OFFERING CIRCULAR SUPPLEMENT DATED NOVEMBER 25, 1997
(TO OFFERING CIRCULAR DATED NOVEMBER 25, 1997)
BRAVO
TRUST SERIES 1997-1
$500,000,000
FLOATING RATE
TRUST CERTIFICATES
BAYERISCHE LANDESBANK
REPACKAGED
ASSET
VEHICLE
OBLIGATIONS
- --------------------------------------------------------------------------------
BRAVO Trust Series 1997-1 (the "Trust") is a newly organized Delaware
business trust, created pursuant to a declaration of trust and trust
agreement (the "Trust Agreement") between The Bank of New York, as trustee
(the "Trustee"), and the Owners (as defined below) of the Trust Certificates
(the "Trust Certificates"). The Trust will issue $500,000,000 aggregate
principal amount of Trust Certificates on the date hereof, which will
represent two classes of undivided interests in the Trust. The two classes
are designated "Class A Trust Certificates" and "Class B Trust Certificates"
and are referred to collectively herein as "Trust Certificates". Only the
Class A Trust Certificates, in the principal amount of $450,000,000, are
being offered hereby. The Class A Trust Certificates are issued in minimum
denominations of $5,000,000 and in integral multiples of $100,000 in excess
thereof. As described below, the Class B Trust Certificates are subordinated
to the Class A Trust Certificates.
In connection with the sale of the Trust Certificates, the Trust will
purchase an insurance company separate account group annuity contract (the
"Funding Agreement") issued by Integrity Life Insurance Company ("Integrity").
Integrity will maintain, in custody for the benefit of the Trust, separate
account assets with a market value (based on a weekly valuation by First Trust
National Association, as custodian) at least equal to 102% of the principal
amount and accrued interest of the Trust Certificates (the "Separate Account
Assets"). Such assets will be acquired pursuant to investment guidelines more
fully described herein. See "The Trust Assets -- Custodial Accounts".
As described under "The Trust Certificates", beneficial owners of the Class
A Trust Certificates (the "Class A Owners") will be entitled to receive periodic
interest payments and a return of principal at maturity. Beneficial owners of
Class B Trust Certificates (the "Class B Owners" and, collectively with the
Class A Owners, the "Owners") will be entitled to receive, on a similar payment
schedule, the assets of the Trust that remain after payment of all amounts owed
to the Class A Owners and all expenses of the Trust not paid by a third party.
Credit Rating of Class A Trust "P-1" by Moody's Investors Service, Inc.
Certificates: "A-1+" by Standard & Poor's Ratings Services
---------------------
THE TRUST CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST
ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN
THE DEALER OR THE ISSUER OF THE FUNDING AGREEMENT.
---------------------
THE TRUST CERTIFICATES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE TRUST HAS
NOT BEEN REGISTERED UNDER THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED. SEE
"NOTICE TO INVESTORS".
---------------------
LEHMAN BROTHERS INC.
Dealer
Unless the maturity date is extended as provided below, the principal
amount of Class A Trust Certificates will be payable to the Class A Owners on
October 15, 1998. Funds necessary to make such payments will be made available
through liquidation of the Separate Account Assets. Under certain circumstances
as described herein, Class A Owners may be offered the opportunity to extend the
maturity date applicable to their Class A Trust Certificates for designated
periods of up to 360 days. In such event, all, but not less than all, of the
Class A Owners who do not elect to extend such maturity date will be offered for
sale in a remarketing process. Class A Trust Certificates not sold in the
remarketing are required to be purchased by Bayerische Landesbank Girozentrale,
New York Branch ("BLB") under its liquidity facility, provided that BLB has not
terminated the liquidity facility. The liquidity facility may be terminated by
BLB upon 10 days' notice upon the occurrence of certain events, including
receivership of, or rehabilitation or liquidation proceedings involving,
Integrity or the failure of the Trust to make payment when due to Owners.
Following any such termination there will be no extension elections or
remarketings of the Class A Trust Certificates and amounts payable under the
Funding Agreement will be the sole source of payment of the Class A Trust
Certificates. All payments on the Class B Trust Certificates are subordinated to
the prior payment in full of all amounts then due and owing on the Class A Trust
Certificates.
This Offering Circular Supplement (the "Supplement") is delivered together
with the Offering Circular, dated November 25, 1997 (the "Offering Circular"),
issued in conjunction with the Trust. This Supplement must be read in
conjunction with the Offering Circular, and capitalized terms herein have the
meanings ascribed to them therein unless otherwise herein defined.
This Offering Circular Supplement and the accompanying Offering Circular
may also be delivered in connection with a remarketing of Class A Trust
Certificates conducted through Lehman Brothers Inc. ("Lehman Brothers", the
"Dealer" or the "Remarketing Agent").
2
NOTICE TO INVESTORS
THE TRUST CERTIFICATES (THE "TRUST CERTIFICATES") OF THE BRAVO TRUST SERIES
1997-1 (THE "TRUST") HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. THE TRUST HAS NOT BEEN
REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE "INVESTMENT
COMPANY ACT"), IN RELIANCE UPON AN EXCEPTION TO REGISTRATION THEREUNDER. THE
TRUST CERTIFICATES ARE BEING OFFERED ONLY TO "QUALIFIED INSTITUTIONAL BUYERS" AS
DEFINED IN AND IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT ("QUALIFIED
INSTITUTIONAL BUYERS").
THE CLASS A TRUST CERTIFICATES WILL BE EVIDENCED BY ONE OR MORE GLOBAL TRUST
CERTIFICATES (THE "GLOBAL TRUST CERTIFICATES") AND THE CLASS B TRUST
CERTIFICATES WILL BE EVIDENCED BY A PHYSICAL CERTIFICATE. EACH GLOBAL TRUST
CERTIFICATE WILL BE IN FULLY REGISTERED FORM WITHOUT COUPONS, DEPOSITED WITH A
CUSTODIAN FOR AND REGISTERED IN THE NAME OF A NOMINEE OF THE DEPOSITORY TRUST
COMPANY ("DTC"). EXCEPT AS DESCRIBED HEREIN, BENEFICIAL INTERESTS IN THE GLOBAL
TRUST CERTIFICATES WILL BE SHOWN ON, AND TRANSFERS THEREOF WILL BE EFFECTED ONLY
THROUGH, RECORDS MAINTAINED BY DTC AND ITS DIRECT AND INDIRECT PARTICIPANTS.
