
where each definition appears.
<Table>
<Caption>
DEFINED TERMS PAGE
- ------------------------------------------------------------------
accrued interest factor..................................... 13
asset-backed agreements..................................... 21
banking organization........................................ 16
base rate................................................... 12
bond index.................................................. 15
business day................................................ 11
calculation agent........................................... 13
call option................................................. 34
certificate................................................. 9
certificate principal balance............................... 4
collection account.......................................... 27
concentrated underlying securities.......................... 20
credit support instruments.................................. 29
cut-off date................................................ 23
definitive certificate...................................... 16
depositary.................................................. 16
determination date.......................................... 11
direct participants......................................... 16
DTC......................................................... 16
ERISA....................................................... 38
face amount................................................. 15
fixed pass-through rate..................................... 10
fixed rate certificates..................................... 12
floating rate certificates.................................. 12
GSEs........................................................ 21
indexed certificate principal balance....................... 15
indexed certificates........................................ 15
indexed commodity........................................... 15
indexed currency............................................ 15
indexed interest............................................ 15
indirect participants....................................... 17
insurer..................................................... 26
interest factor............................................. 13
interest reset date......................................... 13
interest reset period....................................... 13
IRS......................................................... 38
letter of credit bank....................................... 26
LIBOR....................................................... 12
London banking day.......................................... 12
maximum pass-through rate................................... 13
</Table>
43
INDEX OF DEFINED TERMS
- --------------------------------------------------------------------------------
<Table>
<Caption>
DEFINED TERMS PAGE
- ------------------------------------------------------------------
minimum pass-through rate................................... 13
multi-currency certificates................................. 16
multilateral bank issuer.................................... 22
notional amount............................................. 14
original issue date......................................... 10
pass-through................................................ 8
pass-through rate........................................... 10
plans....................................................... 38
PTCEs....................................................... 39
publicly tradable........................................... 20
realized losses............................................. 14
reference assets............................................ 25
reference entity............................................ 25
reference obligation........................................ 25
reserve account............................................. 27
retained interest........................................... 6,34
Securities Act.............................................. 20
Securities Exchange Act..................................... 5
specified currency.......................................... 10
spread...................................................... 12
spread multiplier........................................... 12
stock index................................................. 15
street name................................................. 18
stripped certificates....................................... 10
stripped interest........................................... 12
trust assets................................................ 20
underlying securities....................................... 20
underlying securities currency.............................. 23
underlying securities interest accrual periods.............. 23
underlying securities payment dates......................... 23
underlying securities rate.................................. 23
variable pass-through rate.................................. 10
</Table>
44
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR PROVIDED IN
THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT MAKING
AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU
SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS ACCURATE
AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS DOCUMENT.