BY ITS PURCHASE OF A TRUST CERTIFICATE (THE "CERTIFICATE"), EACH INVESTOR WILL
BE DEEMED TO HAVE REPRESENTED TO AND AGREED WITH THE TRUSTEE AND THE DEALER THAT
(A) (I) IT IS A QUALIFIED INSTITUTIONAL BUYER, (II) IT IS AWARE THAT THE
SALE OF THE CERTIFICATE IS BEING MADE IN RELIANCE ON RULE 144A AND
(III) THE CERTIFICATE IS BEING ACQUIRED FOR ITS OWN ACCOUNT (OR FOR
THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER),
(B) ANY RESALE OR OTHER TRANSFER OF THE CERTIFICATE WILL BE MADE ONLY (I)
TO A PERSON WHO SUCH PURCHASER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER ACQUIRING SUCH TRUST CERTIFICATE FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A
TRANSACTION COMPLYING WITH RULE 144A AND (II) IN ACCORDANCE WITH ALL
APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND
OTHER JURISDICTIONS,
(C) TRANSFERS OF TRUST CERTIFICATES SHALL BE RESTRICTED SO THAT, UNLESS
THE TRUSTEE HAS OBTAINED AN OPINION OF COUNSEL THAT SUCH TRANSFER WILL
NOT RESULT IN THE TRUST BEING TREATED AS A PUBLICLY TRADED PARTNERSHIP
WITHIN THE MEANING OF SECTION 7704(a) OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE"), (I) THE TRUST CERTIFICATES OR INTERESTS
IN THE TRUST CERTIFICATES MAY NOT BE OR BECOME TRADEABLE ON AN
"ESTABLISHED SECURITIES MARKET" AS DEFINED IN TREASURY REGULATION
SECTION 1.7704-1(b), (II) ANY TRANSFER THAT WOULD RESULT IN THERE
BEING MORE THAN 100 OWNERS SHALL BE NULL AND VOID, (III) NO TRUST
CERTIFICATE MAY BE HELD BY A FLOW-THROUGH ENTITY (A PARTNERSHIP, A
GRANTOR TRUST, OR AN S CORPORATION, MORE THAN HALF OF THE ASSETS OF
WHICH CONSIST OF TRUST CERTIFICATES), AND (IV) NO OWNER SHALL HOLD
LESS THAN $5 MILLION FACE AMOUNT OF TRUST CERTIFICATES, AND
(D) IT IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR, IF IT IS, THAT
THE ACQUISITION AND HOLDING OF THE RELEVANT TRUST CERTIFICATES IS IN
COMPLIANCE WITH ERISA (FOR EXAMPLE, SUCH ACQUISITION AND HOLDING ARE
IN COMPLIANCE WITH PROHIBITED CLASS TRANSACTION EXEMPTION 84-14,
RELATING TO PLAN ASSET TRANSACTIONS DETERMINED BY INDEPENDENT
QUALIFIED PROFESSIONAL ASSET MANAGERS) AND THE RELATED PROVISIONS OF
THE CODE AND IS PERMITTED UNDER SUCH PLAN'S CONSTITUENT DOCUMENTS AND
RELATED POLICIES.
THE TRUST CERTIFICATES AND RELATED DOCUMENTATION (INCLUDING, WITHOUT LIMITATION,
THE TRUST AGREEMENT AND THE PURCHASE AGREEMENT (AS SUCH TERMS ARE DEFINED
BELOW)) MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, WITHOUT THE CONSENT
OF, BUT UPON NOTICE TO, THE HOLDERS OF TRUST CERTIFICATES (THE "OWNERS") TO,
AMONG OTHER THINGS: (I) MODIFY THE RESTRICTIONS ON AND PROCEDURES FOR RESALES
AND OTHER TRANSFERS OF THE TRUST CERTIFICATES TO REFLECT ANY CHANGE IN
APPLICABLE LAW OR REGULATION (OR THE INTERPRETATION THEREOF) OR IN PRACTICES
RELATING TO THE RESALE OR TRANSFER OF RESTRICTED SECURITIES GENERALLY, (II)
ENABLE THE TRUST TO RELY UPON ANY EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OR THE INVESTMENT COMPANY ACT (AND TO REMOVE CERTAIN EXISTING
RESTRICTIONS TO THE EXTENT NOT REQUIRED UNDER SUCH EXEMPTION), PROVIDED THAT NO
SUCH CHANGE SHALL HAVE A MATERIAL ADVERSE EFFECT UPON THE OWNERS OF TRUST
CERTIFICATES THEN OUTSTANDING AS EVIDENCED BY AN OPINION OF COUNSEL, AND
PROVIDED FURTHER THAT, IF THE TRUST CERTIFICATES HAVE BEEN RATED BY S&P AND/OR
MOODY'S, S&P AND/OR MOODY'S SHALL HAVE PROVIDED EVIDENCE IN WRITING THAT SUCH
RATING SHALL NOT HAVE BEEN REDUCED OR WITHDRAWN AS A RESULT OF ANY SUCH
AMENDMENT. THE OWNER OF ANY TRUST CERTIFICATES SHALL BE DEEMED, BY PURCHASE
THEREOF, TO HAVE AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT (EACH OF WHICH SHALL
BE CONCLUSIVE AND BINDING ON SUCH OWNER AND ALL FUTURE OWNERS OF SUCH TRUST
CERTIFICATES FROM TIME TO TIME).
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THE ISSUER OF THE FUNDING AGREEMENT, THE TRUSTEE AND ITS AFFILIATES, THE BANK
(AS DEFINED BELOW), THE DEALER AND THE REMARKETING AGENT ARE EACH IN THE
BUSINESS OF PROVIDING SERVICES TO BENEFIT PLANS AND OTHERS AND THUS SUCH
ORGANIZATIONS MAY BE, OR MAY BECOME, A PARTY IN INTEREST AS TO MANY EMPLOYEE
BENEFIT PLANS SUBJECT TO ERISA. IN ADDITION, THE PLANS PURCHASING CLASS A TRUST
CERTIFICATES MAY BE DEEMED TO HAVE ENTERED INTO A LENDING OR OTHER TRANSACTION
WITH THE BANK, AS OWNER OF THE CLASS B TRUST CERTIFICATES. THEREFORE,
FIDUCIARIES CONSIDERING THE PURCHASE OF TRUST CERTIFICATES ON BEHALF OF A
BENEFIT PLAN SHOULD DETERMINE IF THE ACQUISITION AND HOLDING OF TRUST
CERTIFICATES IS IN COMPLIANCE WITH ERISA (FOR EXAMPLE, SUCH ACQUISITION AND
HOLDING ARE IN COMPLIANCE WITH PROHIBITED CLASS TRANSACTION EXEMPTION 84-14,
RELATING TO PLAN ASSET TRANSACTIONS DETERMINED BY INDEPENDENT QUALIFIED
PROFESSIONAL ASSET MANAGERS) AND RELATED PROVISIONS OF THE CODE. ADDITIONALLY,
EACH ERISA BENEFIT PLAN ACQUIRING AN INTEREST IN TRUST CERTIFICATES MUST MAKE
ITS OWN DETERMINATION THAT THE ACQUISITION OF THE TRUST CERTIFICATES OR AN
INTEREST IN A FINANCIAL INSTRUMENT SIMILAR TO THE FUNDING AGREEMENT IS PERMITTED
UNDER SUCH PLAN'S CONSTITUENT DOCUMENTS AND RELATED POLICIES.
IN DECIDING WHETHER OR NOT TO PURCHASE TRUST CERTIFICATES, AS DESCRIBED HEREIN,
EACH POTENTIAL INVESTOR MUST MAKE ITS OWN INDEPENDENT EVALUATION, BASED UPON
SUCH INVESTIGATION AND ANALYSIS AS IT DEEMS APPROPRIATE, OF THE BUSINESS,
PROSPECTS AND CREDITWORTHINESS OF THE ISSUER OF THE FUNDING AGREEMENT, AND OF
THE TERMS AND PROVISIONS OF THE TRUST CERTIFICATES AND THE OTHER AGREEMENTS, IN
EACH CASE AS DESCRIBED OR REFERRED TO HEREIN. IN ADDITION, NO REPRESENTATION IS
MADE BY THE DEALER, THE REMARKETING AGENT OR THE TRUST AS TO THE
CHARACTERIZATION OF THE TRUST CERTIFICATES WITH RESPECT TO THE LEGAL INVESTMENT
RESTRICTIONS APPLICABLE TO ANY REGULATED ENTITY.
THE FEDERAL INCOME TAX TREATMENT OF THE FUNDING AGREEMENT IS UNCERTAIN.
ACCORDINGLY, INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISERS REGARDING THE
INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF TRUST
CERTIFICATES, PARTICULARLY WITH RESPECT TO THE TIMING AND CHARACTER OF INCOME,
LOSS OR DEDUCTION ASSOCIATED WITH HOLDING AN INTEREST IN THE FUNDING AGREEMENT.
THE TRUST WILL MAKE AVAILABLE TO EACH PROSPECTIVE PURCHASER PRIOR TO SUCH
PURCHASER'S PURCHASE OF TRUST CERTIFICATES THE OPPORTUNITY TO ASK QUESTIONS OF,
AND RECEIVE ANSWERS FROM, THE DEALER OR THE REMARKETING AGENT CONCERNING THE
TERMS AND CONDITIONS OF THE OFFERING AND THE TRUST. EXCEPT AS SET FORTH IN THE
OFFERING CIRCULAR AND THIS SUPPLEMENT, NO PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THE OFFERING CIRCULAR
AND THIS SUPPLEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON. NEITHER THE DELIVERY OF THE OFFERING CIRCULAR OR THIS
SUPPLEMENT AT ANY TIME NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER
ANY CIRCUMSTANCE, IMPLY THAT THERE HAS NOT BEEN A CHANGE IN THE AFFAIRS OF THE
TRUST SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN OR THEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS SUPPLEMENT OR THE DATE
OF THE OFFERING CIRCULAR.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE
HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH
NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON
IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY
OF STATE THAT ANY DOCUMENT FILED UNDER CHAPTER 421-B IS TRUE, COMPLETE AND NOT
MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS
AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS
PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN
APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR
CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY
REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
The Trustee has not participated in the preparation of this Supplement or the
Offering Circular and assumes no responsibility for their contents.
The information set forth in this Supplement with respect to the Issuer of the
Funding Agreement has been obtained from official or other sources which are
believed to be reliable but is not guaranteed as to accuracy or completeness by
and is not to be construed as a representation by Lehman Brothers or the
Trustee. In the event that there is a conflict between the provisions of this
Supplement and the provisions of the Offering Circular, the provisions of this
Supplement will be controlling.
The distribution of the Offering Circular and this Supplement and the offering
of the Trust Certificates in certain jurisdictions may be restricted by law.
Persons receiving the Offering Circular and this Supplement should inform
themselves about and observe any such restriction. The Offering Circular and
this Supplement do not constitute, and may not be used for or in connection
with, an offer or solicitation by anyone in any jurisdiction in which such offer
or solicitation is not authorized or to any person to whom it is unlawful to
make such offer or solicitation. The Offering Circular and this Supplement are
highly confidential and have been prepared solely for use in connection with the
offering of the Trust Certificates. They are personal to each offeree to whom
they
4
have been delivered by the Dealer or an affiliate thereof or the Remarketing
Agent or an affiliate thereof and do not constitute an offer to any other person
or to the public generally to subscribe for or otherwise acquire the Trust
Certificates. Distribution of the Offering Circular and this Supplement to any
person other than the offeree and those persons, if any, retained to advise such
offeree with respect thereto is unauthorized, and any disclosure of any of their
contents, without the prior written consent of the Dealer, is prohibited. Each
prospective Purchaser, by accepting delivery of the Offering Circular and this
Supplement, agrees to the foregoing and to make no photocopies of the Offering
Circular and this Supplement or any documents attached thereto and, if the
offeree does not purchase the Trust Certificates or the offering is terminated,
to return this Offering Circular and all documents attached hereto to: Michele
Mahoney, Lehman Brothers Inc., 3 World Financial Center, New York, New York
10285, telephone: (212) 526-6092 and facsimile: (212) 528-6925. For a further
description of certain restrictions on offerings and sales of Trust Certificates
and on distribution of the Offering Circular and this Supplement, see "Offering
and Sale" in the Offering Circular.
No person is authorized to give any information or to make any representation
not contained in the Offering Circular or the related Supplement, and any
information or representation not contained herein must not be relied upon as
having been authorized by or on behalf of the Dealer. The delivery of the
Offering Circular and related Supplement at any time does not imply that
information contained herein or therein is correct at any time subsequent to
their respective dates.
5
THE TRUST CERTIFICATES
THE TRUST CERTIFICATES WILL BE ISSUED IN TWO CLASSES TO OWNERS PURSUANT TO
THE TRUST AGREEMENT. EACH TRUST CERTIFICATE WILL ENTITLE THE OWNER TO A
PROPORTIONATE UNDIVIDED INTEREST IN ALL PAYMENTS MADE BY THE TRUST WITH RESPECT
TO THE RELATED CLASS OF CERTIFICATES. SUBJECT TO CERTAIN EXCEPTIONS DESCRIBED
HEREIN, EACH CLASS A TRUST CERTIFICATE WILL ENTITLE THE OWNER TO RECEIVE
PERIODIC INTEREST PAYMENTS AND A RETURN OF PRINCIPAL AT MATURITY, FROM PAYMENTS
RECEIVED BY THE TRUST ON THE TRUST ASSETS FROM THE ISSUE DATE THROUGH THE
SCHEDULED FINAL PAYMENT DATE AND EACH CLASS B TRUST CERTIFICATE WILL ENTITLE THE
OWNER TO RECEIVE, ON A SIMILAR PAYMENT SCHEDULE BUT ON A SUBORDINATED BASIS, THE
ASSETS OF THE TRUST THAT REMAIN AFTER PAYMENT OF ALL AMOUNTS OWED TO THE CLASS A
OWNERS AND ALL EXPENSES OF THE TRUST NOT PAID BY A THIRD PARTY. EACH TRUST
CERTIFICATE WILL HAVE TERMS SUBSTANTIALLY AS SET FORTH BELOW AND AS FURTHER
DESCRIBED IN THE OFFERING CIRCULAR. SEE "DESCRIPTION OF THE TRUST CERTIFICATES"
IN THE OFFERING CIRCULAR. TO THE EXTENT ANY PROVISION OF THIS SUPPLEMENT IS
INCONSISTENT WITH THE OFFERING CIRCULAR, PROVISIONS HEREIN SHALL CONTROL. THE
SUMMARY OF CERTAIN PROVISIONS OF THE TRUST AGREEMENT, THE TRUST CERTIFICATES,
THE PURCHASE AGREEMENT, THE REMARKETING AGREEMENT, THE FUNDING AGREEMENT, THE
CUSTODY AGREEMENT (AS DEFINED BELOW), AND THE LIQUIDITY AGREEMENT (AS SUCH TERMS
ARE DEFINED BELOW) SET FORTH HEREIN AND IN THE OFFERING CIRCULAR DOES NOT
PURPORT TO BE COMPLETE AND IS SUBJECT TO, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO, SUCH DOCUMENTS. COPIES OF THE TRUST AGREEMENT, THE PURCHASE
AGREEMENT, THE REMARKETING AGREEMENT, THE FUNDING AGREEMENT, THE CUSTODY
AGREEMENT, AND THE LIQUIDITY AGREEMENT AND SPECIMEN FORMS OF THE TRUST
CERTIFICATES MAY BE OBTAINED FROM THE DEALER.
CLASS A TRUST
CERTIFICATES
CREDIT RATINGS: "P-1" by Moody's Investors Service, Inc.
("Moody's").
"A-1+" by Standard & Poor's Ratings Services
("S&P").
A rating is not a recommendation to buy, sell or
hold Trust Certificates and may be subject to
revision or withdrawal at any time by the
assigning rating organization. A suspension,
reduction or withdrawal of the rating assigned to
the Class A Trust Certificates may adversely
affect the market price of the Class A Trust
Certificates.
CLASS B TRUST
CERTIFICATES
CREDIT RATINGS: The Class B Trust Certificates will not be rated.
AGGREGATE PRINCIPAL
AMOUNT OF THE
TRUST CERTIFICATES: $450,000,000 with respect to the Class A Trust
Certificates; $50,000,000 with respect to the
Class B Trust Certificates; aggregate
$500,000,000. Only the Class A Trust Certificates
are being offered hereby. Bayerische Landesbank
Girozentrale or a Branch thereof will buy all of
the Class B Trust Certificates on the Issue Date.
Such purchaser reserves the right to sell such
Certificates, in whole or in part, at any time.
All payments of principal of the Class B Trust
Certificates are subordinated to the prior payment
in full of all amounts then due and owing on the
Class A Trust Certificates.
ISSUE DATE: November 25, 1997.
SCHEDULED
FINAL PAYMENT DATE: October 15, 1998 (the "Maturity Date"). On the
Maturity Date, the Owners will be entitled to
receive payment of the principal amount of the
Trust Certificates. No principal amount of any
Class B Trust Certificates can be paid until the
principal amount of all Class A Trust Certificates
has been paid in full. Under certain circumstances
Class A Owners may be offered the opportunity to
extend the Maturity Date for designated periods.
See "Extension of Maturity" below.
6
EARLY
PAYMENT SCHEDULE: If the issuer of the Funding Agreement becomes
subject to rehabilitation or liquidation
proceedings or if some other cause for early
termination of the Trust occurs (see "The
Trust--Termination of the Trust" in the Offering
Circular), the Trust could receive payments
allocable to principal prior to the Maturity Date.
In such an event, Class A Owners will be entitled
to receive their proportionate share of the
distribution promptly after the Trust has received
sufficient payments to pay principal and accrued
interest on the Class A Trust Certificates.
INTEREST
PAYMENT DATES: January 15, April 15, July 15 and the Maturity
Date, commencing January 15, 1998.
INTEREST PAYMENTS
WITH RESPECT TO
CLASS A TRUST
CERTIFICATES: Class A Owners will be entitled to receive
interest on the principal amount thereof for each
Interest Accumulation Period (see below) equal to
Three-Month LIBOR (as defined below) plus .05% per
annum. Interest will be reset and paid quarterly,
calculated on an actual/360 daycount convention,
as described below.
DETERMINATION OF THREE-MONTH LIBOR. (i) On each
Interest Determination Date (as defined below),
LIBOR will be determined on the basis of the
offered rate for deposits for U.S. Dollars for a
period of three months (the "Index Maturity"),
which appears on Telerate Page 3750 as of
11:00 a.m. London time (or such page as may
replace the Telerate Page on that service for
the purpose of displaying London interbank
offered rates of major banks).
(ii) With respect to an Interest Determination
Date on which no such offered rate appears on
Telerate Page 3750, LIBOR for the next Reset Date
(as defined below) shall be reasonably determined
by the Calculation Agent as the arithmetic mean
(rounded upwards, if necessary, to the nearest one
hundredth of a percentage point) of the rates
quoted at approximately 11.00 a.m., London time,
on such date, by four major banks in the London
interbank market, selected by the Calculation
Agent, to prime banks in the London interbank
market for three-month U.S. Dollar deposits of not
less than $100,000,000 commencing on such Reset
Date; provided that the Calculation Agent will
request the principal London office of each of
such four major banks to provide a quotation of
its rate; provided further, that, if at least two
such quotations are provided, LIBOR will be the
arithmetic mean of such quotations, and, if fewer
than two quotations are provided as requested,
LIBOR will be the arithmetic mean of the rates
quoted by major banks in New York City, selected
by the Calculation Agent, at approximately 11:00
a.m., New York City time, on that Reset Date for
loans in U.S. Dollars to leading European banks
with a three-month maturity commencing on the
Reset Date in a principal amount of not less than
U.S. $100,000,000.
Payments will be made in immediately available
funds by wire transfer to an account designated by
the relevant Owner to the Trustee at least ten
Business Days prior to the related Record Date.
The Owners of Trust Certificates will not receive
payments until the Trustee receives funds from the
Custodian (as defined below) pursuant to the
Custody Agreement (as defined below) and the
Funding Agreement. In addition, see "General
Payment Information" below.
DAYCOUNT CONVENTION: [ ] 30/360 for the period from _____ to _____.
[X] ACTUAL/360 for the period from November 25,
1997 to October 15, 1998.
[ ] ACTUAL/ACTUAL for the period from _____
to ______.
7
INTEREST
ACCUMULATION
PERIODS: Each period from and including one Interest
Payment Date to but excluding the next following
Interest Payment Date, except that (a) the initial
Interest Accumulation Period will commence on and
include the Issue Date and (b) the final Interest
Accumulation Period will end on, but exclude, the
Maturity Date ((a) and (b) being the "Stub
Periods").
RECORD DATE: The 15th day prior to each Interest Payment Date,
whether or not a Business Day.
RESET DATES: The first day of each Interest Accumulation
Period.
INTEREST
DETERMINATION DATES: Two Business Days prior to each Reset Date.
CALCULATION AGENT: Lehman Brothers Inc.
GENERAL PAYMENT
INFORMATION: Payments of the principal of and interest on the
Global Trust Certificates will be made to DTC or
its nominee as the registered owner thereof. The
Trust, the Trustee, the Dealer and their
respective agents will not have any responsibility
or liability for any aspect of the records
relating to or payments made on account of
beneficial ownership interests in the Global Trust
Certificates or for maintaining, supervising or
reviewing any records relating to such beneficial
ownership interests. See "Description of the Trust
Certificates--Global Trust Certificates" in the
Offering Circular.
CURRENCY: U.S. Dollars.
DENOMINATIONS: $5,000,000 and integral multiples of $100,000 in
excess thereof.
MINIMUM PURCHASE: $5,000,000.
BUSINESS DAY
CONVENTION: New York, Minnesota and Ohio, except London for
purposes of interest determinations.
If any Interest Payment Date would otherwise be a
day that is not a Business Day, such Interest
Payment Date will be the next succeeding day that
is a Business Day, except that, in the case of a
payment based on LIBOR, if such next succeeding
Business Day falls in the next succeeding calendar
month, such Interest Payment Date will be the
immediately preceding Business Day. If the
Maturity Date falls on a day that is not a
Business Day, the payment due on such Maturity
Date will be made on the next succeeding Business
Day, and no interest on such payment shall accrue
for the period from and after such Maturity Date.
REDEMPTION
PROVISIONS: The Trust Certificates are not redeemable at the
election of an Owner prior to the Maturity Date.
EXTENSION OF
MATURITY: Not less than 30 days prior to the Maturity Date
or any Extended Maturity Date (the "Extended
Maturity Date"), Bayerische Landesbank
Girozentrale, New York Branch (the "Bank"), as
Market Agent for the Trust under the Market Agent
Agreement between the Trust and the Bank, may, but
is not required to, select an "Extended Maturity
Date" on which the principal amount of all
outstanding Trust Certificates will be due and
payable, provided that such an Extended Maturity
Date shall correspond with an Interest Payment
Date (as defined above) under the Funding
8
Agreement and may not be more than 360 days after
the Maturity Date or the Extended Maturity Date,
as the case may be. There can be no assurance that
the Market Agent will select an Extended Maturity
Date. If the Market Agent so selects an Extended
Maturity Date, the Market Agent will fix (A) the
interest rate applicable to the Class A Trust
Certificates until the Extended Maturity Date, (B)
the Payment Dates applicable to the Class A Trust
Certificates until the Extended Maturity Date,
(C) the Reset Dates applicable to the Class A
Trust Certificates until the Extended Maturity
Date, (D) the Interest Determination Dates
applicable to the Class A Trust Certificates
until the Extended Maturity Date, (E) the Business
Day Convention applicable to the Class A Trust
Certificates until the Extended Maturity Date, and
(F) any other variable terms applicable to the
Class A Trust Certificates until the Extended
Maturity Date and will give the Trustee notice in
sufficient time for Owners to be notified, not
less than 30 days prior to the Maturity Date or
relevant Extended Maturity Date, as the case may
be, as to what the Extended Maturity Date will be
and the terms applicable to the Class A Trust
Certificates until such Extended Maturity Date.
Each Class A Owner will then have the option (the
"Extension Option"), exercisable no fewer than 20
days prior to the Maturity Date or the Extended
Maturity Date, as applicable, to have the Maturity
Date of all but not less than all of such Owner's
Class A Trust Certificates extended on the revised
terms determined as described above. The maturity
date of the Class B Trust Certificates will always
be the same as that of the Class A Trust
Certificates.
If a Class A Owner chooses not to exercise the
Extension Option, such Owner will be entitled to
receive payment in full of the Principal Amount of
the related Class A Trust Certificates on the next
scheduled Maturity Date or Extended Maturity Date,
as applicable, (i) from proceeds received by the
Trustee from the Remarketing Agent (as such term
is defined below) pursuant to a reoffering of all
or a portion of such Class A Trust Certificates,
(ii) from proceeds received by the Trustee from
the Liquidity Provider upon its purchase of the
related Trust Certificates pursuant to the terms
of the Liquidity Agreement, or (iii) if the
Liquidity Provider is not obligated to purchase
such Class A Trust Certificates, from amounts
received by the Trustee under the Funding
Agreement.
LIQUIDITY PROVIDER: Bayerische Landesbank Girozentrale, New York
Branch. The obligations of the Liquidity Provider
to purchase Class A Trust Certificates may be
terminated by it upon 10 days' notice upon the
occurrence of certain events, including
receivership of, or rehabilitation or liquidation
proceedings involving Integrity or the failure of
the Trust to make payment when due to Owners. The
Liquidity Provider may also resign at any time
upon giving of at least 360 days' notice. See "The
Liquidity Agreement".
REMARKETING
PROCESS: Under the Remarketing Agreement between the Trust
and Lehman Brothers, Lehman Brothers has agreed to
act as remarketing agent (the "Remarketing Agent")
with respect to any Class A Trust Certificate with
respect to which a Class A Owner has not exercised
an Extension Option. On the next Scheduled
Maturity Date or Extended Maturity Date, as the
case may be, each person purchasing Class A Trust
Certificates as a result of a remarketing shall
pay the purchase price to the Remarketing Agent,
which will pay such amounts as are payable to
Owners that have sold their Trust Certificates in
such remarketing. Neither the Trust nor the
Remarketing Agent is obligated to provide funds to
make payments upon any Owner's tender pursuant to
the remarketing arrangement. Furthermore, no
remarketing shall take place if such remarketing
would require that the Trust be registered
pursuant to the Investment Company Act or that any
Trust Certificates be registered pursuant to the
Securities Act. Performance by the Remarketing
Agent is subject to certain conditions as provided
in the Remarketing Agreement. Class A Trust
Certificates tendered in a remarketing may be
purchased by the Remarketing Agent, although the
Remarketing Agent is not obligated to purchase any
Trust
9
Certificates. However, to the extent that any
Class A Trust Certificates are tendered for
purchase at the time an Extension Option is
offered with respect thereto and such Class A
Certificates are not sold in a remarketing or
purchased by the Remarketing Agent, such
Certificates will be required to be purchased by
the Liquidity Provider pursuant to the Liquidity
Agreement (or, if such Agreement has been
terminated, will be paid by the Trust with funds
received under the Funding Agreement). Lehman
Brothers' fees in connection with acting as the
Remarketing Agent will be paid by the Trust, but
will be subordinate in priority to the payment of
the fees of the Trustee, the fees of Signet Trust
Company, which will hold the Funding Agreement in
custody for the Trust, and amounts due to the
Owners of Class A Trust Certificates.
TRANSFERS TO
ERISA PURCHASERS: Transfers to ERISA plans are permitted pursuant to
the Trust Agreement.
The issuer of the Funding Agreement and its
affiliates, the Trustee, the Liquidity Provider,
the Dealer and the Remarketing Agent are each in
the business of providing services to benefit
plans and others and thus such organizations may
be, or may become, a party in interest as to many
employee benefit plans subject to ERISA. In
addition, the plans purchasing Class A Trust
Certificates may be deemed to have entered into a
lending or other transaction with Bayerische
Landesbank Girozentrale, as Class B Owner.
Therefore, fiduciaries considering the purchase of
Trust Certificates on behalf of a benefit plan
should determine if the acquisition and holding of
Trust Certificates is in compliance with ERISA and
related provisions of the Code.
Additionally, each ERISA benefit plan acquiring an
interest in Trust Certificates must make its own
determination that the acquisition of the Trust
Certificates or an interest in a financial
instrument similar to the Funding Agreement is
permitted under such plan's constituent documents
and related policies.
EARLY TERMINATION: See "The Trust--Termination of the Trust" in the
Offering Circular.
CUSIP NUMBER: 105669 AA 3
ADDITIONAL FEDERAL
INCOME TAX
CONSIDERATIONS: Prospective Class A Trust Certificate Owners
should carefully consider the federal income tax
treatment of such Trust Certificates. Investors
are urged to consult their tax advisers regarding
the income tax consequences of the purchase,
ownership and disposition of the Class A Trust
Certificates, particularly with respect to the
timing and character of income, loss or deduction
associated with holding an interest in the Trust.
See "Certain Federal Income Tax Consequences".
NO PETITION: Notwithstanding any termination of the Custody
Agreement (as defined below), the Trust Agreement,
the Funding Agreement, the Liquidity Agreement,
the Virginia Custody Agreement, the Purchase
Agreement or the Remarketing Agreement, none of
the parties to the relevant agreement is
permitted, prior to the date which is one year and
one day after payment in full of all principal of
and interest on the Class A Trust Certificates, to
acquiesce, petition or otherwise invoke or cause
the Trust to invoke the process of any court or
governmental authority for the purpose of
commencing or sustaining a case against the Trust
under any federal or state bankruptcy, insolvency
or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the
Trust or any substantial part of its property, or
making a general assignment for the benefit of
creditors, or ordering the winding up or
liquidation of the affairs of the Trust.
10
THE TRUST ASSETS
The Trust Assets will consist of the following:
FINANCIAL
INSTRUMENT/
TYPE OF
AGREEMENT: Separate Account Group Annuity Contract (the
"Funding Agreement")
INSURER: Integrity Life Insurance Company
PRINCIPAL AMOUNT: $500,000,000
AGREEMENT NUMBER: IFAA00141ST
EFFECTIVE DATE: November 25, 1997
MATURITY DATE: October 15, 2002 (subject to a maximum of five
one-year extensions)
CURRENCY: U.S. Dollars
INTEREST
RATE: Three-month LIBOR plus .25% per annum as fixed by
the British Bankers Association at 11:00 A.M.
(London time) on the day which is two Business
Days prior to the beginning of the applicable
Interest Accumulation Period, as reported on
Bloomberg L.P.'s Financial Markets Commodities
News ("Bloomberg") under the ticker symbol
"US0003M" or on display page 3750 on the Dow Jones
Telerate Service ("Telerate") (or such other page
as may replace that page on that service) or on
any other nationally recognized service. Should
there be a discrepancy between the Bloomberg and
Telerate reported three-month LIBOR rate, then
Telerate will be used.
INTEREST
PAYMENTS
DATES: January 15, April 15, July 15, October 15 and the
Maturity Date, commencing January 15, 1998.
INTEREST
ACCUMULATION
PERIODS: Each period from and including one Interest
Payment Date to, but excluding, the next following
Interest Payment Date, except that (a) the initial
Interest Accumulation Period will commence on and
include the Effective Date and (b) the final
Interest Accumulation Period will end on, but
exclude, the Maturity Date ((a) and (b) being the
"Stub Periods").
DAYCOUNT
CONVENTION: Actual/360
REPAYMENT: On the Maturity Date, the Trust is entitled to
receive repayment of the principal amount of the
Funding Agreement.
CUSTODIAL ACCOUNTS: On the Effective Date, the Insurer will establish
two custodial accounts (the "Accounts") with First
Trust National Association (the "Custodian")
pursuant to a Custody Agreement among the Trust,
the Bank as the Trust's Agent, the Insurer,
11
and the Custodian (the "Custody Agreement") to
support the Funding Agreement (although under Ohio
law, which governs the Funding Agreement, the
Insurer will continue to own the assets in the
Accounts). These two Accounts are required at all
times (subject to minimum adjustments of $1
million) to contain cash, securities and other
financial instruments having a market value equal
to at least 102% of the unpaid principal amount of
the Funding Agreement plus accrued and unpaid
interest thereon (that is, $510 million plus 102%
of accrued interest). The assets in the Accounts
will be actively managed by the Insurer or an
affiliate thereof pursuant to investment
guidelines attached to the Custody Agreement as an
annex and summarized below. The Accounts will be
marked to market on a weekly basis, and the
Insurer will, within one business day after being
notified that the market value has fallen below
the required 102% level by $1 million or more, be
required under the terms of the Funding Agreement
to add to the Accounts sufficient assets to
eliminate any such deficit. There can be no
assurance that such active management will not
result in losses or that the Insurer will
contribute additional funds in connection
therewith.
Amounts contributed by the Insurer (a) on the
Effective Date, to the extent that such amounts
exceed $500 million, or (b) after the Effective
Date to maintain such 102% market value, if any,
may be subject to recovery as "fraudulent
transfers" or "voidable preferences" by creditors
of the Insurer in the event the Insurer becomes
subject to seizure or receivership by its
domiciliary state insurance department or
rehabilitation or liquidation proceedings. The
total contributions made by the Insurer after the
Effective Date (which may be subject to recovery
by creditors under the foregoing circumstances)
could be substantially more than the 2% required
over-collateralization. Repayment of the entire
$50 million principal amount of Class B Trust
Certificates, as well as any other assets of the
Trust to which such Class is otherwise entitled,
is subordinated to payment in full of principal of
the Class A Trust Certificates and interest
accrued thereon.
In order to maintain the highest ratings granted
to short-term securities with respect to the Class
A Trust Certificates, the Custody Agreement
provides that assets in the Accounts will be
invested pursuant to investment criteria
summarized below:
(1) the average effective duration of the
portfolio cannot exceed 1.75 years;
(2) the average credit quality of the portfolio
cannot be less than AA/NAIC "1";
(3) the portfolio cannot contain investments in
real estate, direct commercial mortgages, common
stocks, leveraged futures or other
leveraged/speculative derivatives; and
(4) any derivative position must be used for
hedging only and must result in the portfolio
still being in compliance with all other
investment guidelines.
The following is the table of permitted
investments from the Custody Agreement:
12
SHORT-TERM PORTFOLIO GUIDELINES
BLB/INTEGRITY SEPARATE ACCOUNT PORTFOLIO
ASSET CLASS MIN/MAX. EXP. MAX. PER ISSUE MAX. PER ISSUER
- ---------------------------------------- ------------- -------------- ---------------
U.S. Gov't & Agencies 0/100% unlimited unlimited
Mortgage-backed Securities
Agency CMOs 0/50% 5% 15%
Non-agency CMOs 0/50% 5% 10%
Agency Pass Throughs 0/50% 5% 15%
Support Tranches 0/10% 5% 10%
Asset-backed Securities 0/30% 2.5% 10%
Auto Loans
Credit Card Receivables
Home Equity
Manufactured Housing
Corporate Debt 0/60% 5% 5%
Public Utilities
Corporate Bonds
144A/Private Placements 0/30% 2.5% 2.5%
Foreign Debt 0/20% 2.5% 2.5%
(U.S. Dollar Denominated only)
Non-Investment Grade Securities 0/3% 1% 1%
(No lower than BB/NAIC "3" rated)
Cash and Cash Equivalents 0/100% 5% 5%
Non-Speculative Hedging Instruments 0/3% 1% 1%
(Caps, floors, swaps only)
(Counterparties must be AA rated)
(Caps & Floors: the lesser of purchase cost or market
value)
(Swaps: Absolute Value of the Market Value)
13
Except as set forth in the following two paragraphs, this Offering Circular
Supplement does not provide information with respect to the Insurer. No
investigation has been made of the financial condition or creditworthiness of
the Insurer or any of its subsidiaries in connection with the issuance of the
Trust Certificates. An investor in the Trust Certificates should obtain and
evaluate the same information concerning the Insurer as such investor would if
it were investing directly in the Funding Agreement.
DESCRIPTION OF INSURER: The Insurer is an Ohio stock life insurance company
licensed to sell life insurance and annuities in 45 states and the District of
Columbia. All of the Insurer's outstanding shares are owned by Integrity
Holdings, Inc., a Delaware corporation that is in turn 100% owned by ARM
Financial Group, Inc., a Delaware corporation (the "Corporation"). The Insurer
provides retail, fixed, indexed and variable annuities and institutional
guaranteed investment contracts. The Insurer prepares financial statements in
accordance with statutory accounting principles applicable to it for each year
ending December 31 and files such financial statements with the state insurance
regulator of Ohio (the "Ohio Department"), its state of domicile. The Ohio
Department has established procedures pursuant to which copies of such financial
statements may be obtained. A copy of such procedures may be requested from the
Ohio Department by sending a written request to the Financial Regulation
Services Division of the Ohio Department of Insurance at 2100 Stella Court,
Columbus, Ohio 43215-1067. The Corporation is not responsible with respect to
any payment due under the Trust Certificates.
DESCRIPTION OF CORPORATION: ARM Financial Group Inc. is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
at the Commission's New York Regional Office, 7 World Trade Center, 13th Floor,
New York, New York 10048; and at its Chicago Regional Office, 500 West Madison
Street, Chicago, Illinois 60661. Copies of such material can be obtained from
the Public Reference Section of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such
reports, proxy statements and other information filed with the Commission are
also available via electronic means including the Internet (@http://www.sec.gov)
and Bloomberg Business News.
14
LIQUIDITY AGREEMENT
On or prior to the Issue Date, the Trust will enter into a Standby Trust
Certificate Purchase Agreement (the "Liquidity Agreement") with the Bank.
Subject to certain conditions, the Liquidity Agreement will provide for the
purchase of the Class A Trust Certificates that are subject to an Extension
Option that has not been exercised by the relevant Owners and have been
delivered to the Remarketing Agent but are not successfully remarketed by the
Remarketing Agent for the account of such Owners. Payments to purchase the Class
A Trust Certificates pursuant to the Liquidity Agreement will be made by the
Bank to the Remarketing Agent. The price to be paid by the Bank pursuant to the
Liquidity Agreement for the purchase of Class A Trust Certificates will be equal
to the aggregate principal amount of such Class A Trust Certificates. Upon any
purchase of Class A Trust Certificates pursuant to the Liquidity Agreement, the
commitment of the Bank to purchase Trust Certificates will be reduced by the
purchase price and will be reinstated upon the resale of such Trust Certificates
by the Bank. The Liquidity Agreement will expire on November 20, 1998 (360 days
from closing), unless sooner terminated as the result of an event of default or
a voluntary termination by the Bank. See "Events of Default" and "Voluntary
Termination by the Bank" below. If such Agreement has not been so terminated by
November 20, 1998, such termination date will be extended on a daily basis until
the earliest to occur of (a) termination of the Liquidity Agreement, either as
the result of an event of default or voluntarily, (b) the date on which no Class
A Trust Certificates are outstanding, or (c) October 15, 2007.
UNDER CERTAIN CIRCUMSTANCES DESCRIBED BELOW THE OBLIGATIONS OF THE BANK TO
PURCHASE CLASS A TRUST CERTIFICATES MAY BE TERMINATED.
EVENTS OF DEFAULT
The occurrence of certain events of default under the Liquidity Agreement
will entitle the Bank to terminate or suspend its obligation under the Liquidity
Agreement. Events of default under the Liquidity Agreement include: (i) the
Insurer becomes subject to seizure, receivership, rehabilitation or liquidation
proceedings or conservatorship or similar proceedings; (ii) failure of the
Insurer to pay any principal or interest owed by it under the Funding Agreement;
(iii) the Bank has owned more than $45 million of the Class A Trust Certificates
for at least 360 consecutive days and has given notice to the Custodian, the
Insurer and the Rating Agencies of the Bank's desire to terminate its
obligations under the Liquidity Agreement; or (iv) the failure of the Trust to
make a payment when due to Owners.
If an event of default shall occur under the Liquidity Agreement and be
continuing for 10 days, the Bank may terminate its obligation to purchase Class
A Trust Certificates by giving written notice to the Trustee (with a copy to the
Insurer), and the Bank will be under no further obligation to purchase Class A
Trust Certificates.
VOLUNTARY TERMINATION BY THE BANK
The Bank may terminate the Liquidity Agreement at any time upon giving at
least 360 days' notice to the Trustee and the Insurer.
THE BANK
Except as set forth in the following three paragraphs, this Offering
Circular Supplement does not provide information with respect to the Bank. No
investigation has been made of the financial condition or creditworthiness of
the Bank. An investor in the Trust Certificates should review carefully the
disclosure with respect to the Liquidity Agreement contained herein and make its
own credit evaluation of the Bank.
Bayerische Landesbank Girozentrale ("BLB") was incorporated as a public law
financial institution (Rechtsfaehige Anstalt des Oeffentlichen Rechts) by the
Law Establishing Bayerische Landesbank Girozentrale (Gesetz ueber die Errichtung
der Bayerischen Landesbank Girozentrale) of June 27, 1972, as amended, as
adopted by the Parliament of the Free State of Bavaria, and is subject to the
German Federal Banking Act of July 10, 1961, as amended (Gesetz ueber das
Kreditwesen) (the "Federal Banking Act"). Its statutes authorize the Bank to
provide universal financial services including both commercial and investment
banking as well as brokerage activities. The Free State of Bavaria owns 50% of
the Bank's share capital, the other 50% being owned by the Bavarian Savings
15
Bank and Clearing Association (Bayerischer Sparkassen-und Giroverband), which is
the central organization of the Bavarian Savings Banks.
BLB established a Representative Office in New York in October 1979 and
obtained a license from the office of the Comptroller of the Currency in October
1981 to operate through a branch located in the City of New York. The New York
Branch engages in a diversified banking business and is a major wholesale
lending participant throughout the United States, offering a full range of
domestic and international financial services, including loans, foreign exchange
and money market operations.
Copies of BLB's Annual Report for the most recent available fiscal year may
be obtained at the New York Branch in person during normal business hours or by
mail by writing to the New York Branch at: Bayerische Landesbank Girozentrale,
560 Lexington Avenue, New York, New York 10022, Attention: Corporate Finance.
16
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain federal income tax
consequences of the purchase, ownership and disposition of the Trust
Certificates. The summary does not purport to deal with federal income tax
consequences applicable to all categories of the Owners, some of which may be
subject to special rules. For example, it does not discuss the tax treatment of
the Owners that are insurance companies, regulated investment companies or
dealers in securities. The following summary also only addresses U.S. Owners (as
defined below) who purchase Trust Certificates in connection with the original
issuance thereof. Moreover, there are no cases or Internal Revenue Service
("IRS") rulings on similar transactions to the terms of the Trust and the
issuance of the Trust Certificates. As a result, the IRS may disagree with all
or a part of the discussion below. Prospective investors are urged to consult
their own tax advisors in determining the federal, state, local, foreign and any
other tax consequences to them of the purchase, ownership and disposition of the
Trust Certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. The Trust will be provided
with an opinion of Brown & Wood LLP, special Federal tax counsel to the Trust
("Federal Tax Counsel"), regarding certain federal income tax matters discussed
below. An opinion of Federal Tax Counsel, however, is not binding on the IRS or
the courts. No ruling on any of the issues discussed below will be sought from
the IRS. For purposes of the following summary, references to the Trust, the
Trust Certificates and related terms, parties and documents shall be deemed to
refer, unless otherwise specified herein, to the Trust, the Trust Certificates
and related terms, parties and documents applicable to such Trust.
As used herein, the term "U.S. Owner" means a beneficial owner of Trust
Certificates that is for U.S. federal income tax purposes (i) a citizen or
resident of the United States, (ii) a corporation, a partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof (other than a partnership that is not treated as a United
States person under any applicable Treasury regulations), (iii) an estate the
income of which is subject to U.S. federal income taxation regardless of its
source, or (iv) a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
Trust. Notwithstanding the preceding sentence, to the extent provided in
Treasury regulations, certain trusts in existence on August 20, 1996, and
treated as United States persons prior to such date, that elect to continue to
be treated as United States persons also will be a U.S. Owner.
Notwithstanding anything to the contrary contained herein, no resale or
other transfer of a Trust Certificate or any interest therein shall be made
unless (1) immediately after giving effect to such resale or other transfer,
there would be no more than 100 Owners of Trust Certificates and (2) if the
transferee (or any person or entity for whom such transferee is acting as
agent or custodian in connection with the acquisition of such Trust
Certificate) is a partnership, grantor trust or S corporation for federal
income tax purposes (a "Flow Through Entity"), any Trust Certificates owned
by or on behalf of such Flow Through Entity will represent less than 50% of
the value of all the assets owned by or on behalf of such Flow Through Entity.
CLASSIFICATION OF THE TRUST ASSETS. The Trust Assets will consist of a
$500,000,000 Integrity Life Insurance Company Separate Account Group Annuity
Contract (the "Funding Agreement"). Davis & Harman, special tax counsel to the
Insurer, has rendered an opinion generally to the effect that the Funding
Agreement will be treated as indebtedness for U.S. federal income tax purposes.
The following discussion, as well as the opinion to be provided to the Trust by
Federal Tax Counsel, is based upon and relies upon the opinion of Davis & Harman
concerning the U.S. federal income tax treatment of the Funding Agreement. If
the Funding Agreement is not ultimately treated as indebtedness for U.S. federal
income tax purposes, then the U.S. federal income tax consequences of the
purchase, ownership and disposition of the Trust Certificates could differ in
various respects from the consequences described below.
TREATMENT OF THE TRUST AS A PARTNERSHIP. The Trustee has agreed, and the
Owners will agree by their purchase of Trust Certificates, to treat the Trust as
a partnership for purposes of federal and state income tax, franchise tax and
any other tax measured in whole or in part by income, with the assets of the
partnership being the assets held by the Trust and the partners of the
partnership being the Owners. In the opinion of Federal Tax Counsel, for U.S.
federal income tax purposes, the Trust will be classified as a partnership and
not as an association or a publicly traded partnership taxable as a corporation.
Moreover, the Trustee has agreed, and the Owners will agree by their purchase of
the Trust Certificates, to elect under Section 761 (a) of the Code to exclude
the Trust from the provisions of subchapter K of the Code (the "Election"). In
most respects, the Election will cause the Owners of the Trust Certificates to
be taxed as co-owners of their respective interest in the Funding Agreement,
rather than as partners. As a result of the Election,
17
each Owner will be required to take into account directly for U.S. federal
income tax purposes in accordance with such Owner's own tax accounting method
such Owner's income realized and recognized with respect to its interest in the
Funding Agreement and such Owner's expenses paid or incurred with respect to
such Owner's interest, and each Owner will receive a tax information report
(and, if required, IRS Form 1099) showing its share of income received by the
Trust for the year rather than a partnership Form K-1. The Election will not
cause the Trust to cease to be a partnership of all purposes of the Code.
The Code and the regulations thereunder impose a number of conditions and
qualifications on the right to make the Election. The Election has not been
frequently used outside the oil and gas area, and there is little authority
relating to its use by an asset repackaging vehicle such as the arrangement
among the Owners of the Trust Certificates evidenced hereby. The Election is
permitted only if the income of the members may be adequately determined
"without the necessity of computing partnership taxable income". It is unclear
whether, or under what circumstances, this test will be satisfied. If, upon
audit, the IRS were successfully to assert that the Election was not available
or not properly made, certain penalties (resulting from the failure to file
partnership returns) could be imposed if it were determined that the failure to
file was not due to reasonable cause. In addition, the imposition of the rules
of Subchapter K to the Owners would require the tax partnership to utilize a
partnership taxable year for reporting purposes, which could have the effect of
shifting income and expense items into different taxable years for the Owners.
Although there is no authority directly on point, Federal Tax Counsel believes
there is reasonable basis for the tax partnership evidenced by the Trust
Certificates not to file partnership returns for U.S. federal income tax
purposes after making the Election.
DISPOSITION OF CERTIFICATES. In general, capital gain or loss will be
recognized on a sale of Trust Certificates in an amount equal to the difference
between the amount realized and the Owner's tax basis in the Trust Certificates
sold. An Owner's tax basis in a Trust Certificate will generally equal the
Owner's cost increased by the Owner's share of Trust income (includible in such
Owner's income) and decreased by any distributions received with respect to such
Trust Certificate. In addition, both the tax basis in the Trust Certificates and
the amount realized on a sale of a Trust Certificate would include the Owner's
share of any liabilities of the Trust. An Owner acquiring Trust Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Trust Certificates and, upon sale or other disposition of some of
the Trust Certificates, allocate a portion of such aggregate tax basis to the
Trust Certificates sold (rather than maintaining a separate tax basis in each
Trust Certificate for purposes of computing gain or loss on a sale of that Trust
Certificate).
If an Owner is required to recognize an aggregate amount of income over the
life of the Trust Certificates that exceeds the aggregate cash distributions
with respect thereto (which is not expected to be the case), such excess will
generally give rise to a capital loss upon the retirement of the Trust
Certificates.
UNRELATED BUSINESS TAXABLE INCOME. Income from the Trust Certificates may
constitute "unrelated business taxable income" within the meaning of Section
512(a)(1) of the Code. Prospective investors in the Trust Certificates should
consult their own tax advisors in this regard.
ADMINISTRATIVE MATTERS. The Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes, and the fiscal year of the Trust will be
the calendar year. Each year, the Trustee will report or cause to be reported
each registered owner's allocable share of items of Trust income and expense to
registered owner's and the IRS. The Trust will provide or cause to be provided
this information to nominees, and such nominees will be required to forward such
information to the Owners of the Trust Certificates. Generally, the Owners must
file tax returns that are consistent with the information return filed by the
Trust or be subject to penalties unless the Owner notifies the IRS of all such
inconsistencies.
Bayerische Landesbank Girozentrale, acting through whichever branch thereof
is acting as the Owner of the Class B Trust Certificates, will be designated as
the tax matters partner in the Trust Agreement and, as such, will be responsible
for representing the Owners of the Trust Certificates in any dispute with the
IRS. The Code provides for administrative examination of a partnership as if the
partnership were a separate and distinct taxpayer. Generally, the statute of
limitations for partnership items does not expire before three years after the
date on which the partnership information return is filed. Any adverse
determination following an audit of the return of the Trust by the appropriate
taxing authorities could result in an adjustment of the returns of the Owners
and, under certain circumstances, an Owner may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of an Owner's returns and adjustments of items not
related to the income and losses of the Trust.
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BACKUP WITHHOLDING. Distributions made on the Trust Certificates and
proceeds from the sale of the Trust Certificates will be subject to a "backup"
withholding tax of 31% if, in general, the Owner fails to comply with certain
identification procedures, unless the Owner is an exempt recipient under
applicable provisions of the Code. On October 6, 1997, the Treasury Department
issued new regulations (the "New Regulations") which make certain modifications
to these backup withholding and information reporting rules. The New Regulations
attempt to unify certification requirements and modify reliance standards. The
New Regulations will generally be effective for payments made after December 31,
1998, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
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ERISA
The issuer of the Funding Agreement and certain of its affiliates, the
Trustee, the Bank, the Dealer and the Remarketing Agent are each in the business
of providing services to benefit plans and others and thus such organizations
may be, or may become, a party in interest as to many employee benefit plans
subject to ERISA. In addition, the plans purchasing Class A Trust Certificates
may be deemed to have entered into a lending or other transaction with
Bayerische Landesbank Girozentrale, as the Class B Owner. Therefore, fiduciaries
considering the purchase of Trust Certificates on behalf of a benefit plan
should determine if the acquisition and holding of Trust Certificates is in
compliance with ERISA and related provisions of the Code. The U.S. Department of
Labor (the "DOL") has issued several class exemptions that may afford exemptive
relief for otherwise prohibited transactions arising from the purchase or
holding of the Trust Certificates. Included among these exemptions are:
Prohibited Class Transaction Exemptions 84-14 (Class Exemption for Plan Asset
Transactions Determined by Independent Qualified Professional Asset Managers),
95-60 (Class Exemption for Certain Transactions Involving Insurance Company
General Accounts), 91-38 (Class Exemption for Certain Transactions Involving
Bank Collective Investment Funds), 90-1 (Class Exemption for Certain
Transactions Involving Insurance Company Pooled Separate Accounts), and 96-23
(Class Exemption for Plan Asset Transactions Determined by In-House Investment
Managers).
Additionally, each ERISA benefit plan acquiring an interest in Trust
Certificates must make its own determination that the acquisition of the Trust
Certificates or an interest in a financial instrument similar to the Funding
Agreement is permitted under such plan's constituent documents and related
policies.
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FURTHER INFORMATION
Further information concerning the Trust Certificates, the Trust Agreement,
the Purchase Agreement, the Remarketing Agreement, the Liquidity Agreement, the
Custody Agreement and the Trust Assets is available from the Dealer upon
request. Inquiries concerning such additional information should be directed to
Lehman Brothers Inc., 3 World Financial Center, 12th Floor, New York, New York
10285, Attention: Michele Mahoney, Senior Vice President, telephone (212)
526-6092, facsimile: (212) 528-6925.
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